0000070858us-gaap:ResidentialPortfolioSegmentMemberbac:ChapterSevenBankruptcyMember2018-01-012018-12-310000070858bac:OtherTaxableSecuritiesMember2018-12-31 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
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| EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES [Ÿ]
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
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or
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[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:
1-6523
Exact name of registrant as specified in its charter:
Bank of America Corporation
State or other jurisdiction of incorporation or organization:
Delaware
IRS Employer Identification No.:
56-0906609
Address of principal executive offices:
Bank of America Corporate Center
100 N. Tryon Street
Charlotte, North Carolina 28255
Registrant’s telephone number, including area code:
(704) 386-5681
Securities registered pursuant to section 12(b) of the Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |
| Common Stock, par value $0.01 per share | BAC | New York Stock Exchange | |
| Warrants to purchase Common Stock (expiring October 28, 2018) | | New York Stock Exchange | |
| Warrants to purchase Common Stock (expiring January 16, 2019) | | New York Stock Exchange | |
| Depositary Shares, each representing a 1/1,000th interest in a share of 6.204% Non-Cumulative Preferred Stock, Series D
| BAC PrE | New York Stock Exchange | |
| of Floating Rate Non-Cumulative Preferred Stock, Series E |
Depositary Shares, each representing a 1/1,000th interest in a share of Floating Rate Non-Cumulative Preferred Stock, Series E
| BAC PrA | New York Stock Exchange | |
| of 6.000% Non-Cumulative Preferred Stock, Series EE |
Depositary Shares, each representing a 1/1,000th interest in a share of 6.625% Non-Cumulative Preferred Stock, Series I
| BAC PrB | New York Stock Exchange | |
| of 6.000% Non-Cumulative Preferred Stock, Series GG |
Depositary Shares, each representing a 1/1,000th interest in a share of 6.625% Non-Cumulative Preferred Stock, Series W
| BAC PrK | New York Stock Exchange | |
| of 5.875% Non-Cumulative Preferred Stock, Series HH |
| 7.25% Non-Cumulative Perpetual Convertible Preferred Stock, Series L | BAC PrL | New York Stock Exchange |
| Depositary Shares, each representing a 1/1,200th interest in a share | BML PrG | New York Stock Exchange |
| of Bank of America Corporation Floating Rate |
| Non-Cumulative Preferred Stock, Series 1 |
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Depositary Shares, each representing a 1/1,200th interest in a share | BML PrH | New York Stock Exchange |
| of Bank of America Corporation Floating Rate |
| Non-Cumulative Preferred Stock, Series 2 |
| Depositary Shares, each representing a 1/1,200th interest in a share | BML PrJ | New York Stock Exchange |
| of Bank of America Corporation Floating Rate |
| Non-Cumulative Preferred Stock, Series 4 |
| Depositary Shares, each representing a 1/1,200th interest in a share | BML PrL | New York Stock Exchange |
| of Bank of America Corporation Floating Rate |
| Non-Cumulative Preferred Stock, Series 5 |
| Floating Rate Preferred Hybrid Income Term Securities of BAC Capital | BAC/PF | New York Stock Exchange |
| Trust XIII (and the guarantee related thereto) |
| 5.63% Fixed to Floating Rate Preferred Hybrid Income Term Securities | BAC/PG | New York Stock Exchange |
| of BAC Capital Trust XIV (and the guarantee related thereto) |
| Income Capital Obligation Notes initially due December 15, 2066 of | MER PrK | New York Stock Exchange |
| Bank of America Corporation |
| Senior Medium-Term Notes, Series A, Step Up Callable Notes, due | BAC/31B | New York Stock Exchange |
| November 28, 2031 of BofA Finance LLC (and the guarantee |
| of the Registrant with respect thereto) |
Depositary Shares, each representing a 1/1,000th interest in a share of 6.500% Non-CumulativePreferred Stock, Series Y
| BAC PrM | New York Stock Exchange | |
| of 5.375% Non-Cumulative Preferred Stock, Series KK |
Depositary Shares, each representing a 1/1,000th interest in a share of 6.200% Non-Cumulative Preferred Stock, Series CC
| BAC PrN | New York Stock Exchange | |
| of 5.000% Non-Cumulative Preferred Stock, Series LL |
| Depositary Shares, each representing a 1/1,000th interest in a share | BAC PrO | New York Stock Exchange |
of 6.000%4.375% Non-Cumulative Preferred Stock, Series EE | | New York Stock Exchange | |
| NN |
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| Title of each class | | Name of each exchange on which registered | |
| 7.25% Non-Cumulative Perpetual Convertible Preferred Stock, Series L | | New York Stock Exchange | |
| Depositary Shares, each representing a 1/1,200th1,000th interest in a share | BAC PrP | New York Stock Exchange |
of Bank of America Corporation Floating Rate4.125% Non-Cumulative Preferred Stock, Series 1 | | New York Stock Exchange | |
| Depositary Shares, each representing a 1/1,200th interest in a share of Bank of America Corporation Floating Rate Non-Cumulative Preferred Stock, Series 2 | | New York Stock Exchange | |
| Depositary Shares, each representing a 1/1,200th interest in a share of Bank of America Corporation 6.375% Non-Cumulative Preferred Stock, Series 3 | | New York Stock Exchange | |
| Depositary Shares, each representing a 1/1,200th interest in a share of Bank of America Corporation Floating Rate Non-Cumulative Preferred Stock, Series 4 | | New York Stock Exchange | |
| Depositary Shares, each representing a 1/1,200th interest in a share of Bank of America Corporation Floating Rate Non-Cumulative Preferred Stock, Series 5 | | New York Stock Exchange | |
| 7.00% Capital Securities of Countrywide Capital V (and the guarantees related thereto) | | New York Stock Exchange | |
| Floating Rate Preferred Hybrid Income Term Securities of BAC Capital Trust XIII (and the guarantee related thereto) | | New York Stock Exchange | |
| 5.63% Fixed to Floating Rate Preferred Hybrid Income Term Securities of BAC Capital Trust XIV (and the guarantee related thereto) | | New York Stock Exchange | |
| MBNA Capital B Floating Rate Capital Securities, Series B (and the guarantee related thereto) | | New York Stock Exchange | |
| Trust Preferred Securities of Merrill Lynch Capital Trust I (and the guarantee of the Registrant with respect thereto) | | New York Stock Exchange | |
| Trust Preferred Securities of Merrill Lynch Capital Trust III (and the guarantee of the Registrant with respect thereto) | | New York Stock Exchange | |
| Senior Medium-Term Notes, Series A, Step Up Callable Notes, due November 28, 2031 of BofA Finance LLC (and the guarantee of the Registrant with respect thereto) | | New York Stock Exchange | PP |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o☐ No☑
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer☑ | ☑ | | Accelerated filero | ☐ | | Non-accelerated filero | ☐ | | Smaller reporting companyo |
| | | | | | Emerging growth company o
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| | | | (do not check if a smaller reporting company) | | ☐ |
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o☐ No ☑
TheAs of June 30, 2020, the aggregate market value of the registrant’s common stock (“Common Stock”) held on June 30, 2017 by non-affiliates was approximately $239,643,149,085 (based on the June 30, 2017 closing price of Common Stock of $24.26 per share as reported on the New York Stock Exchange).$205,771,938,594. At February 21, 2018,23, 2021, there were 10,243,688,8968,633,185,862 shares of Common Stock outstanding.
Documents incorporated by reference: Portions of the definitive proxy statement relating to the registrant’s 2021 annual meeting of stockholders scheduled to be held on April 25, 2018 are incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III.
Table of Contents
Bank of America Corporation and Subsidiaries
Part I
Bank of America Corporation and Subsidiaries
Item 1. Business
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”Corporation,” “we,” “us” and “our” 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, including environmental, social and governance (ESG) information, regarding usthe Corporation on our website. Accordingly, investorsInvestors should monitor the Investor Relations portion of our website, in addition to following our press releases, SECU.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
Financial Information SEC Filings as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the U.S. SecuritiesSEC and Exchange Commission (SEC).at the SEC’s website, www.sec.gov. Notwithstanding the foregoing, the information contained on our website as referenced in this paragraph is not incorporated by reference into this Annual Report on Form 10-K. Also, we make available on the Investor Relations portion of our website under the heading Corporate Governance:website: (i) our Code of Conduct (including our insider trading policy);Conduct; (ii) our Corporate Governance Guidelines (accessible by clicking on the Governance Highlights link);Guidelines; and (iii) the charter of each active committee of our Board of Directors (the Board) (accessible by clicking on the committee names under the Committee Composition link). We also intend to disclose any amendments to our Code of Conduct orand waivers of our Code of Conduct on behalfrequired to be disclosed by the rules of our Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer,the SEC and the New York Stock Exchange on the Investor Relations portion of our website. All of these corporate governance materials are also available free of charge in print to shareholders who request them in writing to: Bank of America Corporation, Attention: Office of the Corporate Secretary, Hearst Tower, 214Bank of America Corporate Center, 100 North Tryon Street, NC1-027-18-05,NC1-007-56-06, Charlotte, North Carolina 28255.
Coronavirus Disease
The Corporation has been, and continues to be, impacted by the Coronavirus Disease 2019 (COVID-19) pandemic (the pandemic). In an attempt to contain the spread and impact of the pandemic, travel bans and restrictions, quarantines, shelter-in-place orders and other limitations on business activity have
been implemented. Additionally, there has been a decline in global economic activity, reduced U.S. and global economic output and a deterioration in macroeconomic conditions in the U.S. and globally. This has resulted in, among other things, higher rates of unemployment and underemployment and caused volatility and disruptions in the global financial markets during 2020, including the energy and commodity markets.
In response to the pandemic, the Corporation has been taking a proactive role in addressing the impact of the pandemic on its employees, its operations, its clients and the community, including the implementation of protocols and processes to execute its business continuity plans and help protect its employees and support its clients. The Corporation is managing its response to the pandemic according to its Enterprise Response Framework, which invokes centralized management of the crisis event and the integration of the Corporation’s enterprise-wide response.
Although some restrictive measures have been eased in certain areas, many restrictive measures remain in place or have been reinstated, and in some cases additional restrictive measures are being or may need to be implemented in light of the increase in COVID-19 cases in recent months in the U.S. and in many other regions of the world. Businesses, market participants, our counterparties and clients, and the U.S. and global economies have been negatively impacted and are likely to remain so for an extended period of time, as there remains significant uncertainty about the magnitude and duration of the pandemic and the timing and strength of an economic recovery. For more information regarding COVID-19, see Item 1A. Risk Factors – Coronavirus Disease on page 7 and Executive Summary – Recent Developments – COVID-19 Pandemic in the MD&A on page 25.
Segments
Through our bankingvarious bank and various nonbank subsidiaries throughout the U.S. and in international markets, we provide a diversified range of banking and nonbank financial services and products through four business segments: Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking and Global Markets, with the remaining operations recorded in All Other. Additional information related to our business segments and the products and services they provide is included in the information set forth on pages 3036 through 3946 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and Note 23 – Business Segment Informationto the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data (Consolidated Financial Statements).Statements.
Competition
We operate in a highly competitive environment. Our competitors include banks, thrifts, credit unions, investment banking firms, investment advisory firms, brokerage firms, investment companies, insurance companies, mortgage banking companies, credit card issuers, mutual fund companies, hedge funds, private equity firms, and e-commerce and other internet-based companies. We compete with some of these competitors globally and with others on a regional or product specific basis.
Competition is based on a number of factors including, among others, customer service, quality and range of products and services offered, price, reputation, interest rates on loans and deposits, lending limits and customer convenience. Our ability to continue to compete effectively also depends in large part on our ability to attract new employees and retain and
motivate our existing employees, while managing compensation and other costs.
EmployeesHuman Capital Resources
We strive to make Bank of America a great place to work for our employees. We value our employees and seek to establish and maintain human resource policies that are consistent with our core values and that help realize the power of our people. Our Board and its committees, including the Compensation and Human Capital, Audit, Enterprise Risk, and Corporate Governance, ESG and Sustainability Committees, provide oversight of our human capital management strategies, programs and practices. The Corporation’s senior management provides regular briefings on human capital matters to the Board and its Committees to facilitate the Board’s oversight.
At December 31, 2017, we had2020 and 2019, the Corporation employed approximately 209,000 employees.213,000 and 208,000 employees, of which 82 percent were located in the U.S. at both dates. None of our domesticU.S. employees are subject to a collective bargaining agreement. Management considersAdditionally, in 2020 and 2019, the Corporation’s compensation and benefits expense was $32.7 billion and $32.0 billion, or 59 percent and 58 percent, of total noninterest expense.
Diversity and Inclusion
The Corporation’s commitment to diversity and inclusion starts at the top of the Corporation with oversight from our Board and CEO. The Corporation’s senior management sets the diversity and inclusion goals of the Corporation, and the Chief Human Resources Officer and Chief Diversity & Inclusion Officer partner with our CEO and senior management to drive our diversity and inclusion strategy, programs, initiatives and policies. The Global Diversity and Inclusion Council, which consists of senior executives from every line of business and is chaired by our CEO, has been in place for over 20 years. The Council sponsors and supports business, operating unit and regional diversity and inclusion councils to ensure alignment to enterprise diversity strategies and goals.
Our practices and policies have resulted in strong representation across the Corporation where our broad employee population mirrors the clients and communities we serve. We have a Board and senior management team that are 47 percent and 50 percent racially, ethnically and gender diverse. As of December 31, 2020, over 50 percent of employees were women, and, among U.S.-based employees, nearly 48 percent were people of color, 14 percent were Black/African American and 19 percent were Hispanic/Latino. As of December 31, 2020, the Corporation’s top three management levels in relation to the CEO were composed of more than 42 percent women and nearly 20 percent people of color. These workforce diversity metrics are reported regularly to the senior management team and to the Board and are publicly disclosed on our website.
We invest in our leadership by offering a range of development programs and resources that allow employees to develop and progress in their careers. We reinforce our commitment to diversity and inclusion by investing internally in our employee relationsnetworks and by facilitating conversations with employees about racial, social and economic issues. Further, we partner with various external organizations, which focus on advancing diverse talent. We also have practices in place for attracting and retaining diverse talent, including campus recruitment. For example, in 2020, approximately 45 percent of our campus hires were women, and, in the U.S., approximately 54 percent were people of color.
Employee Engagement and Talent Retention
As part of our ongoing efforts to be good.
make the Corporation a great place to work, we have conducted a confidential annual Employee Engagement Survey (Survey) for nearly two decades. The Survey results are reviewed by the Board and senior management and used to assist in reviewing the Corporation’s human capital strategies, programs and practices. In 2020, more than 90 percent of the Corporation’s employees participated in the Survey, and our Employee Engagement Index, an overall measure of employee satisfaction with the Corporation, was 91 percent. In 2020, we also had historically low turnover among our employees of seven percent.Fair and Equitable Compensation
The Corporation is committed to racial and gender pay equity by striving to fairly and equitably compensate all of our employees. We maintain robust policies and practices that reinforce our commitment, including reviews with oversight from our Board and senior management. In 2020, our review covered our regional hubs (U.S., U.K., France, Ireland, Hong Kong, and Singapore) and India and showed that compensation received by women, on average, was greater than 99 percent of that received by men in comparable positions and, in the U.S., compensation received by people of color was, on average, greater than 99 percent of that received by teammates who are not people of color in comparable positions.
We also strive to pay our employees fairly based on market rates for their roles, experience and how they perform, and we regularly benchmark against other companies both within and outside our industry to help ensure our pay is competitive. In the first quarter of 2020, we raised our minimum hourly wage for U.S. employees to $20 per hour, which is above all governmental minimum wage levels in all jurisdictions in which we operate in the U.S.
Health and Wellness – 2020 Focus
The Corporation also is committed to supporting employees’ physical, emotional and financial wellness by offering flexible and competitive benefits, including comprehensive health and insurance benefits and wellness resources. In 2020, we took steps to support our employees during the ongoing health crisis resulting from the pandemic, including monitoring guidance from the U.S. Centers for Disease Control and Prevention, medical boards and health authorities and sharing such guidance with our employees. In addition, as a result of the pandemic we transitioned to a work-from-home posture for the substantial majority of our employees and provided various benefits and resources related to the pandemic, including the implementation of child and adult care solutions, offering no-cost COVID-19 testing and mental health resources and additional support for teammates who work in the office, such as transportation and meal subsidies. We continue to engage with state and national governments to understand their vaccination plans for essential workers, including the extent to which that may include some of our employees, and with our employees to educate them about vaccines and the importance of being vaccinated. For more information on our response to the pandemic, including with respect to human capital measures, see Executive Summary – Recent Developments – COVID-19 Pandemic on page 25.
Government Supervision and Regulation
The following discussion describes, among other things, elements of an extensive regulatory framework applicable to BHCs, financial holding companies, banks and broker-dealers, including specific information about Bank of America.
We are subject to an extensive regulatory framework applicable to BHCs, financial holding companies and banks and other financial services entities. U.S. federal regulation of banks, BHCs and financial holding companies is intended primarily for the protection of depositors and the Deposit Insurance Fund (DIF) rather than for the protection of shareholders and creditors.
As a registered financial holding company and BHC, the Corporation is subject to the supervision of, and regular inspection by, the Board of Governors of the Federal Reserve System (Federal Reserve). Our U.S. bank subsidiaries (the Banks), organized as national banking associations, are subject to regulation, supervision and examination by the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve. 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 banks’ risk governance frameworks. U.S. financial holding companies, and the companies under their control, are permitted to engage in activities considered “financial in nature” as defined by the Gramm-Leach-Bliley Act and related Federal Reserve interpretations. Unless otherwise limited by the Federal Reserve,The Corporation's status as a financial holding company may engage directly or indirectlyis conditioned upon maintaining certain eligibility requirements for both the Corporation and its U.S. depository institution subsidiaries, including minimum capital ratios, supervisory ratings and, in activities considered financial in nature provided the case of the depository institutions, at least satisfactory Community Reinvestment Act ratings. Failure to be an eligible financial holding company givescould result in the Federal Reserve after-the-fact noticelimiting Bank of the new activities. The Gramm-Leach-Bliley Act also permits national banks to engage inAmerica's activities, considered financial in nature through a financial subsidiary, subject to certain conditions and limitations and with the approval of the OCC.including potential acquisitions.
The scope of the laws and regulations and the intensity of the supervision to which we are subject have increased in recentover the past several years, inbeginning with the response to the financial crisis, as well as other factors such as technological and market changes. In addition, the banking and financial services sector is subject to substantial regulatory enforcement and fines. Many of these changes have occurred as a result of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the Financial Reform Act). We cannot assess whether there will be any additional major changes in the regulatory environment and expect that our business will remain subject to continuing and extensive regulation and supervision.
We are also subject to various other laws and regulations, as well as supervision and examination by other regulatory agencies, all of which directly or indirectly affect our operationsentities and management and our ability to make distributions to shareholders. For instance, our broker-dealer subsidiaries are subject to both U.S. and international regulation, including supervision by the SEC, theFinancial Industry Regulatory Authority and New York Stock Exchange, and the Financial Industry Regulatory Authority, among others; our futures commission merchant subsidiaries supporting commodities and derivatives businesses in the U.S. are subject to regulation by and supervision of the U.S. Commodity Futures Trading Commission (CFTC); our U.S. derivatives activity is subject to regulation and supervision of the CFTC and, National Futures Association, or the SEC,Chicago Mercantile Exchange and in the case of the Banks, certain banking regulators; our insurance activities are subject to licensing and regulation by state insurance regulatory agencies; and our consumer financial products and services are regulated by the Consumer Financial Protection Bureau (CFPB).
Our non-U.S. businesses are also subject to extensive regulation by various non-U.S. regulators, including governments, securities exchanges, prudential regulators, central banks and other regulatory bodies, in the jurisdictions in which those businesses operate. For example, our financial
services operationsentities in the United Kingdom (U.K.), Ireland and France are subject to regulation
by and supervision of the Prudential Regulatory Authority for prudential matters, and the Financial Conduct Authority, (FCA) for the conductEuropean Central Bank and Central Bank of business matters.Ireland, and the Autorité de Contrôle Prudentiel et de Résolution and Autorité des Marchés Financiers, respectively.
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 itstheir 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 FDIC has adopted regulations that establish a long-term target DIF ratio of greater than two percent. TheAs of the date of this report, the DIF ratio is currently below thethis required targetstarget, 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 12.16.
Capital, Liquidity and Operational Requirements
As a financial holding company, we and our bank subsidiaries are subject to the regulatory capital and liquidity guidelinesrules issued by the Federal Reserve and other U.S. banking regulators, including the FDICOCC and the OCC.FDIC. These rules are complex and are evolving as U.S. and international regulatory authorities propose and enact enhanced capital and liquidityamendments to these rules. The Corporation seeks to manage its capital position to maintain sufficient capital to meetsatisfy these regulatory guidelinesrules and to support our business activities. These continually 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 banks’ risk governance frameworks. The Federal Reserve has also issued a final rule requiring us to maintain minimum amounts of 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 45,50, 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 variousand make common stock repurchases depends in part on our ability to maintain regulatory capital levels above minimum capital requirements and the capitalplus buffers and non-capital standards established under the FDICIA. The rightTo the extent that the Federal Reserve increases our stress capital buffer (SCB), global systemically important bank (G-SIB) surcharge or countercyclical capital buffer, our returns of capital to shareholders could decrease. As part of its CCAR, 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 impact the level of our SCB. Additionally, the Federal Reserve may impose limitations or prohibitions on taking capital actions such as paying or increasing common stock dividends or repurchasing common stock. For example, as a result of the economic uncertainty resulting from the pandemic, the Federal Reserve required that during the second half of 2020, all large banks, including the Corporation, our shareholderssuspend share repurchase programs, except for repurchases to offset shares awarded under equity-based compensation plans, and our creditorslimit common stock dividends to participate in any distributionexisting rates that did not exceed the average of the assets or earningslast four quarters' net income. In the first quarter of our subsidiaries is further subject2021, the Federal Reserve lifted the suspension of share repurchase programs and permitted large banks to pay common stock dividends and to repurchase shares in an amount that, when combined with dividends paid, does not exceed the prior claimsaverage of creditors ofnet income over the respective subsidiaries.last four quarters.
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.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. The rights 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.
Resolution Planning
As a BHC with greater than $50$250 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, andincluding the continued operations or solvent wind down of 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 descriptionsummary 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.National Association (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). Among those, the jurisdictions 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.-incorporatedlocally-incorporated subsidiaries and other financial institutions, as well as branches of non-U.K. banks located in the U.K. (including information on intra-group dependencies, legal entity separation and barriers to resolution) as well as the Corporation’s banking branches located in those jurisdictions that are deemed to allow the Bank of England to developbe material for resolution plans.planning purposes. As a result of the Bank of England’sRA's review of the submitted information, we could be required to take certain actions over the next several years whichthat 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 6.9.
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 therequires 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 6.9.
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, 2017,2020, 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, 2017,2020, 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,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 Regulation, analogous U.K. regulatory regimesand 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 regulationsrequirements. 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),G-SIBs, and additional jurisdictions are expected to follow suit. We and 24 other G-SIBs have adhered to a protocol amendingGenerally, these resolution stay regulations require amendment of 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. bankruptcyinsolvency proceedings. As resolution stay regulations of a particular jurisdiction applicable to us go into effect, we amend impacted financial contracts in compliance with such regulations.regulations either as a regulated entity or as a counterparty facing a regulated entity in such jurisdiction.
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, 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 protectregarding the disclosure, use and protection of 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. The Gramm-Leach-Bliley Act and other laws also require 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. Security and privacy policies and procedures for the protection of personal and confidential information are in effect across all businesses and geographic locations.
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. The Gramm-Leach-Blileyoffers and establish certain rights of consumers in connection with their personal information. For example, California’s Consumer Privacy Act also requires us(CCPA), which went into effect in January 2020, as modified by the California Privacy Rights Act (CPRA), provides consumers with the right to implement a comprehensive information security program that includes administrative, technicalknow what personal data is being collected, know whether their personal data is sold or disclosed and physical safeguards to providewhom and opt out of the security and confidentialitysale of customer records and information. These security and privacy policies and procedures fortheir personal data, among other rights. In addition, in the protection of personal and confidential information are in effect across all businesses and geographic locations. The European Union (EU) has adoptedEU, the General Data Protection Regulation (GDPR) which replacesreplaced the Data Protection Directive and related implementing national laws in its member states. The CCPA's, CPRA's and GDPR’s impact on the Member States. TheCorporation was assessed and addressed through comprehensive compliance date forimplementation programs. These existing and evolving legal requirements in the GDPR is May 25, 2018. It will have impacts across the enterpriseU.S. and impact assessments are underway. Meanwhile other legislation, regulatory activity (the proposed e-Privacy Regulation, elements of the Fourth Money Laundering Directive) andabroad,
as well as court proceedings and any impact of bilateral U.S. and EU political developments onchanging guidance from regulatory bodies with respect to 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 significantmaterial 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. However, other factors not discussed belowcurrently known to us or elsewhere in this Annual Report on Form 10-Kthat we currently deem immaterial could also adversely affect our businesses, results of operations and financial condition. Therefore, the risk factors below should not be considered a complete listall of the potential risks that we may face. For more information on how we manage risks, see Managing Risk in the MD&A on page 41.47. For more information about the risks contained in the Risk Factors section, see Item 1. Business on page 2, MD&A on page 24 and Notes to Consolidated Financial Statements on page 101.
Any risk factor described in this Annual Report on Form 10-K or in anyCoronavirus Disease
The effects of our other SEC filings could by itself, or together with other factors, materiallythe pandemic have adversely affected, and are expected to continue to adversely affect, our liquidity, competitive position, business, reputation,businesses and results of operations, capital position orand its duration and future impacts on the economy and our businesses, results of operations and financial condition remain uncertain.
The negative economic conditions arising from the pandemic negatively impacted our financial results during 2020 in various respects, including contributing to increases in our allowance and provision for credit losses and noninterest expense. These negative economic conditions may have a continued adverse effect on our businesses and results of operations, which could include: decreased demand for and use of our products and services; protracted periods of historically low interest rates; lower fees, including asset management fees; lower sales and trading revenue due to decreased market liquidity resulting from heightened volatility; higher levels of uncollectible reversed charges in our merchant services business; increased noninterest expense, including operational losses; and increased credit losses due to our customers' and clients' inability to fulfill contractual obligations and deterioration in the financial condition of our consumer and commercial borrowers, which may vary by materially increasingregion, sector or industry, that may increase our expenses provision for credit losses and net charge-offs. Our provision for credit losses and net charge-offs may also continue to be impacted by volatility in the energy and commodity markets. Additionally, our liquidity and/or decreasingregulatory capital could be adversely impacted by customers’ withdrawal of deposits, volatility and disruptions in the capital and credit markets, volatility in foreign exchange rates and customer draws on lines of credit. Continued adverse macroeconomic conditions could also result in potential downgrades to our revenues,credit ratings, negative impacts to regulatory capital and liquidity and further restrictions on dividends and/or common stock repurchases.
If we become unable to operate our businesses from remote locations including, for example, because of an internal or external failure of our information technology infrastructure, we experience increased rates of employee illness or unavailability, or governmental restrictions are placed on our employees or operations, this could adversely affect our business continuity status and result in disruption to our businesses. Additionally, we rely on third parties who could experience adverse effects on their business continuity and business interruptions, which could increase our risks and adversely impact our businesses.
There can be no assurance that current or future governmental fiscal and monetary relief programs will stimulate
the global economy or avert negative economic or market conditions. Our participation in such programs could result in reputational harm and government actions and proceedings, and has resulted in, and may continue to result in, litigation, including class actions. Such actions may result in judgments, settlements, penalties, and fines. Our participation in such programs has also resulted and may continue to result in operational losses, including from the Paycheck Protection Program (PPP) and processing unemployment insurance.
We continue to closely monitor the pandemic and related risks as they evolve globally and in the U.S. The magnitude and duration of the pandemic and its future direct and indirect effects on the global economy and our businesses, results of operations and financial condition are highly uncertain and depend on future developments that cannot be predicted, including the likelihood of further surges of COVID-19 cases and the spread of more easily communicable variants of COVID-19, the timing and availability of effective medical treatments and vaccines, future actions taken by governmental authorities, including additional stimulus legislation, and/or other third parties in response to the pandemic. The pandemic may cause prolonged global or national negative economic conditions or longer lasting effects on economic conditions than currently exist, which could have a material losses.
adverse effect on our businesses, results of operations and financial condition.Market
Our business and results of operations may be adversely affected by the U.S. and international financial markets, U.S.fiscal, monetary, and non-U.S. fiscal and monetaryregulatory policies, and economic conditions generally.
Financial markets and generalGeneral economic, political, social and socialhealth conditions in the U.S. and in one or more countries abroad includingaffect markets in the U.S. and abroad and our business. In particular, markets in the U.S. or abroad may be affected by the level and volatility of interest rates, availability and market conditions of financing, unexpected changes in market financing conditions, gross domestic product (GDP), economic growth or its sustainability, inflation, consumer spending, employment levels, wage stagnation, federal government shutdowns, developments related to the federal debt ceiling, energy prices, home prices, bankruptcies, a default by a significant market participant, 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, disruption of communication, transportation or energy infrastructure and investor sentiment and confidence,confidence. Additionally, global markets, including energy and commodity markets, may be adversely affected by the sustainabilitycurrent or anticipated impact of economic growth allclimate change, extreme weather events or natural disasters, the emergence of widespread health emergencies or pandemics, cyber attacks or campaigns, military conflict, terrorism or other geopolitical events. Market fluctuations may impact our margin requirements and affect our business.
Inbusiness liquidity. Also, any sudden or prolonged market downturn in the U.S. or abroad, as a result of the above factors or otherwise, could result in a decline in net interest income and abroad, uncertainties surrounding fiscalnoninterest income and monetary policies presentadversely affect our results of operations and financial condition, including capital and liquidity levels. For example, the global markets, including the energy and commodity markets, experienced significant volatility and disruption as a result of the uncertainty and economic challenges. impact of the pandemic. Further uncertainty and ongoing developments in connection with the pandemic, including its further spread, changing consumer and business behaviors, government restrictions in an effort to control the virus and timing and availability of effective medical treatments and vaccines, could
result in further market volatility and disruptions globally and continue to adversely impact macroeconomic conditions.
Actions taken by the Federal Reserve, including the planned reductionchanges in its target funds rate, balance sheet management, and lending facilities, and other central banks are beyond our control and difficult to predict andpredict. These actions can affect interest rates and the value of financial instruments and other assets such as debt securities and mortgage servicing rights (MSRs),liabilities, and impact our borrowers, potentially increasing delinquency rates.borrowers. The continued protracted period of lower interest rates has resulted in lower revenue through lower net interest income, which has adversely affected our results of operations. Additional periods of lower interest rates or a move to negative interest rates in the U.S., could have a further adverse impact on our net interest income and results of operations. Uncertainty or ongoing developments in connection with the U.K.’s exit from the EU, and the resulting impact on the financial markets and regulations in relevant jurisdictions, could negatively impact our revenues and ongoing operations in Europe and other jurisdictions.
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.U.S. or global economic activity and our customers', our counterparties' and our earnings and operations. For example, significantadditional fiscal stimulus and rising debt levels, in the U.S. and abroad, in response to the ongoing pandemic could affect macroeconomic conditions, market liquidity conditions, and interest rates. Significant fiscal policy changes and/or initiatives, including as a result of the change in the U.S. presidential administration and Congress, may also 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 and international investment policies, or measures could upsetparticularly with important trading partners (including China and the EU) have negatively impacted and may continue to negatively impact financial markets, and disrupt world trade and commerce.commerce and lead to trade retaliation, including through the use of tariffs, foreign exchange measures or the large-scale sale of U.S. Treasury Bonds. Further, the use of tariffs among countries not directly involving the U.S. could spread and could damage our customers directly and indirectly.
Any of these developments could adversely affect our consumer and commercial businesses, our customers, our securities and derivatives portfolios, including the risk of lower re-investment rates within those portfolios, our level of charge-offs and provision for credit losses, the carrying value of our deferred tax assets, our capital levels, andour liquidity and the costs of running our business, and our results of operations.
For more information about economic conditions Additionally, the uncertainty related to the transition from Interbank Offered Rates (IBORs) and challenges discussedother benchmark rates to alternative reference rates (ARRs) could negatively impact markets globally and our business, and/or magnify any negative impact of the above see Executive Summary – 2017 Economicreferenced factors on our business, customers 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 and 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
Reserve or a non-U.S. central bank changes or signals a change in monetary policy, market interest rates could be affected, which could adversely impact the value of such assets. Changes to fiscal policy, including rapid expansion of U.S. federal deficit spending and resultant debt issuance, could also affect market interest rates. In addition, the ongoing low interest rate environment and recent flattening of thea flat or inverted yield curve has had and could negativelycontinue to have a negative impact on our liquidity, financial condition or results of operations, including on future revenue and earnings growth.
We use various models and strategies to assess and control our market risk exposures, but those are subject to inherent limitations. For more information regarding models and strategies, see Item 1A. Risk Factors – Other on page 15. In times of market stress or other unforeseen circumstances, previously uncorrelated indicators may become correlated and vice versa. These types of market movements may limit the effectiveness of our hedging strategies and cause us to incur significant losses. These changes in correlation can be exacerbated where other market participants are using risk or trading models with assumptionassumptions or algorithms that are similar to ours. In these and other cases, it may be difficult to reduce our risk positions due to activity of other market participants or widespread market dislocations, including circumstances where asset values are declining significantly or no market exists for certain assets. To the extent that we own securities that do not have an established liquid trading market or are otherwise subject to restrictions on sale or hedging, we may not be able to reduce our positions and therefore reduce our risk associated with such positions. In addition, challenging market conditions may also adversely affect our investment banking fees.
For more information about market risk and our market risk management policies and procedures, see Market Risk Management in the MD&A on page 76.
We may incur losses if the value of certain assets declines,decline, including due to changes in interest rates and prepayment speeds.
We have a large portfolio of financial instruments, including among others, certain loans and loan commitments, loans held-for-sale, securities financing agreements, asset-backed secured financings, long-term deposits, long-term debt, trading account assets and liabilities, derivative assets and liabilities, available-for-sale (AFS) debt andsecurities, marketable equity securities other debt securities, certain MSRs and certain other assets and liabilities that we measure at fair value.value that are subject to valuation and impairment assessments. We determine the fairthese values of these instruments based on applicable accounting guidance, which for financial instruments measured at fair value, requires an entity to base fair value on exit price and to maximize the use of observable inputs and minimize the use of unobservable inputs in fair value measurements. The fair values of these financial instruments include adjustments for market liquidity, credit quality, funding impact on certain derivatives and other transaction-specific factors, where appropriate.
Gains or losses on these instruments can have a direct impact on our results of operations, including higher or lower mortgage banking income and earnings, unless we have effectively hedged our exposures. For example, decreases in interest rates and increases in mortgage prepayment speeds, which are influenced by interest rates and other factors such as reductions in mortgage insurance premiums and origination costs, could adversely impact the value of our MSR asset, causing a significant acceleration of purchase premium amortization on our mortgage portfolio, because a decline in long-term interest rates shortens the expected lives of the securities, and adversely affects our net interest margin. Conversely, increasesIncreases in interest rates may result in a decrease in residential mortgage loan originations. In addition, increases in interest rates may adversely impact the fair value of debt securities and, accordingly, for debt securities classified as AFS,available for sale, may adversely affect accumulated other comprehensive income and, thus, capital levels. Decreases in interest rates may increase prepayment speeds of certain assets, and therefore may adversely affect net interest income.
Fair values may be impacted by declining values of the underlying assets or the prices at which observable market
transactions occur and the continued availability of these transactions.transactions or indices. The financial strength of counterparties, with whom we have economically hedged some of our exposure to these assets, also will affect the fair value of these assets. Sudden declines and volatility in the prices of assets may curtail or eliminate trading activities in these assets, which may make it difficult to sell, hedge or value these assets. The inability to sell or effectively hedge assets reduces our ability to limit losses in such positions and the difficulty in valuing assets may increase our risk-weighted assets (RWA), which requires us to maintain additional capital and increases our funding costs. Asset valuesValues of AUM also directly impact revenues in our wealth management and related advisory businesses. We receivebusinesses for asset-based management fees based on the value of our clients’ portfolios or investments in funds managed by us and in some cases, we also receive performance fees based on increases in the value of such investments.fees. Declines in asset values can reduce the value of our clients’ portfolios or fund assets, which in turnAUM can result in lower fees earned for managing such assets.
For more information on fair value measurements, see Note 20 – Fair Value Measurements to the Consolidated Financial Statements. For more information on our asset management businesses, see GWIM in the MD&A on page 33. For more information on interest rate risk management, see Interest Rate Risk Management for the Banking Book in the MD&A on page 81.
Liquidity
If we are unable to access the capital markets or continue to maintain deposits, or our borrowing costs increase, our liquidity and competitive position will be negatively affected.
Liquidity is essential to our businesses. We fund our assets primarily with globally sourced deposits in our bank entities, as well as secured and unsecured liabilities transacted in the capital markets. We rely on certain secured funding sources, such as repo markets, which are typically short-term and credit-sensitive in nature. We also engage in asset securitization transactions, including with the government-sponsored enterprises (GSEs), to fund consumer lending activities. Our liquidity could be adversely affected by any inability to access the capital markets;markets, illiquidity or volatility in the capital markets;markets, the decrease in value of eligible collateral or increased collateral requirements (including as a result of credit concerns for short-term borrowing), changes to our relationships with our funding providers based on real or perceived changes in our risk profile;profile, prolonged federal government shutdowns, or changes in regulations, guidance or guidanceGSE status that impact our funding avenues or ability to access certain funding sources;sources. Additionally, our liquidity may be negatively impacted by the refusalunwillingness or inability of the Federal Reserve to act as lender of last resort;resort, unexpected simultaneous draws on lines of credit, slower customer payment rates, restricted access to the assets of prime brokerage clients, the withdrawal of or failure to attract customer deposits or invested funds (which could result from customer attrition for higher yields, the desire for more conservative alternatives or our customers’ increased need for cash), increased regulatory liquidity, capital and margin requirements for our U.S. or international banks and their nonbank subsidiaries; significantsubsidiaries, changes in patterns of intraday liquidity usage resulting from a counterparty or technology failure or other idiosyncratic event or failure or default by a significant market participant or third party such as a(including clearing agentagents, custodians or custodian; reputational issues; or negative perceptions aboutcentral counterparties (CCPs)). These factors also have the potential to increase our short- or long-term business prospects, including downgrades of our credit ratings. borrowing costs.
Several of these factors may arise due to circumstances beyond our control, such as a general market volatility, disruption, shock or shock,stress, the emergence of widespread health emergencies or pandemics, Federal Reserve policy decisions (including fluctuations in interest rates or Federal Reserve balance sheet composition), negative views about the Corporation (including short- and long-term business prospects) or the financial services industry generally or due to a specific news event, changes in the regulatory environment or governmental fiscal or monetary policies (including as a result of the change in the U.S. presidential administration and Congress), 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, the reduction of financing balances and the loss of equity secured funding, debt repurchases to support the secondary market or meet client requests, the need for additional funding for commitments and contingencies as well asand unexpected collateral calls, among other things.
Our liquidity and cost of obtaining funding is directly related to prevailing market conditions, including changes in interest and currency exchange rates, fluctuations in equity and tofutures prices, lower trading volumes and prices of securitized products and our credit spreads. Credit spreads are the amount in excess of the interest rate of U.S. Treasury securities, or other benchmark securities, of a similar maturity that we need to pay to our funding providers. Increases in interest rates and our credit spreads can increase the cost of our funding.funding and result in mark-to-market or credit valuation adjustment exposures. Changes in our credit spreads are market-driven and may be influenced by market perceptions of our creditworthiness. Changes to interest rates and our credit spreads occur continuously and may be unpredictable and highly volatile. We may also experience spread compression as a result of offering higher than expected deposit rates in order to attract and maintain deposits due to increased marketplace rate competition. Additionally, concentrations within our funding profile, such as maturities, currencies or counterparties, can reduce our funding efficiency.
For more information about our liquidity position and other liquidity matters, including credit ratings and outlooks and the policies and procedures we use to manage our liquidity risks, see Liquidity RiskReduction in the MD&A on page 49.
Adverse changes to our credit ratings from the major credit rating agencies could significantly limit our access to funding or the capital markets, increase our borrowing costs or trigger additional collateral or funding requirements.
Our borrowing costs and ability to raise funds are directly impacted by our credit ratings. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including OTC derivatives. 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 asset securitizations. Our credit ratings are subject to ongoing review by rating agencies, which consider a number of factors, including our own financial strength, performance, prospects and operations as well asand factors not under our control, such as the likelihood ofmacroeconomic and geopolitical environment, including the U.S. government providing meaningful support to us or our subsidiaries in a crisis.macroeconomic stress caused by the pandemic.
Rating agencies could make adjustments to our credit ratings at any time, and there can be no assurance thatas to when and whether downgrades will not occur.
A reduction in certain of our credit ratings could result in a wider credit spread and negatively affect our liquidity, access to credit markets, the related cost of funds, our businesses and certain trading revenues, particularly in those businesses where counterparty creditworthiness is critical. If the short-term credit ratings of our parent company, or bank or broker-dealer subsidiaries, were downgraded by one or more levels, we may suffer the potential loss of access to short-term funding sources such as repo financing, and/or incur increased cost of funds.funds and increased collateral requirements. Under the terms of certain OTC derivative contracts and other trading agreements, if our or our subsidiaries’ credit ratings are downgraded, the counterparties may require additional collateral or terminate these contracts or agreements.
While certain potential impacts are contractual and quantifiable, the full consequences of a credit rating downgrade to a financial institution are inherently uncertain, as they depend upon numerous dynamic, complex and inter-related factors and assumptions, including whether any downgrade of a firm’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 the amount of additional collateral required and derivative liabilities that would be subject to unilateral termination at December 31, 2017 if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by each of two incremental notches, see Credit-related Contingent Features and Collateral in Note 2 – Derivatives to the Consolidated Financial Statements.
For more information about our credit ratings and their potential effects to our liquidity, see Liquidity Risk – Credit Ratings in the MD&A on page 52 and Note 2 – Derivatives to the Consolidated Financial Statements.
Bank of America Corporation is a holding company, and we depend upon ouris dependent on its subsidiaries for liquidity including the ability to pay dividends to shareholders and to fund payments on other obligations. Applicable laws and regulations, including capital and liquidity requirements, and actions taken pursuant to our resolution plan could restrict our ability to transfermay be restricted from transferring funds from subsidiaries to Bank of America Corporation or other subsidiaries.
Bank of America Corporation, as the parent company, is a separate and distinct legal entity from our bankingbank and nonbank subsidiaries. We evaluate and manage liquidity on a legal entity basis. Legal entity liquidity is an important consideration as there are legal, regulatory, contractual and other limitations on our ability to utilize liquidity from one legal entity to satisfy the liquidity requirements of another, including the parent company.company, which could result in adverse liquidity events. The parent company depends on dividends, distributions, loans advances and other payments from our bankingbank and nonbank subsidiaries to fund dividend payments on our common stock and preferred stock and to fund all payments on our other obligations, including debt obligations. Any inability of our subsidiaries to pay dividends or make payments to us may adversely affect our cash flow and financial condition.
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. Our bank and broker-dealer subsidiaries are subject to restrictions on their ability to lend or transact with affiliates and to minimum regulatory capital and liquidity requirements, as well as restrictions on their ability to use funds deposited with them in bank or brokerage accounts to fund their businesses. Intercompany arrangements we entered into in connection with our resolution planning submissions could restrict the amount of funding available to the Corporationparent company from our subsidiaries under certain adverse conditions.
Additional restrictions on related party transactions, increased capital and liquidity requirements and additional limitations on the use of funds on deposit in bank or brokerage accounts, as well as lower earnings, can reduce the amount of funds available to meet the obligations of the parent company and even require the parent company to provide additional funding to such subsidiaries. Also, regulatory action that requires additional liquidity at each of our subsidiaries could impede access to funds we need to pay our obligations or pay dividends. In addition, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to prior claims of the subsidiary’s creditors. For more information regarding our ability to pay dividends, see Capital Management in the MD&A on page 45 and Note 13 – Shareholders’ Equity to the Consolidated Financial Statements.
In the event of our resolution under the single point of entry resolution strategy, such resolution could materially adversely affect ourOur liquidity and financial condition, and the ability to pay dividends to shareholders and to pay obligations.obligations could be materially adversely affected in the event of a resolution.
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 entryentry” 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
manner following a bankruptcy of the parent holding company. Bank of America Corporation has entered into intercompany arrangements resulting in the contribution of most of its capital and liquidity to key subsidiaries. Pursuant to these arrangements, if Bank of America Corporation’s liquidity resources deteriorate so severely that resolution becomes imminent, Bank of America Corporation will no longer be able to draw liquidity from its key subsidiaries, and will be required to contribute its remaining financial assets to a wholly-owned holding company subsidiary, which could materially and adversely affect our liquidity and financial condition and the ability to return capital to shareholders, including through the payment of dividends and repurchase of the Corporation’s common stock, and meet our payment obligations.
In addition, ifIf the FDIC and Federal Reserve jointly determine that Bank of America Corporation’s resolution plan is not credible, they could impose more stringent capital, leverage or liquidity requirements or restrictions on our growth, activities or operations. Further, weWe could also be required to take certain actions that could impose operating costs and could potentially result in the divestiture or restructuring of certain businesses and subsidiaries.
UnderAdditionally, under the Financial Reform Act, when a G-SIB such as Bank of America 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. In 2013, the FDIC issued a notice describing its preferred “single point of entry” strategy for resolving a G-SIB. Under this approach, the FDIC could replace Bank of America Corporation with a bridge holding company, which could continue operations and result in an orderly resolution of the underlying bank, but whose equity would be held solely for the benefit of our creditors. The FDIC’s single“single point of entryentry” strategy may result in our security holders suffering greater losses than would have been the case under a bankruptcy proceeding or a different resolution strategy.
Credit
Economic or market disruptions and insufficient credit loss reserves or concentration of credit risk may result in an increase in thea higher provision for credit losses, which could have an adverse effect on our financial condition and results of operations.losses.
A number of our products expose us to credit risk, including loans, letters of credit, derivatives, debt securities, trading account assets and assets held-for-sale. TheDeterioration in the financial condition of our consumer and commercial borrowers, counterparties andor underlying collateral could adversely affect our financial condition and results of operations.
GlobalOur credit portfolios may be impacted by global and U.S. economicmacroeconomic and market conditions, may impact our credit portfolios. Economicevents and disruptions, including sustained weakness in GDP, consumer-spending declines, property value declines or asset-price corrections, increasing consumer and corporate leverage, increases in corporate bond spreads, rising or elevated unemployment levels, fluctuations in foreign exchange or interest rates, widespread health emergencies or pandemics, extreme weather events and the impacts of climate change and domestic and global efforts to transition to a low-carbon economy. Significant economic or market stresses and disruptions would likelytypically have a negative impact on the business environment and financial markets. Property value declines or asset-price corrections could increase the risk thatof borrowers or counterparties would defaultdefaulting or becomebecoming delinquent in their obligations to us. Increasesus, which could increase credit losses. Simultaneous drawdowns on lines of credit and/or an increase in delinquenciesa borrower’s leverage in a
weakening economic environment could result in deterioration in our credit portfolio, should borrowers be unable to fulfill competing financial obligations. Credit portfolio deterioration could also be magnified by lending to leveraged borrowers, elevated asset prices or declining property or collateral values unrelated to macroeconomic stress. Increased delinquency and default rates could adversely affect our consumer credit card, home equity and residential mortgage and purchased credit-impaired portfolios through increased charge-offs and provision for credit losses. Additionally,
Beginning in the first quarter of 2020, the pandemic resulted in changes to consumer and business behaviors and restrictions on economic activity, which have negatively impacted the global economy and could continue to negatively impact our consumer and commercial credit portfolios. Accordingly, we increased our allowance for credit losses as a deterioratingresult of the expected macroeconomic impact of COVID-19, which has adversely affected our results of operations. Although the economy, including GDP, and unemployment have improved since the first half of 2020, certain sectors remain significantly impacted (e.g., hospitality, entertainment and travel). As COVID-19 cases have surged in the fourth quarter of 2020 and early 2021, compared to earlier levels, and restrictions on economic environment could also adversely affectactivity have been reintroduced in certain geographies, there remains significant uncertainty on what the ultimate impact the pandemic will have on the economy and our commercial loan portfolios with weakened client and collateral positions.allowance for credit losses.
We estimate and establish an allowance for credit losses, which includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, based on management's best estimate of lifetime expected credit losses inherent in our lending activities (including unfunded lending commitments), excluding those measured at fair value, through a charge to earnings.the Corporation's relevant financial assets. The process for determining the amount ofto determine the allowance requires us to make difficult and complex judgments, including loss forecasts onforecasting how borrowers will reactperform in changing and unprecedented economic conditions and predicting developments in public health and fiscal policy related to changing economic conditions.the pandemic. The ability of our borrowers or counterparties to repay their obligations will likely be impacted by
changes in future economic conditions, which in turn could impact the accuracy of our loss forecasts and allowance estimate.estimates. There is also the possibility that we have failed or will fail to accurately identify the appropriate economic indicators or that we will fail to accurately estimate their impacts.impacts to our borrowers, which similarly could impact the accuracy of our loss forecasts and allowance estimates.
We may suffer unexpected losses if the models and assumptions we use to establish reserves andor the judgments we make judgments in extending credit to our borrowers or counterparties, which are more sensitive due to the uncertainty regarding the magnitude and duration of the pandemic and related macroeconomic impact, prove inaccurate in predicting future events. In addition, changes to external factors such as natural disasters, can influencenegatively impact our recognition of credit losses in our portfolios and impactallowance for credit losses.
As of January 1, 2020, we implemented a new accounting standard to estimate our allowance for credit losses. Although we believe that ourthe allowance for credit losses wasis in compliance with applicablethe new accounting standards at December 31, 2017,standard, there is no guarantee that it will be sufficient to address credit losses, particularly if the economic conditions deteriorate.outlook deteriorates significantly. In such an event, we may increase the size of our allowance which would reduce our earnings. Additionally, to the extent that economic conditions worsen as a result of COVID-19 or otherwise, impacting our consumer and commercial borrowers, counterparties or underlying collateral, and credit losses are worse than expected, we may further increase our provision for credit losses, which
could have a further adverse effect on our results of operations and could negatively impact our financial condition.
Our concentrations of credit risk could adversely affect our credit losses, results of operations and financial condition.
In the ordinary course of our business, we also may be subject to a concentrationconcentrations of credit risk because of a common characteristic or common sensitivity to economic, financial, public health or business developments. For example, concentrations in credit risk may result in a particular industry, geographic location,geography, product, asset class, counterparty, borrowerindividual exposure or issuer.within any pool of exposures with a common risk characteristic. A deterioration in the financial condition or prospects of a particular industry, geographic location, product or asset class, or a failure or downgrade of, or default by, any particular entity or group of entities could negatively affect our businesses, and the processes by which we setit is possible our limits and monitor the level of our credit monitoring exposure to individual entities, industries and countries maycontrols will not function as we have anticipated.
While our activities expose us to many different industries and counterparties, we routinely execute a high volume of transactions with counterparties in the financial services industry, including broker-dealers, commercial banks, investment banks, insurers, mutual funds and hedge funds, central counterparties and other institutional clients. This has resultedclients, resulting in significant credit 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 one or evenmore counterparties, or 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.us, which may occur as a result of fraud or other events that impact the value of the collateral. 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 home equity portfolio includes HELOCs not yet in their amortization period. HELOCs that have entered the amortization period are characterized by a higher percentage of early stage delinquencies and nonperforming status relative to the HELOC portfolio as a whole. Loans in our HELOC portfolio generally have an initial draw period of 10 years and 10 percent of these
loans will enter the amortization period during 2018. In addition, our home equity portfolio contains a significant percentage of loans in second-lien or more junior-lien positions which have elevated risk characteristics. As a result, delinquencies and defaults may increase in future periods. For more information, see Consumer Portfolio Credit Risk Management in the MD&A on page 54. Furthermore, our commercial portfolios include exposures to certain industries, including the energy sector. For more information, see Commercial Portfolio Credit Risk Management in the MD&A on page 63.asset managers and funds, real estate, capital goods and finance companies. Economic weaknesses, adverse business conditions, market disruptions, rising interest or capitalization rates, the collapse of speculative bubbles, greater volatility in areas where we have concentrated credit risk or deterioration in real estate values or household incomes may cause us to experience a decrease in cash flow and higher credit losses in either our consumer or commercial portfolios or cause us to write-downwrite down the value of certain assets. Additionally, we could experience continued and long-term negative impact to our commercial credit exposure and an increase in credit losses within those industries that continue to be disproportionately impacted by COVID-19 or are permanently impacted by a change in consumer preferences resulting from COVID-19 (including hospitality, entertainment and travel).
Furthermore, we have concentrations of credit risk with respect to our consumer real estate, auto, consumer credit card and commercial real estate portfolios, which represent a significant percentage of our overall credit portfolio. Decreases in home price valuations or commercial real estate valuations in certain markets where we have large concentrations, as well as
more broadly within the U.S. or globally, could result in increased defaults, delinquencies or credit loss. In particular, the impact of climate change, such as rising average global temperatures and rising sea levels, and the increasing frequency and severity of extreme weather events and natural disasters such as droughts, floods, wildfires and hurricanes could negatively impact collateral, the valuations of home prices or commercial real estate or our customers’ ability and/or willingness to pay outstanding loans. This could also cause insurability risk and/or increased insurance costs to customers.
We also enter into transactions with sovereign nations, U.S. states and municipalities. Unfavorable economic or political conditions, disruptions to capital markets, currency fluctuations, changes in oil prices, social instability and changes in government or monetary policies could adversely impact the operating budgets or credit ratings of these government entities and expose us to credit risk.
Liquidity disruptions in the financial markets may result in our inability to sell, syndicate or realize the value of our positions, leading to increased concentrations, which could increase the credit and market risk associated with our positions, as well as increase our risk-weighted assets.RWA.
For more information about our credit risk and credit risk management policies and procedures, see Credit Risk Management in the MD&A on page 54, Note 1 – Summary of Significant Accounting Principles,Note 4 – Outstanding Loans and Leases and Note 5 – Allowance for Credit Losses to the Consolidated Financial Statements.
IfWe may be adversely affected if the U.S. housing market weakens or home prices decline, our consumer loan portfolios, credit quality, credit losses, representations and warranties exposures, and earnings may be adversely affected.decline.
While U.S. home prices continued to improve during 2017,generally remain stable or increase in 2020, supported by single-family housing demand and low interest rates. However, changes in business and household behaviors and restrictions on activity in response to the pandemic have had a negative impact on some property markets, particularly in high-density urban areas. We remain conscious of geographic markets where housing price growth has slowed or decreased, or is vulnerable to lasting shifts in demand due to the pandemic, as further declines in future periods may negatively impact the demand for many of our products. Additionally, our mortgage loan production volume is generally influenced by the rate of growth in residential mortgage debt outstanding and the size of the residential mortgage market.market, both of which may be adversely affected by rising interest rates. Conditions in the U.S. housing market in prior years have alsoduring the 2008 financial crisis resulted in both significant write-downs of asset values in several asset classes, notably mortgage-backed securities, and exposure to monolines. If the U.S. housing market were to weaken, the value of real estate could decline, which could result in increased credit losses and delinquent servicing expenses and negatively affect our exposure to representations and warranties exposures, and could have an adverse effect onadversely affect our financial condition and results of operations.
Our derivatives businesses may expose us to unexpected risks and potential losses.
We are party to a large number of derivatives transactions including credit derivatives. Our derivatives businessesthat may expose us to unexpected market, credit and operational risks that could cause us to suffer unexpected losses. Severe declines in asset values, unanticipated credit events or unforeseen circumstances that may cause previously uncorrelated factors to become correlated and vice versa, may create losses resulting from risks not appropriately taken into account or anticipated in the development, structuring or pricing of a derivative instrument. The terms of certain of ourCertain OTC derivative contracts and other trading agreements provide that upon the occurrence of certain specified events, such as a change in ourthe credit ratingsrating of the Corporation or thatone or more of certain of our subsidiaries,its affiliates, we may be required to provide additional collateral or take other remedies,remedial actions and could experience increased difficulty obtaining funding or hedging risks. In some cases our counterparties may have the right to terminate or otherwise diminish our rights under these contracts or agreements.
Many
We are also a member of various central counterparties (CCPs), in part due to regulatory requirements for mandatory clearing of derivative instrumentstransactions, which potentially increases our credit risk exposures to CCPs. In the event that one or more members of the CCP defaults on its obligations, we may be required to pay a portion of any losses incurred by the CCP as a result of that default. A CCP may modify, in its discretion, the margin we are individually negotiatedrequired to post, which could mean unexpected and non-standardized, which can make exiting, transferring or settling some positions difficult. Many derivatives require that we deliver
increased exposure to the counterpartyCCP. As a clearing member, we are exposed to the underlying security, loan or other obligation in order to receive payment. In a numberrisk of cases,non-performance by our clients for which we do not hold, andclear transactions, which may not be able to obtain, the underlying security, loan or other obligation.
In the event ofcovered by available collateral. Additionally, default by a downgrade of our credit ratings, certain derivativesignificant market participant may result in further risk and other counterparties may request we substitute BANA (which has generally had equal or higher credit ratings than the parent company) as counterparty for certain derivative contracts and other trading agreements. Our ability to substitute or make changes to these agreements may be subject to certain limitations, including counterparty willingness, operational considerations, regulatory limitations on naming BANA as the new counterparty and the type or amount of collateral required. It is possible that such limitations on our ability to substitute or make changes to these agreements, including naming BANA as the new counterparty, could adversely affect our results of operations.
For more information on our derivatives exposure, see Note 2 – Derivatives to the Consolidated Financial Statements.potential losses.
Geopolitical
We are subject to numerous political, economic, market, reputational, operational, legal, regulatory and other risks in the non-U.S. jurisdictions in which we operate.
We do business throughout the world, including in emerging markets. Economic or geopolitical stress in one or more countries could have a negative impact regionally or globally, resulting in, among other things, market volatility, reduced market value and economic output. Our businesses and revenues derived from non-U.S. jurisdictions are subject to risk of loss from currency fluctuations, financial, social or judicial instability, changes in government leadership, including as a result of electoral outcomes or otherwise, changes in governmental policies or policies of central banks, expropriation, nationalization and/or confiscation of assets, price controls, high inflation, natural disasters, the emergence of widespread health emergencies or pandemics, capital controls, currency redenomination risk, exchange controls, protectionist trade policies, and other restrictive actions, unfavorable political and diplomatic developments, oil price fluctuationfluctuations and changes in legislation. These risks are especially elevated in emerging markets. Additionally, protectionist trade policies and continued trade tensions between the U.S. and important trading partners, particularly China and the EU, including the risk that tariffs continue to rise and other restrictive actions on cross-border trade, investment, and transfer of information technology are taken that weigh heavily on regional trade volumes and domestic demand through falling business sentiment and lower consumer confidence, could adversely affect our businesses and revenues, as well as our customers and counterparties. Elevated tensions between the U.S. and China also raise the risk that current or future U.S. sanctions against individuals or export controls targeting Chinese firms could prompt retaliatory responses, potentially impacting our operations and revenue.
Additionally, the realization of any significant geopolitical events, negative market conditions and/or change in market dynamics as a result of the U.K.’s exit from the EU could adversely impact our businesses. The short- and long-term impact of the U.K.’s exit from the EU on European and global macroeconomic conditions, our business operations and results of operations remain unknown.
A number of non-U.S. jurisdictions in which we do business have been or may be negatively impacted by slowslowing growth rates or recessionary conditions, market volatility and/or political or civil unrest. The politicalongoing pandemic has had a severe negative impact on global GDP, and the global economic environment in Europe has improved but remains challenging even as output has begun to improve. Economic weakness may prove persistent in many countries and the current degree of politicalregions, including Europe, Japan, and economic uncertainty could increase. In the U.K., the ongoing negotiation of the terms of the exit of the U.K. from the EU continues to inject uncertainty.
numerous emerging markets. Potential risks of default on or devaluation of sovereign debt in some non-U.S. jurisdictions could expose us to substantial losses. As a result of the pandemic and fiscal policy responses
to it, government debt levels have increased significantly, raising the risk of volatility, significant valuation changes, or default in markets for sovereign debt. 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 adverseadversely impact on our company.us.
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
us to determine the exact requirements of local laws in every market or manage our relationships with multiple regulators in various jurisdictions. Our potential inability to remain in compliance with local laws in a particular market and manage our relationships with regulators could have an adverse effect not only onresult in increased expenses and changes to our organizational structure and adversely affect our businesses and results of operations in that market, but also onas well as our reputation in general.
In connection with the U.K.’s exit from the EU, we are now subject to different laws, regulations and regulatory authorities and increased organizational and operational complexity. We may incur additional costs and/or experience negative tax consequences as a result of operating our principal EU banking and broker-dealer operations outside of the U.K., which could adversely impact our EU business, results of operations and operational model. Further, changes to the legal and regulatory framework under which our subsidiaries provide products and services in the U.K. and in the EU may result in additional compliance costs and have negative tax consequences or an adverse impact on our results of operations.
In addition to non-U.S. legislation, our international operations are also subject to U.S. legal requirements.requirements, which subjects us to operational and compliance costs and risks. For example, our international operations are subject to U.S. and non-U.S. laws on foreign corrupt practices, the Office of Foreign Assets Control, know-your-customer requirements and regulations relating to bribery and corruption, anti-money laundering, regulations. Emerging technologies, such as cryptocurrencies,and economic sanctions, which can vary by jurisdiction. The increasing speed and novel ways in which funds circulate could limit our abilitymake it more challenging to track the movement of funds.funds and heightens financial crimes risk. Our ability to comply with these laws is dependentlegal requirements depends on our ability to continually improve surveillance, detection and reporting capabilities and reduce variationanalytic capabilities.
In the U.S., debt ceiling and budget deficit concerns, which have increased the possibility of U.S. government defaults on its debt and/or downgrades to its credit ratings, and prolonged government shutdowns could negatively impact the global economy and banking system and adversely affect our financial condition, including our liquidity. Additionally, changes in control processesfiscal, monetary or regulatory policy, including as a result of the change in the U.S. presidential administration and oversight accountability.Congress, could increase our compliance costs and adversely affect our
business operations, organizational structure and results of operations. We are also subject to geopolitical risks, including economic sanctions, acts or threats of international or domestic terrorism, and actions taken by the U.S. or other governments in response thereto, state-sponsored cyber attacks or campaigns, civil unrest and/or military conflicts, which could adversely affect business and economic conditions abroad as well asand in the U.S.
For more information on our non-U.S. credit and trading portfolios, see Non-U.S. Portfolio in the MD&A on page 70.
The U.K. Referendum, and the potential exit of the U.K. from the EU, could adversely affect us.
We conduct business in Europe primarily through our U.K. subsidiaries. For the year ended December 31, 2017, our operations in Europe, Middle East and Africa, including the U.K., represented approximately nine percent of our total revenue, net of interest expense.
A referendum was held in the U.K. on June 23, 2016, which resulted in a majority vote in favor of exiting the EU. Negotiations between the EU and U.K. regarding this exit are ongoing and consist of three phases: a divorce agreement, a new trade deal and an arrangement for a transition period. There has been progress on the agreement of divorce bill, which is expected to be finalized in the next 12 months. A high degree of uncertainty remains on the timing and the details of a future trade agreement and transition phase. In this context, the ultimate impact of the U.K.’s exit remains unclear and episodes of economic and market volatility may occur. If uncertainty resulting from the U.K.’s exit negatively impacts economic conditions, financial markets and consumer confidence, our business, results of operations, financial position and/or operational model could be adversely affected. In addition, if the terms of the U.K.’s exit limit the ability of our U.K. entities to conduct business in the EU or otherwise result in a significant increase in economic barriers between the U.K. and the EU, it is possible these changes could impose additional costs on us, cause us to be subject to different laws, regulations and/or regulatory authorities, cause adverse tax consequences to us, and could adversely impact our business, financial condition and operational model.
Business Operations
A failure in or breach of our operational or security systems or infrastructure or business continuity plans, or those of third parties or the financial services industry, could disrupt our businesses,critical business operations and customer services, result in regulatory, market, privacy, liquidity and operational risk exposures, and adversely impact our results of operations liquidity and financial condition, as well asand cause legal or reputational harm.
The potential for operational risk exposure exists throughout our organization and as a result of our interactions with, and reliance on, third parties is not limited to our own internal operational functions.(including their downstream service providers) and the financial services industry infrastructure. Our operational and security systems infrastructure, and including our computer systems, emerging technologies, data management and internal processes, as well as those of third parties, are integral to our performance. We also rely on our employees
and third parties (including downstream service providers) in our day-to-day and ongoing operations, who may, as a result of human error, misconduct (including fraudulent activity), malfeasance or a failure or breach of systems or infrastructure cause disruptions to our organization and expose us to risk. We have taken measures to implement backup systemsoperational and other safeguards to supportregulatory risk.
Additionally, our operations, but our ability to conduct business may be adversely 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 and transmission, storage, 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. ThereWe could bealso experience prolonged computer and network outages resulting in disruptions to our critical business operations and customer services, including abuse or failure of our electronic trading and algorithmic platforms. We may experience sudden increases in customer transaction volume;volume or electrical, telecommunications or other major physical infrastructure outages;outages, newly identified vulnerabilities in key hardware or software;software, failure of aging infrastructure and technology project implementation challenges, which could result in prolonged operational outages. Climate change is increasing the frequency and severity of natural disasters, such as earthquakes, wildfires, tornadoes, hurricanes and floods; disease pandemics; andfloods, which could result in increased exposure to operational risks, including outages. Additionally, events arising from local or larger scale political or social matters, including civil unrest and terrorist acts. Inacts, could result in operational disruptions and prolonged operational outages.
Additionally, the eventCorporation and the third parties on which it relies have been and will likely continue to be subject to additional operational risks while operating in a work-from-home posture (which places greater reliance on remote access tools and technology and employees’ personal systems), while executing business continuity plans due to COVID-19. We are increasingly dependent upon our information technology infrastructure to operate our businesses remotely due to our work-from-home posture and evolving customer preferences, including increased reliance on digital banking and other digital
services provided by our businesses. Effective management of our work-from-home posture depends on the security, reliability and adequacy of such systems. We are also at greater risk of business disruptions due to illness and unavailability.
Regardless of the measures we have taken to implement training, procedures, backup systems and other safeguards to support our operations and bolster our operational resilience, our ability to conduct business may be adversely affected by any significant disruptions to us or to third parties (including their downstream service providers) with whom we interact or upon whom we rely, including systemic cyber events that result in system outages and unavailability of part or all of the financial services industry infrastructure. Our ability to implement backup systems and other safeguards with respect to third-party systems and the financial services industry infrastructure is more limited than with respect to our own systems.
Furthermore, to the extent that backup systems are available and utilized, they may not process data as quickly as our primary systems and some data might not have been backed up. We continuouslyregularly 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. OperationalA failure or breach of our operational or security systems or infrastructure or business continuity plans resulting in disruption to our critical business operations and customer services could expose us to regulatory, market, privacy and liquidity risk, exposures couldand adversely impact our results of operations liquidity and financial condition, as well as cause legal or reputational harm.
A 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, and/or fraudulent activity, and 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.infrastructure.
Our businesses arebusiness is 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 (including their downstream service providers) the financial services industry and financial data aggregators, with whom we interact, or on whom we rely.rely or who have access to our customers' personal or account information. Our businesses relybusiness relies 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 mayincreasingly use personal mobile devices or computing devices that are outside of our network environmentand control environments and are subject to their own cybersecurity risks.
We, our employees and customers, regulators and other third parties have been subject to,(including contractors and vendors) are regularly the target of cyber attacks and are likely to continue to be the target of cyber attacks. These cyber attacks are pervasive, sophisticated, evolving, difficult to prevent and include computer viruses, malicious or destructive code (such as ransomware), social engineering (including phishing, attacks,vishing and smithing), denial of service or information or other security breachesbreach tactics that could result in the unauthorized release, gathering,
monitoring, misuse, loss or destruction or theft of confidential, proprietary and other information, including intellectual property, of ours, our employees, our customers or of third parties,parties. These cyber attacks could also result in damages to systems, financial risk or otherwise material disruption to our or our customers’ or other third parties’ network access or business
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operations. As cyber threats, continueour prominent size and scale, our geographic footprint and international presence and our role in the financial services industry and the broader economy. Additionally, our risk and exposure to evolve,cyber attacks and security breaches is magnified due to our work-from-home posture which places greater reliance on remote access tools and technology, resulting in a larger number of access points to our networks that must be secured. This increased risk of unauthorized access to our networks results in greater amounts of information being available for access from employees’ personal devices over which we maydo not have the same controls as we do in a non-work-from-home posture. Additionally, our customers’ increasing reliance on digital banking and other digital services provided by our businesses in response to COVID-19, has resulted in more demand on our information technology infrastructure and security tools and processes.
The financial services industry is particularly at risk because of the proliferation of new and emerging technologies, including third-party financial data aggregators, and the use of the internet and telecommunications technologies to conduct financial transactions. Additionally, our use of automation, artificial intelligence (AI) and robotics, increased use of internet and mobile banking products, including mobile payment and other web- and cloud-based products and applications and plans to use or develop additional remote connectivity solutions increase our cybersecurity risks and exposure.
Additionally, we have exposure to cyber threats as a result of our continuous transmission of sensitive information to, and storage of such information by, third parties, including our vendors and regulators, the outsourcing of some of our business operations, and system and customer account updates and conversions. Cybersecurity risks have also significantly increased in recent years in part due to the increasingly sophisticated activities of organized crime groups, hackers, terrorist organizations, extremist parties, hostile foreign governments and state-sponsored actors, in some instances acting to promote political ends. We could also be required to expend significant additional resources to continue to modifythe target of disgruntled employees or enhance our protective measures or to investigatevendors, activists and remediate any information security vulnerabilities or incidents.other parties, including those involved in corporate espionage.
Cyber threats and the techniques used in cyber attacks change rapidly and frequently. Despite substantial efforts to protect the integrity and resilience of our systems and implement controls, processes, policies and other protective measures, we may not be able to anticipate allcyber attacks or information or security breaches nor may we be ableand implement effective preventive or defensive measures to implement guaranteed preventive measures againstaddress or mitigate such securityattacks or breaches. Cyber threats are rapidly evolving and we may not be able to anticipate or prevent all such attacks.
Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, and the use of the Internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expand our internal usage of web-based products and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased sophistication and activities of organized crime groups, hackers, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage. Even the most advanced internal control environment may beis vulnerable to compromise. Targeted social engineering attacks are becoming more sophisticated and are extremely difficult to prevent. The techniques used by bad actors change frequently, may not be recognized until launched and may not be recognized until well after a breach has occurred. Additionally,Internal access management failures could result in the existencecompromise or unauthorized exposure of cyberconfidential data.
Cyber attacks or security breaches could persist for an extended period of time before being detected. It could take considerable additional time for us to determine the scope, extent, amount, and type of information compromised, at which time the impact on the Corporation and measures to recover and restore to a business-as-usual state may be difficult to
assess. As cyber threats continue to evolve, we may be required to expend significant additional resources to modify or enhance our protective measures, investigate and remediate any information security vulnerabilities or incidents and develop our capabilities to respond and recover. As a result, increasing resources to develop and enhance our controls, processes and practices designed to protect our systems, workstations, intellectual property and proprietary information, software, data and networks from attack, damage or unauthorized access, remains a critical priority.
We also face indirect technology, cybersecurity and operational risks relating to the customers, clients and other third parties (including their downstream service providers) and the financial services industry, with accesswhom we do business, upon whom we rely to facilitate or enable our business activities or upon whom our customers rely. Such third parties also include financial counterparties, financial data aggregators, 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 or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities or third parties (or their downstream service providers) could have a material impact on counterparties or other market participants, including us. Similarly, any failure, cyber attack or other information or security breach that significantly degrades, deletes or compromises our systems or data could adversely impact third parties, counterparties and the financial services industry infrastructure, which in turn could harm our reputation and damage our business. 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 technology failure, cyber attack or other information or security breach, termination or constraint of any third party (including their downstream service providers) the financial services industry infrastructure or financial data aggregators, 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, result in the misappropriation or destruction of the personal, proprietary or confidential information of our employees, customers, suppliers, counterparties and other third parties or result in fraudulent or unauthorized transactions. Further, any such event may not be disclosed to us in a timely manner.
Although to date we have not experienced any material losses or other material consequences relating to technology failure, cyber attacks or other information or security breaches, whether directed at us or third parties, there can be no assurance that our controls and procedures in place to monitor and mitigate the risks of cyber threats will be sufficient and that we will not suffer suchmaterial losses or other consequences in the future. Our risk and exposure to these matters remain heightened because of, among other things, the evolving nature of these threats, our prominent size and scale, and our role in the financial services industry and the broader economy, our plans to continue to implement our internet banking and mobile banking channel strategies and develop additional remote connectivity solutions to serve our customers when and how they want to be served, our continuous transmission of sensitive information to, and storage of such information by, third parties, including our vendors and regulators, our geographic footprint and international presence, the outsourcing of some of our business operations, threats of cyber terrorism, external extremist parties, including foreign state actors, in some circumstances as a means to promote political ends, and system and customer account updates and conversions. As a result, cybersecurity and the continued development and enhancement of our controls, processes and practices designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority.
We also face indirect technology, cybersecurity and operational risks relating to the customers, clients and other third parties with whom we do business or upon whom we rely to facilitate or enable our business activities, including financial counterparties; 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 or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities 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 or other information or security breach, termination or constraint could, among other things, adversely affect our ability to effect transactions, service our clients, manage our exposure to risk or expand our businesses.
Cyber attacks or other information or security breaches, whether directed at us or third parties, may result in a material loss or have materialsignificant lost revenue, give rise to losses and claims brought by third parties, government penalties and other negative consequences. Furthermore, the public perception that a 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 usresult in negative consequences, including loss of customers and business opportunities, disruptionthe 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 intellectual property, proprietary information or confidential information and/or thatthe 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, andsystems. 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, we had $17.6 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 liability of $1.9 billion for obligations under representations and warranties exposures. We also have an estimated range of possible loss of up to $1 billion over our recorded liability. The recorded liability and estimated range of possible loss are based on currently available information, significant judgment and a number of assumptions that are subject to change. Future representations and warranties losses may occur in excess of our recorded liability and estimated range of possible loss and such losses could have an 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 do not consider certain losses related to servicing, including foreclosure and related costs, fraud, indemnity or claims (including for residential mortgage-backed 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-
Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties in the MD&A on page 40, Consumer Portfolio Credit Risk Management in the MD&A on page 54 and Note 7 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements.
Failure to satisfy our obligations as servicer for residential mortgage securitizations, along withloans owned by other entities and other losses we could incur in our capacity as servicer, and foreclosure delays and/could adversely impact our reputation, servicing costs or investigations into our residential mortgage foreclosure practices could cause losses.results of operations.
We and our legacy companies have securitized a significant portion of the residentialservice mortgage loans that we originated or acquired. We service a portion of the loans we have securitized and also service loans on behalf of third-party securitization vehicles and other investors. If we commit a material breach of our obligations as servicer or master servicer, we may be subject to termination if the breach is not cured within a specified period of time following notice, which could cause us to lose servicing income. In addition, for loans principally held in private-label securitization trusts, we may have liability for any failure by us, as a servicer or master servicer, for any act or omission on our part that involves willful misfeasance, bad faith, gross negligence or reckless disregard of our duties. If any such breach werewas found to have occurred, it may harm our reputation, increase our servicing costs, result in litigation or regulatory action or adversely impact our results of operations. Additionally, with respect to foreclosures, we may incur costs or losses due to irregularities in the underlying documentation, or if the validity of a foreclosure action is challenged by a borrower or overturned by a court because of errors or deficiencies in the foreclosure process. We may also incur costs or losses relating to delays or alleged deficiencies in processing documents necessary to comply with state law governing foreclosure.
Changes in the structure of the GSEs and the relationship among the GSEs the government and the private markets, or the conversion of the current conservatorship of Fannie Mae or Freddie Mac into receivership, could result in significant changes to our business operations and may adversely impact our business.
During 2017,2020, we sold approximately $7.9$3.6 billion of loans to GSEs, primarily Freddie Mac (FHLMC). FHLMC and Fannie Mae and Freddie Mac. Each is(FNMA) are currently in a conservatorship with itstheir primary regulator, the Federal Housing Finance Agency (FHFA) acting as conservator. We cannot predict whetherIn September 2019, the conservatorships will end, any associated changesTreasury Department published a proposal to recapitalize FHLMC and FNMA and remove them from conservatorship as well as reduce their business structurerole in the marketplace. Consistent with this proposal, in January 2021, the Treasury Department further amended the agreement that could result or whethergoverns the conservatorships will end in receivership, privatization orconservatorship of FHLMC and FNMA to allow them to retain their earnings until they reach certain previously determined capital requirements, among other change in business structure. There are several proposed approachespolicy actions, potentially putting them on a long-term path 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 whichemergence from conservatorship. However, weparticipate. We cannot predict the future prospects forof the enactment,GSEs, timing of the recapitalization or release from conservatorship, or content of legislative or rulemaking proposals regarding the future status of any GSEs.the GSEs in the housing market. Additionally, if the GSEs were to take a reduced role in
the marketplace, including by limiting the mortgage products they offer, we could be required to seek alternative funding sources, retain additional loans on our balance sheet, secure funding through the Federal Home Loan Bank system, or securitize the loans through Private Label Securitization. Accordingly, uncertainty regarding their future and the mortgage-backed securities they guarantee continues to exist including whether they will continue to exist in their current forms or continue to guarantee mortgagesfor the foreseeable future.
Any of these developments could adversely affect the value of our securities portfolios, capital levels, liquidity and provide funding for mortgage loans.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 and consistently 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 modeling and forecasting, 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, make correct assumptions, manage and aggregate data. For instance, we use variousdata 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 is dependent on our ability to consistently execute all elements of our risk management framework depends onprogram and develop and maintain a soundculture of managing risk culture existingwell throughout the Corporation and that we manage risks associated with third parties (including their downstream service providers) 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 and change within the financial services industry, the pace of technological changes, accounting and market developments, the failure of employees to comply with policies, values and our risk framework and the overall complexity of our operations, among other developments, have resultedmay result in a heightened level of risk for us. We have experienced increased operational, reputational and compliance risk as a result of the need to rapidly implement multiple and varying pandemic relief programs, including consumer and commercial assistance programs and the PPP, coupled with the concurrent transition of the Corporation’s workforce to a work-from-home posture. Accordingly, we could suffer losses as a result of our failure to manage evolving risks or 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.
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, orders and consent orders we have entered into, have increased and could continueagreements with government authorities from time to increase our compliance and operational risks and costs.time.
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.operate, including increasing and complex economic sanctions regimes. 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 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.clients.
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 thesecurrently effective laws and regulations, as well as final rulemaking, guidance and interpretation by regulatory authorities, including the Department of Treasury, Federal Reserve, OCC, CFPB, Financial Stability Oversight Council, FDIC, Department of Labor, SEC and CFTC in the U.S. and foreign regulators and other government authorities. Further, we could become subject to future legislation and regulatory requirements beyond those currently proposed, adopted or contemplated. Accordingly,contemplated in the U.S. or abroad, including policies and rulemaking related to the Financial Reform Act, the pandemic and climate change. 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 theprospective and proposed rules. If these assumptions prove incorrect, we could be subject to increased regulatory and compliance risks and costs
as well as potential reputational harm. In addition, U.S. and international regulatory initiatives may overlap, and non-U.S. regulations and initiatives may be inconsistent or may conflict with current or proposed U.S. regulations, which could lead to compliance risks and increased costs.
Our regulators’ prudential and supervisory authority gives them broad power and discretion to direct our actions, and they have assumed an active oversight, inspection and investigatory role across the financial services industry. RegulatoryHowever, regulatory focus is not limited to laws and regulations applicable to the financial services industry, specifically, but also extends to other significant laws and regulations that apply across industries and jurisdictions, including those related to data management and privacy, anti-money laundering, anti-corruption and economic sanctions.
We are also subject to laws, rules and regulations in the U.S. and abroad, including GDPR, CCPA and CPRA, regarding compliance with our privacy policies and the disclosure, collection, use, sharing and safeguarding of personal identifiable information of certain parties, such as our employees, customers, suppliers, counterparties and other third parties, the Foreign Corrupt Practices Actviolation of which could result in litigation, regulatory fines and enforcement actions. Additionally, we will likely be subject to new and evolving data privacy laws in the U.S. and international anti-money laundering regulations. abroad, which could result in additional costs of compliance, litigation, regulatory fines and enforcement actions. In particular, there is increased complexity and uncertainty, including potential suspension or prohibition, regarding the standards used by the Corporation for cross-border flows and transfers of personal data from the European Economic Area (EEA) to the U.S. and other jurisdictions outside of the EEA resulting from a decision of the Court of Justice of the EU and guidance from the European Data Protection Board. Additionally, the European Commission has proposed new standards of personal data transfer. If our personal data transfers are suspended or prohibited or we are required to implement new standards, this could result in operational disruptions to our businesses, additional costs, increased enforcement activity, new contract negotiations with third parties, and/or modification of our cross-border data management.
As part of their enforcement authority, our regulators and other government authorities have the authority to, among other things, assess significant civil or criminal monetary penalties fines or restitution and 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, in some instances, 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,resolutions, 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 the conduct of its employees and representatives are subject to regulatory scrutiny across jurisdictions. 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 largesignificant 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. Additionally, actions by other members of the financial services industry related to business activities in which we participate may result in investigations by regulators or other government authorities. 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 attention from our business. The outcome of such proceedings, which may last a number of years, may be difficult to predict or estimate until late in the proceedings, which may last a number of years.estimate.
We are currentlyand may become subject to the terms of settlements, orders and consent ordersagreements that we have entered into with government agenciesentities and may become subject to additional settlementsregulatory authorities, which impose, or orders in the future. Such settlements and consent orderscould 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 or agreements to which we are subject, or, more generally, fail to maintain risk and control procedures and processes that meet the heightened standards established by our regulators and other government agencies,authorities, we could be required to enter into further settlements, orders or agreements 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 and evolving laws, rules and regulations. Additionally, changing U.S. fiscal, monetary and regulatory policies arising from changes to the U.S. presidential administration and Congress result in ongoing regulatory uncertainties. 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 (including their downstream providers) 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 continue to face significant legal risks in our business, and thewith a high volume of claims and amount of damages, penalties and fines claimed in litigation, and regulatory and government proceedings against us and other financial institutions remain high. Greater than expected litigationinstitutions. The damages, penalties and investigation costs, substantial legal liability or significant regulatory or government action againstfines that litigants and regulators seek from us could have adverse effects on our financial condition 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. 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 counterpartiesfinancial institutions continue to be litigious. Amonghigh. This includes disputes with consumers, customers and other things, financialcounterparties.
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. As disclosed in Note 12 — Commitments and Contingencies to the Consolidated Financial Statements, we also face contractual indemnification and loan-repurchase claims arising from alleged breaches of representations and warranties in the sale of residential mortgages by legacy companies, which may result in a requirement that we repurchase the mortgage loans, or otherwise make whole or provide other remedies to counterparties.
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, Equal Credit Opportunity Act, Fair Housing Act and under the antitrust laws. Such claims may carry significant and, in certain cases, treble damages. There is also an increased focus on compliance with global laws, rules and regulations related to the collection, use, sharing and safeguarding of personally identifiable information and corporate data. Additionally, misconduct by employees, including unethical, fraudulent, improper or illegal conduct, or other unfair, deceptive, abusive or discriminatory business practices, can result in litigation and/or government investigations and enforcement actions, and cause significant reputational harm.
The ongoingglobal 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 inmay affect operational and compliance costs and risks, which may limit or cease our ability to continue providing certain products and services.
For more information on litigation risks, see Note 12 – Commitments and ContingenciesThis is magnified by the Corporation's implementation of government relief measures related to the Consolidated Financial Statements.pandemic. Lawsuits and regulatory actions may result in judgments, settlements, penalties and fines adverse to the Corporation. Litigation and investigation costs, substantial legal liability or significant regulatory or government action against us could have adverse effects on our business, financial condition, including liquidity, and results of operations, and/or cause significant reputational harm to us.
U.S. federal banking agencies may require us to increase our regulatory capital, total loss absorbingloss-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.requirements.
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”well-capitalized institution. If any of
our subsidiary insured depository institutions fails to maintain its status as “well capitalized”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”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, capitalCapital 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-basedability to return capital to our shareholders depends in part on our ability to maintain regulatory capital levels above minimum requirements plus buffers. To the extent that increases occur in our SCB, G-SIB surcharge (G-SIB surcharge) may increase from current estimates, and we are also subject to aor countercyclical capital buffer, our returns of capital to shareholders could decrease.
As part of its CCAR, 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 while currently set at zero, may be increased by regulators. impact the level of our SCB. Additionally, the Federal Reserve may impose limitations or prohibitions on taking capital actions, such as paying or increasing dividends or repurchasing common stock. For example, as a result of the economic uncertainty resulting from the pandemic, the Federal Reserve applied certain restrictions on our common stock dividends and repurchase program during the second half of 2020, and the first quarter of 2021, as disclosed in Item 1. Business – Distributions on page 5 and MD&A – Executive Summary – Recent Developments – Capital Management on page 25.
A significant component of regulatory capital ratios is calculating our risk-weighted assets, including operational risk,RWA 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,RWA that have not yet been implemented in the U.S., including a standardized approach for creditoperational risk, standardized approach for operationalrevised market risk requirements 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.
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.
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 that will require the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use. The new guidance is effective on January 1, 2020, with early adoption permitted on January 1, 2019. This new accounting standard is expected, on the date of adoption, to increase the allowance for credit losses with a resulting negative adjustment to retained earnings. For more information on some of our critical accounting policies and recent accounting changes, see Complex Accounting Estimates in the MD&A on page 84 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.
OnIn December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (the Tax Act) was enacted, 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 (DTA) 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.DTA.
It is possible that governmental authorities in the U.S. and/or other countries could further amend or repeal tax laws in a way that would adversely affect us.us, including the possibility that aspects of the Tax Act could be amended in the future. Any future change in tax laws and regulations or interpretations of current or future tax laws and regulations could adversely affect our results of operations.
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 fraud, misconduct and unethical behavior, security breaches, unethical behavior, litigation or regulatory outcomes, compensation practices, lending 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 employee 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, the inability to manage technology change or maintain effective data management, cyber incidents, internal and external fraud, inadequacy of responsiveness to internal controls, unintended disclosure of personal, proprietary or confidential information, perceptionconflicts of our environmental, socialinterest and governance practices and disclosures,breach of fiduciary obligations, the handling of health emergencies or pandemics, and the activities of our clients, customers, counterparties and counterparties,third parties, including vendors. For example, our reputation may be harmed in connection with our implementation of government programs to provide relief to address the economic impact of the pandemic. Our reputation may also be negatively impacted by our ESG practices and disclosures, our businesses and our customers, including practices and disclosures related to climate change. 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,by employees, the media or otherwise, 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
(GDPR),GDPR, CCPA and CPRA, cross-border data movement and other matters. Principles concerning the appropriate scope of consumer and commercial privacy vary considerably in different jurisdictions, and regulatory and public expectations regarding the definition and scope of consumer and commercial privacy may remain fluid. It is possible that these laws may be interpreted and applied by various jurisdictions in a manner inconsistent with our current or future practices, or that is inconsistent with one another. If personal, confidential or proprietary information of customers or clients in our possession, or in the possession of third parties (including their downstream service providers) or financial data aggregators, is mishandled, misused or misused,mismanaged, or if we do not timely or adequately address such information, we may face regulatory, reputational and operational risks which could have an adverse effect onadversely affect our financial condition and results of operations.
We could suffer reputational harm if we fail to properly identify and manage potential conflicts of interest. Management of potential conflicts of interestsinterest has become increasingly complex as we expand our business activities through more numerous transactions, obligations and interests with and among our clients.
The failure to adequately address, or the perceived failure to adequately address, conflicts of interest could affect the willingness of clients to deal with us,use our products and services, or give rise to litigation or enforcement actions, which could adversely affect our businesses.business.
Our actual or perceived failure to address these and other issues, such as operational risks, gives rise to reputational risk that could harm us and our business prospects. Failure to appropriately address any of these issues could also give rise to additional regulatory restrictions, legal risks and reputational harm, which could, among other consequences, increase the size and number of litigation claims and damages asserted or subject us to enforcement actions, fines and penalties, and cause us to incur related costs and expenses.
Other
Reforms to and replacement of IBORs and certain other rates or indices may adversely affect our reputation, business, financial condition and results of operations.
There is a major transition in progress in global financial markets with respect to the replacement of IBORs, including the London Interbank Offered Rate (LIBOR), and certain other rates or indices that serve as “benchmarks.” Such benchmarks are used extensively across global financial markets and in our business. In particular, LIBOR is used in many of our products and contracts, including derivatives, consumer and commercial loans, mortgages, floating-rate notes and other adjustable-rate products and financial instruments. The aggregate notional amount of these products and contracts is material to our business, and there are significant risks and challenges associated with the transition that may result in significant uncertainty, or have other consequences that cannot be fully anticipated, which expose us to various financial, operational, supervisory, conduct and legal risks.
Although certain ARRs have been proposed to replace LIBOR and other IBORs, market and client adoption of ARRs may vary across or within categories of contracts, products and services, resulting in market fragmentation, decreased trading volumes and liquidity, increased complexity and modeling and
operational risks. ARRs have compositions and characteristics that differ significantly from the benchmarks they may replace, in some cases have limited history, and may demonstrate less predictable performance over time than the benchmarks they replace. Additionally, most ARRs are calculated on a compounded or weighted-average basis, involve complex billing and reconciliation and, unlike IBORs, do not reflect bank credit risk and therefore may require a spread adjustment. The market transition from IBORs to ARRs is complex and there are important differences between the fallbacks, triggers and calculation methodologies being implemented in cash and derivatives markets (including within cash markets). Any mismatch between the adoption of ARRs in loans, securities and derivatives markets may impact hedging or other financial arrangements we have implemented, and as a result we may experience unanticipated market exposures. There can be no assurance that ARRs will be comparable or adequate alternatives to IBORs or perform in the same way, that existing assets and liabilities based on or linked to IBORs will transition successfully to ARRs, of the timing of adoption and degree of integration and acceptance of ARRs in the financial markets, or of the future availability or representativeness of such ARRs.
The discontinuation of IBORs, including LIBOR, requires us to transition a significant number of IBOR-based products and contracts, including related hedging arrangements (IBOR Products). Although, a significant majority of the aggregate notional amount of our LIBOR-based products and contracts maturing after 2021 include or have been updated to include fallbacks to ARRs, the transitioning of certain contracts, products and clients will be more complex. While some of these outstanding IBOR Products include fallback provisions to ARRs, some of these products and contracts do not include fallback provisions or adequate fallback mechanisms and require remediation to modify their terms. Additionally, some outstanding IBOR Products are particularly challenging to modify due to the requirement that all impacted parties consent to such modification. Legislation has been adopted in the EU and proposed in the U.S. and the U.K. to address such challenges in IBOR Products, including the use of a statutory replacement or “synthetic” rate to replace the existing benchmark rate in certain of our IBOR Products. Litigation, disputes or other action may occur as a result of the interpretation or application of legislation, in particular, if there is an overlap between legislation introduced in different jurisdictions. There is no guarantee that the legislative proposals will become law and no assurance that we and other market participants will be able to successfully modify all outstanding IBOR Products or be adequately prepared for a discontinuation of an IBOR at the time such IBOR may cease to be published or otherwise discontinued. Also, there can be no assurance that existing or new provisions for successor rates in our IBOR Products will include adequate methodologies for adjustments or that the characteristics of the successor rates will be similar to or produce the economic equivalent of the benchmarks they seek to replace. These changes may adversely affect the yield on loans or securities held by us, amounts paid on securities we have issued, amounts received and paid on derivatives we have entered into, the value of such loans, securities or derivative instruments, the trading market for such products and contracts, and our ability to effectively use hedging instruments to manage risk. Certain impacted clients, counterparties and other market participants may refuse, delay, or lack operational readiness to transition to ARRs, resulting in the risk that some contracts and products may not transition to an ARR before discontinuation of the relevant IBOR, exposing us to financial, operational, supervisory, conduct and legal risks.
Our products and contracts that reference IBORs, in particular LIBOR, may contain language that determines when a successor rate including the ARR and/or the applicable spread adjustment to the designated rate (including IBORs) would be selected or determined. If a trigger is satisfied, our products and contracts may give the calculation agent (which may be us) discretion over the successor rate to be selected. We may face a risk of litigation, disputes or other actions from clients, counterparties, customers, investors or others regarding the interpretation or enforcement of IBOR-based contract provisions or if we fail to appropriately communicate the effect that the transition to ARRs will have on existing and future products.
The Corporation has launched, and expects to continue to develop, launch and support, ARR-based products and services. The transition to ARR-based products is complex and involves client and financial contract changes, internal and external communication, technology and operations modifications, industry and regulatory engagement, migration of existing clients, execution of business strategy and governance. New financial products linked to ARRs may be less liquid, result in mispricing and additional legal, financial, tax, operational, market, compliance, reputational, competitive or other risks to us, our clients and other market participants. There is no guarantee that liquidity in ARR-based products will develop, and it is possible that ARR-based products will perform differently to IBOR Products during times of economic stress, adverse or volatile market conditions and across the credit and economic cycle, which may impact the value, return on and profitability of our ARR-based assets.
Failure to meet industry-wide IBOR transition milestones and to cease issuance of IBOR Products by relevant cessation dates may, subject to certain regulatory exceptions, result in supervisory enforcement by applicable regulators, increase our cost of, and access to, capital and other consequences. In addition, IBOR Products held by us may become less liquid as the transition process develops, and other unforeseen consequences may arise if such products are held beyond relevant cessation dates.
Changes or uncertainty resulting from the market transition from IBORs to ARRs could adversely affect the return on and pricing, liquidity and value of outstanding IBOR Products, cause significant market dislocations and disruptions, potentially increase the cost of and access to capital, increase the risk of litigation or other disputes, including in connection with the interpretation and enforceability of, or our historical marketing practices or disclosures with respect to outstanding IBOR products with counterparties, and/or increase expenses related to the transition to ARRs, among other adverse consequences.
The market transition may also alter our risk profile and risk management strategies, including derivatives and hedging strategies, modeling and analytics, valuation tools, product design and systems, controls, procedures and operational infrastructure. This may prove challenging given the limited history of many of the proposed ARRs and may increase the costs and risks related to potential regulatory compliance, requirements or inquiries. Among other risks, various products and contracts may transition to ARRs at different times or in different manners, with the result that we may face significant unexpected interest rate, pricing or other exposures across business or product lines. Reforms to and uncertainty regarding market transition and other factors may adversely affect our business, including the ability to serve customers and maintain market share, financial condition or results of operations and could result in reputational harm to the Corporation.
We face significant and increasing competition in the financial services industry.
We operate in a highly competitive environment and will continue to experience intense competition from local and global financial institutions as well as new entrants, in both domestic and foreign markets.markets, in which we compete on the basis of a number of factors, including customer service, quality and range of products and services offered, technology, price, fees, reputation, interest rates on loans and deposits, lending limits and customer convenience. Additionally, the changing regulatory environment may create competitive disadvantages for certain financial institutionsus given geography-driven capital and liquidity requirements. For example, U.S. regulators have in certain instances adopted stricter capital and liquidity requirements than those applicable to non-U.S. institutions. To the extent we expand into new business areas and new geographic regions,Additionally, we may face competitors with more experience and more established relationships with clients, regulators and industry participants in the relevant market, which could adversely affect our ability to compete.
In addition, technologicalemerging technologies and advances and the growth of e-commerce have lowered geographic and monetary barriers of other financial institutions, made it easier for non-depository institutions to offer products and services that traditionally were banking products and forallowed non-traditional financial institutionsservice providers and technology companies to compete with technologytraditional financial service companies in providing electronic and internet-based financial solutions and services, including electronic securities trading with low or no fees and commissions, marketplace lending, financial data aggregation and payment processing.processing, including real-time payment platforms. Further, clients may choose to conduct business with other market participants who engage in business or offer products in areas we deem speculative or risky, such as cryptocurrencies. Increased competition may negatively affect our earnings by creating pressure to lower prices, fees, commissions or credit standards on our products and services requiring additional investment to improve the quality and delivery of our technology and/or reducing our market share, or affecting the willingness of our clients to do business with us.
Our inability to adapt our products and services to evolving industry standards and consumer preferences could harm our business.
Our business model is based on a diversified mix of businesses that provide a broad range of financial products and services, delivered through multiple distribution channels. Our success depends on our, and our third-party vendors', ability to adapt ourand develop products, services and servicestechnology to rapidly evolving industry standards.standards and consumer preferences. In particular, the emergence of the pandemic has resulted in increased reliance on digital banking and other digital services provided by the Corporation’s businesses. There is increasing pressure by competitors to provide products and services aton more attractive terms, including higher interest rates on deposits, and offer lower prices and thiscost investment strategies, which may impact our ability to grow revenue and/or effectively compete, in part, due tocompete. Additionally, legislative and regulatory developments thatmay affect the competitive landscape. Additionally,Further, the competitive landscape may be impacted by the growth of non-depository institutions that offer products that were traditionallytraditional banking products as well as new innovativeat higher rates or with low or no fees, or otherwise offer alternative products. This can reduce our net interest margin and revenues from our fee-based products and services. services, either from a decrease in the volume of transactions or through a compression of spreads.
In addition, the widespread adoption and rapid evolution of new technologies, including analytic capabilities, self-service digital trading platforms, internet services, distributed ledgers, such as the blockchain system, cryptocurrencies and payment systems, could require substantial expenditures to modify or adapt our existing products and services as we grow and develop our internet bankingonline and mobile banking channel strategies in
addition to remote connectivity solutions. We mightmay not be as timely or successful in developing or introducing new products and services, integrating new products or services into our existing offerings, responding or adapting to changes in consumer behavior, preferences, spending, investing and/or saving habits, achieving market acceptance of our products and services, reducing costs in response to pressures to deliver products and services at lower prices or sufficiently developing and maintaining loyal customers. The Corporation’s or its third-party vendors' inability to adapt products and services to evolving industry standards and consumer preferences could result in service disruptions and harm our business and adversely affect our results of operations and reputation.
We could suffer operational, reputational and financial harm if our models and strategies fail to properly anticipate and manage risk.
We use proprietary models and strategies extensively to forecast losses, project revenue, measure and assess capital requirements for credit, country, market, operational and strategic risks and assess and control our operations and financial condition. Model risk management is a dedicated and independent risk function that defines model risk governance, policy and guidelines for the Corporation based on laws, rules and regulations, as well as internal requirements. Under the Corporation's Enterprise Model Risk Policy, model risk management is required to perform model oversight, including independent validation before initial use, ongoing monitoring through outcomes analysis and benchmarking, and periodic revalidation. Models are subject to inherent limitations due to the use of historical trends and simplifying assumptions, uncertainty regarding economic and financial outcomes, and emerging risks from the use of applications that rely on AI.
Our models and strategies may not be sufficiently predictive of future results due to limited historical patterns, extreme or unanticipated market movements or customer behavior and liquidity, especially during severe market downturns or stress events, which could limit their effectiveness. The models that we use to assess and control our market risk exposures also reflect assumptions about the degree of correlation among prices of various asset classes or other market indicators, which may not be representative of the next downturn and would magnify the limitations inherent in using historical data to manage risk. Our models may not be effective if we fail to properly oversee them and detect their flaws during our review and monitoring processes, they contain erroneous data, assumptions, valuations, formulas or algorithms or our applications running the models do not perform as expected. Regardless of the steps we take to ensure effective controls, governance, monitoring and testing, and implement new
technology and automated processes, we could suffer operational, reputational and financial harm if models and strategies fail to properly anticipate and manage current and evolving risks.
Failure to properly manage and aggregate data may result in our inability to manage risk and business needs, errors in our day-to-day operations, critical reporting and strategic decision-making and inaccurate reporting.
We rely on our ability to manage, surveil, aggregate, interpret and use data in an accurate, timely and complete manner for effective risk reporting and management. Our policies, programs, processes and practices govern how data is surveilled, managed, aggregated, interpreted and used. While we continuously update our policies, programs, processes and practices and implement emerging technologies, such as
automation, AI and robotics, our data management and aggregation processes are subject to failure, including human error, system failure or failed controls. Failure to surveil, maintain and manage data and information effectively and to aggregate data and information in an accurate, timely and complete manner may impact its quality and reliability and limit our ability to manage current and emerging risk, to produce accurate financial, regulatory and operational reporting, as well as to manage changing business needs, strategic decision-making and day-to-day operations. The failure to establish and maintain effective, efficient and controlled data management could adversely impact our ability to develop our products and relationships with our customers and damage our reputation.
Our operations, businesses and customers could be materially adversely affected by the impacts related to climate change.
There is an increasing concern over the risks of climate change and related environmental sustainability matters. The physical risks of climate change include rising average global temperatures, rising sea levels and an increase in the frequency and severity of extreme weather events and natural disasters, including floods, wildfires, hurricanes and tornados. Such disasters could disrupt our operations or the operations of customers or third parties on which we rely. Such disasters could result in market volatility or negatively impact our customers’ ability to pay outstanding loans, damage collateral or result in the deterioration of the value of collateral or insurance shortfalls. Additionally, climate change concerns could result in transition risk. Changes in consumer preferences and additional legislation and regulatory requirements, including those associated with the transition to a low-carbon economy, could increase expenses or otherwise adversely impact the Corporation, its businesses or its customers. We could also experience increased expenses resulting from strategic planning, litigation and technology and market changes, and reputational harm as a result of negative public sentiment, regulatory scrutiny and reduced investor and stakeholder confidence due to our response to climate change and our climate change strategy.
Our ability to attract and retain qualified employees is critical to theour success, of our business and failure to do so could hurt our business prospects and competitive position.
Our performance is heavily dependent on the talents and efforts of highly skilled individuals. Competition for qualified personnel within the financial services industry and from businesses outside the financial services industry is intense.
Our competitors include non-U.S. based institutions and institutions subject to different compensation and hiring regulations than those imposed on U.S. institutions and financial institutions.
In order to attract and retain qualified personnel, we must provide market-level compensation. As a large financial and banking institution, we are and may bebecome subject to additional limitations on compensation practices, (whichwhich may or may not affect our competitors)competitors, by the Federal Reserve, the OCC, the FDIC orand other regulators around the world. Recent EU and U.K. rules limit and subject to clawback certain forms of variable
compensation for senior 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 formconsists of long-term equity awards. Therefore,equity-based awards, the ultimate value of this compensation dependswhich is based on the price of our common stock when the awards vest. If we are unable to continue to attract and retain qualified individuals, ourOur business prospects and competitive position could be adversely affected.affected if we cannot attract and retain qualified individuals.
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
our operations. These models require oversight and periodic re-validation and are subject to inherent limitations due to the use of historical trends and simplifying assumptions, and uncertainty regarding economic and financial outcomes. Our models may not be sufficiently predictive of future results due to limited historical patterns, extreme or unanticipated market movements and illiquidity, especially during severe market downturns or stress events. The models that we use to assess and control our market risk exposures also reflect assumptions about the degree of correlation among prices of various asset classes or other market indicators. Market conditions in recent years have involved unprecedented dislocations and highlight the limitations inherent in using historical data to manage risk. We could suffer losses if our models and strategies fail to properly anticipate and manage risks.
Failure to properly manage and aggregate data may result in inaccurate financial, regulatory and operational reporting.
We rely on our ability to manage data and our ability to aggregate data in an accurate and timely manner for effective risk reporting and management which may be limited by the effectiveness of our policies, programs, processes and practices that govern how data is acquired, validated, stored, protected and processed. While we continuously update our policies, programs, processes and practices, many of our data management and aggregation processes are manual and subject to human error or system failure. Failure to manage data effectively and to aggregate data in an accurate and timely manner may limit our ability to manage current and emerging risk, to produce accurate financial, regulatory and operational reporting as well as to manage changing business needs.
Reforms to and uncertainty regarding LIBOR and certain other indices may adversely affect our business.
The U.K. FCA announced in July 2017 that it will no longer persuade or require banks to submit rates for LIBOR after 2021. This announcement, in conjunction with financial benchmark reforms more generally and changes in the interbank lending markets have resulted in uncertainty about the future of LIBOR and certain other rates or indices which are used as interest rate “benchmarks.” These actions and uncertainties may have the effect of triggering future changes in the rules or methodologies used to calculate benchmarks or lead to the discontinuance or unavailability of benchmarks. ICE Benchmark Administration is the administrator of LIBOR and maintains a reference panel of contributor banks, which includes Bank of America, N.A., London branch for certain LIBOR rates. Uncertainty as to the nature and effect of such reforms and actions, and the potential or actual discontinuance of benchmark quotes, may adversely affect the value of, return on and trading market for our financial assets and liabilities that are based on or are linked to benchmarks, including any LIBOR-based securities, loans and derivatives, or our financial condition or results of operations. Furthermore, there can be no assurances that we and other market participants will be adequately prepared for an actual discontinuation of benchmarks, including LIBOR, that may have an unpredictable impact on contractual mechanics (including, but not limited to, interest rates to be paid to or by us) and cause significant disruption to financial markets that are relevant to our business segments, particularly Global Banking and Global Markets, among other adverse consequences, which may also result in adversely affecting our financial condition or results of operations.
Item 1B. Unresolved Staff Comments
Item 2. Properties
As of December 31, 2017, our2020, certain principal offices and other materially important properties consisted of the following:
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| Facility Name | | Location | | General Character of the Physical Property | | Primary Business Segment | | Property Status | | Property Square Feet (1) |
| Bank of America Corporate Center | | Charlotte, NC | | 60 Story Building | | Principal Executive Offices | | Owned | | 1,212,177 |
| Bank of America Tower at One Bryant Park | | New York, NY | | 55 Story Building | | GWIM, Global Banking and Global Markets | | Leased (2) | | 1,836,575 |
Bank of America Merrill Lynch Financial Centre | | London, UK | | 4 Building Campus | | Global Banking and Global Markets | | Leased | | 562,595565,362 |
| Cheung Kong Center | | Hong Kong | | 62 Story Building | | Global Banking and Global Markets | | Leased | | 149,790 |
| |
(1)(1)For leased properties, property square feet represents the square footage occupied by the Corporation. (2)The Corporation has a 49.9 percent joint venture interest in this property. | For leased properties, property square feet represents the square footage occupied by the Corporation. |
| |
(2)
| The Corporation has a 49.9 percent joint venture interest in this property. |
We own or lease approximately 79.174.6 million square feet in over 20,000 facilityfacilities and ATM locations globally, including approximately 74.169.2 million square feet in the U.S. (all 50 states and the District of Columbia, the U.S. Virgin Islands, Puerto Rico and Guam) and approximately 5.05.4 million square feet in more thanapproximately 35 countries.
We believe our owned and leased properties are adequate for our business needs and are well maintained. We continue to evaluate our owned and leased real estate and may determine from time to time that certain of our premises and facilities, or ownership structures, are no longer necessary for our
operations. In connection therewith, we are evaluatingregularly evaluate the sale or sale/leaseback of certain properties and we may incur costs in connection with any such transactions.
Item 3. Legal Proceedings
See Litigation and Regulatory Matters in Note 12 – Commitments and Contingencies to the Consolidated Financial Statements, which is incorporated herein by reference.
Item 4. Mine Safety Disclosures
None
Part II
Bank of America Corporation and Subsidiaries
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The principal market on which our common stock is traded is the New York Stock Exchange.Exchange under the symbol “BAC.” As of February 21, 2018,23, 2021, there were 174,913156,206 registered shareholders of common stock. The table below sets forth the high and low closing sales prices of the common stock on the New York Stock Exchange for the periods indicated during 2016 and 2017, as well as the dividends we paid on a quarterly basis:
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| | Quarter | | High | | Low | | Dividend |
| 2016 | First | | $ | 16.43 |
| | $ | 11.16 |
| | $ | 0.05 |
|
| | Second | | 15.11 |
| | 12.18 |
| | 0.05 |
|
| | Third | | 16.19 |
| | 12.74 |
| | 0.075 |
|
| | Fourth | | 23.16 |
| | 15.63 |
| | 0.075 |
|
| 2017 | First | | 25.50 |
| | 22.05 |
| | 0.075 |
|
| | Second | | 24.32 |
| | 22.23 |
| | 0.075 |
|
| | Third | | 25.45 |
| | 22.89 |
| | 0.12 |
|
| | Fourth | | 29.88 |
| | 25.45 |
| | 0.12 |
|
For more information regarding our ability to pay dividends, see Note 13 – Shareholders’ Equity and Note 16 – Regulatory Requirements and Restrictions to the Consolidated Financial Statements, which are incorporated herein by reference.
For more information on our equity compensation plans, see Note 18 – Stock-based Compensation Plans to the Consolidated Financial Statements and Item 12 on page 193 of this report, which are incorporated herein by reference.
The table below presents share repurchase activity for the three months ended December 31, 2017.2020. The primary source of funds for cash distributions by the Corporation to its shareholders is dividends received from its bank subsidiaries.
Each of the bank subsidiaries is subject to various regulatory policies and requirements relating to the payment of dividends, including requirements to maintain capital above regulatory minimums. All of the Corporation’s preferred stock outstanding has preference over the Corporation’s common stock with respect to payment of dividends.
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| (Dollars in millions, except per share information; shares in thousands) | Total Common Shares Purchased (1,2) | | Weighted-Average Per Share Price | | Total Shares
Purchased as
Part of Publicly
Announced Programs | | Remaining Buyback Authority Amounts (3) |
| October 1 - 31, 2020 | 10,762 | | | $ | 24.44 | | | — | | | $ | — | |
| November 1 - 30, 2020 | 1 | | | 24.81 | | | — | | | — | |
| December 1 - 31, 2020 | 1 | | | 27.39 | | | — | | | — | |
| Three months ended December 31, 2020 | 10,764 | | | 24.44 | | | — | | | — | |
|
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| | | | | | | | |
| (Dollars in millions, except per share information; shares in thousands) | Common Shares Repurchased (1) | | Weighted-Average Per Share Price | | Shares Purchased as
Part of Publicly
Announced Programs | | Remaining Buyback Authority Amounts (2) |
| October 1 - 31, 2017 | 32,986 |
| | $ | 26.92 |
| | 32,982 |
| | $ | 9,040 |
|
| November 1 - 30, 2017 | 68,951 |
| | 27.23 |
| | 68,951 |
| | 7,162 |
|
| December 1 - 31, 2017 | 72,075 |
| | 29.18 |
| | 72,073 |
| | 10,059 |
|
| Three months ended December 31, 2017 | 174,012 |
| | 27.98 |
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(1)
| Includes shares of the Corporation’s common stock acquired by the Corporation in connection with satisfaction of tax withholding obligations on vested restricted stock or restricted stock units and certain forfeitures and terminations of employment-related awards under equity incentive plans. |
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(2)
| On June 28, 2017, following the Federal Reserve’s non-objection to our 2017 CCAR capital plan, the Board authorized the repurchase of $12.0 billion in common stock from July 1, 2017 through June 30, 2018, plus approximately $900 million to offset the effect of equity-based compensation plans during the same period. On December 5, 2017, the Corporation announced that the Board authorized the repurchase of an additional $5.0 billion of common stock by June 30, 2018. During the three months ended December 31, 2017, pursuant to the Board’s authorizations, the Corporation repurchased approximately $4.9 billion of common stock, which included common stock to offset equity-based compensation awards. For more information, see Capital Management -- CCAR and Capital Planning on page 45 and Note 13 – Shareholders’ Equity to the Consolidated Financial Statements.
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On August 24, 2017, the holders of the Corporation’s Series T preferred stock exercised warrants to acquire 700 million(1)Includes two thousand shares of the Corporation’s common stock. To purchasestock acquired by the Corporation’sCorporation in connection with satisfaction of tax withholding obligations on vested restricted stock or restricted stock units and certain forfeitures and terminations of employment-related awards and for potential re-issuance to certain employees under equity incentive plans.
(2)During the three months ended December 31, 2020, pursuant to the Corporation's Board's authorization, the Corporation repurchased approximately 11 million shares, or $263 million, of its common stock upon exercisesolely to offset shares awarded under equity-based compensation plans.
(3)On January 19, 2021, the Board authorized the repurchase of the warrants, the holders submitted as consideration $5$2.9 billion of Series T preferred stock. On August 29, 2017, the Corporation issued 700 million shares ofin common stock through March 31, 2021, plus approximately $300 million to offset shares awarded under equity-based compensation plans during the same period. For more information, see Capital Management - CCAR and Capital Planning in the MD&A on page 50 and Note 13 – Shareholders’ Equityto the holders. The terms of the warrants were previously disclosed in the Corporation’s Current Report on Form 8-K filed on August 25, 2011. The sale of the Corporation’s
Consolidated Financial Statements.common stock pursuant to exercise of the warrants has not been registered with the Securities and Exchange Commission. Such sale is exempt from registration pursuant to Section 4(2) and Section 3(a)(9) of the Securities Act of 1933, as amended. The Corporation did not receivehave any proceeds fromunregistered sales of equity securities during the sale of the common stock upon exercise of the warrants; the cash proceeds the Corporation received in connection with the sale of the Series T preferred stock in August 2011 were used for general corporate purposes.
Item 6. Selected Financial Data
See Tables 76 and 87 in the MD&A beginning on page 25,32, which are incorporated herein by reference.
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| Item 7. Bank of America Corporation and Subsidiaries |
| Management's Discussion and Analysis of Financial Condition and Results of Operations |
| Table of Contents |
Item 7. Bank of America Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
Bank of America Corporation (the “Corporation”) and its management may make certain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “anticipates,” “targets,” “expects,” “hopes,” “estimates,” “intends,” “plans,” “goals,” “believes,” “continue” and other similar expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and “could”.“could.” Forward-looking statements represent the Corporation’s current expectations, plans or forecasts of its future results, revenues, provision for credit losses, expenses, efficiency ratio, capital measures, strategy and future business and economic conditions more generally, and other future matters. These statements are not guarantees of future results or performance and involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict and are often beyond the Corporation’s control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements.
You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties more fully discussed under Item 1A. Risk Factors of this Annual Report on Form 10-K:10-K: the Corporation’s potential claims,judgments, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions, including inquiries into our retail sales practices, andactions; the possibility that amountsthe Corporation's future liabilities may be in excess of the Corporation’sits recorded liability and estimated range of possible loss for litigation, exposures;and regulatory and government actions, including as a result of our participation in and execution of government programs related to the Coronavirus Disease 2019 (COVID-19) pandemic; the possibility that the Corporation could face increased servicing, securities, fraud, indemnity, contribution or other claims from one or more counterparties, including trustees, purchasers of loans, underwriters, issuers, other parties involved in securitizations, monolines or private-label and other investors; the possibility that future representations and warranties losses may occur in excess of the Corporation’s recorded liability and estimated range of possible loss for its representations and warranties exposures;mortgage securitizations; the Corporation’s ability to resolve representations and warranties repurchase and related claims,claims; the risks related to the discontinuation of the London Interbank Offered Rate and other reference rates, including claims brought by investors or trustees seeking to avoidincreased expenses and litigation and the statuteeffectiveness of limitations for repurchase claims;hedging strategies; uncertainties about the financial stability and growth rates of non-U.S. jurisdictions, the risk that those jurisdictions may face difficulties servicing their sovereign debt, and related stresses on financial markets, currencies and trade, and the Corporation’s exposures to such risks, including direct, indirect and operational; the impact of U.S. and global interest rates, inflation, currency exchange rates, economic conditions, trade policies and tensions, including tariffs, and potential geopolitical instability; the impact of the interest rate environment on the Corporation’s business, financial condition and results of operations of a potential higher interest rate environment;operations; the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions, customer behavior, adverse developments with respect to U.S. or global economic conditions and other uncertainties; the Corporation's concentration of credit risk; the Corporation’s ability to achieve its expense targets and expectations regarding revenue, net interest income, expectations,provision for credit losses, net charge-offs, effective tax rate, loan growth or other projections; adverse changes to the Corporation’s credit ratings from the major credit rating agencies; an inability to access capital markets or maintain deposits or borrowing costs; estimates of the fair value and other accounting values, subject to impairment assessments, of certain of the Corporation’s assets
and liabilities; the estimated or actual impact of changes in accounting standards or assumptions in applying those standards; uncertainty regarding the content, timing and impact of regulatory capital and liquidity requirements; the potential impact of adverse changes to total loss-absorbing capacity requirements; potential adverse changes to ourrequirements, stress capital buffer requirements and/or global systemically important bank surcharge;surcharges; the potential impact of actions of the Board of Governors of the Federal Reserve actions System on the Corporation’s capital plans; the possible impact of the Corporation’s failure to
remediate a shortcoming identified by banking regulators in the Corporation’s Resolution Plan; the effect of regulations, other guidance or additional information on our estimatedthe impact offrom the Tax Cuts and Jobs Act; the impact of implementation and compliance with U.S. and international laws, regulations and regulatory interpretations, including, but not limited to, recovery and resolution planning requirements, Federal Deposit Insurance Corporation (FDIC) assessments, the Volcker Rule, fiduciary standards, derivatives regulations and derivativesthe Coronavirus Aid, Relief, and Economic Security Act and any similar or related rules and regulations; a failure or disruption in or breach of the Corporation’s operational or security systems or infrastructure, or those of third parties, including as a result of cyber attacks;attacks or campaigns; the impact on the Corporation’s business, financial condition and results of operations from the plannedUnited Kingdom's exit of the United Kingdom from the European Union; the impact of climate change; the impact of any future federal government shutdown and uncertainty regarding the federal government’s debt limit or changes to the U.S. presidential administration and Congress; the emergence of widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic and its impact on the U.S. and/or global, financial market conditions and our business, results of operations, financial condition and prospects; the impact of natural disasters, extreme weather events, military conflict, terrorism or other geopolitical events; and other similar matters.
Forward-looking statements speak only as of the date they are made, and the Corporation undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.
Notes to the Consolidated Financial Statements referred to in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) are incorporated by reference into the MD&A. Certain prior-year amounts have been reclassified to conform to current-year presentation. Throughout the MD&A, the Corporation uses certain acronyms and abbreviations which are defined in the Glossary.
Executive Summary
Business Overview
The Corporation is a Delaware corporation, a bank holding company (BHC) and a financial holding company. When used in this report, “the Corporation”Corporation,” “we,” “us” and “our” may refer to Bank of America Corporation individually, Bank of America Corporation and its subsidiaries, or certain of Bank of America Corporation’s subsidiaries or affiliates. Our principal executive offices are located in Charlotte, North Carolina. Through our bankingvarious bank and various nonbank subsidiaries throughout the U.S. and in international markets, we provide a diversified range of banking and nonbank financial services and products through four business segments: Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking and Global Markets, with the remaining operations recorded in All Other. We operate our banking activities primarily under the Bank of
America, National Association (Bank of America, N.A. or BANA) charter. At December 31, 2017,2020, the Corporation had approximately $2.3$2.8 trillion in assets and a headcount of approximately 209,000213,000 employees. Headcount remained relatively unchanged since December 31, 2016.
As of December 31, 2017,2020, we operated in all 50 states,served clients through operations across the District of Columbia, the U.S. Virgin Islands, Puerto Rico, its territories and more thanapproximately 35 countries. Our retail banking footprint covers approximately 85 percent ofall major markets in the U.S. population,, and we serve approximately 4766 million consumer and small business relationshipsclients with approximately 4,5004,300 retail financial centers, approximately 16,00017,000 ATMs, and leading digital banking platforms (www.bankofamerica.com) with approximately 35more than 39 million active users, including approximately 2431 million active mobile active users. We offer industry-leading support to approximately three million small business owners.households. Our wealth managementGWIM businesses, with client balances of nearly $2.8$3.3 trillion, provide tailored solutions to meet client needs through a full set of investment management, brokerage, banking, trust and retirement products. We are a global leader in corporate and investment banking and trading across a
broad range of asset classes serving corporations, governments, institutions and individuals around the world.
2017 Economic and Business Environment
The U.S. economy gained momentum in 2017, as it grew for the eighth consecutive year. Following a soft start, partly driven by sharp inventory liquidation and adverse weather effects, GDP growth accelerated over the remainder of the year. Economic growth was supported by a noticeable pickup in business investment in high-tech equipment, a recovery in oil exploration and solid consumer demand growth. A revitalization in U.S. export growth, on the back of a weakening dollar and stronger global growth, also had beneficial impacts. GDP growth was limited by a mid-year softening in residential investment and a flat period for government consumption and investment. The housing market finished the year strongly. A lean supply of unsold inventory and solid demand was supportive of steady home price appreciation through much of the year.
The labor market continued to tighten as job creation exceeded the growth in the labor force. The unemployment rate fell to a 17-year low. Wage growth, however, remained relatively muted.
Inflation also remained low. The headline rate edged somewhat higher on recovering energy prices. But core inflation, excluding volatile food and energy components, slowed unexpectedly over much of the year, as goods’ prices and health care inflation softened, and the acceleration in rents leveled off. Core inflation once again finished the year below the Federal Reserve’s two percent target level.
Equity markets advanced strongly in 2017, with the S&P 500 increasing by approximately 20 percent. The anticipation of corporate tax reform and strong global earnings growth appeared to fuel the stock market’s strong performance. Following a mid-year decline, long-term Treasury yields recovered towards the end of 2017, but finished little changed from the start of the year. With short-end rates rising over the course of the year, the yield curve flattened considerably. After a brief surge following the 2016 election, the trade-weighted dollar declined over most of 2017.
The Federal Open Market Committee (FOMC) raised its target range for the Federal funds rate three times in 2017, bringing the total rise in the funds rate during the current cycle to 125 basis points (bps). The Federal Reserve also began allowing a small portion of its Treasury and mortgage-backed securities (MBS) to roll off as monetary policy normalization continued. Current Federal Reserve baseline forecasts suggest gradual rate increases will continue into 2018 against a backdrop of solid economic expansion and a tightening labor market.
The improved economic momentum in 2017 was not confined to the U.S. The eurozone posted its strongest GDP growth in 10 years, despite heightened political uncertainty and fragmentation.
In this context, the European Central Bank decided to taper its quantitative easing program even if domestic inflationary pressures remained historically weak. The impact of the 2016 U.K. referendum vote in favor of leaving the European Union (EU) started to materialize within the U.K. economy which, despite the robust global momentum, showed its weakest GDP growth in five years.
Supported by a very accommodative monetary policy stance and sustained growth in external demand, the Japanese economy expanded at the strongest pace since 2010 with headline inflation remaining positive throughout the year. Across emerging nations, economic activity was supported by China’s continued transition towards a more consumption-based growth model, as well as by the recovery in Brazil and Russia following the 2016 recession.
Recent EventsDevelopments
Capital Management
During 2017, we repurchased approximately $12.8 billionIn June 2020, the Board of common stock pursuant toGovernors of the Board’s repurchase authorizations under our 2017 and 2016Federal Reserve System (Federal Reserve) notified BHCs of their 2020 Comprehensive Capital Analysis and Review (CCAR) supervisory stress test results. Due to economic uncertainty resulting from the Coronavirus Disease 2019 (COVID-19) pandemic (the pandemic), the Federal Reserve required all large banks to update and resubmit their capital plans includingin November 2020 based on the Federal Reserve’s updated supervisory stress test scenarios. The results of the additional supervisory stress tests were published in December 2020.
The Federal Reserve also required large banks to suspend share repurchase programs during the second half of 2020, except for repurchases to offset shares awarded under equity-based compensation awards,plans, and pursuant to an additional $5 billion share repurchase authorization approved bylimit common stock dividends to existing rates that did not exceed the Board andaverage of the last four quarters’ net income. In December 2020, the Federal Reserve announced that beginning in December 2017.the first quarter of 2021, large banks would be permitted to pay common stock dividends at existing rates and to repurchase shares in an amount that, when combined with dividends paid, does not exceed the average of net income over the last four quarters.
On January 19, 2021, we announced that the Board of Directors (the Board) declared a quarterly common stock dividend of $0.18 per share, payable on March 26, 2021 to shareholders of record as of March 5, 2021. We also announced that the Board authorized the repurchase of $2.9 billion in common stock through March 31, 2021, plus repurchases to offset shares awarded under equity-based compensation plans during the same period, estimated to be approximately $300 million. This authorization equals the maximum amount allowed by the Federal Reserve for the period. For more information, see Capital Management on page 45.50.
ChangeCOVID-19 Pandemic
In the first quarter of 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. In an attempt to contain the spread and impact of the pandemic, travel bans and restrictions, quarantines, shelter-in-place orders and other limitations on business activity were implemented. Additionally, there has been a decline in Tax Lawglobal economic activity, reduced U.S. and global economic output and a deterioration in macroeconomic conditions in the U.S. and globally. This has
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,
resulted in, among other things, reducinghigher rates of unemployment and underemployment and caused volatility and disruptions in the statutory corporate income tax rateglobal financial markets, including the energy and commodity markets. Although vaccines have been approved for immunization against COVID-19 in certain countries and restrictive measures have been eased in certain areas, COVID-19 cases have significantly increased in recent months in the U.S. and many regions of the world compared to 21 percent from 35 percentearlier levels. Businesses, market participants, our counterparties and changingclients, and the taxationU.S. and global economies have been negatively impacted and are likely to be so for an extended period of time, as there remains significant uncertainty about the timing and strength of an economic recovery.
To address the economic impact in the U.S., in March and April 2020, four economic stimulus packages were enacted to provide relief to businesses and individuals, including the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Among other measures, the CARES Act established the Small Business Administration (SBA) Paycheck Protection Program (PPP), which provides loans to small businesses to keep their employees on payroll and make other eligible payments. The original funding for the PPP under the CARES Act was fully allocated by mid-April 2020, with additional funding made available on April 24, 2020 under the Paycheck Protection Program and Health Care Enhancement Act. In December 2020, an additional economic stimulus package was included as part of the Consolidated Appropriations Act of 2021 (the Consolidated Appropriations Act), which provides relief to individuals and businesses. This relief included additional funding for the PPP under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Economic Aid Act).
In response to the pandemic, the Corporation has implemented protocols and processes to execute its business continuity plans and help protect its employees and support its clients. The Corporation is managing its response to the pandemic according to its Enterprise Response Framework, which invokes centralized management of the crisis event and the integration of its response. The CEO and key members of the Corporation’s management team meet regularly with co-leaders of the Executive Response Team, which is composed of senior executives across the Corporation, to help drive decisions, communications and consistency of response across all businesses and functions. We are also coordinating with global, regional and local authorities and health experts, including the U.S. Centers for Disease Control and Prevention (CDC) and the World Health Organization.
Additionally, we have implemented a number of measures to assist our employees, clients and the communities we serve as discussed below.
Employees
We are providing support to our teammates to help promote the health and safety of our non-U.S.employees and help to ensure our protocols remain aligned to current guidance by monitoring guidance from the CDC, medical boards and health authorities and sharing such guidance with our employees. We are also operating our businesses from remote locations and leveraging our business activities. Resultscontinuity plans and capabilities.
The Corporation has globally implemented a work-from-home posture, which has resulted in the substantial majority of our employees working from home, and pre-planned contingency strategies for 2017 includedsite-based operations for our remaining employees. We continue to evaluate our continuity plans and work-from-home strategy in an estimated reduction in net incomeeffort to best protect the health and safety of $2.9 billion due to the Tax Act, driven largely by a lower valuation of certain U.S. deferred tax assets and liabilities. We have accounted for the effects of the Tax Act using reasonable estimates based on currently available information and our interpretations thereof. This accounting may change due to, among other things, changes in interpretations we have made and the issuance of new tax or accounting guidance.
Long-term Debt Exchange
In December 2017, pursuant to a private offering, we exchanged $11.0 billion of outstanding long-term debt for new fixed/floating-rate senior notes, subject to certain terms and conditions. The impact on our results of operations related to this exchange was not significant. For more information on this exchange, see Liquidity Risk on page 49.employees.
Clients
We continue to leverage our business continuity plans and capabilities to service our clients and meet our clients’ financial needs by offering assistance to clients affected by the pandemic, including providing access to credit and the important financial services on which our clients rely. We are also participating in the programs created by the CARES Act and Federal Reserve lending programs for businesses, including originating PPP loans. We have also participated in the Main Street Lending Program, which ended on January 8, 2021. While most of our deferral programs expired in the third quarter of 2020, we continue to offer assistance on a case-by-case basis when requested by clients affected by the pandemic.
As of December 31, 2020, we had approximately 332,000 PPP loans outstanding with a carrying value of $22.7 billion, which were recorded in the Consumer, GWIM and Global Banking segments. Since the PPP's inception through February 17, 2021, borrowers have submitted applications for forgiveness to us for approximately 113,000 PPP loans with balances totaling $10.9 billion. We have submitted approximately 72,000 PPP loans with balances totaling $8.5 billion to the SBA for repayment, of which we have received to date $5.4 billion in repayment from the SBA. Additionally, as of February 17, 2021, we have originated $4.1 billion in PPP loans under the Economic Aid Act. For more information on PPP loans, see Credit Risk Management on page 61, and for more information on accounting for PPP loans and loan modifications under the CARES Act, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
Community Partners
We continue to support the communities where we live and work by engaging in various initiatives to help those affected by COVID-19. These initiatives include committing resources to provide medical supplies, food and other necessities for those in need. We are also supporting racial equality, economic opportunity and environmental sustainability through direct equity investments in minority-owned depository institutions, equity investments in minority entrepreneurs, businesses and funds, as well as other initiatives.
Risk Management
We continue to manage the increased operational risk related to the execution of our business continuity plans in accordance with our Enterprise Response Framework, Risk Framework and Operational Risk Management Program. For more information, see Managing Risk on page 47.
Loan Modifications
The Corporation has implemented various consumer and commercial loan modification programs to provide its borrowers relief from the economic impacts of COVID-19. Based on guidance in the CARES Act that the Corporation adopted, COVID-19 related modifications to consumer and commercial loans that were current as of December 31, 2019 are exempt from troubled debt restructuring (TDR) classification under accounting principles generally accepted in the United States of America (GAAP). In addition, the bank regulatory agencies issued interagency guidance stating that COVID-19 related short-term modifications (i.e., six months or less) granted to consumer or commercial loans that were current as of the loan modification program implementation date are not TDRs. In December 2020, the Consolidated Appropriations Act amended the CARES Act by extending the exemption from TDR classification for COVID-19 related modifications from December 31, 2020 to the earlier of January 1, 2022 or 60 days after the national emergency has ended. For more information, see Note
1 – Summary of Significant Accounting Principles and Note 5 – Outstanding Loans and Leases and Allowance for Credit Lossesto the Consolidated Financial Statements.
We have provided borrowers with relief from the economic impacts of COVID-19 through payment deferral and forbearance programs. A significant portion of deferrals expired during the second half of 2020, reflecting a decline in customer requests for assistance. As of February 17, 2021, deferred consumer and small business loans recorded on the Consolidated Balance Sheet totaled $6.8 billion, predominantly consisting of $6.4 billion of residential mortgage and home equity loans, including loans serviced by others, that are well-collateralized.
Other Related Matters
Although the macroeconomic outlook improved modestly during the second half of 2020, the future direct and indirect impact of COVID-19 on our businesses, results of operations and financial condition of the Corporation remains highly uncertain. Should current economic conditions persist or deteriorate, this macroeconomic environment will have a continued adverse effect on our businesses and results of operations and could have an adverse effect on our financial condition. For more information on how the risks related to the pandemic may adversely affect our businesses, results of operations and financial condition, see Part I. Item 1A. Risk Factors on page 7.
LIBOR and Other Benchmark Rates
Following the 2017 announcement by the U.K.’s Financial Conduct Authority (FCA) that it would no longer compel participating banks to submit rates for the London Interbank Offered Rate (LIBOR) after 2021, regulators, trade associations and financial industry working groups have identified recommended replacement rates for LIBOR, as well as other Interbank Offered Rates (IBORs), and have published recommended conventions to allow new and existing products to incorporate fallbacks or that reference these Alternative Reference Rates (ARRs). The continuation of all British Pound Sterling, Euro, Swiss Franc and Japanese Yen LIBOR settings and one-week and two-month U.S. dollar LIBOR settings on the current basis are expected to terminate at the end of December 2021, and the remaining U.S. dollar LIBOR settings (i.e., overnight, one month, three month, six month and 12 month) are expected to terminate at the end of June 2023.
As a result of this and other announcements, financial benchmark reforms, regulatory guidance and changes in short-term interbank lending markets more generally, a major transition is in progress in global financial markets with respect to the replacement of IBORs and certain benchmarks. The transition of IBORs to ARRs is a complex process impacting a variety of global financial markets and our business and operations.
IBORs are used in many of the Corporation’s products and contracts, including derivatives, consumer and commercial loans, mortgages, floating-rate notes and other adjustable-rate products and financial instruments. The discontinuation of IBORs requires us to transition a significant number of IBOR-based products and contracts, including related hedging arrangements. In response, the Corporation established an enterprise-wide IBOR transition program led by senior management in early 2018. This program, which is led by the Corporation's Chief Operating Officer, includes active involvement of senior management and regular reports to the Enterprise Risk Committee (ERC). The program is intended to address the Corporation's industry and regulatory engagement, client and financial contract changes, internal and external communications, technology and operations modifications,
Selected Financial Data
Table 1 provides selected consolidated financial data for 2017 and 2016.
introduction of new products, migration of existing clients, and program strategy and governance. In addition, the program is designed to monitor a variety of scenarios, including operational risks associated with insufficient preparation by individual market participants or the overall market ecosystem, volatility along the Secured Overnight Financing Rate (SOFR) curve, development and adoption of credit-sensitive and other rates, regulatory and legal uncertainty with respect to various matters including contract continuity, access by market participants to liquidity in certain products, and IBOR continuity beyond December 2021.
As of February 1, 2021, a significant majority of the aggregate notional amount of our LIBOR-based products and contracts maturing after 2021 include or have been updated to include fallbacks to ARRs based on market driven protocols, regulatory guidance and industry-recommended fallback provisions and related mechanisms. For certain of the remaining products and contracts, the transition will be more complex, particularly where there is no industry-wide protocol or similar mechanism. The Corporation is executing transition plans that are intended to be in line with applicable major industry-wide IBOR product cessation and launch milestones recommended by the Alternative Reference Rates Committee, a group of private market participants and official sector entities convened by the Federal Reserve and the Federal Reserve Bank of New York, and the Bank of England Sterling Risk Free Rate Working Group, other than the cessation of LIBOR-based adjustable-rate consumer mortgages. The Corporation plans to no longer offer these mortgages and launch SOFR-based adjustable-rate consumer mortgages by the end of the first quarter of 2021.
The Corporation is executing product and client roadmaps that it believes align with industry-recommended and regulatory milestones, and the Corporation has developed employee training programs as well as other internal and external sources of information on the various challenges and opportunities that the replacement of IBORs presents. As the transition to ARRs evolves, the Corporation continues to monitor and participate in the development and usage of certain ARRs, including SOFR, the Euro Short Term Rate and the Sterling Overnight Index Average (SONIA). The Corporation’s key transition efforts to date include issuances of debt and deposits linked to SOFR and SONIA by the Corporation, facilitating debt issuances linked to ARRs by clients and secondary market liquidity for products linked to ARRs, originating and arranging loans linked to ARRs, including hedging arrangements, executing, trading, market making and clearing ARR-based derivatives, and launching capabilities and services to support the issuance and trading in products indexed to certain ARRs. The Corporation updated its operational models, systems, procedures and internal infrastructure in connection with the transition to ARRs by the central clearing counterparties. In October 2020, the Corporation and certain of its subsidiaries adhered to the International Swaps and Derivatives Association, Inc. 2020 IBOR Fallbacks Protocol, effective January 25, 2021, which provides a mechanism to enable market participants to incorporate fallbacks for certain legacy non-cleared derivatives linked to certain IBORs.
Additionally, the Corporation is continuing to evaluate potential regulatory, tax and accounting impacts of the transition, including guidance published and/or proposed by the Internal Revenue Service and Financial Accounting Standards Board, engage impacted clients in connection with the transition to ARRs and work actively with global regulators, industry working groups and trade associations to develop strategies for an effective transition to ARRs. For more information on the
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| Table 1 | Selected Financial Data | | | |
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| (Dollars in millions, except per share information) | 2017 | | 2016 |
| Income statement | | | |
| Revenue, net of interest expense | $ | 87,352 |
| | $ | 83,701 |
|
| Net income | 18,232 |
| | 17,822 |
|
| Diluted earnings per common share | 1.56 |
| | 1.49 |
|
| Dividends paid per common share | 0.39 |
| | 0.25 |
|
| Performance ratios | | | |
| Return on average assets | 0.80 | % | | 0.81 | % |
| Return on average common shareholders’ equity | 6.72 |
| | 6.69 |
|
Return on average tangible common shareholders’ equity (1) | 9.41 |
| | 9.51 |
|
| Efficiency ratio | 62.67 |
| | 65.81 |
|
| Balance sheet at year end | |
| | |
|
| Total loans and leases | $ | 936,749 |
| | $ | 906,683 |
|
| Total assets | 2,281,234 |
| | 2,188,067 |
|
| Total deposits | 1,309,545 |
| | 1,260,934 |
|
| Total common shareholders’ equity | 244,823 |
| | 240,975 |
|
| Total shareholders’ equity | 267,146 |
| | 266,195 |
|
| |
(1)
| Return on average tangible common shareholders’ equity is a non-GAAP financial measure. For more information and a corresponding reconciliation to accounting principles generally accepted in the United States of America (GAAP) financial measures, see Non-GAAP Reconciliations on page 88.
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expected replacement of LIBOR and other benchmark rates, see Item 1A. Risk Factors – Other on page 19.
On January 31, 2020, the U.K. formally exited the European Union (EU), and a transition period began during which time the U.K. and the EU negotiated a trade agreement and other terms associated with their future relationship. The transition period ended on December 31, 2020.
We conduct business in Europe, the Middle East and Africa primarily through our subsidiaries in the U.K., Ireland and France and implemented changes to enable us to continue to operate in the region, including establishing a bank and broker-dealer in the EU, as well as minimize the potential for any operational disruption. As the global economic impact of the U.K.’s withdrawal from the EU remains uncertain and could result in regional and global financial market disruptions, we continue to assess potential operational, regulatory and legal risks. For more information, see Item 1A. Risk Factors – Geopolitical on page 12.
Financial Highlights
Net income was $18.2 billion, or $1.56 per diluted share in 2017 compared to $17.8 billion, or $1.49 per diluted share in 2016. The results for 2017 include an estimated charge of $2.9 billion related toEffective January 1, 2020, we adopted the Tax Act. The pre-tax results for 2017 compared to 2016 were driven by higher revenue, largely the result of an increase in net interest income, lower provision fornew accounting standard on current expected credit losses and a decline in noninterest expense.
Effective October 1, 2017, we changed our accounting method for determining when certain stock-based compensation awards granted to retirement-eligible employees are deemed authorized, changing from(CECL), under which the grant date to the beginningallowance is measured based on management’s best estimate of lifetime expected credit losses (ECL). Prior-year periods presented reflect measurement of the year preceding the grant date when the incentive award plans are generally approved. As a result, the estimated valueallowance based on management’s estimate of the awards is now expensed ratably over the year preceding the grant date. All prior periods presented herein have been restated for this change in accounting method. The change affected consolidated financial information and All Other; it did not affect the business segments. Under the applicable bank regulatory rules, we are not required to and, accordingly, did not restate previously-filed capital metrics and ratios. The cumulative impact of the change in accounting
method resulted in an insignificant pro forma change to our capital metrics and ratios.probable incurred credit losses. For more information, see Note 1 -– Summary of Significant Accounting Principles to the Consolidated Financial Statements.
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| Table 1 | Summary Income Statement and Selected Financial Data |
| | | | | | | | |
| | | | |
| (Dollars in millions, except per share information) | | | | | 2020 | | 2019 |
| Income statement | | | | | | | |
| Net interest income | | | | | $ | 43,360 | | | $ | 48,891 | |
| Noninterest income | | | | | 42,168 | | | 42,353 | |
| Total revenue, net of interest expense | | | | | 85,528 | | | 91,244 | |
| Provision for credit losses | | | | | 11,320 | | | 3,590 | |
| Noninterest expense | | | | | 55,213 | | | 54,900 | |
| Income before income taxes | | | | | 18,995 | | | 32,754 | |
| Income tax expense | | | | | 1,101 | | | 5,324 | |
| Net income | | | | | 17,894 | | | 27,430 | |
| Preferred stock dividends | | | | | 1,421 | | | 1,432 | |
| Net income applicable to common shareholders | | | | | $ | 16,473 | | | $ | 25,998 | |
| | | | | | | | |
| Per common share information | | | | | | | |
| Earnings | | | | | $ | 1.88 | | | $ | 2.77 | |
| Diluted earnings | | | | | 1.87 | | | 2.75 | |
| Dividends paid | | | | | 0.72 | | | 0.66 | |
| Performance ratios | | | | | | | |
Return on average assets (1) | | | | | 0.67 | % | | 1.14 | % |
Return on average common shareholders’ equity (1) | | | | | 6.76 | | | 10.62 | |
Return on average tangible common shareholders’ equity (2) | | | | | 9.48 | | | 14.86 | |
Efficiency ratio (1) | | | | | 64.55 | | | 60.17 | |
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| | | | | |
| Balance sheet at year end | | | | | | | |
| Total loans and leases | | | | | $ | 927,861 | | | $ | 983,426 | |
| Total assets | | | | | 2,819,627 | | | 2,434,079 | |
| Total deposits | | | | | 1,795,480 | | | 1,434,803 | |
| Total liabilities | | | | | 2,546,703 | | | 2,169,269 | |
| Total common shareholders’ equity | | | | | 248,414 | | | 241,409 | |
| Total shareholders’ equity | | | | | 272,924 | | | 264,810 | |
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| Table 2 | Summary Income Statement | | | |
| | | | | |
| (Dollars in millions) | 2017 | | 2016 |
| Net interest income | $ | 44,667 |
| | $ | 41,096 |
|
| Noninterest income | 42,685 |
| | 42,605 |
|
| Total revenue, net of interest expense | 87,352 |
| | 83,701 |
|
| Provision for credit losses | 3,396 |
| | 3,597 |
|
| Noninterest expense | 54,743 |
| | 55,083 |
|
| Income before income taxes | 29,213 |
| | 25,021 |
|
| Income tax expense | 10,981 |
| | 7,199 |
|
| Net income | 18,232 |
| | 17,822 |
|
| Preferred stock dividends | 1,614 |
| | 1,682 |
|
| Net income applicable to common shareholders | $ | 16,618 |
| | $ | 16,140 |
|
| | | | | |
| Per common share information | | | |
| Earnings | $ | 1.63 |
| | $ | 1.57 |
|
| Diluted earnings | 1.56 |
| | 1.49 |
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(2)Return on average tangible common shareholders’ equity is a non-GAAP financial measure. For more information and a corresponding reconciliation to the most closely related financial measures defined by accounting principles generally accepted in the United States of America, see Non-GAAP Reconciliations on page 88.
Net income was $17.9 billion or $1.87 per diluted share in 2020 compared to $27.4 billion or $2.75 per diluted share in 2019. The decline in net income was primarily due to higher provision for credit losses driven by the weaker economic outlook related to COVID-19 and lower net interest income.
For discussion and analysis of our consolidated and business segment results of operations for 2019 compared to 2018, see the Financial Highlights and Business Segment Operations sections in the MD&A of the Corporation's 2019 Annual Report on Form 10-K.
Net Interest Income
Net interest income increased $3.6decreased $5.5 billion to $44.7$43.4 billion in 20172020 compared to 2016.2019. Net interest yield on a fully taxable-equivalent (FTE) basis decreased 53 basis points (bps) to 1.90 percent for 2020. The decrease in net interest income was primarily driven by lower interest rates, partially offset by reduced deposit and funding costs, the deployment of excess deposits into securities and an additional day of interest accrual. Assuming continued economic improvement and based on the forward interest rate curve as of January 19, 2021, when we announced quarterly and annual results for the periods ended December 31, 2020, we expect net interest income to be higher in the second half of 2021 as compared to both the second half of 2020 and the first half of 2021. For more information on net interest yield increased 11 bps to 2.32 percentand the FTE basis, see Supplemental Financial Data on page 31, and for 2017. These increases were primarily driven by the benefits from higher interest rates and loan and deposit growth, partially offset by the sale of the non-U.S. consumer credit card business in the second quarter of 2017. For more information regardingon interest rate risk management, see Interest Rate Risk Management for the Banking Book on page 81.82.
| | | Table 2 | | Table 2 | Noninterest Income | | |
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| Table 3 | Noninterest Income | | | | |
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| (Dollars in millions) | (Dollars in millions) | 2017 | | 2016 | (Dollars in millions) | | 2020 | | 2019 |
| Fees and commissions: | | Fees and commissions: | | |
| Card income | Card income | $ | 5,902 |
| | $ | 5,851 |
| Card income | | $ | 5,656 | | | $ | 5,797 | |
| Service charges | Service charges | 7,818 |
| | 7,638 |
| Service charges | | 7,141 | | | 7,674 | |
| Investment and brokerage services | Investment and brokerage services | 13,281 |
| | 12,745 |
| Investment and brokerage services | | 14,574 | | | 13,902 | |
| Investment banking income | 6,011 |
| | 5,241 |
| |
| Trading account profits | 7,277 |
| | 6,902 |
| |
| Mortgage banking income | 224 |
| | 1,853 |
| |
| Gains on sales of debt securities | 255 |
| | 490 |
| |
| Investment banking fees | | Investment banking fees | | 7,180 | | | 5,642 | |
| Total fees and commissions | | Total fees and commissions | | 34,551 | | | 33,015 | |
| Market making and similar activities | | Market making and similar activities | | 8,355 | | | 9,034 | |
| | Other income | Other income | 1,917 |
| | 1,885 |
| Other income | | (738) | | | 304 | |
| | Total noninterest income | Total noninterest income | $ | 42,685 |
| | $ | 42,605 |
| Total noninterest income | | $ | 42,168 | | | $ | 42,353 | |
Noninterest income increaseddecreased$80185 million to $42.7$42.2 billion for 2017in 2020 compared to 2016.2019. The following highlights the significant changes.
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● | Service charges increased $180 million primarily driven by the impact of pricing strategies and higher treasury services-related revenue. |
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● | Investment and brokerage services income increased$536 million primarily driven by the impact of assets under management (AUM) flows and higher market valuations, partially offset by the impact of changing market dynamics on transactional revenue and AUM pricing.● Card income decreased $141 million primarily due to lower levels of consumer spending driven by the impact of COVID-19, partially offset by higher income related to the processing of unemployment insurance. ● Service charges decreased $533 million primarily due to higher deposit balances and lower client activity due to the impact of COVID-19. ● Investment and brokerage services income increased $672 million primarily due to higher client transactional activity, higher market valuations and assets under management (AUM) flows, partially offset by declines in AUM pricing. ● Investment banking fees increased $1.5 billion primarily driven by higher equity issuance fees. ● Market making and similar activities decreased $679 million primarily due to the impact of lower U.S. interest rates on certain risk management derivatives, partially offset by increased client activity and strong trading performance in fixed income, currencies and commodities (FICC). ● Other income decreased $1.0 billion primarily due to lower equity investment income, higher partnership losses on tax credit investments, primarily affordable housing and renewable energy, partially offset by higher gains on loan sales and sales of debt securities. |
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● | Investment banking income increased $770 million primarily due to higher advisory fees and higher debt and equity issuance fees. |
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● | 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. |
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● | Mortgage banking income decreased $1.6 billion primarily driven by lower net servicing income due to lower net mortgage servicing rights (MSR) results, and lower production income primarily due to lower volume. |
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● | Gains on sales of debt securities decreased $235 million primarily driven by lower activity. |
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● | Other income remained relatively unchanged. Included was a $793 million pre-tax gain recognized in connection with the sale of the non-U.S. consumer credit card business and a downward valuation adjustment of $946 million on tax-advantaged energy investments in connection with the Tax Act. |
Provision for Credit Losses
The provision for credit losses decreased $201 millionincreased $7.7 billion to $3.4$11.3 billion for 2017in 2020 compared to 20162019 primarily driven by higher ECL due to reductions in
energy exposures in the commercial portfolio and credit quality improvements in the consumer real estate portfolio. This was partially offset by portfolio seasoning and loan growth in the U.S. credit card portfolio and a single-name non-U.S. commercial charge-off.weaker economic outlook related to COVID-19. For more information on the provision for credit losses, see ProvisionAllowance for Credit Losses on page 72.76.
Noninterest Expense
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| Table 4 | Noninterest Expense | | | |
| | | |
| (Dollars in millions) | 2017 | | 2016 |
| Personnel | $ | 31,642 |
| | $ | 31,748 |
|
| Occupancy | 4,009 |
| | 4,038 |
|
| Equipment | 1,692 |
| | 1,804 |
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| Marketing | 1,746 |
| | 1,703 |
|
| Professional fees | 1,888 |
| | 1,971 |
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| Data processing | 3,139 |
| | 3,007 |
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| Telecommunications | 699 |
| | 746 |
|
| Other general operating | 9,928 |
| | 10,066 |
|
| Total noninterest expense | $ | 54,743 |
| | $ | 55,083 |
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| Table 3 | Noninterest Expense | | | | | | | |
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| (Dollars in millions) | | | | | 2020 | | 2019 |
| Compensation and benefits | | | | | $ | 32,725 | | | $ | 31,977 | |
| Occupancy and equipment | | | | | 7,141 | | | 6,588 | |
| Information processing and communications | | | | | 5,222 | | | 4,646 | |
| Product delivery and transaction related | | | | | 3,433 | | | 2,762 | |
| Marketing | | | | | 1,701 | | | 1,934 | |
| Professional fees | | | | | 1,694 | | | 1,597 | |
| Other general operating | | | | | 3,297 | | | 5,396 | |
| Total noninterest expense | | | | | $ | 55,213 | | | $ | 54,900 | |
Noninterest expense decreased $340increased $313 million to $54.7$55.2 billion for 2017in 2020 compared to 2016.2019. The decreaseincrease was primarily due to lowerhigher operating costs a reduction from the salerelated to COVID-19, merchant services expenses, which were previously recorded in other income as part of the non-U.S. consumer credit card businessjoint venture net earnings, and lower litigation expense,higher activity-based expenses due to increased client activity, partially offset by a $316 million$2.1 billion pretax impairment charge related to certain data centersthe notice of termination of the merchant services joint venture in the process of being sold and $145 million for the shared success discretionary year-end bonus awarded to certain employees.2019.
Income Tax Expense
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| Table 4 | Income Tax Expense | | | | | | | |
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| (Dollars in millions) | | | | | 2020 | | 2019 |
| Income before income taxes | | | | | $ | 18,995 | | | $ | 32,754 | |
| Income tax expense | | | | | 1,101 | | | 5,324 | |
| Effective tax rate | | | | | 5.8 | % | | 16.3 | % |
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| Table 5 | Income Tax Expense | | | |
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| (Dollars in millions) | 2017 | | 2016 |
| Income before income taxes | $ | 29,213 |
| | $ | 25,021 |
|
| Income tax expense | 10,981 |
| | 7,199 |
|
| Effective tax rate | 37.6 | % | | 28.8 | % |
TaxIncome tax expense was $1.1 billion for 2017 included a charge of $1.92020 compared to $5.3 billion reflecting the impact of the Tax Act discussed below. Included in the tax charge was $2.3 billion related primarily to a lower valuation of certain deferred tax assets and liabilities and a $347 million tax benefit on the pre-tax loss from the lower valuation of our tax-advantaged energy investments. Other than the impact of the Tax Act, the2019, resulting in an effective tax rate for 2017 was driven by our recurring tax preference benefits as well as an expense recognized in connection with the sale of the non-U.S. consumer credit card business, largely offset by benefits related5.8 percent compared to the adoption of the new accounting standard for the tax impact associated with share-based compensation and the restructuring of certain subsidiaries. The effective tax rate for 2016 was driven by our recurring tax preferences and net tax benefits related to various tax audit matters, partially offset by a charge for the impact of U.K. tax law changes enacted in 2016.16.3 percent.
On DecemberThe change in the effective tax rate for 2020 was driven by the impact of our recurring tax preference benefits on lower levels of pretax income. These benefits primarily consist of tax credits from environmental, social and governance (ESG) investments in affordable housing and renewable energy, aligning with our responsible growth strategy to address global sustainability challenges. Excluding tax credits related to our ESG investment activity, the effective tax rate for 2020 would have been 21 percent.
The 2020 rate also included the impact of the U.K. tax law change, whereby on July 22, 2017,2020, the President signed into lawU.K. enacted a repeal of the Tax Actfinal two percent of scheduled decreases in the U.K. corporation tax rate, which made significant changes to federalhad been previously enacted. This change will unfavorably affect income tax law including, among other things, reducingexpense on future U.K.
earnings, and requires a reversal of the statutory corporate income tax rate to 21 percent from 35 percent and changing the taxation of our non-U.S. business activities. Results for 2017 included an estimated reduction in net income of $2.9 billion dueadjustment to the Tax Act, driven largely by a lower valuation of certain U.S.U.K. net deferred tax assets and liabilities. Additionally,recognized at the change intime the corporatetax rate decreases were originally enacted. Accordingly, during the third quarter of 2020, the Corporation recorded an income tax benefit of approximately $700 million along with a corresponding increase to the U.K. net deferred tax assets.
The effective tax rate impacted our tax-advantaged energy investments, resulting in a downward valuation adjustment of $946 million recorded in other income that was fully offset byfor 2019 included net tax benefits arising from lower deferredprimarily related to the resolution of various tax liabilities on these investments. We have accounted for the effects of the Tax Act using reasonable estimates based on currently available
controversy matters.information and our interpretations thereof. This accounting may change due to, among other things, changes in interpretationsAbsent unusual items, we have made and the issuance of new tax or accounting guidance.
We expect the effective tax rate for 20182021 to be approximately 20 percent, absent unusual items.
Our U.K. deferred tax assets, which consist primarily of net operating losses, are expected to be realized by certain subsidiaries over a number of years. Significant changes to management’s earnings forecasts for those subsidiaries, changes in applicable laws, further changes in tax laws or changes in the abilityrange of 10 – 12 percent, reflecting tax credits related to our U.K. subsidiaries to conduct business in the EU, could lead management to reassess our ability to realize the U.K. deferred tax assets.ESG investment activity.
Balance Sheet Overview
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| Table 6 | Selected Balance Sheet Data | | | | | | |
| Table 5 | | Table 5 | Selected Balance Sheet Data | | |
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| | | December 31 | | | | | December 31 | | |
| (Dollars in millions) | (Dollars in millions) | 2017 | | 2016 | | % Change | (Dollars in millions) | 2020 | | 2019 | | % Change | |
| Assets | Assets | |
| | |
| | | Assets | | | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 157,434 |
| | $ | 147,738 |
| | 7 | % | Cash and cash equivalents | $ | 380,463 | | | $ | 161,560 | | | 135 | % | |
| Federal funds sold and securities borrowed or purchased under agreements to resell | Federal funds sold and securities borrowed or purchased under agreements to resell | 212,747 |
| | 198,224 |
| | 7 |
| Federal funds sold and securities borrowed or purchased under agreements to resell | 304,058 | | | 274,597 | | | 11 | | |
| Trading account assets | Trading account assets | 209,358 |
| | 180,209 |
| | 16 |
| Trading account assets | 198,854 | | | 229,826 | | | (13) | | |
| Debt securities | Debt securities | 440,130 |
| | 430,731 |
| | 2 |
| Debt securities | 684,850 | | | 472,197 | | | 45 | | |
| Loans and leases | Loans and leases | 936,749 |
| | 906,683 |
| | 3 |
| Loans and leases | 927,861 | | | 983,426 | | | (6) | | |
| Allowance for loan and lease losses | Allowance for loan and lease losses | (10,393 | ) | | (11,237 | ) | | (8 | ) | Allowance for loan and lease losses | (18,802) | | | (9,416) | | | 100 | | |
| All other assets | All other assets | 335,209 |
| | 335,719 |
| | — |
| All other assets | 342,343 | | | 321,889 | | | 6 | | |
| Total assets | Total assets | $ | 2,281,234 |
| | $ | 2,188,067 |
| | 4 |
| Total assets | $ | 2,819,627 | | | $ | 2,434,079 | | | 16 | | |
| Liabilities | Liabilities | | | | | | Liabilities | | | |
| Deposits | Deposits | $ | 1,309,545 |
| | $ | 1,260,934 |
| | 4 |
| Deposits | $ | 1,795,480 | | | $ | 1,434,803 | | | 25 | | |
| Federal funds purchased and securities loaned or sold under agreements to repurchase | Federal funds purchased and securities loaned or sold under agreements to repurchase | 176,865 |
| | 170,291 |
| | 4 |
| Federal funds purchased and securities loaned or sold under agreements to repurchase | 170,323 | | | 165,109 | | | 3 | | |
| Trading account liabilities | Trading account liabilities | 81,187 |
| | 63,031 |
| | 29 |
| Trading account liabilities | 71,320 | | | 83,270 | | | (14) | | |
| Short-term borrowings | Short-term borrowings | 32,666 |
| | 23,944 |
| | 36 |
| Short-term borrowings | 19,321 | | | 24,204 | | | (20) | | |
| Long-term debt | Long-term debt | 227,402 |
| | 216,823 |
| | 5 |
| Long-term debt | 262,934 | | | 240,856 | | | 9 | | |
| All other liabilities | All other liabilities | 186,423 |
| | 186,849 |
| | — |
| All other liabilities | 227,325 | | | 221,027 | | | 3 | | |
| Total liabilities | Total liabilities | 2,014,088 |
| | 1,921,872 |
| | 5 |
| Total liabilities | 2,546,703 | | | 2,169,269 | | | 17 | | |
| Shareholders’ equity | Shareholders’ equity | 267,146 |
| | 266,195 |
| | — |
| Shareholders’ equity | 272,924 | | | 264,810 | | | 3 | | |
| Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 2,281,234 |
| | $ | 2,188,067 |
| | 4 |
| Total liabilities and shareholders’ equity | $ | 2,819,627 | | | $ | 2,434,079 | | | 16 | | |
Assets
At December 31, 2017,2020, total assets were approximately $2.3$2.8 trillion, up $93.2$385.5 billion from December 31, 2016.2019. The increase in assets was primarily due to higher loans and leases drivencash held at central banks that was primarily funded by client demand for commercial loans, higher trading assets and securities borrowed or purchased under agreements to resell due to increased customer activity, and higher cash and cash equivalentsdeposit growth and debt securities, drivenpartially offset by the deployment of deposit inflows.a decline in loans and leases.
Cash and Cash Equivalents
Cash and cash equivalents increased $9.7$218.9 billion primarily driven by deposit growth and net debt issuances, partially offset by loan growth and net securities purchases..
Federal Funds Sold and Securities Borrowed or Purchased Under Agreements to Resell
Federal funds transactions involve lending reserve balances on a short-term basis. Securities borrowed or purchased under agreements to resell are collateralized lending transactions utilized to accommodate customer transactions, earn interest rate spreads, and obtain securities for settlement and for collateral. Federal funds sold and securities borrowed or purchased under agreements to resell increased $14.5$29.5 billion primarily due to a higher leveldeployment of customer financing activity.deposit inflows.
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 $29.1decreased $31.0 billion primarily driven by additionaldue to a decline in inventory in fixed-income, currencies and commodities (FICC) to meet expected client demand and increased client financing activities in equities within Global Markets.
Debt Securities
Debt securities primarily include U.S. Treasury and agency securities, MBS,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$212.7 billion primarily driven by the deployment of deposit inflows. For more information on debt securities, see Note 34 – Securities to the Consolidated Financial Statements.
Loans and Leases
Loans and leases increased $30.1decreased $55.6 billion compared to December 31, 2016. The increase was primarily driven by commercial loan paydowns, lower credit card spending and lower residential mortgages due to net loan growth driven by strong client demand for commercial loanshigher paydowns and increasesa decline in
residential mortgage. originations. For more information on the loan portfolio, see Credit Risk Management on page 54.61.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses decreased $844 millionincreased $9.4 billion primarily due to the weaker economic outlook related to COVID-19 and the impact of improvements inthe adoption of the new credit quality from a stronger economy.loss accounting standard. For more information, see Allowance for Credit Losses on page 72.76.
Liabilities
At December 31, 2017,2020, total liabilities were approximately $2.0$2.5 trillion, up $92.2$377.4 billion from December 31, 2016,2019, primarily due to an increase in deposits, higher trading account liabilities due to an increase in short positions, and higher long-term debt due to net issuances.deposit growth.
Deposits
Deposits increased $48.6$360.7 billion primarily due to an increase in retail and wholesale deposits.
Federal Funds Purchased and Securities Loaned or Sold Under Agreements to Repurchase
Federal funds transactions involve borrowing reserve balances on a short-term basis. Securities loaned or sold under agreements to repurchase are collateralized borrowing transactions utilized to accommodate customer transactions, earn interest rate spreads and finance assets on the balance sheet. Federal funds purchased and securities loaned or sold under agreements to repurchase increased $6.6$5.2 billion primarily due to an increase in repurchase agreements.driven by client activity within Global Markets.
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 $18.2decreased $12.0 billion primarily due to higher equitylower levels of short positions and higher levels of shortwithin Global Markets.
government 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 $8.7decreased $4.9 billion primarily due to an increase in short-term bank notes and short-term FHLB Advances.higher deposit levels. 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$22.1 billion primarily drivendue to debt issuances and valuation adjustments, partially offset 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$8.1 billion driven by earnings, largelynet income, market value increases on debt securities and issuances of preferred and common stock, partially offset by returnsthe return of capital to shareholders of $18.4totaling $14.7 billion through share repurchases and common and preferred stock dividends, as well as the impact of the adoption of the new credit loss accounting standard and share repurchases.the redemption of preferred stock.
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 49.57.
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| Table 7 | Five-year Summary of Selected Financial Data | | | | | | | | | |
| | | | | | | | | | | |
| (In millions, except per share information) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Income statement | | | | | |
| | |
| | |
|
| Net interest income | $ | 44,667 |
| | $ | 41,096 |
| | $ | 38,958 |
| | $ | 40,779 |
| | $ | 40,719 |
|
| Noninterest income | 42,685 |
| | 42,605 |
| | 44,007 |
| | 45,115 |
| | 46,783 |
|
| Total revenue, net of interest expense | 87,352 |
| | 83,701 |
| | 82,965 |
| | 85,894 |
| | 87,502 |
|
| Provision for credit losses | 3,396 |
| | 3,597 |
| | 3,161 |
| | 2,275 |
| | 3,556 |
|
| Noninterest expense | 54,743 |
| | 55,083 |
| | 57,617 |
| | 75,656 |
| | 69,213 |
|
| Income before income taxes | 29,213 |
| | 25,021 |
| | 22,187 |
| | 7,963 |
| | 14,733 |
|
| Income tax expense | 10,981 |
| | 7,199 |
| | 6,277 |
| | 2,443 |
| | 4,194 |
|
| Net income | 18,232 |
| | 17,822 |
| | 15,910 |
| | 5,520 |
| | 10,539 |
|
| Net income applicable to common shareholders | 16,618 |
| | 16,140 |
| | 14,427 |
| | 4,476 |
| | 9,190 |
|
| Average common shares issued and outstanding | 10,196 |
| | 10,284 |
| | 10,462 |
| | 10,528 |
| | 10,731 |
|
| Average diluted common shares issued and outstanding | 10,778 |
| | 11,047 |
| | 11,236 |
| | 10,585 |
| | 11,491 |
|
| Performance ratios | |
| | |
| | |
| | |
| | |
|
| Return on average assets | 0.80 | % | | 0.81 | % | | 0.74 | % | | 0.26 | % | | 0.49 | % |
| Return on average common shareholders’ equity | 6.72 |
| | 6.69 |
| | 6.28 |
| | 2.01 |
| | 4.21 |
|
Return on average tangible common shareholders’ equity (1) | 9.41 |
| | 9.51 |
| | 9.16 |
| | 2.98 |
| | 6.35 |
|
| Return on average shareholders’ equity | 6.72 |
| | 6.70 |
| | 6.33 |
| | 2.32 |
| | 4.51 |
|
Return on average tangible shareholders’ equity (1) | 9.08 |
| | 9.17 |
| | 8.88 |
| | 3.34 |
| | 6.58 |
|
| Total ending equity to total ending assets | 11.71 |
| | 12.17 |
| | 11.92 |
| | 11.57 |
| | 11.06 |
|
| Total average equity to total average assets | 11.96 |
| | 12.14 |
| | 11.64 |
| | 11.11 |
| | 10.81 |
|
| Dividend payout | 24.24 |
| | 15.94 |
| | 14.49 |
| | 28.20 |
| | 4.66 |
|
| Per common share data | |
| | |
| | |
| | |
| | |
|
| Earnings | $ | 1.63 |
| | $ | 1.57 |
| | $ | 1.38 |
| | $ | 0.43 |
| | $ | 0.86 |
|
| Diluted earnings | 1.56 |
| | 1.49 |
| | 1.31 |
| | 0.42 |
| | 0.83 |
|
| Dividends paid | 0.39 |
| | 0.25 |
| | 0.20 |
| | 0.12 |
| | 0.04 |
|
| Book value | 23.80 |
| | 23.97 |
| | 22.48 |
| | 21.32 |
| | 20.69 |
|
Tangible book value (1) | 16.96 |
| | 16.89 |
| | 15.56 |
| | 14.43 |
| | 13.77 |
|
| Market price per share of common stock | |
| | |
| | | | | | |
|
| Closing | $ | 29.52 |
| | $ | 22.10 |
| | $ | 16.83 |
| | $ | 17.89 |
| | $ | 15.57 |
|
| High closing | 29.88 |
| | 23.16 |
| | 18.45 |
| | 18.13 |
| | 15.88 |
|
| Low closing | 22.05 |
| | 11.16 |
| | 15.15 |
| | 14.51 |
| | 11.03 |
|
| Market capitalization | $ | 303,681 |
| | $ | 222,163 |
| | $ | 174,700 |
| | $ | 188,141 |
| | $ | 164,914 |
|
| Average balance sheet | |
| | |
| | |
| | |
| | |
|
| Total loans and leases | $ | 918,731 |
| | $ | 900,433 |
| | $ | 876,787 |
| | $ | 898,703 |
| | $ | 918,641 |
|
| Total assets | 2,268,633 |
| | 2,190,218 |
| | 2,160,536 |
| | 2,145,393 |
| | 2,163,296 |
|
| Total deposits | 1,269,796 |
| | 1,222,561 |
| | 1,155,860 |
| | 1,124,207 |
| | 1,089,735 |
|
| Long-term debt | 225,133 |
| | 228,617 |
| | 240,059 |
| | 253,607 |
| | 263,417 |
|
| Common shareholders’ equity | 247,101 |
| | 241,187 |
| | 229,576 |
| | 222,907 |
| | 218,340 |
|
| Total shareholders’ equity | 271,289 |
| | 265,843 |
| | 251,384 |
| | 238,317 |
| | 233,819 |
|
Asset quality (2) | |
| | |
| | |
| | |
| | |
|
Allowance for credit losses (3) | $ | 11,170 |
| | $ | 11,999 |
| | $ | 12,880 |
| | $ | 14,947 |
| | $ | 17,912 |
|
Nonperforming loans, leases and foreclosed properties (4) | 6,758 |
| | 8,084 |
| | 9,836 |
| | 12,629 |
| | 17,772 |
|
Allowance for loan and lease losses as a percentage of total loans and leases outstanding (4, 5) | 1.12 | % | | 1.26 | % | | 1.37 | % | | 1.66 | % | | 1.90 | % |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (4, 5) | 161 |
| | 149 |
| | 130 |
| | 121 |
| | 102 |
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the PCI loan portfolio (4, 5) | 156 |
| | 144 |
| | 122 |
| | 107 |
| | 87 |
|
Net charge-offs (6, 7) | $ | 3,979 |
| | $ | 3,821 |
| | $ | 4,338 |
| | $ | 4,383 |
| | $ | 7,897 |
|
Net charge-offs as a percentage of average loans and leases outstanding (4, 6) | 0.44 | % | | 0.43 | % | | 0.50 | % | | 0.49 | % | | 0.87 | % |
Net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio (4) | 0.44 |
| | 0.44 |
| | 0.51 |
| | 0.50 |
| | 0.90 |
|
Capital ratios at year end (8) | |
| | |
| | |
| | |
| | |
|
| Common equity tier 1 capital | 11.8 | % | | 11.0 | % | | 10.2 | % | | 12.3 | % | | n/a |
|
| Tier 1 common capital | n/a |
| | n/a |
| | n/a |
| | n/a |
| | 10.9 | % |
| Tier 1 capital | 13.2 |
| | 12.4 |
| | 11.3 |
| | 13.4 |
| | 12.2 |
|
| Total capital | 15.1 |
| | 14.3 |
| | 13.2 |
| | 16.5 |
| | 15.1 |
|
| Tier 1 leverage | 8.6 |
| | 8.9 |
| | 8.6 |
| | 8.2 |
| | 7.7 |
|
Tangible equity (1) | 8.9 |
| | 9.2 |
| | 8.9 |
| | 8.4 |
| | 7.8 |
|
Tangible common equity (1) | 7.9 |
| | 8.0 |
| | 7.8 |
| | 7.5 |
| | 7.2 |
|
| |
(1)
| Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. For more information on these ratios, see Supplemental Financial Data on page 27, and for corresponding reconciliations to GAAP financial measures, see Non-GAAP Reconciliations on page 88.
|
| |
(2)
| For more information on the impact of the purchased credit-impaired (PCI) loan portfolio on asset quality, see Consumer Portfolio Credit Risk Management on page 54.
|
| |
(3)
| Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments. |
| |
(4)
| Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 62 and corresponding Table 31, and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 67 and corresponding Table 38.
|
| |
(5)
| Asset quality metrics for 2016 include $243 million of non-U.S. credit card allowance for loan and lease losses and $9.2 billion of non-U.S. credit card loans, which were included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. In 2017, the Corporation sold its non-U.S. consumer credit card business. |
| |
(6)
| Net charge-offs exclude $207 million, $340 million, $808 million, $810 million and $2.3 billion of write-offs in the PCI loan portfolio for 2017, 2016, 2015, 2014 and 2013, respectively. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 60.
|
| |
(7)
| Includes net charge-offs of $75 million and $175 million on non-U.S. credit card loans in 2017 and 2016, which were included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. |
| |
(8)
| Risk-based capital ratios are reported under Basel 3 Advanced - Transition at December 31, 2017, 2016 and 2015. We reported risk-based capital ratios under Basel 3 Standardized - Transition at December 31, 2014 and under the general risk-based approach at December 31, 2013. For more information, see Capital Management on page 45.
|
n/a = not applicable
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Table 8 | Selected Quarterly Financial Data |
| | | | | | | | | | | | | | | | | |
| | | 2017 Quarters | | 2016 Quarters |
| (In millions, except per share information) | Fourth | | Third | | Second | | First | | Fourth | | Third | | Second | | First |
| Income statement | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Net interest income | $ | 11,462 |
| | $ | 11,161 |
| | $ | 10,986 |
| | $ | 11,058 |
| | $ | 10,292 |
| | $ | 10,201 |
| | $ | 10,118 |
| | $ | 10,485 |
|
Noninterest income (1) | 8,974 |
| | 10,678 |
| | 11,843 |
| | 11,190 |
| | 9,698 |
| | 11,434 |
| | 11,168 |
| | 10,305 |
|
| Total revenue, net of interest expense | 20,436 |
| | 21,839 |
| | 22,829 |
| | 22,248 |
| | 19,990 |
| | 21,635 |
| | 21,286 |
| | 20,790 |
|
| Provision for credit losses | 1,001 |
| | 834 |
| | 726 |
| | 835 |
| | 774 |
| | 850 |
| | 976 |
| | 997 |
|
| Noninterest expense | 13,274 |
| | 13,394 |
| | 13,982 |
| | 14,093 |
| | 13,413 |
| | 13,734 |
| | 13,746 |
| | 14,190 |
|
| Income before income taxes | 6,161 |
| | 7,611 |
| | 8,121 |
| | 7,320 |
| | 5,803 |
| | 7,051 |
| | 6,564 |
| | 5,603 |
|
Income tax expense (1) | 3,796 |
| | 2,187 |
| | 3,015 |
| | 1,983 |
| | 1,268 |
| | 2,257 |
| | 1,943 |
| | 1,731 |
|
Net income (1) | 2,365 |
| | 5,424 |
| | 5,106 |
| | 5,337 |
| | 4,535 |
| | 4,794 |
| | 4,621 |
| | 3,872 |
|
| Net income applicable to common shareholders | 2,079 |
| | 4,959 |
| | 4,745 |
| | 4,835 |
| | 4,174 |
| | 4,291 |
| | 4,260 |
| | 3,415 |
|
| Average common shares issued and outstanding | 10,471 |
| | 10,198 |
| | 10,014 |
| | 10,100 |
| | 10,170 |
| | 10,250 |
| | 10,328 |
| | 10,370 |
|
| Average diluted common shares issued and outstanding | 10,622 |
| | 10,747 |
| | 10,835 |
| | 10,920 |
| | 10,992 |
| | 11,034 |
| | 11,086 |
| | 11,108 |
|
| Performance ratios | |
| | |
| | |
| | |
| | |
| | | | |
| | |
|
| Return on average assets | 0.41 | % | | 0.95 | % | | 0.90 | % | | 0.97 | % | | 0.82 | % | | 0.87 | % | | 0.85 | % | | 0.72 | % |
Four quarter trailing return on average assets (2) | 0.80 |
| | 0.91 |
| | 0.89 |
| | 0.88 |
| | 0.81 |
| | 0.76 |
| | 0.75 |
| | 0.76 |
|
| Return on average common shareholders’ equity | 3.29 |
| | 7.89 |
| | 7.75 |
| | 8.09 |
| | 6.79 |
| | 7.02 |
| | 7.14 |
| | 5.80 |
|
Return on average tangible common shareholders’ equity (3) | 4.56 |
| | 10.98 |
| | 10.87 |
| | 11.44 |
| | 9.58 |
| | 9.94 |
| | 10.17 |
| | 8.32 |
|
| Return on average shareholders’ equity | 3.43 |
| | 7.88 |
| | 7.56 |
| | 8.09 |
| | 6.69 |
| | 7.10 |
| | 7.01 |
| | 5.99 |
|
Return on average tangible shareholders’ equity (3) | 4.62 |
| | 10.59 |
| | 10.23 |
| | 11.01 |
| | 9.09 |
| | 9.68 |
| | 9.61 |
| | 8.27 |
|
| Total ending equity to total ending assets | 11.71 |
| | 11.91 |
| | 12.00 |
| | 11.92 |
| | 12.17 |
| | 12.28 |
| | 12.21 |
| | 12.02 |
|
| Total average equity to total average assets | 11.87 |
| | 12.03 |
| | 11.94 |
| | 12.00 |
| | 12.21 |
| | 12.26 |
| | 12.11 |
| | 11.96 |
|
| Dividend payout | 60.35 |
| | 25.59 |
| | 15.78 |
| | 15.64 |
| | 18.37 |
| | 17.97 |
| | 12.17 |
| | 15.12 |
|
| Per common share data | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Earnings | $ | 0.20 |
| | $ | 0.49 |
| | $ | 0.47 |
| | $ | 0.48 |
| | $ | 0.41 |
| | $ | 0.42 |
| | $ | 0.41 |
| | $ | 0.33 |
|
| Diluted earnings | 0.20 |
| | 0.46 |
| | 0.44 |
| | 0.45 |
| | 0.39 |
| | 0.40 |
| | 0.39 |
| | 0.31 |
|
| Dividends paid | 0.12 |
| | 0.12 |
| | 0.075 |
| | 0.075 |
| | 0.075 |
| | 0.075 |
| | 0.05 |
| | 0.05 |
|
| Book value | 23.80 |
| | 23.87 |
| | 24.85 |
| | 24.34 |
| | 23.97 |
| | 24.14 |
| | 23.68 |
| | 23.13 |
|
Tangible book value (3) | 16.96 |
| | 17.18 |
| | 17.75 |
| | 17.22 |
| | 16.89 |
| | 17.09 |
| | 16.68 |
| | 16.18 |
|
| Market price per share of common stock | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Closing | $ | 29.52 |
| | $ | 25.34 |
| | $ | 24.26 |
| | $ | 23.59 |
| | $ | 22.10 |
| | $ | 15.65 |
| | $ | 13.27 |
| | $ | 13.52 |
|
| High closing | 29.88 |
| | 25.45 |
| | 24.32 |
| | 25.50 |
| | 23.16 |
| | 16.19 |
| | 15.11 |
| | 16.43 |
|
| Low closing | 25.45 |
| | 22.89 |
| | 22.23 |
| | 22.05 |
| | 15.63 |
| | 12.74 |
| | 12.18 |
| | 11.16 |
|
| Market capitalization | $ | 303,681 |
| | $ | 264,992 |
| | $ | 239,643 |
| | $ | 235,291 |
| | $ | 222,163 |
| | $ | 158,438 |
| | $ | 135,577 |
| | $ | 139,427 |
|
| Average balance sheet | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Total loans and leases | $ | 927,790 |
| | $ | 918,129 |
| | $ | 914,717 |
| | $ | 914,144 |
| | $ | 908,396 |
| | $ | 900,594 |
| | $ | 899,670 |
| | $ | 892,984 |
|
| Total assets | 2,301,687 |
| | 2,271,104 |
| | 2,269,293 |
| | 2,231,649 |
| | 2,208,391 |
| | 2,189,750 |
| | 2,188,410 |
| | 2,174,126 |
|
| Total deposits | 1,293,572 |
| | 1,271,711 |
| | 1,256,838 |
| | 1,256,632 |
| | 1,250,948 |
| | 1,227,186 |
| | 1,213,291 |
| | 1,198,455 |
|
| Long-term debt | 227,644 |
| | 227,309 |
| | 224,019 |
| | 221,468 |
| | 220,587 |
| | 227,269 |
| | 233,061 |
| | 233,654 |
|
| Common shareholders’ equity | 250,838 |
| | 249,214 |
| | 245,756 |
| | 242,480 |
| | 244,519 |
| | 243,220 |
| | 240,078 |
| | 236,871 |
|
| Total shareholders’ equity | 273,162 |
| | 273,238 |
| | 270,977 |
| | 267,700 |
| | 269,739 |
| | 268,440 |
| | 265,056 |
| | 260,065 |
|
Asset quality (4) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Allowance for credit losses (5) | $ | 11,170 |
| | $ | 11,455 |
| | $ | 11,632 |
| | $ | 11,869 |
| | $ | 11,999 |
| | $ | 12,459 |
| | $ | 12,587 |
| | $ | 12,696 |
|
Nonperforming loans, leases and foreclosed properties (6) | 6,758 |
| | 6,869 |
| | 7,127 |
| | 7,637 |
| | 8,084 |
| | 8,737 |
| | 8,799 |
| | 9,281 |
|
Allowance for loan and lease losses as a percentage of total loans and leases outstanding (6, 7) | 1.12 | % | | 1.16 | % | | 1.20 | % | | 1.25 | % | | 1.26 | % | | 1.30 | % | | 1.32 | % | | 1.35 | % |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (6, 7) | 161 |
| | 163 |
| | 160 |
| | 156 |
| | 149 |
| | 140 |
| | 142 |
| | 136 |
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the PCI loan portfolio (6, 7) | 156 |
| | 158 |
| | 154 |
| | 150 |
| | 144 |
| | 135 |
| | 135 |
| | 129 |
|
Net charge-offs (8, 9) | $ | 1,237 |
| | $ | 900 |
| | $ | 908 |
| | $ | 934 |
| | $ | 880 |
| | $ | 888 |
| | $ | 985 |
| | $ | 1,068 |
|
Annualized net charge-offs as a percentage of average loans and leases outstanding (6, 8) | 0.53 | % | | 0.39 | % | | 0.40 | % | | 0.42 | % | | 0.39 | % | | 0.40 | % | | 0.44 | % | | 0.48 | % |
Annualized net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio (6) | 0.54 |
| | 0.40 |
| | 0.41 |
| | 0.42 |
| | 0.39 |
| | 0.40 |
| | 0.45 |
| | 0.49 |
|
Capital ratios at period end (10) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Common equity tier 1 capital | 11.8 | % | | 11.9 | % | | 11.6 | % | | 11.0 | % | | 11.0 | % | | 11.0 | % | | 10.6 | % | | 10.3 | % |
| Tier 1 capital | 13.2 |
| | 13.3 |
| | 13.2 |
| | 12.5 |
| | 12.4 |
| | 12.4 |
| | 12.0 |
| | 11.5 |
|
| Total capital | 15.1 |
| | 15.1 |
| | 15.1 |
| | 14.4 |
| | 14.3 |
| | 14.2 |
| | 13.9 |
| | 13.4 |
|
| Tier 1 leverage | 8.6 |
| | 9.0 |
| | 8.9 |
| | 8.8 |
| | 8.9 |
| | 9.1 |
| | 8.9 |
| | 8.7 |
|
Tangible equity (3) | 8.9 |
| | 9.1 |
| | 9.2 |
| | 9.0 |
| | 9.2 |
| | 9.3 |
| | 9.2 |
| | 9.0 |
|
Tangible common equity (3) | 7.9 |
| | 8.1 |
| | 8.0 |
| | 7.9 |
| | 8.0 |
| | 8.1 |
| | 8.1 |
| | 7.9 |
|
| |
(1)
| Net income for the fourth quarter of 2017 included an estimated charge of $2.9 billion from enactment of the Tax Act which consisted of $946 million in noninterest income and $1.9 billion in income tax expense. For more information on Tax Act impacts, see Income Tax Expense on page 22. |
| |
(2)
| Calculated as total net income for four consecutive quarters divided by annualized average assets for four consecutive quarters. |
| |
(3)
| Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. For more information on these ratios, see Supplemental Financial Data on page 27, and for corresponding reconciliations to GAAP financial measures, see Non-GAAP Reconciliations on page 88.
|
| |
(4)
| For more information on the impact of the PCI loan portfolio on asset quality, see Consumer Portfolio Credit Risk Management on page 54.
|
| |
(5)
| Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments. |
| |
(6)
| Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 62 and corresponding Table 31, and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 67 and corresponding Table 38.
|
| |
(7)
| Asset quality metrics for the first quarter of 2017 and the fourth quarter of 2016 include $242 million and $243 million of non-U.S. credit card allowance for loan and lease losses and $9.5 billion and $9.2 billion of non-U.S. credit card loans, which were included in assets of business held for sale on the Consolidated Balance Sheet at March 31, 2017 and December 31, 2016. In 2017, the Corporation sold its non-U.S. consumer credit card business. |
| |
(8)
| Net charge-offs exclude $46 million, $73 million, $55 million and $33 million of write-offs in the PCI loan portfolio in the fourth, third, second and first quarters of 2017, respectively, and $70 million, $83 million, $82 million and $105 million in the fourth, third, second and first quarters of 2016, respectively. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 60.
|
| |
(9)
| Includes net charge-offs of $31 million, $44 million and $41 million on non-U.S. credit card loans in the second and first quarters of 2017, and in the fourth quarter of 2016, which were included in assets of business held for sale on the Consolidated Balance Sheet at March 31, 2017 and December 31, 2016. |
| |
(10)
| Risk-based capital ratios are reported under Basel 3 Advanced - Transition. For more information, see Capital Management on page 45.
|
Supplemental Financial Data
Non-GAAP Financial Measures
In this Form 10-K, we present certain non-GAAP financial measures. Non-GAAP financial measures exclude certain items or otherwise include components that differ from the most directly comparable measures calculated in accordance with GAAP. Non-GAAP financial measures are provided as additional useful information to assess our financial condition, results of operations (including period-to-period operating performance) or compliance with prospective regulatory requirements. These non-GAAP financial measures are not intended as a substitute for GAAP financial measures and may not be defined or calculated the same way as non-GAAP financial measures used by other companies.
We view net interest income and related ratios and analyses on a fully taxable-equivalent (FTE)an FTE basis, which when presented on a consolidated basis are non-GAAP financial measures. To derive the FTE basis, net interest income is adjusted to reflect tax-exempt income on an equivalent before-tax basis with a corresponding increase in income tax expense. For purposes of this calculation, we use the federal statutory tax rate of 3521 percent and a representative state tax rate. In addition, certain performance measures including the efficiency ratio and netNet interest yield, utilize net interest income (and thus total revenue) on an FTE basis. The efficiency ratiowhich measures the costs expended to generate a dollar of revenue, and net interest yield measures the bpsbasis points we earn over the cost of funds.funds, utilizes net interest income on an FTE basis. We believe that presentation of these items on an FTE basis allows for comparison of amounts from both taxable and tax-exempt sources and is consistent with industry practices.
We may present certain key performance indicators and ratios excluding certain items (e.g., debit valuation adjustment (DVA) gains (losses)) which result in non-GAAP financial measures. We believe that the presentation of measures that exclude these items areis useful because theysuch measures provide additional information to assess the underlying operational performance and trends of our businesses and to allow better comparison of period-to-period operating performance.
We also evaluate our business based on certain ratios that utilize tangible equity, a non-GAAP financial measure. Tangible
equity represents an adjusted shareholders’ equity or common shareholders’ equity amount which has been reduced by goodwill and certain acquired intangible assets (excluding MSRs)mortgage servicing rights (MSRs)), net of related deferred tax liabilities.liabilities ("adjusted" shareholders' equity or common shareholders' equity). These measures are used to evaluate our use of equity. In addition, profitability, relationship and investment models use both return on average tangible common shareholders’ equity and return on average tangible
shareholders’ equity as key measures to support our overall growth goals.objectives. These ratios are as follows:
| |
● | Return on average tangible common shareholders’ equity measures our earnings contribution as a percentage of adjusted common shareholders’ equity. The tangible common equity ratio represents adjusted ending common shareholders’ equity divided by total assets less goodwill and certain acquired intangible assets (excluding MSRs), net of related deferred tax liabilities. |
| |
● | Return on average tangible shareholders’ equity measures our earnings contribution as a percentage of adjusted average total shareholders’ equity. The tangible equity ratio represents adjusted ending shareholders’ equity divided by total assets less goodwill and certain acquired intangible assets (excluding MSRs), net of related deferred tax liabilities. |
| |
● | Tangible book value per common share represents adjusted ending common shareholders’ equity divided by ending common shares outstanding. |
● Return on average tangible common shareholders’ equity measures our net income applicable to common shareholders as a percentage of adjusted average common shareholders’ equity. The tangible common equity ratio represents adjusted ending common shareholders’ equity divided by total tangible assets.
● Return on average tangible shareholders' equity measures our net income as a percentage of adjusted average total shareholders’ equity. The tangible equity ratio represents adjusted ending shareholders’ equity divided by total tangible assets.
● Tangible book value per common share represents adjusted ending common shareholders’ equity divided by ending common shares outstanding.
We believe that the use of ratios that utilizeutilizing tangible equity providesprovide additional useful information because they present measures of those assets that can generate income. Tangible book value per common share provides additional useful information about the level of tangible assets in relation to outstanding shares of common stock.
The aforementioned supplemental data and performance measures are presented in Tables 76 and 8.7.
For more information on the reconciliation of these non-GAAP financial measures to the corresponding GAAP financial measures, see Non-GAAP Reconciliations on page 88.
Key Performance Indicators
We present certain key financial and nonfinancial performance indicators (key performance indicators) that management uses when assessing our consolidated and/or segment results. We believe they are useful to investors because they provide additional information about our underlying operational performance and trends. These key performance indicators (KPIs) may not be defined or calculated in the same way as similar KPIs used by other companies. For information on how these metrics are defined, see Key Metrics on page 173.
Our consolidated key performance indicators, which include various equity and credit metrics, are presented in Table 1 on page 27 and/or Tables 6 and 7 on pages 32 and 33.
For information on key segment performance metrics, see Business Segment Operations on page 36.
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| Table 9 | Average Balances and Interest Rates - FTE Basis |
| | | | | | | | | | | | | | | | | | | |
| | | Average
Balance | | Interest
Income/
Expense | | Yield/
Rate | | Average
Balance | | Interest
Income/
Expense | | Yield/
Rate | | Average
Balance | | Interest
Income/
Expense | | Yield/
Rate |
| (Dollars in millions) | 2017 | | 2016 | | 2015 |
| Earning assets | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks | $ | 127,431 |
| | $ | 1,122 |
| | 0.88 | % | | $ | 133,374 |
| | $ | 605 |
| | 0.45 | % | | $ | 136,391 |
| | $ | 369 |
| | 0.27 | % |
| Time deposits placed and other short-term investments | 12,112 |
| | 241 |
| | 1.99 |
| | 9,026 |
| | 140 |
| | 1.55 |
| | 9,556 |
| | 146 |
| | 1.53 |
|
| Federal funds sold and securities borrowed or purchased under agreements to resell | 222,818 |
| | 2,390 |
| | 1.07 |
| | 216,161 |
| | 1,118 |
| | 0.52 |
| | 211,471 |
| | 988 |
| | 0.47 |
|
| Trading account assets | 129,007 |
| | 4,618 |
| | 3.58 |
| | 129,766 |
| | 4,563 |
| | 3.52 |
| | 137,837 |
| | 4,547 |
| | 3.30 |
|
| Debt securities | 435,005 |
| | 10,626 |
| | 2.44 |
| | 418,289 |
| | 9,263 |
| | 2.23 |
| | 390,849 |
| | 9,233 |
| | 2.38 |
|
Loans and leases (1): | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Residential mortgage | 197,766 |
| | 6,831 |
| | 3.45 |
| | 188,250 |
| | 6,488 |
| | 3.45 |
| | 201,366 |
| | 6,967 |
| | 3.46 |
|
| Home equity | 62,260 |
| | 2,608 |
| | 4.19 |
| | 71,760 |
| | 2,713 |
| | 3.78 |
| | 81,070 |
| | 2,984 |
| | 3.68 |
|
| U.S. credit card | 91,068 |
| | 8,791 |
| | 9.65 |
| | 87,905 |
| | 8,170 |
| | 9.29 |
| | 88,244 |
| | 8,085 |
| | 9.16 |
|
Non-U.S. credit card (2) | 3,929 |
| | 358 |
| | 9.12 |
| | 9,527 |
| | 926 |
| | 9.72 |
| | 10,104 |
| | 1,051 |
| | 10.40 |
|
Direct/Indirect consumer (3) | 93,374 |
| | 2,622 |
| | 2.81 |
| | 91,853 |
| | 2,296 |
| | 2.50 |
| | 84,585 |
| | 2,040 |
| | 2.41 |
|
Other consumer (4) | 2,628 |
| | 112 |
| | 4.23 |
| | 2,295 |
| | 75 |
| | 3.26 |
| | 1,938 |
| | 56 |
| | 2.86 |
|
| Total consumer | 451,025 |
| | 21,322 |
| | 4.73 |
| | 451,590 |
| | 20,668 |
| | 4.58 |
| | 467,307 |
| | 21,183 |
| | 4.53 |
|
| U.S. commercial | 292,452 |
| | 9,765 |
| | 3.34 |
| | 276,887 |
| | 8,101 |
| | 2.93 |
| | 248,354 |
| | 6,883 |
| | 2.77 |
|
Commercial real estate (5) | 58,502 |
| | 2,116 |
| | 3.62 |
| | 57,547 |
| | 1,773 |
| | 3.08 |
| | 52,136 |
| | 1,521 |
| | 2.92 |
|
| Commercial lease financing | 21,747 |
| | 706 |
| | 3.25 |
| | 21,146 |
| | 627 |
| | 2.97 |
| | 19,802 |
| | 628 |
| | 3.17 |
|
| Non-U.S. commercial | 95,005 |
| | 2,566 |
| | 2.70 |
| | 93,263 |
| | 2,337 |
| | 2.51 |
| | 89,188 |
| | 2,008 |
| | 2.25 |
|
| Total commercial | 467,706 |
| | 15,153 |
| | 3.24 |
| | 448,843 |
| | 12,838 |
| | 2.86 |
| | 409,480 |
| | 11,040 |
| | 2.70 |
|
Total loans and leases (2) | 918,731 |
| | 36,475 |
| | 3.97 |
| | 900,433 |
| | 33,506 |
| | 3.72 |
| | 876,787 |
| | 32,223 |
| | 3.68 |
|
| Other earning assets | 76,957 |
| | 3,032 |
| | 3.94 |
| | 59,775 |
| | 2,762 |
| | 4.62 |
| | 62,040 |
| | 2,890 |
| | 4.66 |
|
Total earning assets (6) | 1,922,061 |
| | 58,504 |
| | 3.04 |
| | 1,866,824 |
| | 51,957 |
| | 2.78 |
| | 1,824,931 |
| | 50,396 |
| | 2.76 |
|
| Cash and due from banks | 27,995 |
| | | | |
| | 27,893 |
| | | | |
| | 28,921 |
| | | | |
|
| Other assets, less allowance for loan and lease losses | 318,577 |
| | |
| | |
| | 295,501 |
| | |
| | |
| | 306,684 |
| | |
| | |
|
| Total assets | $ | 2,268,633 |
| | |
| | |
| | $ | 2,190,218 |
| | |
| | |
| | $ | 2,160,536 |
| | |
| | |
|
| Interest-bearing liabilities | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| U.S. interest-bearing deposits: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Savings | $ | 53,783 |
| | $ | 5 |
| | 0.01 | % | | $ | 49,495 |
| | $ | 5 |
| | 0.01 | % | | $ | 46,498 |
| | $ | 7 |
| | 0.01 | % |
| NOW and money market deposit accounts | 628,647 |
| | 873 |
| | 0.14 |
| | 589,737 |
| | 294 |
| | 0.05 |
| | 543,133 |
| | 273 |
| | 0.05 |
|
| Consumer CDs and IRAs | 44,794 |
| | 121 |
| | 0.27 |
| | 48,594 |
| | 133 |
| | 0.27 |
| | 54,679 |
| | 162 |
| | 0.30 |
|
| Negotiable CDs, public funds and other deposits | 36,782 |
| | 354 |
| | 0.96 |
| | 32,889 |
| | 160 |
| | 0.49 |
| | 29,976 |
| | 95 |
| | 0.32 |
|
| Total U.S. interest-bearing deposits | 764,006 |
| | 1,353 |
| | 0.18 |
| | 720,715 |
| | 592 |
| | 0.08 |
| | 674,286 |
| | 537 |
| | 0.08 |
|
| Non-U.S. interest-bearing deposits: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Banks located in non-U.S. countries | 2,442 |
| | 21 |
| | 0.85 |
| | 3,891 |
| | 32 |
| | 0.82 |
| | 4,473 |
| | 31 |
| | 0.70 |
|
| Governments and official institutions | 1,006 |
| | 10 |
| | 0.95 |
| | 1,437 |
| | 9 |
| | 0.64 |
| | 1,492 |
| | 5 |
| | 0.33 |
|
| Time, savings and other | 62,386 |
| | 547 |
| | 0.88 |
| | 59,183 |
| | 382 |
| | 0.65 |
| | 54,767 |
| | 288 |
| | 0.53 |
|
| Total non-U.S. interest-bearing deposits | 65,834 |
| | 578 |
| | 0.88 |
| | 64,511 |
| | 423 |
| | 0.66 |
| | 60,732 |
| | 324 |
| | 0.53 |
|
| Total interest-bearing deposits | 829,840 |
| | 1,931 |
| | 0.23 |
| | 785,226 |
| | 1,015 |
| | 0.13 |
| | 735,018 |
| | 861 |
| | 0.12 |
|
| Federal funds purchased, securities loaned or sold under agreements to repurchase, short-term borrowings and other interest-bearing liabilities | 273,097 |
| | 3,538 |
| | 1.30 |
| | 251,236 |
| | 2,350 |
| | 0.94 |
| | 275,785 |
| | 2,387 |
| | 0.87 |
|
| Trading account liabilities | 45,518 |
| | 1,204 |
| | 2.64 |
| | 37,897 |
| | 1,018 |
| | 2.69 |
| | 46,206 |
| | 1,343 |
| | 2.91 |
|
| Long-term debt | 225,133 |
| | 6,239 |
| | 2.77 |
| | 228,617 |
| | 5,578 |
| | 2.44 |
| | 240,059 |
| | 5,958 |
| | 2.48 |
|
Total interest-bearing liabilities (6) | 1,373,588 |
| | 12,912 |
| | 0.94 |
| | 1,302,976 |
| | 9,961 |
| | 0.76 |
| | 1,297,068 |
| | 10,549 |
| | 0.81 |
|
| Noninterest-bearing sources: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Noninterest-bearing deposits | 439,956 |
| | |
| | |
| | 437,335 |
| | |
| | |
| | 420,842 |
| | |
| | |
|
| Other liabilities | 183,800 |
| | |
| | |
| | 184,064 |
| | |
| | |
| | 191,242 |
| | |
| | |
|
| Shareholders’ equity | 271,289 |
| | |
| | |
| | 265,843 |
| | |
| | |
| | 251,384 |
| | |
| | |
|
| Total liabilities and shareholders’ equity | $ | 2,268,633 |
| | |
| | |
| | $ | 2,190,218 |
| | |
| | |
| | $ | 2,160,536 |
| | |
| | |
|
| Net interest spread | |
| | |
| | 2.10 | % | | |
| | |
| | 2.02 | % | | |
| | |
| | 1.95 | % |
| Impact of noninterest-bearing sources | |
| | |
| | 0.27 |
| | |
| | |
| | 0.23 |
| | |
| | |
| | 0.24 |
|
| Net interest income/yield on earning assets | |
| | $ | 45,592 |
| | 2.37 | % | | |
| | $ | 41,996 |
| | 2.25 | % | | |
| | $ | 39,847 |
| | 2.19 | % |
| |
(1)
| Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis. PCI loans are recorded at fair value upon acquisition and accrete interest income over the estimated life of the loan. |
| |
(2)
| Includes assets of the Corporation’s non-U.S. consumer credit card business, which was sold during the second quarter of 2017. |
| |
(3)
| Includes non-U.S. consumer loans of $2.9 billion, $3.4 billion and $4.0 billion in 2017, 2016 and 2015, respectively.
|
| |
(4)
| Includes consumer finance loans of $321 million, $514 million and $619 million; consumer leases of $2.1 billion, $1.6 billion and $1.2 billion, and consumer overdrafts of $179 million, $173 million and $156 million in 2017, 2016 and 2015, respectively.
|
| |
(5)
| Includes U.S. commercial real estate loans of $55.0 billion, $54.2 billion and $49.0 billion, and non-U.S. commercial real estate loans of $3.5 billion, $3.4 billion and $3.1 billion in 2017, 2016 and 2015, respectively.
|
| |
(6)
| Interest income includes the impact of interest rate risk management contracts, which decreased interest income on the underlying assets by $44 million, $176 million and $59 million in 2017, 2016 and 2015, respectively. Interest expense includes the impact of interest rate risk management contracts, which decreased interest expense on the underlying liabilities by $1.4 billion, $2.1 billion and $2.4 billion in 2017, 2016 and 2015, respectively. For more information, see Interest Rate Risk Management for the Banking Book on page 81.
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| Table 10 | Analysis of Changes in Net Interest Income - FTE Basis |
| | | | | | | | | | | | | |
| | | Due to Change in (1) | | Net Change | | Due to Change in (1) | | Net Change |
| | Volume | | Rate | | | Volume | | Rate | |
| (Dollars in millions) | From 2016 to 2017 | | From 2015 to 2016 |
| Increase (decrease) in interest income | |
| | |
| | |
| | |
| | |
| | |
|
| Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks | $ | (32 | ) | | $ | 549 |
| | $ | 517 |
| | $ | (9 | ) | | $ | 245 |
| | $ | 236 |
|
| Time deposits placed and other short-term investments | 48 |
| | 53 |
| | 101 |
| | (8 | ) | | 2 |
| | (6 | ) |
| Federal funds sold and securities borrowed or purchased under agreements to resell | 41 |
| | 1,231 |
| | 1,272 |
| | 28 |
| | 102 |
| | 130 |
|
| Trading account assets | (22 | ) | | 77 |
| | 55 |
| | (265 | ) | | 281 |
| | 16 |
|
| Debt securities | 438 |
| | 925 |
| | 1,363 |
| | 722 |
| | (692 | ) | | 30 |
|
| Loans and leases: | | | | | | | |
| | |
| | |
|
| Residential mortgage | 335 |
| | 8 |
| | 343 |
| | (454 | ) | | (25 | ) | | (479 | ) |
| Home equity | (360 | ) | | 255 |
| | (105 | ) | | (343 | ) | | 72 |
| | (271 | ) |
| U.S. credit card | 290 |
| | 331 |
| | 621 |
| | (33 | ) | | 118 |
| | 85 |
|
| Non-U.S. credit card | (544 | ) | | (24 | ) | | (568 | ) | | (60 | ) | | (65 | ) | | (125 | ) |
| Direct/Indirect consumer | 38 |
| | 288 |
| | 326 |
| | 174 |
| | 82 |
| | 256 |
|
| Other consumer | 11 |
| | 26 |
| | 37 |
| | 10 |
| | 9 |
| | 19 |
|
| Total consumer | |
| | |
| | 654 |
| | |
| | |
| | (515 | ) |
| U.S. commercial | 468 |
| | 1,196 |
| | 1,664 |
| | 787 |
| | 431 |
| | 1,218 |
|
| Commercial real estate | 29 |
| | 314 |
| | 343 |
| | 159 |
| | 93 |
| | 252 |
|
| Commercial lease financing | 19 |
| | 60 |
| | 79 |
| | 42 |
| | (43 | ) | | (1 | ) |
| Non-U.S. commercial | 48 |
| | 181 |
| | 229 |
| | 90 |
| | 239 |
| | 329 |
|
| Total commercial | |
| | |
| | 2,315 |
| | |
| | |
| | 1,798 |
|
| Total loans and leases | |
| | |
| | 2,969 |
| | |
| | |
| | 1,283 |
|
| Other earning assets | 793 |
| | (523 | ) | | 270 |
| | (104 | ) | | (24 | ) | | (128 | ) |
| Total interest income | |
| | |
| | $ | 6,547 |
| | |
| | |
| | $ | 1,561 |
|
| Increase (decrease) in interest expense | |
| | |
| | |
| | |
| | |
| | |
|
| U.S. interest-bearing deposits: | |
| | |
| | |
| | |
| | |
| | |
|
| Savings | $ | — |
| | $ | — |
| | $ | — |
| | $ | (2 | ) | | $ | — |
| | $ | (2 | ) |
| NOW and money market deposit accounts | 20 |
| | 559 |
| | 579 |
| | 22 |
| | (1 | ) | | 21 |
|
| Consumer CDs and IRAs | (12 | ) | | — |
| | (12 | ) | | (16 | ) | | (13 | ) | | (29 | ) |
| Negotiable CDs, public funds and other deposits | 20 |
| | 174 |
| | 194 |
| | 10 |
| | 55 |
| | 65 |
|
| Total U.S. interest-bearing deposits | |
| | |
| | 761 |
| | |
| | |
| | 55 |
|
| Non-U.S. interest-bearing deposits: | |
| | |
| | |
| | |
| | |
| | |
|
| Banks located in non-U.S. countries | (12 | ) | | 1 |
| | (11 | ) | | (4 | ) | | 5 |
| | 1 |
|
| Governments and official institutions | (3 | ) | | 4 |
| | 1 |
| | — |
| | 4 |
| | 4 |
|
| Time, savings and other | 24 |
| | 141 |
| | 165 |
| | 26 |
| | 68 |
| | 94 |
|
| Total non-U.S. interest-bearing deposits | |
| | |
| | 155 |
| | |
| | |
| | 99 |
|
| Total interest-bearing deposits | |
| | |
| | 916 |
| | |
| | |
| | 154 |
|
| Federal funds purchased, securities loaned or sold under agreements to repurchase, short-term borrowings and other interest-bearing liabilities | 217 |
| | 971 |
| | 1,188 |
| | (201 | ) | | 164 |
| | (37 | ) |
| Trading account liabilities | 206 |
| | (20 | ) | | 186 |
| | (240 | ) | | (85 | ) | | (325 | ) |
| Long-term debt | (85 | ) | | 746 |
| | 661 |
| | (288 | ) | | (92 | ) | | (380 | ) |
| Total interest expense | |
| | |
| | 2,951 |
| | |
| | |
| | (588 | ) |
| Net increase in net interest income | |
| | |
| | $ | 3,596 |
| | |
| | |
| | $ | 2,149 |
|
| |
(1)
| The changes for each category of interest income and expense are divided between the portion of change attributable to the variance in volume and the portion of change attributable to the variance in rate for that category. The unallocated change in rate or volume variance is allocated between the rate and volume variances. |
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| Table 6 | Five-year Summary of Selected Financial Data | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| (In millions, except per share information) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | | | | | | | | | |
| Income statement | | | | | | | | | | | | | | | | | | | |
| Net interest income | $ | 43,360 | | | $ | 48,891 | | | $ | 48,162 | | | $ | 45,239 | | | $ | 41,486 | | | | | | | | | | | |
| Noninterest income | 42,168 | | | 42,353 | | | 42,858 | | | 41,887 | | | 42,012 | | | | | | | | | | | |
| Total revenue, net of interest expense | 85,528 | | | 91,244 | | | 91,020 | | | 87,126 | | | 83,498 | | | | | | | | | | | |
| Provision for credit losses | 11,320 | | | 3,590 | | | 3,282 | | | 3,396 | | | 3,597 | | | | | | | | | | | |
| Noninterest expense | 55,213 | | | 54,900 | | | 53,154 | | | 54,517 | | | 54,880 | | | | | | | | | | | |
| Income before income taxes | 18,995 | | | 32,754 | | | 34,584 | | | 29,213 | | | 25,021 | | | | | | | | | | | |
| Income tax expense | 1,101 | | | 5,324 | | | 6,437 | | | 10,981 | | | 7,199 | | | | | | | | | | | |
| Net income | 17,894 | | | 27,430 | | | 28,147 | | | 18,232 | | | 17,822 | | | | | | | | | | | |
| Net income applicable to common shareholders | 16,473 | | | 25,998 | | | 26,696 | | | 16,618 | | | 16,140 | | | | | | | | | | | |
| Average common shares issued and outstanding | 8,753.2 | | | 9,390.5 | | | 10,096.5 | | | 10,195.6 | | | 10,248.1 | | | | | | | | | | | |
| Average diluted common shares issued and outstanding | 8,796.9 | | | 9,442.9 | | | 10,236.9 | | | 10,778.4 | | | 11,046.8 | | | | | | | | | | | |
| Performance ratios | | | | | | | | | | | | | | | | | | | |
Return on average assets (1) | 0.67 | % | | 1.14 | % | | 1.21 | % | | 0.80 | % | | 0.81 | % | | | | | | | | | | |
Return on average common shareholders’ equity (1) | 6.76 | | | 10.62 | | | 11.04 | | | 6.72 | | | 6.69 | | | | | | | | | | | |
Return on average tangible common shareholders’ equity (2) | 9.48 | | | 14.86 | | | 15.55 | | | 9.41 | | | 9.51 | | | | | | | | | | | |
Return on average shareholders’ equity (1) | 6.69 | | | 10.24 | | | 10.63 | | | 6.72 | | | 6.70 | | | | | | | | | | | |
Return on average tangible shareholders’ equity (2) | 9.07 | | | 13.85 | | | 14.46 | | | 9.08 | | | 9.17 | | | | | | | | | | | |
| Total ending equity to total ending assets | 9.68 | | | 10.88 | | | 11.27 | | | 11.71 | | | 12.17 | | | | | | | | | | | |
| Total average equity to total average assets | 9.96 | | | 11.14 | | | 11.39 | | | 11.96 | | | 12.14 | | | | | | | | | | | |
| Dividend payout | 38.18 | | | 23.65 | | | 20.31 | | | 24.24 | | | 15.94 | | | | | | | | | | | |
| Per common share data | | | | | | | | | | | | | | | | | | | |
| Earnings | $ | 1.88 | | | $ | 2.77 | | | $ | 2.64 | | | $ | 1.63 | | | $ | 1.57 | | | | | | | | | | | |
| Diluted earnings | 1.87 | | | 2.75 | | | 2.61 | | | 1.56 | | | 1.49 | | | | | | | | | | | |
| Dividends paid | 0.72 | | | 0.66 | | | 0.54 | | | 0.39 | | | 0.25 | | | | | | | | | | | |
Book value (1) | 28.72 | | | 27.32 | | | 25.13 | | | 23.80 | | | 23.97 | | | | | | | | | | | |
Tangible book value (2) | 20.60 | | | 19.41 | | | 17.91 | | | 16.96 | | | 16.89 | | | | | | | | | | | |
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| Market capitalization | $ | 262,206 | | | $ | 311,209 | | | $ | 238,251 | | | $ | 303,681 | | | $ | 222,163 | | | | | | | | | | | |
| Average balance sheet | | | | | | | | | | | | | | | | | | | |
| Total loans and leases | $ | 982,467 | | | $ | 958,416 | | | $ | 933,049 | | | $ | 918,731 | | | $ | 900,433 | | | | | | | | | | | |
| Total assets | 2,683,122 | | | 2,405,830 | | | 2,325,246 | | | 2,268,633 | | | 2,190,218 | | | | | | | | | | | |
| Total deposits | 1,632,998 | | | 1,380,326 | | | 1,314,941 | | | 1,269,796 | | | 1,222,561 | | | | | | | | | | | |
| Long-term debt | 220,440 | | | 201,623 | | | 200,399 | | | 194,882 | | | 204,826 | | | | | | | | | | | |
| Common shareholders’ equity | 243,685 | | | 244,853 | | | 241,799 | | | 247,101 | | | 241,187 | | | | | | | | | | | |
| Total shareholders’ equity | 267,309 | | | 267,889 | | | 264,748 | | | 271,289 | | | 265,843 | | | | | | | | | | | |
Asset quality (3) | | | | | | | | | | | | | | | | | | | |
Allowance for credit losses (4) | $ | 20,680 | | | $ | 10,229 | | | $ | 10,398 | | | $ | 11,170 | | | $ | 11,999 | | | | | | | | | | | |
Nonperforming loans, leases and foreclosed properties (5) | 5,116 | | | 3,837 | | | 5,244 | | | 6,758 | | | 8,084 | | | | | | | | | | | |
Allowance for loan and lease losses as a percentage of total loans and leases outstanding (5) | 2.04 | % | | 0.97 | % | | 1.02 | % | | 1.12 | % | | 1.26 | % | | | | | | | | | | |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5) | 380 | | | 265 | | | 194 | | | 161 | | | 149 | | | | | | | | | | | |
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| Net charge-offs | $ | 4,121 | | | $ | 3,648 | | | $ | 3,763 | | | $ | 3,979 | | | $ | 3,821 | | | | | | | | | | | |
Net charge-offs as a percentage of average loans and leases outstanding (5) | 0.42 | % | | 0.38 | % | | 0.41 | % | | 0.44 | % | | 0.43 | % | | | | | | | | | | |
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Capital ratios at year end (6) | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Common equity tier 1 capital | 11.9 | % | | 11.2 | % | | 11.6 | % | | 11.5 | % | | 10.8 | % | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Tier 1 capital | 13.5 | | | 12.6 | | | 13.2 | | | 13.0 | | | 12.4 | | | | | | | | | | | |
| Total capital | 16.1 | | | 14.7 | | | 15.1 | | | 14.8 | | | 14.2 | | | | | | | | | | | |
| Tier 1 leverage | 7.4 | | | 7.9 | | | 8.4 | | | 8.6 | | | 8.8 | | | | | | | | | | | |
| Supplementary leverage ratio | 7.2 | | | 6.4 | | | 6.8 | | | n/a | | n/a | | | | | | | | | | |
Tangible equity (2) | 7.4 | | | 8.2 | | | 8.6 | | | 8.9 | | | 9.2 | | | | | | | | | | | |
Tangible common equity (2) | 6.5 | | | 7.3 | | | 7.6 | | | 7.9 | | | 8.0 | | | | | | | | | | | |
(1)For definitions, see Key Metrics on page 173
(2)Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. For more information on these ratios and corresponding reconciliations to GAAP financial measures, see Supplemental Financial Data on page 31 and Non-GAAP Reconciliations on page 88.
(3)Asset quality metrics include $75 million of non-U.S. consumer credit card net charge-offs in 2017 and $243 million of non-U.S. consumer credit card allowance for loan and lease losses, $9.2 billion of non-U.S. consumer credit card loans and $175 million of non-U.S. consumer credit card net charge-offs in 2016. The Corporation sold its non-U.S. consumer credit card business in 2017.
(4)Includes the allowance for loan and leases losses and the reserve for unfunded lending commitments.
(5)Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 67 and corresponding Table 28 and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 71 and corresponding Table 35.
(6)Basel 3 transition provisions for regulatory capital adjustments and deductions were fully phased-in as of January 1, 2018. Prior periods are presented on a fully phased-in basis. For additional information, including which approach is used to assess capital adequacy, see Capital Management on page 50.
n/a = not applicable
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| Table 7 | Selected Quarterly Financial Data | | | | | | | | | | | | | | | | | | | | |
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| | 2020 Quarters | | 2019 Quarters | | | | |
| (In millions, except per share information) | Fourth | | Third | | Second | | First | | Fourth | | | | | | Third | | Second | | First | | | | |
| Income statement | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest income | $ | 10,253 | | | $ | 10,129 | | | $ | 10,848 | | | $ | 12,130 | | | $ | 12,140 | | | | | | | $ | 12,187 | | | $ | 12,189 | | | $ | 12,375 | | | | | |
| Noninterest income | 9,846 | | | 10,207 | | | 11,478 | | | 10,637 | | | 10,209 | | | | | | | 10,620 | | | 10,895 | | | 10,629 | | | | | |
| Total revenue, net of interest expense | 20,099 | | | 20,336 | | | 22,326 | | | 22,767 | | | 22,349 | | | | | | | 22,807 | | | 23,084 | | | 23,004 | | | | | |
| Provision for credit losses | 53 | | | 1,389 | | | 5,117 | | | 4,761 | | | 941 | | | | | | | 779 | | | 857 | | | 1,013 | | | | | |
| Noninterest expense | 13,927 | | | 14,401 | | | 13,410 | | | 13,475 | | | 13,239 | | | | | | | 15,169 | | | 13,268 | | | 13,224 | | | | | |
| Income before income taxes | 6,119 | | | 4,546 | | | 3,799 | | | 4,531 | | | 8,169 | | | | | | | 6,859 | | | 8,959 | | | 8,767 | | | | | |
| Income tax expense | 649 | | | (335) | | | 266 | | | 521 | | | 1,175 | | | | | | | 1,082 | | | 1,611 | | | 1,456 | | | | | |
| Net income | 5,470 | | | 4,881 | | | 3,533 | | | 4,010 | | | 6,994 | | | | | | | 5,777 | | | 7,348 | | | 7,311 | | | | | |
| Net income applicable to common shareholders | 5,208 | | | 4,440 | | | 3,284 | | | 3,541 | | | 6,748 | | | | | | | 5,272 | | | 7,109 | | | 6,869 | | | | | |
| Average common shares issued and outstanding | 8,724.9 | | | 8,732.9 | | | 8,739.9 | | | 8,815.6 | | | 9,017.1 | | | | | | | 9,303.6 | | | 9,523.2 | | | 9,725.9 | | | | | |
| Average diluted common shares issued and outstanding | 8,785.0 | | | 8,777.5 | | | 8,768.1 | | | 8,862.7 | | | 9,079.5 | | | | | | | 9,353.0 | | | 9,559.6 | | | 9,787.3 | | | | | |
| Performance ratios | | | | | | | | | | | | | | | | | | | | | | | |
Return on average assets (1) | 0.78 | % | | 0.71 | % | | 0.53 | % | | 0.65 | % | | 1.13 | % | | | | | | 0.95 | % | | 1.23 | % | | 1.26 | % | | | | |
Four-quarter trailing return on average assets (2) | 0.67 | | | 0.75 | | | 0.81 | | | 0.99 | | | 1.14 | | | | | | | 1.17 | | | 1.24 | | | 1.22 | | | | | |
Return on average common shareholders’ equity (1) | 8.39 | | | 7.24 | | | 5.44 | | | 5.91 | | | 11.00 | | | | | | | 8.48 | | | 11.62 | | | 11.42 | | | | | |
Return on average tangible common shareholders’ equity (3) | 11.73 | | | 10.16 | | | 7.63 | | | 8.32 | | | 15.43 | | | | | | | 11.84 | | | 16.24 | | | 16.01 | | | | | |
Return on average shareholders’ equity (1) | 8.03 | | | 7.26 | | | 5.34 | | | 6.10 | | | 10.40 | | | | | | | 8.48 | | | 11.00 | | | 11.14 | | | | | |
Return on average tangible shareholders’ equity (3) | 10.84 | | | 9.84 | | | 7.23 | | | 8.29 | | | 14.09 | | | | | | | 11.43 | | | 14.88 | | | 15.10 | | | | | |
| Total ending equity to total ending assets | 9.68 | | | 9.82 | | | 9.69 | | | 10.11 | | | 10.88 | | | | | | | 11.06 | | | 11.33 | | | 11.23 | | | | | |
| Total average equity to total average assets | 9.71 | | | 9.76 | | | 9.85 | | | 10.60 | | | 10.89 | | | | | | | 11.21 | | | 11.17 | | | 11.28 | | | | | |
| Dividend payout | 30.11 | | | 35.36 | | | 47.87 | | | 44.57 | | | 23.90 | | | | | | | 31.48 | | | 19.95 | | | 21.20 | | | | | |
| Per common share data | | | | | | | | | | | | | | | | | | | | | | | |
| Earnings | $ | 0.60 | | | $ | 0.51 | | | $ | 0.38 | | | $ | 0.40 | | | $ | 0.75 | | | | | | | $ | 0.57 | | | $ | 0.75 | | | $ | 0.71 | | | | | |
| Diluted earnings | 0.59 | | | 0.51 | | | 0.37 | | | 0.40 | | | 0.74 | | | | | | | 0.56 | | | 0.74 | | | 0.70 | | | | | |
| Dividends paid | 0.18 | | | 0.18 | | | 0.18 | | | 0.18 | | | 0.18 | | | | | | | 0.18 | | | 0.15 | | | 0.15 | | | | | |
Book value (1) | 28.72 | | | 28.33 | | | 27.96 | | | 27.84 | | | 27.32 | | | | | | | 26.96 | | | 26.41 | | | 25.57 | | | | | |
Tangible book value (3) | 20.60 | | | 20.23 | | | 19.90 | | | 19.79 | | | 19.41 | | | | | | | 19.26 | | | 18.92 | | | 18.26 | | | | | |
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| Market capitalization | $ | 262,206 | | | $ | 208,656 | | | $ | 205,772 | | | $ | 184,181 | | | $ | 311,209 | | | | | | | $ | 264,842 | | | $ | 270,935 | | | $ | 263,992 | | | | | |
| Average balance sheet | | | | | | | | | | | | | | | | | | | | | | | |
| Total loans and leases | $ | 934,798 | | | $ | 974,018 | | | $ | 1,031,387 | | | $ | 990,283 | | | $ | 973,986 | | | | | | | $ | 964,733 | | | $ | 950,525 | | | $ | 944,020 | | | | | |
| Total assets | 2,791,874 | | | 2,739,684 | | | 2,704,186 | | | 2,494,928 | | | 2,450,005 | | | | | | | 2,412,223 | | | 2,399,051 | | | 2,360,992 | | | | | |
| Total deposits | 1,737,139 | | | 1,695,488 | | | 1,658,197 | | | 1,439,336 | | | 1,410,439 | | | | | | | 1,375,052 | | | 1,375,450 | | | 1,359,864 | | | | | |
| Long-term debt | 225,423 | | | 224,254 | | | 221,167 | | | 210,816 | | | 206,026 | | | | | | | 202,620 | | | 201,007 | | | 196,726 | | | | | |
| Common shareholders’ equity | 246,840 | | | 243,896 | | | 242,889 | | | 241,078 | | | 243,439 | | | | | | | 246,630 | | | 245,438 | | | 243,891 | | | | | |
| Total shareholders’ equity | 271,020 | | | 267,323 | | | 266,316 | | | 264,534 | | | 266,900 | | | | | | | 270,430 | | | 267,975 | | | 266,217 | | | | | |
| Asset quality | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for credit losses (4) | $ | 20,680 | | | $ | 21,506 | | | $ | 21,091 | | | $ | 17,126 | | | $ | 10,229 | | | | | | | $ | 10,242 | | | $ | 10,333 | | | $ | 10,379 | | | | | |
Nonperforming loans, leases and foreclosed properties (5) | 5,116 | | | 4,730 | | | 4,611 | | | 4,331 | | | 3,837 | | | | | | | 3,723 | | | 4,452 | | | 5,145 | | | | | |
Allowance for loan and lease losses as a percentage of total loans and leases outstanding (5) | 2.04 | % | | 2.07 | % | | 1.96 | % | | 1.51 | % | | 0.97 | % | | | | | | 0.98 | % | | 1.00 | % | | 1.02 | % | | | | |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5) | 380 | | | 431 | | | 441 | | | 389 | | | 265 | | | | | | | 271 | | | 228 | | | 197 | | | | | |
| Net charge-offs | $ | 881 | | | $ | 972 | | | $ | 1,146 | | | $ | 1,122 | | | $ | 959 | | | | | | | $ | 811 | | | $ | 887 | | | $ | 991 | | | | | |
Annualized net charge-offs as a percentage of average loans and leases outstanding (5) | 0.38 | % | | 0.40 | % | | 0.45 | % | | 0.46 | % | | 0.39 | % | | | | | | 0.34 | % | | 0.38 | % | | 0.43 | % | | | | |
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Capital ratios at period end (6) | | | | | | | | | | | | | | | | | | | | | | | |
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| Common equity tier 1 capital | 11.9 | % | | 11.9 | % | | 11.4 | % | | 10.8 | % | | 11.2 | % | | | | | | 11.4 | % | | 11.7 | % | | 11.6 | % | | | | |
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| Tier 1 capital | 13.5 | | | 13.5 | | | 12.9 | | | 12.3 | | | 12.6 | | | | | | | 12.9 | | | 13.3 | | | 13.1 | | | | | |
| Total capital | 16.1 | | | 16.1 | | | 14.8 | | | 14.6 | | | 14.7 | | | | | | | 15.1 | | | 15.4 | | | 15.2 | | | | | |
| Tier 1 leverage | 7.4 | | | 7.4 | | | 7.4 | | | 7.9 | | | 7.9 | | | | | | | 8.2 | | | 8.4 | | | 8.4 | | | | | |
| Supplementary leverage ratio | 7.2 | | | 6.9 | | | 7.1 | | | 6.4 | | | 6.4 | | | | | | | 6.6 | | | 6.8 | | | 6.8 | | | | | |
Tangible equity (3) | 7.4 | | | 7.4 | | | 7.3 | | | 7.7 | | | 8.2 | | | | | | | 8.4 | | | 8.7 | | | 8.5 | | | | | |
Tangible common equity (3) | 6.5 | | | 6.6 | | | 6.5 | | | 6.7 | | | 7.3 | | | | | | | 7.4 | | | 7.6 | | | 7.6 | | | | | |
| Total loss-absorbing capacity and long-term debt metrics | | | | | | | | | | | | | | | | | | | | | | | |
| Total loss-absorbing capacity to risk-weighted assets | 27.4 | % | | 26.9 | % | | 26.0 | % | | 24.6 | % | | 24.6 | % | | | | | | 24.8 | % | | 25.5 | % | | 24.8 | % | | | | |
| Total loss-absorbing capacity to supplementary leverage exposure | 14.5 | | | 13.7 | | | 14.2 | | | 12.8 | | | 12.5 | | | | | | | 12.7 | | | 13.0 | | | 12.8 | | | | | |
| Eligible long-term debt to risk-weighted assets | 13.3 | | | 12.9 | | | 12.4 | | | 11.6 | | | 11.5 | | | | | | | 11.4 | | | 11.8 | | | 11.4 | | | | | |
| Eligible long-term debt to supplementary leverage exposure | 7.1 | | | 6.6 | | | 6.7 | | | 6.1 | | | 5.8 | | | | | | | 5.8 | | | 6.0 | | | 5.9 | | | | | |
(1)For definitions, see Key Metrics on page 173.
(2)Calculated as total net income for four consecutive quarters divided by annualized average assets for four consecutive quarters.
(3)Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. For more information on these ratios and corresponding reconciliations to GAAP financial measures, see Supplemental Financial Data on page 31 and Non-GAAP Reconciliations on page 88.
(4)Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments.
(5)Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 68 and corresponding Table 28 and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 72 and corresponding Table 35.
(6)For more information, including which approach is used to assess capital adequacy, see Capital Management on page 50.
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| Table 8 | Average Balances and Interest Rates - FTE Basis | | | | | | |
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| | Average
Balance | | Interest
Income/
Expense (1) | | Yield/
Rate | | Average
Balance | | Interest
Income/
Expense (1) | | Yield/
Rate | | Average
Balance | | Interest
Income/
Expense (1) | | Yield/
Rate |
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| (Dollars in millions) | 2020 | | 2019 | | 2018 |
| Earning assets | | | | | | | | | | | | | | | | | |
Interest-bearing deposits with the Federal Reserve, non-
U.S. central banks and other banks | $ | 253,227 | | | $ | 359 | | | 0.14 | % | | $ | 125,555 | | | $ | 1,823 | | | 1.45 | % | | $ | 139,848 | | | $ | 1,926 | | | 1.38 | % |
| Time deposits placed and other short-term investments | 8,840 | | | 29 | | | 0.33 | | | 9,427 | | | 207 | | | 2.19 | | | 9,446 | | | 216 | | | 2.29 | |
Federal funds sold and securities borrowed or purchased
under agreements to resell | 309,945 | | | 903 | | | 0.29 | | | 279,610 | | | 4,843 | | | 1.73 | | | 251,328 | | | 3,176 | | | 1.26 | |
| Trading account assets | 148,076 | | | 4,185 | | | 2.83 | | | 148,076 | | | 5,269 | | | 3.56 | | | 132,724 | | | 4,901 | | | 3.69 | |
| Debt securities | 532,266 | | | 9,868 | | | 1.87 | | | 450,090 | | | 11,917 | | | 2.65 | | | 437,312 | | | 11,837 | | | 2.66 | |
Loans and leases (2) | | | | | | | | | | | | | | | | | |
| Residential mortgage | 236,719 | | | 7,338 | | | 3.10 | | | 220,552 | | | 7,651 | | | 3.47 | | | 207,523 | | | 7,294 | | | 3.51 | |
| Home equity | 38,251 | | | 1,290 | | | 3.37 | | | 44,600 | | | 2,194 | | | 4.92 | | | 53,886 | | | 2,573 | | | 4.77 | |
| Credit card | 85,017 | | | 8,759 | | | 10.30 | | | 94,488 | | | 10,166 | | | 10.76 | | | 94,612 | | | 9,579 | | | 10.12 | |
| | | | | | | | | | | | | | | | | |
Direct/Indirect and other consumer (3) | 89,974 | | | 2,545 | | | 2.83 | | | 90,656 | | | 3,261 | | | 3.60 | | | 93,036 | | | 3,104 | | | 3.34 | |
| | | | | | | | | | | | | | | | | |
| Total consumer | 449,961 | | | 19,932 | | | 4.43 | | | 450,296 | | | 23,272 | | | 5.17 | | | 449,057 | | | 22,550 | | | 5.02 | |
U.S. commercial (4) | 344,095 | | | 9,712 | | | 2.82 | | | 321,467 | | | 13,161 | | | 4.09 | | | 304,387 | | | 11,937 | | | 3.92 | |
Non-U.S. commercial (4) | 106,487 | | | 2,208 | | | 2.07 | | | 103,918 | | | 3,402 | | | 3.27 | | | 97,664 | | | 3,220 | | | 3.30 | |
Commercial real estate (5) | 63,428 | | | 1,790 | | | 2.82 | | | 62,044 | | | 2,741 | | | 4.42 | | | 60,384 | | | 2,618 | | | 4.34 | |
| Commercial lease financing | 18,496 | | | 559 | | | 3.02 | | | 20,691 | | | 718 | | | 3.47 | | | 21,557 | | | 698 | | | 3.24 | |
| Total commercial | 532,506 | | | 14,269 | | | 2.68 | | | 508,120 | | | 20,022 | | | 3.94 | | | 483,992 | | | 18,473 | | | 3.82 | |
| Total loans and leases | 982,467 | | | 34,201 | | | 3.48 | | | 958,416 | | | 43,294 | | | 4.52 | | | 933,049 | | | 41,023 | | | 4.40 | |
| Other earning assets | 83,078 | | | 2,539 | | | 3.06 | | | 69,089 | | | 4,478 | | | 6.48 | | | 76,524 | | | 4,300 | | | 5.62 | |
| Total earning assets | 2,317,899 | | | 52,084 | | | 2.25 | | | 2,040,263 | | | 71,831 | | | 3.52 | | | 1,980,231 | | | 67,379 | | | 3.40 | |
| Cash and due from banks | 31,885 | | | | | | | 26,193 | | | | | | | 25,830 | | | | | |
| Other assets, less allowance for loan and lease losses | 333,338 | | | | | | | 339,374 | | | | | | | 319,185 | | | | | |
| Total assets | $ | 2,683,122 | | | | | | | $ | 2,405,830 | | | | | | | $ | 2,325,246 | | | | | |
| Interest-bearing liabilities | | | | | | | | | | | | | | | | | |
| U.S. interest-bearing deposits | | | | | | | | | | | | | | | | | |
| Savings | $ | 58,113 | | | $ | 6 | | | 0.01 | % | | $ | 52,020 | | | $ | 5 | | | 0.01 | % | | $ | 54,226 | | | $ | 6 | | | 0.01 | % |
| Demand and money market deposit accounts | 829,719 | | | 977 | | | 0.12 | | | 741,126 | | | 4,471 | | | 0.60 | | | 676,382 | | | 2,636 | | | 0.39 | |
| Consumer CDs and IRAs | 47,780 | | | 405 | | | 0.85 | | | 47,577 | | | 471 | | | 0.99 | | | 39,823 | | | 157 | | | 0.39 | |
| Negotiable CDs, public funds and other deposits | 64,857 | | | 323 | | | 0.50 | | | 66,866 | | | 1,407 | | | 2.11 | | | 50,593 | | | 991 | | | 1.96 | |
| Total U.S. interest-bearing deposits | 1,000,469 | | | 1,711 | | | 0.17 | | | 907,589 | | | 6,354 | | | 0.70 | | | 821,024 | | | 3,790 | | | 0.46 | |
| Non-U.S. interest-bearing deposits | | | | | | | | | | | | | | | | | |
| Banks located in non-U.S. countries | 1,476 | | | 4 | | | 0.27 | | | 1,936 | | | 20 | | | 1.04 | | | 2,312 | | | 39 | | | 1.69 | |
| Governments and official institutions | 184 | | | — | | | 0.01 | | | 181 | | | — | | | 0.05 | | | 810 | | | — | | | 0.01 | |
| Time, savings and other | 75,386 | | | 228 | | | 0.30 | | | 69,351 | | | 814 | | | 1.17 | | | 65,097 | | | 666 | | | 1.02 | |
| Total non-U.S. interest-bearing deposits | 77,046 | | | 232 | | | 0.30 | | | 71,468 | | | 834 | | | 1.17 | | | 68,219 | | | 705 | | | 1.03 | |
| Total interest-bearing deposits | 1,077,515 | | | 1,943 | | | 0.18 | | | 979,057 | | | 7,188 | | | 0.73 | | | 889,243 | | | 4,495 | | | 0.51 | |
Federal funds purchased, securities loaned or sold under
agreements to repurchase, short-term borrowings and
other interest-bearing liabilities | 293,466 | | | 987 | | | 0.34 | | | 276,432 | | | 7,208 | | | 2.61 | | | 269,748 | | | 5,839 | | | 2.17 | |
| Trading account liabilities | 41,386 | | | 974 | | | 2.35 | | | 45,449 | | | 1,249 | | | 2.75 | | | 50,928 | | | 1,358 | | | 2.67 | |
| Long-term debt | 220,440 | | | 4,321 | | | 1.96 | | | 201,623 | | | 6,700 | | | 3.32 | | | 200,399 | | | 6,915 | | | 3.45 | |
| Total interest-bearing liabilities | 1,632,807 | | | 8,225 | | | 0.50 | | | 1,502,561 | | | 22,345 | | | 1.49 | | | 1,410,318 | | | 18,607 | | | 1.32 | |
| Noninterest-bearing sources | | | | | | | | | | | | | | | | | |
| Noninterest-bearing deposits | 555,483 | | | | | | | 401,269 | | | | | | | 425,698 | | | | | |
Other liabilities (6) | 227,523 | | | | | | | 234,111 | | | | | | | 224,482 | | | | | |
| Shareholders’ equity | 267,309 | | | | | | | 267,889 | | | | | | | 264,748 | | | | | |
| Total liabilities and shareholders’ equity | $ | 2,683,122 | | | | | | | $ | 2,405,830 | | | | | | | $ | 2,325,246 | | | | | |
| Net interest spread | | | | | 1.75 | % | | | | | | 2.03 | % | | | | | | 2.08 | % |
| Impact of noninterest-bearing sources | | | | | 0.15 | | | | | | | 0.40 | | | | | | | 0.37 | |
Net interest income/yield on earning assets (7) | | | $ | 43,859 | | | 1.90 | % | | | | $ | 49,486 | | | 2.43 | % | | | | $ | 48,772 | | | 2.45 | % |
(1)Includes the impact of interest rate risk management contracts. For more information, see Interest Rate Risk Management for the Banking Book on page 82.
(2)Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis.
(3)Includes non-U.S. consumer loans of $2.9 billion, $2.9 billion and $2.8 billion for 2020, 2019 and 2018, respectively.
(4)Certain prior-period amounts for 2019 have been reclassified to conform to current-period presentation.
(5)Includes U.S. commercial real estate loans of $59.8 billion, $57.3 billion and $56.4 billion, and non-U.S. commercial real estate loans of $3.6 billion, $4.7 billion and $4.0 billion for 2020, 2019 and 2018, respectively.
(6)Includes $34.3 billion, $35.5 billion and $30.4 billion of structured notes and liabilities for 2020, 2019 and 2018, respectively.
(7)Net interest income includes FTE adjustments of $499 million, $595 million and $610 million for 2020, 2019 and 2018, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Table 9 | Analysis of Changes in Net Interest Income - FTE Basis | | | | | | | | |
| | | | | | | | | | | | |
| | | Due to Change in (1) | | Net Change | | Due to Change in (1) | | Net Change |
| Volume | | Rate | | | Volume | | Rate | |
| (Dollars in millions) | From 2019 to 2020 | | From 2018 to 2019 |
| Increase (decrease) in interest income | | | | | | | | | | | |
| Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks | $ | 1,849 | | | $ | (3,313) | | | $ | (1,464) | | | $ | (193) | | | $ | 90 | | | $ | (103) | |
| Time deposits placed and other short-term investments | (13) | | | (165) | | | (178) | | | — | | | (9) | | | (9) | |
| Federal funds sold and securities borrowed or purchased under agreements to resell | 519 | | | (4,459) | | | (3,940) | | | 347 | | | 1,320 | | | 1,667 | |
| Trading account assets | 3 | | | (1,087) | | | (1,084) | | | 563 | | | (195) | | | 368 | |
| Debt securities | 2,188 | | | (4,237) | | | (2,049) | | | 135 | | | (55) | | | 80 | |
| Loans and leases | | | | | | | | | | | |
| Residential mortgage | 563 | | | (876) | | | (313) | | | 447 | | | (90) | | | 357 | |
| Home equity | (312) | | | (592) | | | (904) | | | (446) | | | 67 | | | (379) | |
| Credit card | (1,018) | | | (389) | | | (1,407) | | | (17) | | | 604 | | | 587 | |
| | | | | | | | | | | |
| Direct/Indirect and other consumer | (22) | | | (694) | | | (716) | | | (76) | | | 233 | | | 157 | |
| | | | | | | | | | | |
| Total consumer | | | | | (3,340) | | | | | | | 722 | |
U.S. commercial (2) | 912 | | | (4,361) | | | (3,449) | | | 665 | | | 559 | | | 1,224 | |
Non-U.S. commercial (2) | 80 | | | (1,274) | | | (1,194) | | | 209 | | | (27) | | | 182 | |
| Commercial real estate | 63 | | | (1,014) | | | (951) | | | 75 | | | 48 | | | 123 | |
| Commercial lease financing | (76) | | | (83) | | | (159) | | | (28) | | | 48 | | | 20 | |
| Total commercial | | | | | (5,753) | | | | | | | 1,549 | |
| Total loans and leases | | | | | (9,093) | | | | | | | 2,271 | |
| Other earning assets | 905 | | | (2,844) | | | (1,939) | | | (417) | | | 595 | | | 178 | |
| Net increase (decrease) in interest income | | | | | $ | (19,747) | | | | | | | $ | 4,452 | |
| Increase (decrease) in interest expense | | | | | | | | | | | |
| U.S. interest-bearing deposits | | | | | | | | | | | |
| Savings | $ | 1 | | | $ | — | | | $ | 1 | | | $ | (1) | | | $ | — | | | $ | (1) | |
| Demand and money market deposit accounts | 507 | | | (4,001) | | | (3,494) | | | 254 | | | 1,581 | | | 1,835 | |
| Consumer CDs and IRAs | 2 | | | (68) | | | (66) | | | 29 | | | 285 | | | 314 | |
| Negotiable CDs, public funds and other deposits | (39) | | | (1,045) | | | (1,084) | | | 320 | | | 96 | | | 416 | |
| Total U.S. interest-bearing deposits | | | | | (4,643) | | | | | | | 2,564 | |
| Non-U.S. interest-bearing deposits | | | | | | | | | | | |
| Banks located in non-U.S. countries | (5) | | | (11) | | | (16) | | | (6) | | | (13) | | | (19) | |
| | | | | | | | | | | |
| Time, savings and other | 68 | | | (654) | | | (586) | | | 41 | | | 107 | | | 148 | |
| Total non-U.S. interest-bearing deposits | | | | | (602) | | | | | | | 129 | |
| Total interest-bearing deposits | | | | | (5,245) | | | | | | | 2,693 | |
| Federal funds purchased, securities loaned or sold under agreements to repurchase, short-term borrowings and other interest-bearing liabilities | 451 | | | (6,672) | | | (6,221) | | | 160 | | | 1,209 | | | 1,369 | |
| Trading account liabilities | (111) | | | (164) | | | (275) | | | (145) | | | 36 | | | (109) | |
| Long-term debt | 619 | | | (2,998) | | | (2,379) | | | 41 | | | (256) | | | (215) | |
| Net increase (decrease) in interest expense | | | | | (14,120) | | | | | | | 3,738 | |
Net increase (decrease) in net interest income (3) | | | | | $ | (5,627) | | | | | | | $ | 714 | |
(1)The changes for each category of interest income and expense are divided between the portion of change attributable to the variance in volume and the portion of change attributable to the variance in rate for that category. The unallocated change in rate or volume variance is allocated between the rate and volume variances.
(2)Certain prior-period amounts have been reclassified to conform to current-period presentation.
(3)Includes changes in FTE basis adjustments of a $96 million decrease from 2019 to 2020 and a $15 million decrease from 2018 to 2019.
Business Segment Operations
Segment Description and Basis of Presentation
We report our results of operations through the following four business segments: Consumer Banking,, GWIM,, Global Bankingand Global Markets, with the remaining operations recorded in All Other. We manage our segments and report their results on an FTE basis. The primary activities, products and businesses of the business segments andAll Otherare shown below.
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 41.47. 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 a reporting unit, see Note 87 – Goodwill and Intangible Assets to the Consolidated Financial Statements.
For more information on theour presentation of financial information on an FTE basis, of presentationsee Supplemental Financial Data on page 31, and for business segments and reconciliations to consolidated total revenue, net income and year-endperiod-end total assets, seeNote 23 – Business Segment Information to the Consolidated Financial Statements.
Key Performance Indicators
We present certain key financial and nonfinancial performance indicators that management uses when evaluating segment results. We believe they are useful to investors because they provide additional information about our segments’ operational performance, customer trends and business growth.
Consumer Banking
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | Deposits | | Consumer Lending | | Total Consumer Banking | | |
| | | |
| (Dollars in millions) | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 | | % Change |
| Net interest income | $ | 13,739 | | $ | 16,904 | | | $ | 10,959 | | $ | 11,254 | | | $ | 24,698 | | $ | 28,158 | | | (12) | % |
| Noninterest income: | | | | | | | | | | |
| Card income | (20) | | (33) | | | 4,693 | | 5,117 | | | 4,673 | | 5,084 | | | (8) | |
| Service charges | 3,416 | | 4,216 | | | 1 | | 2 | | | 3,417 | | 4,218 | | | (19) | |
| All other income | 310 | | 833 | | | 164 | | 294 | | | 474 | | 1,127 | | | (58) | |
| Total noninterest income | 3,706 | | 5,016 | | | 4,858 | | 5,413 | | | 8,564 | | 10,429 | | | (18) | |
| Total revenue, net of interest expense | 17,445 | | 21,920 | | | 15,817 | | 16,667 | | | 33,262 | | 38,587 | | | (14) | |
| | | | | | | | | | |
| Provision for credit losses | 379 | | 269 | | | 5,386 | | 3,503 | | | 5,765 | | 3,772 | | | 53 | |
| Noninterest expense | 11,508 | | 10,718 | | | 7,370 | | 6,928 | | | 18,878 | | 17,646 | | | 7 | |
| Income before income taxes | 5,558 | | 10,933 | | | 3,061 | | 6,236 | | | 8,619 | | 17,169 | | | (50) | |
| Income tax expense | 1,362 | | 2,679 | | | 750 | | 1,528 | | | 2,112 | | 4,207 | | | (50) | |
| Net income | $ | 4,196 | | $ | 8,254 | | | $ | 2,311 | | $ | 4,708 | | | $ | 6,507 | | $ | 12,962 | | | (50) | |
| | | | | | | | | | |
Effective tax rate (1) | | | | | | | 24.5 | % | 24.5 | % | | |
| | | | | | | | | | |
| Net interest yield | 1.69 | % | 2.40 | % | | 3.53 | % | 3.80 | % | | 2.88 | | 3.81 | | | |
| Return on average allocated capital | 35 | | 69 | | | 9 | | 19 | | | 17 | | 35 | | | |
| Efficiency ratio | 65.97 | | 48.90 | | | 46.60 | | 41.56 | | | 56.76 | | 45.73 | | | |
| | | | | | | | | | | |
| Balance Sheet | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Average | | | | | | | | | | | |
| Total loans and leases | $ | 5,144 | | $ | 5,371 | | | $ | 310,436 | | $ | 295,562 | | | $ | 315,580 | | $ | 300,933 | | | 5 | % |
Total earning assets (2) | 813,779 | | 703,481 | | | 310,862 | | 296,051 | | | 858,724 | | 738,807 | | | 16 | |
Total assets (2) | 849,924 | | 735,298 | | | 314,599 | | 306,169 | | | 898,606 | | 780,742 | | | 15 | |
| Total deposits | 816,968 | | 702,972 | | | 6,698 | | 5,368 | | | 823,666 | | 708,340 | | | 16 | |
| Allocated capital | 12,000 | | 12,000 | | | 26,500 | | 25,000 | | | 38,500 | | 37,000 | | | 4 | |
| | | | | | | | | | | |
| Year end | | | | | | | | | | | |
| | | | | | | | | | | |
| Total loans and leases | $ | 4,673 | | $ | 5,467 | | | $ | 295,261 | | $ | 311,942 | | | $ | 299,934 | | $ | 317,409 | | | (6) | % |
Total earning assets (2) | 899,951 | | 724,573 | | | 295,627 | | 312,684 | | | 945,343 | | 760,174 | | | 24 | |
Total assets (2) | 939,629 | | 758,459 | | | 299,186 | | 322,717 | | | 988,580 | | 804,093 | | | 23 | |
| Total deposits | 906,092 | | 725,665 | | | 6,560 | | 5,080 | | | 912,652 | | 730,745 | | | 25 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Deposits | | Consumer Lending | | Total Consumer Banking | | |
| (Dollars in millions) | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 | | % Change |
|
| Net interest income (FTE basis) | $ | 13,353 |
| $ | 10,701 |
| | $ | 10,954 |
| $ | 10,589 |
| | $ | 24,307 |
| $ | 21,290 |
| | 14 | % |
| Noninterest income: | | | | | | | | | | |
| Card income | 8 |
| 9 |
| | 5,062 |
| 4,926 |
| | 5,070 |
| 4,935 |
| | 3 |
|
| Service charges | 4,265 |
| 4,141 |
| | 1 |
| 1 |
| | 4,266 |
| 4,142 |
| | 3 |
|
Mortgage banking income (1) | — |
| — |
| | 481 |
| 960 |
| | 481 |
| 960 |
| | (50 | ) |
| All other income | 391 |
| 403 |
| | 6 |
| 1 |
| | 397 |
| 404 |
| | (2 | ) |
| Total noninterest income | 4,664 |
| 4,553 |
| | 5,550 |
| 5,888 |
| | 10,214 |
| 10,441 |
| | (2 | ) |
| Total revenue, net of interest expense (FTE basis) | 18,017 |
| 15,254 |
| | 16,504 |
| 16,477 |
| | 34,521 |
| 31,731 |
| | 9 |
|
| | | | | | | | | | | |
| Provision for credit losses | 201 |
| 174 |
| | 3,324 |
| 2,541 |
| | 3,525 |
| 2,715 |
| | 30 |
|
| Noninterest expense | 10,380 |
| 9,677 |
| | 7,407 |
| 7,977 |
| | 17,787 |
| 17,654 |
| | 1 |
|
| Income before income taxes (FTE basis) | 7,436 |
| 5,403 |
| | 5,773 |
| 5,959 |
| | 13,209 |
| 11,362 |
| | 16 |
|
| Income tax expense (FTE basis) | 2,816 |
| 1,993 |
| | 2,186 |
| 2,197 |
| | 5,002 |
| 4,190 |
| | 19 |
|
| Net income | $ | 4,620 |
| $ | 3,410 |
| | $ | 3,587 |
| $ | 3,762 |
| | $ | 8,207 |
| $ | 7,172 |
| | 14 |
|
| | | | | | | | | | | |
| Net interest yield (FTE basis) | 2.05 | % | 1.79 | % | | 4.18 | % | 4.37 | % | | 3.54 | % | 3.38 | % | | |
| Return on average allocated capital | 39 |
| 28 |
| | 14 |
| 17 |
| | 22 |
| 21 |
| | |
| Efficiency ratio (FTE basis) | 57.61 |
| 63.44 |
| | 44.88 |
| 48.41 |
| | 51.53 |
| 55.64 |
| | |
| | | | | | | | | | | | |
| Balance Sheet | | | | | | | | | | | |
| | | | | | | | | | | | |
| Average | | | | | | | | | | | |
| Total loans and leases | $ | 5,084 |
| $ | 4,809 |
| | $ | 260,974 |
| $ | 240,999 |
| | $ | 266,058 |
| $ | 245,808 |
| | 8 | % |
Total earning assets (2) | 651,963 |
| 598,043 |
| | 261,802 |
| 242,445 |
| | 686,612 |
| 629,984 |
| | 9 |
|
Total assets (2) | 679,306 |
| 624,592 |
| | 273,253 |
| 254,287 |
| | 725,406 |
| 668,375 |
| | 9 |
|
| Total deposits | 646,930 |
| 592,417 |
| | 6,390 |
| 7,234 |
| | 653,320 |
| 599,651 |
| | 9 |
|
| Allocated capital | 12,000 |
| 12,000 |
| | 25,000 |
| 22,000 |
| | 37,000 |
| 34,000 |
| | 9 |
|
| | | | | | | | | | | | |
| Year end | | | | | | | | | | | |
| Total loans and leases | $ | 5,143 |
| $ | 4,938 |
| | $ | 275,330 |
| $ | 254,053 |
| | $ | 280,473 |
| $ | 258,991 |
| | 8 | % |
Total earning assets (2) | 675,485 |
| 631,172 |
| | 275,742 |
| 255,511 |
| | 709,832 |
| 662,698 |
| | 7 |
|
Total assets (2) | 703,330 |
| 658,316 |
| | 287,390 |
| 268,002 |
| | 749,325 |
| 702,333 |
| | 7 |
|
| Total deposits | 670,802 |
| 625,727 |
| | 5,728 |
| 7,059 |
| | 676,530 |
| 632,786 |
| | 7 |
|
| |
(1)(2)In segments and businesses where the total of liabilities and equity exceeds assets, we allocate assets from All Other to match the segments’ and businesses’ liabilities and allocated shareholders’ equity. As a result, total earning assets and total assets of the businesses may not equal total Consumer Banking.
| Total consolidated mortgage banking income of $224 million for 2017 was recorded primarily in Consumer Lending and All Other compared to $1.9 billion for 2016.
|
| |
(2)
| In segments and businesses where the total of liabilities and equity exceeds assets, we allocate assets from All Other to match the segments’ and businesses’ liabilities and allocated shareholders’ equity. As a result, total earning assets and total assets of the businesses may not equal total Consumer Banking.
|
Consumer Banking, which is comprised of Deposits and Consumer Lending, offers a diversified range of credit, banking and investment products and services to consumers and small businesses. Deposits and Consumer Lending include the net impact of migrating customers and their related deposit, brokerage asset and loan balances between Deposits, Consumer Lending and GWIM, as well as other client-managed businesses. Our customers and clients have access to a coast to coast network including financial centers in 3438 states and the District of Columbia. Our network includes approximately 4,5004,300 financial centers, 16,000 ATMs,approximately 17,000 ATMS, nationwide call centers and leading digital banking platforms with approximately 35more than 39 million active users, including approximately 2431 million active mobile active users.users.
Consumer Banking Results.
Net income for Consumer Banking increased $1.0 decreased $6.5 billion to $8.2$6.5 billion in 20172020 compared to 20162019 primarily driven by higher net interest income, partially offset bydue to lower revenue, higher provision for credit losses and lower mortgage banking income.higher expenses. Net interest income increased $3.0decreased $3.5 billion to $24.3$24.7 billion
primarily due to lower rates, partially offset by the beneficial impact of an increase in investable assets as a resultbenefit of higher deposits,deposit and loan balances. Noninterest income decreased $1.9 billion to $8.6 billion driven by a decline in service charges primarily due to higher deposit balances and lower card income due to decreased client activity, as well as pricing disciplinelower other income due to the allocation of asset 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.liability management (ALM) results.
The provision for credit losses increased $810 million$2.0 billion to $3.5$5.8 billion primarily due to portfolio seasoning and loan growth in the U.S. credit
card portfolio.weaker economic outlook related to COVID-19. Noninterest expense increased $133 million$1.2 billion to $17.8$18.9 billion primarily driven by higher personnelincremental expense includingto support customers and employees during the shared success discretionary year-end bonus, and increased FDIC
expense,pandemic, as well as the cost of increased client activity and continued investments in digital capabilities andfor 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 merchant services platform.
The return on average allocated capital was 2217 percent, updown from 2135 percent, as higherdriven by lower net income was partially offset byand, to a lesser extent, an increased capital allocation.increase in allocated capital. For more information on capital allocations,allocated to the business segments, see Business Segment Operations on page 30.36.
Deposits
Deposits includes the results of consumer deposit activities which consist of a comprehensive range of products provided to consumers and small businesses. Our deposit products include traditional savings accounts, money market savings accounts, CDs and IRAs, and noninterest- and interest-bearing checking accounts, as well as investment accounts and products. Net interest income is allocated to the deposit products using our funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Deposits generates fees such as account service fees, non-sufficient funds fees, overdraft charges and ATM fees, as well as investment and brokerage fees from Merrill Edge accounts. Merrill Edge is an integrated investing and banking service targeted at customers with less than $250,000 in investable assets. Merrill Edge provides investment advice and guidance, client brokerage asset services, a self-directed online investing platform and key banking
capabilities including access to the Corporation’s network of financial centers and ATMs.
Deposits includes the net impact of migrating customers and their related deposit and brokerage asset balances between Deposits and GWIM as well as other client-managed businesses. For more information on the migration of customer balances to or from GWIM, see GWIM – Net Migration Summary on page 35.
Net income for Deposits increased $1.2decreased $4.1 billion to $4.6$4.2 billion in 2017primarily driven by higher revenue, partially offset by higher noninterest expense.lower revenue. Net interest income increased $2.7declined $3.2 billion to $13.4$13.7 billion primarily due to lower interest rates, partially offset by the beneficialbenefit of growth in deposits. Noninterest income decreased $1.3 billion to $3.7 billion primarily driven by lower service charges due to higher deposit balances and lower client activity related to the impact of an increase in investable assetsCOVID-19, as a resultwell as lower other income due to the allocation of higher deposits, and pricing discipline. Noninterest income increased $111 million to $4.7 billion driven by higher service charges.ALM results.
The provision for credit losses increased $27$110 million to $201$379 million in 2017.2020 due to the weaker economic outlook related to COVID-19. Noninterest expense increased $703$790 million to $10.4$11.5 billion primarily driven by continued investments in digital capabilitiesthe business and business growth, including increased primary sales professionals, combined with investments in new financial centersincremental expense to support customers and renovations, higher personnel expense, includingemployees during the shared success discretionary year-end bonus, and increased FDIC expense.pandemic.
Average deposits increased $54.5$114.0 billion to $646.9$817.0 billion in 20172020 driven by strong organic growth. Growthgrowth of $79.3 billion in checking and time deposits and $34.4 billion in traditional savings and money market savingssavings.
The following table provides key performance indicators for Deposits. Management uses these metrics, and traditional savings of $57.9 billion was partially offset by a declinewe believe they are useful to investors because they provide additional information to evaluate our deposit profitability and digital/mobile trends.
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| Key Statistics – Deposits | | | | | | | |
| | | | | | | |
| | | |
| | | | | 2020 | | 2019 |
Total deposit spreads (excludes noninterest costs) (1) | | | | | 1.94% | | 2.34% |
| | | | | | | |
| Year End | | | | | | | |
Consumer investment assets (in millions) (2) | | | | | $ | 306,104 | | $ | 240,132 |
Active digital banking users (units in thousands) (3) | | | | | 39,315 | | 38,266 |
Active mobile banking users (units in thousands) (4) | | | | | 30,783 | | 29,174 |
| Financial centers | | | | | 4,312 | | 4,300 |
| ATMs | | | | | 16,904 | | 16,788 |
(1)Includes deposits held in time deposits of $3.5 billion.Consumer Lending.
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| | | | |
Key Statistics – Deposits | | | |
| | | | |
| | 2017 | | 2016 |
Total deposit spreads (excludes noninterest costs) (1) | 1.84 | % | | 1.65 | % |
| | | | |
| Year end | | | |
| Client brokerage assets (in millions) | $ | 177,045 |
| | $ | 144,696 |
|
Digital banking active users (units in thousands) (2) | 34,855 |
| | 32,942 |
|
| Mobile banking active users (units in thousands) | 24,238 |
| | 21,648 |
|
| Financial centers | 4,470 |
| | 4,579 |
|
| ATMs | 16,039 |
| | 15,928 |
|
| |
(1)
| Includes deposits held in Consumer Lending. |
| |
(2)
| Digital users represents mobile and/or online users across consumer businesses; historical information has been reclassified primarily due to the sale of the Corporation’s non-U.S. consumer credit card business in 2017. |
Client(2)Includes client brokerage assets, deposit sweep balances and AUM in Consumer Banking.
(3)Active digital banking users represents mobile and/or online users at period end.
(4)Active mobile banking users represents mobile users at period end.
Consumer investment assets increased $32.3$66.0 billion in 2020 driven by strongmarket performance and client flows and market performance. Mobileflows. Active mobile banking active users increased 2.6approximately two million reflecting continuing changes in our customers’ banking preferences. The numberWe had a net increase of 12 financial centers
declined 109 driven by changes in customer preferences to self-service options as we continuecontinued to optimize our consumer banking network and improve our cost-to-serve.network.
Consumer Lending
Consumer Lending offers products to consumers and small businesses across the U.S. The products offered include credit and debit cards, residential mortgages and home equity loans, and direct and indirect loans such as automotive, recreational vehicle and consumer personal loans. In addition to earning net interest spread revenue on its lending activities, Consumer Lending generates interchange revenue from credit and debit card transactions, late fees, cash advance fees, annual credit card fees,
mortgage banking fee income and other miscellaneous fees. Consumer Lending products are available to our customers through our retail network, direct telephone, and online and mobile channels. Consumer Lending results also include the impact of servicing residential mortgages and home equity loans in the core portfolio, including loans held on the balance sheet of Consumer Lending and loans serviced for others.
We classify consumer real estate loans as core or non-core based on loan and customer characteristics such as origination date, product type, loan-to-value (LTV), Fair Isaac Corporation (FICO) score and delinquency status. For more information on the core and non-core portfolios, see Consumer Portfolio Credit Risk Management on page 54. Total owned loans in the core portfolio held in Consumer Lending increased $14.7 billion to $115.9 billion in 2017, primarily driven by higher residential mortgage balances, partially offset by a decline in home equity balances.
Consumer Lending includes the net impact of migrating customers and their related loan balances between Consumer Lending and GWIM. For more information on the migration of customer balances to or from GWIM, see GWIM – Net Migration Summary on page 35.
Net income for Consumer Lending decreased $175 millionwas $2.3 billion, a decrease of $2.4 billion, primarily due to $3.6 billion in 2017 driven by higher provision for credit losses and lower noninterest income, partially offset by lower noninterest expense and higher net interest income.losses. Net interest income increased $365declined $295 million to $11.0 billion primarily drivendue to lower interest rates, partially offset by the impact of an increase in loan balances.growth. Noninterest income decreased $338$555 million to $5.6$4.9 billion primarily driven by lower mortgage bankingcard income partially offset by higher card income.due to lower client activity, as well as lower other income due to the allocation of ALM results.
The provision for credit losses increased $783 million$1.9 billion to $3.3$5.4 billion in 2017primarily due to portfolio seasoning and loan growth in the U.S. credit card portfolio.weaker economic outlook related to COVID-19. Noninterest expense decreased $570increased $442 million to $7.4 billion primarily driven by improved operating efficiencies.investments in the business and incremental expense to support customers and employees during the pandemic.
Average loans increased $20.0$14.9 billion to $261.0$310.4 billion in 2017primarily driven by increasesan increase in residential mortgages as well as consumer vehicle and U.S credit cardPPP loans, partially offset by lower home equitya decline in credit cards.
The following table provides key performance indicators for Consumer Lending. Management uses these metrics, and we believe they are useful to investors because they provide additional information about loan balances.growth and profitability.
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| Key Statistics – Consumer Lending |
| | | | | | | |
| | | |
| (Dollars in millions) | | | | | 2020 | | 2019 |
Total credit card (1) | | | | | | | |
Gross interest yield (2) | | | | | 10.27 | % | | 10.76 | % |
Risk-adjusted margin (3) | | | | | 9.16 | | | 8.28 | |
| New accounts (in thousands) | | | | | 2,505 | | | 4,320 | |
| Purchase volumes | | | | | $ | 251,599 | | | $ | 277,852 | |
| Debit card purchase volumes | | | | | $ | 384,503 | | | $ | 360,672 | |
(1)Includes GWIM's credit card portfolio.
(2)Calculated as the effective annual percentage rate divided by average loans.
(3)Calculated as the difference between total revenue, net of interest expense, and net credit losses divided by average loans.
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Key Statistics – Consumer Lending |
| | | | |
| (Dollars in millions) | 2017 | | 2016 |
Total U.S. credit card (1) | | | |
| Gross interest yield | 9.65 | % | | 9.29 | % |
| Risk-adjusted margin | 8.67 |
| | 9.04 |
|
| New accounts (in thousands) | 4,939 |
| | 4,979 |
|
| Purchase volumes | $ | 244,753 |
| | $ | 226,432 |
|
| Debit card purchase volumes | $ | 298,641 |
| | $ | 285,612 |
|
| |
(1)
| In addition to the U.S. credit card portfolio in Consumer Banking, the remaining U.S. credit card portfolio is in GWIM.
|
During 2017,2020, the total U.S. credit card risk-adjusted margin decreased 37increased 88 bps compared to 2016, primarily2019 driven by compressed margins, increaseda lower mix of customer balances at promotional rates, the lower interest rate environment and lower net charge-offs and higher credit card rewards costs.losses. Total U.S. credit card purchase volumes increased $18.3declined $26.3 billion to $244.8 billion,$251.6 billion. The decline in credit card purchase volumes was driven by the impact of COVID-19. While overall spending improved during the second half of 2020, spending for travel and entertainment remained lower compared to 2019. During 2020, debit card purchase volumes increased $13.0$23.8 billion to $298.6$384.5 billion, reflecting higher levelsdespite COVID-19 impacts. Debit card purchase volumes improved in the second half of consumer spending.2020 as businesses reopened and spending improved.
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Key Statistics – Residential Mortgage Loan Production (1) |
| | | | | | | |
| | | |
| (Dollars in millions) | | | | | 2020 | | 2019 |
| Consumer Banking: | | | | | | | |
| First mortgage | | | | | $ | 43,197 | | | $ | 49,179 | |
| Home equity | | | | | 6,930 | | | 9,755 | |
Total (2): | | | | | | | |
| First mortgage | | | | | $ | 69,086 | | | $ | 72,467 | |
| Home equity | | | | | 8,160 | | | 11,131 | |
(1)The loan production amounts represent the unpaid principal balance of loans and, in the case of home equity, the principal amount of the total line of credit.
(2)In addition to loan production in Consumer Banking, there is also first mortgage and home equity loan production in GWIM.
First mortgage loan originations in Consumer Banking and for the total Corporation decreased $6.0 billion and $3.4 billion in 2020 primarily driven by a decline in nonconforming applications.
Home equity production in Consumer Banking and for the total Corporation decreased $2.8 billion and $3.0 billion in 2020 primarily driven by a decline in applications.
Mortgage Banking Income
Mortgage banking income in Consumer Banking includes production income and net servicing income. Production income is comprised primarily of revenue from the fair value gains and losses recognized on our interest rate lock commitments (IRLCs) and loans held-for-sale (LHFS), the related secondary market execution, and costs related to representations and warranties made in the sales transactions along with other obligations incurred in the sales of mortgage loans. Production income decreased $461 million to $202 million in 2017 due to a decision to retain a higher percentage of residential mortgage production in Consumer Banking, as well as the impact of a higher interest rate environment driving lower refinances.
Net servicing income within Consumer Banking includes income earned in connection with servicing activities and MSR valuation adjustments for the core portfolio, net of results from risk management activities used to hedge certain market risks of the MSRs. Net servicing income decreased $18 million to $279 million in 2017 reflecting the decline in the size of the servicing portfolio.
Mortgage Servicing Rights
At December 31, 2017, the core MSR portfolio, held within Consumer Lending, was $1.7 billion compared to $2.1 billion at December 31, 2016. The decrease was primarily driven by the amortization of expected cash flows, which exceeded additions to
the MSR portfolio, partially offset by the impact of changes in fair value from rising interest rates. For more information on MSRs, see Note 20 – Fair Value Measurements to the Consolidated Financial Statements.
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| | | | |
| Key Statistics - Mortgage Banking | | | |
| | | | |
| (Dollars in millions) | 2017 | | 2016 |
Loan production (1): | |
| | |
|
Total (2): | | | |
| First mortgage | $ | 50,581 |
| | $ | 64,153 |
|
| Home equity | 16,924 |
| | 15,214 |
|
| Consumer Banking: | | | |
| First mortgage | $ | 34,065 |
| | $ | 44,510 |
|
| Home equity | 15,199 |
| | 13,675 |
|
| |
(1)
| The loan production amounts represent the unpaid principal balance of loans and in the case of home equity, the principal amount of the total line of credit. |
| |
(2)
| In addition to loan production in Consumer Banking, there is also first mortgage and home equity loan production in GWIM.
|
First mortgage loan originations in Consumer Banking and for the total Corporation decreased $10.4 billion and $13.6 billion in 2017, primarily driven by a higher interest rate environment driving lower first-lien mortgage refinances.
Home equity production in Consumer Banking and for the total Corporation increased $1.5 billion and $1.7 billion in 2017 due to a higher demand based on improving housing trends, and improved engagement with customers.
Global Wealth & Investment Management |
| | | | | | | | | | | |
| | | | | | | |
| (Dollars in millions) | 2017 | | 2016 | | % Change |
|
| Net interest income (FTE basis) | $ | 6,173 |
| | $ | 5,759 |
| | 7 | % |
| Noninterest income: | | | | | |
| Investment and brokerage services | 10,883 |
| | 10,316 |
| | 5 |
|
| All other income | 1,534 |
| | 1,575 |
| | (3 | ) |
| Total noninterest income | 12,417 |
| | 11,891 |
| | 4 |
|
| Total revenue, net of interest expense (FTE basis) | 18,590 |
| | 17,650 |
| | 5 |
|
| | | | | | |
| Provision for credit losses | 56 |
| | 68 |
| | (18 | ) |
| Noninterest expense | 13,564 |
| | 13,175 |
| | 3 |
|
| Income before income taxes (FTE basis) | 4,970 |
| | 4,407 |
| | 13 |
|
| Income tax expense (FTE basis) | 1,882 |
| | 1,632 |
| | 15 |
|
| Net income | $ | 3,088 |
| | $ | 2,775 |
| | 11 |
|
| | | | | | |
| Net interest yield (FTE basis) | 2.32 | % | | 2.09 | % | | |
| Return on average allocated capital | 22 |
| | 21 |
| | |
| Efficiency ratio (FTE basis) | 72.96 |
| | 74.65 |
| | |
| | | | | | |
| Balance Sheet | | | | | | |
| | | | |
| Average | | | | | |
| Total loans and leases | $ | 152,682 |
| | $ | 142,429 |
| | 7 | % |
| Total earning assets | 265,670 |
| | 275,799 |
| | (4 | ) |
| Total assets | 281,517 |
| | 291,478 |
| | (3 | ) |
| Total deposits | 245,559 |
| | 256,425 |
| | (4 | ) |
| Allocated capital | 14,000 |
| | 13,000 |
| | 8 |
|
| | | | | | |
| Year end | | | | | |
| Total loans and leases | $ | 159,378 |
| | $ | 148,179 |
| | 8 | % |
| Total earning assets | 267,026 |
| | 283,151 |
| | (6 | ) |
| Total assets | 284,321 |
| | 298,931 |
| | (5 | ) |
| Total deposits | 246,994 |
| | 262,530 |
| | (6 | ) |
Global Wealth & Investment Management
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| | | | | | | | |
| (Dollars in millions) | | | | | | | 2020 | | 2019 | | % Change |
| Net interest income | | | | | | | $ | 5,468 | | | $ | 6,504 | | | (16) | % |
| Noninterest income: | | | | | | | | | | | |
| Investment and brokerage services | | | | | | | 12,270 | | | 11,870 | | | 3 | |
| All other income | | | | | | | 846 | | | 1,164 | | | (27) | |
| Total noninterest income | | | | | | | 13,116 | | | 13,034 | | | 1 | |
| Total revenue, net of interest expense | | | | | | | 18,584 | | | 19,538 | | | (5) | |
| | | | | | | | | | | |
| Provision for credit losses | | | | | | | 357 | | | 82 | | | n/m |
| Noninterest expense | | | | | | | 14,154 | | | 13,825 | | | 2 | |
| Income before income taxes | | | | | | | 4,073 | | | 5,631 | | | (28) | |
| Income tax expense | | | | | | | 998 | | | 1,380 | | | (28) | |
| Net income | | | | | | | $ | 3,075 | | | $ | 4,251 | | | (28) | |
| | | | | | | | | | | |
| Effective tax rate | | | | | | | 24.5 | % | | 24.5 | % | | |
| | | | | | | | | | | |
| Net interest yield | | | | | | | 1.73 | | | 2.33 | | | |
| Return on average allocated capital | | | | | | | 21 | | | 29 | | | |
| | | | | | | | | | | |
| Efficiency ratio | | | | | | | 76.16 | | | 70.76 | | | |
| | | | | | | | | | | | |
| Balance Sheet | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | | |
| Average | | | | | | | | | | | |
| Total loans and leases | | | | | | | $ | 183,402 | | | $ | 168,910 | | | 9 | % |
| Total earning assets | | | | | | | 316,008 | | | 279,681 | | | 13 | |
| Total assets | | | | | | | 328,384 | | | 292,016 | | | 12 | |
| Total deposits | | | | | | | 287,123 | | | 256,516 | | | 12 | |
| Allocated capital | | | | | | | 15,000 | | | 14,500 | | | 3 | |
| | | | | | | | | | | |
| Year end | | | | | | | | | | | |
| Total loans and leases | | | | | | | $ | 188,562 | | | $ | 176,600 | | | 7 | % |
| Total earning assets | | | | | | | 356,873 | | | 287,201 | | | 24 | |
| Total assets | | | | | | | 369,736 | | | 299,770 | | | 23 | |
| Total deposits | | | | | | | 322,157 | | | 263,113 | | | 22 | |
n/m = not meaningful
GWIM consists of two primary businesses: Merrill Lynch Global Wealth Management (MLGWM) andU.S. Trust, Bank of America Private Wealth Management (U.S. Trust).Bank.
MLGWM’sMLGWM's advisory business provides a high-touch client experience through a network of financial advisors focused on clients with over $250,000 in total investable assets. MLGWM provides tailored solutions to meet our clients’clients' needs through a full set of investment management, brokerage, banking and retirement products.
U.S. Trust,Bank of America Private Bank, together with MLGWM’sMLGWM's Private Banking & Investments Group,Wealth Management business, provides comprehensive wealth management solutions targeted to high net worth and ultra high net worth clients, as well as customized solutions to meet clients’clients' wealth structuring, investment management, trust and banking needs, including specialty asset management services.
Net income for GWIM increased$313 million decreased $1.2 billion to $3.1 billion in 2017 compared to 2016primarily due to lower net interest income, higher revenue, partially offset by an increase in noninterest expense. The operating margin was 27 percent compared to 25 percent a year ago.expense and higher provision for credit losses.
Net interest income increased $414 milliondecreased $1.0 billion to $6.2$5.5 billion drivendue to the impact of lower interest rates, partially offset by higher short-term interest rates. the benefit of strong deposit and loan growth.
Noninterest income, which primarily includes investment and brokerage services income, increased $526$82 million to $12.4 billion. $13.1 billion primarily due to higher market valuations and positive AUM flows, largely offset by declines in AUM pricing as well as lower other income due to the allocation of ALM results.
The provision for credit losses increased $275 million to $357 million primarily due to the weaker economic outlook related to COVID-19. Noninterest expense increased $329 million to $14.2 billion primarily driven by higher investments in primary sales professionals and revenue-related incentives.
The return on average allocated capital was 21 percent, down from 29 percent, due to lower net income and, to a lesser extent, a small increase in noninterest income wasallocated capital.
Average loans increased $14.5 billion to $183.4 billion primarily driven by residential mortgage and custom lending. Average deposits increased $30.6 billion to $287.1 billion primarily driven by inflows resulting from client responses to market volatility and lower spending.
MLGWM revenue of $15.3 billion decreased five percent primarily driven by the impact of AUM flows and higher market valuations,lower interest rates, partially offset by the impactbenefits of changing market dynamics on transactional revenue and AUM pricing. Noninterest expense increased $389 million to $13.6 billion primarily driven by higher revenue-related incentive costs.
Return on average allocated capital was 22 percent in 2017, up from 21 percent a year ago, as higher net income was partially offset by an increased capital allocation.
Revenue from MLGWM of $15.3 billion increased six percent in 2017 compared to 2016 due to higher net interest income and asset management fees driven by AUM flows and higher market valuations partially offset by lower transactional revenue and positive AUM pricing. U.S. Trustflows.
Bank of America Private Bank revenue of $3.3 billion increased sevendecreased four percent in 2017 compared to 2016 reflecting higher net interest income and asset management feesprimarily driven by higher market valuations and AUM flows.the impact of lower interest rates.
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| | | | |
| Key Indicators and Metrics | | | |
| | | | |
| (Dollars in millions, except as noted) | 2017 | | 2016 |
| Revenue by Business | | | |
| Merrill Lynch Global Wealth Management | $ | 15,288 |
| | $ | 14,486 |
|
| U.S. Trust | 3,295 |
| | 3,075 |
|
Other (1) | 7 |
| | 89 |
|
| Total revenue, net of interest expense (FTE basis) | $ | 18,590 |
| | $ | 17,650 |
|
| | | | |
| Client Balances by Business, at year end | | | |
| Merrill Lynch Global Wealth Management | $ | 2,305,664 |
| | $ | 2,102,175 |
|
| U.S. Trust | 446,199 |
| | 406,392 |
|
| Total client balances | $ | 2,751,863 |
| | $ | 2,508,567 |
|
| | | | |
| Client Balances by Type, at year end | | | |
| Assets under management | $ | 1,080,747 |
| | $ | 886,148 |
|
| Brokerage assets | 1,125,282 |
| | 1,085,826 |
|
| Assets in custody | 136,708 |
| | 123,066 |
|
| Deposits | 246,994 |
| | 262,530 |
|
Loans and leases (2) | 162,132 |
| | 150,997 |
|
| Total client balances | $ | 2,751,863 |
| | $ | 2,508,567 |
|
| | | | |
| Assets Under Management Rollforward | | | |
| Assets under management, beginning of year | $ | 886,148 |
| | $ | 900,863 |
|
Net client flows (3) | 95,707 |
| | 30,582 |
|
Market valuation/other (1) | 98,892 |
| | (45,297 | ) |
| Total assets under management, end of year | $ | 1,080,747 |
| | $ | 886,148 |
|
| | | | |
Associates, at year end (4, 5) | | | |
| Number of financial advisors | 17,355 |
| | 16,820 |
|
| Total wealth advisors, including financial advisors | 19,238 |
| | 18,678 |
|
| Total primary sales professionals, including financial advisors and wealth advisors | 20,341 |
| | 19,629 |
|
| | | | |
Merrill Lynch Global Wealth Management Metric (5) | | | |
Financial advisor productivity (6) (in thousands) | $ | 1,005 |
| | $ | 974 |
|
| | | | |
U.S. Trust Metric, at year end (5) | | | |
| Primary sales professionals | 1,714 |
| | 1,677 |
|
| |
(1)
| Amounts for 2016 include the results of BofA Global Capital Management, the cash management division of Bank of America, and certain administrative items. Amounts also reflect the sale to a third party of approximately $80 billion of BofA Global Capital Management’s AUM in 2016. |
| |
(2)
| Includes margin receivables which are classified in customer and other receivables on the Consolidated Balance Sheet. |
| |
(3)
| For 2016, net client flows included $8.0 billion of net outflows related to BofA Global Capital Management’s AUM that were sold in 2016. |
| |
(4)
| Includes financial advisors in the Consumer Banking segment of 2,402 and 2,200 at December 31, 2017 and 2016.
|
| |
(5)
| Associate computation is based on headcount. |
| |
(6)
| Financial advisor productivity is defined as MLGWM total revenue, excluding the allocation of certain asset and liability management (ALM) activities, divided by the total average number of financial advisors (excluding financial advisors in the Consumer Banking segment).
|
| | | | | | | | | | | | | | | |
| | | | | | | |
| Key Indicators and Metrics | | | | | | | |
| | | | | | | |
| | | |
| (Dollars in millions, except as noted) | | | | | 2020 | | 2019 |
| Revenue by Business | | | | | | | |
| Merrill Lynch Global Wealth Management | | | | | $ | 15,292 | | | $ | 16,112 | |
| Bank of America Private Bank | | | | | 3,292 | | | 3,426 | |
| | | | | | | |
| Total revenue, net of interest expense | | | | | $ | 18,584 | | | $ | 19,538 | |
| | | | | | | |
| Client Balances by Business, at year end | | | | | | | |
| Merrill Lynch Global Wealth Management | | | | | $ | 2,808,340 | | | $ | 2,558,102 | |
| Bank of America Private Bank | | | | | 541,464 | | | 489,690 | |
| | | | | | | |
| Total client balances | | | | | $ | 3,349,804 | | | $ | 3,047,792 | |
| | | | | | | |
| Client Balances by Type, at year end | | | | | | | |
| | | | | | | |
| | | | | | | |
| Assets under management | | | | | $ | 1,408,465 | | | $ | 1,275,555 | |
| Brokerage and other assets | | | | | 1,479,614 | | | 1,372,733 | |
| | | | | | | |
| Deposits | | | | | 322,157 | | | 263,103 | |
Loans and leases (1) | | | | | 191,124 | | | 179,296 | |
| Less: Managed deposits in assets under management | | | | | (51,556) | | | (42,895) | |
| Total client balances | | | | | $ | 3,349,804 | | | $ | 3,047,792 | |
| | | | | | | |
| Assets Under Management Rollforward | | | | | | | |
| Assets under management, beginning of year | | | | | $ | 1,275,555 | | | $ | 1,072,234 | |
| | | | | | | |
| | | | | | | |
| Net client flows | | | | | 19,596 | | | 24,865 | |
Market valuation/other | | | | | 113,314 | | | 178,456 | |
| Total assets under management, end of year | | | | | $ | 1,408,465 | | | $ | 1,275,555 | |
| | | | | | | |
| Associates, at year end | | | | | | | |
| Number of financial advisors | | | | | 17,331 | | | 17,458 | |
| Total wealth advisors, including financial advisors | | | | | 19,373 | | | 19,440 | |
| Total primary sales professionals, including financial advisors and wealth advisors | | | | | 21,213 | | | 20,586 | |
| | | | | | | |
| Merrill Lynch Global Wealth Management Metric | | | | | | | |
Financial advisor productivity (2) (in thousands) | | | | | $ | 1,126 | | | $ | 1,082 | |
| | | | | | | |
| Bank of America Private Bank Metric, at year end | | | | | | | |
| Primary sales professionals | | | | | 1,759 | | | 1,766 | |
(1)Includes margin receivables which are classified in customer and other receivables on the Consolidated Balance Sheet.
(2)For a definition, see Key Metrics on page 173.
Client Balances
Client balances managed under advisory and/or discretion of GWIM are AUM and are typically held in diversified portfolios. Fees earned on AUM are calculated as a percentage of clients’ AUM balances. The asset management fees charged to clients per year depend on various factors, but are commonly driven by the breadth of the client’s relationship and generally range from 50 to 150 bps on their total AUM.relationship. The net client AUM flows
represent the net change in clients’ AUM balances over a specified period of time, excluding market appreciation/depreciation and other adjustments.
Client balances increased $243.3$302.0 billion, or 10 percent, in 2017 to nearly $2.8$3.3 trillion at December 31, 2017,2020 compared to December 31, 2019. The increase in client balances was primarily due to AUM which increased $194.6 billion, or 22 percent, due to positive net flows and higher market valuations.valuations and positive client flows.
Net Migration Summary
GWIM results are impacted by the net migration of clients and their corresponding deposit, loan and brokerage balances primarily from Consumer Banking, as presented in the table below. Migrations result from the movement of clients between business segments to better align with client needs.
|
| | | | | | | |
| | | | |
Net Migration Summary (1) | | | |
| | | | |
| (Dollars in millions) | 2017 | | 2016 |
Total deposits, net – from GWIM | $ | 356 |
| | $ | 1,319 |
|
Total loans, net – from GWIM | 154 |
| | 7 |
|
Total brokerage, net – from GWIM | 266 |
| | 1,972 |
|
| | | | | | | | |
(1)41 Bank of America
| Migration occurs primarily between GWIM and Consumer Banking.
| |
Global Banking
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | |
| (Dollars in millions) | | | | | | | 2020 | | 2019 | | % Change |
| Net interest income | | | | | | | $ | 9,013 | | | $ | 10,675 | | | (16) | % |
| Noninterest income: | | | | | | | | | | | |
| Service charges | | | | | | | 3,238 | | | 3,015 | | | 7 | |
| Investment banking fees | | | | | | | 4,010 | | | 3,137 | | | 28 | |
| All other income | | | | | | | 2,726 | | | 3,656 | | | (25) | |
| Total noninterest income | | | | | | | 9,974 | | | 9,808 | | | 2 | |
| Total revenue, net of interest expense | | | | | | | 18,987 | | | 20,483 | | | (7) | |
| | | | | | | | | | | |
| Provision for credit losses | | | | | | | 4,897 | | | 414 | | | n/m |
| Noninterest expense | | | | | | | 9,337 | | | 9,011 | | | 4 | |
| Income before income taxes | | | | | | | 4,753 | | | 11,058 | | | (57) | |
| Income tax expense | | | | | | | 1,283 | | | 2,985 | | | (57) | |
| Net income | | | | | | | $ | 3,470 | | | $ | 8,073 | | | (57) | |
| | | | | | | | | | | |
| Effective tax rate | | | | | | | 27.0 | % | | 27.0 | % | | |
| | | | | | | | | | | |
| Net interest yield | | | | | | | 1.86 | | | 2.75 | | | |
| Return on average allocated capital | | | | | | | 8 | | | 20 | | | |
| Efficiency ratio | | | | | | | 49.17 | | | 43.99 | | | |
| | | | | | | | | | | | |
| Balance Sheet | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | | |
| Average | | | | | | | | | | | |
Total loans and leases | | | | | | | $ | 382,264 | | | $ | 374,304 | | | 2 | % |
| Total earning assets | | | | | | | 485,688 | | | 388,152 | | | 25 | |
| Total assets | | | | | | | 542,302 | | | 443,083 | | | 22 | |
| Total deposits | | | | | | | 456,562 | | | 362,731 | | | 26 | |
| Allocated capital | | | | | | | 42,500 | | | 41,000 | | | 4 | |
| | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Year end | | | | | | | | | | | |
| Total loans and leases | | | | | | | $ | 339,649 | | | $ | 379,268 | | | (10) | % |
| Total earning assets | | | | | | | 522,650 | | | 407,180 | | | 28 | |
| Total assets | | | | | | | 580,561 | | | 464,032 | | | 25 | |
| Total deposits | | | | | | | 493,748 | | | 383,180 | | | 29 | |
|
| | | | | | | | | | | |
| | | | | | | |
| (Dollars in millions) | 2017 | | 2016 | | % Change |
| Net interest income (FTE basis) | $ | 10,504 |
| | $ | 9,471 |
| | 11 | % |
| Noninterest income: | | | | | |
| Service charges | 3,125 |
| | 3,094 |
| | 1 |
|
| Investment banking fees | 3,471 |
| | 2,884 |
| | 20 |
|
| All other income | 2,899 |
| | 2,996 |
| | (3 | ) |
| Total noninterest income | 9,495 |
| | 8,974 |
| | 6 |
|
| Total revenue, net of interest expense (FTE basis) | 19,999 |
| | 18,445 |
| | 8 |
|
| | | | | | |
| Provision for credit losses | 212 |
| | 883 |
| | (76 | ) |
| Noninterest expense | 8,596 |
| | 8,486 |
| | 1 |
|
| Income before income taxes (FTE basis) | 11,191 |
| | 9,076 |
| | 23 |
|
| Income tax expense (FTE basis) | 4,238 |
| | 3,347 |
| | 27 |
|
| Net income | $ | 6,953 |
| | $ | 5,729 |
| | 21 |
|
| | | | | | |
| Net interest yield (FTE basis) | 2.93 | % | | 2.76 | % | | |
| Return on average allocated capital | 17 |
| | 15 |
| | |
| Efficiency ratio (FTE basis) | 42.98 |
| | 46.01 |
| | |
| | | | | | |
| Balance Sheet | | | | | | |
| | | | |
| Average | | | | | |
| Total loans and leases | $ | 346,089 |
| | $ | 333,820 |
| | 4 | % |
| Total earning assets | 358,302 |
| | 342,859 |
| | 5 |
|
| Total assets | 416,038 |
| | 396,737 |
| | 5 |
|
| Total deposits | 312,859 |
| | 304,741 |
| | 3 |
|
| Allocated capital | 40,000 |
| | 37,000 |
| | 8 |
|
| | | | | | |
| Year end | | | | | |
| Total loans and leases | $ | 350,668 |
| | $ | 339,271 |
| | 3 | % |
| Total earning assets | 365,560 |
| | 350,110 |
| | 4 |
|
| Total assets | 424,533 |
| | 408,330 |
| | 4 |
|
| Total deposits | 329,273 |
| | 307,630 |
| | 7 |
|
Global Banking, which includes Global Corporate Banking, Global Commercial Banking, Business Banking and Global Investment Banking, provides a wide range of lending-related products and services, integrated working capital management and treasury solutions, and underwriting and advisory services through our network of offices and client relationship teams. Our lending products and services include commercial loans, leases, commitment facilities, trade finance, commercial real estate lending and asset-based lending. Our treasury solutions business includes treasury management, foreign exchange, and short-term investing options.options and merchant services. 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 Corporate Banking clients generally include large global corporations, financial institutions and leasing clients. 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 decreased $4.6 billion to $7.0$3.5 billion in 2017 compared to 2016primarily driven by higher revenue and lower provision for credit losses.losses as well as lower revenue.
Revenue increased $1.6decreased $1.5 billion to $20.0$19.0 billion in 2017 compared to 2016 driven by higherlower net interest income and noninterest income. Net interest income increased $1.0 decreased $1.7
billion to $10.5$9.0 billion due toprimarily driven by lower interest rates, partially offset by higher loan and deposit-related growth,deposit balances.
Noninterest income of $10.0 billion increased $166 million driven by higher short-
term ratesinvestment banking fees, partially offset by lower valuation driven adjustments on an increased deposit basethe fair value loan portfolio, debt securities and the impact ofleveraged loans, as well as the allocation of ALM activities, partially offset by credit spread compression. Noninterest income increased $521 million to $9.5 billion largely due to higher investment banking fees.results.
The provision for credit losses decreased$671 millionincreased $4.5 billion to $212 million in 2017$4.9 billion primarily driven by reductions in energy exposures and continued portfolio improvement, partially offset by Global Banking’s portion of a single-name non-U.S. commercial charge-off.due to the weaker economic outlook related to COVID-19. Noninterest expense increased $110$326 million primarily due to $8.6 billion in 2017 primarily driven by highercontinued investments in technology and higher deposit insurance,the business, partially offset by lower litigation costs.revenue-related incentives.
The return on average allocated capital was 17eight percent up from 15in 2020 compared to 20 percent as higherin 2019 due to lower net income was partially offset byand, to a lesser extent, an increased capital allocation.increase in allocated capital. For more information on capital allocated to the business segments, see Business Segment Operations on page 30.36.
Global Corporate, Global Commercial and Business Banking
Global Corporate, Global Commercial and Business Banking each include Business Lending and Global Transaction Services activities. Business Lending includes various lending-related products and services, and related hedging activities, including commercial loans, leases, commitment facilities, trade finance, real estate lending and asset-based lending. Global Transaction Services includes deposits, treasury management, credit card, foreign exchange and short-term investment products.
The table below and following discussion present a summary of the results, which exclude certain investment banking, merchant services and PPP activities in Global Banking.
| | | Global Corporate, Global Commercial and Business Banking | | Global Corporate, Global Commercial and Business Banking | |
| | | | | | | | | | | | | | | | | | | | |
| Global Corporate, Global Commercial and Business Banking | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Global Corporate Banking | | Global Commercial Banking | | Business Banking | | Total |
| | | Global Corporate Banking | | Global Commercial Banking | | Business Banking | | Total | |
| (Dollars in millions) | (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | (Dollars in millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| Revenue | Revenue | | | | | | | | | | | | | | | | Revenue | |
| Business Lending | Business Lending | $ | 4,387 |
| | $ | 4,285 |
| | $ | 4,280 |
| | $ | 4,139 |
| | $ | 404 |
| | $ | 376 |
| | $ | 9,071 |
| | $ | 8,800 |
| Business Lending | $ | 3,552 | | | $ | 3,994 | | | $ | 3,743 | | | $ | 4,132 | | | $ | 261 | | | $ | 363 | | | $ | 7,556 | | | $ | 8,489 | |
| Global Transaction Services | Global Transaction Services | 3,322 |
| | 2,996 |
| | 3,017 |
| | 2,718 |
| | 849 |
| | 740 |
| | 7,188 |
| | 6,454 |
| Global Transaction Services | 2,986 | | | 3,994 | | | 3,169 | | | 3,499 | | | 893 | | | 1,064 | | | 7,048 | | | 8,557 | |
| Total revenue, net of interest expense | Total revenue, net of interest expense | $ | 7,709 |
| | $ | 7,281 |
| | $ | 7,297 |
| | $ | 6,857 |
| | $ | 1,253 |
| | $ | 1,116 |
| | $ | 16,259 |
| | $ | 15,254 |
| Total revenue, net of interest expense | $ | 6,538 | | | $ | 7,988 | | | $ | 6,912 | | | $ | 7,631 | | | $ | 1,154 | | | $ | 1,427 | | | $ | 14,604 | | | $ | 17,046 | |
| | | | | | | | | | | | | | | | | | | |
| Balance Sheet | | | | | | | | | | | | | | | | | Balance Sheet | |
| | | | | | | | | | | | | | | | | | |
| | Average | Average | | | | | | | | | | | | | | | | Average | |
| Total loans and leases | Total loans and leases | $ | 158,292 |
| | $ | 152,944 |
| | $ | 170,101 |
| | $ | 163,309 |
| | $ | 17,682 |
| | $ | 17,537 |
| | $ | 346,075 |
| | $ | 333,790 |
| Total loans and leases | $ | 179,393 | | | $ | 177,713 | | | $ | 182,212 | | | $ | 181,485 | | | $ | 14,410 | | | $ | 15,058 | | | $ | 376,015 | | | $ | 374,256 | |
| Total deposits | Total deposits | 148,704 |
| | 143,233 |
| | 127,720 |
| | 126,253 |
| | 36,435 |
| | 35,256 |
| | 312,859 |
| | 304,742 |
| Total deposits | 216,371 | | | 177,924 | | | 191,813 | | | 144,620 | | | 48,214 | | | 40,196 | | | 456,398 | | | 362,740 | |
| | | | | | | | | | | | | | | | | | | |
| Year end | Year end | | | | | | | | | | | | | | | | Year end | |
| Total loans and leases | Total loans and leases | $ | 163,184 |
| | $ | 152,589 |
| | $ | 169,997 |
| | $ | 168,828 |
| | $ | 17,500 |
| | $ | 17,882 |
| | $ | 350,681 |
| | $ | 339,299 |
| Total loans and leases | $ | 153,126 | | | $ | 181,409 | | | $ | 164,641 | | | $ | 182,727 | | | $ | 13,242 | | | $ | 15,152 | | | $ | 331,009 | | | $ | 379,288 | |
| Total deposits | Total deposits | 155,614 |
| | 144,016 |
| | 137,538 |
| | 128,210 |
| | 36,120 |
| | 35,409 |
| | 329,272 |
| | 307,635 |
| Total deposits | 233,484 | | | 185,352 | | | 207,597 | | | 157,322 | | | 52,150 | | | 40,504 | | | 493,231 | | | 383,178 | |
Business Lending revenue increased $271decreased $933 million in 20172020 compared to 20162019. The decrease was primarily driven by the impact of loan and lease-related growth and the allocation of ALM activities, partially offset by credit spread compression.lower interest rates.
Global Transaction Services revenue increased $734 milliondecreased $1.5 billion in 20172020 compared to 20162019 driven by the allocation of ALM results, partially offset by the impact of higher short-term rates on an increased deposit base, as well as the allocation of ALM activities.balances.
Average loans and leases increased four percentwere relatively flat in 20172020 compared to 2016 driven by growth in the commercial and industrial, and leasing portfolios.2019. Average deposits increased three26 percent primarily due to growth with newclient responses to market volatility, government stimulus and existing clients.placement of credit draws.
Global Investment Banking
Client teams and product specialists underwrite and distribute debt, equity and loan products, and provide advisory services and tailored risk management solutions. The economics of certain investment banking and underwriting activities are shared primarily between Global Banking and Global Markets under an internal revenue-sharing arrangement. Global Banking originates certain deal-related transactions with our corporate and commercial clients that are executed and distributed by Global Markets. To provide a complete discussion of our
consolidated investment banking fees, the following table
presents total Corporation investment banking fees and the portion attributable to Global Banking.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Investment Banking Fees | | | | | | |
| | | |
| | | | | |
| | | | | Global Banking | | Total Corporation |
| | | |
| | | | | | | |
| (Dollars in millions) | | | | | | | | | 2020 | | 2019 | | 2020 | | 2019 |
| Products | | | | | | | | | | | | | | | |
| Advisory | | | | | | | | | $ | 1,458 | | | $ | 1,336 | | | $ | 1,621 | | | $ | 1,460 | |
| Debt issuance | | | | | | | | | 1,555 | | | 1,348 | | | 3,443 | | | 3,107 | |
| Equity issuance | | | | | | | | | 997 | | | 453 | | | 2,328 | | | 1,259 | |
| Gross investment banking fees | | | | | | | | | 4,010 | | | 3,137 | | | 7,392 | | | 5,826 | |
| Self-led deals | | | | | | | | | (93) | | | (62) | | | (212) | | | (184) | |
| Total investment banking fees | | | | | | | | | $ | 3,917 | | | $ | 3,075 | | | $ | 7,180 | | | $ | 5,642 | |
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| Investment Banking Fees | | | | | | |
| | | | |
| | Global Banking | | Total Corporation |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Products | | | | | | | |
| Advisory | $ | 1,557 |
| | $ | 1,156 |
| | $ | 1,691 |
| | $ | 1,269 |
|
| Debt issuance | 1,506 |
| | 1,407 |
| | 3,635 |
| | 3,276 |
|
| Equity issuance | 408 |
| | 321 |
| | 940 |
| | 864 |
|
| Gross investment banking fees | 3,471 |
| | 2,884 |
| | 6,266 |
| | 5,409 |
|
| Self-led deals | (113 | ) | | (49 | ) | | (255 | ) | | (168 | ) |
| Total investment banking fees | $ | 3,358 |
| | $ | 2,835 |
| | $ | 6,011 |
| | $ | 5,241 |
|
Total Corporation investment banking fees, excluding self-led deals, of $6.0$7.2 billion, which are primarily included within Global Banking and Global Markets, increased 1527 percent in 2017 compared to 2016primarily driven by higher advisory fees and higher debt and equity issuance fees due to an increase in overall client activity and market fee pools.
fees.
|
| | | | | | | | | | | |
| | | | | | | |
| (Dollars in millions) | 2017 | | 2016 | | % Change |
| Net interest income (FTE basis) | $ | 3,744 |
| | $ | 4,558 |
| | (18 | )% |
| Noninterest income: | | | | | |
| Investment and brokerage services | 2,049 |
| | 2,102 |
| | (3 | ) |
| Investment banking fees | 2,476 |
| | 2,296 |
| | 8 |
|
| Trading account profits | 6,710 |
| | 6,550 |
| | 2 |
|
| All other income | 972 |
| | 584 |
| | 66 |
|
| Total noninterest income | 12,207 |
| | 11,532 |
| | 6 |
|
| Total revenue, net of interest expense (FTE basis) | 15,951 |
| | 16,090 |
| | (1 | ) |
| | | | | | |
| Provision for credit losses | 164 |
| | 31 |
| | n/m |
|
| Noninterest expense | 10,731 |
| | 10,169 |
| | 6 |
|
| Income before income taxes (FTE basis) | 5,056 |
| | 5,890 |
| | (14 | ) |
| Income tax expense (FTE basis) | 1,763 |
| | 2,072 |
| | (15 | ) |
| Net income | $ | 3,293 |
| | $ | 3,818 |
| | (14 | ) |
| | | | | | |
| Return on average allocated capital | 9 | % | | 10 | % | | |
| Efficiency ratio (FTE basis) | 67.28 |
| | 63.21 |
| | |
| | | | | | |
| Balance Sheet | | | | | | |
| | | | |
| Average | | | | | |
| Trading-related assets: | | | | | |
| Trading account securities | $ | 216,996 |
| | $ | 185,135 |
| | 17 | % |
| Reverse repurchases | 101,795 |
| | 89,715 |
| | 13 |
|
| Securities borrowed | 82,210 |
| | 87,286 |
| | (6 | ) |
| Derivative assets | 40,811 |
| | 50,769 |
| | (20 | ) |
Total trading-related assets (1) | 441,812 |
| | 412,905 |
| | 7 |
|
| Total loans and leases | 71,413 |
| | 69,641 |
| | 3 |
|
Total earning assets (1) | 449,441 |
| | 423,579 |
| | 6 |
|
| Total assets | 638,674 |
| | 585,341 |
| | 9 |
|
| Total deposits | 32,864 |
| | 34,250 |
| | (4 | ) |
| Allocated capital | 35,000 |
| | 37,000 |
| | (5 | ) |
| | | | | | |
| Year end | | | | | |
Total trading-related assets (1) | $ | 419,375 |
| | $ | 380,562 |
| | 10 | % |
| Total loans and leases | 76,778 |
| | 72,743 |
| | 6 |
|
Total earning assets (1) | 449,314 |
| | 397,022 |
| | 13 |
|
| Total assets | 629,007 |
| | 566,060 |
| | 11 |
|
| Total deposits | 34,029 |
| | 34,927 |
| | (3 | ) |
| |
Global Markets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (Dollars in millions) | | | | | | | 2020 | | 2019 | | % Change | | Net interest income | | | | | | | $ | 4,646 | | | $ | 3,915 | | | 19 | % | | Noninterest income: | | | | | | | | | | | | | Investment and brokerage services | | | | | | | 1,973 | | | 1,738 | | | 14 | | | Investment banking fees | | | | | | | 2,991 | | | 2,288 | | | 31 | | | Market making and similar activities | | | | | | | 8,471 | | | 7,065 | | | 20 | | | All other income | | | | | | | 685 | | | 608 | | | 13 | | | Total noninterest income | | | | | | | 14,120 | | | 11,699 | | | 21 | | | Total revenue, net of interest expense | | | | | | | 18,766 | | | 15,614 | | | 20 | | | | | | | | | | | | | | | Provision for credit losses | | | | | | | 251 | | | (9) | | | n/m | | Noninterest expense | | | | | | | 11,422 | | | 10,728 | | | 6 | | | Income before income taxes | | | | | | | 7,093 | | | 4,895 | | | 45 | | | Income tax expense | | | | | | | 1,844 | | | 1,395 | | | 32 | | | Net income | | | | | | | $ | 5,249 | | | $ | 3,500 | | | 50 | | | | | | | | | | | | | | | Effective tax rate | | | | | | | 26.0 | % | | 28.5 | % | | | | | | | | | | | | | | | | Return on average allocated capital | | | | | | | 15 | | | 10 | | | | | Efficiency ratio | | | | | | | 60.86 | | | 68.71 | | | | | | | | | | | | | | | | | | Balance Sheet | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Average | | | | | | | | | | | | | Trading-related assets: | | | | | | | | | | | | | Trading account securities | | | | | | | $ | 243,519 | | | $ | 246,336 | | | (1) | % | | Reverse repurchases | | | | | | | 104,697 | | | 116,883 | | | (10) | | | Securities borrowed | | | | | | | 87,125 | | | 83,216 | | | 5 | | | Derivative assets | | | | | | | 47,655 | | | 43,273 | | | 10 | | | Total trading-related assets | | | | | | | 482,996 | | | 489,708 | | | (1) | | | Total loans and leases | | | | | | | 73,062 | | | 71,334 | | | 2 | | | Total earning assets | | | | | | | 482,171 | | | 476,225 | | | 1 | | | Total assets | | | | | | | 685,047 | | | 679,300 | | | 1 | | | Total deposits | | | | | | | 47,400 | | | 31,380 | | | 51 | | | Allocated capital | | | | | | | 36,000 | | | 35,000 | | | 3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year end | | | | | | | | | | | | | Total trading-related assets | | | | | | | $ | 421,698 | | | $ | 452,499 | | | (7) | % | | Total loans and leases | | | | | | | 78,415 | | | 72,993 | | | 7 | | | Total earning assets | | | | | | | 447,350 | | | 471,701 | | | (5) | | | Total assets | | | | | | | 616,609 | | | 641,809 | | | (4) | | | Total deposits | | | | | | | 53,925 | | | 34,676 | | | 56 | |
| Trading-related assets include derivative assets, which are considered non-earning assets. |
n/m = not meaningful
Global Markets offers sales and trading services includingand 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
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 36.43.
The following explanations for year-over-year changes for Global Markets, including those disclosed under Sales and Trading Revenue, are the same for amounts including and excluding net DVA. Amounts excluding net DVA are a non-GAAP financial measure. For more information on net DVA, see Supplemental Financial Data on page 31.
Net income for Global Markets decreased $525 millionincreased $1.7 billion to $3.3 billion in 2017 compared to 2016.$5.2 billion. Net DVA losses were $428$133 million compared to losses of $238$222 million in 2016.2019. Excluding net DVA, net income decreased $408 millionincreased $1.7 billion to $3.6$5.4 billion. These increases were primarily driven by higher revenue, partially offset by higher noninterest expense and provision for credit losses.
Revenue increased $3.2 billion to $18.8 billion primarily driven by higher noninterest expense, lower sales and trading revenue and an increase in the provision for credit losses, partially offset by higher investment banking fees.
Sales and trading revenue increased $2.3 billion, and excluding net DVA, decreased $423 million primarily due to weaker performance in rates productsincreased $2.2 billion. These increases were driven by higher revenue across FICC and emerging markets. Equities.
The provision for credit losses increased $133$260 million primarily due to $164 million, reflecting Global Markets’ portion of a single-name non-U.S. commercial charge-off.the weaker economic outlook related to COVID-19. Noninterest expense increased $562$694 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
trading-related$11.4 billion driven by higher activity-based expenses for both card and trading.
Average total assets increased $38.8$5.7 billion to $419.4$685.0 billion at December 31, 2017 driven by additionalhigher client balances in Global Equities. Year-end total assets decreased $25.2 billion to $616.6 billion driven by lower levels of inventory in FICC and increased hedging of client activity in Equities with derivative transactions relative to meet expected client demand as well as targeted growth in client financing activities in the global equities business.stock positions.
The return on average allocated capital decreased to ninewas 15 percent, up from 10 percent, reflecting lowerhigher net income, partially offset by a decreasean increase in average allocated capital.
Sales and Trading Revenue
Sales and trading revenue includes unrealized and realized gains and losses on trading and other assets which are included in market making and similar activities, 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 believeFor more information on net DVA, see Supplemental Financial Data on page 31.
| | | | | | | | | | | | | | | |
| | | | | | | |
Sales and Trading Revenue (1, 2, 3) |
| | | | | |
| | | |
| (Dollars in millions) | | | | | 2020 | | 2019 |
| Sales and trading revenue | | | | | | | |
| Fixed income, currencies and commodities | | | | | $ | 9,595 | | | $ | 8,189 | |
| Equities | | | | | 5,422 | | | 4,493 | |
| Total sales and trading revenue | | | | | $ | 15,017 | | | $ | 12,682 | |
| | | | | | | |
Sales and trading revenue, excluding net DVA (4) | | | | | | | |
| Fixed income, currencies and commodities | | | | | $ | 9,725 | | | $ | 8,397 | |
| Equities | | | | | 5,425 | | | 4,507 | |
| Total sales and trading revenue, excluding net DVA | | | | | $ | 15,150 | | | $ | 12,904 | |
(1)For more information on sales and trading revenue, see Note 3 – Derivatives to the useConsolidated Financial Statements.
(2)Includes FTE adjustments of this non-GAAP financial measure provides additional useful information to assess the underlying performance$196 million and $187 million for 2020 and 2019.
(3) Includes Global Banking sales and trading revenue of these businesses$478 million and to allow better comparison of year-over-year operating performance.
$538 million for 2020 and 2019. |
| | | | | | | |
| | | | |
Sales and Trading Revenue (1, 2) | | | |
| | | | |
| (Dollars in millions) | 2017 | | 2016 |
| Sales and trading revenue | | | |
| Fixed-income, currencies and commodities | $ | 8,665 |
| | $ | 9,373 |
|
| Equities | 4,112 |
| | 4,017 |
|
| Total sales and trading revenue | $ | 12,777 |
| | $ | 13,390 |
|
| | | | |
Sales and trading revenue, excluding net DVA (3) | | | |
| Fixed-income, currencies and commodities | $ | 9,059 |
| | $ | 9,611 |
|
| Equities | 4,146 |
| | 4,017 |
|
| Total sales and trading revenue, excluding net DVA | $ | 13,205 |
| | $ | 13,628 |
|
| |
(1)
| Includes FTE adjustments of $236 million and $186 million for 2017 and 2016. For more information on sales and trading revenue, see Note 2 – Derivatives to the Consolidated Financial Statements.
|
| |
(2)
| Includes Global Banking sales and trading revenue of $236 million and $406 million for 2017 and 2016.
|
| |
(3)
| (4) FICC and Equities sales and trading revenue, excluding net DVA, is a non-GAAP financial measure. FICC net DVA losses were $394 million and $238 million for 2017 and 2016. Equities net DVA losses were $34 million and $0 for 2017 and 2016. |
The following explanations for year-over-year changes in sales and trading, FICC and Equities revenue, would be the same if net DVA was included. FICC revenue, excluding net DVA, decreased $552is a non-GAAP financial measure. FICC net DVA losses were $130 million from 2016 primarily due to lower revenue in rates products and emerging markets as lower volatility led to reduced client flow. The decline in $208 million for 2020 and 2019. Equities net DVA losses were $3 million and $14 million for 2020 and 2019.
FICC revenue was also impacted by higher funding costs which wereincreased $1.3 billion driven by increases in market interest rates.increased client activity and improved market-making conditions across macro products. Equities revenue excluding net DVA, increased $129$918 million from 2016 due to higher revenue from the growthdriven by increased client activity and a strong trading performance 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. a more volatile market environment.
All Other
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | |
| (Dollars in millions) | | | | | | | 2020 | | 2019 | | % Change |
| Net interest income | | | | | | | $ | 34 | | | $ | 234 | | | (85) | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Noninterest income (loss) | | | | | | | (3,606) | | | (2,617) | | | 38 | |
| Total revenue, net of interest expense | | | | | | | (3,572) | | | (2,383) | | | 50 | |
| | | | | | | | | | | |
| Provision for credit losses | | | | | | | 50 | | | (669) | | | (107) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Noninterest expense | | | | | | | 1,422 | | | 3,690 | | | (61) | |
| Loss before income taxes | | | | | | | (5,044) | | | (5,404) | | | (7) | |
| Income tax benefit | | | | | | | (4,637) | | | (4,048) | | | 15 | |
| Net loss | | | | | | | $ | (407) | | | $ | (1,356) | | | (70) | |
| | | | | | | | | | | | |
| Balance Sheet | | | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Average | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total loans and leases | | | | | | | $ | 28,159 | | | $ | 42,935 | | | (34) | % |
Total assets (1) | | | | | | | 228,783 | | | 210,689 | | | 9 | |
| Total deposits | | | | | | | 18,247 | | | 21,359 | | | (15) | |
| | | | | | | | | | | | |
| Year end | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total loans and leases | | | | | | | $ | 21,301 | | | $ | 37,156 | | | (43) | % |
| | | | | | | | | | | |
Total assets (1) | | | | | | | 264,141 | | | 224,375 | | | 18 | |
| Total deposits | | | | | | | 12,998 | | | 23,089 | | | (44) | |
|
| | | | | | | | | | | |
| | | | | | | |
| (Dollars in millions) | 2017 | | 2016 | | % Change |
| Net interest income (FTE basis) | $ | 864 |
| | $ | 918 |
| | (6 | )% |
| Noninterest income: | | | | | |
| Card income | 69 |
| | 189 |
| | (63 | ) |
| Mortgage banking income (loss) | (263 | ) | | 889 |
| | (130 | ) |
| Gains on sales of debt securities | 255 |
| | 490 |
| | (48 | ) |
| All other loss | (1,709 | ) | | (1,801 | ) | | (5 | ) |
| Total noninterest income (loss) | (1,648 | ) | | (233 | ) | | n/m |
|
| Total revenue, net of interest expense (FTE basis) | (784 | ) | | 685 |
| | n/m |
|
| | | | | | |
| Provision for credit losses | (561 | ) | | (100 | ) | | n/m |
|
| Noninterest expense | 4,065 |
| | 5,599 |
| | (27 | ) |
| Loss before income taxes (FTE basis) | (4,288 | ) | | (4,814 | ) | | (11 | ) |
| Income tax expense (benefit) (FTE basis) | (979 | ) | | (3,142 | ) | | (69 | ) |
| Net loss | $ | (3,309 | ) | | $ | (1,672 | ) | | 98 |
|
| | | | | | | |
Balance Sheet (1) | | | | | | |
| | | | | | | |
| Average | | | | | | |
| Total loans and leases | $ | 82,489 |
| | $ | 108,735 |
| | (24 | )% |
Total assets (1) | 206,998 |
| | 248,287 |
| | (17 | ) |
| Total deposits | 25,194 |
| | 27,494 |
| | (8 | ) |
| | | | | | | |
| Year end | | | | | | |
Total loans and leases (2) | $ | 69,452 |
| | $ | 96,713 |
| | (28 | )% |
Total assets (1) | 194,048 |
| | 212,413 |
| | (9 | ) |
| Total deposits | 22,719 |
| | 23,061 |
| | (1 | ) |
| |
(1)
| In segments where the total of liabilities and equity exceeds assets, which are generally deposit-taking segments, we allocate assets from All Other to those segments to match liabilities (i.e., deposits) and allocated shareholders’ equity. Allocated assets were $515.6 billion and $500.0 billion for 2017 and 2016, and $520.4 billion and $518.7 billion at December 31, 2017 and 2016.
|
| |
(2)
| Included $9.2 billion of non-U.S. credit card loans at December 31, 2016, which were included in assets of business held for sale on the Consolidated Balance Sheet. In 2017, the Corporation sold its non-U.S. consumer credit card business.
|
n/m = not meaningful
(1)In segments where the total of liabilities and equity exceeds assets, which are generally deposit-taking segments, we allocate assets from All Other to those segments to match liabilities (i.e., deposits) and allocated shareholders’ equity. Average allocated assets were $763.1 billion and $544.3 billion for 2020 and 2019, and year-end allocated assets were $977.7 billion and $565.4 billion at December 31, 2020 and 2019.
All Other consists of ALM activities, equity investments, non-core mortgage loans and servicing activities, the net impact of periodic revisions to the MSR valuation model for both core and non-core MSRs and the related economic hedge results and ineffectiveness, liquidating businesses and residual expense allocations.certain expenses not otherwise allocated to a business segment. ALM activities encompass certain residential mortgages, debt securities, and interest rate and foreign currency risk management activities,activities. Substantially all of the impact of certain allocation methodologies and accounting hedge ineffectiveness. The results of certain ALM activities are allocated to our business segments. For more information on our ALM activities, see Note
23 – Business Segment Informationto the Consolidated Financial Statements. Equity investments include our merchant services joint venture as well as Global Principal Investments which is comprised of a portfolio of equity, real estate and other alternative investments. For more information on our merchant services joint venture, see Note 12 – Commitments and Contingenciesto 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. For more information on the core and non-core portfolios, see Consumer Portfolio Credit Risk Management on page 54. 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 2017,2020, residential mortgage loans held for ALM activities decreased $6.1$12.7 billion to $28.5$9.0 billion at December 31, 2017due primarily as a result of payoffs and paydowns outpacing new originations.to loan sales. Non-core residential mortgage and home equity loans, which are principally run-offrunoff 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 2017,2020, total non-core loans decreased $11.8$3.0 billion to $41.3$12.6 billion at December 31, 2017 due primarily to payoffs and paydowns, as well as Federal Housing Administration (FHA) loan sales.conveyances and sales, partially offset by repurchases. For more information on the composition of the core and non-core portfolios, see Consumer Portfolio Credit Risk Management on page 62.
The net loss for All Other increased $1.6 billion decreased $949 million to a net loss of $3.3 billion, driven by an estimated charge of $2.9 billion$407 million, primarily due to enactmenta $2.1 billion pretax impairment charge related to the notice of termination of the Tax Act. For more information, see Financial Highlights on page 21. The pre-tax loss for 2017 compared to 2016 decreased $526 million reflectingmerchant services joint venture in 2019, partially offset by lower noninterest expenserevenue and a larger benefit in thehigher provision for credit losses, partially offset by a decline in revenue.losses.
Revenue declined $1.5 billion primarily due to lower mortgage banking income. Mortgage banking income declineddecreased $1.2 billion primarily due to less favorable valuationsextinguishment losses on MSRs,certain structured liabilities, higher client-driven ESG investment activity, resulting in higher partnership losses on these tax-advantaged investments, and lower net of related hedges, and an increase in the provision for representations and warranties. All other noninterest loss decreased marginally and includedinterest income, partially offset by a pre-tax gain of $793 million on the sale of the non-
U.S. credit card business and a downward valuation adjustment of $946 million on tax-advantaged energy investments in connection with the Tax Act. Gains on sales of loans included 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.mortgage loans.
The benefit in the provision for credit losses increased $461$719 millionto$50 million from a provision benefit of $561$669 million in 2019, primarily due to recoveries from sales of previously charged-off non-core consumer real estate loans in 2019, as well as the weaker economic outlook related to COVID-19.
Noninterest expense decreased $2.3 billion to $1.4 billion primarily due to the $2.1 billion pretax impairment charge in 2019, partially offset by higher litigation expense.
The income tax benefit increased $589 million primarily driven by continued runoffthe impact 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 expenseU.K. tax law change and a decline in non-core mortgage servicing costs,higher level of income tax credits related to our ESG investment activity, partially offset by a $316 million impairment charge related to certain data centersthe positive impact from the resolution of various tax controversy matters in the process of being sold.
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, including an estimated income tax expense of $1.9 billion related primarily to a lower valuation of certain deferred tax assets and liabilities.2019. Both periods includeyears 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 20172020 and 2016,2019, we contributed $514$115 million and $256$135 million to the Plans, and we expect to make $128$136 million of contributions during 2018.2021. The Plans are more fully discussed in Note 17 – Employee Benefit Plans to the Consolidated Financial Statements.
We enter into commitments to extend credit such as loan commitments, standby letters of credit (SBLCs) and commercial letters of credit to meet the financing needs of our customers. For a summary of the total unfunded, or off-balance sheet, credit extension commitment amounts by expiration date, see Credit Extension Commitments in Note 12 – Commitments and Contingencies to the Consolidated Financial Statements.
We also utilize variable interest entities (VIEs) in the ordinary course of business to support our financing and investing needs as well as those of our customers. For more information on our involvement with unconsolidated VIEs, see Note 6 – Securitizations and Other Variable Interest Entities to the Consolidated Financial Statements.
Table 1110 includes certain contractual obligations at December 31, 20172020 and 2016.2019.
| | | | | | | | | | | | | | | | |
| Table 11 | Contractual Obligations | | | | | |
| Table 10 | | Table 10 | Contractual Obligations | | |
| | | | | | | | | | | | | | |
| | | December 31, 2017 | | December 31
2016 | | December 31, 2020 | | December 31
2019 |
| (Dollars in millions) | (Dollars in millions) | Due in One
Year or Less | | Due After
One Year Through
Three Years | | Due After
Three Years Through
Five Years | | Due After
Five Years | | Total | | Total | (Dollars in millions) | Due in One
Year or Less | | Due After
One Year Through
Three Years | | Due After
Three Years Through
Five Years | | Due After
Five Years | | Total | | Total |
| Long-term debt | Long-term debt | $ | 42,057 |
| | $ | 42,145 |
| | $ | 30,879 |
| | $ | 112,321 |
| | $ | 227,402 |
| | $ | 216,823 |
| Long-term debt | $ | 20,352 | | | $ | 50,824 | | | $ | 48,568 | | | $ | 143,190 | | | $ | 262,934 | | | $ | 240,856 | |
| Operating lease obligations | Operating lease obligations | 2,256 |
| | 4,072 |
| | 3,023 |
| | 5,169 |
| | 14,520 |
| | 13,620 |
| Operating lease obligations | 1,927 | | | 3,169 | | | 2,395 | | | 4,609 | | | 12,100 | | | 11,794 | |
| Purchase obligations | Purchase obligations | 1,317 |
| | 1,426 |
| | 458 |
| | 1,018 |
| | 4,219 |
| | 5,742 |
| Purchase obligations | 551 | | | 700 | | | 80 | | | 103 | | | 1,434 | | | 3,530 | |
| Time deposits | Time deposits | 61,038 |
| | 4,990 |
| | 1,543 |
| | 273 |
| | 67,844 |
| | 74,944 |
| Time deposits | 50,661 | | | 3,206 | | | 426 | | | 1,563 | | | 55,856 | | | 74,673 | |
| Other long-term liabilities | Other long-term liabilities | 1,681 |
| | 1,234 |
| | 862 |
| | 1,195 |
| | 4,972 |
| | 4,567 |
| Other long-term liabilities | 1,656 | | | 1,092 | | | 953 | | | 781 | | | 4,482 | | | 4,099 | |
Estimated interest expense on long-term debt and time deposits (1) | Estimated interest expense on long-term debt and time deposits (1) | 5,590 |
| | 8,796 |
| | 6,909 |
| | 27,828 |
| | 49,123 |
| | 39,447 |
| Estimated interest expense on long-term debt and time deposits (1) | 4,542 | | | 8,123 | | | 6,958 | | | 30,924 | | | 50,547 | | | 44,385 | |
| Total contractual obligations | Total contractual obligations | $ | 113,939 |
| | $ | 62,663 |
| | $ | 43,674 |
| | $ | 147,804 |
| | $ | 368,080 |
| | $ | 355,143 |
| Total contractual obligations | $ | 79,689 | | | $ | 67,114 | | | $ | 59,380 | | | $ | 181,170 | | | $ | 387,353 | | | $ | 379,337 | |
| |
(1)(1)Represents forecasted net interest expense on long-term debt and time deposits based on interest rates at December 31, 2020 and 2019. Forecasts are based on the contractual maturity dates of each liability, and are net of derivative hedges, where applicable. | Represents forecasted net interest expense on long-term debt and time deposits based on interest rates at December 31, 2017. Forecasts are based on the contractual maturity dates of each liability, and are net of derivative hedges, where applicable.
|
Representations and Warranties Obligations
For background information on representations and warranties see Note 7 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements. Breaches of representations and warranties madeobligations in connection with the sale of mortgage loans, have resulted in and may continue to result in the requirement to repurchase mortgage loans or to otherwise make whole or provide other remedies to investors, securitization trusts, guarantors, insurers or other parties (collectively, repurchases).
At December 31, 2017 and 2016, we had $17.6 billion and $18.3 billion of unresolved repurchase claims, predominately related to subprime and pay option first-lien loans and home equity loans originated primarily between 2004 and 2008.
In addition to unresolved repurchase claims, we have received notifications indicating that we may have indemnity obligations with respect to specific loans for which we have not received a repurchase request. These notifications were received prior to 2015, and totaled $1.3 billion at both December 31, 2017 and 2016. During 2017, we reached agreements with certain parties requesting indemnity. One such agreement is subject to acceptance by a securitization trustee. The impact of these agreements is included in the provision and reserve for representations and warranties.
The reserve for representations and warranties and corporate guarantees is included in accrued expenses and other liabilities on the Consolidated Balance Sheet and the related provision is included in mortgage banking income. At December 31, 2017 and 2016, the reserve for representations and warranties was $1.9 billion and $2.3 billion. The representations and warranties provision was $393 million for 2017 compared to $106 million for 2016 with the increase resulting from settlements or advanced negotiations with certain counterparties where we believe we will reach settlements on several outstanding legacy matters.
In addition, we currently estimate that the range of possible loss for representations and warranties exposures could be up to $1 billion over existing accruals at December 31, 2017. This estimate is lower than the estimate at December 31, 2016 due
to recent reductions in risk as we reach settlements with counterparties. The estimated range of possible loss represents
a reasonably possible loss, but does not represent a probable loss, and is based on currently available information, significant judgment and a number of assumptions that are subject to change.
Future provisions and/or ranges of possible loss associated with obligations under representations and warranties may be significantly impacted if future experiences are different from historical experience or our understandings, interpretations or assumptions. Adverse developments with respect to one or more of the assumptions underlying the reserve for representations and warranties and the corresponding estimated range of possible loss, such as counterparties successfully challenging or avoiding the application of the relevant statute of limitations, could result in significant increases to future provisions and/or the estimated range of possible loss. For more information on representations and warranties, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements and, for more information related to the sensitivity of the assumptions used to estimate our liability for representations and warranties, see Complex Accounting Estimates – Representations and Warranties Liability on page 86.
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.
Managing Risk
Overview
Risk is inherent in all our business activities. Sound risk management enables us to serve our customers and deliver for our shareholders. If not managed well, risks can result in financial loss, regulatory sanctions and penalties, and damage to our reputation, each of which may adversely impact our ability to execute our business strategies. We take a comprehensive approach to risk management with a defined Risk Framework and an articulated Risk Appetite Statement, which are approved annually by the Enterprise Risk Committee (ERC)ERC and the Board.
The seven key types of risk faced by the Corporation are strategic, credit, market, liquidity, compliance, operational and reputational risks.reputational.
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● | Strategic risk is the risk resulting from incorrect assumptions about external or internal factors, inappropriate business plans, ineffective business strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic or competitive environments in the geographic locations in which we operate. |
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● | Credit risk is the risk of loss arising from the inability or failure of a borrower or counterparty to meet its obligations. |
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● | Market risk is the risk that changes in market conditions may adversely impact the value of assets or liabilities, or otherwise negatively impact earnings. |
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● | Liquidity risk is the inability to meet expected or unexpected cash flow and collateral needs while continuing to support our businesses and customers under a range of economic conditions. |
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● | Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to the reputation of the Corporation arising from the failure of the Corporation to comply with the requirements of applicable laws, rules, regulations and related self-regulatory organizations’ standards and codes of conduct. |
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● | Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. |
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● | Reputational risk is the risk that negative perceptions of the Corporation’s conduct or business practices may adversely impact its profitability or operations. |
●Strategic risk is the risk to current or projected financial condition arising from incorrect assumptions about external or internal factors, inappropriate business plans, ineffective business strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic or competitive environments in the geographic locations in which we operate.
●Credit risk is the risk of loss arising from the inability or failure of a borrower or counterparty to meet its obligations.
●Market risk is the risk that changes in market conditions may adversely impact the value of assets or liabilities, or otherwise negatively impact earnings. Market risk is composed of price risk and interest rate risk.
●Liquidity risk is the inability to meet expected or unexpected cash flow and collateral needs while continuing to support our businesses and customers under a range of economic conditions.
●Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to the reputation of the Corporation arising from the failure of the Corporation to comply with the requirements of applicable laws, rules and regulations and our internal policies and procedures.
●Operational risk is the risk of loss resulting from inadequate or failed processes, people and systems, or from external events.
●Reputational risk is the risk that negative perceptions of the Corporation’s conduct or business practices may adversely impact its profitability or operations.
The following sections address in more detail the specific procedures, measures and analyses of the major categories of risk. This discussion of managing risk focuses on the current Risk Framework that, as part of its annual review process, was approved by the ERC and the Board.
As set forth in our Risk Framework, a culture of managing risk well is fundamental to fulfilling our purpose and our values and operating principles.delivering responsible growth. It requires us to focus on risk in all activities and encourages the necessary mindset and behavior to enable effective risk management, and promotes sound risk-taking within our risk appetite. Sustaining a culture of managing risk well throughout the organization is critical to our success and is a clear expectation of our executive management team and the Board.
Our Risk Framework serves as the foundation for the consistent and effective management of risks facing the Corporation. The
Risk Framework sets forth clear roles, responsibilities and accountability for the management of risk and provides a blueprint for how the Board, through delegation of authority to committees and executive officers, establishes risk appetite and associated limits for our activities.
Executive management assesses, with Board oversight, the risk-adjusted returns of each business. Management reviews and approves the strategic and financial operating plans, as well as the capital plan and Risk Appetite Statement, and recommends them annually to the Board for approval. Our strategic plan takes into consideration return objectives and financial resources, which must align with risk capacity and risk appetite. Management sets financial objectives for each business by allocating capital and setting a target for return on capital for each business. Capital allocations and operating limits are regularly evaluated as part of our overall governance processes as the businesses and the economic environment in which we operate continue to evolve. For more information regarding capital allocations,see Business Segment Operationsonpage 30.36.
The Corporation’s risk appetite indicates the amount of capital, earnings or liquidity we are willing to put at risk to achieve our strategic objectives and business plans, consistent with applicable regulatory requirements. Our risk appetite provides a common and comparable set of measures for senior management and the Board to clearly indicate our aggregate level of risk and to monitor whether the Corporation’s risk profile remains in alignment with our strategic and capital plans. Our risk appetite is formally articulated in the Risk Appetite Statement, which includes both qualitative components and quantitative limits.
For a more detailed discussion of our risk management activities, see the discussion below and pages 44 through 84.
Our overall capacity to take risk is limited; therefore, we prioritize the risks we take in order to maintain a strong and flexible financial
position so we can withstand challenging economic conditions and take advantage of organic growth opportunities. Therefore, we set objectives and targets for capital and liquidity that are intended to permit us to continue to operate in a safe and sound manner, including during periods of stress.
Our lines of business operate with risk limits (which may include credit, market and/or operational limits, as applicable) that are based onalign with the amount of capital, earnings or liquidity we are willing to put atCorporation’s risk to achieve our strategic objectives and business plans.appetite. Executive management is responsible for tracking and reporting performance measurements as well as any exceptions to guidelines or limits. The Board, and its committees when appropriate, overseesoversee financial performance, execution of the strategic and financial operating plans, adherence to risk appetite limits and the adequacy of internal controls.
For a more detailed discussion of our risk management activities, see the discussion below and pages 50 through 85.
For more information about the Corporation's risks related to the pandemic, see Part I. Item 1A. Risk Factors on page 7. These COVID-19 related risks are being managed within our Risk Framework and supporting risk management programs.
Risk Management Governance
The Risk Framework describes delegations of authority whereby the Board and its committees may delegate authority to management-level committees or executive officers. Such delegations may authorize certain decision-making and approval functions, which may be evidenced in, for example, committee charters, job descriptions, meeting minutes and resolutions.
The chart below illustrates the inter-relationship among the Board, Board committees and management committees that have the majority of risk oversight responsibilities for the Corporation.
The chart below illustrates the inter-relationship among the Board, Board committees and management committees that have the majority of risk oversight responsibilities for the Corporation.
(1) This presentation does not include committees for other legal entities.
(2) Reports to the CEO and CFO with oversight by the Audit Committee.
Board of Directors and Board Committees
The Board is comprisedcomposed of 1517 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 managementIndependent 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)Chief Audit Executive (CAE) 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, ESG, and Sustainability 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 BenefitsHuman Capital 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, anddirectors; reviewing and approving all of our executive officers’ compensation, as well as compensation for non-management directors.directors; and reviewing certain other human capital management topics.
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-levelmanagement 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 providesThis 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.
Lines of Defense
We have clear ownership and accountability across three lines of defense: Front Line Units (FLUs), IRM and Corporate Audit. We also have control functions outside of FLUs and IRM (e.g., Legal and Global Human Resources). The three lines of defense are integrated into our management-level governance structure. Each of these functional roles is further described in more detail below.this section.
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-levelmanagement 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 first, the Chief Financial Officer (CFO) Group, Global MarketingGroup; second, Environmental, Social and Corporate Affairs (GM&CA)Governance (ESG), Capital Deployment (CD) and Public Policy (PP); and third, the Chief Administrative Officer (CAO) Group.
Independent Risk Management
IRM is part of our control functions and includes Global Risk Management and Global Compliance.Management. We have other control functions that are not part of IRM (other control functions may also provide oversight to FLU activities), including Legal, Global Human Resources and certain activities within the CFO Group; ESG, CD and PP; and CAO Group, CFO Group and GM&CA.Group. IRM, led by the Chief Risk Officer (CRO), is responsible for independently assessing and overseeing risks within FLUs and other control functions. IRM establishes written enterprise policies and procedures that include concentration risk limits, where appropriate. Such policies and procedures outline how aggregate risks are identified, measured, monitored and controlled.
The CRO has the 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 FLUthat cover a specific risk teamsarea and control function riskvertical CRO teams that cover a particular front line unit or control function. These teams 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 CGACAE maintain their independence from the FLUs, IRM and other control functions by reporting directly to the Audit Committee or the Board. The CGACAE 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.
The formal processes used to manage risk represent a part of our overall risk management process. We instill a strong and comprehensive culture of managing risk well through communications, training, policies, procedures and organizational roles and responsibilities. Establishing a culture reflective of our purpose to help make our customers’ financial lives better and delivering our responsible growth strategy areis also critical to effective risk management. We understand that improper actions, behaviors or practices that are illegal, unethical or contrary to our core values could result in harm to the Corporation, our shareholders or our customers, damage the integrity of the financial markets, or negatively impact our reputation, and have established protocols and structures so that such conduct risk is governed and reported across the Corporation. Specifically,our Code of Conduct provides a framework for all of our employees to conduct themselves with the highest integrity. Additionally, we continue to strengthen the link between the employee performance management process and individual compensation to encourage employees to work toward enterprise-wide risk goals.
Corporation-wide Stress Testing
Integral to our Capital Planning, Financial Planning and Strategic Planning processes, we conduct capital scenario management and stress forecasting on a periodic basis to better understand balance sheet, earnings and capital sensitivities to certain economic and business scenarios, including economic and market conditions that are more severe than anticipated. These stress forecasts provide an understanding of the potential impacts from our risk profile on the balance sheet, earnings and capital, and serve as a key component of our capital and risk management practices. The intent of stress testing is to develop a comprehensive understanding of potential impacts of on- and off-balance sheet risks at the Corporation and how they impact financial resiliency, which provides confidence to management, regulators and our investors.
Contingency Planning
We have developed and maintain contingency plans that are designed to prepare us in advance to respond in the event of potential adverse economic, financial or market stress. These contingency plans include our Capital Contingency Plan 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.
Capital Management
The Corporation manages its capital position so that its capital is more than adequate to support its business activities and to maintain capital,aligns with risk, and risk appetite commensurate with one another.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 more information, see Business Segment Operations on page 30.36.
CCAR and Capital Planning
The Federal Reserve requires BHCs to submit a capital plan and requests forplanned capital actions on an annual basis, consistent with the rules governing the CCAR capital plan.
On June 28, 2017, followingBased on the results of our 2020 CCAR supervisory stress test that was submitted to the Federal Reserve in the second quarter of 2020, we are subject to a 2.5 percent stress capital buffer (SCB) for the period beginning October 1, 2020 and ending on September 30, 2021. Our Common equity tier 1 (CET1) capital ratio under the Standardized approach must remain above 9.5 percent during this period (the sum of our CET1 capital ratio minimum of 4.5 percent, global systemically important bank (G-SIB) surcharge of 2.5 percent and our SCB of 2.5 percent) in order to avoid restrictions on capital distributions and discretionary bonus payments.
Due to economic uncertainty resulting from the pandemic, the Federal Reserve required all large banks to update and resubmit their capital plans in November 2020 based on the Federal Reserve’s non-objectionupdated supervisory stress test scenarios. The results of the additional supervisory stress tests were published in December 2020.
The Federal Reserve also required large banks to suspend share repurchase programs during the second half of 2020, except for repurchases to offset shares awarded under equity-based compensation plans, and to limit common stock dividends to existing rates that did not exceed the average of the last four quarters’ net income. The Federal Reserve’s directives regarding share repurchases aligned with our 2017 CCAR capital plan,decision to voluntarily suspend our general common stock repurchase program during the first half of 2020. The suspension of our repurchases did not include repurchases to offset shares awarded under our equity-based compensation plans. Pursuant to the Board’s authorization, we repurchased $7.0 billion of common stock during 2020.
In December 2020, the Federal Reserve announced that beginning in the first quarter of 2021, large banks would be permitted to pay common stock dividends at existing rates and to repurchase shares in an amount that, when combined with dividends paid, does not exceed the average of net income over the last four quarters.
On January 19, 2021, we announced that the Board declared a quarterly common stock dividend of $0.18 per share, payable on March 26, 2021 to shareholders of record as of March 5, 2021. We also announced that the Board authorized the repurchase of $12.0$2.9 billion in common stock from July 1, 2017 through June 30, 2018,March 31, 2021, plus repurchases expected to be approximately $900 million to offset the effect ofshares awarded under equity-based compensation plans during the same period. On December 5, 2017, following approvalperiod, estimated to be approximately $300 million. This authorization equals the maximum amount allowed by the Federal Reserve for the Board authorized the repurchase of an additional $5.0 billion of common stock through June 30, 2018. The commonperiod.
Our stock repurchase authorizations include both common stock and warrants. During 2017, pursuant to the Board’s authorizations, including those related to our 2016 CCAR capital plan that expired June 30, 2017, we repurchased $12.8 billion of common stock, which includes common stock repurchases to offset equity-based compensation awards. At December 31, 2017, our remaining stock repurchase authorization was $10.1 billion.
The timing and amount of common stock repurchases will beprogram is 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 stockSuch repurchases may be effected through open market purchases or privately negotiated transactions, including repurchase plans that satisfy the conditions of Rule 10b5-1 of the Securities Exchange Act of 1934. As a “well-capitalized” BHC, we may notify the Federal Reserve of our intention to make additional capital distributions not to exceed 0.25 percent of Tier 1 capital, and which were not
contemplated in our capital plan, subject to the Federal Reserve’s non-objection.1934, as amended (Exchange Act).
Regulatory Capital
As a financial services holding company, we are subject to regulatory capital rules, including Basel 3, issued by U.S. banking regulators includingregulators. 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 establishedoutlined two methods of
calculating risk-weighted assets (RWA), 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 Corporation's depository institution subsidiaries are also subject to the fourth quarter of 2017, we obtained approval from U.S.Prompt Corrective Action (PCA) framework. 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 anentity, BANA, are Advanced approaches institution, weinstitutions under Basel 3 and are required to report regulatory risk-based capital ratios and risk-weighted assetsRWA under both the Standardized and Advanced approaches. The approach that yields the lower ratio is used to assess capital adequacy including under the PCA framework. As of December 31, 2020, the CET1, Tier 1 capital and Total capital ratios for the Corporation were lower under the Standardized approach.
Minimum Capital Requirements
MinimumIn order to avoid restrictions on capital requirementsdistributions and related buffers are being phased in from January 1, 2014 through January 1, 2019. The PCA framework establishes categories of capitalization including “well capitalized,” based ondiscretionary bonus payments, the Basel 3 regulatory ratio requirements. U.S. banking regulators are required to take certain mandatory actions depending on the category of capitalization, with no mandatory actions required for “well-capitalized” banking organizations, which included BANA at December 31, 2017.
We are subject to a capital conservation buffer, a countercyclical capital buffer and a global systemically important bank (G-SIB) surcharge that are being phased in over a three-year period ending January 1, 2019. Once fully phased in, the Corporation’sCorporation must meet risk-based capital ratio requirements willthat 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 onsurcharge. On October 1, 2020, the capital distributions and discretionary bonus payments.conservation buffer was replaced by the SCB for the Corporation’s Standardized approach ratio requirements. The buffers and surcharge must be comprised solely of Common equity tier 1CET1 capital. Under the phase-in provisions, we were
The Corporation is also required to maintain a capital conservation buffer greater than 1.25minimum supplementary leverage ratio (SLR) of 3.0 percent plus a G-SIB surchargeleverage buffer of 1.52.0 percent in 2017. The countercyclicalorder to avoid certain restrictions on capital buffer is currently set at zero. We estimate that our fully phased-in G-SIB surcharge will
distributions and discretionary bonus payments. Our insured depository institution subsidiaries are required to maintain a minimum 6.0 percent SLR to be 2.5 percent. The G-SIB surcharge may differ from this estimate over time. For more information onconsidered well capitalized under the Corporation’s transition and fully phased-in capital ratios and regulatory requirements, see Table 12.
Supplementary Leverage Ratio
Basel 3 requires Advanced approaches institutions to disclose an SLR.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 and applicable temporary exclusions, as well as the simple average of certain off-balance sheet exposures, as of the end of each month in a quarter. Effective January 1, 2018, the Corporation will be required to maintain a minimum SLR of 3.0 percent, plus a leverage buffer of 2.0 percent in order to avoid certain restrictionsFor more information, see Capital Management – Regulatory Developments on capital distributions and discretionary bonus payments. Insured
depository institution subsidiaries of BHCs will be required to maintain a minimum 6.0 percent SLR to be considered “well capitalized” under the PCA framework.page 55.
Capital Composition and Ratios
Table 1211 presents Bank of America Corporation’s transition and fully phased-in capital ratios and related information in accordance with Basel 3 Standardized and Advanced approaches as measured at December 31, 20172020 and 2016. Fully phased-in estimates are non-GAAP financial measures that2019. For the Corporation considers to be useful measures in evaluating compliance with new regulatory capital requirements that are not yet effective. For reconciliations to GAAP financial measures, see Table 15. As of December 31, 2017 and 2016,periods presented herein, the Corporation met the definition of “well capitalized”well capitalized under current regulatory requirements.
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| Table 12 | Bank of America Corporation Regulatory Capital under Basel 3 (1, 2) | | | | |
| | | |
| | | Transition | | Fully Phased-in |
| | Standardized Approach | | Advanced Approaches (3) | | Regulatory Minimum (4) | | Standardized Approach | | Advanced Approaches (3) | | Regulatory Minimum (5) |
| (Dollars in millions, except as noted) | December 31, 2017 |
| Risk-based capital metrics: | | | | | | | | | | | |
| Common equity tier 1 capital | $ | 171,063 |
| | $ | 171,063 |
| | | | $ | 168,461 |
| | $ | 168,461 |
| | |
| Tier 1 capital | 191,496 |
| | 191,496 |
| | | | 190,189 |
| | 190,189 |
| | |
Total capital (6) | 227,427 |
| | 218,529 |
| | | | 224,209 |
| | 215,311 |
| | |
| Risk-weighted assets (in billions) | 1,434 |
| | 1,449 |
| | | | 1,443 |
| | 1,459 |
| | |
| Common equity tier 1 capital ratio | 11.9 | % | | 11.8 | % | | 7.25 | % | | 11.7 | % | | 11.5 | % | | 9.5 | % |
| Tier 1 capital ratio | 13.4 |
| | 13.2 |
| | 8.75 |
| | 13.2 |
| | 13.0 |
| | 11.0 |
|
| Total capital ratio | 15.9 |
| | 15.1 |
| | 10.75 |
| | 15.5 |
| | 14.8 |
| | 13.0 |
|
| | | | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (7) | $ | 2,224 |
| | $ | 2,224 |
| | | | $ | 2,223 |
| | $ | 2,223 |
| | |
| Tier 1 leverage ratio | 8.6 | % | | 8.6 | % | | 4.0 |
| | 8.6 | % | | 8.6 | % | | 4.0 |
|
| | | | | | | | | | | | |
| SLR leverage exposure (in billions) | | | | | | | | | $ | 2,756 |
| | |
| SLR | | | | | | | | | 6.9 | % | | 5.0 |
|
| | | | | | | | | | | | | |
| | | December 31, 2016 |
| Risk-based capital metrics: | | | | | | | | | | | |
| Common equity tier 1 capital | $ | 168,866 |
| | $ | 168,866 |
| | | | $ | 162,729 |
| | $ | 162,729 |
| | |
| Tier 1 capital | 190,315 |
| | 190,315 |
| | | | 187,559 |
| | 187,559 |
| | |
Total capital (6) | 228,187 |
| | 218,981 |
| | | | 223,130 |
| | 213,924 |
| | |
| Risk-weighted assets (in billions) | 1,399 |
| | 1,530 |
| | | | 1,417 |
| | 1,512 |
| | |
| Common equity tier 1 capital ratio | 12.1 | % | | 11.0 | % | | 5.875 | % | | 11.5 | % | | 10.8 | % | | 9.5 | % |
| Tier 1 capital ratio | 13.6 |
| | 12.4 |
| | 7.375 |
| | 13.2 |
| | 12.4 |
| | 11.0 |
|
| Total capital ratio | 16.3 |
| | 14.3 |
| | 9.375 |
| | 15.8 |
| | 14.2 |
| | 13.0 |
|
| | | | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (7) | $ | 2,131 |
| | $ | 2,131 |
| | | | $ | 2,131 |
| | $ | 2,131 |
| | |
| Tier 1 leverage ratio | 8.9 | % | | 8.9 | % | | 4.0 |
| | 8.8 | % | | 8.8 | % | | 4.0 |
|
| | | | | | | | | | | | | |
| SLR leverage exposure (in billions) | | | | | | | | | $ | 2,702 |
| | |
| SLR | | | | | | | | | 6.9 | % | | 5.0 |
|
| | | | | | | | |
(1)51 Bank of America
| As an Advanced approaches institution, we are required to report regulatory capital risk-weighted assets and ratios under both the Standardized and Advanced approaches. The approach that yields the lower ratio is to be used to assess capital adequacy and was the Advanced approaches method at December 31, 2017 and 2016.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Table 11 | Bank of America Corporation Regulatory Capital under Basel 3 | | | | | | |
| | | | | | | | |
| | | | | | | | | | |
| | | | | | | Standardized
Approach (1, 2) | | Advanced
Approaches (1) | | Regulatory
Minimum (3) | | | | |
| (Dollars in millions, except as noted) | | | | | | | December 31, 2020 | | |
| Risk-based capital metrics: | | | | | | | | | | | | | | | |
| Common equity tier 1 capital | | | | | | | $ | 176,660 | | | $ | 176,660 | | | | | | | |
| Tier 1 capital | | | | | | | 200,096 | | | 200,096 | | | | | | | |
Total capital (4) | | | | | | | 237,936 | | | 227,685 | | | | | | | |
| Risk-weighted assets (in billions) | | | | | | | 1,480 | | | 1,371 | | | | | | | |
| Common equity tier 1 capital ratio | | | | | | | 11.9 | % | | 12.9 | % | | 9.5 | % | | | | |
| Tier 1 capital ratio | | | | | | | 13.5 | | | 14.6 | | | 11.0 | | | | | |
| Total capital ratio | | | | | | | 16.1 | | | 16.6 | | | 13.0 | | | | | |
| | | | | | | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (5) | | | | | | | $ | 2,719 | | | $ | 2,719 | | | | | | | |
| Tier 1 leverage ratio | | | | | | | 7.4 | % | | 7.4 | % | | 4.0 | | | | | |
| | | | | | | | | | | | | | | |
Supplementary leverage exposure (in billions) (6) | | | | | | | | | $ | 2,786 | | | | | | | |
| Supplementary leverage ratio | | | | | | | | | 7.2 | % | | 5.0 | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | December 31, 2019 | | |
| Risk-based capital metrics: | | | | | | | | | | | | | | | |
| Common equity tier 1 capital | | | | | | | $ | 166,760 | | | $ | 166,760 | | | | | | | |
| Tier 1 capital | | | | | | | 188,492 | | | 188,492 | | | | | | | |
Total capital (4) | | | | | | | 221,230 | | | 213,098 | | | | | | | |
| Risk-weighted assets (in billions) | | | | | | | 1,493 | | | 1,447 | | | | | | | |
| Common equity tier 1 capital ratio | | | | | | | 11.2 | % | | 11.5 | % | | 9.5 | % | | | | |
| Tier 1 capital ratio | | | | | | | 12.6 | | | 13.0 | | | 11.0 | | | | | |
| Total capital ratio | | | | | | | 14.8 | | | 14.7 | | | 13.0 | | | | | |
| | | | | | | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (5) | | | | | | | $ | 2,374 | | | $ | 2,374 | | | | | | | |
| Tier 1 leverage ratio | | | | | | | 7.9 | % | | 7.9 | % | | 4.0 | | | | | |
| | | | | | | | | | | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | | | | | $ | 2,946 | | | | | | | |
| Supplementary leverage ratio | | | | | | | | | 6.4 | % | | 5.0 | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
(1)As of December 31, 2020, capital ratios are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of CECL.
(2)Derivative exposure amounts are calculated using the standardized approach for measuring counterparty credit risk at December 31, 2020 and the current exposure method at December 31, 2019.
(3)The capital conservation buffer and G-SIB surcharge were 2.5 percent at both December 31, 2020 and 2019. At December 31, 2020, the Corporation's SCB of 2.5 percent was applied in place of the capital conservation buffer under the Standardized approach. The countercyclical capital buffer for both periods was zero. The SLR minimum includes a leverage buffer of 2.0 percent.
(4)Total capital under the Advanced approaches differs from the Standardized approach due to differences in the amount permitted in Tier 2 capital related to the qualifying allowance for credit losses.
(5)Reflects total average assets adjusted for certain Tier 1 capital deductions.
(6)Supplementary leverage exposure at December 31, 2020 reflects the temporary exclusion of U.S. Treasury securities and deposits at Federal Reserve Banks.
At December 31, 2020, CET1 capital was $176.7 billion, an increase of $9.9 billion from December 31, 2019, driven by earnings and net unrealized gains on available-for-sale (AFS) debt securities included in accumulated other comprehensive income (OCI), partially offset by common stock repurchases and dividends. Total capital under the Standardized approach increased $16.7 billion primarily driven by the same factors as CET1 capital, an increase in the adjusted allowance for credit
losses included in Tier 2 capital and the issuance of preferred stock. RWA under the Standardized approach, which yielded the lower CET1 capital ratio at December 31, 2020, decreased $13.7 billion during 2020 to $1,480 billion primarily due to lower commercial and consumer lending exposures, partially offset by investments of excess deposits in securities. Table 12 shows the capital composition at December 31, 2020 and 2019.
Under the applicable bank regulatory rules, we are not required to and, accordingly, will not restate previously-filed regulatory capital metrics and ratios in connection with the change in accounting method under GAAP for stock-based compensation awards granted to retirement-eligible employees. Therefore, the December 31, 2016 amounts in the table are as originally reported. The cumulative impact of the change in accounting method resulted in an insignificant pro forma change to our capital metrics and ratios. For more information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
| | |
(3)
| During the fourth quarter of 2017, we obtained approval from U.S. banking regulators to use our IMM to calculate counterparty credit risk-weighted assets for derivatives under the Advanced approaches. Fully phased-in estimates for prior periods assumed approval. |
| |
(4)
| The December 31, 2017 and 2016 amounts include a transition capital conservation buffer of 1.25 percent and 0.625 percent and a transition G-SIB surcharge of 1.5 percent and 0.75 percent. The countercyclical capital buffer for both periods is zero.
|
| |
(5)
| Fully phased-in regulatory minimums assume a capital conservation buffer of 2.5 percent and estimated G-SIB surcharge of 2.5 percent. The estimated fully phased-in countercyclical capital buffer is zero. We will be subject to fully phased-in regulatory minimums on January 1, 2019. The fully phased-in SLR minimum assumes a leverage buffer of 2.0 percent and is applicable on January 1, 2018.
|
| |
(6)
| Total capital under the Advanced approaches differs from the Standardized approach due to differences in the amount permitted in Tier 2 capital related to the qualifying allowance for credit losses. |
| |
(7)
| Reflects adjusted average total assets for the three months ended December 31, 2017 and 2016.
|
| | | | | | | | | | | | | | |
| | | | |
| Table 12 | Capital Composition under Basel 3 | | | |
| | | | |
| | December 31 |
| | | |
| (Dollars in millions) | 2020 | | 2019 |
| Total common shareholders’ equity | $ | 248,414 | | | $ | 241,409 | |
CECL transitional amount (1) | 4,213 | | | — | |
| Goodwill, net of related deferred tax liabilities | (68,565) | | | (68,570) | |
| Deferred tax assets arising from net operating loss and tax credit carryforwards | (5,773) | | | (5,193) | |
| Intangibles, other than mortgage servicing rights, net of related deferred tax liabilities | (1,617) | | | (1,328) | |
| Defined benefit pension plan net assets | (1,164) | | | (1,003) | |
Cumulative unrealized net (gain) loss related to changes in fair value of financial liabilities attributable to own creditworthiness,
net-of-tax | 1,753 | | | 1,278 | |
| Other | (601) | | | 167 | |
| Common equity tier 1 capital | 176,660 | | | 166,760 | |
| Qualifying preferred stock, net of issuance cost | 23,437 | | | 22,329 | |
| Other | (1) | | | (597) | |
| Tier 1 capital | 200,096 | | | 188,492 | |
| Tier 2 capital instruments | 22,213 | | | 22,538 | |
Qualifying allowance for credit losses (2) | 15,649 | | | 10,229 | |
| Other | (22) | | | (29) | |
| Total capital under the Standardized approach | 237,936 | | | 221,230 | |
Adjustment in qualifying allowance for credit losses under the Advanced approaches (2) | (10,251) | | | (8,132) | |
| Total capital under the Advanced approaches | $ | 227,685 | | | $ | 213,098 | |
Common equity tier(1)The CECL transitional amount includes the impact of the Corporation's adoption of the new CECL accounting standard on January 1, capital under Basel 3 Advanced – Transition was $171.1 billion2020 plus 25 percent of the increase in the adjusted allowance for credit losses from January 1, 2020 through December 31, 2020.
(2)The balance at December 31, 2017, an increase2020 includes the impact of $2.2 billion compared to December 31, 2016 driven by earnings and the exercise of warrants associated with the Series T preferred stock, partially offset by common stock repurchases, dividends and the phase-in under Basel 3 transition provisions of deductions, primarily related to deferred tax assets. During 2017, total capital decreased $452 million primarily driven by common stock repurchases, dividends, lower eligible credit reserves and tier 2
the new CECL accounting standard.capital instruments, in addition to the phase-in of Basel 3 transition provisions, partially offset by earnings.
Risk-weighted assets decreased $81 billion during 2017 to $1,449 billion primarily due to the implementation of Internal Models Methodology (IMM) for derivatives, improvements in credit risk capital models, the sale of the non-U.S. consumer credit card business and continued run-off of non-core assets.
Table 13 shows the capital compositioncomponents of RWA as measured under Basel 3 – Transition at December 31, 20172020 and 2016.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table 13 | Risk-weighted Assets under Basel 3 | | | | | | | |
| | | | | | | | |
| Standardized Approach (1) | | Advanced Approaches | | Standardized Approach (1) | | Advanced Approaches |
| December 31 |
| (Dollars in billions) | 2020 | | 2019 |
| | | |
| Credit risk | $ | 1,420 | | | $ | 896 | | | $ | 1,437 | | | $ | 858 | |
| Market risk | 60 | | | 60 | | | 56 | | | 55 | |
Operational risk (2) | n/a | | 372 | | | n/a | | 500 | |
| Risks related to credit valuation adjustments | n/a | | 43 | | | n/a | | 34 | |
| Total risk-weighted assets | $ | 1,480 | | | $ | 1,371 | | | $ | 1,493 | | | $ | 1,447 | |
|
| | | | | | | | |
| | | | | |
| Table 13 | Capital Composition under Basel 3 – Transition (1, 2) | | | |
| | | | | |
| | | December 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Total common shareholders’ equity | $ | 244,823 |
| | $ | 241,620 |
|
| Goodwill | (68,576 | ) | | (69,191 | ) |
| Deferred tax assets arising from net operating loss and tax credit carryforwards | (5,244 | ) | | (4,976 | ) |
| Adjustments for amounts recorded in accumulated OCI attributed to AFS Securities and defined benefit postretirement plans | 879 |
| | 1,899 |
|
| Adjustments for amounts recorded in accumulated OCI attributed to certain cash flow hedges | 831 |
| | 895 |
|
| Intangibles, other than mortgage servicing rights and goodwill | (1,395 | ) | | (1,198 | ) |
| Defined benefit pension fund assets | (910 | ) | | (512 | ) |
| DVA related to liabilities and derivatives | 957 |
| | 413 |
|
| Other | (302 | ) | | (84 | ) |
| Common equity tier 1 capital | 171,063 |
| | 168,866 |
|
| Qualifying preferred stock, net of issuance cost | 22,323 |
| | 25,220 |
|
| Deferred tax assets arising from net operating loss and tax credit carryforwards | (1,311 | ) | | (3,318 | ) |
| Defined benefit pension fund assets | (228 | ) | | (341 | ) |
| DVA related to liabilities and derivatives under transition | 239 |
| | 276 |
|
| Other | (590 | ) | | (388 | ) |
| Total Tier 1 capital | 191,496 |
| | 190,315 |
|
| Long-term debt qualifying as Tier 2 capital | 22,938 |
| | 23,365 |
|
| Eligible credit reserves included in Tier 2 capital | 2,272 |
| | 3,035 |
|
| Nonqualifying capital instruments subject to phase out from Tier 2 capital | 1,893 |
| | 2,271 |
|
| Other | (70 | ) | | (5 | ) |
| Total Basel 3 Capital | $ | 218,529 |
| | $ | 218,981 |
|
| |
(1)
| See Table 12, footnotes 1 and 2.
|
| |
(2)
| Deductions from and adjustments to regulatory capital subject to transition provisions under Basel 3 are generally recognized in 20 percent annual increments, and are fully recognized as of January 1, 2018. Any assets that are a direct deduction from the computation of capital are excluded from risk-weighted assets and adjusted average total assets. |
Table 14 shows(1) Derivative exposure amounts are calculated using the components of risk-weighted assets as measured under Basel 3 – Transitionstandardized approach for measuring counterparty credit risk at December 31, 20172020 and 2016.the current exposure method at December 31, 2019.
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 14 | Risk-weighted Assets under Basel 3 – Transition | | | | | | | |
| | | | | | | | | |
| | Standardized Approach | | Advanced Approaches | | Standardized Approach | | Advanced Approaches |
| | December 31 |
(Dollars in billions)
| 2017 | | 2016 |
| Credit risk | $ | 1,375 |
| | $ | 857 |
| | $ | 1,334 |
| | $ | 903 |
|
| Market risk | 59 |
| | 58 |
| | 65 |
| | 63 |
|
| Operational risk | n/a |
| | 500 |
| | n/a |
| | 500 |
|
| Risks related to CVA | n/a |
| | 34 |
| | n/a |
| | 64 |
|
| Total risk-weighted assets | $ | 1,434 |
| | $ | 1,449 |
| | $ | 1,399 |
| | $ | 1,530 |
|
n/a = not applicable
Table 15 presents a reconciliation of regulatory capital in accordance with Basel 3 Standardized – Transition to the Basel 3 Standardized approach fully phased-in estimates and Basel 3 Advanced approaches fully phased-in estimates at December 31, 2017 and 2016.
|
| | | | | | | | |
| | | | | |
| Table 15 | Regulatory Capital Reconciliations between Basel 3 Transition to Fully Phased-in (1) |
| | | | |
| | December 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Common equity tier 1 capital (transition) | $ | 171,063 |
| | $ | 168,866 |
|
| Deferred tax assets arising from net operating loss and tax credit carryforwards phased in during transition | (1,311 | ) | | (3,318 | ) |
| Accumulated OCI phased in during transition | (879 | ) | | (1,899 | ) |
| Intangibles phased in during transition | (348 | ) | | (798 | ) |
| Defined benefit pension fund assets phased in during transition | (228 | ) | | (341 | ) |
| DVA related to liabilities and derivatives phased in during transition | 239 |
| | 276 |
|
| Other adjustments and deductions phased in during transition | (75 | ) | | (57 | ) |
| Common equity tier 1 capital (fully phased-in) | 168,461 |
| | 162,729 |
|
| Additional Tier 1 capital (transition) | 20,433 |
| | 21,449 |
|
| Deferred tax assets arising from net operating loss and tax credit carryforwards phased out during transition | 1,311 |
| | 3,318 |
|
| Defined benefit pension fund assets phased out during transition | 228 |
| | 341 |
|
| DVA related to liabilities and derivatives phased out during transition | (239 | ) | | (276 | ) |
| Other transition adjustments to additional Tier 1 capital | (5 | ) | | (2 | ) |
| Additional Tier 1 capital (fully phased-in) | 21,728 |
| | 24,830 |
|
| Tier 1 capital (fully phased-in) | 190,189 |
| | 187,559 |
|
| Tier 2 capital (transition) | 27,033 |
| | 28,666 |
|
| Nonqualifying capital instruments phased out during transition | (1,893 | ) | | (2,271 | ) |
| Other adjustments to Tier 2 capital | 8,880 |
| | 9,176 |
|
| Tier 2 capital (fully phased-in) | 34,020 |
| | 35,571 |
|
| Basel 3 Standardized approach Total capital (fully phased-in) | 224,209 |
| | 223,130 |
|
| Change in Tier 2 qualifying allowance for credit losses | (8,898 | ) | | (9,206 | ) |
| Basel 3 Advanced approaches Total capital (fully phased-in) | $ | 215,311 |
| | $ | 213,924 |
|
| | | | |
| Risk-weighted assets – As reported to Basel 3 (fully phased-in) | | | |
| Basel 3 Standardized approach risk-weighted assets as reported | $ | 1,433,517 |
| | $ | 1,399,477 |
|
| Changes in risk-weighted assets from reported to fully phased-in | 9,204 |
| | 17,638 |
|
| Basel 3 Standardized approach risk-weighted assets (fully phased-in) | $ | 1,442,721 |
| | $ | 1,417,115 |
|
| | | | |
| Basel 3 Advanced approaches risk-weighted assets as reported | $ | 1,449,222 |
| | $ | 1,529,903 |
|
| Changes in risk-weighted assets from reported to fully phased-in | 9,757 |
| | (18,113 | ) |
| Basel 3 Advanced approaches risk-weighted assets (fully phased-in) | $ | 1,458,979 |
| | $ | 1,511,790 |
|
See Table 12, footnotes 1, 2 and 4.
| Bank of America, N.A. Regulatory Capital
Table 1614 presents transition regulatory capital information for BANA in accordance with Basel 3 Standardized and Advanced approaches as measured at December 31, 20172020 and 2016. As of December 31, 2017,2019. BANA met the definition of “well capitalized”well capitalized under the PCA framework for both periods.
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table 14 | Bank of America, N.A. Regulatory Capital under Basel 3 | | |
| | | | | | | | |
| | Standardized
Approach (1, 2) | | | | Advanced
Approaches (1) | | Regulatory
Minimum (3) |
| (Dollars in millions, except as noted) | December 31, 2020 |
| Risk-based capital metrics: | | | | | | | |
| Common equity tier 1 capital | $ | 164,593 | | | | | $ | 164,593 | | | |
| Tier 1 capital | 164,593 | | | | | 164,593 | | | |
Total capital (4) | 181,370 | | | | | 170,922 | | | |
| Risk-weighted assets (in billions) | 1,221 | | | | | 1,014 | | | |
| Common equity tier 1 capital ratio | 13.5 | % | | | | 16.2 | % | | 7.0 | % |
| Tier 1 capital ratio | 13.5 | | | | | 16.2 | | | 8.5 | |
| Total capital ratio | 14.9 | | | | | 16.9 | | | 10.5 | |
| | | | | | | |
| Leverage-based metrics: | | | | | | | |
Adjusted quarterly average assets (in billions) (5) | $ | 2,143 | | | | | $ | 2,143 | | | |
| Tier 1 leverage ratio | 7.7 | % | | | | 7.7 | % | | 5.0 | |
| | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | $ | 2,525 | | | |
| Supplementary leverage ratio | | | | | 6.5 | % | | 6.0 | |
|
| | | | | | | |
|
| December 31, 2019 |
| Risk-based capital metrics: | | | | | | | |
| Common equity tier 1 capital | $ | 154,626 | | | | | $ | 154,626 | | | |
| Tier 1 capital | 154,626 | | | | | 154,626 | | | |
Total capital (4) | 166,567 | | | | | 158,665 | | | |
| Risk-weighted assets (in billions) | 1,241 | | | | | 991 | | | |
| Common equity tier 1 capital ratio | 12.5 | % | | | | 15.6 | % | | 7.0 | % |
| Tier 1 capital ratio | 12.5 | | | | | 15.6 | | | 8.5 | |
| Total capital ratio | 13.4 | | | | | 16.0 | | | 10.5 | |
| | | | | | | |
| Leverage-based metrics: | | | | | | | |
Adjusted quarterly average assets (in billions) (5) | $ | 1,780 | | | | | $ | 1,780 | | | |
| Tier 1 leverage ratio | 8.7 | % | | | | 8.7 | % | | 5.0 | |
| | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | $ | 2,177 | | | |
| Supplementary leverage ratio | | | | | 7.1 | % | | 6.0 | |
(1)As of December 31, 2020, capital ratios are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of CECL.
(2)Derivative exposure amounts are calculated using the standardized approach for measuring counterparty credit risk at December 31, 2020 and the current exposure method at December 31, 2019.
(3)Risk-based capital regulatory minimums at both December 31, 2020 and 2019 are the minimum ratios under Basel 3 including a capital conservation buffer of 2.5 percent. The regulatory minimums for the leverage ratios as of both period ends are the percent required to be considered well capitalized under the PCA framework.
(4)Total capital under the Advanced approaches differs from the Standardized approach due to differences in the amount permitted in Tier 2 capital related to the qualifying allowance for credit losses.
(5)Reflects total average assets adjusted for certain Tier 1 capital deductions.
Total Loss-Absorbing Capacity Requirements
Total loss-absorbing capacity (TLAC) consists of the Corporation’s Tier 1 capital and eligible long-term debt issued directly by the Corporation. Eligible long-term debt for TLAC ratios is comprised of unsecured debt that has a remaining maturity of at least one year and satisfies additional requirements as prescribed in the TLAC final rule. As with the
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Table 16 | Bank of America, N.A. Regulatory Capital under Basel 3 | | |
| | | | | | | | | | | | | |
| | | Standardized Approach | | Advanced Approaches |
| | Ratio | | Amount | | Minimum
Required (1) | | Ratio | | Amount | | Minimum
Required (1) |
(Dollars in millions)
| December 31, 2017 |
| Common equity tier 1 capital | 12.5 | % | | $ | 150,552 |
| | 6.5 | % | | 14.9 | % | | $ | 150,552 |
| | 6.5 | % |
| Tier 1 capital | 12.5 |
| | 150,552 |
| | 8.0 |
| | 14.9 |
| | 150,552 |
| | 8.0 |
|
| Total capital | 13.6 |
| | 163,243 |
| | 10.0 |
| | 15.4 |
| | 154,675 |
| | 10.0 |
|
| Tier 1 leverage | 9.0 |
| | 150,552 |
| | 5.0 |
| | 9.0 |
| | 150,552 |
| | 5.0 |
|
| | | | | | | | | | | | | |
| | | December 31, 2016 |
| Common equity tier 1 capital | 12.7 | % | | $ | 149,755 |
| | 6.5 | % | | 14.3 | % | | $ | 149,755 |
| | 6.5 | % |
| Tier 1 capital | 12.7 |
| | 149,755 |
| | 8.0 |
| | 14.3 |
| | 149,755 |
| | 8.0 |
|
| Total capital | 13.9 |
| | 163,471 |
| | 10.0 |
| | 14.8 |
| | 154,697 |
| | 10.0 |
|
| Tier 1 leverage | 9.3 |
| | 149,755 |
| | 5.0 |
| | 9.3 |
| | 149,755 |
| | 5.0 |
|
| |
(1)risk-based capital ratios and SLR, the Corporation is required to maintain TLAC ratios in excess of minimum requirements plus applicable buffers to avoid restrictions on capital distributions and discretionary bonus payments. Table 15 presents the Corporation's TLAC and long-term debt ratios and related information as of December 31, 2020 and 2019. | Percent required to meet guidelines to be considered “well capitalized” under the PCA framework. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Table 15 | Bank of America Corporation Total Loss-Absorbing Capacity and Long-Term Debt |
| | | | | | | | | | |
|
TLAC (1) | | Regulatory Minimum (2) | | | | Long-term
Debt | | Regulatory Minimum (3) |
| (Dollars in millions) | December 31, 2020 |
| Total eligible balance | $ | 405,153 | | | | | | | $ | 196,997 | | | |
Percentage of risk-weighted assets (4) | 27.4 | % | | 22.0 | % | | | | 13.3 | % | | 8.5 | % |
Percentage of supplementary leverage exposure (5, 6) | 14.5 | | | 9.5 | | | | | 7.1 | | | 4.5 | |
| | | | | | | | | |
| December 31, 2019 |
| Total eligible balance | $ | 367,449 | | | | | | | $ | 171,349 | | | |
Percentage of risk-weighted assets (4) | 24.6 | % | | 22.0 | % | | | | 11.5 | % | | 8.5 | % |
Percentage of supplementary leverage exposure (6) | 12.5 | | | 9.5 | | | | | 5.8 | | | 4.5 | |
(1)As of December 31, 2020, TLAC ratios are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of CECL.
(2)The TLAC RWA regulatory minimum consists of 18.0 percent plus a TLAC RWA buffer comprised of 2.5 percent plus the Method 1 G-SIB surcharge of 1.5 percent. The countercyclical buffer is zero for both periods. The TLAC supplementary leverage exposure regulatory minimum consists of 7.5 percent plus a 2.0 percent TLAC leverage buffer. The TLAC RWA and leverage buffers must be comprised solely of CET1 capital and Tier 1 capital, respectively.
(3)The long-term debt RWA regulatory minimum is comprised of 6.0 percent plus an additional 2.5 percent requirement based on the Corporation’s Method 2 G-SIB surcharge. The long-term debt leverage exposure regulatory minimum is 4.5 percent.
(4)The approach that yields the higher RWA is used to calculate TLAC and long-term debt ratios, which was the Standardized approach as of both December 31, 2020 and 2019.
(5)Supplementary leverage exposure at December 31, 2020 reflects the temporary exclusion of U.S. Treasury Securities and deposits at Federal Reserve Banks.
(6)Derivative exposure amounts are calculated using the standardized approach for measuring counterparty credit risk at December 31, 2020 and the current exposure method at December 31, 2019.
Regulatory Developments
MinimumRevisions to Basel 3 to Address Current Expected Credit Loss Accounting
On January 1, 2020, the Corporation adopted the new accounting standard that requires the measurement of the allowance for credit losses to be based on management’s best estimate of lifetime ECL inherent in the Corporation's relevant financial assets. For more information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. During the first quarter of 2020, in accordance with an interim final rule issued by U.S. banking regulators that was finalized on August 26, 2020, the Corporation delayed for two years the initial adoption impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during 2020 and 2021 (i.e., a five-year transition period). During the two-year delay, the Corporation will add back to CET1 capital 100 percent of the initial adoption impact of CECL plus 25 percent of the cumulative quarterly changes in the allowance for credit losses (i.e., quarterly transitional amounts). After two years, starting on January 1, 2022, the quarterly transitional amounts along with the initial adoption impact of CECL will be phased out of CET1 capital over the three-year period.
Stress Capital Buffer
On March 4, 2020, the Federal Reserve issued a final rule that integrates the annual quantitative assessment of the CCAR program with the buffer requirements in the U.S. Basel 3 Final Rule. The new approach replaced the static 2.5 percent capital conservation buffer for Basel 3 Standardized approach requirements with a SCB, calculated as the decline in the CET1 capital ratio under the supervisory severely adverse scenario plus four quarters of planned common stock dividends, floored at 2.5 percent. Based on the CCAR 2020 supervisory stress test results, the Corporation is subject to a 2.5 percent SCB for the period beginning October 1, 2020 and ending on September 30, 2021.
In conjunction with this new requirement, the Federal Reserve has removed the annual CCAR quantitative objection process beginning with CCAR 2020. While the final rule continues to require that the Corporation describe its planned capital distributions in its CCAR capital plan, the Corporation is no longer required to seek prior approval if it makes capital distributions in excess of those included in its CCAR capital
plan. The Corporation is instead subject to automatic distribution limitations if its capital ratios fall below its buffer requirements, which include the SCB.
Eligible Retained Income
On March 17, 2020, in response to the economic impact of the pandemic, the U.S. banking regulators issued an interim final rule that revises the definition of eligible retained income to be based on average net income over the prior four quarters. This change, which was finalized on August 26, 2020, more gradually phases in automatic distribution restrictions to the extent capital buffers are breached.
Supplementary Leverage Ratio
On April 1, 2020, in response to the economic impact of the pandemic, the Federal Reserve issued an interim final rule to temporarily exclude the on-balance sheet amounts of U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of supplementary leverage exposure for bank holding companies. The rule is effective for June 30, 2020 through March 31, 2021 reports. As of December 31, 2020, temporary exclusions improved the SLR by 1.0 percent to 7.2 percent.
On May 15, 2020, the U.S. banking regulators issued an interim final rule that provides a similar temporary exclusion to depository institutions, effective from the beginning of the second quarter of 2020 through March 31, 2021; however, institutions must elect the relief. Beginning in the third quarter of 2020, a depository institution electing to apply the exclusion must receive approval from its primary regulator prior to making any capital distributions as long as the exclusion is in effect. As of December 31, 2020, the Corporation’s insured depository institution subsidiaries have not elected the exclusion.
Paycheck Protection Program Loans
On April 9, 2020, in response to the economic impact of the pandemic, the U.S. banking regulators issued an interim final rule that, among other things, stipulates PPP loans, which are guaranteed by the SBA, will receive a zero percent risk weight under the Basel 3 Advanced and Standardized approaches. The rule was later finalized by the U.S. banking regulators on October 28, 2020. For more information on the PPP, see Executive Summary – Recent Developments – COVID-19 Pandemic on page 25 and Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
Standardized Approach for Measuring Counterparty Credit Risk
On June 30, 2020 the Corporation adopted the new standardized approach for measuring counterparty credit risk (SA-CCR), which replaces the current exposure method for calculating the exposure amount of derivative contracts for risk-weighted assets and supplementary leverage exposure. Adoption of SA-CCR resulted in a decrease of approximately $15 billion in the Corporation’s Standardized RWA, and a $66 billion decrease in supplementary leverage exposure.
Swap Dealer Capital Requirements
On July 22, 2020, the U.S. Commodity Futures Trading Commission (CFTC) issued a final rule to establish capital requirements for swap dealers and major swap participants that are not subject to existing U.S. prudential regulation. Under the rule, applicable subsidiaries of the Corporation would be permitted to elect one of two approaches to compute their regulatory capital. The first approach is a bank-based capital approach, which requires that firms maintain CET1 capital greater than or equal to 6.5 percent of the entity’s RWA as calculated under Basel 3, Total Loss-Absorbing Capacitycapital greater than or equal to 8.0 percent of the entity’s RWA as calculated under Basel 3 and Total capital greater than or equal to 8.0 percent of the entity’s uncleared swap margin. The second approach is based on net liquid assets and requires that a firm maintain net capital greater than or equal to 2.0 percent of its uncleared swap margin. The final rule also includes reporting requirements. The impact on the Corporation is not expected to be significant.
Deduction of Unsecured Debt of G-SIBs
On October 20, 2020, the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (U.S. Agencies) finalized a rule requiring Advanced approaches institutions to deduct from regulatory capital certain investments in TLAC-eligible long-term debt and other pari passu or subordinated debt instruments issued by G-SIBs above a specified threshold. The final rule is intended to limit the interconnectedness between G-SIBs and is complementary to existing regulatory capital requirements that generally require banks to deduct investments in the regulatory capital of financial institutions. The final rule is effective April 1, 2021. The impact to the Corporation is not expected to be significant.
Volcker Rule
Effective January 1, 2020, we became subject to certain changes to the Volcker Rule, including removing the requirement for banking organizations to deduct from Tier 1 capital ownership interests of covered funds acquired or retained under the underwriting or market-making exemptions of the Volcker Rule, which the banking entity did not organize or offer.
Single-Counterparty Credit Limits
The Federal Reserve has established 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 final rule effectiveBHC 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, 2019, which includes minimum external total loss-absorbing capacity (TLAC) requirements2020, G-SIBs must calculate SCCL on a daily basis by dividing the aggregate net credit exposure to improvea given counterparty by the resolvability 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 benonbank financial institutions regulated by the greater of 22.5Federal Reserve do not breach 15 percent of risk-weighted assets or 9.5Tier 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 BofA Securities, Inc. (BofAS), Merrill Lynch Professional Clearing Corp. (MLPCC) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S) and. The Corporation's principal European broker-dealer subsidiaries are Merrill Lynch Professional Clearing Corp (MLPCC). MLPCC is a fully-guaranteed subsidiary of MLPF&SInternational (MLI) and provides clearing and settlement services. Both entitiesBofA Securities Europe SA (BofASE).
The U.S. broker-dealer subsidiaries are subject to the net capital requirements of SecuritiesRule 15c3-1 under the Exchange Act. BofAS computes its minimum capital requirements as an alternative net capital broker-dealer under Rule 15c3-1e, and Exchange Commission (SEC)MLPCC and MLPF&S compute their minimum capital requirements in accordance with the alternative standard under Rule 15c3-1. Both entitiesBofAS and MLPCC are also registered as futures commission merchants and are subject to the Commodity Futures Trading CommissionCFTC Regulation 1.17.
The U.S. broker-dealer subsidiaries are also registered with the Financial Industry Regulatory Authority, Inc. (FINRA). Pursuant to FINRA Rule 4110, FINRA may impose higher net capital requirements than Rule 15c3-1 under the Exchange Act with respect to each of the broker-dealers.MLPF&S has elected to compute the minimum capital requirementBofAS provides institutional services, and in accordance with the Alternative Net Capital Requirement as permitted by SEC Rule 15c3-1. At December 31, 2017, MLPF&S’s regulatoryalternative net capital as defined by Rule 15c3-1 was $12.4 billion and exceeded the minimum requirement of $1.7 billion by $10.7 billion. MLPCC’s net capital of $3.4 billion exceeded the minimum requirement of $543 million by $2.9 billion.
In accordance with the Alternative Net Capital Requirements, MLPF&Srequirements, is required to maintain tentative net capital in excess of $1.0 billion and net capital in excess of the greater of $500 million andor a certain percentage of its reserve requirement. BofAS must also notify the SECSecurities and Exchange Commission (SEC) in the event its tentative net capital is less than $5.0 billion. BofAS is also required to hold a certain percentage of its customers' and affiliates' risk-based margin in order to meet its CFTC minimum net capital requirement. At December 31, 2017, MLPF&S2020, BofAS had tentative net capital andof $16.8 billion. BofAS also had regulatory net capital in excess of $14.1 billion, which exceeded the minimum requirement of $2.9 billion.
MLPCC is a fully-guaranteed subsidiary of BofAS and notification requirements.provides clearing and settlement services as well as prime brokerage and arranged financing services for institutional clients. At December 31, 2020, MLPCC’s regulatory net capital of $8.6 billion exceeded the minimum requirement of $1.4 billion.
Merrill Lynch International (MLI),MLPF&S provides retail services. At December 31, 2020, MLPF&S' regulatory net capital was $3.6 billion, which exceeded the minimum requirement of $180 million.
Our European broker-dealers are regulated by non-U.S. regulators. 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, 2017,2020, MLI’s capital resources were $35.1$34.1 billion, which exceeded the minimum Pillar 1 requirement of $16.5$14.7 billion. BofASE, a French investment firm, is regulated by the Autorité de Contrôle Prudentiel et de Résolution and the Autorité des Marchés Financiers, and is subject to certain regulatory capital requirements. At December 31, 2020, BofASE's capital resources were $6.2 billion, which exceeded the minimum Pillar 1 requirement of $1.9 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. These liquidity risk management practices have allowed us to effectively manage the market stress from the pandemic that began in the first quarter of 2020. For more information on the effects of the pandemic, see Part I. Item 1A. Risk Factors – Coronavirus Disease on page 7 and Executive Summary – Recent Developments – COVID-19 Pandemic on page 25.
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 businessline-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 establishingestablishes 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 41.47. 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
In 2016, we entered intoWe have intercompany arrangements with certain key subsidiaries under which we transferred certain assets of ourBank of America Corporation, as the parent company, assets,which is a separate and distinct legal entity from our bank 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.
For the three months ended December 31, 2017 and 2016, ourTable 16 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, 20172020 and 2016. The increase in parent company and2019.
| | | | | | | | | | | | | | |
| | | | |
| Table 16 | Average Global Liquidity Sources |
| | | | |
| | |
| | Three Months Ended
December 31 |
| (Dollars in billions) | 2020 | | 2019 |
| | | |
| Bank entities | $ | 773 | | | $ | 454 | |
Nonbank and other entities (1) | 170 | | | 122 | |
| Total Average Global Liquidity Sources | $ | 943 | | | $ | 576 | |
(1) Nonbank includes Parent, NB Holdings average liquidity was primarily due to debt issuances outpacing maturities. Typically, parent company and NB Holdings liquidity is in the form of cash deposited with BANA.other regulated entities.
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 bankBank 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$306 billion and $310$372 billion at December 31, 20172020 and 2016, with the decrease due to FHLB borrowings, which reduced available borrowing capacity, and adjustments to our valuation model.2019. 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 is also held in nonbank entities, including the Parent, NB Holdings and other regulated entities. Parent company and NB Holdings liquidity is typically in the form of cash deposited at BANA and is excluded from the liquidity at bank subsidiaries. Liquidity held at ourin 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.
Table 1817 presents the composition of average GLS for the three months ended December 31, 20172020 and 2016.2019.
| | | Table 17 | | Table 17 | Average Global Liquidity Sources Composition |
| | | | | | | | | | | Three Months Ended
December 31 |
| | | | | | |
| Table 18 | Average Global Liquidity Sources Composition | |
| (Dollars in billions) | | (Dollars in billions) | 2020 | | 2019 |
| | | | |
| | | Three Months Ended December 31 | |
| (Dollars in billions) | 2017 | | 2016 | |
| Cash on deposit | Cash on deposit | $ | 118 |
| | $ | 118 |
| Cash on deposit | $ | 322 | | | $ | 103 | |
| U.S. Treasury securities | U.S. Treasury securities | 62 |
| | 58 |
| U.S. Treasury securities | 141 | | | 98 | |
| U.S. agency securities and mortgage-backed securities | 330 |
| | 322 |
| |
| U.S. agency securities, mortgage-backed securities, and other investment-grade securities | | U.S. agency securities, mortgage-backed securities, and other investment-grade securities | 462 | | | 358 | |
| Non-U.S. government securities | Non-U.S. government securities | 12 |
| | 17 |
| Non-U.S. government securities | 18 | | | 17 | |
| Total Average Global Liquidity Sources | Total Average Global Liquidity Sources | $ | 522 |
| | $ | 515 |
| Total Average Global Liquidity Sources | $ | 943 | | | $ | 576 | |
Our GLS are substantially the same in composition to what qualifies as High Quality Liquid Assets (HQLA) under the final U.S. Liquidity Coverage Ratio (LCR) rules. However, HQLA for purposes of calculating LCR is not reported at market value, but at a lower value that incorporates regulatory deductions and the exclusion of excess liquidity held at certain subsidiaries. The LCR is calculated as the amount of a financial institution’s unencumbered HQLA relative to the estimated net cash outflows the institution could encounter over a 30-day period of significant liquidity stress, expressed as a percentage. For the three months ended December 31, 2017, ourOur average consolidated HQLA, on a net basis, was $439$584 billion and $464 billion for the three months ended December 31, 2020 and 2019. For the same periods, the average consolidated LCR was 125122 percent and 116 percent. Our LCR will fluctuatefluctuates due to normal business flows from customer activity.
Liquidity Stress Analysis and Time-to-required Funding
We utilize liquidity stress analysis to assist us in determining the appropriate amounts of liquidity to maintain at the parent company and our subsidiaries. The liquidity stress testing process is an integral part of analyzing our potentialsubsidiaries to meet contractual and contingent cash outflows. We evaluate the liquidity requirementsoutflows under a range of scenarios with varying levels of severity and time horizons.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;issuances; diminished access to secured financing markets; potential deposit withdrawals; increased draws on loan commitments, liquidity facilities and letters of credit; additional collateral that counterparties could call if our credit ratings were downgraded; collateral and margin requirements arising from market value changes; and potential
liquidity required to maintain businesses and finance customer activities. Changes in certain market factors, including, but not limited to, credit rating downgrades, could negatively impact potential contractual and contingent outflows and the related financial instruments, and in some cases these impacts could be material to our financial results.
We consider all sources of funds that we could access during each stress scenario and focus particularly on matching available sources with corresponding liquidity requirements by legal entity.
We also use the stress modeling results to manage our asset and liability profile and establish limits and guidelines on certain funding sources and businesses.
We use a variety of metrics to determine the appropriate amounts of liquidity to maintain at the parent company and our subsidiaries. One metric we use to evaluate the appropriate level of liquidity at the parent company and NB Holdings is “time-to-required funding” (TTF). This debt coverage measure indicates the number of months the parent company can continue to meet its unsecured contractual obligations as they come due using only the parent company and NB Holdings’ liquidity sources without issuing any new debt or accessing any additional liquidity sources. We define unsecured contractual obligations for purposes of this metric as maturities of senior or subordinated debt issued or guaranteed by Bank of America Corporation. These include certain unsecured debt instruments, primarily structured liabilities, which we may be required to settle for cash prior to maturity. TTF was 49 months at December 31, 2017 compared to 35 months at December 31, 2016. The increase in TTF was driven by debt issuances outpacing maturities.
Net Stable Funding Ratio Final Rule
On October 20, 2020, the U.S. banking regulators issued a proposal for aAgencies finalized the Net Stable Funding Ratio (NSFR) requirement applicable, a rule requiring large banks to U.S. financial institutions followingmaintain a minimum level of stable funding over a one-year period. The final rule is intended to support the Basel Committee’sability of banks to lend to households and businesses in both normal and adverse economic conditions and is complementary to the LCR rule, which focuses on short-term liquidity risks. The final standard.rule is effective July 1, 2021. 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 expectThe Corporation expects to be in compliance within the final NSFR rule in the regulatory timeline. The standard is intendedtimeline provided and does not expect any significant impacts 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.Corporation.
Diversified Funding SourcesContingency Planning
We fundhave 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 assets primarilyCapital 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 mixpotential resolution of depositsBank of America.
Strategic Risk Management
Strategic risk is embedded in every business and securedis one of the major risk categories along with credit, market, liquidity, compliance, operational and unsecured liabilities throughreputational 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 centralized, globally coordinated funding approach diversified acrosstimely 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 programs, markets, currenciesor services and investor groups.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 primary benefitsCorporation 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 centralized funding approach include greater control, reduced funding costs, wider name recognition by investorsstrategic plan, risk appetite 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.risk limits.
We fundconduct an Internal Capital Adequacy Assessment Process (ICAAP) on a substantial portionperiodic basis. The ICAAP is a forward-looking assessment of our lending activitiesprojected capital needs and resources, incorporating earnings, balance sheet and risk forecasts under baseline and adverse economic and market conditions. We utilize periodic stress tests to assess the potential impacts to our balance sheet, earnings, regulatory capital and liquidity under a variety of stress scenarios. We perform qualitative risk assessments to identify and assess material risks not fully captured in our forecasts or stress tests. We assess the potential capital impacts of proposed changes to regulatory capital requirements. Management assesses ICAAP results and provides documented quarterly assessments of the adequacy of our capital guidelines and capital position to the Board or its committees.
We periodically review capital allocated to our businesses and allocate capital annually during the strategic and capital planning processes. For more information, see Business Segment Operations on page 36.
CCAR and Capital Planning
The Federal Reserve requires BHCs to submit a capital plan and planned capital actions on an annual basis, consistent with the rules governing the CCAR capital plan.
Based on the results of our 2020 CCAR supervisory stress test that was submitted to the Federal Reserve in the second quarter of 2020, we are subject to a 2.5 percent stress capital buffer (SCB) for the period beginning October 1, 2020 and ending on September 30, 2021. Our Common equity tier 1 (CET1) capital ratio under the Standardized approach must remain above 9.5 percent during this period (the sum of our CET1 capital ratio minimum of 4.5 percent, global systemically important bank (G-SIB) surcharge of 2.5 percent and our SCB of 2.5 percent) in order to avoid restrictions on capital distributions and discretionary bonus payments.
Due to economic uncertainty resulting from the pandemic, the Federal Reserve required all large banks to update and resubmit their capital plans in November 2020 based on the Federal Reserve’s updated supervisory stress test scenarios. The results of the additional supervisory stress tests were published in December 2020.
The Federal Reserve also required large banks to suspend share repurchase programs during the second half of 2020, except for repurchases to offset shares awarded under equity-based compensation plans, and to limit common stock dividends to existing rates that did not exceed the average of the last four quarters’ net income. The Federal Reserve’s directives regarding share repurchases aligned with our decision to voluntarily suspend our general common stock repurchase program during the first half of 2020. The suspension of our repurchases did not include repurchases to offset shares awarded under our equity-based compensation plans. Pursuant to the Board’s authorization, we repurchased $7.0 billion of common stock during 2020.
In December 2020, the Federal Reserve announced that beginning in the first quarter of 2021, large banks would be permitted to pay common stock dividends at existing rates and to repurchase shares in an amount that, when combined with dividends paid, does not exceed the average of net income over the last four quarters.
On January 19, 2021, we announced that the Board declared a quarterly common stock dividend of $0.18 per share, payable on March 26, 2021 to shareholders of record as of March 5, 2021. We also announced that the Board authorized the repurchase of $2.9 billion in common stock through our deposits, whichMarch 31, 2021, plus repurchases to offset shares awarded under equity-based compensation plans during the same period, estimated to be approximately $300 million. This authorization equals the maximum amount allowed by the Federal Reserve for the period.
Our stock repurchase program is 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. Such 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 (Exchange Act).
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 (RWA), 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's depository institution subsidiaries are also subject to the Prompt Corrective Action (PCA) framework. 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 RWA under both the Standardized and Advanced approaches. The approach that yields the lower ratio is used to assess capital adequacy including under the PCA framework. As of December 31, 2020, the CET1, Tier 1 capital and Total capital ratios for the Corporation were $1.31 trillionlower under the Standardized approach.
Minimum Capital Requirements
In order to avoid restrictions on capital distributions and $1.26 trilliondiscretionary 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 G-SIB surcharge. On October 1, 2020, the capital conservation buffer was replaced by the SCB for the Corporation’s Standardized approach ratio requirements. The buffers and surcharge must be comprised solely of CET1 capital.
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 deductions and applicable temporary exclusions, as well as the simple average of certain off-balance sheet exposures, as of the end of each month in a quarter. For more information, see Capital Management – Regulatory Developments on page 55.
Capital Composition and Ratios
Table 11 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, 20172020 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, and2019. For the majorityperiods presented herein, the Corporation met the definition 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.capitalized under current regulatory requirements.
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| Table 11 | Bank of America Corporation Regulatory Capital under Basel 3 | | | | | | |
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| | | | | | | | | | |
| | | | | | | Standardized
Approach (1, 2) | | Advanced
Approaches (1) | | Regulatory
Minimum (3) | | | | |
| (Dollars in millions, except as noted) | | | | | | | December 31, 2020 | | |
| Risk-based capital metrics: | | | | | | | | | | | | | | | |
| Common equity tier 1 capital | | | | | | | $ | 176,660 | | | $ | 176,660 | | | | | | | |
| Tier 1 capital | | | | | | | 200,096 | | | 200,096 | | | | | | | |
Total capital (4) | | | | | | | 237,936 | | | 227,685 | | | | | | | |
| Risk-weighted assets (in billions) | | | | | | | 1,480 | | | 1,371 | | | | | | | |
| Common equity tier 1 capital ratio | | | | | | | 11.9 | % | | 12.9 | % | | 9.5 | % | | | | |
| Tier 1 capital ratio | | | | | | | 13.5 | | | 14.6 | | | 11.0 | | | | | |
| Total capital ratio | | | | | | | 16.1 | | | 16.6 | | | 13.0 | | | | | |
| | | | | | | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (5) | | | | | | | $ | 2,719 | | | $ | 2,719 | | | | | | | |
| Tier 1 leverage ratio | | | | | | | 7.4 | % | | 7.4 | % | | 4.0 | | | | | |
| | | | | | | | | | | | | | | |
Supplementary leverage exposure (in billions) (6) | | | | | | | | | $ | 2,786 | | | | | | | |
| Supplementary leverage ratio | | | | | | | | | 7.2 | % | | 5.0 | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | December 31, 2019 | | |
| Risk-based capital metrics: | | | | | | | | | | | | | | | |
| Common equity tier 1 capital | | | | | | | $ | 166,760 | | | $ | 166,760 | | | | | | | |
| Tier 1 capital | | | | | | | 188,492 | | | 188,492 | | | | | | | |
Total capital (4) | | | | | | | 221,230 | | | 213,098 | | | | | | | |
| Risk-weighted assets (in billions) | | | | | | | 1,493 | | | 1,447 | | | | | | | |
| Common equity tier 1 capital ratio | | | | | | | 11.2 | % | | 11.5 | % | | 9.5 | % | | | | |
| Tier 1 capital ratio | | | | | | | 12.6 | | | 13.0 | | | 11.0 | | | | | |
| Total capital ratio | | | | | | | 14.8 | | | 14.7 | | | 13.0 | | | | | |
| | | | | | | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (5) | | | | | | | $ | 2,374 | | | $ | 2,374 | | | | | | | |
| Tier 1 leverage ratio | | | | | | | 7.9 | % | | 7.9 | % | | 4.0 | | | | | |
| | | | | | | | | | | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | | | | | $ | 2,946 | | | | | | | |
| Supplementary leverage ratio | | | | | | | | | 6.4 | % | | 5.0 | | | | | |
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(1)As of December 31, 2020, capital ratios are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of CECL.
(2)Derivative exposure amounts are calculated using the standardized approach for measuring counterparty credit risk at December 31, 2020 and the current exposure method at December 31, 2019.
(3)The capital conservation buffer and G-SIB surcharge were 2.5 percent at both December 31, 2020 and 2019. At December 31, 2020, the Corporation's SCB of 2.5 percent was applied in place of the capital conservation buffer under the Standardized approach. The countercyclical capital buffer for both periods was zero. The SLR minimum includes a leverage buffer of 2.0 percent.
(4)Total capital under the Advanced approaches differs from the Standardized approach due to differences in the amount permitted in Tier 2 capital related to the qualifying allowance for credit losses.
(5)Reflects total average assets adjusted for certain Tier 1 capital deductions.
(6)Supplementary leverage exposure at December 31, 2020 reflects the temporary exclusion of U.S. Treasury securities and deposits at Federal Reserve Banks.
At December 31, 2020, CET1 capital was $176.7 billion, an increase of $9.9 billion from December 31, 2019, driven by earnings and net unrealized gains on available-for-sale (AFS) debt securities included in accumulated other comprehensive income (OCI), partially offset by common stock repurchases and dividends. Total capital under the Standardized approach increased $16.7 billion primarily driven by the same factors as CET1 capital, an increase in the adjusted allowance for credit
losses included in Tier 2 capital and the issuance of preferred stock. RWA under the Standardized approach, which yielded the lower CET1 capital ratio at December 31, 2020, decreased $13.7 billion during 2020 to $1,480 billion primarily due to lower commercial and consumer lending exposures, partially offset by investments of excess deposits in securities. Table 12 shows the capital composition at December 31, 2020 and 2019.
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| Table 12 | Capital Composition under Basel 3 | | | |
| | | | |
| | December 31 |
| | | |
| (Dollars in millions) | 2020 | | 2019 |
| Total common shareholders’ equity | $ | 248,414 | | | $ | 241,409 | |
CECL transitional amount (1) | 4,213 | | | — | |
| Goodwill, net of related deferred tax liabilities | (68,565) | | | (68,570) | |
| Deferred tax assets arising from net operating loss and tax credit carryforwards | (5,773) | | | (5,193) | |
| Intangibles, other than mortgage servicing rights, net of related deferred tax liabilities | (1,617) | | | (1,328) | |
| Defined benefit pension plan net assets | (1,164) | | | (1,003) | |
Cumulative unrealized net (gain) loss related to changes in fair value of financial liabilities attributable to own creditworthiness,
net-of-tax | 1,753 | | | 1,278 | |
| Other | (601) | | | 167 | |
| Common equity tier 1 capital | 176,660 | | | 166,760 | |
| Qualifying preferred stock, net of issuance cost | 23,437 | | | 22,329 | |
| Other | (1) | | | (597) | |
| Tier 1 capital | 200,096 | | | 188,492 | |
| Tier 2 capital instruments | 22,213 | | | 22,538 | |
Qualifying allowance for credit losses (2) | 15,649 | | | 10,229 | |
| Other | (22) | | | (29) | |
| Total capital under the Standardized approach | 237,936 | | | 221,230 | |
Adjustment in qualifying allowance for credit losses under the Advanced approaches (2) | (10,251) | | | (8,132) | |
| Total capital under the Advanced approaches | $ | 227,685 | | | $ | 213,098 | |
(1)The CECL transitional amount includes the impact of the Corporation's adoption of the new CECL accounting standard on January 1, 2020 plus 25 percent of the increase in the adjusted allowance for credit losses from January 1, 2020 through December 31, 2020.
(2)The balance at December 31, 2020 includes the impact of transition provisions related to the new CECL accounting standard.
Table 13 shows the components of RWA as measured under Basel 3 at December 31, 2020 and 2019.
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| Table 13 | Risk-weighted Assets under Basel 3 | | | | | | | |
| | | | | | | | |
| Standardized Approach (1) | | Advanced Approaches | | Standardized Approach (1) | | Advanced Approaches |
| December 31 |
| (Dollars in billions) | 2020 | | 2019 |
| | | |
| Credit risk | $ | 1,420 | | | $ | 896 | | | $ | 1,437 | | | $ | 858 | |
| Market risk | 60 | | | 60 | | | 56 | | | 55 | |
Operational risk (2) | n/a | | 372 | | | n/a | | 500 | |
| Risks related to credit valuation adjustments | n/a | | 43 | | | n/a | | 34 | |
| Total risk-weighted assets | $ | 1,480 | | | $ | 1,371 | | | $ | 1,493 | | | $ | 1,447 | |
(1) Derivative exposure amounts are calculated using the standardized approach for measuring counterparty credit risk at December 31, 2020 and the current exposure method at December 31, 2019.
(2) December 31, 2020 includes the effects of an update made to our operational risk RWA model during the third quarter of 2020.
n/a = not applicable
Bank of America, N.A. Regulatory Capital
Table 14 presents regulatory capital information for BANA in accordance with Basel 3 Standardized and Advanced approaches as measured at December 31, 2020 and 2019. BANA met the definition of well capitalized under the PCA framework for both periods.
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| Table 14 | Bank of America, N.A. Regulatory Capital under Basel 3 | | |
| | | | | | | | |
| | Standardized
Approach (1, 2) | | | | Advanced
Approaches (1) | | Regulatory
Minimum (3) |
| (Dollars in millions, except as noted) | December 31, 2020 |
| Risk-based capital metrics: | | | | | | | |
| Common equity tier 1 capital | $ | 164,593 | | | | | $ | 164,593 | | | |
| Tier 1 capital | 164,593 | | | | | 164,593 | | | |
Total capital (4) | 181,370 | | | | | 170,922 | | | |
| Risk-weighted assets (in billions) | 1,221 | | | | | 1,014 | | | |
| Common equity tier 1 capital ratio | 13.5 | % | | | | 16.2 | % | | 7.0 | % |
| Tier 1 capital ratio | 13.5 | | | | | 16.2 | | | 8.5 | |
| Total capital ratio | 14.9 | | | | | 16.9 | | | 10.5 | |
| | | | | | | |
| Leverage-based metrics: | | | | | | | |
Adjusted quarterly average assets (in billions) (5) | $ | 2,143 | | | | | $ | 2,143 | | | |
| Tier 1 leverage ratio | 7.7 | % | | | | 7.7 | % | | 5.0 | |
| | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | $ | 2,525 | | | |
| Supplementary leverage ratio | | | | | 6.5 | % | | 6.0 | |
|
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|
| December 31, 2019 |
| Risk-based capital metrics: | | | | | | | |
| Common equity tier 1 capital | $ | 154,626 | | | | | $ | 154,626 | | | |
| Tier 1 capital | 154,626 | | | | | 154,626 | | | |
Total capital (4) | 166,567 | | | | | 158,665 | | | |
| Risk-weighted assets (in billions) | 1,241 | | | | | 991 | | | |
| Common equity tier 1 capital ratio | 12.5 | % | | | | 15.6 | % | | 7.0 | % |
| Tier 1 capital ratio | 12.5 | | | | | 15.6 | | | 8.5 | |
| Total capital ratio | 13.4 | | | | | 16.0 | | | 10.5 | |
| | | | | | | |
| Leverage-based metrics: | | | | | | | |
Adjusted quarterly average assets (in billions) (5) | $ | 1,780 | | | | | $ | 1,780 | | | |
| Tier 1 leverage ratio | 8.7 | % | | | | 8.7 | % | | 5.0 | |
| | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | $ | 2,177 | | | |
| Supplementary leverage ratio | | | | | 7.1 | % | | 6.0 | |
(1)As of December 31, 2020, capital ratios are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of CECL.
(2)Derivative exposure amounts are calculated using the standardized approach for measuring counterparty credit risk at December 31, 2020 and the current exposure method at December 31, 2019.
(3)Risk-based capital regulatory minimums at both December 31, 2020 and 2019 are the minimum ratios under Basel 3 including a capital conservation buffer of 2.5 percent. The regulatory minimums for the leverage ratios as of both period ends are the percent required to be considered well capitalized under the PCA framework.
(4)Total capital under the Advanced approaches differs from the Standardized approach due to differences in the amount permitted in Tier 2 capital related to the qualifying allowance for credit losses.
(5)Reflects total average assets adjusted for certain Tier 1 capital deductions.
Total Loss-Absorbing Capacity Requirements
Total loss-absorbing capacity (TLAC) consists of the Corporation’s Tier 1 capital and eligible long-term debt issued directly by the Corporation. Eligible long-term debt for TLAC ratios is comprised of unsecured debt that has a remaining maturity of at least one year and satisfies additional requirements as prescribed in the TLAC final rule. As with the
risk-based capital ratios and SLR, the Corporation is required to maintain TLAC ratios in excess of minimum requirements plus applicable buffers to avoid restrictions on capital distributions and discretionary bonus payments. Table 15 presents the Corporation's TLAC and long-term debt ratios and related information as of December 31, 2020 and 2019.
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| Table 15 | Bank of America Corporation Total Loss-Absorbing Capacity and Long-Term Debt |
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|
TLAC (1) | | Regulatory Minimum (2) | | | | Long-term
Debt | | Regulatory Minimum (3) |
| (Dollars in millions) | December 31, 2020 |
| Total eligible balance | $ | 405,153 | | | | | | | $ | 196,997 | | | |
Percentage of risk-weighted assets (4) | 27.4 | % | | 22.0 | % | | | | 13.3 | % | | 8.5 | % |
Percentage of supplementary leverage exposure (5, 6) | 14.5 | | | 9.5 | | | | | 7.1 | | | 4.5 | |
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| December 31, 2019 |
| Total eligible balance | $ | 367,449 | | | | | | | $ | 171,349 | | | |
Percentage of risk-weighted assets (4) | 24.6 | % | | 22.0 | % | | | | 11.5 | % | | 8.5 | % |
Percentage of supplementary leverage exposure (6) | 12.5 | | | 9.5 | | | | | 5.8 | | | 4.5 | |
(1)As of December 31, 2020, TLAC ratios are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of CECL.
(2)The TLAC RWA regulatory minimum consists of 18.0 percent plus a TLAC RWA buffer comprised of 2.5 percent plus the Method 1 G-SIB surcharge of 1.5 percent. The countercyclical buffer is zero for both periods. The TLAC supplementary leverage exposure regulatory minimum consists of 7.5 percent plus a 2.0 percent TLAC leverage buffer. The TLAC RWA and leverage buffers must be comprised solely of CET1 capital and Tier 1 capital, respectively.
(3)The long-term debt RWA regulatory minimum is comprised of 6.0 percent plus an additional 2.5 percent requirement based on the Corporation’s Method 2 G-SIB surcharge. The long-term debt leverage exposure regulatory minimum is 4.5 percent.
(4)The approach that yields the higher RWA is used to calculate TLAC and long-term debt ratios, which was the Standardized approach as of both December 31, 2020 and 2019.
(5)Supplementary leverage exposure at December 31, 2020 reflects the temporary exclusion of U.S. Treasury Securities and deposits at Federal Reserve Banks.
(6)Derivative exposure amounts are calculated using the standardized approach for measuring counterparty credit risk at December 31, 2020 and the current exposure method at December 31, 2019.
Regulatory Developments
Revisions to Basel 3 to Address Current Expected Credit Loss Accounting
On January 1, 2020, the Corporation adopted the new accounting standard that requires the measurement of the allowance for credit losses to be based on management’s best estimate of lifetime ECL inherent in the Corporation's relevant financial assets. For more information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. During the first quarter of 2020, in accordance with an interim final rule issued by U.S. banking regulators that was finalized on August 26, 2020, the Corporation delayed for two years the initial adoption impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during 2020 and 2021 (i.e., a five-year transition period). During the two-year delay, the Corporation will add back to CET1 capital 100 percent of the initial adoption impact of CECL plus 25 percent of the cumulative quarterly changes in the allowance for credit losses (i.e., quarterly transitional amounts). After two years, starting on January 1, 2022, the quarterly transitional amounts along with the initial adoption impact of CECL will be phased out of CET1 capital over the three-year period.
Stress Capital Buffer
On March 4, 2020, the Federal Reserve issued a final rule that integrates the annual quantitative assessment of the CCAR program with the buffer requirements in the U.S. Basel 3 Final Rule. The new approach replaced the static 2.5 percent capital conservation buffer for Basel 3 Standardized approach requirements with a SCB, calculated as the decline in the CET1 capital ratio under the supervisory severely adverse scenario plus four quarters of planned common stock dividends, floored at 2.5 percent. Based on the CCAR 2020 supervisory stress test results, the Corporation is subject to a 2.5 percent SCB for the period beginning October 1, 2020 and ending on September 30, 2021.
In conjunction with this new requirement, the Federal Reserve has removed the annual CCAR quantitative objection process beginning with CCAR 2020. While the final rule continues to require that the Corporation describe its planned capital distributions in its CCAR capital plan, the Corporation is no longer required to seek prior approval if it makes capital distributions in excess of those included in its CCAR capital
plan. The Corporation is instead subject to automatic distribution limitations if its capital ratios fall below its buffer requirements, which include the SCB.
Eligible Retained Income
On March 17, 2020, in response to the economic impact of the pandemic, the U.S. banking regulators issued an interim final rule that revises the definition of eligible retained income to be based on average net income over the prior four quarters. This change, which was finalized on August 26, 2020, more gradually phases in automatic distribution restrictions to the extent capital buffers are breached.
Supplementary Leverage Ratio
On April 1, 2020, in response to the economic impact of the pandemic, the Federal Reserve issued an interim final rule to temporarily exclude the on-balance sheet amounts of U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of supplementary leverage exposure for bank holding companies. The rule is effective for June 30, 2020 through March 31, 2021 reports. As of December 31, 2020, temporary exclusions improved the SLR by 1.0 percent to 7.2 percent.
On May 15, 2020, the U.S. banking regulators issued an interim final rule that provides a similar temporary exclusion to depository institutions, effective from the beginning of the second quarter of 2020 through March 31, 2021; however, institutions must elect the relief. Beginning in the third quarter of 2020, a depository institution electing to apply the exclusion must receive approval from its primary regulator prior to making any capital distributions as long as the exclusion is in effect. As of December 31, 2020, the Corporation’s insured depository institution subsidiaries have not elected the exclusion.
Paycheck Protection Program Loans
On April 9, 2020, in response to the economic impact of the pandemic, the U.S. banking regulators issued an interim final rule that, among other things, stipulates PPP loans, which are guaranteed by the SBA, will receive a zero percent risk weight under the Basel 3 Advanced and Standardized approaches. The rule was later finalized by the U.S. banking regulators on October 28, 2020. For more information on the PPP, see Executive Summary – Recent Developments – COVID-19 Pandemic on page 25 and Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
Standardized Approach for Measuring Counterparty Credit Risk
On June 30, 2020 the Corporation adopted the new standardized approach for measuring counterparty credit risk (SA-CCR), which replaces the current exposure method for calculating the exposure amount of derivative contracts for risk-weighted assets and supplementary leverage exposure. Adoption of SA-CCR resulted in a decrease of approximately $15 billion in the Corporation’s Standardized RWA, and a $66 billion decrease in supplementary leverage exposure.
Swap Dealer Capital Requirements
On July 22, 2020, the U.S. Commodity Futures Trading Commission (CFTC) issued a final rule to establish capital requirements for swap dealers and major swap participants that are not subject to existing U.S. prudential regulation. Under the rule, applicable subsidiaries of the Corporation would be permitted to elect one of two approaches to compute their regulatory capital. The first approach is a bank-based capital approach, which requires that firms maintain CET1 capital greater than or equal to 6.5 percent of the entity’s RWA as calculated under Basel 3, Total capital greater than or equal to 8.0 percent of the entity’s RWA as calculated under Basel 3 and Total capital greater than or equal to 8.0 percent of the entity’s uncleared swap margin. The second approach is based on net liquid assets and requires that a firm maintain net capital greater than or equal to 2.0 percent of its uncleared swap margin. The final rule also includes reporting requirements. The impact on the Corporation is not expected to be significant.
Deduction of Unsecured Debt of G-SIBs
On October 20, 2020, the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (U.S. Agencies) finalized a rule requiring Advanced approaches institutions to deduct from regulatory capital certain investments in TLAC-eligible long-term debt and other pari passu or subordinated debt instruments issued by G-SIBs above a specified threshold. The final rule is intended to limit the interconnectedness between G-SIBs and is complementary to existing regulatory capital requirements that generally require banks to deduct investments in the regulatory capital of financial institutions. The final rule is effective April 1, 2021. The impact to the Corporation is not expected to be significant.
Volcker Rule
Effective January 1, 2020, we became subject to certain changes to the Volcker Rule, including removing the requirement for banking organizations to deduct from Tier 1 capital ownership interests of covered funds acquired or retained under the underwriting or market-making exemptions of the Volcker Rule, which the banking entity did not organize or offer.
Single-Counterparty Credit Limits
The Federal Reserve established 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.
Regulatory Capital and Securities Regulation
The Corporation’s principal U.S. broker-dealer subsidiaries are BofA Securities, Inc. (BofAS), Merrill Lynch Professional Clearing Corp. (MLPCC) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). The Corporation's principal European broker-dealer subsidiaries are Merrill Lynch International (MLI) and BofA Securities Europe SA (BofASE).
The U.S. broker-dealer subsidiaries are subject to the net capital requirements of Rule 15c3-1 under the Exchange Act. BofAS computes its minimum capital requirements as an alternative net capital broker-dealer under Rule 15c3-1e, and MLPCC and MLPF&S compute their minimum capital requirements in accordance with the alternative standard under Rule 15c3-1. BofAS and MLPCC are also registered as futures commission merchants and are subject to CFTC Regulation 1.17. The U.S. broker-dealer subsidiaries are also registered with the Financial Industry Regulatory Authority, Inc. (FINRA). Pursuant to FINRA Rule 4110, FINRA may impose higher net capital requirements than Rule 15c3-1 under the Exchange Act with respect to each of the broker-dealers.
BofAS provides institutional services, and in accordance with the alternative net capital requirements, is required to maintain tentative net capital in excess of $1.0 billion and net capital in excess of the greater of $500 million or a certain percentage of its reserve requirement. BofAS must also notify the Securities and Exchange Commission (SEC) in the event its tentative net capital is less than $5.0 billion. BofAS is also required to hold a certain percentage of its customers' and affiliates' risk-based margin in order to meet its CFTC minimum net capital requirement. At December 31, 2020, BofAS had tentative net capital of $16.8 billion. BofAS also had regulatory net capital of $14.1 billion, which exceeded the minimum requirement of $2.9 billion.
MLPCC is a fully-guaranteed subsidiary of BofAS and provides clearing and settlement services as well as prime brokerage and arranged financing services for institutional clients. At December 31, 2020, MLPCC’s regulatory net capital of $8.6 billion exceeded the minimum requirement of $1.4 billion.
MLPF&S provides retail services. At December 31, 2020, MLPF&S' regulatory net capital was $3.6 billion, which exceeded the minimum requirement of $180 million.
Our tradingEuropean broker-dealers are regulated by non-U.S. regulators. 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, 2020, MLI’s capital resources were $34.1 billion, which exceeded the minimum Pillar 1 requirement of $14.7 billion. BofASE, a French investment firm, is regulated by the Autorité de Contrôle Prudentiel et de Résolution and the Autorité des Marchés Financiers, and is subject to certain regulatory capital requirements. At December 31, 2020, BofASE's capital resources were $6.2 billion, which exceeded the minimum Pillar 1 requirement of $1.9 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. These liquidity risk management practices have allowed us to effectively manage the market stress from the pandemic that began in the first quarter of 2020. For more information on the effects of the pandemic, see Part I. Item 1A. Risk Factors – Coronavirus Disease on page 7 and Executive Summary – Recent Developments – COVID-19 Pandemic on page 25.
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 47. 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 bank 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 16 presents average GLS for the three months ended December 31, 2020 and 2019.
| | | | | | | | | | | | | | |
| | | | |
| Table 16 | Average Global Liquidity Sources |
| | | | |
| | |
| | Three Months Ended
December 31 |
| (Dollars in billions) | 2020 | | 2019 |
| | | |
| Bank entities | $ | 773 | | | $ | 454 | |
Nonbank and other entities (1) | 170 | | | 122 | |
| Total Average Global Liquidity Sources | $ | 943 | | | $ | 576 | |
(1) Nonbank includes Parent, NB Holdings and other regulated entities.
Our bank subsidiaries’ liquidity is primarily driven by deposit and lending activity, as well as securities valuation and net debt activity. 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 $306 billion and $372 billion at December 31, 2020 and 2019. 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 is also held in nonbank entities, including the Parent, NB Holdings and other regulated entities. Parent company and NB Holdings liquidity is typically in the form of cash deposited at BANA and is excluded from the liquidity at bank subsidiaries. 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 17 presents the composition of average GLS for the three months ended December 31, 2020 and 2019.
| | | | | | | | | | | | |
| | | | |
| Table 17 | Average Global Liquidity Sources Composition |
| | | | |
| | Three Months Ended
December 31 |
| |
| (Dollars in billions) | 2020 | | 2019 |
| | | |
| Cash on deposit | $ | 322 | | | $ | 103 | |
| U.S. Treasury securities | 141 | | | 98 | |
| U.S. agency securities, mortgage-backed securities, and other investment-grade securities | 462 | | | 358 | |
| Non-U.S. government securities | 18 | | | 17 | |
| Total Average Global Liquidity Sources | $ | 943 | | | $ | 576 | |
Our GLS are primarily fundedsubstantially 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 securednet basis, through securities lendingwas $584 billion and repurchase agreements$464 billion for the three months ended December 31, 2020 and these2019. For the same periods, the average consolidated LCR was 122 percent and 116 percent. Our LCR fluctuates 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 varyof 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 activityour historical experience, experience of distressed and market conditions. We believe funding these activitiesfailed financial institutions, regulatory guidance, and both expected and unexpected future events.
The types of potential contractual and contingent cash outflows we consider in theour scenarios may include, but are not limited to, upcoming contractual maturities of unsecured debt and reductions in new debt issuances; diminished access to secured financing markets is more cost-efficientmarkets; potential deposit withdrawals; increased draws on loan commitments, liquidity facilities and less sensitive to changes inletters of credit; additional collateral that counterparties could call if our credit ratings than unsecured financing. Repurchase agreements are generallywere 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 Final Rule
On October 20, 2020, the U.S. Agencies finalized the Net Stable Funding Ratio (NSFR), a rule requiring large banks to maintain a minimum level of stable funding over a one-year period. The final rule is intended to support the ability of banks to lend to households and businesses in both normal and adverse economic conditions and is complementary to the LCR rule, which focuses on short-term liquidity risks. The final rule is effective July 1, 2021. The U.S. NSFR would apply to the Corporation on a consolidated basis and often overnight. Disruptionsto our insured depository institutions. The Corporation expects to be in secured financing markets for financial institutions have occurred in prior market cycles which resulted in adverse changes in terms or significant reductionscompliance within the final NSFR rule 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 collateralregulatory timeline provided and pursuing longer durations, when appropriate. For more information on secured financing agreements, see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term Borrowingsdoes not expect any significant impacts to the Consolidated Financial Statements.Corporation.
We issue long-term unsecured debt in a variety of maturities and currencies to achieve cost-efficient funding and to maintain an appropriate maturity profile. While the cost and availability of unsecured funding may be negatively impacted by general market conditions or by matters specific to the financial services industry or the Corporation, we seek to mitigate refinancing risk by actively managing the amount of our borrowings that we anticipate will mature within any month or quarter.
During 2017, we issued $53.3 billion of long-term debt consisting of $37.7 billion for Bank of America Corporation, substantially all of which was TLAC compliant, $8.2 billion for Bank of America, N.A. and $7.4 billion of other debt.
In December 2017, pursuant to a private offering, we exchanged $11.0 billion of outstanding long-term debt for new fixed/floating-rate senior notes, subject to certain terms and conditions, to extend maturities and improve the structure of this debt for TLAC purposes. Based on the attributes of the exchange transactions, the newly issued securities are not considered substantially different, for accounting purposes, from the exchanged securities. Therefore, there was no impact to our results of operations as any amounts paid to debt holders were capitalized, and the premiums or discounts on the outstanding long-term debt were carried over to the new securities and will be amortized over their contractual lives using a revised effective interest rate.
Table 19 presents our long-term debt by major currency at December 31, 2017 and 2016.
|
| | | | | | | | |
| | | | | |
| Table 19 | Long-term Debt by Major Currency |
| | | |
| | | 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 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 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 and subordinated debt obligations contain no provisions that could trigger a requirement for an early repayment, require additional collateral support, result in changes to terms, accelerate maturity or create additional financial obligations upon an adverse change in our credit ratings, financial ratios, earnings, cash flows or stock price. For more information on long-term debt funding, see Note 11 – Long-term Debt to the Consolidated Financial Statements.
Contingency Planning
We 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 more information, see Business Segment Operations on page 36.
CCAR and Capital Planning
The Federal Reserve requires BHCs to submit a capital plan and planned capital actions on an annual basis, consistent with the rules governing the CCAR capital plan.
Based on the results of our 2020 CCAR supervisory stress test that was submitted to the Federal Reserve in the second quarter of 2020, we are subject to a 2.5 percent stress capital buffer (SCB) for the period beginning October 1, 2020 and ending on September 30, 2021. Our Common equity tier 1 (CET1) capital ratio under the Standardized approach must remain above 9.5 percent during this period (the sum of our CET1 capital ratio minimum of 4.5 percent, global systemically important bank (G-SIB) surcharge of 2.5 percent and our SCB of 2.5 percent) in order to avoid restrictions on capital distributions and discretionary bonus payments.
Due to economic uncertainty resulting from the pandemic, the Federal Reserve required all large banks to update and resubmit their capital plans in November 2020 based on the Federal Reserve’s updated supervisory stress test scenarios. The results of the additional supervisory stress tests were published in December 2020.
The Federal Reserve also required large banks to suspend share repurchase programs during the second half of 2020, except for repurchases to offset shares awarded under equity-based compensation plans, and to limit common stock dividends to existing rates that did not exceed the average of the last four quarters’ net income. The Federal Reserve’s directives regarding share repurchases aligned with our decision to voluntarily suspend our general common stock repurchase program during the first half of 2020. The suspension of our repurchases did not include repurchases to offset shares awarded under our equity-based compensation plans. Pursuant to the Board’s authorization, we repurchased $7.0 billion of common stock during 2020.
In December 2020, the Federal Reserve announced that beginning in the first quarter of 2021, large banks would be permitted to pay common stock dividends at existing rates and to repurchase shares in an amount that, when combined with dividends paid, does not exceed the average of net income over the last four quarters.
On January 19, 2021, we announced that the Board declared a quarterly common stock dividend of $0.18 per share, payable on March 26, 2021 to shareholders of record as of March 5, 2021. We also announced that the Board authorized the repurchase of $2.9 billion in common stock through March 31, 2021, plus repurchases to offset shares awarded under equity-based compensation plans during the same period, estimated to be approximately $300 million. This authorization equals the maximum amount allowed by the Federal Reserve for the period.
Our stock repurchase program is 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. Such 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 (Exchange Act).
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 (RWA), 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's depository institution subsidiaries are also subject to the Prompt Corrective Action (PCA) framework. 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 RWA under both the Standardized and Advanced approaches. The approach that yields the lower ratio is used to assess capital adequacy including under the PCA framework. As of December 31, 2020, the CET1, Tier 1 capital and Total capital ratios for the Corporation were lower under the Standardized approach.
Minimum Capital Requirements
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 G-SIB surcharge. On October 1, 2020, the capital conservation buffer was replaced by the SCB for the Corporation’s Standardized approach ratio requirements. The buffers and surcharge must be comprised solely of CET1 capital.
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 deductions and applicable temporary exclusions, as well as the simple average of certain off-balance sheet exposures, as of the end of each month in a quarter. For more information, see Capital Management – Regulatory Developments on page 55.
Capital Composition and Ratios
Table 11 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, 2020 and 2019. For the periods presented herein, the Corporation met the definition of well capitalized under current regulatory requirements.
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| | | | | | | | | | | | | | | | |
| Table 11 | Bank of America Corporation Regulatory Capital under Basel 3 | | | | | | |
| | | | | | | | |
| | | | | | | | | | |
| | | | | | | Standardized
Approach (1, 2) | | Advanced
Approaches (1) | | Regulatory
Minimum (3) | | | | |
| (Dollars in millions, except as noted) | | | | | | | December 31, 2020 | | |
| Risk-based capital metrics: | | | | | | | | | | | | | | | |
| Common equity tier 1 capital | | | | | | | $ | 176,660 | | | $ | 176,660 | | | | | | | |
| Tier 1 capital | | | | | | | 200,096 | | | 200,096 | | | | | | | |
Total capital (4) | | | | | | | 237,936 | | | 227,685 | | | | | | | |
| Risk-weighted assets (in billions) | | | | | | | 1,480 | | | 1,371 | | | | | | | |
| Common equity tier 1 capital ratio | | | | | | | 11.9 | % | | 12.9 | % | | 9.5 | % | | | | |
| Tier 1 capital ratio | | | | | | | 13.5 | | | 14.6 | | | 11.0 | | | | | |
| Total capital ratio | | | | | | | 16.1 | | | 16.6 | | | 13.0 | | | | | |
| | | | | | | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (5) | | | | | | | $ | 2,719 | | | $ | 2,719 | | | | | | | |
| Tier 1 leverage ratio | | | | | | | 7.4 | % | | 7.4 | % | | 4.0 | | | | | |
| | | | | | | | | | | | | | | |
Supplementary leverage exposure (in billions) (6) | | | | | | | | | $ | 2,786 | | | | | | | |
| Supplementary leverage ratio | | | | | | | | | 7.2 | % | | 5.0 | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | December 31, 2019 | | |
| Risk-based capital metrics: | | | | | | | | | | | | | | | |
| Common equity tier 1 capital | | | | | | | $ | 166,760 | | | $ | 166,760 | | | | | | | |
| Tier 1 capital | | | | | | | 188,492 | | | 188,492 | | | | | | | |
Total capital (4) | | | | | | | 221,230 | | | 213,098 | | | | | | | |
| Risk-weighted assets (in billions) | | | | | | | 1,493 | | | 1,447 | | | | | | | |
| Common equity tier 1 capital ratio | | | | | | | 11.2 | % | | 11.5 | % | | 9.5 | % | | | | |
| Tier 1 capital ratio | | | | | | | 12.6 | | | 13.0 | | | 11.0 | | | | | |
| Total capital ratio | | | | | | | 14.8 | | | 14.7 | | | 13.0 | | | | | |
| | | | | | | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (5) | | | | | | | $ | 2,374 | | | $ | 2,374 | | | | | | | |
| Tier 1 leverage ratio | | | | | | | 7.9 | % | | 7.9 | % | | 4.0 | | | | | |
| | | | | | | | | | | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | | | | | $ | 2,946 | | | | | | | |
| Supplementary leverage ratio | | | | | | | | | 6.4 | % | | 5.0 | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
(1)As of December 31, 2020, capital ratios are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of CECL.
(2)Derivative exposure amounts are calculated using the standardized approach for measuring counterparty credit risk at December 31, 2020 and the current exposure method at December 31, 2019.
(3)The capital conservation buffer and G-SIB surcharge were 2.5 percent at both December 31, 2020 and 2019. At December 31, 2020, the Corporation's SCB of 2.5 percent was applied in place of the capital conservation buffer under the Standardized approach. The countercyclical capital buffer for both periods was zero. The SLR minimum includes a leverage buffer of 2.0 percent.
(4)Total capital under the Advanced approaches differs from the Standardized approach due to differences in the amount permitted in Tier 2 capital related to the qualifying allowance for credit losses.
(5)Reflects total average assets adjusted for certain Tier 1 capital deductions.
(6)Supplementary leverage exposure at December 31, 2020 reflects the temporary exclusion of U.S. Treasury securities and deposits at Federal Reserve Banks.
At December 31, 2020, CET1 capital was $176.7 billion, an increase of $9.9 billion from December 31, 2019, driven by earnings and net unrealized gains on available-for-sale (AFS) debt securities included in accumulated other comprehensive income (OCI), partially offset by common stock repurchases and dividends. Total capital under the Standardized approach increased $16.7 billion primarily driven by the same factors as CET1 capital, an increase in the adjusted allowance for credit
losses included in Tier 2 capital and the issuance of preferred stock. RWA under the Standardized approach, which yielded the lower CET1 capital ratio at December 31, 2020, decreased $13.7 billion during 2020 to $1,480 billion primarily due to lower commercial and consumer lending exposures, partially offset by investments of excess deposits in securities. Table 12 shows the capital composition at December 31, 2020 and 2019.
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| | | | |
| Table 12 | Capital Composition under Basel 3 | | | |
| | | | |
| | December 31 |
| | | |
| (Dollars in millions) | 2020 | | 2019 |
| Total common shareholders’ equity | $ | 248,414 | | | $ | 241,409 | |
CECL transitional amount (1) | 4,213 | | | — | |
| Goodwill, net of related deferred tax liabilities | (68,565) | | | (68,570) | |
| Deferred tax assets arising from net operating loss and tax credit carryforwards | (5,773) | | | (5,193) | |
| Intangibles, other than mortgage servicing rights, net of related deferred tax liabilities | (1,617) | | | (1,328) | |
| Defined benefit pension plan net assets | (1,164) | | | (1,003) | |
Cumulative unrealized net (gain) loss related to changes in fair value of financial liabilities attributable to own creditworthiness,
net-of-tax | 1,753 | | | 1,278 | |
| Other | (601) | | | 167 | |
| Common equity tier 1 capital | 176,660 | | | 166,760 | |
| Qualifying preferred stock, net of issuance cost | 23,437 | | | 22,329 | |
| Other | (1) | | | (597) | |
| Tier 1 capital | 200,096 | | | 188,492 | |
| Tier 2 capital instruments | 22,213 | | | 22,538 | |
Qualifying allowance for credit losses (2) | 15,649 | | | 10,229 | |
| Other | (22) | | | (29) | |
| Total capital under the Standardized approach | 237,936 | | | 221,230 | |
Adjustment in qualifying allowance for credit losses under the Advanced approaches (2) | (10,251) | | | (8,132) | |
| Total capital under the Advanced approaches | $ | 227,685 | | | $ | 213,098 | |
(1)The CECL transitional amount includes the impact of the Corporation's adoption of the new CECL accounting standard on January 1, 2020 plus 25 percent of the increase in the adjusted allowance for credit losses from January 1, 2020 through December 31, 2020.
(2)The balance at December 31, 2020 includes the impact of transition provisions related to the new CECL accounting standard.
Table 13 shows the components of RWA as measured under Basel 3 at December 31, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table 13 | Risk-weighted Assets under Basel 3 | | | | | | | |
| | | | | | | | |
| Standardized Approach (1) | | Advanced Approaches | | Standardized Approach (1) | | Advanced Approaches |
| December 31 |
| (Dollars in billions) | 2020 | | 2019 |
| | | |
| Credit risk | $ | 1,420 | | | $ | 896 | | | $ | 1,437 | | | $ | 858 | |
| Market risk | 60 | | | 60 | | | 56 | | | 55 | |
Operational risk (2) | n/a | | 372 | | | n/a | | 500 | |
| Risks related to credit valuation adjustments | n/a | | 43 | | | n/a | | 34 | |
| Total risk-weighted assets | $ | 1,480 | | | $ | 1,371 | | | $ | 1,493 | | | $ | 1,447 | |
(1) Derivative exposure amounts are calculated using the standardized approach for measuring counterparty credit risk at December 31, 2020 and the current exposure method at December 31, 2019.
(2) December 31, 2020 includes the effects of an update made to our operational risk RWA model during the third quarter of 2020.
n/a = not applicable
Bank of America, N.A. Regulatory Capital
Table 14 presents regulatory capital information for BANA in accordance with Basel 3 Standardized and Advanced approaches as measured at December 31, 2020 and 2019. BANA met the definition of well capitalized under the PCA framework for both periods.
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| | | | | | | | |
| Table 14 | Bank of America, N.A. Regulatory Capital under Basel 3 | | |
| | | | | | | | |
| | Standardized
Approach (1, 2) | | | | Advanced
Approaches (1) | | Regulatory
Minimum (3) |
| (Dollars in millions, except as noted) | December 31, 2020 |
| Risk-based capital metrics: | | | | | | | |
| Common equity tier 1 capital | $ | 164,593 | | | | | $ | 164,593 | | | |
| Tier 1 capital | 164,593 | | | | | 164,593 | | | |
Total capital (4) | 181,370 | | | | | 170,922 | | | |
| Risk-weighted assets (in billions) | 1,221 | | | | | 1,014 | | | |
| Common equity tier 1 capital ratio | 13.5 | % | | | | 16.2 | % | | 7.0 | % |
| Tier 1 capital ratio | 13.5 | | | | | 16.2 | | | 8.5 | |
| Total capital ratio | 14.9 | | | | | 16.9 | | | 10.5 | |
| | | | | | | |
| Leverage-based metrics: | | | | | | | |
Adjusted quarterly average assets (in billions) (5) | $ | 2,143 | | | | | $ | 2,143 | | | |
| Tier 1 leverage ratio | 7.7 | % | | | | 7.7 | % | | 5.0 | |
| | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | $ | 2,525 | | | |
| Supplementary leverage ratio | | | | | 6.5 | % | | 6.0 | |
|
| | | | | | | |
|
| December 31, 2019 |
| Risk-based capital metrics: | | | | | | | |
| Common equity tier 1 capital | $ | 154,626 | | | | | $ | 154,626 | | | |
| Tier 1 capital | 154,626 | | | | | 154,626 | | | |
Total capital (4) | 166,567 | | | | | 158,665 | | | |
| Risk-weighted assets (in billions) | 1,241 | | | | | 991 | | | |
| Common equity tier 1 capital ratio | 12.5 | % | | | | 15.6 | % | | 7.0 | % |
| Tier 1 capital ratio | 12.5 | | | | | 15.6 | | | 8.5 | |
| Total capital ratio | 13.4 | | | | | 16.0 | | | 10.5 | |
| | | | | | | |
| Leverage-based metrics: | | | | | | | |
Adjusted quarterly average assets (in billions) (5) | $ | 1,780 | | | | | $ | 1,780 | | | |
| Tier 1 leverage ratio | 8.7 | % | | | | 8.7 | % | | 5.0 | |
| | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | $ | 2,177 | | | |
| Supplementary leverage ratio | | | | | 7.1 | % | | 6.0 | |
(1)As of December 31, 2020, capital ratios are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of CECL.
(2)Derivative exposure amounts are calculated using the standardized approach for measuring counterparty credit risk at December 31, 2020 and the current exposure method at December 31, 2019.
(3)Risk-based capital regulatory minimums at both December 31, 2020 and 2019 are the minimum ratios under Basel 3 including a capital conservation buffer of 2.5 percent. The regulatory minimums for the leverage ratios as of both period ends are the percent required to be considered well capitalized under the PCA framework.
(4)Total capital under the Advanced approaches differs from the Standardized approach due to differences in the amount permitted in Tier 2 capital related to the qualifying allowance for credit losses.
(5)Reflects total average assets adjusted for certain Tier 1 capital deductions.
Total Loss-Absorbing Capacity Requirements
Total loss-absorbing capacity (TLAC) consists of the Corporation’s Tier 1 capital and eligible long-term debt issued directly by the Corporation. Eligible long-term debt for TLAC ratios is comprised of unsecured debt that has a remaining maturity of at least one year and satisfies additional requirements as prescribed in the TLAC final rule. As with the
risk-based capital ratios and SLR, the Corporation is required to maintain TLAC ratios in excess of minimum requirements plus applicable buffers to avoid restrictions on capital distributions and discretionary bonus payments. Table 15 presents the Corporation's TLAC and long-term debt ratios and related information as of December 31, 2020 and 2019.
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| | | | | | | | | | |
| Table 15 | Bank of America Corporation Total Loss-Absorbing Capacity and Long-Term Debt |
| | | | | | | | | | |
|
TLAC (1) | | Regulatory Minimum (2) | | | | Long-term
Debt | | Regulatory Minimum (3) |
| (Dollars in millions) | December 31, 2020 |
| Total eligible balance | $ | 405,153 | | | | | | | $ | 196,997 | | | |
Percentage of risk-weighted assets (4) | 27.4 | % | | 22.0 | % | | | | 13.3 | % | | 8.5 | % |
Percentage of supplementary leverage exposure (5, 6) | 14.5 | | | 9.5 | | | | | 7.1 | | | 4.5 | |
| | | | | | | | | |
| December 31, 2019 |
| Total eligible balance | $ | 367,449 | | | | | | | $ | 171,349 | | | |
Percentage of risk-weighted assets (4) | 24.6 | % | | 22.0 | % | | | | 11.5 | % | | 8.5 | % |
Percentage of supplementary leverage exposure (6) | 12.5 | | | 9.5 | | | | | 5.8 | | | 4.5 | |
(1)As of December 31, 2020, TLAC ratios are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of CECL.
(2)The TLAC RWA regulatory minimum consists of 18.0 percent plus a TLAC RWA buffer comprised of 2.5 percent plus the Method 1 G-SIB surcharge of 1.5 percent. The countercyclical buffer is zero for both periods. The TLAC supplementary leverage exposure regulatory minimum consists of 7.5 percent plus a 2.0 percent TLAC leverage buffer. The TLAC RWA and leverage buffers must be comprised solely of CET1 capital and Tier 1 capital, respectively.
(3)The long-term debt RWA regulatory minimum is comprised of 6.0 percent plus an additional 2.5 percent requirement based on the Corporation’s Method 2 G-SIB surcharge. The long-term debt leverage exposure regulatory minimum is 4.5 percent.
(4)The approach that yields the higher RWA is used to calculate TLAC and long-term debt ratios, which was the Standardized approach as of both December 31, 2020 and 2019.
(5)Supplementary leverage exposure at December 31, 2020 reflects the temporary exclusion of U.S. Treasury Securities and deposits at Federal Reserve Banks.
(6)Derivative exposure amounts are calculated using the standardized approach for measuring counterparty credit risk at December 31, 2020 and the current exposure method at December 31, 2019.
Regulatory Developments
Revisions to Basel 3 to Address Current Expected Credit Loss Accounting
On January 1, 2020, the Corporation adopted the new accounting standard that requires the measurement of the allowance for credit losses to be based on management’s best estimate of lifetime ECL inherent in the Corporation's relevant financial assets. For more information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. During the first quarter of 2020, in accordance with an interim final rule issued by U.S. banking regulators that was finalized on August 26, 2020, the Corporation delayed for two years the initial adoption impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during 2020 and 2021 (i.e., a five-year transition period). During the two-year delay, the Corporation will add back to CET1 capital 100 percent of the initial adoption impact of CECL plus 25 percent of the cumulative quarterly changes in the allowance for credit losses (i.e., quarterly transitional amounts). After two years, starting on January 1, 2022, the quarterly transitional amounts along with the initial adoption impact of CECL will be phased out of CET1 capital over the three-year period.
Stress Capital Buffer
On March 4, 2020, the Federal Reserve issued a final rule that integrates the annual quantitative assessment of the CCAR program with the buffer requirements in the U.S. Basel 3 Final Rule. The new approach replaced the static 2.5 percent capital conservation buffer for Basel 3 Standardized approach requirements with a SCB, calculated as the decline in the CET1 capital ratio under the supervisory severely adverse scenario plus four quarters of planned common stock dividends, floored at 2.5 percent. Based on the CCAR 2020 supervisory stress test results, the Corporation is subject to a 2.5 percent SCB for the period beginning October 1, 2020 and ending on September 30, 2021.
In conjunction with this new requirement, the Federal Reserve has removed the annual CCAR quantitative objection process beginning with CCAR 2020. While the final rule continues to require that the Corporation describe its planned capital distributions in its CCAR capital plan, the Corporation is no longer required to seek prior approval if it makes capital distributions in excess of those included in its CCAR capital
plan. The Corporation is instead subject to automatic distribution limitations if its capital ratios fall below its buffer requirements, which include the SCB.
Eligible Retained Income
On March 17, 2020, in response to the economic impact of the pandemic, the U.S. banking regulators issued an interim final rule that revises the definition of eligible retained income to be based on average net income over the prior four quarters. This change, which was finalized on August 26, 2020, more gradually phases in automatic distribution restrictions to the extent capital buffers are breached.
Supplementary Leverage Ratio
On April 1, 2020, in response to the economic impact of the pandemic, the Federal Reserve issued an interim final rule to temporarily exclude the on-balance sheet amounts of U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of supplementary leverage exposure for bank holding companies. The rule is effective for June 30, 2020 through March 31, 2021 reports. As of December 31, 2020, temporary exclusions improved the SLR by 1.0 percent to 7.2 percent.
On May 15, 2020, the U.S. banking regulators issued an interim final rule that provides a similar temporary exclusion to depository institutions, effective from the beginning of the second quarter of 2020 through March 31, 2021; however, institutions must elect the relief. Beginning in the third quarter of 2020, a depository institution electing to apply the exclusion must receive approval from its primary regulator prior to making any capital distributions as long as the exclusion is in effect. As of December 31, 2020, the Corporation’s insured depository institution subsidiaries have not elected the exclusion.
Paycheck Protection Program Loans
On April 9, 2020, in response to the economic impact of the pandemic, the U.S. banking regulators issued an interim final rule that, among other things, stipulates PPP loans, which are guaranteed by the SBA, will receive a zero percent risk weight under the Basel 3 Advanced and Standardized approaches. The rule was later finalized by the U.S. banking regulators on October 28, 2020. For more information on the PPP, see Executive Summary – Recent Developments – COVID-19 Pandemic on page 25 and Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
Standardized Approach for Measuring Counterparty Credit Risk
On June 30, 2020 the Corporation adopted the new standardized approach for measuring counterparty credit risk (SA-CCR), which replaces the current exposure method for calculating the exposure amount of derivative contracts for risk-weighted assets and supplementary leverage exposure. Adoption of SA-CCR resulted in a decrease of approximately $15 billion in the Corporation’s Standardized RWA, and a $66 billion decrease in supplementary leverage exposure.
Swap Dealer Capital Requirements
On July 22, 2020, the U.S. Commodity Futures Trading Commission (CFTC) issued a final rule to establish capital requirements for swap dealers and major swap participants that are not subject to existing U.S. prudential regulation. Under the rule, applicable subsidiaries of the Corporation would be permitted to elect one of two approaches to compute their regulatory capital. The first approach is a bank-based capital approach, which requires that firms maintain CET1 capital greater than or equal to 6.5 percent of the entity’s RWA as calculated under Basel 3, Total capital greater than or equal to 8.0 percent of the entity’s RWA as calculated under Basel 3 and Total capital greater than or equal to 8.0 percent of the entity’s uncleared swap margin. The second approach is based on net liquid assets and requires that a firm maintain net capital greater than or equal to 2.0 percent of its uncleared swap margin. The final rule also includes reporting requirements. The impact on the Corporation is not expected to be significant.
Deduction of Unsecured Debt of G-SIBs
On October 20, 2020, the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (U.S. Agencies) finalized a rule requiring Advanced approaches institutions to deduct from regulatory capital certain investments in TLAC-eligible long-term debt and other pari passu or subordinated debt instruments issued by G-SIBs above a specified threshold. The final rule is intended to limit the interconnectedness between G-SIBs and is complementary to existing regulatory capital requirements that generally require banks to deduct investments in the regulatory capital of financial institutions. The final rule is effective April 1, 2021. The impact to the Corporation is not expected to be significant.
Volcker Rule
Effective January 1, 2020, we became subject to certain changes to the Volcker Rule, including removing the requirement for banking organizations to deduct from Tier 1 capital ownership interests of covered funds acquired or retained under the underwriting or market-making exemptions of the Volcker Rule, which the banking entity did not organize or offer.
Single-Counterparty Credit Limits
The Federal Reserve established 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.
Regulatory Capital and Securities Regulation
The Corporation’s principal U.S. broker-dealer subsidiaries are BofA Securities, Inc. (BofAS), Merrill Lynch Professional Clearing Corp. (MLPCC) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). The Corporation's principal European broker-dealer subsidiaries are Merrill Lynch International (MLI) and BofA Securities Europe SA (BofASE).
The U.S. broker-dealer subsidiaries are subject to the net capital requirements of Rule 15c3-1 under the Exchange Act. BofAS computes its minimum capital requirements as an alternative net capital broker-dealer under Rule 15c3-1e, and MLPCC and MLPF&S compute their minimum capital requirements in accordance with the alternative standard under Rule 15c3-1. BofAS and MLPCC are also registered as futures commission merchants and are subject to CFTC Regulation 1.17. The U.S. broker-dealer subsidiaries are also registered with the Financial Industry Regulatory Authority, Inc. (FINRA). Pursuant to FINRA Rule 4110, FINRA may impose higher net capital requirements than Rule 15c3-1 under the Exchange Act with respect to each of the broker-dealers.
BofAS provides institutional services, and in accordance with the alternative net capital requirements, is required to maintain tentative net capital in excess of $1.0 billion and net capital in excess of the greater of $500 million or a certain percentage of its reserve requirement. BofAS must also notify the Securities and Exchange Commission (SEC) in the event its tentative net capital is less than $5.0 billion. BofAS is also required to hold a certain percentage of its customers' and affiliates' risk-based margin in order to meet its CFTC minimum net capital requirement. At December 31, 2020, BofAS had tentative net capital of $16.8 billion. BofAS also had regulatory net capital of $14.1 billion, which exceeded the minimum requirement of $2.9 billion.
MLPCC is a fully-guaranteed subsidiary of BofAS and provides clearing and settlement services as well as prime brokerage and arranged financing services for institutional clients. At December 31, 2020, MLPCC’s regulatory net capital of $8.6 billion exceeded the minimum requirement of $1.4 billion.
MLPF&S provides retail services. At December 31, 2020, MLPF&S' regulatory net capital was $3.6 billion, which exceeded the minimum requirement of $180 million.
Our European broker-dealers are regulated by non-U.S. regulators. 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, 2020, MLI’s capital resources were $34.1 billion, which exceeded the minimum Pillar 1 requirement of $14.7 billion. BofASE, a French investment firm, is regulated by the Autorité de Contrôle Prudentiel et de Résolution and the Autorité des Marchés Financiers, and is subject to certain regulatory capital requirements. At December 31, 2020, BofASE's capital resources were $6.2 billion, which exceeded the minimum Pillar 1 requirement of $1.9 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. These liquidity risk management practices have allowed us to effectively manage the market stress from the pandemic that began in the first quarter of 2020. For more information on the effects of the pandemic, see Part I. Item 1A. Risk Factors – Coronavirus Disease on page 7 and Executive Summary – Recent Developments – COVID-19 Pandemic on page 25.
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 47. 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 bank 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 16 presents average GLS for the three months ended December 31, 2020 and 2019.
| | | | | | | | | | | | | | |
| | | | |
| Table 16 | Average Global Liquidity Sources |
| | | | |
| | |
| | Three Months Ended
December 31 |
| (Dollars in billions) | 2020 | | 2019 |
| | | |
| Bank entities | $ | 773 | | | $ | 454 | |
Nonbank and other entities (1) | 170 | | | 122 | |
| Total Average Global Liquidity Sources | $ | 943 | | | $ | 576 | |
(1) Nonbank includes Parent, NB Holdings and other regulated entities.
Our bank subsidiaries’ liquidity is primarily driven by deposit and lending activity, as well as securities valuation and net debt activity. 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 $306 billion and $372 billion at December 31, 2020 and 2019. 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 is also held in nonbank entities, including the Parent, NB Holdings and other regulated entities. Parent company and NB Holdings liquidity is typically in the form of cash deposited at BANA and is excluded from the liquidity at bank subsidiaries. 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 17 presents the composition of average GLS for the three months ended December 31, 2020 and 2019.
| | | | | | | | | | | | |
| | | | |
| Table 17 | Average Global Liquidity Sources Composition |
| | | | |
| | Three Months Ended
December 31 |
| |
| (Dollars in billions) | 2020 | | 2019 |
| | | |
| Cash on deposit | $ | 322 | | | $ | 103 | |
| U.S. Treasury securities | 141 | | | 98 | |
| U.S. agency securities, mortgage-backed securities, and other investment-grade securities | 462 | | | 358 | |
| Non-U.S. government securities | 18 | | | 17 | |
| Total Average Global Liquidity Sources | $ | 943 | | | $ | 576 | |
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 $584 billion and $464 billion for the three months ended December 31, 2020 and 2019. For the same periods, the average consolidated LCR was 122 percent and 116 percent. Our LCR fluctuates 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 issuances; 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 Final Rule
On October 20, 2020, the U.S. Agencies finalized the Net Stable Funding Ratio (NSFR), a rule requiring large banks to maintain a minimum level of stable funding over a one-year period. The final rule is intended to support the ability of banks to lend to households and businesses in both normal and adverse economic conditions and is complementary to the LCR rule, which focuses on short-term liquidity risks. The final rule is effective July 1, 2021. The U.S. NSFR would apply to the Corporation on a consolidated basis and to our insured depository institutions. The Corporation expects to be in compliance within the final NSFR rule in the regulatory timeline provided and does not expect any significant impacts to the Corporation.
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 $1.80 trillion and $1.43 trillion at December 31, 2020 and 2019. 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 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.
Total long-term debt increased $22.1 billion to $262.9 billion during 2020, primarily due to debt issuances and valuation adjustments, partially offset by 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.
During 2020, we issued $56.9 billion of long-term debt consisting of $43.8 billion of notes issued by Bank of America Corporation, substantially all of which was TLAC compliant, $4.8 billion of notes issued by Bank of America, N.A. and $8.3 billion of other debt. During 2019, we issued $52.5 billion of long-term debt consisting of $29.3 billion of notes issued by Bank of America Corporation, substantially all of which was TLAC compliant, $10.9 billion of notes issued by Bank of America, N.A. and $12.3 billion of other debt.
During 2020, we had total long-term debt maturities and redemptions in the aggregate of $47.1 billion consisting of $22.6 billion for Bank of America Corporation, $11.5 billion for Bank of America, N.A. and $13.0 billion of other debt. During 2019, we had total long-term debt maturities and redemptions in the aggregate of $50.6 billion consisting of $21.1 billion for Bank of America Corporation, $19.9 billion for Bank of America, N.A. and $9.6 billion of other debt.
At December 31, 2020, Bank of America Corporation's senior notes of $191.2 billion included $146.6 billion of outstanding notes that are both TLAC eligible and callable at least one year before their stated maturities. Of these senior notes, $12.0 billion will be callable and become TLAC ineligible during 2021, and $15.3 billion, $14.6 billion, $11.7 billion and $13.2 billion will do so during each of 2022 through 2025, respectively, and $79.8 billion thereafter.
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. We may issue unsecured debt in the form of structured notes for client purposes, certain of which qualify as TLAC-eligible debt. During 2020, we issued $7.3 billion of structured notes, which are unsecured debt obligations that pay investors returns linked to other debt or equity securities, indices, currencies or commodities. We typically hedge the returns we are obligated to pay on these liabilities with derivatives and/or investments in the underlying instruments, so that from a funding perspective, the cost is similar to our other unsecured long-term debt. We could be required to settle certain structured note obligations for cash or other securities prior to maturity under certain circumstances, which we consider for liquidity planning purposes. We believe, however, that a portion of such borrowings will remain outstanding beyond the earliest put or redemption date.
Substantially all of our senior and subordinated debt obligations contain no provisions that could trigger a requirement for an early repayment, require additional collateral support, result in changes to terms, accelerate maturity or create additional financial obligations upon an adverse change in our credit ratings, financial ratios, earnings, cash flows or stock price. For more information on long-term debt funding, including issuances and maturities and redemptions, see Note 11 – Long-term Debt to the Consolidated Financial Statements.
We use derivative transactions to manage the duration, interest rate and currency risks of our borrowings, considering the characteristics of the assets they are funding. For more information on our ALM activities, see Interest Rate Risk Management for the Banking Book on page 82.
Contingency Planning
We maintain contingency funding plans that outline our potential responses to liquidity stress events at various levels of severity. These policies and plans are based on stress scenarios and include potential funding strategies and communication and notification procedures that we would implement in the event we experienced stressed liquidity conditions. We periodically review and test the contingency funding plans to validate efficacy and assess readiness.
Our U.S. bank subsidiaries can access contingency funding through the Federal Reserve Discount Window. Certain non-U.S. subsidiaries have access to central bank facilities in the jurisdictions in which they operate. While we do not rely on these sources in our liquidity modeling, we maintain the policies, procedures and governance processes that would enable us to access these sources if necessary.
Credit Ratings
Our borrowing costs and ability to raise funds are impacted by our credit ratings. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including over-the-counter (OTC) derivatives. Thus, it is our objective to maintain high-quality credit ratings, and management maintains an active dialogue with the major rating agencies.
Credit ratings and outlooks are opinions expressed by rating agencies on our creditworthiness and that of our obligations or securities, including long-term debt, short-term borrowings, preferred stock and other securities, including asset securitizations. Our credit ratings are subject to ongoing review by the rating agencies, and they consider a number of factors, including our own financial strength, performance, prospects and operations as well as factors not under our control. The rating agencies could make adjustments to our ratings at any time, and
they provide no assurances that they will maintain our ratings at current levels.
Other factors that influence our credit ratings include changes to the rating agencies’ methodologies for our industry or certain security types; the rating agencies’ assessment of the general operating environment for financial services companies; our relative positions in the markets in which we compete; our various risk exposures and risk management policies and activities; pending litigation and other contingencies or potential tail risks; our reputation; our liquidity position, diversity of funding sources and funding costs; the current and expected level and volatility of our earnings; our capital position and capital management practices; our corporate governance; the sovereign credit ratings of the U.S. government; current or future regulatory and legislative
initiatives; and the agencies’ views on whether the U.S. government would provide meaningful support to the Corporation or its subsidiaries in a crisis.
On December 6, 2017, Moody’s Investors Services, Inc. (Moody’s) upgraded the long-term ratings of Bank of America Corporation and certain subsidiaries, including BANA, by one notch, moving their senior debt ratings to A3 and Aa3, respectively. The upgrade was based on the agency’s expectations for continued improvement in the Corporation’s profitability and management’s continued commitment to a conservative risk profile. At the same time, Moody’s affirmed all the short-term ratings for Bank of America Corporation and its rated subsidiaries. Moody’s concurrently moved the outlook on the ratings to stable. This action
concluded the review for upgrade that Moody’s initiated on September 12, 2017.
On NovemberApril 22, 2017, Standard & Poor’s Global Ratings (S&P) upgraded Bank of America Corporation’s long-term senior debt rating to A- from BBB+ following the agency’s periodic review of our ratings. S&P cited the improvement in the Corporation’s risk profile, while continuing to improve profitability metrics, as the driver for the upgrade, including tightening underwriting standards, reducing exposure to market risk, growing conservatively, and resolving legacy legal issues. S&P concurrently affirmed the ratings of the Corporation’s rated core operating subsidiaries, including BANA, MLPF&S, MLI and Bank of America Merrill Lynch International Limited. Those entities were affirmed rather than upgraded since their ratings had reached an inflection point under S&P’s methodology where the one notch S&P added to its assessment of our intrinsic creditworthiness (called an Unsupported Group Credit Profile, or UGCP) resulted in the subsidiaries receiving one less notch of support uplift under the agency’s Additional Loss Absorbing Capacity framework, thus leaving those entities’ ratings unchanged. S&P retained a stable outlook on the ratings of Bank of America Corporation and its core operating subsidiaries following the upgrade.
On September 28, 2017,2020, Fitch Ratings (Fitch) completed its latest review of 12 large, complex securities trading and universal banks in the U.S., including Bank of America.America, in response to declining economic activity from the pandemic. The agency affirmed its long-term and short-term senior debt ratings for the Corporation and all of its rated subsidiaries, except for select issuer and instrument-level ratings that had previously been placed under criteria observation on March 4, 2020, following changes in the agency’s bank rating criteria on February 28, 2020.
Concurrently, Fitch reached a conclusion on select under-criteria-observation designations for the Corporation and upgraded its long-term and short-term senior debt ratings of BankMLI and BofASE by one notch to AA-/F1+. The agency also upgraded its preferred stock rating for the Corporation by one notch to BBB and downgraded its subordinated debt rating for the Corporation by one notch to A-. According to Fitch, rating
changes under criteria observation are the sole result of Americabank rating criteria changes and do not reflect a change in the underlying fundamentals of the institution. Fitch’s outlook for all of our long-term ratings is currently Stable.
On June 9, 2020, Fitch affirmed its rating for the subordinated debt of BANA at A. This rating had remained under criteria observation following Fitch’s broader rating actions.
On November 18, 2020, Moody’s Investors Service (Moody's) affirmed its long-term and short-term debt ratings for the Corporation and all of its rated subsidiaries, which did not change during 2020. Moody’s outlook for all of our long-term ratings is currently Stable.
The current ratings and Stable outlooks for the Corporation and its rated subsidiaries including BANA, and maintained its stable outlook on those ratings.from Standard & Poor’s Global Ratings also did not change during 2020.
Table 2018 presents the Corporation’s current long-term/short-term senior debt ratings and outlooks expressed by the rating agencies.
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| Table 18 | | | | | | | | | | | | | | | | | | |
Table 20 | Senior Debt Ratings | | | | | | | | | | | | | | |
| | |
| | Moody’sMoody’s Investors Service
| | Standard & Poor’sPoor’s Global Ratings | | Fitch Ratings |
| Long-term | | Short-term | | Outlook | | Long-term | | Short-term | | Outlook | | Long-term | | Short-term | | Outlook |
| Bank of America Corporation | A3 A2 | | P-2 P-1 | | Stable | | A- | | A-2 | | Stable | | A A+ | | F1 | | Stable |
| Bank of America, N.A. | Aa3 Aa2 | | P-1 | | Stable | | A+ | | A-1 | | Stable | | A+ AA- | | F1 F1+ | | Stable |
| Bank of America Europe Designated Activity Company | NR | | NR | | NR | | A+ | | A-1 | | Stable | | AA- | | F1+ | | Stable |
| Merrill Lynch, Pierce, Fenner & Smith Incorporated | NR | | NR | | NR | | A+ | | A-1 | | Stable | | A+ AA- | | F1 F1+ | | Stable |
| BofA Securities, Inc. | NR | | NR | | NR | | A+ | | A-1 | | Stable | | AA- | | F1+ | | Stable |
| Merrill Lynch International | NR | | NR | | NR | | A+ | | A-1 | | Stable | | A AA- | | F1 F1+ | | Stable |
| BofA Securities Europe SA | NR | | NR | | NR | | A+ | | A-1 | | Stable | | AA- | | F1+ | | Stable |
NR = not rated
A reduction in certain of our credit ratings or the ratings of certain asset-backed securitizations may have a material adverse effect on our liquidity, potential loss of access to credit markets, the related cost of funds, our businesses and on certain trading revenues, particularly in those businesses where counterparty creditworthiness is critical. In addition, under the terms of certain OTC derivative contracts and other trading agreements, in the event of downgrades of our or our rated subsidiaries’ credit ratings, the counterparties to those agreements may require us to provide additional collateral, or to terminate these contracts or agreements, which could cause us to sustain losses and/or adversely impact our liquidity. If the short-term credit ratings of our parent company, bank or broker-dealer subsidiaries were downgraded by one or more levels, the potential loss of access to short-term funding sources such as repo financing and the effect on our incremental cost of funds could be material.
While certain potential impacts are contractual and quantifiable, the full scope of the consequences of a credit rating downgrade to a financial institution is inherently uncertain, as it
depends upon numerous dynamic, complex and inter-related factors and assumptions, including whether any downgrade of a company’s long-term credit ratings precipitates downgrades to its short-term credit ratings, and assumptions about the potential behaviors of various customers, investors and counterparties. For more information on potential impacts of credit rating downgrades, see Liquidity Risk – Time-to-required Funding and Liquidity Stress Analysis on page 51.58.
For more information on the additional collateral and termination payments that could be required in connection with certain OTCover-the-counter derivative contracts and other trading agreements as a resultin the event of such a credit rating downgrade, see Note 23 – Derivatives to the Consolidated Financial Statements.Statements and Part I. Item 1A. Risk Factors.
Common Stock Dividends
For a summary of our declared quarterly cash dividends on common stock during 20172020 and through February 22, 2018,24, 2021, see Note 13 – Shareholders’ Equity to the Consolidated Financial Statements.
Finance Subsidiary Issuers and Parent Guarantor
BofA Finance LLC, a Delaware limited liability company (BofA Finance), is a consolidated finance subsidiary of the Corporation that has issued and sold, and is expected to continue to issue and sell, its senior unsecured debt securities (Guaranteed Notes), that are fully and unconditionally guaranteed by the Corporation. The Corporation guarantees the due and punctual payment, on demand, of amounts payable on the Guaranteed Notes if not paid by BofA Finance. In addition, each of BAC Capital Trust XIII and BAC Capital Trust XIV, Delaware statutory trusts (collectively, the Trusts), is a 100 percent owned finance subsidiary of the Corporation that has issued and sold trust preferred securities (the Trust Preferred Securities and, together with the Guaranteed Notes, the Guaranteed Securities) that remained outstanding at December 31, 2020. The Corporation guarantees the payment of amounts and distributions with respect to the Trust Preferred Securities if not paid by the Trusts, to the extent of funds held by the Trusts, and this guarantee, together with the Corporation’s other obligations with respect to the Trust Preferred Securities, effectively constitutes a full and unconditional guarantee of the Trusts’ payment obligations on the Trust Preferred Securities. No other subsidiary of the Corporation guarantees the Guaranteed Securities.
BofA Finance and each of the Trusts are finance subsidiaries, have no independent assets, revenues or operations and are dependent upon the Corporation and/or the Corporation’s other subsidiaries to meet their respective obligations under the Guaranteed Securities in the ordinary course. If holders of the Guaranteed Securities make claims on their Guaranteed Securities in a bankruptcy, resolution or similar proceeding, any recoveries on those claims will be limited to those available under the applicable guarantee by the Corporation, as described above.
The Corporation is a holding company and depends upon its subsidiaries for liquidity. Applicable laws and regulations and intercompany arrangements entered into in connection with the Corporation’s resolution plan could restrict the availability of funds from subsidiaries to the Corporation, which could adversely affect the Corporation’s ability to make payments under its guarantees. In addition, the obligations of the Corporation under the guarantees of the Guaranteed Securities will be structurally subordinated to all existing and future liabilities of its subsidiaries, and claimants should look only to assets of the Corporation for payments. If the Corporation, as guarantor of the Guaranteed Notes, transfers all or substantially all of its assets to one or more direct or indirect majority-owned subsidiaries, under the indenture governing the Guaranteed Notes, the subsidiary or subsidiaries will not be required to assume the Corporation’s obligations under its guarantee of the Guaranteed Notes.
For more information on factors that may affect payments to holders of the Guaranteed Securities, see Liquidity Risk – NB Holdings Corporation in this section, Item 1. Business – Insolvency and the Orderly Liquidation Authority on page 5 and Part I. Item 1A. Risk Factors – Liquidity on page 9.
Credit Risk Management
Credit risk is the risk of loss arising from the inability or failure of a borrower or counterparty to meet its obligations. Credit risk can also arise from operational failures that result in an erroneous advance, commitment or investment of funds. We define the credit exposure to a borrower or counterparty as the loss potential arising from all product classifications including loans and leases, deposit overdrafts, derivatives, assets held-for-sale and unfunded lending commitments which include loan commitments, letters of credit and financial guarantees. Derivative positions are recorded at fair value and assets held-for-sale are recorded at either fair value or the lower of cost or fair value. Certain loans and unfunded commitments are accounted for under the fair value option. Credit risk for categories of assets carried at fair value is not accounted for as part of the allowance for credit losses but as part of the fair value adjustments recorded in earnings. For derivative positions, our credit risk is measured as the net cost in the event the counterparties with contracts in which we are in a gain position fail to perform under the terms of those contracts. We use the current fair value to represent credit exposure without giving consideration to future mark-to-market changes. The credit risk amounts take into consideration the effects of legally enforceable master netting agreements and cash collateral. Our consumer and commercial credit extension and review procedures encompass funded and unfunded credit exposures. For more information on derivatives and credit extension commitments, see Note 23 – Derivatives and Note 12 – Commitments and Contingencies to the Consolidated Financial Statements.
We manage credit risk based on the risk profile of the borrower or counterparty, repayment sources, the nature of underlying collateral, and other support given current events, conditions and expectations. We classify our portfolios as either consumer or commercial and monitor credit risk in each as discussed below.
We refine our underwriting and credit risk management practices as well as credit standards to meet the changing economic environment. To mitigate losses and enhance customer support in our consumer businesses, we have in place collection programs and loan modification and customer assistance infrastructures. We utilize a number of actions to mitigate losses in the commercial businesses including increasing the frequency and intensity of portfolio monitoring, hedging activity and our practice of transferring management of deteriorating commercial exposures to independent special asset officers as credits enter criticized categories.categories.
For more information on our credit risk management activities, see Consumer Portfolio Credit Risk Management below, Commercial Portfolio Credit Risk Management on page 63, 68, Non-U.S. Portfolio on page 70, Provision for Credit Losses on page 72, 74, Allowance for Credit Losses on page 72,76, and Note 45 – Outstanding Loans and Leases andNote 5 – Allowance for Credit Lossesto the Consolidated Financial Statements.Statements.
During 2020, the pandemic negatively impacted economic activity in the U.S. and around the world. In particular, beginning in the latter portion of the first quarter of 2020, the pandemic resulted in changes to consumer and business behaviors and restrictions on economic activity. These restrictions gave rise to increased unemployment and underemployment, lower business profits, increased business closures and bankruptcies, fluctuations and disruptions to commercial and consumer spending and markets, and lower global GDP, all of which negatively impacted our consumer and commercial credit portfolio.
To provide relief to individuals and businesses in the U.S., economic stimulus packages were enacted throughout 2020, including the CARES Act, an executive order signed in August 2020 to establish the Lost Wage Assistance Program, and most recently, the Consolidated Appropriations Act enacted in December 2020. In addition, U.S. bank regulatory agencies issued interagency guidance to financial institutions that have worked with and continue to work with borrowers affected by COVID-19.
To support our customers, we implemented various loan modification programs and other forms of support beginning in March 2020, including offering loan payment deferrals, refunding certain fees, and pausing foreclosure sales, evictions and repossessions. Since June 2020, we have experienced a decline in the need for customer assistance as the number of customer accounts and balances on deferral decreased significantly. For information on the accounting for loan modifications related to the pandemic, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
Furthermore, as COVID-19 cases eased and initial restrictions lifted, the global economy began to improve. This improvement, coupled with the aforementioned relief, facilitated economic recovery, with unemployment dropping from double-digit highs in the second quarter of 2020 and GDP significantly rebounding in the third quarter of 2017, hurricanes2020.
However, economic recovery remains uneven, with certain sectors of the economy more significantly impacted from the southern United Statespandemic (e.g., travel and entertainment). As a result, we have experienced increases in commercial reservable criticized utilized exposures driven by industries most heavily impacted by COVID-19. Also, we have seen modest increases in nonperforming loans driven by commercial loans and consumer real estate customer deferral activities, though consumer charge-offs remained low during 2020 due to payment deferrals and government stimulus benefits.
The pandemic and its full impact on the Caribbean, bringing widespread floodingglobal economy continue to be highly uncertain. While COVID-19 cases have begun to ease from their January 2021 peak, the spread of new, more contagious variants could impact the magnitude and wind damage to communities across the region. In the weeks after these storms, we supported our customersduration of this health crisis. However, ongoing virus containment efforts and clients in these communities by providing mobile financial centers and ATMs. In addition, we provided support for the recovery efforts including proactive fee refunds in affected areas,vaccination progress, as well as home loanthe possibility of further government stimulus, could accelerate the macroeconomic recovery. For more information on how the pandemic may affect our operations, see Executive Summary – Recent Developments – COVID-19 Pandemic on page 25 and other credit assistance, including payment deferrals, for impacted individuals and businesses. We do not believe that these storms will have a material financial impactPart I. Item 1A. Risk Factors – Coronavirus Disease on the Corporation.page 7.
Consumer Portfolio Credit Risk Management
Credit risk management for the consumer portfolio begins with initial underwriting and continues throughout a borrower’s credit cycle. Statistical techniques in conjunction with experiential judgment are used in all aspects of portfolio management including underwriting, product pricing, risk appetite, setting credit limits, and establishing operating processes and metrics to quantify and balance risks and returns. Statistical models are built using detailed behavioral information from external sources such as credit bureaus and/or internal historical experience and are a component of our consumer credit risk management process. These models are used in part to assist in making both new and ongoing credit decisions, as well as portfolio management strategies, including authorizations and line management, collection practices and strategies, and determination of the allowance for loan and lease losses and allocated capital for credit risk.
Consumer Credit Portfolio
Improvement in the U.S. unemployment rateWhile COVID-19 is severely impacting economic activity, and home prices continuedis contributing to increasing nonperforming loans within certain consumer portfolios, it did not have a significant impact on consumer portfolio charge-offs during 2017 resulting in improved2020 due to payment deferrals and government stimulus benefits. However, COVID-19 could lead to adverse impacts to credit quality andmetrics in future periods if negative economic conditions continue or worsen. During 2020, net charge-offs decreased $334 million to $2.7 billion primarily due to lower credit losses in the consumer real estate portfolio, partially offset by seasoning and loan growth in the U.S. credit card portfolio compared to 2016.losses.
Improved credit quality, the sale of the non-U.S. consumer credit card business in 2017, continued loan balance run-off and sales in the consumer real estate portfolio drove a $839 million decrease in theThe consumer allowance for loan and lease losses increased $5.5 billion in 20172020 to $5.4$10.1 billion at December 31, 2017.due to the adoption of the new CECL accounting standard and deterioration in the economic outlook resulting from the impact of COVID-19. For more information, see Allowance for Credit Losses on page 72.76.
For more information on our accounting policies regarding delinquencies, nonperforming status, charge-offs, and troubled debt restructurings (TDRs)TDRs for the consumer portfolio, including thoseas well as interest accrual policies and delinquency status for loan modifications related to bankruptcy and repossession,the pandemic, see Note 1 – Summary of Significant Accounting Principles and Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements.
Table 2119 presents our outstanding consumer loans and leases, consumer nonperforming loans and accruing consumer loans past due 90 days or more. Nonperforming
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| Table 19 | Consumer Credit Quality | | | | | | | | | | | |
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| | Outstandings | | Nonperforming | | Accruing Past Due
90 Days or More |
| December 31 |
| (Dollars in millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | | | | | |
Residential mortgage (1) | $ | 223,555 | | | $ | 236,169 | | | $ | 2,005 | | | $ | 1,470 | | | $ | 762 | | | $ | 1,088 | |
| Home equity | 34,311 | | | 40,208 | | | 649 | | | 536 | | | — | | | — | |
| Credit card | 78,708 | | | 97,608 | | | n/a | | n/a | | 903 | | | 1,042 | |
Direct/Indirect consumer (2) | 91,363 | | | 90,998 | | | 71 | | | 47 | | | 33 | | | 33 | |
| Other consumer | 124 | | | 192 | | | — | | | — | | | — | | | — | |
| Consumer loans excluding loans accounted for under the fair value option | $ | 428,061 | | | $ | 465,175 | | | $ | 2,725 | | | $ | 2,053 | | | $ | 1,698 | | | $ | 2,163 | |
Loans accounted for under the fair value option (3) | 735 | | | 594 | | | | | | | | | |
| Total consumer loans and leases | $ | 428,796 | | | $ | 465,769 | | | | | | | | | |
Percentage of outstanding consumer loans and leases (4) | n/a | | n/a | | 0.64 | % | | 0.44 | % | | 0.40 | % | | 0.47 | % |
Percentage of outstanding consumer loans and leases, excluding fully-insured loan portfolios (4) | n/a | | n/a | | 0.65 | | | 0.46 | | | 0.22 | | | 0.24 | |
(1)Residential mortgage 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 fully-insured loans. At December 31, 2020 and 2019, residential mortgage includes $537 million and $740 million of loans on which interest had been curtailed by the FHA, and therefore were no longer accruing interest, although principal was still insured, and $225 million and $348 million of loans on which interest was still accruing.
(2)Outstandings primarily from our repurchases of delinquent FHA loans pursuant to our servicing agreements with the Government National Mortgage Association (GNMA). Additionally, nonperforminginclude auto and specialty lending loans and accruing balances past due 90 days or more do not include the PCI loan portfolio orleases of $46.4 billion and $50.4 billion, U.S. securities-based lending loans of $41.1 billion and $36.7 billion and non-U.S. consumer loans of $3.0 billion and $2.8 billion at December 31, 2020 and 2019.
(3)Consumer loans accounted for under the fair value option even though the customer may be contractually past due.
include residential mortgage loans of $298 million and $257 million and home equity loans of $437 million and $337 million at December 31, 2020 and 2019. For more information on PCI loans,the fair value option, see Consumer Portfolio Credit Risk ManagementNote 21 – Purchased Credit-impaired Loan Portfolio on page 60 and Note 4 – Outstanding Loans and LeasesFair Value Option to the Consolidated Financial Statements.
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| Table 21 | Consumer Credit Quality | | | | | | | | | | | |
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| | Outstandings | | Nonperforming | | Accruing Past Due 90 Days or More |
| | December 31 |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Residential mortgage (1) | $ | 203,811 |
| | $ | 191,797 |
| | $ | 2,476 |
| | $ | 3,056 |
| | $ | 3,230 |
| | $ | 4,793 |
|
| Home equity | 57,744 |
| | 66,443 |
| | 2,644 |
| | 2,918 |
| | — |
| | — |
|
| U.S. credit card | 96,285 |
| | 92,278 |
| | n/a |
| | n/a |
| | 900 |
| | 782 |
|
| Non-U.S. credit card | — |
| | 9,214 |
| | n/a |
| | n/a |
| | — |
| | 66 |
|
Direct/Indirect consumer (2) | 93,830 |
| | 94,089 |
| | 46 |
| | 28 |
| | 40 |
| | 34 |
|
Other consumer (3) | 2,678 |
| | 2,499 |
| | — |
| | 2 |
| | — |
| | 4 |
|
| Consumer loans excluding loans accounted for under the fair value option | $ | 454,348 |
| | $ | 456,320 |
| | $ | 5,166 |
| | $ | 6,004 |
| | $ | 4,170 |
| | $ | 5,679 |
|
Loans accounted for under the fair value option (4) | 928 |
| | 1,051 |
| | | | | | | | |
Total consumer loans and leases (5) | $ | 455,276 |
| | $ | 457,371 |
| | | | | | | | |
Percentage of outstanding consumer loans and leases (6) | n/a |
| | n/a |
| | 1.14 | % | | 1.32 | % | | 0.92 | % | | 1.24 | % |
Percentage of outstanding consumer loans and leases, excluding PCI and fully-insured loan portfolios (6) | n/a |
| | n/a |
| | 1.23 |
| | 1.45 |
| | 0.22 |
| | 0.21 |
|
| |
(1)
| Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At December 31, 2017 and 2016, residential mortgage includes $2.2 billion and $3.0 billion of loans on which interest had been curtailed by the FHA, and therefore were no longer accruing interest, although principal was still insured, and $1.0 billion and $1.8 billion of loans on which interest was still accruing.
|
| |
(2)
| Outstandings include auto and specialty lending loans of $49.9 billion and $48.9 billion, unsecured consumer lending loans of $469 million and $585 million, U.S. securities-based lending loans of $39.8 billion and $40.1 billion, non-U.S. consumer loans of $3.0 billion for both periods, student loans of $0 and $497 million and other consumer loans of $684 million and $1.1 billion at December 31, 2017 and 2016.
|
| |
(3)
| Outstandings include consumer leases of $2.5 billion and $1.9 billion, consumer overdrafts of $163 million and $157 million and consumer finance loans of $0 and $465 million at December 31, 2017 and 2016. |
| |
(4)
| Consumer loans accounted for under the fair value option include residential mortgage loans of $567 million and $710 million and home equity loans of $361 million and $341 million at December 31, 2017 and 2016. For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements.
|
| |
(5)
| Includes $9.2 billion of non-U.S. credit card loans, which were included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. In 2017, the Corporation sold its non-U.S. consumer credit card business. |
(6) Balances exclude(4)Excludes consumer loans accounted for under the fair value option. At December 31, 20172020 and 2016, $262019, $11 million and $48$6 million of loans accounted for under the fair value option were past due 90 days or more and not accruing interest.
n/a = not applicable
Table 2220 presents net charge-offs and related ratios for consumer loans and leases.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Table 20 | Consumer Net Charge-offs and Related Ratios | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | Net Charge-offs | | | Net Charge-off Ratios (1) |
| | | | | | | | | | |
| (Dollars in millions) | | | | | 2020 | | 2019 | | | | | | 2020 | | 2019 |
| Residential mortgage | | | | | $ | (30) | | | $ | (47) | | | | | | | (0.01) | % | | (0.02) | % |
| Home equity | | | | | (73) | | | (358) | | | | | | | (0.19) | | | (0.81) | |
| Credit card | | | | | 2,349 | | | 2,948 | | | | | | | 2.76 | | | 3.12 | |
| | | | | | | | | | | | | | | |
| Direct/Indirect consumer | | | | | 122 | | | 209 | | | | | | | 0.14 | | | 0.23 | |
| Other consumer | | | | | 284 | | | 234 | | | | | | | n/m | | n/m |
| Total | | | | | $ | 2,652 | | | $ | 2,986 | | | | | | | 0.59 | | | 0.66 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 22 | Consumer Net Charge-offs and Related Ratios | | | | | | |
| | | | | | | | | |
| | | Net Charge-offs (1) | | Net Charge-off Ratios (1, 2) |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Residential mortgage | $ | (100 | ) | | $ | 131 |
| | (0.05 | )% | | 0.07 | % |
| Home equity | 213 |
| | 405 |
| | 0.34 |
| | 0.57 |
|
| U.S. credit card | 2,513 |
| | 2,269 |
| | 2.76 |
| | 2.58 |
|
| Non-U.S. credit card | 75 |
| | 175 |
| | 1.91 |
| | 1.83 |
|
| Direct/Indirect consumer | 211 |
| | 134 |
| | 0.23 |
| | 0.15 |
|
| Other consumer | 166 |
| | 205 |
| | 6.35 |
| | 8.95 |
|
| Total | $ | 3,078 |
| | $ | 3,319 |
| | 0.68 |
| | 0.74 |
|
| |
(1)
| Net charge-offs exclude write-offs in the PCI loan portfolio. For more information, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 60.
|
| |
(2)
| Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans and leases excluding loans accounted for under the fair value option. |
Net charge-offs, as shown in Tables 22 and 23, exclude write-offs in the PCI loan portfolio of $131 million and $144 million in residential mortgage and $76 million and $196 million in home equity for 2017 and 2016. (1)Net charge-off ratios includingare calculated as net charge-offs divided by average outstanding loans and leases excluding loans accounted for under the PCI write-offs were 0.02 percent and 0.15 percent for residential mortgage and 0.47 percent and 0.84 percent for home equity in 2017 and 2016. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 60.fair value option.
n/m = not meaningful
Table 2321 presents outstandings, nonperforming balances, net charge-offs, allowance for loan and leasecredit losses and provision for loan and leasecredit 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, FICOloan-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 enterpriseGSE 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-offrunoff portfolios. Core loans as reported in Table 2321 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.
As shown in Table 23,21, outstanding core consumer real estate loans increased $15.0decreased $15.4 billion during 20172020 driven by an increasea decrease of $20.1$10.5 billion in residential mortgage partially offset byand a $5.1$4.9 billion decrease in home equity.
|
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| | | | | | | | | | | | | |
| Table 23 | Consumer Real Estate Portfolio (1) | | | | |
| | | | | | | |
| | | Outstandings | | Nonperforming | | Net Charge-offs (2) |
| | | December 31 | |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Core portfolio | |
| | |
| | |
| | |
| | | | |
| Residential mortgage | $ | 176,618 |
| | $ | 156,497 |
| | $ | 1,087 |
| | $ | 1,274 |
| | $ | (45 | ) | | $ | (29 | ) |
| Home equity | 44,245 |
| | 49,373 |
| | 1,079 |
| | 969 |
| | 100 |
| | 113 |
|
| Total core portfolio | 220,863 |
| | 205,870 |
| | 2,166 |
| | 2,243 |
| | 55 |
| | 84 |
|
| Non-core portfolio | | | |
| | |
| | |
| | | | |
| Residential mortgage | 27,193 |
| | 35,300 |
| | 1,389 |
| | 1,782 |
| | (55 | ) | | 160 |
|
| Home equity | 13,499 |
| | 17,070 |
| | 1,565 |
| | 1,949 |
| | 113 |
| | 292 |
|
| Total non-core portfolio | 40,692 |
| | 52,370 |
| | 2,954 |
| | 3,731 |
| | 58 |
| | 452 |
|
| Consumer real estate portfolio | |
| | |
| | |
| | |
| | | | |
| Residential mortgage | 203,811 |
| | 191,797 |
| | 2,476 |
| | 3,056 |
| | (100 | ) | | 131 |
|
| Home equity | 57,744 |
| | 66,443 |
| | 2,644 |
| | 2,918 |
| | 213 |
| | 405 |
|
| Total consumer real estate portfolio | $ | 261,555 |
| | $ | 258,240 |
| | $ | 5,120 |
| | $ | 5,974 |
| | $ | 113 |
| | $ | 536 |
|
| | | | | | | | | | | | | |
| | | | | | | Allowance for Loan and Lease Losses | | Provision for Loan and Lease Losses |
| | | | | | | December 31 | |
| | | | | | | 2017 | | 2016 | | 2017 | | 2016 |
| Core portfolio | | | | | | | | | | | |
| Residential mortgage | | | | | $ | 218 |
| | $ | 252 |
| | $ | (79 | ) | | $ | (98 | ) |
| Home equity | | | | | 367 |
| | 560 |
| | (91 | ) | | 10 |
|
| Total core portfolio | | | | | 585 |
| | 812 |
| | (170 | ) | | (88 | ) |
| Non-core portfolio | | | | | |
| | |
| | | | |
| Residential mortgage | | | | | 483 |
| | 760 |
| | (201 | ) | | (86 | ) |
| Home equity | | | | | 652 |
| | 1,178 |
| | (339 | ) | | (84 | ) |
| Total non-core portfolio | | | | | 1,135 |
| | 1,938 |
| | (540 | ) | | (170 | ) |
| Consumer real estate portfolio | | | | | |
| | |
| | | | |
| Residential mortgage | | | | | 701 |
| | 1,012 |
| | (280 | ) | | (184 | ) |
| Home equity | | | | | 1,019 |
| | 1,738 |
| | (430 | ) | | (74 | ) |
| Total consumer real estate portfolio | | | | | $ | 1,720 |
| | $ | 2,750 |
| | $ | (710 | ) | | $ | (258 | ) |
| | | | | | | | |
(1)63 Bank of America
| Outstandings and nonperforming loans exclude loans accounted for under the fair value option. Consumer loans accounted for under the fair value option included residential mortgage loans of $567 million and $710 million and home equity loans of $361 million and $341 million at December 31, 2017 and 2016. For more information, see Note 21 – Fair Value Option to the Consolidated Financial Statements.
|
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| | | | | | | | | | | | | | | | | | | | |
| Table 21 | Consumer Real Estate Portfolio (1) | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | Outstandings | | Nonperforming | | | | | | | | | | |
| | December 31 | | | | | | Net Charge-offs | | | | |
| (Dollars in millions) | 2020 | | 2019 | | 2020 | | 2019 | | | | | | 2020 | | 2019 | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Core portfolio | | | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 215,273 | | | $ | 225,770 | | | $ | 1,390 | | | $ | 883 | | | | | | | $ | (25) | | | $ | 7 | | | | | |
| Home equity | 30,328 | | | 35,226 | | | 462 | | | 363 | | | | | | | (6) | | | 51 | | | | | |
| Total core portfolio | 245,601 | | | 260,996 | | | 1,852 | | | 1,246 | | | | | | | (31) | | | 58 | | | | | |
| Non-core portfolio | | | | | | | | | | | | | | | | | | | |
| Residential mortgage | 8,282 | | | 10,399 | | | 615 | | | 587 | | | | | | | (5) | | | (54) | | | | | |
| Home equity | 3,983 | | | 4,982 | | | 187 | | | 173 | | | | | | | (67) | | | (409) | | | | | |
| Total non-core portfolio | 12,265 | | | 15,381 | | | 802 | | | 760 | | | | | | | (72) | | | (463) | | | | | |
| Consumer real estate portfolio | | | | | | | | | | | | | | | | | | | |
| Residential mortgage | 223,555 | | | 236,169 | | | 2,005 | | | 1,470 | | | | | | | (30) | | | (47) | | | | | |
| Home equity | 34,311 | | | 40,208 | | | 649 | | | 536 | | | | | | | (73) | | | (358) | | | | | |
| Total consumer real estate portfolio | $ | 257,866 | | | $ | 276,377 | | | $ | 2,654 | | | $ | 2,006 | | | | | | | $ | (103) | | | $ | (405) | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | Allowance for Loan
and Lease Losses | | | | | | Provision for Loan
and Lease Losses | | | | |
| | | | | | December 31 | | | | | | | | | |
| | | | | | 2020 | | 2019 | | | | | | 2020 | | 2019 | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Core portfolio | | | | | | | | | | | | | | | | | | | |
| Residential mortgage | | | | | $ | 374 | | | $ | 229 | | | | | | | $ | 136 | | | $ | 22 | | | | | |
| Home equity | | | | | 599 | | | 120 | | | | | | | 135 | | | (58) | | | | | |
| Total core portfolio | | | | | 973 | | | 349 | | | | | | | 271 | | | (36) | | | | | |
| Non-core portfolio | | | | | | | | | | | | | | | | | | | |
| Residential mortgage | | | | | 85 | | | 96 | | | | | | | 75 | | | (134) | | | | | |
Home equity (2) | | | | | (63) | | | 101 | | | | | | | (21) | | | (510) | | | | | |
| Total non-core portfolio | | | | | 22 | | | 197 | | | | | | | 54 | | | (644) | | | | | |
| Consumer real estate portfolio | | | | | | | | | | | | | | | | | | | |
| Residential mortgage | | | | | 459 | | | 325 | | | | | | | 211 | | | (112) | | | | | |
Home equity (3) | | | | | 536 | | | 221 | | | | | | | 114 | | | (568) | | | | | |
| Total consumer real estate portfolio | | | | | $ | 995 | | | $ | 546 | | | | | | | $ | 325 | | | $ | (680) | | | | | |
(1)Outstandings and nonperforming loans exclude loans accounted for under the fair value option. Consumer loans accounted for under the fair value option include residential mortgage loans of $298 million and $257 million and home equity loans of $437 million and $337 million at December 31, 2020 and 2019. For more information, see Note 21 – Fair Value Option to the Consolidated Financial Statements.
(2)The home equity non-core allowance is in a negative position at December 31, 2020 as it includes expected recoveries of amounts previously charged off.
(3)Home equity allowance includes a reserve for unfunded lending commitments of $137 million at December 31, 2020.
Net charge-offs exclude write-offs in the PCI loan portfolio. For more information, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 60.
| 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, 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.
Residential Mortgage
The residential mortgage portfolio makesmade up the largest percentage of our consumer loan portfolio at 4552 percent of consumer loans and leases at December 31, 2017.2020. Approximately 3752 percent of the residential mortgage portfolio iswas in Consumer Banking and approximately 3540 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 GNMAthe Government National Mortgage Association 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 $12.0decreased $12.6 billion in 20172020 as retention of new originations wasboth loan sales and paydowns were partially offset by loan sales of $3.9 billion, and run-off.originations.
At December 31, 20172020 and 2016,2019, the residential mortgage portfolio included $23.7$11.8 billion and $28.7$18.7 billion of outstanding fully-insured loans. On this portionloans, 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 $2.8 billion and $22.3$11.2 billion had FHA insurance, with the remainder protected by Fannie Mae long-term standby agreements. At December 31, 2017 and 2016, $5.2 billion and $7.4 billionThe decline was primarily driven by sales of the FHA-insured loan population were repurchases of delinquentloans with FHA loans pursuant to our servicing agreements with GNMA.insurance during 2020.
Table 2422 presents certain residential mortgage key credit statistics on both a reported basis excluding loans accounted for under the fair value option, and excluding the PCI loan portfolio, the fully-insured loan portfolio and loans accounted for under the fair value option. Additionally, in the “Reported Basis” columns in the following table, accruing balances past due and nonperforming loans do not include the PCI loan portfolio, in accordance with our accounting policies, even though the customer may be contractually past due. As such, theportfolio. The following discussion presents the residential mortgage portfolio excluding the PCI loan portfolio, the fully-insured loan portfolio.
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| | | | | | | | | | | | | | | | |
| Table 22 | Residential Mortgage – Key Credit Statistics | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | Reported Basis (1) | | Excluding Fully-insured Loans (1) |
| | | | | | | | | | December 31 |
| (Dollars in millions) | | | | | | | | | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | | | | | | | | | |
| Outstandings | | | | | | | | $ | 223,555 | | | $ | 236,169 | | | $ | 211,737 | | | $ | 217,479 | |
| Accruing past due 30 days or more | | | | | | | | 2,314 | | | 3,108 | | | 1,224 | | | 1,296 | |
| Accruing past due 90 days or more | | | | | | | | 762 | | | 1,088 | | | — | | | — | |
Nonperforming loans (2) | | | | | | | | 2,005 | | | 1,470 | | | 2,005 | | | 1,470 | |
| Percent of portfolio | | | | | | | | | | | | | | |
| Refreshed LTV greater than 90 but less than or equal to 100 | | | | 2 | % | | 2 | % | | 1 | % | | 2 | % |
| Refreshed LTV greater than 100 | | | | | | | | 1 | | | 1 | | | 1 | | | 1 | |
| Refreshed FICO below 620 | | | | | | | | 2 | | | 3 | | | 1 | | | 2 | |
2006 and 2007 vintages (3) | | | | | | | | 3 | | | 4 | | | 3 | | | 4 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | |
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| | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(1)Outstandings, accruing past due, nonperforming loans and percentages of portfolio andexclude loans accounted for under the fair value option. For more information on our interest accrual policies and delinquency status for loan modifications related to the PCI loan portfolio,pandemic, see page 60.
Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
(2)Includes loans that are contractually current which primarily consist of collateral-dependent TDRs, including those that have been discharged in Chapter 7 bankruptcy and loans that have not yet demonstrated a sustained period of payment performance following a TDR.
|
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| | | | | | | | | | |
| Table 24 | Residential Mortgage – Key Credit Statistics | | | | | | | | |
| | | | | | | | | | |
| | | | Reported Basis (1) | | Excluding Purchased
Credit-impaired and
Fully-insured Loans |
| | | | December 31 |
| (Dollars in millions) | | 2017 | | 2016 | | 2017 | | 2016 |
| Outstandings | | $ | 203,811 |
| | $ | 191,797 |
| | $ | 172,069 |
| | $ | 152,941 |
|
| Accruing past due 30 days or more | | 5,987 |
| | 8,232 |
| | 1,521 |
| | 1,835 |
|
| Accruing past due 90 days or more | | 3,230 |
| | 4,793 |
| | — |
| | — |
|
| Nonperforming loans | | 2,476 |
| | 3,056 |
| | 2,476 |
| | 3,056 |
|
| Percent of portfolio | | |
| | |
| | |
| | |
|
| Refreshed LTV greater than 90 but less than or equal to 100 | | 3 | % | | 5 | % | | 2 | % | | 3 | % |
| Refreshed LTV greater than 100 | | 2 |
| | 4 |
| | 1 |
| | 3 |
|
| Refreshed FICO below 620 | | 6 |
| | 9 |
| | 3 |
| | 4 |
|
2006 and 2007 vintages (2) | | 10 |
| | 13 |
| | 8 |
| | 12 |
|
| | | | | | | | | | |
| | | | 2017 | | 2016 | | 2017 | | 2016 |
Net charge-off ratio (3) | | (0.05 | )% | | 0.07 | % | | (0.06 | )% | | 0.09 | % |
| |
(1)
| Outstandings, accruing past due, nonperforming loans and percentages of portfolio exclude loans accounted for under the fair value option. |
| |
(2)
| These vintages of loans accounted for $825 million, or 33(3)These vintages of loans accounted for $503 million and $365 million, or 25 percent,, and $931 million, or 31 percent, of nonperforming residential mortgage loans at December 31, 2017 and 2016.
|
| |
(3)
| Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans excluding loans accounted for under the fair value option. |
Nonperforming residential mortgage loans decreased $580at both December 31, 2020 and 2019.
Nonperforming outstanding balances in the residential mortgage portfolio increased $535 million in 20172020 primarily driven by COVID-19 deferral activity, as outflows, including saleswell as the inclusion of $460 million and net transfers to held-for-salecertain loans that, upon adoption of $132 million, outpacedthe new inflowscredit loss standard, became accounted for on an individual basis, which included the addition of $140 million of nonperforming loans aspreviously had been accounted for under a result of clarifying regulatory guidance related to bankruptcy loans.pool basis. Of the nonperforming residential mortgage loans at December 31, 2017, $8602020, $892 million, or 3545 percent, were current on contractual payments. Loans accruing past due 30 days or more decreased $314 million due in part to the timing impact of a consumer real estate servicer conversion that occurred during the fourth quarter of 2016.$72 million.
Net charge-offs decreased $231increased $17 million to $100a net recovery of $30 million of net recoveries in 20172020 compared to $131 milliona net recovery 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$47 million in 2016. Additionally, net charge-offs declined2019. This increase is due largely to favorable portfolio trends and decreased write-downs on loans greater than 180 days past due driven by improvement in home prices andlower recoveries from the U.S. economy.
Loans with a refreshed LTV greater than 100 percent represented one percent and three percentsales of the residential mortgage loan portfolio at December 31, 2017 and 2016. Of the loans with a refreshed LTV greater than 100 percent, 98 percent were performing at both December 31, 2017 and 2016. Loans with a refreshed LTV greater than 100 percent reflect loans where the outstanding carrying value of the loan is greater than the most recent valuation of the property securing the loan. The majority of these loans have a refreshed LTV greater than 100 percent primarily due to home price deterioration since 2006, partially offset by subsequent appreciation.previously charged-off loans.
Of the $172.1$211.7 billion in total residential mortgage loans outstanding at December 31, 2017,2020, as shown in Table 25, 33
22, 27 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$5.9 billion, or 1810 percent, at December 31, 2017.2020. 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, $2832020, $113 million, or threetwo 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 less than one percent, for the entire residential mortgage portfolio. In addition, at December 31, 2017, $5092020, $356 million, or fivesix percent, of outstanding interest-only residential mortgage loans that had entered the amortization period were nonperforming, of which $253$96 million were contractually current, compared to $2.5$2.0 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 80Approximately 98 percent of these loans that have yet to enter the amortization period will not be required to make a fully-amortizing payment until 20202022 or later.
Table 2523 presents outstandings, nonperforming loans and net charge-offs by certain state concentrations for the residential mortgage portfolio. The Los Angeles-Long Beach-Santa Ana Metropolitan Statistical Area (MSA) within California represented 16 percent and 15 percent of outstandings at both December 31, 20172020 and 2016.2019. In the New York area, the New York-Northern New Jersey-Long Island MSA made up 1314 percent and 1213 percent of outstandings at December 31, 20172020 and 2016.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Table 23 | Residential Mortgage State Concentrations | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Outstandings (1) | | Nonperforming (1) | | | | | | | | | | | |
| | December 31 | | | | | | | Net Charge-offs | | | | |
| (Dollars in millions) | 2020 | | 2019 | | 2020 | | 2019 | | | | | | | 2020 | | 2019 | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| California | $ | 83,185 | | | $ | 88,998 | | | $ | 570 | | | $ | 274 | | | | | | | | $ | (18) | | | $ | (22) | | | | | |
| New York | 23,832 | | | 22,385 | | | 272 | | | 196 | | | | | | | | 3 | | | 5 | | | | | |
| Florida | 13,017 | | | 12,833 | | | 175 | | | 143 | | | | | | | | (5) | | | (12) | | | | | |
| Texas | 8,868 | | | 8,943 | | | 78 | | | 65 | | | | | | | | — | | | 1 | | | | | |
| New Jersey | 8,806 | | | 8,734 | | | 98 | | | 77 | | | | | | | | (1) | | | (4) | | | | | |
| Other | 74,029 | | | 75,586 | | | 812 | | | 715 | | | | | | | | (9) | | | (15) | | | | | |
| Residential mortgage loans | $ | 211,737 | | | $ | 217,479 | | | $ | 2,005 | | | $ | 1,470 | | | | | | | | $ | (30) | | | $ | (47) | | | | | |
| Fully-insured loan portfolio | 11,818 | | | 18,690 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total residential mortgage loan portfolio | $ | 223,555 | | | $ | 236,169 | | | | | | | | | | | | | | | | | | |
(1)Outstandings and nonperforming loans exclude loans accounted for under the fair value option.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Table 25 | Residential Mortgage State Concentrations | | | |
| | | | | | | | | | | | | |
| | | Outstandings (1) | | Nonperforming (1) | | Net Charge-offs (2) |
| | December 31 | |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| California | $ | 68,455 |
| | $ | 58,295 |
| | $ | 433 |
| | $ | 554 |
| | $ | (103 | ) | | $ | (70 | ) |
New York (3) | 17,239 |
| | 14,476 |
| | 227 |
| | 290 |
| | (2 | ) | | 18 |
|
Florida (3) | 10,880 |
| | 10,213 |
| | 280 |
| | 322 |
| | (13 | ) | | 20 |
|
| Texas | 7,237 |
| | 6,607 |
| | 126 |
| | 132 |
| | 1 |
| | 9 |
|
New Jersey (3) | 6,099 |
| | 5,307 |
| | 130 |
| | 174 |
| | — |
| | 25 |
|
| Other U.S./Non-U.S. | 62,159 |
| | 58,043 |
| | 1,280 |
| | 1,584 |
| | 17 |
| | 129 |
|
Residential mortgage loans (4) | $ | 172,069 |
| | $ | 152,941 |
| | $ | 2,476 |
| | $ | 3,056 |
| | $ | (100 | ) | | $ | 131 |
|
| Fully-insured loan portfolio | 23,741 |
| | 28,729 |
| | |
| | |
| | | | |
Purchased credit-impaired residential mortgage loan portfolio (5) | 8,001 |
| | 10,127 |
| | |
| | |
| | | | |
| Total residential mortgage loan portfolio | $ | 203,811 |
| | $ | 191,797 |
| | |
| | |
| | | | |
| |
(1)
| Outstandings and nonperforming loans exclude loans accounted for under the fair value option. |
| |
(2)
| Net charge-offs excluded $131 million and $144 million of write-offs in the residential mortgage PCI loan portfolio in 2017 and 2016. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 60.
|
| |
(3)
| In these states, foreclosure requires a court order following a legal proceeding (judicial states). |
| |
(4)
| Amounts exclude the PCI residential mortgage and fully-insured loan portfolios. |
| |
(5)
| At December 31, 2017 and 2016, 47 percent and 48 percent of PCI residential mortgage loans were in California. There were no other significant single state concentrations.
|
Home Equity
At December 31, 2017,2020, the home equity portfolio made up 13eight 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, our HELOC portfolio had an outstanding balance of $51.2 billion, or 89 percent of the total home equity portfolio compared to $58.6 billion, or 88 percent, at December 31, 2016. HELOCs generally have an initial draw period of 10 years, and after the initial draw period ends, the loans generally
convert to 15-year15- or 20-year amortizing loans.
At December 31, 2017, our home equity loan portfolio had an outstanding balance of $4.4 billion, or seven percent of the total home equity portfolio compared to $5.9 billion, or nine percent, at December 31, 2016. Home equity loans are almost all fixed-rate loans with amortizing payment terms of 10 to 30 years and of the $4.4 billion at December 31, 2017, 57 percent have 25- to 30-year terms. At December 31, 2017, our reverse mortgage portfolio had an outstanding balance, excluding loans accounted for under the fair value option, of $2.1 billion, or four percent of the total home equity portfolio compared to $1.9 billion, or three percent, at December 31, 2016. We no longer originate home equity loans or reverse mortgages.
At December 31, 2017, approximately 692020, 80 percent of the home equity portfolio was in Consumer Banking, 2312 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
$5.9 billion in 20172020 primarily due to paydowns and charge-offs outpacing new
originations and draws on existing lines. Of the total home equity portfolio at December 31, 20172020 and 2016, $18.7 billion and $19.62019, $13.8 billion, or 3240 percent, and 29$15.0 billion, or 37 percent, were in first-lien positions (34 percent and 31 percent excluding the PCI home equity portfolio).positions. At December 31, 2017,2020, 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
$5.9 billion, or 17 percent, of our total home equity portfolio excluding the PCI loan portfolio.
Unused HELOCs totaled $44.2$42.3 billion and $47.2$43.6 billion at December 31, 20172020 and 2016. The decrease was primarily due to accounts reaching the end of their draw period, which automatically eliminates open line exposure, and customers choosing to close accounts. Both of these more than offset the impact of new production.2019. The HELOC utilization rate was 5443 percent and 5546 percent at December 31, 20172020 and 2016.2019.
Table 2624 presents certain home equity portfolio key credit statistics on both a reported basis excluding loans accounted for under the fair value option, and excluding the PCI loan portfolio and loans accounted for under the fair value option. Additionally, in the “Reported Basis” columns in the following table,statistics.
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| | | | | | | | | | | | | | | | |
| Table 24 | Home Equity – Key Credit Statistics (1) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | December 31 | | | | |
| (Dollars in millions) | | | | | | | | | 2020 | | 2019 | | | | |
| | | | | | | | | | | | | | | |
| Outstandings | | | | | | | | | $ | 34,311 | | | $ | 40,208 | | | | | |
Accruing past due 30 days or more (2) | | | | | | 186 | | | 218 | | | | | |
Nonperforming loans (2, 3) | | | | | | | | | 649 | | | 536 | | | | | |
| Percent of portfolio | | | | | | | | | | | | | | | |
| Refreshed CLTV greater than 90 but less than or equal to 100 | | | | 1 | % | | 1 | % | | | | |
| Refreshed CLTV greater than 100 | | | | | | 1 | | | 2 | | | | | |
| Refreshed FICO below 620 | | | | | | | | | 3 | | | 3 | | | | | |
2006 and 2007 vintages (4) | | | | | | | | 16 | | | 18 | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
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| | | |
| | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
(1)Outstandings, accruing balances past due, 30 days or more and nonperforming loans do not includeand percentages of 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 andexclude loans accounted for under the fair value option. For more information on our interest accrual policies and delinquency status for loan modifications related to the PCI loan portfolio,pandemic, see page 60.
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Table 26 | Home Equity – Key Credit Statistics |
| | | | | | | | | | |
| | | | Reported Basis (1) | | Excluding Purchased
Credit-impaired Loans |
| | | | December 31 |
| (Dollars in millions) | | 2017 | | 2016 | | 2017 | | 2016 |
| Outstandings | | $ | 57,744 |
| | $ | 66,443 |
| | $ | 55,028 |
| | $ | 62,832 |
|
Accruing past due 30 days or more (2) | | 502 |
| | 566 |
| | 502 |
| | 566 |
|
Nonperforming loans (2) | | 2,644 |
| | 2,918 |
| | 2,644 |
| | 2,918 |
|
| Percent of portfolio | | | | | | | | |
| Refreshed CLTV greater than 90 but less than or equal to 100 | | 3 | % | | 5 | % | | 3 | % | | 4 | % |
| Refreshed CLTV greater than 100 | | 5 |
| | 8 |
| | 4 |
| | 7 |
|
| Refreshed FICO below 620 | | 6 |
| | 7 |
| | 6 |
| | 6 |
|
2006 and 2007 vintages (3) | | 29 |
| | 37 |
| | 27 |
| | 34 |
|
| | | | | | | | | |
| | | 2017 | | 2016 | | 2017 | | 2016 |
Net charge-off ratio (4) | | 0.34 | % | | 0.57 | % | | 0.36 | % | | 0.60 | % |
| |
(1)
| Outstandings, accruing past due, nonperforming loans and percentages of the portfolio exclude loans accounted for under the fair value option. |
| |
(2)
| Accruing past due 30 days or more included $67 million and $81 million and nonperforming loans included $344 million and $340 million of loans where we serviced the underlying first-lien at December 31, 2017 and 2016.
|
| |
(3)
| These vintages of loans have higher refreshed combined loan-to-value (CLTV) ratios and accounted for 52 percent and 50 percent of nonperforming home equity loans at December 31, 2017 and 2016, and 91 percent and 54 percent of net charge-offs in 2017 and 2016.
|
| |
(4)
| Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans excluding loans accounted for under the fair value option. |
Nonperforming outstanding balances in the home equity portfolio decreased $274(2)Accruing past due 30 days or more include $25 million in 2017 as outflows, including $66and $30 million and nonperforming loans include $88 million and $57 million of net transfers to held-for-sale and $51 million of sales, outpaced new inflows, which includedloans where we serviced the addition of $135 million of nonperforming loans as a result of clarifying regulatory guidance related to bankruptcy loans. Of the nonperforming home equity portfoliounderlying first lien at December 31, 2017, $1.4 billion, or 54 percent, were current on contractual payments. Nonperforming2020 and 2019.
(3)Includes loans that are contractually current which primarily consist of collateral-dependent TDRs, including those that have been discharged in Chapter 7 bankruptcy, junior-lien loans where the underlying first-lienfirst 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.
(4)These vintages of loans accounted for 36 percent and 34 percent of nonperforming home equity loans at December 31, 2020 and 2019.
Nonperforming outstanding balances in the home equity portfolio increased $113 million during 2020 primarily driven by COVID-19 deferral activity. Of the nonperforming home equity loans at December 31, 2020, $259 million, or 40 percent, were current on contractual payments. In addition, $693$237 million, or 2636 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$32 million in 2017.2020.
In some cases, the junior-lien home equity outstanding balance that we hold is performing, but the underlying first-lien is not. For outstanding balances in the home equity portfolio on which we service the first-lien loan, we are able to track whether the first-lien loan is in default. For loans where the first-lien is serviced by a third party, we utilize credit bureau data to estimate the delinquency status of the first-lien. Given that the credit bureau database we use does not include a property address for the mortgages, we are unable to identify with certainty whether a reported delinquent first-lien mortgage pertains to the same property for which we hold a junior-lien loan. For certain loans, we
utilize a third-party vendor to combine credit bureau and public record data to better link a junior-lien loan with the underlying first-lien mortgage. At December 31, 2017, we estimate that $814 million of current and $141 million of 30 to 89 days past due junior-lien loans were behind a delinquent first-lien loan. We service the first-lien loans on $184 million of these combined amounts, with the remaining $771 million serviced by third parties. Of the $955 million of current to 89 days past due junior-lien loans, based on available credit bureau data and our own internal servicing data, we estimate that approximately $330 million had first-lien loans that were 90 days or more past due.
Net charge-offs decreased $192increased $285 million to $213a net recovery of $73 million in 20172020 compared to $405a net recovery of $358 million in 2016 driven by favorable portfolio trends due in part to improvement in home prices and2019 as the U.S. economy, partially offset by $32 million of charge-offs as a result of clarifying regulatory guidance related to bankruptcy loans.
Outstanding balances with a refreshed CLTV greater than 100 percent comprised four percent and seven percent of the home equity portfolio at December 31, 2017 and 2016. Outstanding balances with a refreshed CLTV greater than 100 percent reflect loans where our loan and available line of credit combined with any outstanding senior liens against the property are equal to or greater than the most recent valuation of the property securing the loan. Depending on the value of the property, there may be collateral in excess of the first-lien that is available to reduce the severity of loss on the second-lien. Of those outstanding balances with a refreshed CLTV greater than 100 percent, 95 percent of the customers were current on theirprior-year period included recoveries from non-core 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.sales.
Of the $55.0$34.3 billion in total home equity portfolio outstandings at December 31, 2017,2020, as shown in Table 27, 3024, 15 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$9.2 billion at December 31, 2017.2020. 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, $3432020, $121 million, or twoone percent of outstanding HELOCs that had entered the amortization period were accruing past due 30
days or more. In addition, at December 31, 2017, $2.1 billion,2020, $477 million, or 11five percent, of outstanding HELOCswere nonperforming. Loans that have yet to enter the amortization period in our interest-only portfolio are primarily post-2008 vintages and generally have better credit quality than the previous vintages that had entered the amortization period were nonperforming, of which $1.1 billion were contractually current. Loans in our HELOC portfolio generally have an initial draw period of 10 years and 10 percent of these loans will enter the amortization period during 2018 and will be required to make fully-amortizing payments.period. We communicate to contractually current customers more than a year
prior to the end of their draw period to inform them of the potential change to the payment structure before entering the amortization period, and provide payment options to customers prior to the end of the draw period.
Although we do not actively track how many of our home equity customers pay only the minimum amount due on their home equity loans and lines, we can infer some of this information through a review of our HELOC portfolio that we service and that is still in its revolving period (i.e., customers may draw on and repay their line of credit, but are generally only required to pay interest on a monthly basis).period. During 2017, approximately 192020, nine percent of these customers with an outstanding balance did not pay any principal on their HELOCs.
Table 2725 presents outstandings, nonperforming balances and net charge-offs by certain state concentrations for the home equity portfolio. In the New York area, the New York-Northern New Jersey-Long Island MSA made up 13 percent of the outstanding home equity portfolio at both December 31, 20172020 and 2016. Loans within this MSA contributed 27 percent and 17 percent of net charge-offs in 2017 and 2016 within the home equity portfolio.2019. The Los Angeles-Long Beach-Santa Ana MSA within California made up 11 percent of the outstanding home equity portfolio at both December 31, 20172020 and 2016. Loans within this MSA contributed net recoveries of $20 million and $2 million within the home equity portfolio in 2017 and 2016.2019.
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| | | | | | | | | | | | | | | | | | | | |
| Table 25 | Home Equity State Concentrations | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Outstandings (1) | | Nonperforming (1) | | | | | | | | | | |
| | December 31 | | | | | | Net Charge-offs |
| (Dollars in millions) | 2020 | | 2019 | | 2020 | | 2019 | | | | | | 2020 | | 2019 | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| California | $ | 9,488 | | | $ | 11,232 | | | $ | 143 | | | $ | 101 | | | | | | | $ | (26) | | | $ | (117) | | | | | |
| Florida | 3,715 | | | 4,327 | | | 80 | | | 71 | | | | | | | (11) | | | (74) | | | | | |
| New Jersey | 2,749 | | | 3,216 | | | 67 | | | 56 | | | | | | | (3) | | | (8) | | | | | |
| New York | 2,495 | | | 2,899 | | | 103 | | | 85 | | | | | | | (1) | | | (1) | | | | | |
| Massachusetts | 1,719 | | | 2,023 | | | 32 | | | 29 | | | | | | | (1) | | | (5) | | | | | |
| Other | 14,145 | | | 16,511 | | | 224 | | | 194 | | | | | | | (31) | | | (153) | | | | | |
| Total home equity loan portfolio | $ | 34,311 | | | $ | 40,208 | | | $ | 649 | | | $ | 536 | | | | | | | $ | (73) | | | $ | (358) | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Table 27 | Home Equity State Concentrations | | | |
| | | | | | | | | | | | | |
| | | Outstandings (1) | | Nonperforming (1) | | Net Charge-offs (2) |
| | | December 31 | |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| California | $ | 15,145 |
| | $ | 17,563 |
| | $ | 766 |
| | $ | 829 |
| | $ | (37 | ) | | $ | 7 |
|
Florida (3) | 6,308 |
| | 7,319 |
| | 411 |
| | 442 |
| | 38 |
| | 76 |
|
New Jersey (3) | 4,546 |
| | 5,102 |
| | 191 |
| | 201 |
| | 44 |
| | 50 |
|
New York (3) | 4,195 |
| | 4,720 |
| | 252 |
| | 271 |
| | 35 |
| | 45 |
|
| Massachusetts | 2,751 |
| | 3,078 |
| | 92 |
| | 100 |
| | 9 |
| | 12 |
|
| Other U.S./Non-U.S. | 22,083 |
| | 25,050 |
| | 932 |
| | 1,075 |
| | 124 |
| | 215 |
|
Home equity loans (4) | $ | 55,028 |
| | $ | 62,832 |
| | $ | 2,644 |
| | $ | 2,918 |
| | $ | 213 |
| | $ | 405 |
|
Purchased credit-impaired home equity portfolio (5) | 2,716 |
| | 3,611 |
| | |
| | |
| | | | |
| Total home equity loan portfolio | $ | 57,744 |
| | $ | 66,443 |
| | |
| | |
| | | | |
| |
(1)
| (1)Outstandings and nonperforming loans exclude loans accounted for under the fair value option. |
| |
(2)
| Net charge-offs excluded $76 million and $196 million of write-offs in the home equity PCI loan portfolio in 2017 and 2016. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio.
|
| |
(3)
| In these states, foreclosure requires a court order following a legal proceeding (judicial states). |
| |
(4)
| Amount excludes the PCI home equity portfolio. |
| |
(5)
| At December 31, 2017 and 2016, 28 percent and 29 percent of PCI home equity loans were in California. There were no other significant single state concentrations.
|
Purchased Credit-impaired Loan Portfolio
Loans acquired with evidence of credit quality deterioration since origination and for which it is probable at purchase that we will be unable to collect all contractually required payments are accounted for under the accounting standards for PCI loans. For more information, see Note 1 – Summary of Significant Accountingfair value option.
Principles and Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements.
Table 28 presents the unpaid principal balance, carrying value, related valuation allowance and the net carrying value as a percentage of the unpaid principal balance for the PCI loan portfolio.
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Table 28 | Purchased Credit-impaired Loan Portfolio |
| | | | | | | | | | | |
| | Unpaid
Principal
Balance | | Gross Carrying
Value | | Related
Valuation
Allowance | | Carrying Value Net of Valuation Allowance | | Percent of Unpaid Principal Balance |
| (Dollars in millions) | December 31, 2017 |
Residential mortgage (1) | $ | 8,117 |
| | $ | 8,001 |
| | $ | 117 |
| | $ | 7,884 |
| | 97.13 | % |
| Home equity | 2,787 |
| | 2,716 |
| | 172 |
| | 2,544 |
| | 91.28 |
|
| Total purchased credit-impaired loan portfolio | $ | 10,904 |
| | $ | 10,717 |
| | $ | 289 |
| | $ | 10,428 |
| | 95.63 |
|
| | | | | | | | | | | |
| | | December 31, 2016 |
Residential mortgage (1) | $ | 10,330 |
| | $ | 10,127 |
| | $ | 169 |
| | $ | 9,958 |
| | 96.40 | % |
| Home equity | 3,689 |
| | 3,611 |
| | 250 |
| | 3,361 |
| | 91.11 |
|
| Total purchased credit-impaired loan portfolio | $ | 14,019 |
| | $ | 13,738 |
| | $ | 419 |
| | $ | 13,319 |
| | 95.01 |
|
| |
(1)
| At December 31, 2017 and 2016, pay option loans had an unpaid principal balance of $1.4 billion and $1.9 billion and a carrying value of $1.4 billion and $1.8 billion. This includes $1.2 billion and $1.6 billion of loans that were credit-impaired upon acquisition and $141 million and $226 million of loans that were 90 days or more past due at December 31, 2017 and 2016. The total unpaid principal balance of pay option loans with accumulated negative amortization was $160 million and $303 million, including $9 million and $16 million of negative amortization at December 31, 2017 and 2016.
|
The total PCI unpaid principal balance decreased $3.1 billion, or 22 percent, in 2017 primarily driven by payoffs, paydowns, write-offs and PCI loan sales with a carrying value of $803 million compared to $549 million in 2016.
Of the unpaid principal balance of $10.9 billion at December 31, 2017, $9.6 billion, or 88 percent, was current based on the contractual terms, $752 million, or seven percent, was in early stage delinquency, and $364 million was 180 days or more past due, including $302 million of first-lien mortgages and $62 million of home equity loans.
The PCI residential mortgage loan and home equity portfolios represented 75 percent and 25 percent of the total PCI loan portfolio at December 31, 2017. Those loans to borrowers with a refreshed FICO score below 620 represented 24 percent and 17 percent of the PCI residential mortgage loan and home equity portfolios at December 31, 2017. Residential mortgage and home equity loans with a refreshed LTV or CLTV greater than 90 percent, after consideration of purchase accounting adjustments and the related valuation allowance, represented 14 percent and 34 percent of their respective PCI loan portfolios and 16 percent and
37 percent based on the unpaid principal balance at December 31, 2017.
U.S. Credit Card
At December 31, 2017,2020, 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 $96.3decreased $18.9 billion in 2017 as2020 to $78.7 billion due to lower retail volumes outpacedspending and higher payments. Net charge-offs increased $244decreased $599 million to $2.5$2.3 billion during 2020 compared to net charge-offs of $2.9 billion in 20172019 due to portfolio seasoninggovernment stimulus benefits and loan growth. U.S. creditpayment deferrals associated with COVID-19. Credit card loans 30 days
or more past due and still accruing interest increased $252decreased $346 million, and loans 90 days or more past due and still accruing interest increased $118decreased $139 million primarily due to government stimulus benefits and declines in 2017, driven by portfolio seasoning and loan growth.balances.
Unused lines of credit for U.S. credit card totaled $326.3 billion and $321.6increased to $342.4 billion at December 31, 2017 and 2016. The increase was driven by account growth and lines of credit increases.2020 from $336.9 billion in 2019.
Table 2926 presents certain state concentrations for the U.S. credit card portfolio.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Table 26 | Credit Card State Concentrations | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Outstandings | | Accruing Past Due 90 Days or More (1) | | | | | | |
| | December 31 | | Net Charge-offs | | | | |
| (Dollars in millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | | | | | 2019 | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| California | $ | 12,543 | | | $ | 16,135 | | | $ | 166 | | | $ | 178 | | | $ | 419 | | | | | | | $ | 526 | | | | | |
| Florida | 7,666 | | | 9,075 | | | 135 | | | 135 | | | 306 | | | | | | | 363 | | | | | |
| Texas | 6,499 | | | 7,815 | | | 87 | | | 93 | | | 202 | | | | | | | 241 | | | | | |
| New York | 4,654 | | | 5,975 | | | 76 | | | 80 | | | 188 | | | | | | | 243 | | | | | |
| Washington | 3,685 | | | 4,639 | | | 21 | | | 26 | | | 56 | | | | | | | 71 | | | | | |
| Other | 43,661 | | | 53,969 | | | 418 | | | 530 | | | 1,178 | | | | | | | 1,504 | | | | | |
| Total credit card portfolio | $ | 78,708 | | | $ | 97,608 | | | $ | 903 | | | $ | 1,042 | | | $ | 2,349 | | | | | | | $ | 2,948 | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Table 29 | U.S. Credit Card State Concentrations | | | |
| | | | | | | | | | | | | |
| | | Outstandings | | Accruing Past Due
90 Days or More | | Net Charge-offs |
| | | December 31 | |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| California | $ | 15,254 |
| | $ | 14,251 |
| | $ | 136 |
| | $ | 115 |
| | $ | 412 |
| | $ | 360 |
|
| Florida | 8,359 |
| | 7,864 |
| | 94 |
| | 85 |
| | 259 |
| | 245 |
|
| Texas | 7,451 |
| | 7,037 |
| | 76 |
| | 65 |
| | 194 |
| | 164 |
|
| New York | 5,977 |
| | 5,683 |
| | 91 |
| | 60 |
| | 218 |
| | 161 |
|
| Washington | 4,350 |
| | 4,128 |
| | 20 |
| | 18 |
| | 56 |
| | 56 |
|
| Other U.S. | 54,894 |
| | 53,315 |
| | 483 |
| | 439 |
| | 1,374 |
| | 1,283 |
|
| Total U.S. credit card portfolio | $ | 96,285 |
| | $ | 92,278 |
| | $ | 900 |
| | $ | 782 |
| | $ | 2,513 |
| | $ | 2,269 |
|
Direct/Indirect and Other Consumer
At December 31, 2017, approximately 542020, 51 percent of the direct/indirect portfolio was included in Consumer Banking (consumer auto and specialty lending – automotive, marine, aircraft, recreational vehicle loanslending) and consumer personal loans) and 4649 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
Outstandings in the direct/indirect portfolio remained relatively unchanged at $93.8 billion at December 31, 2017. Net charge-offs increased $77 million to $211$365 million in 20172020 to $91.4 billion primarily due largely to portfolio seasoning and clarifying regulatory guidance related to bankruptcy and repossession.increases in securities-based lending offset by lower originations in Auto.
Table 3027 presents certain state concentrations for the direct/indirect consumer loan portfolio.
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| | | | | | | | | | | | | | | | | | | | |
| Table 27 | Direct/Indirect State Concentrations | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Outstandings | | Accruing Past Due
90 Days or More (1) | | | | | | | | | | |
| | December 31 | | | | Net Charge-offs |
| (Dollars in millions) | 2020 | | 2019 | | 2020 | | 2019 | | | | | | 2020 | | 2019 | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| California | $ | 12,248 | | | $ | 11,912 | | | $ | 6 | | | $ | 4 | | | | | | | $ | 20 | | | $ | 49 | | | | | |
| Florida | 10,891 | | | 10,154 | | | 4 | | | 4 | | | | | | | 20 | | | 27 | | | | | |
| Texas | 8,981 | | | 9,516 | | | 6 | | | 5 | | | | | | | 20 | | | 29 | | | | | |
| New York | 6,609 | | | 6,394 | | | 2 | | | 1 | | | | | | | 9 | | | 12 | | | | | |
| New Jersey | 3,572 | | | 3,468 | | | — | | | 1 | | | | | | | 2 | | | 4 | | | | | |
| Other | 49,062 | | | 49,554 | | | 15 | | | 18 | | | | | | | 51 | | | 88 | | | | | |
| Total direct/indirect loan portfolio | $ | 91,363 | | | $ | 90,998 | | | $ | 33 | | | $ | 33 | | | | | | | $ | 122 | | | $ | 209 | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Table 30 | Direct/Indirect State Concentrations | | | |
| | | | | | | | | | | | | |
| | | Outstandings | | Accruing Past Due
90 Days or More | | Net Charge-offs |
| | | December 31 | |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| California | $ | 11,165 |
| | $ | 11,300 |
| | $ | 3 |
| | $ | 3 |
| | $ | 21 |
| | $ | 13 |
|
| Florida | 10,946 |
| | 9,418 |
| | 5 |
| | 3 |
| | 42 |
| | 29 |
|
| Texas | 10,623 |
| | 9,406 |
| | 5 |
| | 5 |
| | 38 |
| | 21 |
|
| New York | 6,058 |
| | 5,253 |
| | 2 |
| | 1 |
| | 6 |
| | 3 |
|
| Georgia | 3,502 |
| | 3,255 |
| | 4 |
| | 4 |
| | 15 |
| | 9 |
|
| Other U.S./Non-U.S. | 51,536 |
| | 55,457 |
| | 21 |
| | 18 |
| | 89 |
| | 59 |
|
| Total direct/indirect loan portfolio | $ | 93,830 |
| | $ | 94,089 |
| | $ | 40 |
| | $ | 34 |
| | $ | 211 |
| | $ | 134 |
|
Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity
Table 3128 presents nonperforming consumer loans, leases and foreclosed properties activity during 20172020 and 2016. For more information on nonperforming loans, see Note 1 – Summary of Significant Accounting Principles and Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements.2019. During 2017,2020, nonperforming consumer loans declined $838increased $672 million to $5.2$2.7 billion primarily driven in part by loan salesCOVID-19 deferral activity, as well as the inclusion of $511 million and net transfers of loans to held-for-sale of $198 million. Additionally, nonperforming loans declined as outflows outpaced new inflows, which included the addition of $295$144 million of nonperformingcertain loans that were previously classified as purchased credit-impaired loans and accounted for under a result of clarifying regulatory guidance related to bankruptcy loans.pool basis.
At December 31, 2017, $1.9 billion,2020, $892 million, or 3433 percent of nonperforming consumer real estate loans were 180 days or more past due and foreclosed properties had been written down to their estimated property value less costs to sell, including $1.6 billion of nonperforming loans 180 days or more past due and $236 million of foreclosed properties.sell. In addition, at December 31, 2017, $2.32020, $1.2 billion, or 45 percent of nonperforming consumer loans were modified and are now current after successful trial periods, or are current
loans classified as nonperforming loans in accordance with applicable policies.
Foreclosed properties decreased $127$106 million in 20172020 to $123 million as liquidations outpaced additions. PCI loans are excluded from nonperforming loans as these loans were written down to fair value at the acquisition date; however, once we acquire the underlying real estate uponCorporation has paused formal loan foreclosure of the delinquent PCI loan, it is included in foreclosed properties. Not included in foreclosedproceedings and foreclosure sales for occupied properties at December 31, 2017 was $801 million of real estate that was acquired upon foreclosure of certain delinquent government-guaranteed loans (principally FHA-insured loans). We exclude these amounts from our nonperforming loans and foreclosed properties activity as we expect we will be reimbursed once the property is conveyed to the guarantor for principal and, up to certain limits, costs incurred during the foreclosure process and interest accrued during the holding period.2020.
We classify junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. At December 31, 2017 and 2016, $330 million and $428 million of such junior-lien home equity loans were included in nonperforming loans and leases.
Nonperforming loans also include certain loans that have been modified in TDRs where economic concessions have been granted to borrowers experiencing financial difficulties. Nonperforming TDRs excluding those modified loans in the PCI loan portfolio, are included in Table 31.28. For more information on our loan modification programs offered in response to the pandemic, most of which are not TDRs, see Executive Summary – Recent Developments – COVID-19 Pandemic on page 25 and Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
|
| | | | | | | | |
| | | | | |
| Table 31 | Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity (1) | | | |
| | | | | |
| (Dollars in millions) | 2017 | | 2016 |
| Nonperforming loans and leases, January 1 | $ | 6,004 |
| | $ | 8,165 |
|
| Additions | 3,254 |
| | 3,492 |
|
| Reductions: | | | |
| Paydowns and payoffs | (1,052 | ) | | (1,044 | ) |
| Sales | (511 | ) | | (1,604 | ) |
Returns to performing status (2) | (1,438 | ) | | (1,628 | ) |
| Charge-offs | (676 | ) | | (1,028 | ) |
| Transfers to foreclosed properties | (217 | ) | | (294 | ) |
| Transfers to loans held-for-sale | (198 | ) | | (55 | ) |
| Total net reductions to nonperforming loans and leases | (838 | ) | | (2,161 | ) |
Total nonperforming loans and leases, December 31 (3) | 5,166 |
| | 6,004 |
|
Total foreclosed properties, December 31 (4) | 236 |
| | 363 |
|
| Nonperforming consumer loans, leases and foreclosed properties, December 31 | $ | 5,402 |
| | $ | 6,367 |
|
Nonperforming consumer loans and leases as a percentage of outstanding consumer loans and leases (5) | 1.14 | % | | 1.32 | % |
Nonperforming consumer loans, leases and foreclosed properties as a percentage of outstanding consumer loans, leases and foreclosed properties (5) | 1.19 |
| | 1.39 |
|
| |
(1)
| Balances do not include nonperforming LHFS of $2 million and $69 million and nonaccruing TDRs removed from the PCI loan portfolio prior to January 1, 2010 of $26 million and $27 million at December 31, 2017 and 2016 as well as loans accruing past due 90 days or more as presented in Table 21 and Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements.
|
| |
(2)
| Consumer loans may be returned to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection. |
| |
(3)
| At December 31, 2017, 31 percent of nonperforming loans were 180 days or more past due. |
| |
(4)
| Foreclosed property balances do not include properties insured by certain government-guaranteed loans, principally FHA-insured, of $801 million and $1.2 billion at December 31, 2017 and 2016.
|
| |
(5)
| Outstanding consumer loans and leases exclude loans accounted for under the fair value option. |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table 28 | Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity | | | | |
| | | | | | | | |
| | | | |
| (Dollars in millions) | | | | | 2020 | | 2019 |
| Nonperforming loans and leases, January 1 | | | | | $ | 2,053 | | | $ | 3,842 | |
| Additions | | | | | 2,278 | | | 1,407 | |
| Reductions: | | | | | | | |
| Paydowns and payoffs | | | | | (440) | | | (701) | |
| Sales | | | | | (38) | | | (1,523) | |
Returns to performing status (1) | | | | | (1,014) | | | (766) | |
| Charge-offs | | | | | (78) | | | (111) | |
| Transfers to foreclosed properties | | | | | (36) | | | (95) | |
| | | | | | | |
| Total net additions/(reductions) to nonperforming loans and leases | | | | | 672 | | | (1,789) | |
| Total nonperforming loans and leases, December 31 | | | | | 2,725 | | | 2,053 | |
Foreclosed properties, December 31 (2) | | | | | 123 | | | 229 | |
| Nonperforming consumer loans, leases and foreclosed properties, December 31 | | | | | $ | 2,848 | | | $ | 2,282 | |
Nonperforming consumer loans and leases as a percentage of outstanding consumer loans and leases (3) | | | | | 0.64 | % | | 0.44 | % |
Nonperforming consumer loans, leases and foreclosed properties as a percentage of outstanding consumer loans, leases and foreclosed properties (3) | | | | | 0.66 | | | 0.49 | |
(1)Consumer loans may be returned to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection.
(2)Foreclosed property balances do not include properties insured by certain government-guaranteed loans, principally FHA-insured, of $119 million and $260 million at December 31, 2020 and 2019.
(3)Outstanding consumer loans and leases exclude loans accounted for under the fair value option.
Table 3229 presents TDRs for the consumer real estate portfolio. Performing TDR balances are excluded from nonperforming loans and leases in Table 31.28. For more information on our loan modification programs offered in response to the pandemic, most of which are not TDRs, see Executive Summary – Recent Developments – COVID-19 Pandemic on page 25 and Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
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| | | | | | | | | | | | |
| Table 29 | Consumer Real Estate Troubled Debt Restructurings |
| | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 |
| (Dollars in millions) | Nonperforming | | Performing | | Total | | Nonperforming | | Performing | | Total |
Residential mortgage (1, 2) | $ | 1,195 | | | $ | 2,899 | | | $ | 4,094 | | | $ | 921 | | | $ | 3,832 | | | $ | 4,753 | |
Home equity (3) | 248 | | | 836 | | | 1,084 | | | 252 | | | 977 | | | 1,229 | |
| Total consumer real estate troubled debt restructurings | $ | 1,443 | | | $ | 3,735 | | | $ | 5,178 | | | $ | 1,173 | | | $ | 4,809 | | | $ | 5,982 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Table 32 | Consumer Real Estate Troubled Debt Restructurings |
| | | | | | | | | | | | | |
| | | December 31, 2017 | | December 31, 2016 |
| (Dollars in millions) | Nonperforming | | Performing | | Total | | Nonperforming | | Performing | | Total |
Residential mortgage (1, 2) | $ | 1,535 |
| | $ | 8,163 |
| | $ | 9,698 |
| | $ | 1,992 |
| | $ | 10,639 |
| | $ | 12,631 |
|
Home equity (3) | 1,457 |
| | 1,399 |
| | 2,856 |
| | 1,566 |
| | 1,211 |
| | 2,777 |
|
| Total consumer real estate troubled debt restructurings | $ | 2,992 |
| | $ | 9,562 |
| | $ | 12,554 |
| | $ | 3,558 |
| | $ | 11,850 |
| | $ | 15,408 |
|
| |
(1)(2)At December 31, 2020 and 2019, residential mortgage performing TDRs include $1.5 billion and $2.1 billion of loans that were fully-insured. (3)At December 31, 2020 and 2019, home equity TDRs deemed collateral dependent totaled $407 million and $442 million, and include $216 million and $209 million of loans classified as nonperforming and $191 million and $233 million of loans classified as performing. | At December 31, 2017 and 2016, residential mortgage TDRs deemed collateral dependent totaled $2.8 billion and $3.5 billion, and included $1.2 billion and $1.6 billion of loans classified as nonperforming and $1.6 billion and $1.9 billion of loans classified as performing.
|
| |
(2)
| Residential mortgage performing TDRs included $3.7 billion and $5.3 billion of loans that were fully-insured at December 31, 2017 and 2016.
|
| |
(3)
| Home equity TDRs deemed collateral dependent totaled $1.6 billion for both periods and included $1.2 billion and $1.3 billion of loans classified as nonperforming, and $388 million and $301 million of loans classified as performing at December 31, 2017 and 2016.
|
In addition to modifying consumer real estate loans, we work with customers who are experiencing financial difficulty by modifying credit card and other consumer loans. Credit card and other consumer loan modifications generally involve a reduction in the customer’s interest rate on the account and placing the customer on a fixed payment plan not exceeding 60 months, all of which are considered TDRs (the renegotiated TDR portfolio).months.
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, 20172020 and 2016,2019, our renegotiatedcredit card and other consumer TDR portfolio was $490$701 million and $610$679 million, of which $426$614 million and $493$570 million were current or less than 30 days past due under the modified terms. The decline in the renegotiated TDR portfolio was primarily driven by paydowns and charge-offs as well as lower program enrollments. For more information on the renegotiated TDR portfolio, see Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements.
Commercial Portfolio Credit Risk Management
Credit risk management for the commercial portfolio begins with an assessment of the credit risk profile of the borrower or counterparty based on an analysis of its financial position. As part of the overall credit risk assessment, our commercial credit exposures are assigned a risk rating and are subject to approval based on defined credit approval standards. Subsequent to loan origination, risk ratings are monitored on an ongoing basis, and if necessary, adjusted to reflect changes in the financial condition, cash flow, risk profile or outlook of a borrower or counterparty. In making credit decisions, we consider risk rating, collateral, country, industry and single-name concentration limits while also balancing these considerations with the total
borrower or counterparty relationship. We use a variety of tools to continuously monitor the ability of a borrower or counterparty to perform under its obligations. We use risk rating aggregations to measure and evaluate concentrations within portfolios. In addition, risk ratings are a factor in determining the level of allocated capital and the allowance for credit losses.
As part of our ongoing risk mitigation initiatives, we attempt to work with clients experiencing financial difficulty to modify their loans to terms that better align with their current ability to pay. In situations where an economic concession has been granted to a borrower experiencing financial difficulty, we identify these loans as TDRs. For more information on our accounting policies regarding
delinquencies, nonperforming status and net charge-offs for the commercial portfolio, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
Management of Commercial Credit Risk Concentrations
Commercial credit risk is evaluated and managed with the goal that concentrations of credit exposure do not result in undesirable levels of risk.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 34, 37 40, 45 and 4640 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 6772 and Table 40.37.
We account for certain large corporate loans and loan commitments, including issued but unfunded letters of credit which are considered utilized for credit risk management purposes, that exceed our single-name credit risk concentration guidelines under the fair value option. Lending commitments, both funded and unfunded, are actively managed and monitored, and as appropriate, credit risk for these lending relationships may be mitigated through the use of credit derivatives, with our credit view and market perspectives determining the size and timing of the hedging activity. In addition, we purchase credit protection to cover the funded portion as well as the unfunded portion of certain other credit exposures. To lessen the cost of obtaining our desired credit protection levels, credit exposure may be added within an industry, borrower or counterparty group by selling protection. These credit derivatives do not meet the requirements for treatment as accounting hedges. They are carried at fair value with changes in fair value recorded in other income.
In addition, we are a member of various securities and derivative exchanges and clearinghouses, both in the U.S. and other countries. As a member, we may be required to pay a pro-rata share of the losses incurred by some of these organizations as a result of another member default and under other loss scenarios. For more information, see Note 12 – Commitments and Contingencies to the Consolidated Financial Statements.
Commercial Credit Portfolio
During 2017, credit2020, commercial asset quality amongweakened as a result of the economic impact from COVID-19. However, there were also positive signs during this period. The draws by large corporate borrowers was strong, other than
and commercial clients contributing to the $67.2 billion loan growth in the higher risk energy sub-sectors, wherefirst quarter of 2020 have largely been repaid, as emergency or contingent funding was no longer needed or clients were able to access capital markets. Additionally, as part of the CARES Act, we saw improvementhad $22.7 billion of PPP loans outstanding with our small business clients at December 31, 2020, which are included in 2017. U.S. small business commercial in the tables in this section. For more information on PPP loans, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
Credit quality of commercial real estate borrowers continuedhas begun to stabilize in many sectors as certain economies have reopened. Certain sectors, including hospitality and retail, continue to be strong with conservative LTV ratios, stable market rentsnegatively impacted as a result of COVID-19. Moreover, many real estate markets, while improving, are still experiencing some disruptions in most sectorsdemand, supply chain challenges and vacancy rates remaining low.tenant difficulties.
The commercial allowance for loan and lease losses increased $3.9 billion during 2020 to $8.7 billion due to the deterioration in the economic outlook resulting from the impact of COVID-19. For more information, see Allowance for Credit Losses on page 76.
Total commercial utilized credit exposure increased $25.9decreased $15.0 billion during 20172020 to $600.8$620.3 billion at December 31, 2017 primarily driven by increases inlower loans and leases. The utilization rate for loans and leases, SBLCs and financial guarantees, and
commercial letters of credit, in the aggregate, was 5957 percent at December 31, 2020 and 58 percent at December 31, 2017 and 2016.2019.
Table 3330 presents commercial credit exposure by type for utilized, unfunded and total binding committed credit exposure. Commercial utilized credit exposure includes SBLCs and financial guarantees and commercial letters of credit that have been issued and for which we are legally bound to advance funds under prescribed conditions during a specified time period, and excludes exposure related to trading account assets. Although funds have not yet been advanced, these exposure types are considered utilized for credit risk management purposes.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Table 30 | Commercial Credit Exposure by Type |
| | | | | | | | | | | | |
| | | Commercial Utilized (1) | | Commercial Unfunded (2, 3, 4) | | Total Commercial Committed |
| | December 31 |
| (Dollars in millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| Loans and leases | $ | 499,065 | | | $ | 517,657 | | | $ | 404,740 | | | $ | 405,834 | | | $ | 903,805 | | | $ | 923,491 | |
Derivative assets (5) | 47,179 | | | 40,485 | | | — | | | — | | | 47,179 | | | 40,485 | |
| Standby letters of credit and financial guarantees | 34,616 | | | 36,062 | | | 538 | | | 468 | | | 35,154 | | | 36,530 | |
| Debt securities and other investments | 22,618 | | | 25,546 | | | 4,827 | | | 5,101 | | | 27,445 | | | 30,647 | |
| Loans held-for-sale | 8,378 | | | 7,047 | | | 9,556 | | | 15,135 | | | 17,934 | | | 22,182 | |
| Operating leases | 6,424 | | | 6,660 | | | — | | | — | | | 6,424 | | | 6,660 | |
| Commercial letters of credit | 855 | | | 1,049 | | | 280 | | | 451 | | | 1,135 | | | 1,500 | |
| Other | 1,168 | | | 800 | | | — | | | — | | | 1,168 | | | 800 | |
| Total | $ | 620,303 | | | $ | 635,306 | | | $ | 419,941 | | | $ | 426,989 | | | $ | 1,040,244 | | | $ | 1,062,295 | |
(1)Commercial utilized exposure includes loans of $5.9 billion and $7.7 billion and issued letters of credit with a notional amount of $89 million and $170 million accounted for under the fair value option at December 31, 2020 and 2019.
(2)Commercial unfunded exposure includes commitments accounted for under the fair value option with a notional amount of $3.9 billion and $4.2 billion at December 31, 2020 and 2019.
(3)Excludes unused business card lines, which are not legally binding.
(4)Includes the notional amount of unfunded legally binding lending commitments net of amounts distributed (i.e., syndicated or participated) to other financial institutions. The distributed amounts were $10.5 billion and $10.6 billion at December 31, 2020 and 2019.
(5)Derivative assets are carried at fair value, reflect the effects of legally enforceable master netting agreements and have been reduced by cash collateral of $42.5 billion and $33.9 billion at December 31, 2020 and 2019. Not reflected in utilized and committed exposure is additional non-cash derivative collateral held of $39.3 billion and $35.2 billion at December 31, 2020 and 2019, which consists primarily of other marketable securities.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Table 33 | Commercial Credit Exposure by Type |
| | | | | | | | | | | | | |
| | | Commercial Utilized (1) | | Commercial Unfunded (2, 3, 4) | | Total Commercial Committed |
| | | December 31 |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Loans and leases (5) | $ | 487,748 |
| | $ | 464,260 |
| | $ | 364,743 |
| | $ | 356,911 |
| | $ | 852,491 |
| | $ | 821,171 |
|
Derivative assets (6) | 37,762 |
| | 42,512 |
| | — |
| | — |
| | 37,762 |
| | 42,512 |
|
| Standby letters of credit and financial guarantees | 34,517 |
| | 33,135 |
| | 863 |
| | 660 |
| | 35,380 |
| | 33,795 |
|
| Debt securities and other investments | 28,161 |
| | 26,244 |
| | 4,864 |
| | 5,474 |
| | 33,025 |
| | 31,718 |
|
| Loans held-for-sale | 10,257 |
| | 6,510 |
| | 9,742 |
| | 13,019 |
| | 19,999 |
| | 19,529 |
|
| Commercial letters of credit | 1,467 |
| | 1,464 |
| | 155 |
| | 112 |
| | 1,622 |
| | 1,576 |
|
| Other | 888 |
| | 767 |
| | — |
| | 13 |
| | 888 |
| | 780 |
|
| Total | | $ | 600,800 |
| | $ | 574,892 |
| | $ | 380,367 |
| | $ | 376,189 |
| | $ | 981,167 |
| | $ | 951,081 |
|
| | | | | | | | |
(1)69 Bank of America
| Commercial utilized exposure includes loans of $4.8 billion and $6.0 billion and issued letters of credit with a notional amount of $232 million and $284 million accounted for under the fair value option at December 31, 2017 and 2016.
|
Commercial unfunded exposure includes commitments accounted for under the fair value option with a notional amount of $4.6 billion and $6.7 billion at December 31, 2017 and 2016.
| | |
(3)
| Excludes unused business card lines, which are not legally binding. |
| |
(4)
| Includes the notional amount of unfunded legally binding lending commitments net of amounts distributed (e.g., syndicated or participated) to other financial institutions. The distributed amounts were $11.0 billion and $12.1 billion at December 31, 2017 and 2016.
|
| |
(5)
| Includes credit risk exposure associated with assets under operating lease arrangements of $6.3 billion and $5.7 billion at December 31, 2017 and 2016.
|
| |
(6)
| Derivative assets are carried at fair value, reflect the effects of legally enforceable master netting agreements and have been reduced by cash collateral of $34.6 billion and $43.3 billion at December 31, 2017 and 2016. Not reflected in utilized and committed exposure is additional non-cash derivative collateral held of $26.2 billion and $25.3 billion at December 31, 2017 and 2016, which consists primarily of other marketable securities.
|
Outstanding commercial loans and leases increased $22.9decreased $18.6 billion during 20172020 primarily driven by repayments due in part to $481.5reduced working capital needs and a favorable capital markets environment, partially offset by $22.7 billion of PPP loans outstanding at December 31, 2017 primarily due to growth in commercial and industrial loans. During 2017, nonperforming2020. Nonperforming commercial loans increased $728 million across industries, and leases decreased $440 million to $1.3 billion and commercial
reservable criticized balances decreased $2.8utilized exposure increased $27.2 billion to $13.6 billion both driven by
improvements in the energy sector. The allowance for loanspread across several industries, including travel and lease losses for the commercial portfolio decreased $248 million during 2017 to $5.0 billion at Decemberentertainment, as a result of weaker economic conditions arising from COVID-19. Table 31 2017. For more information, see Allowance for Credit Losses on page 72. Table 34 presents our commercial loans and leases portfolio and related credit quality information at December 31, 20172020 and 2016.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Table 31 | Commercial Credit Quality |
| | |
| | Outstandings | | Nonperforming | | Accruing Past Due 90 Days or More (3) |
| | December 31 |
| (Dollars in millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| Commercial and industrial: | | | | | | | | | | | |
| U.S. commercial | $ | 288,728 | | | $ | 307,048 | | | $ | 1,243 | | | $ | 1,094 | | | $ | 228 | | | $ | 106 | |
| Non-U.S. commercial | 90,460 | | | 104,966 | | | 418 | | | 43 | | | 10 | | | 8 | |
| Total commercial and industrial | 379,188 | | | 412,014 | | | 1,661 | | | 1,137 | | | 238 | | | 114 | |
| Commercial real estate | 60,364 | | | 62,689 | | | 404 | | | 280 | | | 6 | | | 19 | |
| Commercial lease financing | 17,098 | | | 19,880 | | | 87 | | | 32 | | | 25 | | | 20 | |
| 456,650 | | | 494,583 | | | 2,152 | | | 1,449 | | | 269 | | | 153 | |
U.S. small business commercial (1) | 36,469 | | | 15,333 | | | 75 | | | 50 | | | 115 | | | 97 | |
| Commercial loans excluding loans accounted for under the fair value option | 493,119 | | | 509,916 | | | 2,227 | | | 1,499 | | | 384 | | | 250 | |
Loans accounted for under the fair value option (2) | 5,946 | | | 7,741 | | | | | | | | | |
| Total commercial loans and leases | $ | 499,065 | | | $ | 517,657 | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Table 34 | Commercial Credit Quality |
| | | |
| | | Outstandings | | Nonperforming | | Accruing Past Due 90 Days or More |
| | | December 31 |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Commercial and industrial: | | | | | | | | | | | |
| U.S. commercial | $ | 284,836 |
| | $ | 270,372 |
| | $ | 814 |
| | $ | 1,256 |
| | $ | 144 |
| | $ | 106 |
|
| Non-U.S. commercial | 97,792 |
| | 89,397 |
| | 299 |
| | 279 |
| | 3 |
| | 5 |
|
| Total commercial and industrial | 382,628 |
| | 359,769 |
| | 1,113 |
| | 1,535 |
| | 147 |
| | 111 |
|
Commercial real estate (1) | 58,298 |
| | 57,355 |
| | 112 |
| | 72 |
| | 4 |
| | 7 |
|
| Commercial lease financing | 22,116 |
| | 22,375 |
| | 24 |
| | 36 |
| | 19 |
| | 19 |
|
| | 463,042 |
| | 439,499 |
| | 1,249 |
| | 1,643 |
| | 170 |
| | 137 |
|
U.S. small business commercial (2) | 13,649 |
| | 12,993 |
| | 55 |
| | 60 |
| | 75 |
| | 71 |
|
| Commercial loans excluding loans accounted for under the fair value option | 476,691 |
| | 452,492 |
| | 1,304 |
| | 1,703 |
| | 245 |
| | 208 |
|
Loans accounted for under the fair value option (3) | 4,782 |
| | 6,034 |
| | 43 |
| | 84 |
| | — |
| | — |
|
| Total commercial loans and leases | $ | 481,473 |
| | $ | 458,526 |
| | $ | 1,347 |
| | $ | 1,787 |
| | $ | 245 |
| | $ | 208 |
|
| |
(1)
| Includes U.S. commercial real estate of $54.8 billion and $54.3 billion and non-U.S. commercial real estate of $3.5 billion and $3.1 billion at December 31, 2017 and 2016.
|
| |
(2)
| Includes card-related products. |
| |
(3)
| Commercial loans accounted for under the fair value option include U.S. commercial of $2.6 billion and $2.9 billion and non-U.S. commercial of $2.2 billion and $3.1 billion at December 31, 2017 and 2016. For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements.
|
(1)Includes card-related products.
(2)Commercial loans accounted for under the fair value option include U.S. commercial of $2.9 billion and $4.7 billion and non-U.S. commercial of $3.0 billion and $3.1 billion at December 31, 2020 and 2019. For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements.
(3)For information on our interest accrual policies and delinquency status for loan modifications related to the pandemic, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
Table 3532 presents net charge-offs and related ratios for our commercial loans and leases for 20172020 and 2016. The increase in2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Table 32 | Commercial Net Charge-offs and Related Ratios |
| | | | | | | | | | | | | | |
| | | | | | Net Charge-offs | | | | | | Net Charge-off Ratios (1) |
| | | | | | | | |
| | | | | | | | |
| (Dollars in millions) | | | | | 2020 | | 2019 | | | | | | 2020 | | 2019 |
| Commercial and industrial: | | | | | | | | | | | | | | | |
| U.S. commercial | | | | | $ | 718 | | | $ | 256 | | | | | | | 0.23 | % | | 0.08 | % |
| Non-U.S. commercial | | | | | 155 | | | 84 | | | | | | | 0.15 | | | 0.08 | |
| Total commercial and industrial | | | | | 873 | | | 340 | | | | | | | 0.21 | | | 0.08 | |
| Commercial real estate | | | | | 270 | | | 29 | | | | | | | 0.43 | | | 0.05 | |
| Commercial lease financing | | | | | 59 | | | 21 | | | | | | | 0.32 | | | 0.10 | |
| | | | | | 1,202 | | | 390 | | | | | | | 0.24 | | | 0.08 | |
| U.S. small business commercial | | | | | 267 | | | 272 | | | | | | | 0.86 | | | 1.83 | |
| Total commercial | | | | | $ | 1,469 | | | $ | 662 | | | | | | | 0.28 | | | 0.13 | |
(1)Net charge-off ratios are calculated as net charge-offs of $399 milliondivided by average outstanding loans and leases excluding loans accounted for 2017 was primarily driven by a single-name non-U.S. commercial charge-off of $292 million inunder the fourth quarter of 2017.fair value option.
|
| | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 35 | Commercial Net Charge-offs and Related Ratios |
| | | | | | | |
| | | Net Charge-offs | | Net Charge-off Ratios (1) |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Commercial and industrial: | | | | | | | |
| U.S. commercial | $ | 232 |
| | $ | 184 |
| | 0.08 | % | | 0.07 | % |
| Non-U.S. commercial | 440 |
| | 120 |
| | 0.48 |
| | 0.13 |
|
| Total commercial and industrial | 672 |
| | 304 |
| | 0.18 |
| | 0.09 |
|
| Commercial real estate | 9 |
| | (31 | ) | | 0.02 |
| | (0.05 | ) |
| Commercial lease financing | 5 |
| | 21 |
| | 0.02 |
| | 0.10 |
|
| | | 686 |
| | 294 |
| | 0.15 |
| | 0.07 |
|
| U.S. small business commercial | 215 |
| | 208 |
| | 1.60 |
| | 1.60 |
|
| Total commercial | $ | 901 |
| | $ | 502 |
| | 0.20 |
| | 0.11 |
|
| |
(1)
| Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans and leases excluding loans accounted for under the fair value option. |
Table 3633 presents commercial utilized reservable criticized utilized exposure by loan type. Criticized exposure corresponds to the Special Mention, Substandard and Doubtful asset categories as defined by regulatory authorities. Total commercial utilized reservable criticized utilized exposure decreased $2.8increased $27.2 billion or 17 percent, during 2017 primarily driven by paydowns2020, which was spread across several industries, including travel and upgrades in the energy portfolio. Approximately 84entertainment, as a result of weaker economic conditions arising from COVID-19. At December 31, 2020 and 2019, 79 percent and 7690 percent of commercial utilized reservable criticized utilized exposure was securedsecured.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table 33 | Commercial Reservable Criticized Utilized Exposure (1, 2) |
| | | | | | | | |
| | |
| | | | | | | | |
| | December 31 |
| (Dollars in millions) | 2020 | | 2019 |
| Commercial and industrial: |
| U.S. commercial | $ | 21,388 | | | 6.83 | % | | $ | 8,272 | | | 2.46 | % |
| Non-U.S. commercial | 5,051 | | | 5.03 | | | 989 | | | 0.89 | |
| Total commercial and industrial | 26,439 | | | 6.40 | | | 9,261 | | | 2.07 | |
| Commercial real estate | 10,213 | | | 16.42 | | | 1,129 | | | 1.75 | |
| Commercial lease financing | 714 | | | 4.18 | | | 329 | | | 1.66 | |
| | 37,366 | | | 7.59 | | | 10,719 | | | 2.01 | |
| U.S. small business commercial | 1,300 | | | 3.56 | | | 733 | | | 4.78 | |
Total commercial reservable criticized utilized exposure (1) | $ | 38,666 | | | 7.31 | | | $ | 11,452 | | | 2.09 | |
(1)Total commercial reservable criticized utilized exposure includes loans and leases of $36.6 billion and $10.7 billion and commercial letters of credit of $2.1 billion and $715 million at December 31, 20172020 and 2016.2019.
(2)Percentages are calculated as commercial reservable criticized utilized exposure divided by total commercial reservable utilized exposure for each exposure category.
|
| | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 36 | Commercial Utilized Reservable Criticized Exposure |
| | | | | | | | | |
| | | Amount (1) | | Percent (2) | | Amount (1) | | Percent (2) |
| | | December 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Commercial and industrial: |
| U.S. commercial | $ | 9,891 |
| | 3.15 | % | | $ | 10,311 |
| | 3.46 | % |
| Non-U.S. commercial | 1,766 |
| | 1.70 |
| | 3,974 |
| | 4.17 |
|
| Total commercial and industrial | 11,657 |
| | 2.79 |
| | 14,285 |
| | 3.63 |
|
| Commercial real estate | 566 |
| | 0.95 |
| | 399 |
| | 0.68 |
|
| Commercial lease financing | 581 |
| | 2.63 |
| | 810 |
| | 3.62 |
|
| | | 12,804 |
| | 2.57 |
| | 15,494 |
| | 3.27 |
|
| U.S. small business commercial | 759 |
| | 5.56 |
| | 826 |
| | 6.36 |
|
| Total commercial utilized reservable criticized exposure | $ | 13,563 |
| | 2.65 |
| | $ | 16,320 |
| | 3.35 |
|
| | | | | | | | |
(1)
| | Total commercial utilized reservable criticized exposure includes loans and leasesBank of $12.5 billion and $14.9 billion and commercial letters of credit of $1.1 billion and $1.4 billion at December 31, 2017 and 2016.America 70
|
| |
(2)
| Percentages are calculated as commercial utilized reservable criticized exposure divided by total commercial utilized reservable exposure for each exposure category. |
Commercial and Industrial
Commercial and industrial loans include U.S. commercial and non-U.S. commercial portfolios.
U.S. Commercial
At December 31, 2017, 702020, 65 percent of the U.S. commercial loan portfolio, excluding small business, was managed in Global Banking,17 18 percent in Global Markets, 1115 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 $14.5decreased $18.3 billion or five percent, during 2017 to $284.8 billion at December 31, 2017 due to growth across most of the commercial businesses.2020 driven by Global Banking. Reservable criticized balances decreased $420 million, or four percent,utilized exposure increased $13.1 billion, which was spread across several industries, including travel and nonperforming loans
and leases decreased $442 million, or 35 percent, in 2017 driven by improvements in the energy sector. Net charge-offs increased $48 million for 2017 compared to 2016.entertainment, as a result of weaker economic conditions arising from COVID-19.
Non-U.S. Commercial
At December 31, 2017,2020, 79 percent of the non-U.S. commercial loan portfolio was managed in Global Banking and 21 percent in Global Markets. OutstandingNon-U.S. commercial loans excluding loans accounted for under the fair value option, increased $8.4decreased $14.5 billion during 2020, primarily in 2017. Reservable criticized balances decreased $2.2 billion, or 56 percent, due primarily to paydowns and upgrades in the energy portfolio. Net charge-offs increased $320 million in 2017 to $440 million due to a single-name non-U.S. commercial charge-off of $292 million in the fourth quarter of 2017.Global Banking. For more information on the non-U.S. commercial portfolio, see Non-U.S. Portfolio on page 70.74.
Commercial Real Estate
Commercial real estate primarily includes commercial loans and leases secured by non-owner-occupied real estate and is dependent on the sale or lease of the real estate as the primary source of repayment. Outstanding loans declined by $2.3 billion during
2020 as paydowns exceeded new originations. Reservable criticized utilized exposure increased $9.1 billion to $10.2 billion from $1.1 billion, or 16.42 and 1.75 percent of the commercial real estate portfolio at December 31, 2020 and 2019, due to downgrades driven by the impact of COVID-19 across industries, primarily hotels. Although we have observed property-level improvements in a number of the most impacted sectors, the length of time for recovery has been slower than originally anticipated, which has prompted additional downgrades. The portfolio remains diversified across property types and geographic regions. California represented the largest state concentration at 23 percent and 24 percent of the commercial real estate loans and leases portfolio at both December 31, 20172020 and 2016.2019. The commercial real estate portfolio is predominantly managed in Global Banking and consists of loans made primarily to public and private developers, and commercial real estate firms. Outstanding loans increased $943 million, or two percent, during 2017 to $58.3 billion at December 31, 2017 due to new originations outpacing paydowns.
During 2017,2020, we continued to see low default rates and solid credit qualityvarying degrees of improvement in both the residential and non-residential portfolios.
portfolio. We use a number of proactive risk mitigation initiatives to reduce adversely rated exposure in the commercial real estate portfolio, including transfers of deteriorating exposures to management by independent special asset officers and the pursuit of loan restructurings or asset sales to achieve the best results for our customers and the Corporation.
Nonperforming commercial real estate loans and foreclosed properties increased $78 million, or 91 percent, during 2017 to $164 million at December 31, 2017 and reservable criticized balances increased $167 million, or 42 percent, to $566 million primarily due to loan downgrades. Net charge-offs were $9 million for 2017 compared to net recoveries of $31 million in 2016.
Table 3734 presents outstanding commercial real estate loans by geographic region, based on the geographic location of the collateral, and by property type.
| | | | | | | | | | | | | | |
| | | | |
| Table 34 | Outstanding Commercial Real Estate Loans |
| | | | |
| | December 31 |
| (Dollars in millions) | 2020 | | 2019 |
| By Geographic Region | | | |
| California | $ | 14,028 | | | $ | 14,910 | |
| Northeast | 11,628 | | | 12,408 | |
| Southwest | 8,551 | | | 8,408 | |
| Southeast | 6,588 | | | 5,937 | |
| Florida | 4,294 | | | 3,984 | |
| Midwest | 3,483 | | | 3,203 | |
| Illinois | 2,594 | | | 3,349 | |
| Midsouth | 2,370 | | | 2,468 | |
| Northwest | 1,634 | | | 1,638 | |
| Non-U.S. | 3,187 | | | 3,724 | |
Other (1) | 2,007 | | | 2,660 | |
| Total outstanding commercial real estate loans | $ | 60,364 | | | $ | 62,689 | |
| By Property Type | | | |
| Non-residential | | | |
| Office | $ | 17,667 | | | $ | 17,902 | |
| Industrial / Warehouse | 8,330 | | | 8,677 | |
| Shopping centers / Retail | 7,931 | | | 8,183 | |
| Hotels / Motels | 7,226 | | | 6,982 | |
| Multi-family rental | 7,051 | | | 7,250 | |
| Unsecured | 2,336 | | | 3,438 | |
| Multi-use | 1,460 | | | 1,788 | |
| | | |
| Other | 7,146 | | | 6,958 | |
| Total non-residential | 59,147 | | | 61,178 | |
| Residential | 1,217 | | | 1,511 | |
| Total outstanding commercial real estate loans | $ | 60,364 | | | $ | 62,689 | |
|
| | | | | | | | |
| | | | | |
| Table 37 | Outstanding Commercial Real Estate Loans |
| | | | | |
| | | December 31 |
| (Dollars in millions) | 2017 | | 2016 |
| By Geographic Region | |
| | |
|
| California | $ | 13,607 |
| | $ | 13,450 |
|
| Northeast | 10,072 |
| | 10,329 |
|
| Southwest | 6,970 |
| | 7,567 |
|
| Southeast | 5,487 |
| | 5,630 |
|
| Midwest | 3,769 |
| | 4,380 |
|
| Illinois | 3,263 |
| | 2,408 |
|
| Florida | 3,170 |
| | 3,213 |
|
| Midsouth | 2,962 |
| | 2,346 |
|
| Northwest | 2,657 |
| | 2,430 |
|
| Non-U.S. | 3,538 |
| | 3,103 |
|
Other (1) | 2,803 |
| | 2,499 |
|
| Total outstanding commercial real estate loans | $ | 58,298 |
| | $ | 57,355 |
|
| By Property Type | |
| | |
|
| Non-residential | | | |
| Office | $ | 16,718 |
| | $ | 16,643 |
|
| Shopping centers / Retail | 8,825 |
| | 8,794 |
|
| Multi-family rental | 8,280 |
| | 8,817 |
|
| Hotels / Motels | 6,344 |
| | 5,550 |
|
| Industrial / Warehouse | 6,070 |
| | 5,357 |
|
| Multi-use | 2,771 |
| | 2,822 |
|
| Unsecured | 2,187 |
| | 1,730 |
|
| Land and land development | 160 |
| | 357 |
|
| Other | 5,485 |
| | 5,595 |
|
| Total non-residential | 56,840 |
| | 55,665 |
|
| Residential | 1,458 |
| | 1,690 |
|
| Total outstanding commercial real estate loans | $ | 58,298 |
| | $ | 57,355 |
|
| |
| Includes unsecured loans to real estate investment trusts and national home builders whose portfolios of properties span multiple geographic regions and properties in the states of Colorado, Utah, Hawaii, Wyoming and Montana. |
U.S. Small Business Commercial
The U.S. small business commercial loan portfolio is comprised of small business card loans and small business loans primarily managed in Consumer Banking,. Credit and includes $22.7 billion of PPP loans outstanding at December 31, 2020. Excluding PPP, credit card-related products were 50 percent and 4852 percent of the U.S. small business commercial portfolio at December 31, 2017
2020 and 2016. Net charge-offs of $215 million during 2017 were relatively flat compared to $208 million during 2016.2019. Of the U.S. small business commercial net charge-offs, 9091 percent and 8694 percent were credit card-related products in 20172020 and 2016.2019.
Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity
Table 3835 presents the nonperforming commercial loans, leases and foreclosed properties activity during 20172020 and 2016. 2019.
Nonperforming loans do not include loans accounted for under the fair value option. During 2017,2020, nonperforming commercial loans and leases decreased $399increased $728 million to $1.3 billion. Approximately
77$2.2 billion, primarily driven by the impact of COVID-19. At December 31, 2020, 84 percent of commercial nonperforming loans, leases and foreclosed properties were secured and approximately 5966 percent were
contractually current. Commercial nonperforming loans were carried at approximately 8781 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 propertycollateral value less costs to sell.
| | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table 35 | Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity (1, 2) |
| | | | | | |
| | | | |
| (Dollars in millions) | | | | | 2020 | | 2019 |
| Nonperforming loans and leases, January 1 | | | | | $ | 1,499 | | | $ | 1,102 | |
| Additions | | | | | 3,518 | | | 2,048 | |
| | | | | | | |
| | | | | | | |
| Reductions: | | | | | | | |
| Paydowns | | | | | (1,002) | | | (648) | |
| Sales | | | | | (350) | | | (215) | |
Returns to performing status (3) | | | | | (172) | | | (120) | |
| Charge-offs | | | | | (1,208) | | | (478) | |
| Transfers to foreclosed properties | | | | | (2) | | | (9) | |
| Transfers to loans held-for-sale | | | | | (56) | | | (181) | |
| Total net additions to nonperforming loans and leases | | | | | 728 | | | 397 | |
| Total nonperforming loans and leases, December 31 | | | | | 2,227 | | | 1,499 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Foreclosed properties, December 31 | | | | | 41 | | | 56 | |
| Nonperforming commercial loans, leases and foreclosed properties, December 31 | | | | | 2,268 | | | 1,555 | |
Nonperforming commercial loans and leases as a percentage of outstanding commercial loans and leases (4) | | | | | 0.45 | % | | 0.29 | % |
Nonperforming commercial loans, leases and foreclosed properties as a percentage of outstanding commercial loans, leases and foreclosed properties (4) | | | | | 0.46 | | | 0.30 | |
|
| | | | | | | | |
| | | | | |
| Table 38 | Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity (1, 2) |
| | | |
| (Dollars in millions) | 2017 | | 2016 |
| Nonperforming loans and leases, January 1 | $ | 1,703 |
| | $ | 1,212 |
|
| Additions | 1,616 |
| | 2,347 |
|
| Reductions: | | | |
|
| Paydowns | (930 | ) | | (824 | ) |
| Sales | (136 | ) | | (318 | ) |
Returns to performing status (3) | (280 | ) | | (267 | ) |
| Charge-offs | (455 | ) | | (434 | ) |
| Transfers to foreclosed properties | (40 | ) | | (4 | ) |
| Transfers to loans held-for-sale | (174 | ) | | (9 | ) |
| Total net additions/(reductions) to nonperforming loans and leases | (399 | ) | | 491 |
|
| Total nonperforming loans and leases, December 31 | 1,304 |
| | 1,703 |
|
| Total foreclosed properties, December 31 | 52 |
| | 14 |
|
| Nonperforming commercial loans, leases and foreclosed properties, December 31 | $ | 1,356 |
| | $ | 1,717 |
|
Nonperforming commercial loans and leases as a percentage of outstanding commercial loans and leases (4) | 0.27 | % | | 0.38 | % |
Nonperforming commercial loans, leases and foreclosed properties as a percentage of outstanding commercial loans, leases and foreclosed properties (4) | 0.28 |
| | 0.38 |
|
| |
(1)
| Balances do not include nonperforming LHFS of $339 million and $195 million at December 31, 2017 and 2016.
|
| |
(2)
| Includes U.S. small business commercial activity. Small business card loans are excluded as they are not classified as nonperforming. |
| |
(3)
| Commercial loans and leases may be returned to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection. TDRs are generally classified as performing after a sustained period of demonstrated payment performance. |
| |
(4)
| Outstanding commercial loans exclude loans accounted for under the fair value option. |
(2)Includes U.S. small business commercial activity. Small business card loans are excluded as they are not classified as nonperforming.
(3)Commercial loans and leases may be returned to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection. TDRs are generally classified as performing after a sustained period of demonstrated payment performance.
(4)Outstanding commercial loans exclude loans accounted for under the fair value option.
Table 3936 presents our commercial TDRs by product type and performing status. U.S. small business commercial TDRs are comprised of renegotiated small business card loans and small business loans. The renegotiated small business card loans are not classified as nonperforming as they are charged off no later than the end of the month in which the loan becomes 180 days past due. For more information on TDRs, see Note 45 –
Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements. For more information on our loan modification programs offered in response to the pandemic, most of which are not TDRs, see Executive Summary – Recent Developments – COVID-19 Pandemic on page 25 and Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
| | | | | | | | | | | | | | | | |
| Table 39 | Commercial Troubled Debt Restructurings | |
| Table 36 | | Table 36 | Commercial Troubled Debt Restructurings |
| | | | | |
| | | December 31, 2017 | | December 31, 2016 | | December 31, 2020 | | December 31, 2019 |
| (Dollars in millions) | (Dollars in millions) | Nonperforming | | Performing | | Total | | Nonperforming | | Performing | | Total | (Dollars in millions) | Nonperforming | | Performing | | Total | | Nonperforming | | Performing | | Total |
| Commercial and industrial: | Commercial and industrial: | Commercial and industrial: |
| U.S. commercial | U.S. commercial | $ | 370 |
| | $ | 866 |
| | $ | 1,236 |
| | $ | 720 |
| | $ | 1,140 |
| | $ | 1,860 |
| U.S. commercial | $ | 509 | | | $ | 850 | | | $ | 1,359 | | | $ | 617 | | | $ | 999 | | | $ | 1,616 | |
| Non-U.S. commercial | Non-U.S. commercial | 11 |
| | 219 |
| | 230 |
| | 25 |
| | 283 |
| | 308 |
| Non-U.S. commercial | 49 | | | 119 | | | 168 | | | 41 | | | 193 | | | 234 | |
| Total commercial and industrial | Total commercial and industrial | 381 |
| | 1,085 |
| | 1,466 |
| | 745 |
| | 1,423 |
| | 2,168 |
| Total commercial and industrial | 558 | | | 969 | | | 1,527 | | | 658 | | | 1,192 | | | 1,850 | |
| Commercial real estate | Commercial real estate | 38 |
| | 9 |
| | 47 |
| | 45 |
| | 95 |
| | 140 |
| Commercial real estate | 137 | | | — | | | 137 | | | 212 | | | 14 | | | 226 | |
| Commercial lease financing | Commercial lease financing | 5 |
| | 13 |
| | 18 |
| | 2 |
| | 2 |
| | 4 |
| Commercial lease financing | 42 | | | 2 | | | 44 | | | 18 | | | 31 | | | 49 | |
| | | 424 |
| | 1,107 |
| | 1,531 |
| | 792 |
| | 1,520 |
| | 2,312 |
| | 737 | | | 971 | | | 1,708 | | | 888 | | | 1,237 | | | 2,125 | |
| U.S. small business commercial | U.S. small business commercial | 4 |
| | 15 |
| | 19 |
| | 2 |
| | 13 |
| | 15 |
| U.S. small business commercial | — | | | 29 | | | 29 | | | — | | | 27 | | | 27 | |
| Total commercial troubled debt restructurings | Total commercial troubled debt restructurings | $ | 428 |
| | $ | 1,122 |
| | $ | 1,550 |
| | $ | 794 |
| | $ | 1,533 |
| | $ | 2,327 |
| Total commercial troubled debt restructurings | $ | 737 | | | $ | 1,000 | | | $ | 1,737 | | | $ | 888 | | | $ | 1,264 | | | $ | 2,152 | |
Industry Concentrations
Table 4037 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 $30.1decreased $22.1 billion, or threetwo percent, in 2017during 2020 to $981.2 billion at December 31, 2017.$1.0 trillion. The increasedecrease in commercial committed exposure was concentrated in the Media, Food & Staples Retailing, Capital Goods, Food, BeverageGlobal commercial banks, Asset managers and Tobaccofunds, Utilities, and the Asset Managers and FundsReal estate industry sectors. IncreasesDecreases were partially offset by reducedincreased exposure to the Healthcare EquipmentFinance companies and
Services, Telecommunications Services Automobiles and the Technology Hardware and Equipmentcomponents industry sectors.
Industry limits are used internally to manage industry concentrations and are based on committed exposure that is allocated
determined 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 Managersmanagers and Funds,funds, our largest industry concentration with committed exposure of $91.1$101.5 billion, increased $5.5decreased $8.5 billion, or sixeight percent, in 2017. The increase primarily reflected an increase in exposure to several counterparties.during 2020.
Real estate, our second largest industry concentration with committed exposure of $83.8$92.4 billion, increased $115 million,decreased $4.0 billion, or less than onefour percent, in 2017.during 2020. For more information on the commercial real estate and related portfolios, see Commercial Portfolio Credit Risk Management – Commercial Real Estate on page 66.71.
Capital Goods,goods, our third largest industry concentration with committed exposure of $70.4$81.0 billion, increased $6.2 billion,remained flat during 2020.
Given the widespread impact of the pandemic on the U.S. and global economy, a number of industries have been and will likely continue to be adversely impacted. We continue to monitor all industries, particularly higher risk industries which are experiencing or nearly 10 percent, in 2017.could experience a more significant impact to their financial condition. The increase in committed exposureimpact of the pandemic has also placed significant stress on global demand for oil. Our energy-
occurred primarily as a result of increases in large conglomerates and machinery manufacturers.
Our energy-relatedrelated committed exposure decreased $2.5$3.3 billion, or sixnine percent, during 2020 to $33.0 billion, driven by declines in 2017exploration and production, refining and marketing exposure, energy equipment and services, partially offset by an increase in our integrated client exposure. For more information on COVID-19, see Executive Summary – Recent Developments – COVID-19 Pandemic on page 25.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table 37 | Commercial Credit Exposure by Industry (1) |
| | | | | | | | |
| | Commercial
Utilized | | Total Commercial Committed (2) |
| | December 31 |
| (Dollars in millions) | 2020 | | 2019 | | 2020 | | 2019 |
| Asset managers and funds | $ | 68,093 | | | $ | 71,386 | | | $ | 101,540 | | | $ | 110,069 | |
Real estate (3) | 69,267 | | | 70,361 | | | 92,414 | | | 96,370 | |
| Capital goods | 39,911 | | | 41,082 | | | 80,959 | | | 80,892 | |
| Finance companies | 46,948 | | | 40,173 | | | 70,004 | | | 63,942 | |
| Healthcare equipment and services | 33,759 | | | 34,353 | | | 57,880 | | | 55,918 | |
| Government and public education | 41,669 | | | 41,889 | | | 56,212 | | | 53,566 | |
| Materials | 24,548 | | | 26,663 | | | 50,792 | | | 52,129 | |
| Retailing | 24,749 | | | 25,868 | | | 49,710 | | | 48,317 | |
| Consumer services | 32,000 | | | 28,434 | | | 48,026 | | | 49,071 | |
| Food, beverage and tobacco | 22,871 | | | 24,163 | | | 44,628 | | | 45,956 | |
| Commercial services and supplies | 21,154 | | | 23,103 | | | 38,149 | | | 38,944 | |
| Transportation | 23,426 | | | 23,449 | | | 33,444 | | | 33,028 | |
| Energy | 13,936 | | | 16,406 | | | 32,983 | | | 36,326 | |
| Utilities | 12,387 | | | 12,383 | | | 29,234 | | | 36,060 | |
| Individuals and trusts | 18,784 | | | 18,927 | | | 25,881 | | | 27,817 | |
| Technology hardware and equipment | 10,515 | | | 10,646 | | | 24,796 | | | 24,072 | |
| Media | 13,144 | | | 12,445 | | | 24,677 | | | 23,645 | |
| Software and services | 11,709 | | | 10,432 | | | 23,647 | | | 20,556 | |
| Global commercial banks | 20,751 | | | 30,171 | | | 22,922 | | | 32,345 | |
| Automobiles and components | 10,956 | | | 7,345 | | | 20,765 | | | 14,910 | |
| Consumer durables and apparel | 9,232 | | | 10,193 | | | 20,223 | | | 21,245 | |
| Vehicle dealers | 15,028 | | | 18,013 | | | 18,696 | | | 21,435 | |
| Pharmaceuticals and biotechnology | 5,217 | | | 5,964 | | | 16,349 | | | 20,206 | |
| Telecommunication services | 9,411 | | | 9,154 | | | 15,605 | | | 16,113 | |
| Insurance | 5,921 | | | 6,673 | | | 13,491 | | | 15,218 | |
| Food and staples retailing | 5,209 | | | 6,290 | | | 11,810 | | | 10,392 | |
| Financial markets infrastructure (clearinghouses) | 4,939 | | | 5,496 | | | 8,648 | | | 7,997 | |
| Religious and social organizations | 4,769 | | | 3,844 | | | 6,759 | | | 5,756 | |
| | | | | | | |
| Total commercial credit exposure by industry | $ | 620,303 | | | $ | 635,306 | | | $ | 1,040,244 | | | $ | 1,062,295 | |
Net credit default protection purchased on total commitments (4) | | | | | $ | (4,170) | | | $ | (3,349) | |
(1)Includes U.S. small business commercial exposure.
(2)Includes the notional amount of unfunded legally binding lending commitments net of amounts distributed (i.e., syndicated or participated) to $36.8other financial institutions. The distributed amounts were $10.5 billion and $10.6 billion at December 31, 2017. Energy sector2020 and 2019.
(3)Industries are viewed from a variety of perspectives to best isolate the perceived risks. For purposes of this table, the real estate industry is defined based on the primary business activity of the borrowers or counterparties using operating cash flows and primary source of repayment as key factors.
(4)Represents net charge-offs were $156 million in 2017 comparednotional credit protection purchased to $241 million in 2016. Energy sector reservable criticized exposure decreased $3.9 billion in 2017 to $1.6 billion at December 31, 2017, due to paydownshedge funded and upgrades inunfunded exposures for which we elected the energy portfolio. The energy allowance forfair value option, as well as certain other credit losses decreased $365 million to $560 million at December 31, 2017.exposures. For more information, see Commercial Portfolio Credit Risk Management – Risk Mitigation.
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 40 | Commercial Credit Exposure by Industry (1) |
| | | | | | | | | |
| | | Commercial Utilized | | Total Commercial Committed (2) |
| | | December 31 |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Asset managers and funds | $ | 59,190 |
| | $ | 57,659 |
| | $ | 91,092 |
| | $ | 85,561 |
|
Real estate (3) | 61,940 |
| | 61,203 |
| | 83,773 |
| | 83,658 |
|
| Capital goods | 36,705 |
| | 34,278 |
| | 70,417 |
| | 64,202 |
|
| Government and public education | 48,684 |
| | 45,694 |
| | 58,067 |
| | 54,626 |
|
| Healthcare equipment and services | 37,780 |
| | 37,656 |
| | 57,256 |
| | 64,663 |
|
| Finance companies | 34,050 |
| | 35,452 |
| | 53,107 |
| | 52,953 |
|
| Retailing | 26,117 |
| | 25,577 |
| | 48,796 |
| | 49,082 |
|
| Materials | 24,001 |
| | 22,578 |
| | 47,386 |
| | 44,357 |
|
| Consumer services | 27,191 |
| | 27,413 |
| | 43,605 |
| | 42,523 |
|
| Food, beverage and tobacco | 23,252 |
| | 19,669 |
| | 42,815 |
| | 37,145 |
|
| Energy | 16,345 |
| | 19,686 |
| | 36,765 |
| | 39,231 |
|
| Commercial services and supplies | 22,100 |
| | 21,241 |
| | 35,496 |
| | 35,360 |
|
| Media | 19,155 |
| | 13,419 |
| | 33,955 |
| | 27,116 |
|
| Global commercial banks | 29,491 |
| | 27,267 |
| | 31,764 |
| | 30,712 |
|
| Transportation | 21,704 |
| | 19,805 |
| | 29,946 |
| | 27,483 |
|
| Utilities | 11,342 |
| | 11,349 |
| | 27,935 |
| | 27,140 |
|
| Individuals and trusts | 18,549 |
| | 16,364 |
| | 25,097 |
| | 21,764 |
|
| Technology hardware and equipment | 10,728 |
| | 9,625 |
| | 22,071 |
| | 25,318 |
|
| Vehicle dealers | 16,896 |
| | 16,053 |
| | 20,361 |
| | 19,425 |
|
| Pharmaceuticals and biotechnology | 5,653 |
| | 5,539 |
| | 18,623 |
| | 18,910 |
|
| Software and services | 8,562 |
| | 7,991 |
| | 18,202 |
| | 19,790 |
|
| Consumer durables and apparel | 8,859 |
| | 8,112 |
| | 17,296 |
| | 15,794 |
|
| Food and staples retailing | 4,955 |
| | 4,795 |
| | 15,589 |
| | 8,869 |
|
| Automobiles and components | 5,988 |
| | 5,459 |
| | 13,318 |
| | 12,969 |
|
| Telecommunication services | 6,389 |
| | 6,317 |
| | 13,108 |
| | 16,925 |
|
| Insurance | 6,411 |
| | 7,406 |
| | 12,990 |
| | 13,936 |
|
| Religious and social organizations | 4,454 |
| | 4,423 |
| | 6,318 |
| | 6,252 |
|
| Financial markets infrastructure (clearinghouses) | 688 |
| | 656 |
| | 2,403 |
| | 3,107 |
|
| Other | 3,621 |
| | 2,206 |
| | 3,616 |
| | 2,210 |
|
| Total commercial credit exposure by industry | $ | 600,800 |
| | $ | 574,892 |
| | $ | 981,167 |
| | $ | 951,081 |
|
Net credit default protection purchased on total commitments (4) | |
| | |
| | $ | (2,129 | ) | | $ | (3,477 | ) |
| |
(1)
| Includes U.S. small business commercial exposure. |
| |
(2)
| Includes the notional amount of unfunded legally binding lending commitments net of amounts distributed (e.g., syndicated or participated) to other financial institutions. The distributed amounts were $11.0 billion and $12.1 billion at December 31, 2017 and 2016.
|
| |
(3)
| Industries are viewed from a variety of perspectives to best isolate the perceived risks. For purposes of this table, the real estate industry is defined based on the borrowers’ or counterparties’ primary business activity using operating cash flows and primary source of repayment as key factors. |
| |
(4)
| Represents net notional credit protection purchased. For more information, see Commercial Portfolio Credit Risk Management – Risk Mitigation. |
Risk Mitigation
We purchase credit protection to cover the funded portion as well as the unfunded portion of certain credit exposures. To lower the cost of obtaining our desired credit protection levels, we may add credit exposure within an industry, borrower or counterparty group by selling protection.
At December 31, 20172020 and 2016,2019, 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$4.2 billion and $3.5$3.3 billion. We recorded net losses of $66$240 million in 20172020 compared to net losses of $438$145 million in 2016 on2019 for these same 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 49.44. For more information, see Trading Risk Management on page 77.79.
Tables 4138 and 4239 present the maturity profiles and the credit exposure debt ratings of the net credit default protection portfolio at December 31, 20172020 and 2016.2019.
| | | | | | | | | | | | | | |
| | | | |
| Table 38 | Net Credit Default Protection by Maturity |
| | | | |
| | |
| | December 31 |
| | 2020 | | 2019 |
| | | |
| Less than or equal to one year | 65 | % | | 54 | % |
| Greater than one year and less than or equal to five years | 34 | | | 45 | |
| Greater than five years | 1 | | | 1 | |
| Total net credit default protection | 100 | % | | 100 | % |
|
| | | | | | |
| | | | | |
| Table 41 | Net Credit Default Protection by Maturity |
| | | | | |
| | | December 31 |
| | | 2017 | | 2016 |
| Less than or equal to one year | 42 | % | | 56 | % |
| Greater than one year and less than or equal to five years | 58 |
| | 41 |
|
| Greater than five years | — |
| | 3 |
|
| Total net credit default protection | 100 | % | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table 39 | Net Credit Default Protection by Credit Exposure Debt Rating |
| | | | | | | | |
| | Net
Notional (1) | | Percent of
Total | | Net
Notional (1) | | Percent of
Total |
| | | December 31 |
| | | | | | | | |
| (Dollars in millions) | 2020 | | 2019 |
Ratings (2, 3) | | | | | | | |
| | | | | | | |
| | | | | | | |
| A | $ | (250) | | | 6.0 | % | | $ | (697) | | | 20.8 | % |
| BBB | (1,856) | | | 44.5 | | | (1,089) | | | 32.5 | |
| BB | (1,363) | | | 32.7 | | | (766) | | | 22.9 | |
| B | (465) | | | 11.2 | | | (373) | | | 11.1 | |
| CCC and below | (182) | | | 4.4 | | | (119) | | | 3.6 | |
NR (4) | (54) | | | 1.2 | | | (305) | | | 9.1 | |
Total net credit default protection | $ | (4,170) | | | 100.0 | % | | $ | (3,349) | | | 100.0 | % |
(1)Represents net credit default protection purchased. |
| | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 42 | Net Credit Default Protection by Credit Exposure Debt Rating |
| | | | | | | | | |
| | | Net
Notional (1) | | Percent of
Total | | Net
Notional (1) | | Percent of
Total |
| | | December 31 |
| (Dollars in millions) | 2017 | | 2016 |
Ratings (2, 3) | |
| | |
| | |
| | |
|
| A | $ | (280 | ) | | 13.2 | % | | $ | (135 | ) | | 3.9 | % |
| BBB | (459 | ) | | 21.6 |
| | (1,884 | ) | | 54.2 |
|
| BB | (893 | ) | | 41.9 |
| | (871 | ) | | 25.1 |
|
| B | (403 | ) | | 18.9 |
| | (477 | ) | | 13.7 |
|
| CCC and below | (84 | ) | | 3.9 |
| | (81 | ) | | 2.3 |
|
NR (4) | (10 | ) | | 0.5 |
| | (29 | ) | | 0.8 |
|
| Total net credit default protection | $ | (2,129 | ) | | 100.0 | % | | $ | (3,477 | ) | | 100.0 | % |
| |
(1)
| Represents net credit default protection purchased. |
| |
(2)
| Ratings are refreshed on a quarterly basis. |
| |
(3)
| Ratings of BBB- or higher are considered to meet the definition of investment grade. |
| |
(4)
| NR is comprised of index positions held and any names that have not been rated. |
(2)Ratings are refreshed on a quarterly basis.(3)Ratings of BBB- or higher are considered to meet the definition of investment grade.
(4)NR is comprised of index positions held and any names that have not been rated.
In addition to our net notional credit default protection purchased to cover the funded and unfunded portion of certain credit exposures, credit derivatives are used for market-making activities for clients and establishing positions intended to profit from directional or relative value changes. We execute the majority of our credit derivative trades in the OTC market with large, multinational financial institutions, including broker-dealers and, to a lesser degree, with a variety of other investors. Because these transactions are executed in the OTC market, we are subject to settlement risk. We are also subject to credit risk in the event that these counterparties fail to perform under the terms of these contracts. In order to properly reflect counterparty credit risk, we record counterparty credit risk valuation adjustments on certain derivative assets, including our
purchased credit default protection. In most cases, credit derivative transactions are executed on a daily margin basis. Therefore, events such as a credit downgrade, depending on the ultimate rating level, or a breach of credit covenants would typically require an increase in the amount of collateral required by the counterparty, where applicable, and/or allow us to take additional protective measures such as early termination of all trades.
Table 43 presents the total contract/notional amount of credit derivatives outstanding and includes both purchased and written credit derivatives. The credit risk amounts are measured as net asset exposure by counterparty, taking into consideration all contracts with the counterparty. For more information on our written credit derivatives see Note 2 – Derivatives to the Consolidated Financial Statements.
The credit risk amounts discussed above and presented in Table 43 take into consideration the effects of legally enforceable master netting agreements while amounts disclosed in Note 2 – Derivatives to the Consolidated Financial Statements are shown on a gross basis. Credit risk reflects the potential benefit from offsetting exposure to non-credit derivative products with the same counterparties that may be netted upon the occurrence of certain events, thereby reducing our overall exposure.
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 43 | Credit Derivatives |
| | | | | | | | | |
| | | Contract/
Notional | | Credit Risk | | Contract/
Notional | | Credit Risk |
| | | December 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Purchased credit derivatives: | |
| | |
| | |
| | |
|
| Credit default swaps | $ | 470,907 |
| | $ | 2,434 |
| | $ | 603,979 |
| | $ | 2,732 |
|
| Total return swaps/options | 54,135 |
| | 277 |
| | 21,165 |
| | 433 |
|
| Total purchased credit derivatives | $ | 525,042 |
| | $ | 2,711 |
| | $ | 625,144 |
| | $ | 3,165 |
|
| Written credit derivatives: | |
| | |
| | |
| | |
|
| Credit default swaps | $ | 448,201 |
| | n/a |
| | $ | 614,355 |
| | n/a |
|
| Total return swaps/options | 55,223 |
| | n/a |
| | 25,354 |
| | n/a |
|
| Total written credit derivatives | $ | 503,424 |
| | n/a |
| | $ | 639,709 |
| | n/a |
|
n/a = not applicable
Counterparty Credit Risk Valuation Adjustments
We record counterparty credit risk valuation adjustments, on certain derivative assets, including our credit default protection purchased, in order to properly reflect the credit risk of the counterparty, as presented in Table 44. We calculate CVA based on a modeled expected exposure that incorporates current market risk factors including changes in market spreads and non-credit related market factors that affect the value of a derivative. The exposure also takes into consideration credit mitigants such as legally enforceable master netting agreements and collateral. For more information, see Note 23 – Derivatives to the Consolidated Financial Statements.
We enter into risk management activities to offset market driven exposures. We often hedge the counterparty spread risk in CVA with credit default swaps (CDS). We hedge other market risks in CVA primarily with currency and interest rate swaps. In certain instances, the net-of-hedge amounts in the following table move in the same direction as the gross amount or may move in the opposite direction. This movement is a consequence of the complex interaction of the risks being hedged, resulting in limitations in the ability to perfectly hedge all of the market exposures at all times.
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 44 | Credit Valuation Gains and Losses |
| | | | | |
| (Dollars in millions) | 2017 | | 2016 |
| Gains (Losses) | Gross | Hedge | Net | | Gross | Hedge | Net |
| Credit valuation | $ | 330 |
| $ | (232 | ) | $ | 98 |
| | $ | 374 |
| $ | (160 | ) | $ | 214 |
|
Non-U.S. Portfolio
Our non-U.S. credit and trading portfolios are subject to country risk. We define country risk as the risk of loss from unfavorable economic and political conditions, currency fluctuations, social instability and changes in government policies. A risk management framework is in place to measure, monitor and manage non-U.S. risk and exposures. In addition to the direct risk of doing business in a country, we also are exposed to indirect country risks (e.g.,
related to the collateral received on secured financing transactions or related to client clearing activities). These indirect exposures are managed in the normal course of business through credit, market and operational risk governance, rather than through country risk governance.
Table 4540 presents our 20 largest non-U.S. country exposures as ofat December 31, 2017.2020. These exposures accounted for 8690 percent and 88 percent of our total non-U.S. exposure at December 31, 20172020 and 2016.2019. Net country exposure for these 20 countries decreased $6.3increased $21.2 billion in 2017primarily driven by reductions in the U.K., Japan, Switzerland and Brazil, partially offset by increases in China and Belgium. On a product basis, funded commitments decreased in the U.K., Japan and Brazil, partially offset by increases in China, Belgium and France.2020. The decrease in the U.K. reflects the salemajority of the non-U.S. consumer credit card businessincrease was due to higher deposits with central banks in 2017. Unfunded commitments increased in the U.K., Germany and Belgium, which was partly offset by a decrease in Switzerland. Securities held decreased, driven by reduced holdings in France, the U.K. and Germany, while counterparty exposure decreased in Japan, Germany and the U.K.Japan.
Non-U.S. exposure is presented on an internal risk management basis and includes sovereign and non-sovereign credit exposure, securities and other investments issued by or domiciled in countries other than the U.S.
Funded loans and loan equivalents include loans, leases, and other extensions of credit and funds, including letters of credit and due from placements. Unfunded commitments are the undrawn portion of legally binding commitments related to loans and loan equivalents. Net counterparty exposure includes the fair value of derivatives, including the counterparty risk associated with CDS,credit default swaps (CDS), and secured financing transactions. Securities and other investments are carried at fair value and long securities exposures are netted against short exposures with the same underlying issuer to, but not below, zero. Net country exposure represents country exposure less hedges and credit default protection purchased, net of credit default protection sold.
| | | | | | | | | | | | | | | | | | | | |
| Table 45 | Top 20 Non-U.S. Countries Exposure | |
| Table 40 | | Table 40 | Top 20 Non-U.S. Countries Exposure |
| | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | (Dollars in millions) | Funded Loans and Loan Equivalents | | Unfunded Loan Commitments | | Net Counterparty Exposure | | Securities/
Other Investments | | Country Exposure at December 31
2017 | | Hedges and Credit Default Protection | | Net Country Exposure at December 31
2017 | | Increase (Decrease) from December 31
2016 | (Dollars in millions) | Funded Loans and Loan Equivalents | | Unfunded Loan Commitments | | Net Counterparty Exposure | | Securities/
Other
Investments | | Country Exposure at December 31
2020 | | Hedges and Credit Default Protection | | Net Country Exposure at December 31
2020 | | Increase (Decrease) from December 31
2019 |
| United Kingdom | United Kingdom | $ | 20,089 |
| | $ | 14,906 |
| | $ | 5,278 |
| | $ | 1,962 |
| | $ | 42,235 |
| | $ | (4,640 | ) | | $ | 37,595 |
| | $ | (10,138 | ) | United Kingdom | $ | 31,817 | | | $ | 18,201 | | | $ | 6,601 | | | $ | 4,086 | | | $ | 60,705 | | | $ | (1,233) | | | $ | 59,472 | | | $ | 3,628 | |
| Germany | Germany | 12,572 |
| | 9,856 |
| | 1,061 |
| | 1,102 |
| | 24,591 |
| | (3,088 | ) | | 21,503 |
| | (875 | ) | Germany | 29,169 | | | 10,772 | | | 2,155 | | | 4,492 | | | 46,588 | | | (1,685) | | | 44,903 | | | 14,075 | |
| Canada | Canada | 7,037 |
| | 7,645 |
| | 2,016 |
| | 2,579 |
| | 19,277 |
| | (554 | ) | | 18,723 |
| | (51 | ) | Canada | 8,657 | | | 8,681 | | | 1,624 | | | 2,628 | | | 21,590 | | | (456) | | | 21,134 | | | 1,012 | |
| France | | France | 8,219 | | | 8,353 | | | 988 | | | 4,329 | | | 21,889 | | | (1,098) | | | 20,791 | | | 4,536 | |
| Japan | | Japan | 12,679 | | | 1,086 | | | 1,115 | | | 3,325 | | | 18,205 | | | (709) | | | 17,496 | | | 6,964 | |
| China | China | 13,634 |
| | 728 |
| | 746 |
| | 1,058 |
| | 16,166 |
| | (241 | ) | | 15,925 |
| | 5,040 |
| China | 10,098 | | | 67 | | | 1,529 | | | 1,952 | | | 13,646 | | | (226) | | | 13,420 | | | (2,167) | |
| Australia | | Australia | 6,559 | | | 4,242 | | | 372 | | | 2,235 | | | 13,408 | | | (321) | | | 13,087 | | | 1,985 | |
| Brazil | Brazil | 7,688 |
| | 501 |
| | 342 |
| | 2,726 |
| | 11,257 |
| | (541 | ) | | 10,716 |
| | (2,950 | ) | Brazil | 5,854 | | | 696 | | | 708 | | | 3,288 | | | 10,546 | | | (253) | | | 10,293 | | | (1,479) | |
| Australia | 5,596 |
| | 2,840 |
| | 575 |
| | 2,022 |
| | 11,033 |
| | (444 | ) | | 10,589 |
| | 1,666 |
| |
| France | 4,976 |
| | 5,591 |
| | 2,191 |
| | 2,811 |
| | 15,569 |
| | (5,026 | ) | | 10,543 |
| | (151 | ) | |
| Netherlands | | Netherlands | 4,654 | | | 4,109 | | | 486 | | | 997 | | | 10,246 | | | (562) | | | 9,684 | | | (643) | |
| Singapore | | Singapore | 4,115 | | | 278 | | | 359 | | | 4,603 | | | 9,355 | | | (73) | | | 9,282 | | | 1,456 | |
| South Korea | | South Korea | 5,161 | | | 856 | | | 488 | | | 2,214 | | | 8,719 | | | (168) | | | 8,551 | | | (154) | |
| India | India | 7,229 |
| | 316 |
| | 375 |
| | 3,328 |
| | 11,248 |
| | (751 | ) | | 10,497 |
| | 1,269 |
| India | 5,428 | | | 221 | | | 353 | | | 1,989 | | | 7,991 | | | (180) | | | 7,811 | | | (4,206) | |
| Japan | 7,399 |
| | 631 |
| | 923 |
| | 1,669 |
| | 10,622 |
| | (1,532 | ) | | 9,090 |
| | (5,921 | ) | |
| Switzerland | | Switzerland | 3,811 | | | 2,817 | | | 412 | | | 130 | | | 7,170 | | | (275) | | | 6,895 | | | (490) | |
| Hong Kong | Hong Kong | 6,925 |
| | 187 |
| | 585 |
| | 1,056 |
| | 8,753 |
| | (75 | ) | | 8,678 |
| | 1,199 |
| Hong Kong | 4,434 | | | 452 | | | 584 | | | 1,128 | | | 6,598 | | | (61) | | | 6,537 | | | (519) | |
| Netherlands | 5,357 |
| | 3,212 |
| | 650 |
| | 930 |
| | 10,149 |
| | (1,682 | ) | | 8,467 |
| | 1,069 |
| |
| South Korea | 4,934 |
| | 544 |
| | 635 |
| | 2,208 |
| | 8,321 |
| | (420 | ) | | 7,901 |
| | 1,795 |
| |
| Singapore | 3,571 |
| | 312 |
| | 504 |
| | 1,953 |
| | 6,340 |
| | (77 | ) | | 6,263 |
| | 845 |
| |
| Switzerland | 3,792 |
| | 2,810 |
| | 274 |
| | 184 |
| | 7,060 |
| | (1,263 | ) | | 5,797 |
| | (3,849 | ) | |
| Mexico | Mexico | 2,883 |
| | 2,446 |
| | 226 |
| | 385 |
| | 5,940 |
| | (453 | ) | | 5,487 |
| | 1,003 |
| Mexico | 3,712 | | | 1,379 | | | 205 | | | 1,112 | | | 6,408 | | | (121) | | | 6,287 | | | (1,524) | |
| Italy | Italy | 2,791 |
| | 1,490 |
| | 512 |
| | 600 |
| | 5,393 |
| | (1,147 | ) | | 4,246 |
| | 159 |
| Italy | 2,456 | | | 1,784 | | | 553 | | | 1,568 | | | 6,361 | | | (669) | | | 5,692 | | | 315 | |
| Belgium | Belgium | 2,440 |
| | 1,184 |
| | 82 |
| | 511 |
| | 4,217 |
| | (252 | ) | | 3,965 |
| | 2,039 |
| Belgium | 2,471 | | | 1,334 | | | 505 | | | 797 | | | 5,107 | | | (140) | | | 4,967 | | | (1,540) | |
| Spain | | Spain | 2,835 | | | 1,156 | | | 262 | | | 914 | | | 5,167 | | | (351) | | | 4,816 | | | 94 | |
| Ireland | | Ireland | 2,785 | | | 1,050 | | | 100 | | | 253 | | | 4,188 | | | (23) | | | 4,165 | | | 798 | |
| United Arab Emirates | United Arab Emirates | 2,843 |
| | 351 |
| | 247 |
| | 43 |
| | 3,484 |
| | (97 | ) | | 3,387 |
| | 644 |
| United Arab Emirates | 2,218 | | | 136 | | | 266 | | | 77 | | | 2,697 | | | (10) | | | 2,687 | | | (900) | |
| Spain | 2,041 |
| | 820 |
| | 260 |
| | 1,232 |
| | 4,353 |
| | (1,245 | ) | | 3,108 |
| | 562 |
| |
| Turkey | 2,761 |
| | 83 |
| | 66 |
| | 82 |
| | 2,992 |
| | (3 | ) | | 2,989 |
| | 299 |
| |
| Total top 20 non-U.S. countries exposure | Total top 20 non-U.S. countries exposure | $ | 126,558 |
| | $ | 56,453 |
| | $ | 17,548 |
| | $ | 28,441 |
| | $ | 229,000 |
| | $ | (23,531 | ) | | $ | 205,469 |
| | $ | (6,346 | ) | Total top 20 non-U.S. countries exposure | $ | 157,132 | | | $ | 67,670 | | | $ | 19,665 | | | $ | 42,117 | | | $ | 286,584 | | | $ | (8,614) | | | $ | 277,970 | | | $ | 21,241 | |
A number of economic conditions and geopolitical events have given rise to risk aversion in certain emerging markets. Our two largest emerging market country exposures at December 31, 2017 were China and Brazil. At December 31, 2017, net exposure to China was $15.9 billion, concentrated in large state-owned companies, subsidiaries of multinational corporations and commercial banks. At December 31, 2017, net exposure to Brazil was $10.7 billion, concentrated in sovereign securities, oil and gas companies and commercial banks.
The outlook for policy direction and therefore economic performance in the EU remains uncertain as a consequence of reduced political cohesion among EU countries. Additionally, we believe that the uncertainty in the U.K.’s ability to negotiate a favorable exit from the EU will further weigh on economic performance. Our largest EUnon-U.S. country exposure at December 31, 20172020 was the U.K. with net exposure of $37.6$59.5 billion, concentratedwhich represents a $3.6 billion increase from December 31, 2019. Our second largest non-U.S. country exposure was Germany with net exposure of $44.9 billion at December 31, 2020, a $14.1 billion increase from December 31, 2019. The increase in Germany was primarily driven by an increase in deposits with the central bank.
In light of the global pandemic, we are monitoring our non-U.S. exposure closely, particularly in countries where restrictions on certain activities, in an attempt to contain the spread and impact of the virus, have affected and will likely continue to adversely affect economic activity. We are managing the impact to our international business operations as part of our overall response framework and are taking actions to manage exposure carefully in impacted regions while supporting the needs of our clients. The magnitude and duration of the pandemic and its full impact on the global economy continue to be highly uncertain.
in multinational corporations and sovereign clients.The impact of COVID-19 could have an adverse impact on the global economy for a prolonged period of time. For more information on how the pandemic may affect our operations, see Executive Summary – 2017 Economic and Business EnvironmentRecent Developments – COVID-19 Pandemic on page 19.25 and Part I. Item 1A. Risk Factors on page 7.
Table 4641 presents countries wherethat had total cross-border exposure, exceededincluding the notional amount of cash loaned under secured financing agreements, exceeding one percent of our total assets.assets at December 31, 2020. Local exposure, defined as exposure booked in local offices of a respective country with clients in the same country, is excluded. At December 31, 2017,2020, the U.K. and France were the only countries where their respective total cross-border exposureexposures exceeded one percent of our total assets. At December 31, 2017, Germany had total cross-border exposure of $21.6 billion representing 0.95 percent of our total assets. No other countries had total cross-border exposure that exceeded 0.75 percent of our total assets at December 31, 2017.
Cross-border exposure includes the components of Country Risk Exposure as detailed in Table 45 as well as the notional amount of cash loaned under secured financing agreements. Local exposure, defined as exposure booked in local offices of a respective country with clients in the same country, is excluded.2020.
| | | | | | | | | | | | | | |
| Table 46 | Total Cross-border Exposure Exceeding One Percent of Total Assets | |
| Table 41 | | Table 41 | Total Cross-border Exposure Exceeding One Percent of Total Assets |
| | | | | | | | | | | | |
| (Dollars in millions) | (Dollars in millions) | December 31 | | Public Sector | | Banks | | Private Sector | | Cross-border
Exposure | | Exposure as a
Percent of
Total Assets | (Dollars in millions) | December 31 | | Public Sector | | Banks | | Private Sector | | Cross-border
Exposure | | Exposure as a
Percent of
Total Assets |
| United Kingdom | United Kingdom | 2017 | | $ | 923 |
| | $ | 2,984 |
| | $ | 47,205 |
| | $ | 51,112 |
| | 2.24 | % | United Kingdom | 2020 | | $ | 4,733 | | | $ | 2,269 | | | $ | 95,180 | | | $ | 102,182 | | | 3.62 | % |
| | | 2016 | | 2,975 |
| | 4,557 |
| | 42,105 |
| | 49,637 |
| | 2.27 |
| | 2019 | | 1,859 | | | 3,580 | | | 93,232 | | | 98,671 | | | 4.05 | |
| | | 2015 | | 3,264 |
| | 5,104 |
| | 38,576 |
| | 46,944 |
| | 2.19 |
| | 2018 | | 1,505 | | | 3,458 | | | 46,191 | | | 51,154 | | | 2.17 | |
| France | France | 2017 | | 2,964 |
| | 1,521 |
| | 27,903 |
| | 32,388 |
| | 1.42 |
| France | 2020 | | 3,073 | | | 1,726 | | | 26,399 | | | 31,198 | | | 1.11 | |
| | | 2016 | | 4,956 |
| | 1,205 |
| | 23,193 |
| | 29,354 |
| | 1.34 |
| | 2019 | | 736 | | | 2,473 | | | 23,172 | | | 26,381 | | | 1.08 | |
| | | 2015 | | 3,343 |
| | 1,766 |
| | 17,099 |
| | 22,208 |
| | 1.04 |
| | 2018 | | 633 | | | 2,385 | | | 29,847 | | | 32,865 | | | 1.40 | |
Provision for Credit Losses
The provision for credit losses decreased $201 million to $3.4 billion in 2017 compared to 2016. The provision for credit losses was $583 million lower than net charge-offs for 2017, resulting in a reduction in the allowance for credit losses. This compared to a reduction of $224 million in the allowance in 2016.
The provision for credit losses for the consumer portfolio increased $159 million to $2.7 billion in 2017 compared to 2016. The increase was primarily driven by a provision increase of $672 million in the U.S. credit card portfolio due to portfolio seasoning and loan growth, largely offset by the consumer real estate portfolio due to continued portfolio improvement and increased home prices. Included in the provision is an expense of $76 million related to the PCI loan portfolio for 2017 compared to a benefit of $45 million in 2016.
The provision for credit losses for the commercial portfolio, including unfunded lending commitments, decreased $360 million to $669 million in 2017 compared to 2016 driven by reductions in energy exposures, partially offset by a single-name non-U.S. commercial charge-off.
Allowance for Credit Losses
Allowance for Loan and Lease Losses
TheOn January 1, 2020, the Corporation adopted the new accounting standard that requires the measurement of the allowance for loan and leasecredit losses isto be based on management’s best estimate of lifetime ECL inherent in the Corporation’s relevant financial assets. Upon adoption of the new accounting standard, the Corporation recorded a net increase of $3.3 billion in the allowance for credit losses which was 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 representeda net increase of $2.9 billion in the loss forecast models. We evaluate the adequacy of the allowance for loan and lease losses based onand an increase of $310 million in the total of these two components, each of which is described in more detail below. reserve for unfunded lending commitments. The net increase was primarily driven by a $3.1 billion increase related to the credit card portfolio.
The allowance for loancredit losses further increased by $7.2 billion from January 1, 2020 to $20.7 billion at December 31, 2020, which included a $5.0 billion reserve increase related to the commercial portfolio and lease losses excludes LHFS and loans accounted for undera $2.2 billion reserve increase related to the fair value option asconsumer portfolio. The increases were driven by deterioration in the fair value reflects a credit risk component.economic outlook resulting from the impact of COVID-19.
The first componentfollowing table presents an allocation of the allowance for loan and leasecredit losses covers both nonperforming commercial loans and all TDRs within the consumer and commercial portfolios. These loans are subject to impairment measurement based on the present value of projected future cash flows discounted at the loan’s original effective interest rate, or in certain circumstances, impairment may also be based upon the collateral value or the loan’s observable market price if available. Impairment measurement for the renegotiated consumer credit card, small business credit card and unsecured consumer TDR portfolios is based on the present value of projected cash flows discounted using the average portfolio contractual interest rate, excluding promotionally priced loans, in effect prior to restructuring. For purposes of computing this specific loss component of the allowance, larger impaired loans are evaluated individually and smaller impaired loans are evaluated as a pool using historical experience for the respective product types and risk ratings of the loans.
The second component of the allowance for loan and lease losses covers the remaining consumer and commercial loans and leases that have incurred losses that are not yet individually identifiable. The allowance for consumer and certain homogeneous commercial loan and lease products is based on aggregated portfolio evaluations, generally by product type. Loss forecast models are utilized that consider a variety of factors
including, but not limited to, historical loss experience, estimated defaults or foreclosures based on portfolio trends, delinquencies, economic trends and credit scores. Our consumer real estate loss forecast model estimates the portion of loans that will default based on individual loan attributes, the most significant of which are refreshed LTV or CLTV, and borrower credit score as well as vintage and geography, all of which are further broken down into current delinquency status. Additionally, we incorporate the delinquency status of underlying first-lien loans on our junior-lien home equity portfolio in our allowance process. Incorporating refreshed LTV and CLTV into our probability of default allows us to factor the impact of changes in home prices into our allowance for loan and lease losses. These loss forecast models are updated on a quarterly basis to incorporate information reflecting the current economic environment. As of December 31, 2017, the loss forecast process resulted in reductions in the allowance related to the residential mortgage and home equity portfolios compared to December 31, 2016.
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 for December 31, 2020, January 1, 2020and 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 compositionDecember 31, 2019 (prior to the adoption of the commercial portfolios used to calculate the allowance are updated quarterly to incorporate the most recent data reflecting the current economic environment. For risk-rated commercial loans, we estimate the probability of default and the loss given default (LGD) based on our historical experience of defaults and credit losses. Factors considered when assessing the internal risk rating include the value of the underlying collateral, if applicable, the industry in which the obligor operates, the obligor’s liquidity and other financial indicators, and other quantitative and qualitative factors relevant to the obligor’s credit risk. As of December 31, 2017, the allowance decreased for the U.S. commercial and non-U.S. commercial portfolios compared to December 31, 2016.
Also included within the second component of the allowance for loan and lease losses are reserves to cover losses that are incurred but, in our assessment, may not be adequately represented in the historical loss data used in the loss forecast models. For example, factors that we consider include, among others, changes in lending policies and procedures, changes in economic and business conditions, changes in the nature and size of the portfolio, changes in portfolio concentrations, changes in the volume and severity of past due loans and nonaccrual loans, the effect of external factors such as competition, and legal and regulatory requirements. We also consider factors that are applicable to unique portfolio segments. For example, we consider the risk of uncertainty in our loss forecasting models related to junior-lien home equity loans that are current, but have first-lien loans that we do not service that are 30 days or more past due. In addition, we consider the increased risk of default associated with our interest-only loans that have yet to enter the amortization period. Further, we consider the inherent uncertainty in mathematical models that are built upon historical data.CECL accounting standard).
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| Table 42 | 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) | | Amount | | Percent of
Total | | Percent of
Loans and
Leases Outstanding (1) |
| (Dollars in millions) | December 31, 2020 | | January 1, 2020 | | December 31, 2019 |
| Allowance for loan and lease losses | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 459 | | | 2.44 | % | | 0.21 | % | | $ | 212 | | | 1.72 | % | | 0.09 | % | | $ | 325 | | | 3.45 | % | | 0.14 | % |
| Home equity | 399 | | | 2.12 | | | 1.16 | | | 228 | | | 1.84 | | | 0.57 | | | 221 | | | 2.35 | | | 0.55 | |
| Credit card | 8,420 | | | 44.79 | | | 10.70 | | | 6,809 | | | 55.10 | | | 6.98 | | | 3,710 | | | 39.39 | | | 3.80 | |
| | | | | | | | | | | | | | | | | |
| Direct/Indirect consumer | 752 | | | 4.00 | | | 0.82 | | | 566 | | | 4.58 | | | 0.62 | | | 234 | | | 2.49 | | | 0.26 | |
| Other consumer | 41 | | | 0.22 | | | n/m | | 55 | | | 0.45 | | | n/m | | 52 | | | 0.55 | | | n/m |
| Total consumer | 10,071 | | | 53.57 | | | 2.35 | | | 7,870 | | | 63.69 | | | 1.69 | | | 4,542 | | | 48.23 | | | 0.98 | |
U.S. commercial (2) | 5,043 | | | 26.82 | | | 1.55 | | | 2,723 | | | 22.03 | | | 0.84 | | | 3,015 | | | 32.02 | | | 0.94 | |
| Non-U.S. commercial | 1,241 | | | 6.60 | | | 1.37 | | | 668 | | | 5.41 | | | 0.64 | | | 658 | | | 6.99 | | | 0.63 | |
| Commercial real estate | 2,285 | | | 12.15 | | | 3.79 | | | 1,036 | | | 8.38 | | | 1.65 | | | 1,042 | | | 11.07 | | | 1.66 | |
| Commercial lease financing | 162 | | | 0.86 | | | 0.95 | | | 61 | | | 0.49 | | | 0.31 | | | 159 | | | 1.69 | | | 0.80 | |
| Total commercial | 8,731 | | | 46.43 | | | 1.77 | | | 4,488 | | | 36.31 | | | 0.88 | | | 4,874 | | | 51.77 | | | 0.96 | |
| Allowance for loan and lease losses | 18,802 | | | 100.00 | % | | 2.04 | | | 12,358 | | | 100.00 | % | | 1.27 | | | 9,416 | | | 100.00 | % | | 0.97 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Reserve for unfunded lending commitments | 1,878 | | | | | | | 1,123 | | | | | | | 813 | | | | | |
| Allowance for credit losses | $ | 20,680 | | | | | | | $ | 13,481 | | | | | | | $ | 10,229 | | | | | |
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During 2017, the factors that impacted the allowance for loan and lease losses included improvements in the credit quality of the consumer real estate portfolios driven by continuing improvements in the U.S. economy and labor markets, proactive credit risk management initiatives and the impact of high credit quality originations. Evidencing the improvements in the U.S. economy and labor markets(1)Ratios are downward unemployment trends and increases in home prices. In addition to these improvements, in the consumer portfolio, nonperforming consumer loans decreased $838 million in 2017calculated as returns to performing status, charge-offs, paydowns and loan sales continued to outpace new nonaccrual loans. During 2017, the allowance for loan and lease losses in the commercial portfolio reflected decreased energy reserves primarily driven by reductions in energy exposures including utilized reservable criticized exposures.
We monitor differences between estimated and actual incurred loan and lease losses. This monitoring process includes periodic assessments by senior management of loan and lease portfolios and the models used to estimate incurred losses in those portfolios.
The allowance for loan and lease losses for the consumer portfolio, as presented in Table 48, was $5.4 billion at December 31, 2017, a decrease of $839 million from December 31, 2016. The decrease was primarily in the consumer real estate portfolio and the non-U.S. card portfolio which was sold in 2017, partially offset by an increase in the U.S. credit card portfolio. The reduction in the consumer real estate portfolio was due to improved home prices, lower nonperforming loans and a decrease in loan balances in our non-core portfolio. The increase in the U.S. credit card portfolio was driven by portfolio seasoning and loan growth.
The allowance for loan and lease losses for the commercial portfolio, as presented in Table 48, was $5.0 billion at December 31, 2017, a decrease of $248 million from December 31, 2016 driven by decreased energy reserves due to reductions in the higher risk energy sub-sectors. Commercial utilized reservable criticized exposure decreased to $13.6 billion at December 31, 2017 from $16.3 billion (to 2.65 percent from 3.35 percent of total commercial utilized reservable exposure) at December 31, 2016, largely due to paydowns and net upgrades in the energy portfolio. Nonperforming commercial loans decreased to $1.3
billion at December 31, 2017 from $1.7 billion (to 0.27 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. See Tables 34, 35 and 36 for more details on key commercial credit statistics.
The allowance for loan and lease losses as a percentage of total loans and leases outstanding was 1.12 percent at December 31, 2017 compared to 1.26 percent at December 31, 2016. The decrease in the ratio was primarily due to improved credit quality in the consumer real estate portfolio driven by improved economic conditions. The December 31, 2017 and 2016 ratios above include the PCI loan portfolio. Excluding the PCI loan portfolio, the allowance for loan and lease losses as a percentage of totalexcluding loans and leases outstanding was 1.10 percent and 1.24 percent at December 31, 2017 and 2016.
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 toConsumer loans accounted for under the same assessment as fundedfair value option include residential mortgage loans including estimates of probability of default and LGD. Due to the nature of unfunded commitments, the estimate of probable losses must also consider utilization. To estimate the portion of these undrawn commitments that is likely to be drawn by a borrower at the time of estimated default, analyses of our historical experience are applied to the unfunded commitments to estimate the funded exposure at default (EAD). The expected loss for unfunded lending commitments is the product of the probability of default, the LGD and the EAD, adjusted for any qualitative factors including economic uncertainty and inherent imprecision in models.
The reserve for unfunded lending commitments was $777$298 million at December 31, 2017 compared to $7622020 and $257 million at January 1, 2020 and December 31, 2019 and home equity loans of $437 million at December 31, 2016.
(2)Includes allowance for loan and lease losses for U.S. small business commercial loans of $1.5 billion, $831 million and $523 million at December 31, 2020, January 1, 2020 and December 31, 2019.
n/m = not meaningful
Net charge-offs for 2020 were $4.1 billion compared to $3.6 billion in 2019 driven by increases in commercial losses. The provision for credit losses increased $7.7 billion to $11.3 billion during 2020 compared to 2019. The allowance for credit losses included a reserve build of $7.2 billion for 2020, excluding the impact of the new accounting standard, primarily due to the deterioration in the economic outlook resulting from the impact of COVID-19 on both the consumer and commercial portfolios. The provision for credit losses for the consumer portfolio, including unfunded lending commitments, increased $2.0 billion to $4.9 billion during 2020 compared to 2019. The provision for credit losses for the commercial portfolio, including unfunded
Table 47lending commitments, increased $5.7 billion to $6.5 billion during 2020 compared to 2019.
The following table presents a rollforward of the allowance for credit losses, which includesincluding certain loan and allowance ratios for 2020, noting that measurement of the allowance for loancredit losses for 2019 was based on management’s estimate of probable incurred losses. For more information on the Corporation’s credit loss accounting policies and leaseactivity related to the allowance for credit losses, see Note 1 – Summary of Significant Accounting Principles and Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses to the reserve for unfunded lending commitments, for 2017 and 2016.
Consolidated Financial Statements.
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| Table 47 | Allowance for Credit Losses | | | |
| | | | | |
| (Dollars in millions) | 2017 | | 2016 |
| Allowance for loan and lease losses, January 1 | $ | 11,237 |
| | $ | 12,234 |
|
| Loans and leases charged off | | | |
| Residential mortgage | (188 | ) | | (403 | ) |
| Home equity | (582 | ) | | (752 | ) |
| U.S. credit card | (2,968 | ) | | (2,691 | ) |
Non-U.S. credit card (1) | (103 | ) | | (238 | ) |
| Direct/Indirect consumer | (487 | ) | | (392 | ) |
| Other consumer | (216 | ) | | (232 | ) |
| Total consumer charge-offs | (4,544 | ) | | (4,708 | ) |
U.S. commercial (2) | (589 | ) | | (567 | ) |
| Non-U.S. commercial | (446 | ) | | (133 | ) |
| Commercial real estate | (24 | ) | | (10 | ) |
| Commercial lease financing | (16 | ) | | (30 | ) |
| Total commercial charge-offs | (1,075 | ) | | (740 | ) |
| Total loans and leases charged off | (5,619 | ) | | (5,448 | ) |
| Recoveries of loans and leases previously charged off | | | |
| Residential mortgage | 288 |
| | 272 |
|
| Home equity | 369 |
| | 347 |
|
| U.S. credit card | 455 |
| | 422 |
|
Non-U.S. credit card (1) | 28 |
| | 63 |
|
| Direct/Indirect consumer | 276 |
| | 258 |
|
| Other consumer | 50 |
| | 27 |
|
| Total consumer recoveries | 1,466 |
| | 1,389 |
|
U.S. commercial (3) | 142 |
| | 175 |
|
| Non-U.S. commercial | 6 |
| | 13 |
|
| Commercial real estate | 15 |
| | 41 |
|
| Commercial lease financing | 11 |
| | 9 |
|
| Total commercial recoveries | 174 |
| | 238 |
|
| Total recoveries of loans and leases previously charged off | 1,640 |
| | 1,627 |
|
| Net charge-offs | (3,979 | ) | | (3,821 | ) |
| Write-offs of PCI loans | (207 | ) | | (340 | ) |
| Provision for loan and lease losses | 3,381 |
| | 3,581 |
|
Other (4) | (39 | ) | | (174 | ) |
| Total allowance for loan and lease losses, December 31 | 10,393 |
| | 11,480 |
|
Less: Allowance included in assets of business held for sale (5) | — |
| | (243 | ) |
| Allowance for loan and lease losses, December 31 | 10,393 |
| | 11,237 |
|
| Reserve for unfunded lending commitments, January 1 | 762 |
| | 646 |
|
| Provision for unfunded lending commitments | 15 |
| | 16 |
|
Other (4) | — |
| | 100 |
|
| Reserve for unfunded lending commitments, December 31 | 777 |
| | 762 |
|
| Allowance for credit losses, December 31 | $ | 11,170 |
| | $ | 11,999 |
|
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(1)
| Represents net charge-offs related to the non-U.S. credit card loan portfolio, which was included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. In 2017, the Corporation sold its non-U.S. consumer credit card business. |
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(2)
| Includes U.S. small business commercial charge-offs of $258 million and $253 million in 2017 and 2016.
|
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(3)
| Includes U.S. small business commercial recoveries of $43 million and $45 million in 2017 and 2016.
|
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(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. |
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(5)
| Represents allowance related to the non-U.S. credit card loan portfolio, which was sold in 2017. |
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| Table 43 | Allowance for Credit Losses | | | | | | | |
| | | | | | | | |
| | | | | | |
| (Dollars in millions) | 2020 | | | | | | 2019 |
| Allowance for loan and lease losses, January 1 | $ | 12,358 | | | | | | | $ | 9,601 | |
| Loans and leases charged off | | | | | | | |
| Residential mortgage | (40) | | | | | | | (93) | |
| Home equity | (58) | | | | | | | (429) | |
| Credit card | (2,967) | | | | | | | (3,535) | |
| Direct/Indirect consumer | (372) | | | | | | | (518) | |
| Other consumer | (307) | | | | | | | (249) | |
| Total consumer charge-offs | (3,744) | | | | | | | (4,824) | |
U.S. commercial (1) | (1,163) | | | | | | | (650) | |
| Non-U.S. commercial | (168) | | | | | | | (115) | |
| Commercial real estate | (275) | | | | | | | (31) | |
| Commercial lease financing | (69) | | | | | | | (26) | |
| Total commercial charge-offs | (1,675) | | | | | | | (822) | |
| Total loans and leases charged off | (5,419) | | | | | | | (5,646) | |
| Recoveries of loans and leases previously charged off | | | | | | | |
| Residential mortgage | 70 | | | | | | | 140 | |
| Home equity | 131 | | | | | | | 787 | |
| Credit card | 618 | | | | | | | 587 | |
| Direct/Indirect consumer | 250 | | | | | | | 309 | |
| Other consumer | 23 | | | | | | | 15 | |
| Total consumer recoveries | 1,092 | | | | | | | 1,838 | |
U.S. commercial (2) | 178 | | | | | | | 122 | |
| Non-U.S. commercial | 13 | | | | | | | 31 | |
| Commercial real estate | 5 | | | | | | | 2 | |
| Commercial lease financing | 10 | | | | | | | 5 | |
| Total commercial recoveries | 206 | | | | | | | 160 | |
| Total recoveries of loans and leases previously charged off | 1,298 | | | | | | | 1,998 | |
| Net charge-offs | (4,121) | | | | | | | (3,648) | |
| | | | | | | |
| Provision for loan and lease losses | 10,565 | | | | | | | 3,574 | |
| Other | — | | | | | | | (111) | |
| | | | | | | |
| | | | | | | |
| Allowance for loan and lease losses, December 31 | 18,802 | | | | | | | 9,416 | |
| Reserve for unfunded lending commitments, January 1 | 1,123 | | | | | | | 797 | |
| Provision for unfunded lending commitments | 755 | | | | | | | 16 | |
| | | | | | | |
| Reserve for unfunded lending commitments, December 31 | 1,878 | | | | | | | 813 | |
| Allowance for credit losses, December 31 | $ | 20,680 | | | | | | | $ | 10,229 | |
| | | | | | | | |
| Loan and allowance ratios: | | | | | | | |
Loans and leases outstanding at December 31 (3) | $ | 921,180 | | | | | | | $ | 975,091 | |
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (3) | 2.04 | % | | | | | | 0.97 | % |
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (4) | 2.35 | | | | | | | 0.98 | |
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (5) | 1.77 | | | | | | | 0.96 | |
Average loans and leases outstanding (3) | $ | 974,281 | | | | | | | $ | 951,583 | |
Annualized net charge-offs as a percentage of average loans and leases outstanding (3) | 0.42 | % | | | | | | 0.38 | % |
| | | | | | | |
| Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 | 380 | | | | | | | 265 | |
| Ratio of the allowance for loan and lease losses at December 31 to net charge-offs | 4.56 | | | | | | | 2.58 | |
| | | | | | | |
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (6) | $ | 9,854 | | | | | | | $ | 4,151 | |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (6) | 181 | % | | | | | | 148 | % |
(1)Includes U.S. small business commercial charge-offs of $321 million in 2020 compared to $320 million in 2019.
(2)Includes U.S. small business commercial recoveries of $54 million in 2020 compared to $48 million in 2019.
(3)Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $6.7 billion and $8.3 billion at December 31, 2020 and 2019. Average loans accounted for under the fair value option were $8.2 billion in 2020 compared to $6.8 billion in 2019.
(4)Excludes consumer loans accounted for under the fair value option of $735 million and $594 million at December 31, 2020 and 2019.
(5)Excludes commercial loans accounted for under the fair value option of $5.9 billion and $7.7 billion at December 31, 2020 and 2019.
(6)Primarily includes amounts related to credit card and unsecured consumer lending portfolios in Consumer Banking.
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| Table 47 | Allowance for Credit Losses (continued) | | | |
| | | | | |
| (Dollars in millions) | 2017 | | 2016 |
Loan and allowance ratios (6): | | | |
Loans and leases outstanding at December 31 (7) | $ | 931,039 |
| | $ | 908,812 |
|
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (7) | 1.12 | % | | 1.26 | % |
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (8) | 1.18 |
| | 1.36 |
|
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (9) | 1.05 |
| | 1.16 |
|
Average loans and leases outstanding (7) | $ | 911,988 |
| | $ | 892,255 |
|
Net charge-offs as a percentage of average loans and leases outstanding (7, 10) | 0.44 | % | | 0.43 | % |
Net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (7) | 0.46 |
| | 0.47 |
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 (7, 11) | 161 |
| | 149 |
|
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs (10) | 2.61 |
| | 3.00 |
|
| Ratio of the allowance for loan and lease losses at December 31 to net charge-offs and PCI write-offs | 2.48 |
| | 2.76 |
|
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (12) | $ | 3,971 |
| | $ | 3,951 |
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (7, 12) | 99 | % | | 98 | % |
Loan and allowance ratios excluding PCI loans and the related valuation allowance (6, 13): | | | |
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (7) | 1.10 | % | | 1.24 | % |
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (8) | 1.15 |
| | 1.31 |
|
Net charge-offs as a percentage of average loans and leases outstanding (7) | 0.44 |
| | 0.44 |
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 (7, 11) | 156 |
| | 144 |
|
| Ratio of the allowance for loan and lease losses at December 31 to net charge-offs | 2.54 |
| | 2.89 |
|
| |
(6)
| Loan and allowance ratios for 2016 include $243 million of non-U.S. credit card allowance for loan and lease losses and $9.2 billion of ending non-U.S. credit card loans, which were included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. See footnote 1 for more information.
|
| |
(7)
| Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $5.7 billion and $7.1 billion at December 31, 2017 and 2016. Average loans accounted for under the fair value option were $6.7 billion and $8.2 billion in 2017 and 2016.
|
| |
(8)
| Excludes consumer loans accounted for under the fair value option of $928 million and $1.1 billion at December 31, 2017 and 2016.
|
| |
(9)
| Excludes commercial loans accounted for under the fair value option of $4.8 billion and $6.0 billion at December 31, 2017 and 2016.
|
| |
(10)
| Net charge-offs exclude $207 million and $340 million of write-offs in the PCI loan portfolio in 2017 and 2016. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 60.
|
| |
(11)
| For more information on our definition of nonperforming loans, see page 62 and page 67.
|
| |
(12)
| Primarily includes amounts allocated to U.S. credit card and unsecured consumer lending portfolios in Consumer Banking, PCI loans and the non-U.S. credit portfolio in All Other.
|
| |
(13)
| For more information on the PCI loan portfolio and the valuation allowance for PCI loans, see Note 4 – Outstanding Loans and Leases and Note 5 – Allowance for Credit Lossesto the Consolidated Financial Statements.
|
For reporting purposes, we allocate the allowance for credit losses across products as presented in Table 48.
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| Table 48 | 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, 2017 | | December 31, 2016 |
| Allowance for loan and lease losses | |
| | |
| | |
| | |
| | |
| | |
|
| Residential mortgage | $ | 701 |
| | 6.74 | % | | 0.34 | % | | $ | 1,012 |
| | 8.82 | % | | 0.53 | % |
| Home equity | 1,019 |
| | 9.80 |
| | 1.76 |
| | 1,738 |
| | 15.14 |
| | 2.62 |
|
| U.S. credit card | 3,368 |
| | 32.41 |
| | 3.50 |
| | 2,934 |
| | 25.56 |
| | 3.18 |
|
| Non-U.S. credit card | — |
| | — |
| | — |
| | 243 |
| | 2.12 |
| | 2.64 |
|
| Direct/Indirect consumer | 262 |
| | 2.52 |
| | 0.28 |
| | 244 |
| | 2.13 |
| | 0.26 |
|
| Other consumer | 33 |
| | 0.32 |
| | 1.22 |
| | 51 |
| | 0.44 |
| | 2.01 |
|
| Total consumer | 5,383 |
| | 51.79 |
| | 1.18 |
| | 6,222 |
| | 54.21 |
| | 1.36 |
|
U.S. commercial (2) | 3,113 |
| | 29.95 |
| | 1.04 |
| | 3,326 |
| | 28.97 |
| | 1.17 |
|
| Non-U.S. commercial | 803 |
| | 7.73 |
| | 0.82 |
| | 874 |
| | 7.61 |
| | 0.98 |
|
| Commercial real estate | 935 |
| | 9.00 |
| | 1.60 |
| | 920 |
| | 8.01 |
| | 1.60 |
|
| Commercial lease financing | 159 |
| | 1.53 |
| | 0.72 |
| | 138 |
| | 1.20 |
| | 0.62 |
|
| Total commercial | 5,010 |
| | 48.21 |
| | 1.05 |
| | 5,258 |
| | 45.79 |
| | 1.16 |
|
Total allowance for loan and lease losses (3) | 10,393 |
| | 100.00 | % | | 1.12 |
| | 11,480 |
| | 100.00 | % | | 1.26 |
|
Less: Allowance included in assets of business held for sale (4) | — |
| | | | | | (243 | ) | | | | |
| Allowance for loan and lease losses | 10,393 |
| | | | | | 11,237 |
| | | | |
| Reserve for unfunded lending commitments | 777 |
| | | | | | 762 |
| | | | |
|
| Allowance for credit losses | $ | 11,170 |
| | | | | | $ | 11,999 |
| | | | |
| |
(1)
| Ratios are calculated as allowance for loan and lease losses as a percentage of loans and leases outstanding excluding loans accounted for under the fair value option. Consumer loans accounted for under the fair value option included residential mortgage loans of $567 million and $710 million and home equity loans of $361 million and $341 million at December 31, 2017 and 2016. Commercial loans accounted for under the fair value option included U.S. commercial loans of $2.6 billion and $2.9 billion and non-U.S. commercial loans of $2.2 billion and $3.1 billion at December 31, 2017 and 2016.
|
| |
(2)
| Includes allowance for loan and lease losses for U.S. small business commercial loans of $439 million and $416 million at December 31, 2017 and 2016.
|
| |
(3)
| Includes $289 million and $419 million of valuation allowance presented with the allowance for loan and lease losses related to PCI loans at December 31, 2017 and 2016.
|
| |
(4)
| Represents allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which was included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. In 2017, the Corporation sold its non-U.S. consumer credit card business. |
Market Risk Management
Market risk is the risk that changes in market conditions may adversely impact the value of assets or liabilities, or otherwise negatively impact earnings. This risk is inherent in the financial instruments associated with our operations, primarily within our Global Markets segment. We are also exposed to these risks in other areas of the Corporation (e.g., our ALM activities). In the event of market stress, these risks could have a material impact on our results. For more information, see Interest Rate Risk Management for the Banking Book on page 81.82.
We have been affected, and expect to continue to be affected, by market stress resulting from the pandemic that began in the first quarter of 2020. For more information on the effects of the pandemic, see Executive Summary – Recent Developments – COVID-19 Pandemic on page 25.
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.
QuantitativeModel risk is the potential for adverse consequences from decisions based on incorrect or misused model outputs and reports. Given that models such as VaR, are an essential component in evaluatingused across the Corporation, model risk impacts all risk types including credit, market risks within a portfolio.and operational risks. 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 EMRCPolicy defines model risk standards, consistent with our risk framework and risk appetite, prevailing regulatory guidance and industry best practice. ModelsAll models, including risk management, valuation and regulatory capital models, must meet certain validation criteria, including effective challenge of the conceptual soundness of the model, development processindependent model testing and ongoing monitoring through outcomes analysis and benchmarking. The Enterprise Model Risk Committee (EMRC), a sufficient demonstrationsubcommittee of developmental evidence incorporating a comparison of alternative theories and approaches. The EMRCthe MRC, oversees that model standards are consistent with model risk requirements and monitors the effective challenge in the model validation process across the Corporation. In addition, the relevant stakeholders must agree on any required actions or restrictions to the models and maintain a stringent monitoring process for continued compliance.
Interest Rate Risk
Interest rate risk represents exposures to instruments whose values vary with the level or volatility of interest rates. These instruments include, but are not limited to, loans, debt securities, certain trading-related assets and liabilities, deposits, borrowings and derivatives. Hedging instruments used to mitigate these risks include derivatives such as options, futures, forwards and swaps.
Foreign Exchange Risk
Foreign exchange risk represents exposures to changes in the values of current holdings and future cash flows denominated in currencies other than the U.S. dollar. The types of instruments exposed to this risk include investments in non-U.S. subsidiaries, foreign currency-denominated loans and securities, future cash flows in foreign currencies arising from foreign exchange transactions, foreign currency-denominated debt and various foreign exchange derivatives whose values fluctuate with changes in the level or volatility of currency exchange rates or non-U.S. interest rates. Hedging instruments used to mitigate this risk include foreign exchange options, currency swaps, futures, forwards, and foreign currency-denominated debt and deposits.
Mortgage Risk
Mortgage risk represents exposures to changes in the values of mortgage-related instruments. The values of these instruments are sensitive to prepayment rates, mortgage rates, agency debt ratings, default, market liquidity, government participation and interest rate volatility. Our exposure to these instruments takes several forms. First,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. Second,In addition, we originate a variety of MBS, which involves the accumulation of mortgage-related loans in anticipation of eventual securitization. Third,securitization, and we may hold positions in mortgage securities and residential mortgage loans as part of the ALM portfolio. Fourth, we createWe also record MSRs as part of our mortgage origination activities. For more information on MSRs, see Note 1 – Summary of Significant Accounting Principles and Note 20 – Fair Value Measurements to the Consolidated Financial Statements. Hedging instruments used to mitigate this risk include derivatives such as options, swaps, futures and forwards as well as securities including MBS and U.S. Treasury securities. For more information, see Mortgage Banking Risk Management on page 83.84.
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 riskrisks 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. Thislevel, which 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.ICAAP. For more information regarding ICAAP,, see Capital Management on page 45.50.
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 4944 presents the total market-based trading portfolio VaR which is the combination of the total covered positions (and less liquid trading positions) portfolio and the impact from less liquid trading exposures.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 4944 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. The fair value option portfolio combined with the total market-based trading portfolio VaR represents our total market-based portfolio VaR. Additionally, market risk VaR for
trading activities as presented in Table 4944 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 4944 include market risk to which we are exposed from all business segments, excluding CVAcredit valuation adjustment (CVA), DVA and DVA.
related hedges. The majority of this portfolio is within the Global Markets segment.
Table 4944 presents year-end, average, high and low daily trading VaR for 20172020 and 20162019 using a 99 percent confidence
level. The amounts disclosed in Table 44 and Table 45 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 annual average of total covered positions and less liquid trading positions portfolio VaR increased for 2020 compared to 2019 primarily due to the impact of market volatility related to the pandemic in the VaR look back period.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 44 | Market Risk VaR for Trading Activities | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| 2020 | | 2019 | | | | |
| (Dollars in millions) | Year
End | | Average | | High (1) | | Low (1) | | Year
End | | Average | | High (1) | | Low (1) | | | | | | | | | | | | |
| Foreign exchange | $ | 8 | | | $ | 7 | | | $ | 25 | | | $ | 2 | | | $ | 4 | | | $ | 6 | | | $ | 13 | | | $ | 2 | | | | | | | | | | | | | |
| Interest rate | 30 | | | 19 | | | 39 | | | 7 | | | 25 | | | 24 | | | 49 | | | 14 | | | | | | | | | | | | | |
| Credit | 79 | | | 58 | | | 91 | | | 25 | | | 26 | | | 23 | | | 32 | | | 16 | | | | | | | | | | | | | |
| Equity | 20 | | | 24 | | | 162 | | | 12 | | | 29 | | | 22 | | | 33 | | | 14 | | | | | | | | | | | | | |
| Commodities | 4 | | | 6 | | | 12 | | | 3 | | | 4 | | | 6 | | | 31 | | | 4 | | | | | | | | | | | | | |
| Portfolio diversification | (72) | | | (61) | | | — | | | — | | | (47) | | | (49) | | | — | | | — | | | | | | | | | | | | | |
| Total covered positions portfolio | 69 | | | 53 | | | 171 | | | 27 | | | 41 | | | 32 | | | 47 | | | 24 | | | | | | | | | | | | | |
| Impact from less liquid exposures | 52 | | | 27 | | | — | | | — | | | — | | | 3 | | | — | | | — | | | | | | | | | | | | | |
| Total covered positions and less liquid trading positions portfolio | 121 | | | 80 | | | 169 | | | 30 | | | 41 | | | 35 | | | 53 | | | 27 | | | | | | | | | | | | | |
| Fair value option loans | 52 | | | 52 | | | 84 | | | 7 | | | 8 | | | 10 | | | 13 | | | 7 | | | | | | | | | | | | | |
| Fair value option hedges | 11 | | | 13 | | | 17 | | | 9 | | | 10 | | | 10 | | | 17 | | | 4 | | | | | | | | | | | | | |
| Fair value option portfolio diversification | (17) | | | (24) | | | — | | | — | | | (9) | | | (10) | | | — | | | — | | | | | | | | | | | | | |
| Total fair value option portfolio | 46 | | | 41 | | | 86 | | | 9 | | | 9 | | | 10 | | | 16 | | | 5 | | | | | | | | | | | | | |
| Portfolio diversification | (4) | | | (15) | | | — | | | — | | | (5) | | | (7) | | | — | | | — | | | | | | | | | | | | | |
| Total market-based portfolio | $ | 163 | | | $ | 106 | | | 171 | | | 32 | | | $ | 45 | | | $ | 38 | | | 56 | | | 28 | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Table 49 | Market Risk VaR for Trading Activities | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| (Dollars in millions) | Year End | | Average | | High (1) | | Low (1) | | Year End | | Average | | High (1) | | Low (1) |
| Foreign exchange | $ | 7 |
| | $ | 11 |
| | $ | 25 |
| | $ | 3 |
| | $ | 8 |
| | $ | 9 |
| | $ | 16 |
| | $ | 5 |
|
| Interest rate | 22 |
| | 21 |
| | 41 |
| | 11 |
| | 11 |
| | 19 |
| | 30 |
| | 10 |
|
| Credit | 29 |
| | 26 |
| | 33 |
| | 21 |
| | 25 |
| | 30 |
| | 37 |
| | 25 |
|
| Equity | 19 |
| | 18 |
| | 33 |
| | 12 |
| | 19 |
| | 18 |
| | 30 |
| | 11 |
|
| Commodity | 5 |
| | 5 |
| | 9 |
| | 3 |
| | 4 |
| | 6 |
| | 12 |
| | 3 |
|
| Portfolio diversification | (49 | ) | | (47 | ) | | — |
| | — |
| | (39 | ) | | (46 | ) | | — |
| | — |
|
| Total covered positions trading portfolio | 33 |
| | 34 |
| | 53 |
| | 23 |
| | 28 |
| | 36 |
| | 50 |
| | 24 |
|
| Impact from less liquid exposures | 5 |
| | 6 |
| | — |
| | — |
| | 6 |
| | 5 |
| | — |
| | — |
|
| Total market-based trading portfolio | 38 |
| | 40 |
| | 63 |
| | 26 |
| | 34 |
| | 41 |
| | 58 |
| | 28 |
|
| Fair value option loans | 9 |
| | 10 |
| | 14 |
| | 7 |
| | 14 |
| | 23 |
| | 40 |
| | 12 |
|
| Fair value option hedges | 7 |
| | 7 |
| | 11 |
| | 4 |
| | 6 |
| | 11 |
| | 22 |
| | 5 |
|
| Fair value option portfolio diversification | (7 | ) | | (8 | ) | | — |
| | — |
| | (10 | ) | | (21 | ) | | — |
| | — |
|
| Total fair value option portfolio | 9 |
| | 9 |
| | 11 |
| | 6 |
| | 10 |
| | 13 |
| | 20 |
| | 8 |
|
| Portfolio diversification | (4 | ) | | (4 | ) | | — |
| | — |
| | (4 | ) | | (6 | ) | | — |
| | — |
|
| Total market-based portfolio | $ | 43 |
| | $ | 45 |
| | 69 |
| | 29 |
| | $ | 40 |
| | $ | 48 |
| | 70 |
| | 32 |
|
| |
(1)
| The high and low for each portfolio may have occurred on different trading days than the high and low for the components. Therefore the impact from less liquid exposures and the amount of portfolio diversification, which is the difference between the total portfolio and the sum of the individual components, is not relevant. |
(1)The high and low for each portfolio may have occurred on different trading days than the high and low for the components. Therefore the impact from less liquid exposures and the amount of portfolio diversification, which is the difference between the total portfolio and the sum of the individual components, is not relevant.
The graph below presents the daily total market-basedcovered positions and less liquid trading positions portfolio VaR for 2017,2020, corresponding to the data in Table 49.44. Peak VaR in mid-March 2020 was driven by increased market realized volatility and higher implied volatilities.
Additional VaR statistics produced within our single VaR model are provided in Table 5045 at the same level of detail as in Table 49.44. Evaluating VaR with additional statistics allows for an increased understanding of the risks in the portfolio as the historical market data used in the VaR calculation does not necessarily follow a predefined statistical distribution. Table 50 45
presents average trading VaR statistics at 99 percent and 95 percent confidence levels for 20172020 and 2016.2019. The increase in VaR for the 99 percent confidence level for 2020 was primarily due to COVID-19 related market volatility, which impacted the 99 percent VaR average more severely than the 95 percent VaR average.
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Table 50 | Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics |
| | | | | | | | | | |
| | | | 2017 | | 2016 |
| (Dollars in millions) | | 99 percent | | 95 percent | | 99 percent | | 95 percent |
| Foreign exchange | | $ | 11 |
| | $ | 6 |
| | $ | 9 |
| | $ | 5 |
|
| Interest rate | | 21 |
| | 14 |
| | 19 |
| | 12 |
|
| Credit | | 26 |
| | 15 |
| | 30 |
| | 18 |
|
| Equity | | 18 |
| | 10 |
| | 18 |
| | 11 |
|
| Commodity | | 5 |
| | 3 |
| | 6 |
| | 3 |
|
| Portfolio diversification | | (47 | ) | | (30 | ) | | (46 | ) | | (30 | ) |
| Total covered positions trading portfolio | | 34 |
| | 18 |
| | 36 |
| | 19 |
|
| Impact from less liquid exposures | | 6 |
| | 2 |
| | 5 |
| | 3 |
|
| Total market-based trading portfolio | | 40 |
| | 20 |
| | 41 |
| | 22 |
|
| Fair value option loans | | 10 |
| | 6 |
| | 23 |
| | 13 |
|
| Fair value option hedges | | 7 |
| | 5 |
| | 11 |
| | 8 |
|
| Fair value option portfolio diversification | | (8 | ) | | (6 | ) | | (21 | ) | | (13 | ) |
| Total fair value option portfolio | | 9 |
| | 5 |
| | 13 |
| | 8 |
|
| Portfolio diversification | | (4 | ) | | (3 | ) | | (6 | ) | | (4 | ) |
| Total market-based portfolio | | $ | 45 |
| | $ | 22 |
| | $ | 48 |
| | $ | 26 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Table 45 | Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics |
| | | | | | | | | | | | | |
| | | |
| | | |
| | | 2020 | | | | 2019 |
| (Dollars in millions) | | 99 percent | | 95 percent | | | | | | 99 percent | | 95 percent |
| Foreign exchange | | $ | 7 | | | $ | 4 | | | | | | | $ | 6 | | | $ | 3 | |
| Interest rate | | 19 | | | 9 | | | | | | | 24 | | | 15 | |
| Credit | | 58 | | | 18 | | | | | | | 23 | | | 15 | |
| Equity | | 24 | | | 13 | | | | | | | 22 | | | 11 | |
| Commodities | | 6 | | | 3 | | | | | | | 6 | | | 3 | |
| Portfolio diversification | | (61) | | | (26) | | | | | | | (49) | | | (29) | |
| Total covered positions portfolio | | 53 | | | 21 | | | | | | | 32 | | | 18 | |
| Impact from less liquid exposures | | 27 | | | 2 | | | | | | | 3 | | | 2 | |
| Total covered positions and less liquid trading positions portfolio | | 80 | | | 23 | | | | | | | 35 | | | 20 | |
| Fair value option loans | | 52 | | | 13 | | | | | | | 10 | | | 5 | |
| Fair value option hedges | | 13 | | | 7 | | | | | | | 10 | | | 6 | |
| Fair value option portfolio diversification | | (24) | | | (8) | | | | | | | (10) | | | (5) | |
| Total fair value option portfolio | | 41 | | | 12 | | | | | | | 10 | | | 6 | |
| Portfolio diversification | | (15) | | | (6) | | | | | | | (7) | | | (5) | |
| Total market-based portfolio | | $ | 106 | | | $ | 29 | | | | | | | $ | 38 | | | $ | 21 | |
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 andwith a goal to assess whetherensure 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 intradayintra-day 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 2017,2020, there were noseven days in which there was a backtesting excess forwhere this subset of trading revenue had losses that exceeded our total market-basedcovered 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 20172020 and 2016.2019. During 2017,2020, positive trading-related revenue was recorded for 10098 percent of the trading days, of which 77 percent were daily trading gains of over $25 million. This compares to 2016 where positive trading-related revenue was recorded for 99 percent of the trading days, of which 8487 percent were daily trading gains of over $25 million, and the largest loss was $24$90 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 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.
Interest Rate Risk Management for the Banking Book
The following discussion presents net interest income for banking book activities.
Interest rate risk represents the most significant market risk exposure to our banking book balance sheet. Interest rate risk is measured as the potential change in net interest income caused by movements in market interest rates. Client-facing activities, primarily lending and deposit-taking, create interest rate sensitive positions on our balance sheet.
We prepare forward-looking forecasts of net interest income. The baseline forecast takes into consideration expected future business growth, ALM positioning and-and the direction of interest rate movements as implied by the market-based forward curve.
We then measure and evaluate the impact that alternative interest rate scenarios have on the baseline forecast in order to assess interest rate sensitivity under varied conditions. The net interest income forecast is frequently updated for changing assumptions and differing outlooks based on economic trends, market conditions and business strategies. Thus, we continually monitor our balance sheet position in order to maintain an acceptable level of exposure to interest rate changes.
The interest rate scenarios that we analyze incorporate balance sheet assumptions such as loan and deposit growth and pricing, changes in funding mix, product repricing, maturity characteristics and investment securities premium amortization. Our overall goal is to manage interest rate risk so that movements in interest rates do not significantly adversely affect earnings and capital.
Table 5146 presents the spot and 12-month forward rates used in our baseline forecasts at December 31, 20172020 and 2016.2019.
| | | | | | | | | | |
| Table 51 | Forward Rates | |
| Table 46 | | Table 46 | Forward Rates |
| | | | | | | | |
| | | December 31, 2017 | | December 31, 2020 |
| | | Federal Funds | | Three-month LIBOR | | 10-Year Swap | | | Federal
Funds | | Three-month
LIBOR | | 10-Year
Swap |
| Spot rates | Spot rates | 1.50 | % | | 1.69 | % | | 2.40 | % | Spot rates | 0.25 | % | | 0.24 | % | | 0.93 | % |
| 12-month forward rates | 12-month forward rates | 2.00 |
| | 2.14 |
| | 2.48 |
| 12-month forward rates | 0.25 | | | 0.19 | | | 1.06 | |
| | | | | | | | |
| | | December 31, 2016 | | December 31, 2019 |
| Spot rates | Spot rates | 0.75 | % | | 1.00 | % | | 2.34 | % | Spot rates | 1.75 | % | | 1.91 | % | | 1.90 | % |
| 12-month forward rates | 12-month forward rates | 1.25 |
| | 1.51 |
| | 2.49 |
| 12-month forward rates | 1.50 | | | 1.62 | | | 1.92 | |
Table 5247 shows the pre-tax dollarpretax impact to forecasted net interest income over the next 12 months from December 31, 20172020 and 2016,2019 resulting from instantaneous parallel and non-parallel
shocks to the market-based forward curve. Periodically we evaluate the scenarios presented so that they are meaningful in the context of the current rate environment. The interest rate scenarios also assume U.S. dollar rates are floored at zero.
During 2017,2020, the asset sensitivity of our balance sheet increased in both up-rate and down-rate scenarios primarily due to rising rates was largely unchanged.continued deposit growth invested in long-term securities. We continue to be asset sensitive to a parallel upward move in interest rates with the majority of that benefitimpact coming from the short end of the yield curve. Additionally, higher interest rates impact the fair value of debt securities and, accordingly, for debt securities classified as available for sale (AFS),AFS, may adversely affect accumulated OCI and thus capital levels under the Basel 3 capital rules. Under instantaneous upward parallel shifts, the near-term adverse impact to Basel 3 capital is reduced over time by offsetting positive impacts to net interest income. For more information on Basel 3, see Capital Management – Regulatory Capital on page 45.
51. | | | Table 47 | | Table 47 | Estimated Banking Book Net Interest Income Sensitivity to Curve Changes |
| | | | | | | | | | | | | | | | | Short
Rate (bps) | | Long
Rate (bps) | |
| | | | | | | | | | | | December 31 |
| Table 52 | Estimated Banking Book Net Interest Income Sensitivity | |
| (Dollars in millions) | | (Dollars in millions) | Short
Rate (bps) | | Long
Rate (bps) | | 2020 | | 2019 |
| | | | | | | | | | |
| (Dollars in millions) | Short Rate (bps) | | Long Rate (bps) | | December 31 | |
| Curve Change | | | 2017 | | 2016 | |
| Parallel Shifts | Parallel Shifts | | | | | | | | Parallel Shifts | |
+100 bps instantaneous shift | +100 bps instantaneous shift | +100 | | +100 | | $ | 3,317 |
| | $ | 3,370 |
| +100 bps instantaneous shift | +100 | | +100 | | $ | 10,468 | | | $ | 4,190 | |
-50 bps instantaneous shift | -50 |
| | -50 |
| | (2,273 | ) | | (2,900 | ) | |
-25 bps instantaneous shift | | -25 bps instantaneous shift | -25 | | | -25 | | | (2,766) | | | (1,500) | |
| Flatteners | Flatteners | |
| | |
| | | | |
| Flatteners | | | | |
Short-end instantaneous change | Short-end instantaneous change | +100 | | — |
| | 2,182 |
| | 2,473 |
| Short-end instantaneous change | +100 | | — | | | 6,321 | | | 2,641 | |
Long-end instantaneous change | Long-end instantaneous change | — |
| | -50 |
| | (1,246 | ) | | (961 | ) | Long-end instantaneous change | — | | | -25 | | | (1,686) | | | (653) | |
| Steepeners | Steepeners | |
| | |
| | | | | Steepeners | | | | |
Short-end instantaneous change | Short-end instantaneous change | -50 |
| | — |
| | (1,021 | ) | | (1,918 | ) | Short-end instantaneous change | -25 | | | — | | | (1,084) | | | (844) | |
Long-end instantaneous change | Long-end instantaneous change | — |
| | +100 | | 1,135 |
| | 928 |
| Long-end instantaneous change | — | | | +100 | | 4,333 | | | 1,561 | |
The sensitivity analysis in Table 5247 assumes that we take no action in response to these rate shocks and does not assume any change in other macroeconomic variables normally correlated with changes in interest rates. As part of our ALM activities, we use securities, certain residential mortgages, and interest rate and foreign exchange derivatives in managing interest rate sensitivity.
The behavior of our depositdeposits 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 5247 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-bearingnon-interest-bearing deposits with higher-yieldinghigher yielding deposits or market-based funding would reduce our benefit in those scenarios.
Interest Rate and Foreign Exchange Derivative Contracts
Interest rate and foreign exchange derivative contracts are utilized in our ALM activities and serve as an efficient tool to manage our interest rate and foreign exchange risk. We use derivatives to hedge the variability in cash flows or changes in fair value on our balance sheet due to interest rate and foreign exchange components. For more information on our hedging
activities, see Note 23 – Derivativesto the Consolidated Financial Statements.Statements.
Our interest rate contracts are generally non-leveraged generic interest rate and foreign exchange basis swaps, options, futures and forwards. In addition, we use foreign exchange contracts, including cross-currency interest rate swaps, foreign currency futures contracts, foreign currency forward contracts and options to mitigate the foreign exchange risk associated with foreign currency-denominated assets and liabilities.
Changes to the composition of our derivatives portfolio during 20172020 reflect actions taken for interest rate and foreign exchange rate risk management. The decisions to reposition our derivatives portfolio are based on the current assessment of economic and financial conditions including the interest rate and foreign currency environments, balance sheet composition and trends, and the relative mix of our cash and derivative positions.
Table 53 presents derivatives utilized in our ALM activities including those designated as accounting and economic hedging instruments and shows the notional amount, fair value, weighted-average receive-fixed and pay-fixed rates, expected maturity and average estimated durations of our open ALM derivatives at December 31, 2017 and 2016. These amounts do not include derivative hedges on our MSRs.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Table 53 | Asset and Liability Management Interest Rate and Foreign Exchange Contracts |
| | | | | | | |
| | | | | December 31, 2017 | | |
| | | | | Expected Maturity | | |
| (Dollars in millions, average estimated duration in years) | Fair Value | | Total | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Average
Estimated Duration |
Receive-fixed interest rate swaps (1) | $ | 2,330 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 5.38 |
|
| Notional amount | |
| | $ | 176,390 |
| | $ | 21,850 |
| | $ | 27,176 |
| | $ | 16,347 |
| | $ | 6,498 |
| | $ | 19,120 |
| | $ | 85,399 |
| | |
|
| Weighted-average fixed-rate | |
| | 2.42 | % | | 3.20 | % | | 1.87 | % | | 1.88 | % | | 2.99 | % | | 2.10 | % | | 2.52 | % | | |
|
Pay-fixed interest rate swaps (1) | (37 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 5.63 |
|
| Notional amount | |
| | $ | 45,873 |
| | $ | 11,555 |
| | $ | 1,210 |
| | $ | 4,344 |
| | $ | 1,616 |
| | $ | — |
| | $ | 27,148 |
| | |
|
| Weighted-average fixed-rate | |
| | 2.15 | % | | 1.73 | % | | 2.07 | % | | 2.16 | % | | 2.22 | % | | — | % | | 2.32 | % | | |
|
Same-currency basis swaps (2) | (17 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Notional amount | |
| | $ | 38,622 |
| | $ | 11,028 |
| | $ | 6,789 |
| | $ | 1,180 |
| | $ | 2,807 |
| | $ | 955 |
| | $ | 15,863 |
| | |
|
Foreign exchange basis swaps (1, 3, 4) | (1,616 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Notional amount | |
| | 107,263 |
| | 24,886 |
| | 11,922 |
| | 13,367 |
| | 9,301 |
| | 6,860 |
| | 40,927 |
| | |
|
Option products (5) | 13 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Notional amount (6) | |
| | 1,218 |
| | 1,201 |
| | — |
| | — |
| | — |
| | — |
| | 17 |
| | |
|
Foreign exchange contracts (1, 4, 7) | 1,424 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Notional amount (6) | | | (11,783 | ) | | (28,689 | ) | | 2,231 |
| | (24 | ) | | 2,471 |
| | 2,919 |
| | 9,309 |
| | |
|
| Net ALM contracts | $ | 2,097 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| | | | | | | |
| | | | | December 31, 2016 | | |
| | | | | Expected Maturity | | |
| (Dollars in millions, average estimated duration in years) | Fair Value | | Total | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Average Estimated Duration |
Receive-fixed interest rate swaps (1) | $ | 4,055 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 4.81 |
|
| Notional amount | |
| | $ | 118,603 |
| | $ | 21,453 |
| | $ | 25,788 |
| | $ | 10,283 |
| | $ | 7,515 |
| | $ | 5,307 |
| | $ | 48,257 |
| | |
|
| Weighted-average fixed-rate | |
| | 2.83 | % | | 3.64 | % | | 2.81 | % | | 2.31 | % | | 2.07 | % | | 3.18 | % | | 2.67 | % | | |
|
Pay-fixed interest rate swaps (1) | 159 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 2.77 |
|
| Notional amount | |
| | $ | 22,400 |
| | $ | 1,527 |
| | $ | 9,168 |
| | $ | 2,072 |
| | $ | 7,975 |
| | $ | 213 |
| | $ | 1,445 |
| | |
|
| Weighted-average fixed-rate | |
| | 1.37 | % | | 1.84 | % | | 1.47 | % | | 0.97 | % | | 1.08 | % | | 1.00 | % | | 2.45 | % | | |
|
Same-currency basis swaps (2) | (26 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Notional amount | |
| | $ | 59,274 |
| | $ | 20,775 |
| | $ | 11,027 |
| | $ | 6,784 |
| | $ | 1,180 |
| | $ | 2,799 |
| | $ | 16,709 |
| | |
|
Foreign exchange basis swaps (1, 3, 4) | (4,233 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Notional amount | |
| | 125,522 |
| | 26,509 |
| | 22,724 |
| | 12,178 |
| | 12,150 |
| | 8,365 |
| | 43,596 |
| | |
|
Option products (5) | 5 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Notional amount (6) | |
| | 1,687 |
| | 1,673 |
| | — |
| | — |
| | — |
| | — |
| | 14 |
| | |
|
Foreign exchange contracts (1, 4, 7) | 3,180 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Notional amount (6) | |
| | (20,285 | ) | | (30,199 | ) | | 197 |
| | 1,961 |
| | (8 | ) | | 881 |
| | 6,883 |
| | |
|
| Futures and forward rate contracts | 19 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Notional amount (6) | |
| | 37,896 |
| | 37,896 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
|
| Net ALM contracts | $ | 3,159 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| |
(1)
| Does not include basis adjustments on either fixed-rate debt issued by the Corporation or AFS debt securities, which are hedged using derivatives designated as fair value hedging instruments, that substantially offset the fair values of these derivatives. |
| |
(2)
| At December 31, 2017 and 2016, the notional amount of same-currency basis swaps included $38.6 billion and $59.3 billion in both foreign currency and U.S. dollar-denominated basis swaps in which both sides of the swap are in the same currency.
|
| |
(3)
| Foreign exchange basis swaps consisted of cross-currency variable interest rate swaps used separately or in conjunction with receive-fixed interest rate swaps. |
| |
(4)
| Does not include foreign currency translation adjustments on certain non-U.S. debt issued by the Corporation that substantially offset the fair values of these derivatives. |
| |
(5)
| The notional amount of option products of $1.2 billion and $1.7 billion at December 31, 2017 and 2016 was substantially all in foreign exchange options.
|
| |
(6)
| Reflects the net of long and short positions. Amounts shown as negative reflect a net short position. |
| |
(7)
| The notional amount of foreign exchange contracts of $(11.8) billion at December 31, 2017 was comprised of $29.1 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(35.6) billion in net foreign currency forward rate contracts, $(6.2) billion in foreign currency-denominated pay-fixed swaps and $940 million in net foreign currency futures contracts. Foreign exchange contracts of $(20.3) billion at December 31, 2016 were comprised of $21.5 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(38.5) billion in net foreign currency forward rate contracts, $(4.6) billion in foreign currency-denominated pay-fixed swaps and $1.3 billion in foreign currency futures contracts.
|
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 lossesresults on both open and terminated cash flow hedge derivative instruments recorded in accumulated OCI were $1.3 billiona gain of $580 million and $1.4 billion,a loss of $496 million, on a pre-taxpretax basis, at December 31, 20172020 and 2016.2019. These netgains and losses are expected to be reclassified into earnings in the same period as the hedged cash flows affect earnings and will decrease income or increase expense on the respective hedged
cash flows. Assuming no change in open cash flow derivative hedge positions and no changes in prices or interest rates beyond what is implied in forward yield curves at December 31, 2017,2020, the pre-taxafter-tax net lossesgains are expected to be reclassified into earnings as follows: $208a gain of $187 million or 16 percent, within the next year, 56 percenta gain of $358 million in years two through five, and 18 percenta loss of $59 million in years six through 10,ten, with the remaining 10 percentloss of $50 million thereafter. For more information on derivatives designated as cash flow hedges, see Note 23 – Derivativesto the Consolidated Financial Statements.Statements.
We hedge our net investment in non-U.S. operations determined to have functional currencies other than the U.S. dollar using forward foreign exchange contracts that typically settle in less than 180 days, cross-currency basis swaps and foreign exchange options. We recorded net after-tax losses on derivatives in accumulated OCI associated with net investment hedges which were offset by gains on our net investments in consolidated non-U.S. entities at December 31, 2017.2020.
Table 48 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, 2020 and 2019. These amounts do not include derivative hedges on our MSRs. During 2020, the fair value of receive-fixed interest rate swaps increased while pay-fixed interest swaps decreased, primarily driven by lower swap rates on hedges of U.S. dollar long-term debt. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Table 48 | Asset and Liability Management Interest Rate and Foreign Exchange Contracts |
| | | | | | |
| | | | December 31, 2020 | | |
| | | | Expected Maturity | | |
| (Dollars in millions, average estimated duration in years) | Fair
Value | | Total | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Average
Estimated
Duration |
Receive-fixed interest rate swaps (1) | $ | 14,885 | | | | | | | | | | | | | | | | | 8.08 | |
| Notional amount | �� | | $ | 269,015 | | | $ | 11,050 | | | $ | 20,908 | | | $ | 30,654 | | | $ | 31,317 | | | $ | 32,898 | | | $ | 142,188 | | | |
| Weighted-average fixed-rate | | | 1.54 | % | | 3.25 | % | | 0.91 | % | | 1.48 | % | | 1.17 | % | | 1.07 | % | | 1.69 | % | | |
Pay-fixed interest rate swaps (1) | (5,502) | | | | | | | | | | | | | | | | | 6.52 | |
| Notional amount | | | $ | 252,698 | | | $ | 7,562 | | | $ | 21,667 | | | $ | 24,671 | | | $ | 24,406 | | | $ | 32,052 | | | $ | 142,340 | | | |
| Weighted-average fixed-rate | | | 0.89 | % | | 0.57 | % | | 0.10 | % | | 1.28 | % | | 0.86 | % | | 0.68 | % | | 1.00 | % | | |
Same-currency basis swaps (2) | (235) | | | | | | | | | | | | | | | | | |
| Notional amount | | | $ | 223,659 | | | $ | 18,769 | | | $ | 12,245 | | | $ | 9,747 | | | $ | 22,737 | | | $ | 28,222 | | | $ | 131,939 | | | |
Foreign exchange basis swaps (1, 3, 4) | (1,014) | | | | | | | | | | | | | | | | | |
| Notional amount | | | 112,465 | | | 27,424 | | | 16,038 | | | 8,066 | | | 3,819 | | | 4,446 | | | 52,672 | | | |
Foreign exchange contracts (1, 4, 5) | 349 | | | | | | | | | | | | | | | | | |
Notional amount (6) | | | (42,490) | | | (69,299) | | | 2,841 | | | 2,505 | | | 4,735 | | | 4,369 | | | 12,359 | | | |
| Futures and forward rate contracts | 47 | | | | | | | | | | | | | | | | | |
| Notional amount | | | 14,255 | | | 14,255 | | | — | | | — | | | — | | | — | | | — | | | |
| Option products | — | | | | | | | | | | | | | | | | | |
| Notional amount | | | 17 | | | — | | | — | | | 17 | | | — | | | — | | | — | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net ALM contracts | $ | 8,530 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
| |
| | | | | | |
| | | | | | | | | | | | | | | | | | |
| Table 48 | Asset and Liability Management Interest Rate and Foreign Exchange Contracts (continued) |
| | | | | | | | | | | | | | | | | | |
| | | | | December 31, 2019 | | |
| | | | | Expected Maturity | | |
| (Dollars in millions, average estimated duration in years) | Fair
Value | | Total | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Average
Estimated
Duration |
Receive-fixed interest rate swaps (1) | $ | 12,370 | | | | | | | | | | | | | | | | | 6.47 | |
| Notional amount | | | $ | 215,123 | | | $ | 16,347 | | | $ | 14,642 | | | $ | 21,616 | | | $ | 36,356 | | | $ | 21,257 | | | $ | 104,905 | | | |
| Weighted-average fixed-rate | | | 2.68 | % | | 2.68 | % | | 3.17 | % | | 2.48 | % | | 2.36 | % | | 2.55 | % | | 2.79 | % | | |
Pay-fixed interest rate swaps (1) | (2,669) | | | | | | | | | | | | | | | | | 6.99 | |
| Notional amount | | | $ | 69,586 | | | $ | 4,344 | | | $ | 2,117 | | | $ | — | | | $ | 13,993 | | | $ | 8,194 | | | $ | 40,938 | | | |
| Weighted-average fixed-rate | | | 2.36 | % | | 2.16 | % | | 2.15 | % | | — | % | | 2.52 | % | | 2.26 | % | | 2.35 | % | | |
Same-currency basis swaps (2) | (290) | | | | | | | | | | | | | | | | | |
| Notional amount | | | $ | 152,160 | | | $ | 18,857 | | | $ | 18,590 | | | $ | 4,306 | | | $ | 2,017 | | | $ | 14,567 | | | $ | 93,823 | | | |
Foreign exchange basis swaps (1, 3, 4) | (1,258) | | | | | | | | | | | | | | | | | |
| Notional amount | | | 113,529 | | | 23,639 | | | 24,215 | | | 14,611 | | | 7,111 | | | 3,521 | | | 40,432 | | | |
Foreign exchange contracts (1, 4, 5) | 414 | | | | | | | | | | | | | | | | | |
Notional amount (6) | | | (53,106) | | | (79,315) | | | 4,539 | | | 2,674 | | | 2,340 | | | 4,432 | | | 12,224 | | | |
| Option products | — | | | | | | | | | | | | | | | | | |
| Notional amount | | | 15 | | | — | | | — | | | — | | | 15 | | | — | | | — | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net ALM contracts | $ | 8,567 | | | | | | | | | | | | | | | | | |
(1)Does not include basis adjustments on either fixed-rate debt issued by the Corporation or AFS debt securities, which are hedged using derivatives designated as fair value hedging instruments, that substantially offset the fair values of these derivatives.
(2)At December 31, 2020 and 2019, the notional amount of same-currency basis swaps included $223.7 billion and $152.2 billion in both foreign currency and U.S. dollar-denominated basis swaps in which both sides of the swap are in the same currency.
(3)Foreign exchange basis swaps consisted of cross-currency variable interest rate swaps used separately or in conjunction with receive-fixed interest rate swaps.
(4)Does not include foreign currency translation adjustments on certain non-U.S. debt issued by the Corporation that substantially offset the fair values of these derivatives.
(5)The notional amount of foreign exchange contracts of $(42.5) billion at December 31, 2020 was comprised of $34.2 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(74.3) billion in net foreign currency forward rate contracts, $(3.1) billion in foreign currency-denominated interest rate swaps and $711 million in net foreign currency futures contracts. Foreign exchange contracts of $(53.1) billion at December 31, 2019 were comprised of $29.0 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(82.4) billion in net foreign currency forward rate contracts, $(313) million in foreign currency-denominated interest rate swaps and $644 million in foreign currency futures contracts.
(6)Reflects the net of long and short positions. Amounts shown as negative reflect a net short position.
Mortgage Banking Risk ManagementAllowance for Credit Losses
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 atOn January 1, 2020, the time of commitment and manage credit and liquidity risks by selling or securitizing a portionCorporation adopted the new accounting standard that requires the measurement of the loans we originate.
Interest rate risk and market risk canallowance for credit losses to be substantialbased on management’s best estimate of lifetime ECL inherent in the mortgage business. Changes in interest rates and other market factors impact the volume of mortgage originations. Changes in interest rates also impact the value of IRLCs and the related residential first mortgage LHFS between the dateCorporation’s relevant financial assets. Upon adoption of the IRLC andnew accounting standard, the date the loans are sold to the secondary market. AnCorporation recorded a net increase in mortgage interest rates typically leads to a decreaseof $3.3 billion in the valueallowance for credit losses which was comprised of these instruments. Conversely,a net increase of $2.9 billion in the valueallowance for loan and lease losses and an increase of $310 million in the MSRs willreserve for unfunded lending commitments. The net increase was primarily driven by lower prepayment expectations when there is ana $3.1 billion increase in interest rates. Because the interest rate risks of these two hedged items offset, we combine them into one overall hedged item with one combined economic hedge portfolio consisting of derivative contracts and securities.
During 2017 and 2016, we recorded gains in mortgage banking income of $118 million and $366 million related to the changecredit card portfolio.
The allowance for credit losses further increased by $7.2 billion from January 1, 2020 to $20.7 billion at December 31, 2020, which included a $5.0 billion reserve increase related to the commercial portfolio and a $2.2 billion reserve increase related to the consumer portfolio. The increases were driven by deterioration in the economic outlook resulting from the impact of COVID-19.
The following table presents an allocation of the allowance for credit losses by product type for December 31, 2020, January 1, 2020and December 31, 2019 (prior to the adoption of the CECL accounting standard).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Table 42 | 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) | | Amount | | Percent of
Total | | Percent of
Loans and
Leases Outstanding (1) |
| (Dollars in millions) | December 31, 2020 | | January 1, 2020 | | December 31, 2019 |
| Allowance for loan and lease losses | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 459 | | | 2.44 | % | | 0.21 | % | | $ | 212 | | | 1.72 | % | | 0.09 | % | | $ | 325 | | | 3.45 | % | | 0.14 | % |
| Home equity | 399 | | | 2.12 | | | 1.16 | | | 228 | | | 1.84 | | | 0.57 | | | 221 | | | 2.35 | | | 0.55 | |
| Credit card | 8,420 | | | 44.79 | | | 10.70 | | | 6,809 | | | 55.10 | | | 6.98 | | | 3,710 | | | 39.39 | | | 3.80 | |
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| Direct/Indirect consumer | 752 | | | 4.00 | | | 0.82 | | | 566 | | | 4.58 | | | 0.62 | | | 234 | | | 2.49 | | | 0.26 | |
| Other consumer | 41 | | | 0.22 | | | n/m | | 55 | | | 0.45 | | | n/m | | 52 | | | 0.55 | | | n/m |
| Total consumer | 10,071 | | | 53.57 | | | 2.35 | | | 7,870 | | | 63.69 | | | 1.69 | | | 4,542 | | | 48.23 | | | 0.98 | |
U.S. commercial (2) | 5,043 | | | 26.82 | | | 1.55 | | | 2,723 | | | 22.03 | | | 0.84 | | | 3,015 | | | 32.02 | | | 0.94 | |
| Non-U.S. commercial | 1,241 | | | 6.60 | | | 1.37 | | | 668 | | | 5.41 | | | 0.64 | | | 658 | | | 6.99 | | | 0.63 | |
| Commercial real estate | 2,285 | | | 12.15 | | | 3.79 | | | 1,036 | | | 8.38 | | | 1.65 | | | 1,042 | | | 11.07 | | | 1.66 | |
| Commercial lease financing | 162 | | | 0.86 | | | 0.95 | | | 61 | | | 0.49 | | | 0.31 | | | 159 | | | 1.69 | | | 0.80 | |
| Total commercial | 8,731 | | | 46.43 | | | 1.77 | | | 4,488 | | | 36.31 | | | 0.88 | | | 4,874 | | | 51.77 | | | 0.96 | |
| Allowance for loan and lease losses | 18,802 | | | 100.00 | % | | 2.04 | | | 12,358 | | | 100.00 | % | | 1.27 | | | 9,416 | | | 100.00 | % | | 0.97 | |
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| Reserve for unfunded lending commitments | 1,878 | | | | | | | 1,123 | | | | | | | 813 | | | | | |
| Allowance for credit losses | $ | 20,680 | | | | | | | $ | 13,481 | | | | | | | $ | 10,229 | | | | | |
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(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 $298 million at December 31, 2020 and $257 million at January 1, 2020 and December 31, 2019 and home equity loans of $437 million at December 31, 2020 and $337 million at January 1, 2020 and December 31, 2019. Commercial loans accounted for under the fair value option include U.S. commercial loans of $2.9 billion, $5.1 billion and $4.7 billion at December 31, 2020, January 1, 2020 and December 31, 2019, and non-U.S. commercial loans of $3.0 billion, $3.2 billion and $3.1 billion at December 31, 2020, January 1, 2020 and December 31, 2019.
(2)Includes allowance for loan and lease losses for U.S. small business commercial loans of $1.5 billion, $831 million and $523 million at December 31, 2020, January 1, 2020 and December 31, 2019.
n/m = not meaningful
Net charge-offs for 2020 were $4.1 billion compared to $3.6 billion in 2019 driven by increases in commercial losses. The provision for credit losses increased $7.7 billion to $11.3 billion during 2020 compared to 2019. The allowance for credit losses included a reserve build of $7.2 billion for 2020, excluding the impact of the MSRs, IRLCsnew accounting standard, primarily due to the deterioration in the economic outlook resulting from the impact of COVID-19 on both the consumer and LHFS, netcommercial portfolios. The provision for credit losses for the consumer portfolio, including unfunded lending commitments, increased $2.0 billion to $4.9 billion during 2020 compared to 2019. The provision for credit losses for the commercial portfolio, including unfunded
lending commitments, increased $5.7 billion to $6.5 billion during 2020 compared to 2019.
The following table presents a rollforward of gainsthe allowance for credit losses, including certain loan and allowance ratios for 2020, noting that measurement of the allowance for credit losses for 2019 was based on the hedge portfolio.management’s estimate of probable incurred losses. For more information on MSRs, see Note 20 – Fair Value Measurementsto the Consolidated Financial Statements and for more information on mortgage banking income, see Consumer Banking on page 31.
Compliance Risk Management
Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to the reputation of the Corporation arising from the failure of the Corporation to comply with the requirements of applicable laws, rules, regulations and related self-regulatory organizations’ standards and codes of conduct (collectively, applicable laws, rules and regulations). Global Compliance independently assesses compliance risk, and evaluates FLUs and control functions for adherence to applicable
laws, rules and regulations, including identifying compliance issues and risks, performing monitoring and developing tests to be conducted by the Enterprise Independent Testing unit, and reporting on the state of compliance activities across the Corporation. Enterprise Independent Testing, an independent testing function within IRM, works with Global Compliance, the FLUs and control functions in the identification of testing needs and test design, and is accountable for test execution, reporting and analysis of results. Additionally, Global Compliance works with FLUs and control functions so that day-to-day activities operate in a compliant manner.
The Corporation’s approach to the management of compliance risk is described in the Global Compliance - Enterprise Policy, which outlines the requirements of the Corporation’s global compliance program, and defines roles and responsibilities of FLUs, IRM and Corporate Audit, the three lines of defense in managing compliance risk. The requirements work together to drive a comprehensive risk-based approach for the proactive identification, management and escalation of compliance risks throughout the Corporation. For more information on FLUs and control functions, see Managing Risk on page 41.
The Global Compliance - Enterprise Policy also sets the requirements for reporting compliance risk information to executive management as well as the Board or appropriate Board-level committees in support of Global Compliance’s responsibility for conducting independent oversight of the Corporation’s compliance risk management activities. The Board provides oversight of compliance risk through its Audit Committee and the ERC.
Operational Risk Management
Operational risk is the risk ofcredit loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk may occur anywhere in the Corporation, including third-party business processes, and is not limited to operations functions. Effects may extend beyond financial losses and may result in reputational risk impacts. Operational risk includes legal risk. Additionally, operational risk is a component in the calculation of total risk-weighted assets used in the Basel 3 capital calculation. For more information on Basel 3 calculations, see Capital Management on page 45.
The Corporation’s approach to Operational Risk Management is outlined in the Operational Risk - Enterprise Policy, and supporting standards which establish the requirements and accountabilities for managing operational risk through a comprehensive set of integrated practices implemented by the Corporation so that our business processes are designed and executed effectively. The Operational Risk - Enterprise Policy is the basis for the operational risk management program.
The operational risk management program describes the processes for identifying, measuring, monitoring, controlling and reporting operational risk information to executive management, as well as the Board or Appropriate Board-Level committees. Under the operational risk management program, FLUs and control functions are responsible for identifying, escalating and debating risk associated with their business activities. The operational risk management teams independently monitor and assess processes and controls, and develop tests to be conducted by the Enterprise Independent Testing unit to validate that processes are operating as intended. The requirements work together to drive a comprehensive risk-based approach for the proactive identification, management and escalation of operational risks throughout the Corporation.
The MRC oversees the Corporation’saccounting policies and processes for operational risk management and serves as an escalation point for critical operational risk matters with the Corporation. The MRC reports operational risk activities to the ERC of the Board.
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 thoseactivity related to the management of our strategic, operational, compliance andallowance for credit risks.
The Corporation manages reputational risk through established policies and controls in its businesses and risk management processes to mitigate reputational risks in a timely manner and through proactive monitoring and identification of potential reputational risk events. The Corporation has processes and procedures in place to respond to events that give rise to reputational risk, including educating individuals and organizations that influence public opinion, 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 losses, see Note 1 – Summary of Significant Accounting Principlesand Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements,Statements.
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| Table 43 | Allowance for Credit Losses | | | | | | | |
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| (Dollars in millions) | 2020 | | | | | | 2019 |
| Allowance for loan and lease losses, January 1 | $ | 12,358 | | | | | | | $ | 9,601 | |
| Loans and leases charged off | | | | | | | |
| Residential mortgage | (40) | | | | | | | (93) | |
| Home equity | (58) | | | | | | | (429) | |
| Credit card | (2,967) | | | | | | | (3,535) | |
| Direct/Indirect consumer | (372) | | | | | | | (518) | |
| Other consumer | (307) | | | | | | | (249) | |
| Total consumer charge-offs | (3,744) | | | | | | | (4,824) | |
U.S. commercial (1) | (1,163) | | | | | | | (650) | |
| Non-U.S. commercial | (168) | | | | | | | (115) | |
| Commercial real estate | (275) | | | | | | | (31) | |
| Commercial lease financing | (69) | | | | | | | (26) | |
| Total commercial charge-offs | (1,675) | | | | | | | (822) | |
| Total loans and leases charged off | (5,419) | | | | | | | (5,646) | |
| Recoveries of loans and leases previously charged off | | | | | | | |
| Residential mortgage | 70 | | | | | | | 140 | |
| Home equity | 131 | | | | | | | 787 | |
| Credit card | 618 | | | | | | | 587 | |
| Direct/Indirect consumer | 250 | | | | | | | 309 | |
| Other consumer | 23 | | | | | | | 15 | |
| Total consumer recoveries | 1,092 | | | | | | | 1,838 | |
U.S. commercial (2) | 178 | | | | | | | 122 | |
| Non-U.S. commercial | 13 | | | | | | | 31 | |
| Commercial real estate | 5 | | | | | | | 2 | |
| Commercial lease financing | 10 | | | | | | | 5 | |
| Total commercial recoveries | 206 | | | | | | | 160 | |
| Total recoveries of loans and leases previously charged off | 1,298 | | | | | | | 1,998 | |
| Net charge-offs | (4,121) | | | | | | | (3,648) | |
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| Provision for loan and lease losses | 10,565 | | | | | | | 3,574 | |
| Other | — | | | | | | | (111) | |
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| Allowance for loan and lease losses, December 31 | 18,802 | | | | | | | 9,416 | |
| Reserve for unfunded lending commitments, January 1 | 1,123 | | | | | | | 797 | |
| Provision for unfunded lending commitments | 755 | | | | | | | 16 | |
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| Reserve for unfunded lending commitments, December 31 | 1,878 | | | | | | | 813 | |
| Allowance for credit losses, December 31 | $ | 20,680 | | | | | | | $ | 10,229 | |
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| Loan and allowance ratios: | | | | | | | |
Loans and leases outstanding at December 31 (3) | $ | 921,180 | | | | | | | $ | 975,091 | |
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (3) | 2.04 | % | | | | | | 0.97 | % |
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (4) | 2.35 | | | | | | | 0.98 | |
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (5) | 1.77 | | | | | | | 0.96 | |
Average loans and leases outstanding (3) | $ | 974,281 | | | | | | | $ | 951,583 | |
Annualized net charge-offs as a percentage of average loans and leases outstanding (3) | 0.42 | % | | | | | | 0.38 | % |
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| Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 | 380 | | | | | | | 265 | |
| Ratio of the allowance for loan and lease losses at December 31 to net charge-offs | 4.56 | | | | | | | 2.58 | |
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Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (6) | $ | 9,854 | | | | | | | $ | 4,151 | |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (6) | 181 | % | | | | | | 148 | % |
(1)Includes U.S. small business commercial charge-offs of $321 million in 2020 compared to $320 million in 2019.
(2)Includes U.S. small business commercial recoveries of $54 million in 2020 compared to $48 million in 2019.
(3)Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $6.7 billion and $8.3 billion at December 31, 2020 and 2019. Average loans accounted for under the fair value option were $8.2 billion in 2020 compared to $6.8 billion in 2019.
(4)Excludes consumer loans accounted for under the fair value option of $735 million and $594 million at December 31, 2020 and 2019.
(5)Excludes commercial loans accounted for under the fair value option of $5.9 billion and $7.7 billion at December 31, 2020 and 2019.
(6)Primarily includes amounts related to credit card and unsecured consumer lending portfolios in Consumer Banking.
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 essentialalso exposed to these risks in understandingother areas of the MD&A. ManyCorporation (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 82.
We have been affected, and expect to continue to be affected, by market stress resulting from the pandemic that began in the first quarter of 2020. For more information on the effects of the pandemic, see Executive Summary – Recent Developments – COVID-19 Pandemic on page 25.
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 significant accounting principles require complex judgmentsnon-trading positions arising from changes in interest rates is managed through our ALM activities. We have elected to estimateaccount 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.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.
Model risk is the potential for adverse consequences from decisions based on incorrect or misused model outputs and reports. Given that models are used across the Corporation, model risk impacts all risk types including credit, market and operational risks. The Enterprise Model Risk Policy defines model risk standards, consistent with our risk framework and risk appetite, prevailing regulatory guidance and industry best practice. All models, including risk management, valuation and regulatory capital models, must meet certain validation criteria, including effective challenge of the conceptual soundness of the model, independent model testing and ongoing monitoring through outcomes analysis and benchmarking. The Enterprise Model Risk Committee (EMRC), a subcommittee of the MRC, oversees that model standards are consistent with model risk requirements and monitors the effective challenge in the model validation process across the Corporation.
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 84.
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 risks 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, which 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 proceduresthe 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 processesstatistical 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 placemarket 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 facilitate making these judgments.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 50.
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 44 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 44 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 44 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 more judgmental estimatestotal market-based portfolio VaR results in Table 44 include market risk to which we are summarizedexposed 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 44 presents year-end, average, high and low daily trading VaR for 2020 and 2019 using a 99 percent confidence
level. The amounts disclosed in Table 44 and Table 45 align to the following discussion. We have identified and described the developmentview 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 becovered positions used in the processBasel 3 capital calculations. Foreign exchange and commodity positions are always considered covered positions, regardless of determiningtrading or banking treatment for the inputstrade, except for structural foreign currency positions that are excluded with prior regulatory approval.
The annual average of total covered positions and less liquid trading positions portfolio VaR increased for 2020 compared to 2019 primarily due to the models. Where alternatives exist,impact of market volatility related to the pandemic in the VaR look back period.
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| Table 44 | Market Risk VaR for Trading Activities | | | | | | | | | | | | | | | | |
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| 2020 | | 2019 | | | | |
| (Dollars in millions) | Year
End | | Average | | High (1) | | Low (1) | | Year
End | | Average | | High (1) | | Low (1) | | | | | | | | | | | | |
| Foreign exchange | $ | 8 | | | $ | 7 | | | $ | 25 | | | $ | 2 | | | $ | 4 | | | $ | 6 | | | $ | 13 | | | $ | 2 | | | | | | | | | | | | | |
| Interest rate | 30 | | | 19 | | | 39 | | | 7 | | | 25 | | | 24 | | | 49 | | | 14 | | | | | | | | | | | | | |
| Credit | 79 | | | 58 | | | 91 | | | 25 | | | 26 | | | 23 | | | 32 | | | 16 | | | | | | | | | | | | | |
| Equity | 20 | | | 24 | | | 162 | | | 12 | | | 29 | | | 22 | | | 33 | | | 14 | | | | | | | | | | | | | |
| Commodities | 4 | | | 6 | | | 12 | | | 3 | | | 4 | | | 6 | | | 31 | | | 4 | | | | | | | | | | | | | |
| Portfolio diversification | (72) | | | (61) | | | — | | | — | | | (47) | | | (49) | | | — | | | — | | | | | | | | | | | | | |
| Total covered positions portfolio | 69 | | | 53 | | | 171 | | | 27 | | | 41 | | | 32 | | | 47 | | | 24 | | | | | | | | | | | | | |
| Impact from less liquid exposures | 52 | | | 27 | | | — | | | — | | | — | | | 3 | | | — | | | — | | | | | | | | | | | | | |
| Total covered positions and less liquid trading positions portfolio | 121 | | | 80 | | | 169 | | | 30 | | | 41 | | | 35 | | | 53 | | | 27 | | | | | | | | | | | | | |
| Fair value option loans | 52 | | | 52 | | | 84 | | | 7 | | | 8 | | | 10 | | | 13 | | | 7 | | | | | | | | | | | | | |
| Fair value option hedges | 11 | | | 13 | | | 17 | | | 9 | | | 10 | | | 10 | | | 17 | | | 4 | | | | | | | | | | | | | |
| Fair value option portfolio diversification | (17) | | | (24) | | | — | | | — | | | (9) | | | (10) | | | — | | | — | | | | | | | | | | | | | |
| Total fair value option portfolio | 46 | | | 41 | | | 86 | | | 9 | | | 9 | | | 10 | | | 16 | | | 5 | | | | | | | | | | | | | |
| Portfolio diversification | (4) | | | (15) | | | — | | | — | | | (5) | | | (7) | | | — | | | — | | | | | | | | | | | | | |
| Total market-based portfolio | $ | 163 | | | $ | 106 | | | 171 | | | 32 | | | $ | 45 | | | $ | 38 | | | 56 | | | 28 | | | | | | | | | | | | | |
(1)The high and low for each portfolio may have occurred on different trading days than the high and low for the components. Therefore the impact from less liquid exposures and the amount of portfolio diversification, which is the difference between the total portfolio and the sum of the individual components, is not relevant.
The graph below presents the daily covered positions and less liquid trading positions portfolio VaR for 2020, corresponding to the data in Table 44. Peak VaR in mid-March 2020 was driven by increased market realized volatility and higher implied volatilities.
Additional VaR statistics produced within our single VaR model are provided in Table 45 at the same level of detail as in Table 44. Evaluating VaR with additional statistics allows for an increased understanding of the risks in the portfolio as the historical market data used in the VaR calculation does not necessarily follow a predefined statistical distribution. Table 45
presents average trading VaR statistics at 99 percent and 95 percent confidence levels for 2020 and 2019. The increase in VaR for the 99 percent confidence level for 2020 was primarily due to COVID-19 related market volatility, which impacted the 99 percent VaR average more severely than the 95 percent VaR average.
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| Table 45 | Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics |
| | | | | | | | | | | | | |
| | | |
| | | |
| | | 2020 | | | | 2019 |
| (Dollars in millions) | | 99 percent | | 95 percent | | | | | | 99 percent | | 95 percent |
| Foreign exchange | | $ | 7 | | | $ | 4 | | | | | | | $ | 6 | | | $ | 3 | |
| Interest rate | | 19 | | | 9 | | | | | | | 24 | | | 15 | |
| Credit | | 58 | | | 18 | | | | | | | 23 | | | 15 | |
| Equity | | 24 | | | 13 | | | | | | | 22 | | | 11 | |
| Commodities | | 6 | | | 3 | | | | | | | 6 | | | 3 | |
| Portfolio diversification | | (61) | | | (26) | | | | | | | (49) | | | (29) | |
| Total covered positions portfolio | | 53 | | | 21 | | | | | | | 32 | | | 18 | |
| Impact from less liquid exposures | | 27 | | | 2 | | | | | | | 3 | | | 2 | |
| Total covered positions and less liquid trading positions portfolio | | 80 | | | 23 | | | | | | | 35 | | | 20 | |
| Fair value option loans | | 52 | | | 13 | | | | | | | 10 | | | 5 | |
| Fair value option hedges | | 13 | | | 7 | | | | | | | 10 | | | 6 | |
| Fair value option portfolio diversification | | (24) | | | (8) | | | | | | | (10) | | | (5) | |
| Total fair value option portfolio | | 41 | | | 12 | | | | | | | 10 | | | 6 | |
| Portfolio diversification | | (15) | | | (6) | | | | | | | (7) | | | (5) | |
| Total market-based portfolio | | $ | 106 | | | $ | 29 | | | | | | | $ | 38 | | | $ | 21 | |
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 haveexpect 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 factors that we believe representVaR calculation.
The trading revenue used for backtesting is defined by regulatory agencies in order to most closely align with the most reasonable value in developingVaR component of the inputs. Actual performance thatregulatory 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 intra-day 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 2020, there were seven days where this subset of trading revenue had losses that exceeded 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. 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 2020 and 2019. During 2020, positive trading-related revenue was recorded for 98 percent of the trading days, of which 87 percent were daily trading gains of over $25 million, and the largest loss was $90 million. This compares to 2019 where positive trading-related revenue was recorded for 98 percent of the trading days, of which 80 percent were daily trading gains of over $25 million, and the largest loss was $35 million.
Trading Portfolio Stress Testing
Because the very nature of a VaR model suggests results can exceed our estimates ofand it is dependent on a limited historical window, we also stress test our portfolio using scenario analysis. This analysis estimates the key variables could impact our results of operations. Separate from the possible future impact to our results of operations from input and model variables,change in the value of our lendingtrading 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 market-sensitiveindividual 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 47.
Interest Rate Risk Management for the Banking Book
The following discussion presents net interest income for banking book activities.
Interest rate risk represents the most significant market risk exposure to our banking book balance sheet. Interest rate risk is measured as the potential change in net interest income caused by movements in market interest rates. Client-facing activities, primarily lending and deposit-taking, create interest rate sensitive positions on our balance sheet.
We prepare forward-looking forecasts of net interest income. The baseline forecast takes into consideration expected future business growth, ALM positioning -and the direction of interest rate movements as implied by the market-based forward curve.
We then measure and evaluate the impact that alternative interest rate scenarios have on the baseline forecast in order to assess interest rate sensitivity under varied conditions. The net interest income forecast is frequently updated for changing assumptions and differing outlooks based on economic trends, market conditions and business strategies. Thus, we continually monitor our balance sheet position in order to maintain an acceptable level of exposure to interest rate changes.
The interest rate scenarios that we analyze incorporate balance sheet assumptions such as loan and deposit growth and pricing, changes in funding mix, product repricing, maturity characteristics and investment securities premium amortization. Our overall goal is to manage interest rate risk so that movements in interest rates do not significantly adversely affect earnings and capital.
Table 46 presents the spot and 12-month forward rates used in our baseline forecasts at December 31, 2020 and 2019.
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| Table 46 | Forward Rates |
| | | | | | |
| | December 31, 2020 |
| | Federal
Funds | | Three-month
LIBOR | | 10-Year
Swap |
| Spot rates | 0.25 | % | | 0.24 | % | | 0.93 | % |
| 12-month forward rates | 0.25 | | | 0.19 | | | 1.06 | |
| | | | | | |
| | December 31, 2019 |
| Spot rates | 1.75 | % | | 1.91 | % | | 1.90 | % |
| 12-month forward rates | 1.50 | | | 1.62 | | | 1.92 | |
Table 47 shows the pretax impact to forecasted net interest income over the next 12 months from December 31, 2020 and 2019 resulting from instantaneous parallel and non-parallel
shocks to the market-based forward curve. Periodically we evaluate the scenarios presented so that they are meaningful in the context of the current rate environment. The interest rate scenarios also assume U.S. dollar rates are floored at zero.
During 2020, the asset sensitivity of our balance sheet increased in both up-rate and down-rate scenarios primarily due to continued deposit growth invested in long-term securities. We continue to be asset sensitive to a parallel upward move in interest rates with the majority of that impact coming from the short end of the yield curve. Additionally, higher interest rates impact the fair value of debt securities and, accordingly, for debt securities classified as AFS, may adversely affect accumulated OCI and thus capital levels under the Basel 3 capital rules. Under instantaneous upward parallel shifts, the near-term adverse impact to Basel 3 capital is reduced over time by offsetting positive impacts to net interest income. For more information on Basel 3, see Capital Management – Regulatory Capital on page 51.
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| Table 47 | Estimated Banking Book Net Interest Income Sensitivity to Curve Changes |
| | | | | | | | |
| | Short
Rate (bps) | | Long
Rate (bps) | | | | |
| | | December 31 |
| (Dollars in millions) | | | 2020 | | 2019 |
| | | | | | | |
| Parallel Shifts | | | | | | | |
+100 bps instantaneous shift | +100 | | +100 | | $ | 10,468 | | | $ | 4,190 | |
-25 bps instantaneous shift | -25 | | | -25 | | | (2,766) | | | (1,500) | |
| Flatteners | | | | | | | |
Short-end instantaneous change | +100 | | — | | | 6,321 | | | 2,641 | |
Long-end instantaneous change | — | | | -25 | | | (1,686) | | | (653) | |
| Steepeners | | | | | | | |
Short-end instantaneous change | -25 | | | — | | | (1,084) | | | (844) | |
Long-end instantaneous change | — | | | +100 | | 4,333 | | | 1,561 | |
The sensitivity analysis in Table 47 assumes that we take no action in response to these rate shocks and does not assume any change in other macroeconomic variables normally correlated with changes in interest rates. As part of our ALM activities, we use securities, certain residential mortgages, and interest rate and foreign exchange derivatives in managing interest rate sensitivity.
The behavior of our deposits 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 47 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 non-interest-bearing deposits with higher yielding deposits or market-based funding would reduce our benefit in those scenarios.
Interest Rate and Foreign Exchange Derivative Contracts
Interest rate and foreign exchange derivative contracts are utilized in our ALM activities and serve as an efficient tool to manage our interest rate and foreign exchange risk. We use derivatives to hedge the variability in cash flows or changes in fair value on our balance sheet due to interest rate and foreign exchange components. For more information on our hedging
activities, see Note 3 – Derivatives to the Consolidated Financial Statements.
Our interest rate contracts are generally non-leveraged generic interest rate and foreign exchange basis swaps, options, futures and forwards. In addition, we use foreign exchange contracts, including cross-currency interest rate swaps, foreign currency futures contracts, foreign currency forward contracts and options to mitigate the foreign exchange risk associated with foreign currency-denominated assets and liabilities.
Changes to the composition of our derivatives portfolio during 2020 reflect actions taken for interest rate and foreign exchange rate risk management. The decisions to reposition our derivatives portfolio are based on the current assessment of economic and financial conditions including the interest rate and foreign currency environments, balance sheet composition and trends, and the relative mix of our cash and derivative positions.
We use interest rate derivative instruments to hedge the variability in the cash flows of our assets and liabilities mayand other forecasted transactions (collectively referred to as cash flow hedges). The net results on both open and terminated cash flow hedge derivative instruments recorded in accumulated OCI were a gain of $580 million and a loss of $496 million, on a pretax basis, at December 31, 2020 and 2019. These gains and 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 subsequentin 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, 2020, the after-tax net gains are expected to be reclassified into earnings as follows: a gain of $187 million within the next year, a gain of $358 million in years two through five, a loss of $59 million in years six through ten, with the remaining loss of $50 million thereafter. For more information on derivatives designated as cash flow hedges, see Note 3 – Derivatives to the balance sheet date, often significantly, dueConsolidated Financial Statements.
We hedge our net investment in non-U.S. operations determined to have functional currencies other than the natureU.S. dollar using forward foreign exchange contracts that typically settle in less than 180 days, cross-currency basis swaps and magnitude of future credit and market conditions. Such credit and market conditions may change quickly andforeign exchange options. We recorded net after-tax losses on derivatives in unforeseen ways and the resulting volatility could have a significant, negative effectaccumulated OCI associated with net investment hedges which were offset by gains on future operating results.
our net investments in consolidated non-U.S. entities at December 31, 2020.These fluctuations would not be indicative of deficienciesTable 48 presents derivatives utilized in our modelsALM 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, 2020 and 2019. These amounts do not include derivative hedges on our MSRs. During 2020, the fair value of receive-fixed interest rate swaps increased while pay-fixed interest swaps decreased, primarily driven by lower swap rates on hedges of U.S. dollar long-term debt.
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| Table 48 | Asset and Liability Management Interest Rate and Foreign Exchange Contracts |
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| | | | December 31, 2020 | | |
| | | | Expected Maturity | | |
| (Dollars in millions, average estimated duration in years) | Fair
Value | | Total | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Average
Estimated
Duration |
Receive-fixed interest rate swaps (1) | $ | 14,885 | | | | | | | | | | | | | | | | | 8.08 | |
| Notional amount | �� | | $ | 269,015 | | | $ | 11,050 | | | $ | 20,908 | | | $ | 30,654 | | | $ | 31,317 | | | $ | 32,898 | | | $ | 142,188 | | | |
| Weighted-average fixed-rate | | | 1.54 | % | | 3.25 | % | | 0.91 | % | | 1.48 | % | | 1.17 | % | | 1.07 | % | | 1.69 | % | | |
Pay-fixed interest rate swaps (1) | (5,502) | | | | | | | | | | | | | | | | | 6.52 | |
| Notional amount | | | $ | 252,698 | | | $ | 7,562 | | | $ | 21,667 | | | $ | 24,671 | | | $ | 24,406 | | | $ | 32,052 | | | $ | 142,340 | | | |
| Weighted-average fixed-rate | | | 0.89 | % | | 0.57 | % | | 0.10 | % | | 1.28 | % | | 0.86 | % | | 0.68 | % | | 1.00 | % | | |
Same-currency basis swaps (2) | (235) | | | | | | | | | | | | | | | | | |
| Notional amount | | | $ | 223,659 | | | $ | 18,769 | | | $ | 12,245 | | | $ | 9,747 | | | $ | 22,737 | | | $ | 28,222 | | | $ | 131,939 | | | |
Foreign exchange basis swaps (1, 3, 4) | (1,014) | | | | | | | | | | | | | | | | | |
| Notional amount | | | 112,465 | | | 27,424 | | | 16,038 | | | 8,066 | | | 3,819 | | | 4,446 | | | 52,672 | | | |
Foreign exchange contracts (1, 4, 5) | 349 | | | | | | | | | | | | | | | | | |
Notional amount (6) | | | (42,490) | | | (69,299) | | | 2,841 | | | 2,505 | | | 4,735 | | | 4,369 | | | 12,359 | | | |
| Futures and forward rate contracts | 47 | | | | | | | | | | | | | | | | | |
| Notional amount | | | 14,255 | | | 14,255 | | | — | | | — | | | — | | | — | | | — | | | |
| Option products | — | | | | | | | | | | | | | | | | | |
| Notional amount | | | 17 | | | — | | | — | | | 17 | | | — | | | — | | | — | | | |
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| | | | | | | | | | | | | | | | | |
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| Net ALM contracts | $ | 8,530 | | | | | | | | | | | | | | | | | |
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| Table 48 | Asset and Liability Management Interest Rate and Foreign Exchange Contracts (continued) |
| | | | | | | | | | | | | | | | | | |
| | | | | December 31, 2019 | | |
| | | | | Expected Maturity | | |
| (Dollars in millions, average estimated duration in years) | Fair
Value | | Total | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Average
Estimated
Duration |
Receive-fixed interest rate swaps (1) | $ | 12,370 | | | | | | | | | | | | | | | | | 6.47 | |
| Notional amount | | | $ | 215,123 | | | $ | 16,347 | | | $ | 14,642 | | | $ | 21,616 | | | $ | 36,356 | | | $ | 21,257 | | | $ | 104,905 | | | |
| Weighted-average fixed-rate | | | 2.68 | % | | 2.68 | % | | 3.17 | % | | 2.48 | % | | 2.36 | % | | 2.55 | % | | 2.79 | % | | |
Pay-fixed interest rate swaps (1) | (2,669) | | | | | | | | | | | | | | | | | 6.99 | |
| Notional amount | | | $ | 69,586 | | | $ | 4,344 | | | $ | 2,117 | | | $ | — | | | $ | 13,993 | | | $ | 8,194 | | | $ | 40,938 | | | |
| Weighted-average fixed-rate | | | 2.36 | % | | 2.16 | % | | 2.15 | % | | — | % | | 2.52 | % | | 2.26 | % | | 2.35 | % | | |
Same-currency basis swaps (2) | (290) | | | | | | | | | | | | | | | | | |
| Notional amount | | | $ | 152,160 | | | $ | 18,857 | | | $ | 18,590 | | | $ | 4,306 | | | $ | 2,017 | | | $ | 14,567 | | | $ | 93,823 | | | |
Foreign exchange basis swaps (1, 3, 4) | (1,258) | | | | | | | | | | | | | | | | | |
| Notional amount | | | 113,529 | | | 23,639 | | | 24,215 | | | 14,611 | | | 7,111 | | | 3,521 | | | 40,432 | | | |
Foreign exchange contracts (1, 4, 5) | 414 | | | | | | | | | | | | | | | | | |
Notional amount (6) | | | (53,106) | | | (79,315) | | | 4,539 | | | 2,674 | | | 2,340 | | | 4,432 | | | 12,224 | | | |
| Option products | — | | | | | | | | | | | | | | | | | |
| Notional amount | | | 15 | | | — | | | — | | | — | | | 15 | | | — | | | — | | | |
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| Net ALM contracts | $ | 8,567 | | | | | | | | | | | | | | | | | |
(1)Does not include basis adjustments on either fixed-rate debt issued by the Corporation or inputs.AFS debt securities, which are hedged using derivatives designated as fair value hedging instruments, that substantially offset the fair values of these derivatives.
(2)At December 31, 2020 and 2019, the notional amount of same-currency basis swaps included $223.7 billion and $152.2 billion in both foreign currency and U.S. dollar-denominated basis swaps in which both sides of the swap are in the same currency.
(3)Foreign exchange basis swaps consisted of cross-currency variable interest rate swaps used separately or in conjunction with receive-fixed interest rate swaps.
(4)Does not include foreign currency translation adjustments on certain non-U.S. debt issued by the Corporation that substantially offset the fair values of these derivatives.
(5)The notional amount of foreign exchange contracts of $(42.5) billion at December 31, 2020 was comprised of $34.2 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(74.3) billion in net foreign currency forward rate contracts, $(3.1) billion in foreign currency-denominated interest rate swaps and $711 million in net foreign currency futures contracts. Foreign exchange contracts of $(53.1) billion at December 31, 2019 were comprised of $29.0 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(82.4) billion in net foreign currency forward rate contracts, $(313) million in foreign currency-denominated interest rate swaps and $644 million in foreign currency futures contracts.
(6)Reflects the net of long and short positions. Amounts shown as negative reflect a net short position.
Allowance for Credit Losses
On January 1, 2020, the Corporation adopted the new accounting standard that requires the measurement of the allowance for credit losses to be based on management’s best estimate of lifetime ECL inherent in the Corporation’s relevant financial assets. Upon adoption of the new accounting standard, the Corporation recorded a net increase of $3.3 billion in the allowance for credit losses which was comprised of a net increase of $2.9 billion in the allowance for loan and lease losses and an increase of $310 million in the reserve for unfunded lending commitments. The net increase was primarily driven by a $3.1 billion increase related to the credit card portfolio.
The allowance for credit losses further increased by $7.2 billion from January 1, 2020 to $20.7 billion at December 31, 2020, which included a $5.0 billion reserve increase related to the commercial portfolio and a $2.2 billion reserve increase related to the consumer portfolio. The increases were driven by deterioration in the economic outlook resulting from the impact of COVID-19.
The following table presents an allocation of the allowance for credit losses by product type for December 31, 2020, January 1, 2020and December 31, 2019 (prior to the adoption of the CECL accounting standard).
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| Table 42 | Allocation of the Allowance for Credit Losses by Product Type | | | | |
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| | | | | | | | | | |
| Amount | | Percent of
Total | | Percent of
Loans and
Leases Outstanding (1) | | 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, 2020 | | January 1, 2020 | | December 31, 2019 |
| Allowance for loan and lease losses | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 459 | | | 2.44 | % | | 0.21 | % | | $ | 212 | | | 1.72 | % | | 0.09 | % | | $ | 325 | | | 3.45 | % | | 0.14 | % |
| Home equity | 399 | | | 2.12 | | | 1.16 | | | 228 | | | 1.84 | | | 0.57 | | | 221 | | | 2.35 | | | 0.55 | |
| Credit card | 8,420 | | | 44.79 | | | 10.70 | | | 6,809 | | | 55.10 | | | 6.98 | | | 3,710 | | | 39.39 | | | 3.80 | |
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| Direct/Indirect consumer | 752 | | | 4.00 | | | 0.82 | | | 566 | | | 4.58 | | | 0.62 | | | 234 | | | 2.49 | | | 0.26 | |
| Other consumer | 41 | | | 0.22 | | | n/m | | 55 | | | 0.45 | | | n/m | | 52 | | | 0.55 | | | n/m |
| Total consumer | 10,071 | | | 53.57 | | | 2.35 | | | 7,870 | | | 63.69 | | | 1.69 | | | 4,542 | | | 48.23 | | | 0.98 | |
U.S. commercial (2) | 5,043 | | | 26.82 | | | 1.55 | | | 2,723 | | | 22.03 | | | 0.84 | | | 3,015 | | | 32.02 | | | 0.94 | |
| Non-U.S. commercial | 1,241 | | | 6.60 | | | 1.37 | | | 668 | | | 5.41 | | | 0.64 | | | 658 | | | 6.99 | | | 0.63 | |
| Commercial real estate | 2,285 | | | 12.15 | | | 3.79 | | | 1,036 | | | 8.38 | | | 1.65 | | | 1,042 | | | 11.07 | | | 1.66 | |
| Commercial lease financing | 162 | | | 0.86 | | | 0.95 | | | 61 | | | 0.49 | | | 0.31 | | | 159 | | | 1.69 | | | 0.80 | |
| Total commercial | 8,731 | | | 46.43 | | | 1.77 | | | 4,488 | | | 36.31 | | | 0.88 | | | 4,874 | | | 51.77 | | | 0.96 | |
| Allowance for loan and lease losses | 18,802 | | | 100.00 | % | | 2.04 | | | 12,358 | | | 100.00 | % | | 1.27 | | | 9,416 | | | 100.00 | % | | 0.97 | |
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| Reserve for unfunded lending commitments | 1,878 | | | | | | | 1,123 | | | | | | | 813 | | | | | |
| Allowance for credit losses | $ | 20,680 | | | | | | | $ | 13,481 | | | | | | | $ | 10,229 | | | | | |
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(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 $298 million at December 31, 2020 and $257 million at January 1, 2020 and December 31, 2019 and home equity loans of $437 million at December 31, 2020 and $337 million at January 1, 2020 and December 31, 2019. Commercial loans accounted for under the fair value option include U.S. commercial loans of $2.9 billion, $5.1 billion and $4.7 billion at December 31, 2020, January 1, 2020 and December 31, 2019, and non-U.S. commercial loans of $3.0 billion, $3.2 billion and $3.1 billion at December 31, 2020, January 1, 2020 and December 31, 2019.
(2)Includes allowance for loan and lease losses for U.S. small business commercial loans of $1.5 billion, $831 million and $523 million at December 31, 2020, January 1, 2020 and December 31, 2019.
n/m = not meaningful
Net charge-offs for 2020 were $4.1 billion compared to $3.6 billion in 2019 driven by increases in commercial losses. The provision for credit losses increased $7.7 billion to $11.3 billion during 2020 compared to 2019. The allowance for credit losses included a reserve build of $7.2 billion for 2020, excluding the impact of the new accounting standard, primarily due to the deterioration in the economic outlook resulting from the impact of COVID-19 on both the consumer and commercial portfolios. The provision for credit losses for the consumer portfolio, including unfunded lending commitments, increased $2.0 billion to $4.9 billion during 2020 compared to 2019. The provision for credit losses for the commercial portfolio, including unfunded
lending commitments, increased $5.7 billion to $6.5 billion during 2020 compared to 2019.
The following table presents a rollforward of the allowance for credit losses, including certain loan and allowance ratios for 2020, noting that measurement of the allowance for credit losses for 2019 was based on management’s estimate of probable incurred losses. For more information on the Corporation’s credit loss accounting policies and activity related to the allowance for credit losses, see Note 1 – Summary of Significant Accounting Principles and Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements.
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| Table 43 | Allowance for Credit Losses | | | | | | | |
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| (Dollars in millions) | 2020 | | | | | | 2019 |
| Allowance for loan and lease losses, January 1 | $ | 12,358 | | | | | | | $ | 9,601 | |
| Loans and leases charged off | | | | | | | |
| Residential mortgage | (40) | | | | | | | (93) | |
| Home equity | (58) | | | | | | | (429) | |
| Credit card | (2,967) | | | | | | | (3,535) | |
| Direct/Indirect consumer | (372) | | | | | | | (518) | |
| Other consumer | (307) | | | | | | | (249) | |
| Total consumer charge-offs | (3,744) | | | | | | | (4,824) | |
U.S. commercial (1) | (1,163) | | | | | | | (650) | |
| Non-U.S. commercial | (168) | | | | | | | (115) | |
| Commercial real estate | (275) | | | | | | | (31) | |
| Commercial lease financing | (69) | | | | | | | (26) | |
| Total commercial charge-offs | (1,675) | | | | | | | (822) | |
| Total loans and leases charged off | (5,419) | | | | | | | (5,646) | |
| Recoveries of loans and leases previously charged off | | | | | | | |
| Residential mortgage | 70 | | | | | | | 140 | |
| Home equity | 131 | | | | | | | 787 | |
| Credit card | 618 | | | | | | | 587 | |
| Direct/Indirect consumer | 250 | | | | | | | 309 | |
| Other consumer | 23 | | | | | | | 15 | |
| Total consumer recoveries | 1,092 | | | | | | | 1,838 | |
U.S. commercial (2) | 178 | | | | | | | 122 | |
| Non-U.S. commercial | 13 | | | | | | | 31 | |
| Commercial real estate | 5 | | | | | | | 2 | |
| Commercial lease financing | 10 | | | | | | | 5 | |
| Total commercial recoveries | 206 | | | | | | | 160 | |
| Total recoveries of loans and leases previously charged off | 1,298 | | | | | | | 1,998 | |
| Net charge-offs | (4,121) | | | | | | | (3,648) | |
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| Provision for loan and lease losses | 10,565 | | | | | | | 3,574 | |
| Other | — | | | | | | | (111) | |
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| Allowance for loan and lease losses, December 31 | 18,802 | | | | | | | 9,416 | |
| Reserve for unfunded lending commitments, January 1 | 1,123 | | | | | | | 797 | |
| Provision for unfunded lending commitments | 755 | | | | | | | 16 | |
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| Reserve for unfunded lending commitments, December 31 | 1,878 | | | | | | | 813 | |
| Allowance for credit losses, December 31 | $ | 20,680 | | | | | | | $ | 10,229 | |
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| Loan and allowance ratios: | | | | | | | |
Loans and leases outstanding at December 31 (3) | $ | 921,180 | | | | | | | $ | 975,091 | |
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (3) | 2.04 | % | | | | | | 0.97 | % |
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (4) | 2.35 | | | | | | | 0.98 | |
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (5) | 1.77 | | | | | | | 0.96 | |
Average loans and leases outstanding (3) | $ | 974,281 | | | | | | | $ | 951,583 | |
Annualized net charge-offs as a percentage of average loans and leases outstanding (3) | 0.42 | % | | | | | | 0.38 | % |
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| Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 | 380 | | | | | | | 265 | |
| Ratio of the allowance for loan and lease losses at December 31 to net charge-offs | 4.56 | | | | | | | 2.58 | |
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Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (6) | $ | 9,854 | | | | | | | $ | 4,151 | |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (6) | 181 | % | | | | | | 148 | % |
(1)Includes U.S. small business commercial charge-offs of $321 million in 2020 compared to $320 million in 2019.
(2)Includes U.S. small business commercial recoveries of $54 million in 2020 compared to $48 million in 2019.
(3)Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $6.7 billion and $8.3 billion at December 31, 2020 and 2019. Average loans accounted for under the fair value option were $8.2 billion in 2020 compared to $6.8 billion in 2019.
(4)Excludes consumer loans accounted for under the fair value option of $735 million and $594 million at December 31, 2020 and 2019.
(5)Excludes commercial loans accounted for under the fair value option of $5.9 billion and $7.7 billion at December 31, 2020 and 2019.
(6)Primarily includes amounts related to credit card and unsecured consumer lending portfolios in Consumer Banking.
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 82.
We have been affected, and expect to continue to be affected, by market stress resulting from the pandemic that began in the first quarter of 2020. For more information on the effects of the pandemic, see Executive Summary – Recent Developments – COVID-19 Pandemic on page 25.
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.
Model risk is the potential for adverse consequences from decisions based on incorrect or misused model outputs and reports. Given that models are used across the Corporation, model risk impacts all risk types including credit, market and operational risks. The Enterprise Model Risk Policy defines model risk standards, consistent with our risk framework and risk appetite, prevailing regulatory guidance and industry best practice. All models, including risk management, valuation and regulatory capital models, must meet certain validation criteria, including effective challenge of the conceptual soundness of the model, independent model testing and ongoing monitoring through outcomes analysis and benchmarking. The Enterprise Model Risk Committee (EMRC), a subcommittee of the MRC, oversees that model standards are consistent with model risk requirements and monitors the effective challenge in the model validation process across the Corporation.
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 84.
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 risks 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, which 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 50.
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 44 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 44 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 44 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 44 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 44 presents year-end, average, high and low daily trading VaR for 2020 and 2019 using a 99 percent confidence
level. The amounts disclosed in Table 44 and Table 45 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 annual average of total covered positions and less liquid trading positions portfolio VaR increased for 2020 compared to 2019 primarily due to the impact of market volatility related to the pandemic in the VaR look back period.
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| Table 44 | Market Risk VaR for Trading Activities | | | | | | | | | | | | | | | | |
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| 2020 | | 2019 | | | | |
| (Dollars in millions) | Year
End | | Average | | High (1) | | Low (1) | | Year
End | | Average | | High (1) | | Low (1) | | | | | | | | | | | | |
| Foreign exchange | $ | 8 | | | $ | 7 | | | $ | 25 | | | $ | 2 | | | $ | 4 | | | $ | 6 | | | $ | 13 | | | $ | 2 | | | | | | | | | | | | | |
| Interest rate | 30 | | | 19 | | | 39 | | | 7 | | | 25 | | | 24 | | | 49 | | | 14 | | | | | | | | | | | | | |
| Credit | 79 | | | 58 | | | 91 | | | 25 | | | 26 | | | 23 | | | 32 | | | 16 | | | | | | | | | | | | | |
| Equity | 20 | | | 24 | | | 162 | | | 12 | | | 29 | | | 22 | | | 33 | | | 14 | | | | | | | | | | | | | |
| Commodities | 4 | | | 6 | | | 12 | | | 3 | | | 4 | | | 6 | | | 31 | | | 4 | | | | | | | | | | | | | |
| Portfolio diversification | (72) | | | (61) | | | — | | | — | | | (47) | | | (49) | | | — | | | — | | | | | | | | | | | | | |
| Total covered positions portfolio | 69 | | | 53 | | | 171 | | | 27 | | | 41 | | | 32 | | | 47 | | | 24 | | | | | | | | | | | | | |
| Impact from less liquid exposures | 52 | | | 27 | | | — | | | — | | | — | | | 3 | | | — | | | — | | | | | | | | | | | | | |
| Total covered positions and less liquid trading positions portfolio | 121 | | | 80 | | | 169 | | | 30 | | | 41 | | | 35 | | | 53 | | | 27 | | | | | | | | | | | | | |
| Fair value option loans | 52 | | | 52 | | | 84 | | | 7 | | | 8 | | | 10 | | | 13 | | | 7 | | | | | | | | | | | | | |
| Fair value option hedges | 11 | | | 13 | | | 17 | | | 9 | | | 10 | | | 10 | | | 17 | | | 4 | | | | | | | | | | | | | |
| Fair value option portfolio diversification | (17) | | | (24) | | | — | | | — | | | (9) | | | (10) | | | — | | | — | | | | | | | | | | | | | |
| Total fair value option portfolio | 46 | | | 41 | | | 86 | | | 9 | | | 9 | | | 10 | | | 16 | | | 5 | | | | | | | | | | | | | |
| Portfolio diversification | (4) | | | (15) | | | — | | | — | | | (5) | | | (7) | | | — | | | — | | | | | | | | | | | | | |
| Total market-based portfolio | $ | 163 | | | $ | 106 | | | 171 | | | 32 | | | $ | 45 | | | $ | 38 | | | 56 | | | 28 | | | | | | | | | | | | | |
(1)The high and low for each portfolio may have occurred on different trading days than the high and low for the components. Therefore the impact from less liquid exposures and the amount of portfolio diversification, which is the difference between the total portfolio and the sum of the individual components, is not relevant.
The graph below presents the daily covered positions and less liquid trading positions portfolio VaR for 2020, corresponding to the data in Table 44. Peak VaR in mid-March 2020 was driven by increased market realized volatility and higher implied volatilities.
Additional VaR statistics produced within our single VaR model are provided in Table 45 at the same level of detail as in Table 44. Evaluating VaR with additional statistics allows for an increased understanding of the risks in the portfolio as the historical market data used in the VaR calculation does not necessarily follow a predefined statistical distribution. Table 45
presents average trading VaR statistics at 99 percent and 95 percent confidence levels for 2020 and 2019. The increase in VaR for the 99 percent confidence level for 2020 was primarily due to COVID-19 related market volatility, which impacted the 99 percent VaR average more severely than the 95 percent VaR average.
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| Table 45 | Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics |
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| | | 2020 | | | | 2019 |
| (Dollars in millions) | | 99 percent | | 95 percent | | | | | | 99 percent | | 95 percent |
| Foreign exchange | | $ | 7 | | | $ | 4 | | | | | | | $ | 6 | | | $ | 3 | |
| Interest rate | | 19 | | | 9 | | | | | | | 24 | | | 15 | |
| Credit | | 58 | | | 18 | | | | | | | 23 | | | 15 | |
| Equity | | 24 | | | 13 | | | | | | | 22 | | | 11 | |
| Commodities | | 6 | | | 3 | | | | | | | 6 | | | 3 | |
| Portfolio diversification | | (61) | | | (26) | | | | | | | (49) | | | (29) | |
| Total covered positions portfolio | | 53 | | | 21 | | | | | | | 32 | | | 18 | |
| Impact from less liquid exposures | | 27 | | | 2 | | | | | | | 3 | | | 2 | |
| Total covered positions and less liquid trading positions portfolio | | 80 | | | 23 | | | | | | | 35 | | | 20 | |
| Fair value option loans | | 52 | | | 13 | | | | | | | 10 | | | 5 | |
| Fair value option hedges | | 13 | | | 7 | | | | | | | 10 | | | 6 | |
| Fair value option portfolio diversification | | (24) | | | (8) | | | | | | | (10) | | | (5) | |
| Total fair value option portfolio | | 41 | | | 12 | | | | | | | 10 | | | 6 | |
| Portfolio diversification | | (15) | | | (6) | | | | | | | (7) | | | (5) | |
| Total market-based portfolio | | $ | 106 | | | $ | 29 | | | | | | | $ | 38 | | | $ | 21 | |
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 intra-day 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 2020, there were seven days where this subset of trading revenue had losses that exceeded 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. 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 2020 and 2019. During 2020, positive trading-related revenue was recorded for 98 percent of the trading days, of which 87 percent were daily trading gains of over $25 million, and the largest loss was $90 million. This compares to 2019 where positive trading-related revenue was recorded for 98 percent of the trading days, of which 80 percent were daily trading gains of over $25 million, and the largest loss was $35 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 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 47.
Interest Rate Risk Management for the Banking Book
The following discussion presents net interest income for banking book activities.
Interest rate risk represents the most significant market risk exposure to our banking book balance sheet. Interest rate risk is measured as the potential change in net interest income caused by movements in market interest rates. Client-facing activities, primarily lending and deposit-taking, create interest rate sensitive positions on our balance sheet.
We prepare forward-looking forecasts of net interest income. The baseline forecast takes into consideration expected future business growth, ALM positioning -and the direction of interest rate movements as implied by the market-based forward curve.
We then measure and evaluate the impact that alternative interest rate scenarios have on the baseline forecast in order to assess interest rate sensitivity under varied conditions. The net interest income forecast is frequently updated for changing assumptions and differing outlooks based on economic trends, market conditions and business strategies. Thus, we continually monitor our balance sheet position in order to maintain an acceptable level of exposure to interest rate changes.
The interest rate scenarios that we analyze incorporate balance sheet assumptions such as loan and deposit growth and pricing, changes in funding mix, product repricing, maturity characteristics and investment securities premium amortization. Our overall goal is to manage interest rate risk so that movements in interest rates do not significantly adversely affect earnings and capital.
Table 46 presents the spot and 12-month forward rates used in our baseline forecasts at December 31, 2020 and 2019.
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| Table 46 | Forward Rates |
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| | December 31, 2020 |
| | Federal
Funds | | Three-month
LIBOR | | 10-Year
Swap |
| Spot rates | 0.25 | % | | 0.24 | % | | 0.93 | % |
| 12-month forward rates | 0.25 | | | 0.19 | | | 1.06 | |
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| | December 31, 2019 |
| Spot rates | 1.75 | % | | 1.91 | % | | 1.90 | % |
| 12-month forward rates | 1.50 | | | 1.62 | | | 1.92 | |
Table 47 shows the pretax impact to forecasted net interest income over the next 12 months from December 31, 2020 and 2019 resulting from instantaneous parallel and non-parallel
shocks to the market-based forward curve. Periodically we evaluate the scenarios presented so that they are meaningful in the context of the current rate environment. The interest rate scenarios also assume U.S. dollar rates are floored at zero.
During 2020, the asset sensitivity of our balance sheet increased in both up-rate and down-rate scenarios primarily due to continued deposit growth invested in long-term securities. We continue to be asset sensitive to a parallel upward move in interest rates with the majority of that impact coming from the short end of the yield curve. Additionally, higher interest rates impact the fair value of debt securities and, accordingly, for debt securities classified as AFS, may adversely affect accumulated OCI and thus capital levels under the Basel 3 capital rules. Under instantaneous upward parallel shifts, the near-term adverse impact to Basel 3 capital is reduced over time by offsetting positive impacts to net interest income. For more information on Basel 3, see Capital Management – Regulatory Capital on page 51.
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| Table 47 | Estimated Banking Book Net Interest Income Sensitivity to Curve Changes |
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| | Short
Rate (bps) | | Long
Rate (bps) | | | | |
| | | December 31 |
| (Dollars in millions) | | | 2020 | | 2019 |
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| Parallel Shifts | | | | | | | |
+100 bps instantaneous shift | +100 | | +100 | | $ | 10,468 | | | $ | 4,190 | |
-25 bps instantaneous shift | -25 | | | -25 | | | (2,766) | | | (1,500) | |
| Flatteners | | | | | | | |
Short-end instantaneous change | +100 | | — | | | 6,321 | | | 2,641 | |
Long-end instantaneous change | — | | | -25 | | | (1,686) | | | (653) | |
| Steepeners | | | | | | | |
Short-end instantaneous change | -25 | | | — | | | (1,084) | | | (844) | |
Long-end instantaneous change | — | | | +100 | | 4,333 | | | 1,561 | |
The sensitivity analysis in Table 47 assumes that we take no action in response to these rate shocks and does not assume any change in other macroeconomic variables normally correlated with changes in interest rates. As part of our ALM activities, we use securities, certain residential mortgages, and interest rate and foreign exchange derivatives in managing interest rate sensitivity.
The behavior of our deposits 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 47 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 non-interest-bearing deposits with higher yielding deposits or market-based funding would reduce our benefit in those scenarios.
Interest Rate and Foreign Exchange Derivative Contracts
Interest rate and foreign exchange derivative contracts are utilized in our ALM activities and serve as an efficient tool to manage our interest rate and foreign exchange risk. We use derivatives to hedge the variability in cash flows or changes in fair value on our balance sheet due to interest rate and foreign exchange components. For more information on our hedging
activities, see Note 3 – Derivatives to the Consolidated Financial Statements.
Our interest rate contracts are generally non-leveraged generic interest rate and foreign exchange basis swaps, options, futures and forwards. In addition, we use foreign exchange contracts, including cross-currency interest rate swaps, foreign currency futures contracts, foreign currency forward contracts and options to mitigate the foreign exchange risk associated with foreign currency-denominated assets and liabilities.
Changes to the composition of our derivatives portfolio during 2020 reflect actions taken for interest rate and foreign exchange rate risk management. The decisions to reposition our derivatives portfolio are based on the current assessment of economic and financial conditions including the interest rate and foreign currency environments, balance sheet composition and trends, and the relative mix of our cash and derivative positions.
We use interest rate derivative instruments to hedge the variability in the cash flows of our assets and liabilities and other forecasted transactions (collectively referred to as cash flow hedges). The net results on both open and terminated cash flow hedge derivative instruments recorded in accumulated OCI were a gain of $580 million and a loss of $496 million, on a pretax basis, at December 31, 2020 and 2019. These gains and 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, 2020, the after-tax net gains are expected to be reclassified into earnings as follows: a gain of $187 million within the next year, a gain of $358 million in years two through five, a loss of $59 million in years six through ten, with the remaining loss of $50 million thereafter. For more information on derivatives designated as cash flow hedges, see Note 3 – Derivatives to the Consolidated Financial Statements.
We hedge our net investment in non-U.S. operations determined to have functional currencies other than the U.S. dollar using forward foreign exchange contracts that typically settle in less than 180 days, cross-currency basis swaps and foreign exchange options. We recorded net after-tax losses on derivatives in accumulated OCI associated with net investment hedges which were offset by gains on our net investments in consolidated non-U.S. entities at December 31, 2020.
Table 48 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, 2020 and 2019. These amounts do not include derivative hedges on our MSRs. During 2020, the fair value of receive-fixed interest rate swaps increased while pay-fixed interest swaps decreased, primarily driven by lower swap rates on hedges of U.S. dollar long-term debt.
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| Table 48 | Asset and Liability Management Interest Rate and Foreign Exchange Contracts |
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| | | | December 31, 2020 | | |
| | | | Expected Maturity | | |
| (Dollars in millions, average estimated duration in years) | Fair
Value | | Total | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Average
Estimated
Duration |
Receive-fixed interest rate swaps (1) | $ | 14,885 | | | | | | | | | | | | | | | | | 8.08 | |
| Notional amount | �� | | $ | 269,015 | | | $ | 11,050 | | | $ | 20,908 | | | $ | 30,654 | | | $ | 31,317 | | | $ | 32,898 | | | $ | 142,188 | | | |
| Weighted-average fixed-rate | | | 1.54 | % | | 3.25 | % | | 0.91 | % | | 1.48 | % | | 1.17 | % | | 1.07 | % | | 1.69 | % | | |
Pay-fixed interest rate swaps (1) | (5,502) | | | | | | | | | | | | | | | | | 6.52 | |
| Notional amount | | | $ | 252,698 | | | $ | 7,562 | | | $ | 21,667 | | | $ | 24,671 | | | $ | 24,406 | | | $ | 32,052 | | | $ | 142,340 | | | |
| Weighted-average fixed-rate | | | 0.89 | % | | 0.57 | % | | 0.10 | % | | 1.28 | % | | 0.86 | % | | 0.68 | % | | 1.00 | % | | |
Same-currency basis swaps (2) | (235) | | | | | | | | | | | | | | | | | |
| Notional amount | | | $ | 223,659 | | | $ | 18,769 | | | $ | 12,245 | | | $ | 9,747 | | | $ | 22,737 | | | $ | 28,222 | | | $ | 131,939 | | | |
Foreign exchange basis swaps (1, 3, 4) | (1,014) | | | | | | | | | | | | | | | | | |
| Notional amount | | | 112,465 | | | 27,424 | | | 16,038 | | | 8,066 | | | 3,819 | | | 4,446 | | | 52,672 | | | |
Foreign exchange contracts (1, 4, 5) | 349 | | | | | | | | | | | | | | | | | |
Notional amount (6) | | | (42,490) | | | (69,299) | | | 2,841 | | | 2,505 | | | 4,735 | | | 4,369 | | | 12,359 | | | |
| Futures and forward rate contracts | 47 | | | | | | | | | | | | | | | | | |
| Notional amount | | | 14,255 | | | 14,255 | | | — | | | — | | | — | | | — | | | — | | | |
| Option products | — | | | | | | | | | | | | | | | | | |
| Notional amount | | | 17 | | | — | | | — | | | 17 | | | — | | | — | | | — | | | |
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| Net ALM contracts | $ | 8,530 | | | | | | | | | | | | | | | | | |
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| Table 48 | Asset and Liability Management Interest Rate and Foreign Exchange Contracts (continued) |
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| | | | | December 31, 2019 | | |
| | | | | Expected Maturity | | |
| (Dollars in millions, average estimated duration in years) | Fair
Value | | Total | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Average
Estimated
Duration |
Receive-fixed interest rate swaps (1) | $ | 12,370 | | | | | | | | | | | | | | | | | 6.47 | |
| Notional amount | | | $ | 215,123 | | | $ | 16,347 | | | $ | 14,642 | | | $ | 21,616 | | | $ | 36,356 | | | $ | 21,257 | | | $ | 104,905 | | | |
| Weighted-average fixed-rate | | | 2.68 | % | | 2.68 | % | | 3.17 | % | | 2.48 | % | | 2.36 | % | | 2.55 | % | | 2.79 | % | | |
Pay-fixed interest rate swaps (1) | (2,669) | | | | | | | | | | | | | | | | | 6.99 | |
| Notional amount | | | $ | 69,586 | | | $ | 4,344 | | | $ | 2,117 | | | $ | — | | | $ | 13,993 | | | $ | 8,194 | | | $ | 40,938 | | | |
| Weighted-average fixed-rate | | | 2.36 | % | | 2.16 | % | | 2.15 | % | | — | % | | 2.52 | % | | 2.26 | % | | 2.35 | % | | |
Same-currency basis swaps (2) | (290) | | | | | | | | | | | | | | | | | |
| Notional amount | | | $ | 152,160 | | | $ | 18,857 | | | $ | 18,590 | | | $ | 4,306 | | | $ | 2,017 | | | $ | 14,567 | | | $ | 93,823 | | | |
Foreign exchange basis swaps (1, 3, 4) | (1,258) | | | | | | | | | | | | | | | | | |
| Notional amount | | | 113,529 | | | 23,639 | | | 24,215 | | | 14,611 | | | 7,111 | | | 3,521 | | | 40,432 | | | |
Foreign exchange contracts (1, 4, 5) | 414 | | | | | | | | | | | | | | | | | |
Notional amount (6) | | | (53,106) | | | (79,315) | | | 4,539 | | | 2,674 | | | 2,340 | | | 4,432 | | | 12,224 | | | |
| Option products | — | | | | | | | | | | | | | | | | | |
| Notional amount | | | 15 | | | — | | | — | | | — | | | 15 | | | — | | | — | | | |
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| Net ALM contracts | $ | 8,567 | | | | | | | | | | | | | | | | | |
(1)Does not include basis adjustments on either fixed-rate debt issued by the Corporation or AFS debt securities, which are hedged using derivatives designated as fair value hedging instruments, that substantially offset the fair values of these derivatives.
(2)At December 31, 2020 and 2019, the notional amount of same-currency basis swaps included $223.7 billion and $152.2 billion in both foreign currency and U.S. dollar-denominated basis swaps in which both sides of the swap are in the same currency.
(3)Foreign exchange basis swaps consisted of cross-currency variable interest rate swaps used separately or in conjunction with receive-fixed interest rate swaps.
(4)Does not include foreign currency translation adjustments on certain non-U.S. debt issued by the Corporation that substantially offset the fair values of these derivatives.
(5)The notional amount of foreign exchange contracts of $(42.5) billion at December 31, 2020 was comprised of $34.2 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(74.3) billion in net foreign currency forward rate contracts, $(3.1) billion in foreign currency-denominated interest rate swaps and $711 million in net foreign currency futures contracts. Foreign exchange contracts of $(53.1) billion at December 31, 2019 were comprised of $29.0 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(82.4) billion in net foreign currency forward rate contracts, $(313) million in foreign currency-denominated interest rate swaps and $644 million in foreign currency futures contracts.
(6)Reflects the net of long and short positions. Amounts shown as negative reflect a net short position.
Mortgage Banking Risk Management
We originate, fund and service mortgage loans, which subject us to credit, liquidity and interest rate risks, among others. We determine whether loans will be held for investment or held for sale at the time of commitment and manage credit and liquidity risks by selling or securitizing a portion of the loans we originate.
Interest rate risk and market risk can be substantial in the mortgage business. Changes in interest rates and other market factors impact the volume of mortgage originations. Changes in interest rates also impact the value of interest rate lock commitments (IRLCs) and the related residential first mortgage loans held-for-sale (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 hedged items offset, we combine them into one overall hedged item with one combined economic hedge portfolio consisting of derivative contracts and securities.
During 2020, 2019 and 2018, we recorded gains of $321 million, $291 million and $244 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 RWA used in the Basel 3 capital calculation. For more information on Basel 3 calculations, see Capital Management on page 50.
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 third-party dependencies, 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 and 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.
Corporate Audit provides independent assessment and validation through testing of key compliance and operational risk processes and controls across the Corporation.
The Corporation's Global Compliance Enterprise Policy and Operational Risk Management - Enterprise Policy 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, including as a result of malicious technological attacks, that impact the confidentiality, availability or integrity of our, or third parties' (including their downstream service providers, the financial services industry and financial data aggregators) 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, detective and responsive 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.
Climate Risk Management
Climate-related risks are divided into two major categories: (1) risks related to the transition to a low-carbon economy, which may entail extensive policy, legal, technology and market
changes, and (2) risks related to the physical impacts of climate change, driven by extreme weather events, such as hurricanes and floods, as well as chronic longer-term shifts, such as temperature increases and sea level rises. These changes and events can have broad impacts on operations, supply chains, distribution networks, customers, and markets and are otherwise referred to, respectively, as transition risk and physical risk. The financial impacts of transition risk can lead to and amplify credit risk. Physical risk can also lead to increased credit risk by diminishing borrowers’ repayment capacity or collateral values.
As climate risk is interconnected with all key risk types, we have developed and continue to enhance processes to embed climate risk considerations into our Risk Framework and risk management programs established for strategic, credit, market, liquidity, compliance, operational and reputational risks. A key element of how we manage climate risk is the Risk Identification process through which climate and other risks are identified across all FLUs and control functions, prioritized in our risk inventory and evaluated to determine estimated severity and likelihood of occurrence. Once identified, climate risks are assessed for potential impacts and incorporated into the design of macroeconomic scenarios to generate loss forecasts and assess how climate-related impacts could affect us and our clients.
Our governance framework establishes oversight of climate risk practices and strategies by the Board, supported by its Corporate Governance, ESG, and Sustainability Committee, the ERC and the Global Environmental, Social and Governance Committee, a management-level committee comprised of senior leaders across every major FLU and control function. The Climate Risk Steering Council oversees our climate risk management practices, shapes our approach to managing climate-related risks in line with our Risk Framework and meets monthly. In 2020, the climate risk management effort was bolstered through the appointment of a Global Climate Risk Executive who reports to the CRO, and establishment of a new division within our Global Risk organization to drive execution of the climate risk management program with the support of FLUs, Technology & Operations and Risk partners. For additional information about climate risk, see the Bank of America website (the content of which is not incorporated by reference into this Annual Report on Form 10-K).
Complex Accounting Estimates
Our significant accounting principles, as described in Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements, are essential in understanding the MD&A. Many of our significant accounting principles require complex judgments to estimate the values of assets and liabilities. We have procedures and processes in place to facilitate making these judgments.
The more judgmental estimates are summarized in the following discussion. We have identified and described the development of the variables most important in the estimation processes that involve mathematical models to derive the estimates. In many cases, there are numerous alternative judgments that could be used in the process of determining the inputs to the models. Where alternatives exist, we have used the factors that we believe represent the most reasonable value in developing the inputs. Actual performance that differs from our estimates of the key variables could 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
On January 1, 2020, the Corporation adopted the new accounting standard that requires the measurement of the allowance for credit losses, which includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, representsto be based on management’s best estimate of probable losseslifetime ECL inherent in the Corporation’sCorporation's relevant financial assets.
The Corporation's estimate of lifetime ECL includes the use of quantitative models that incorporate forward-looking macroeconomic scenarios that are applied over the contractual life of the loan portfolios, adjusted for expected prepayments and borrower-controlled extension options. These macroeconomic scenarios include variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to, unemployment rates, real estate prices, gross domestic product and corporate bond spreads. As any one economic outlook is inherently uncertain, the Corporation leverages multiple scenarios. The scenarios that are chosen each quarter and the amount of weighting given to each scenario depend on a variety of factors including recent economic events, leading economic indicators, views of internal and third-party economists and industry trends.
The Corporation also includes qualitative reserves to cover losses that are expected but, in the Corporation's assessment, may not be adequately reflected in the economic assumptions described above. For example, factors the Corporation considers include changes in lending policies and procedures, business conditions, the nature and size of the portfolio, excluding thoseportfolio concentrations, the volume and severity of past due loans accountedand nonaccrual loans, the effect of external factors such as competition and legal and regulatory requirements, among others. Further, the Corporation considers the inherent uncertainty in quantitative models that are built on historical data.
The allowance for undercredit losses can also be impacted by unanticipated changes in asset quality of the fair value option.portfolio, such as increases in risk rating downgrades in our commercial portfolio, deterioration in borrower delinquencies or credit scores in our credit card portfolio or increases in LTVs in our consumer real estate portfolio. In addition, while we have incorporated our estimated impact of COVID-19 into our allowance for credit losses, the ultimate impact of the pandemic is still unknown, including how long economic activities will be impacted and what effect the unprecedented levels of government fiscal and monetary actions will have on the economy and our credit losses.
As described above, the process to determine the allowance for credit losses requires numerous estimates and assumptions, some of which require a high degree of judgment and are often interrelated. Changes in the estimates and assumptions can result in significant changes in the allowance for credit losses. Our process for determining the allowance for credit losses is further discussed in Note 1 – Summary of Significant Accounting Principles and Note 5 – Outstanding Loans
and Leases and Allowance for Credit Lossesto the Consolidated Financial Statements.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, 2017 would have increased $36 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 could result in a $99 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, 2017 would have increased $41 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 risk-rated Doubtful as defined by regulatory authorities, the allowance for loan and lease losses would have increased $2.6 billion at December 31, 2017.
The allowance for loan and lease losses as a percentage of total loans and leases at December 31, 2017 was 1.12 percent and these hypothetical increases in the allowance would raise the ratio to 1.41 percent.
These sensitivity analyses do not represent management’s expectations of the deterioration in risk ratings or the increases in loss rates but are provided as hypothetical scenarios to assess the sensitivity of the allowance for loan and lease losses to changes in key inputs. We believe the risk ratings and loss severities currently in use are appropriate and that the probability of the alternative scenarios outlined above occurring within a short period of time is remote.
The process of determining the level of the allowance for credit losses requires a high degree of judgment. It is possible that others, given the same information, may at any point in time reach different reasonable conclusions.
Fair Value of Financial Instruments
We are, underUnder applicable accounting standards, we are required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. We classify fair value measurements of financial instruments and MSRs based on the three-level fair value hierarchy in the accounting standards.
The fair values of assets and liabilities may include adjustments, such as market liquidity and credit quality, where appropriate. Valuations of products using models or other techniques are sensitive to assumptions used for the significant inputs. Where market data is available, the inputs used for valuation reflect that information as of our valuation date. Inputs to valuation models are considered unobservable if they are supported by little or no market activity. In periods of extreme volatility, lessened liquidity or in illiquid markets, there may be more variability in market pricing or a lack of market data to use in the valuation process. In keeping with the prudent application of estimates and management judgment in determining the fair value of assets and liabilities, we have in place various processes and controls that include: a model validation policy that requires review and approval of quantitative models used for deal pricing, financial statement 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. Similarly,For example, broker quotes that are executable are given a higher level of reliance thanin less active markets may only be indicative broker quotes, which are not executable.and therefore less reliable. These processes and controls are performed independently of the business. For more information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value Option to the Consolidated Financial Statements.
Level 3 Assets and Liabilities
Financial assets and liabilities, and MSRs, where values are based on valuation techniques that require inputs that are both unobservable and are significant to the overall fair value measurement are classified as Level 3 under the fair value hierarchy established in applicable accounting standards. The fair value of these Level 3 financial assets and liabilities and MSRs is determined using pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value requires significant management judgment or estimation. Total recurring Level 3 assets were $12.9 billion, or 0.57 percent of total assets, and total recurring Level 3 liabilities were $7.7 billion, or 0.38 percent of total liabilities, at December 31, 2017 compared to $14.5 billion or 0.66 percent and $7.2 billion or 0.37 percent at December 31, 2016.
Level 3 financial instruments may be hedged with derivatives classified as Level 1 or 2; therefore, gains or losses associated with Level 3 financial instruments may be offset by gains or losses associated with financial instruments classified in other levels of the fair value hierarchy. The Level 3 gains and losses recorded in earnings did not have a significant impact on our liquidity or capital. We conduct a review of our fair value hierarchy classifications on a quarterly basis. Transfers into or out of Level 3 are made if the significant inputs used in the financial models
measuring the fair values of the assets and
liabilities became unobservable or observable, respectively, in the current marketplace. These transfers are considered to be effective as of the beginning of the quarter in which they occur. For more information on the significant transfers into and out of Level 3 during 20172020, 2019 and 2016,2018, see Note 20 – Fair Value Measurements to the Consolidated Financial Statements.
Accrued Income Taxes and Deferred Tax Assets
Accrued income taxes, reported as a component of either other assets or accrued expenses and other liabilities on the Consolidated Balance Sheet, represent the net amount of current income taxes we expect to pay to or receive from various taxing jurisdictions attributable to our operations to date. We currently file income tax returns in more than 100 federal, state and non-U.S. jurisdictions and consider many factors, including statutory, judicial and regulatory guidance,, in estimating the appropriate accrued income taxes for each jurisdiction.
Net deferred tax assets, reported as a component of other assets on the Consolidated Balance Sheet, represent the net decrease in taxes expected to be paid in the future because of net operating loss (NOL) and tax credit carryforwards and because of future reversals of temporary differences in the bases of assets and liabilities as measured by tax laws and their bases as reported in the financial statements. NOL and tax credit carryforwards result in reductions to future tax liabilities, and many of these attributes can expire if not utilized within certain periods. We consider the need for valuation allowances to reduce net deferred tax assets to the amounts that we estimate are more-likely-than-notmore likely than not to be realized.
Consistent with the applicable accounting standards,guidance, we monitor relevant tax authorities and change our estimates of accrued income taxes and/or net deferred tax assets due to changes in income tax laws and their interpretation by the courts and regulatory authorities. These revisions of our estimates, which also may result from our income tax planning and from the resolution of income tax audit matters, may be material to our operating results for any given period.
On December 22, 2017, the President signed into law the Tax Act which made significant changes to federal income tax law including, among other things, reducing the statutory corporate income tax rate to 21 percent from 35 percent and changing the taxation of our non-U.S. business activities. On that same date, the SEC 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. 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.
See Note 19 – Income Taxesto the Consolidated Financial Statements for a table of significant tax attributes and additional information. For more information, see page 16 under Part I. Item 1A. Risk Factors -– Regulatory, Compliance and Legal.
Goodwill and Intangible Assets
The nature of and accounting for goodwill and intangible assets are discussed in Note 1 – Summary of Significant Accounting Principles, and Note 87 – Goodwill and Intangible Assets to the Consolidated Financial Statements. Goodwill is reviewed for potential impairment at the reporting unit level on an annual basis, which for the Corporation is as of June 30, and in interim periods if events or circumstances indicate a potential impairment. A reporting unit is an operating segment or one level below.
We completed our annual goodwill impairment test as of June 30, 2017 for all of our reporting units that had goodwill.2020. In performing that test, we compared the fair value of each reporting unit to its estimated carrying value as measured by allocated equity, which includes goodwill. To determineequity. We estimated the fair value we utilized a combination of valuation techniques, consistent with the market approach andeach reporting unit based on the income approach (which utilizes the present value of cash flows to estimate fair value) and also utilized independent valuation specialists.the market multiplier approach (which utilizes observable market prices and metrics of peer companies to estimate fair value).
Our discounted cash flows were generally based on the Corporation’s three-year internal forecasts with a long-term growth rate of 3.68 percent. Our estimated cash flows considered the current challenging global industry and market conditions related to the pandemic, including the low interest rate environment. The cash flows were discounted using rates that ranged from 9 percent to 12 percent, which were derived from a capital asset pricing model that incorporates the risk and uncertainty in the cash flow forecasts, the financial markets and industries similar to each of the reporting units.
Under the market multiplier approach, we estimated the fair value of the individual reporting units utilizing various market multiples, primarily various pricing multiples, from comparable publicly-traded companies in industries similar to the reporting unit including the application ofand then factored in a control premium of 30 percent, based upon observed comparable premiums paid for change-in-control transactions for financial institutions.
Under the income approach, we estimated the fair value of the individual reporting units based on the net present value of estimated future cash flows, utilizing internal forecasts, and an appropriate terminal value. Discount rates used ranged from 8.9 to 13.3 percent and were derived from a capital asset pricing model (i.e., cost of equity financing) that we believe adequately reflects the risk and uncertainty specifically in our internally-developed forecasts, the financial markets generally and industries similar to each of the reporting units. Cumulative average growth rates developed by management for revenues and expenses in each reporting unit ranged from zero to 5.1 percent.
A prolonged decrease in a particular assumption could eventually lead to the fair value of a reporting unit being less than its carrying value.
Based on the results of the test, we determined that theeach reporting unit’s estimated fair value exceeded theits respective carrying value for alland that the goodwill assigned to each reporting unit was not impaired. The fair values of the reporting units that had goodwill, indicating there was no impairment.
Representations and Warranties Liability
The methodology usedas a percentage of their carrying values ranged from 109 percent to 213 percent. It currently remains difficult to estimate the liability for obligations under representations and warrantiesfuture economic impacts related to transfers of residential mortgage loans considers, among other things, the repurchase experience implied in prior settlements,pandemic. If economic and adjusts the experience implied by those prior settlements based on the characteristics of those trusts where the Corporation has a continuing possibility of timely claims. The estimate of the liability for obligations under representations and warranties is based upon currently available information, significant judgment, and a number of factors, including those set forth above, that are subject to change. Changes to any one of these factors could significantly impact the estimate of our liability.
The 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 of approximately $250 million or decrease of approximately $200 millionmarket conditions (both in the representationsU.S. and warranties liability as of December 31, 2017. These sensitivities are hypothetical and are intended to provide an indication of the impact of a significantinternationally) deteriorate, our reporting units could be negatively impacted, which could change in theseour key assumptions on the representations and warranties liability. In reality, changes in one assumptionrelated estimates and may result in changes in other assumptions, which may or may not counteract the sensitivity.a future impairment charge.
Certain Contingent Liabilities
For more information on representations and warranties exposure and the corresponding estimated range of possible loss,complex judgments associated with certain contingent liabilities, see Off-Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties on page 40, as well as Note 7 – Representations and Warranties Obligations and Corporate Guarantees and Note 12 – Commitments and Contingenciesto the Consolidated Financial Statements.Statements.
2016 Compared to 2015
The following discussion and analysis provide a comparison of our results of operations for 2016 and 2015. This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes.
Overview
Net Income
Net income was $17.8 billion, or $1.49 per diluted share in 2016 compared to $15.9 billion, or $1.31 per diluted share in 2015. The results for 2016 compared to 2015 were driven by higher net interest income and lower noninterest expense, partially offset by a decline in noninterest income and higher provision for credit losses.
Net Interest Income
Net interest income increased $2.1 billion to $41.1 billion in 2016 compared to 2015. The net interest yield increased seven bps to 2.21 percent for 2016. These increases were primarily driven by growth in commercial loans, the impact of higher short-end interest rates and increased debt securities balances, as well as a charge of $612 million in 2015 related to the redemption of certain trust preferred securities, partially offset by lower loan spreads and market-related hedge ineffectiveness.
Noninterest Income
Noninterest income decreased $1.4 billion to $42.6 billion in 2016 compared to 2015. The following highlights the significant changes.
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● | Service charges increased $257 million primarily due to higher treasury-related revenue. |
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● | Investment and brokerage services income decreased $592 million driven by lower transactional revenue, and decreased asset management fees due to lower market valuations, partially offset by the impact of higher long-term AUM flows. |
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● | Investment banking income decreased $331 million driven by lower equity issuance fees and advisory fees due to a decline in market fee pools. |
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● | Trading account profits increased $429 million due to a stronger performance across credit products led by mortgages, and continued strength in rates products, partially offset by reduced client activity in equities. |
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● | Mortgage banking income decreased $511 million primarily driven by a decline in production income, higher representations and warranties provision and lower servicing income, partially offset by more favorable MSR results, net of the related hedge performance. |
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● | Gains on sales of debt securities decreased $648 million primarily driven by lower sales volume. |
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● | Other income increased $102 million primarily due to lower DVA losses on structured liabilities, improved results from loans and the related hedging activities in the fair value option portfolio and lower payment protection insurance expense, partially offset by lower gains on asset sales. DVA losses related to structured liabilities were $97 million in 2015 compared to $633 million in 2015. |
Provision for Credit Losses
The provision for credit losses increased $436 million to $3.6 billion for 2016 compared to 2015. The provision for credit losses was $224 million lower than net charge-offs for 2016, resulting in a reduction in the allowance for credit losses. This compared to a reduction of $1.2 billion in the allowance for credit losses in 2015.
The provision for credit losses for the consumer portfolio increased $360 million to $2.6 billion in 2016 compared to 2015 due to a slower pace of credit quality improvement. Included in the provision is a benefit of $45 million related to the PCI loan portfolio for 2016 compared to a benefit of $40 million in 2015. The provision for credit losses for the commercial portfolio, including unfunded lending commitments, increased $76 million to $1.0 billion in 2016 compared to 2015 driven by an increase in energy sector reserves in the first half of 2016 for the higher risk energy sub-sectors. While we experienced some deterioration in the energy sector in 2016, oil prices stabilized which contributed to a modest improvement in energy-related exposure by year end.
Noninterest Expense
Noninterest expense decreased $2.5 billion to $55.1 billion for 2016 compared to 2015. Personnel expense decreased $1.0 billion as we continued to manage headcount and achieve cost savings. Continued expense management, as well as the expiration of advisor retention awards, more than offset the increases in client-facing professionals. Professional fees decreased $293 million primarily due to lower legal fees. Other general operating expense decreased $655 million primarily driven by lower foreclosed properties expense and lower brokerage fees, partially offset by higher FDIC expense.
Income Tax Expense
The income tax expense was $7.2 billion on pretax income of $25.0 billion in 2016 compared to tax expense of $6.3 billion on pre-tax income of $22.2 billion in 2015. The effective tax rate for 2016 was 28.8 percent and was driven by our recurring tax preferences and net tax benefits related to various tax audit matters, partially offset by a $348 million charge for the impact of the U.K. tax law changes discussed below. The effective tax rate for 2015 was 28.3 percent and was driven by our recurring tax preferences and by tax benefits related to certain non-U.S. restructurings, partially offset by a charge for the impact of the U.K. tax law change enacted in 2015. The charge recorded in both years for the reduction in the U.K. corporate income tax rate was the result of remeasuring our U.K. net deferred tax assets using the lower tax rate.
Business Segment Operations
Consumer Banking
Net income for Consumer Banking increased $523 million to $7.2 billion in 2016 compared to 2015 primarily driven by lower noninterest expense and higher revenue, partially offset by higher provision for credit losses. Net interest income increased $862 million to $21.3 billion primarily due to the beneficial impact of an increase in investable assets as a result of higher deposits. Noninterest income decreased $650 million to $10.4 billion due to lower mortgage banking income and gains in 2015 on certain divestitures. The provision for credit losses increased $369 million to $2.7 billion in 2016 primarily driven by a slower pace of improvement in the credit card portfolio. Noninterest expense decreased $1.1 billion to $17.7 billion driven by improved operating efficiencies and lower fraud costs, partially offset by higher FDIC expense.
Global Wealth & Investment Management
Net income for GWIM increased $205 million to $2.8 billion in 2016 compared to 2015 driven by a decrease in noninterest expense, partially offset by a decrease in revenue. Net interest income increased $232 million to $5.8 billion driven by the impact
of growth in loan and deposit balances. Noninterest income, which primarily includes investment and brokerage services income, decreased $616 million to $11.9 billion. The decline in noninterest income was driven by lower transactional revenue and decreased asset management fees primarily due to lower market valuations in 2016, partially offset by the impact of long-term AUM flows. Noninterest expense decreased $763 million to $13.2 billion primarily due to the expiration of advisor retention awards, lower revenue-related incentives and lower operating and support costs, partially offset by higher FDIC expense.
Global Banking
Net income for Global Banking increased $390 million to $5.7 billion in 2016 compared to 2015 as higher revenue more than offset an increase in the provision for credit losses. Revenue increased $824 million to $18.4 billion in 2016 compared to 2015 driven by higher net interest income, which increased $227 million to $9.5 billion driven by the impact of growth in loans and leases and higher deposits. Noninterest income increased $597 million to $9.0 billion primarily due to the impact from loans and the related loan hedging activities in the fair value option portfolio and higher treasury-related revenues, partially offset by lower investment banking fees. The provision for credit losses increased $197 million to $883 million in 2016 driven by increases in energy-related reserves as well as loan growth. Noninterest expense of $8.5 billion remained relatively unchanged in 2016 as investments in client-facing professionals in Commercial and Business Banking, higher severance costs and an increase in FDIC expense were largely offset by lower operating and support costs.
Global Markets
Net income for Global Markets increased $1.4 billion to $3.8 billion in 2016 compared to 2015. Net DVA losses were $238 million compared to losses of $786 million in 2015. Excluding net DVA, net income increased $1.1 billion to $4.0 billion in 2016 compared to 2015 primarily driven by higher sales and trading revenue and lower noninterest expense, partially offset by lower investment banking fees and investment and brokerage services revenue. Sales and trading revenue, excluding net DVA, increased $638 million primarily due to a stronger performance globally across credit products led by mortgages and continued strength in rates products. The increase was partially offset by challenging credit market conditions in early 2016 as well as reduced client activity in equities, most notably in Asia, and a less favorable trading environment for equity derivatives. Noninterest expense decreased $1.2 billion to $10.2 billion primarily due to lower litigation expense and lower revenue-related expenses.
All Other
The net loss for All Other increased $601 million to $1.7 billion in 2016 primarily due to lower gains on the sale of debt securities, lower mortgage banking income, lower gains on sales of consumer real estate loans and an increase in noninterest expense, partially offset by an improvement in the provision for credit losses. Mortgage banking income decreased $133 million primarily due to higher representations and warranties provision, partially offset by more favorable net MSR results. Gains on the sales of loans were $232 million in 2016 compared to gains of $1.0 billion in 2015. The benefit in the provision for credit losses improved $79 million to a benefit of $100 million in 2016 primarily driven by lower loan and lease balances from continued run-off of non-core consumer real estate loans. Noninterest expense increased $486 million to $5.6 billion driven by litigation expense.
Non-GAAP Reconciliations
Tables 5449 and 5550 provide reconciliations of certain non-GAAP financial measures to GAAP financial measures.
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| Table 49 | Five-year Reconciliations to GAAP Financial Measures (1) | | |
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| (Dollars in millions, shares in thousands) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
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| Reconciliation of average shareholders’ equity to average tangible shareholders’ equity and average tangible common shareholders’ equity | | | | | | | | | |
| Shareholders’ equity | $ | 267,309 | | | $ | 267,889 | | | $ | 264,748 | | | $ | 271,289 | | | $ | 265,843 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (69,286) | | | (69,750) | |
| Intangible assets (excluding MSRs) | (1,862) | | | (1,721) | | | (2,058) | | | (2,652) | | | (3,382) | |
| Related deferred tax liabilities | 821 | | | 773 | | | 906 | | | 1,463 | | | 1,644 | |
| Tangible shareholders’ equity | $ | 197,317 | | | $ | 197,990 | | | $ | 194,645 | | | $ | 200,814 | | | $ | 194,355 | |
| Preferred stock | (23,624) | | | (23,036) | | | (22,949) | | | (24,188) | | | (24,656) | |
| Tangible common shareholders’ equity | $ | 173,693 | | | $ | 174,954 | | | $ | 171,696 | | | $ | 176,626 | | | $ | 169,699 | |
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| Reconciliation of year-end shareholders’ equity to year-end tangible shareholders’ equity and year-end tangible common shareholders’ equity | | | | | | | | | |
| Shareholders’ equity | $ | 272,924 | | | $ | 264,810 | | | $ | 265,325 | | | $ | 267,146 | | | $ | 266,195 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (69,744) | |
| Intangible assets (excluding MSRs) | (2,151) | | | (1,661) | | | (1,774) | | | (2,312) | | | (2,989) | |
| Related deferred tax liabilities | 920 | | | 713 | | | 858 | | | 943 | | | 1,545 | |
| Tangible shareholders’ equity | $ | 202,742 | | | $ | 194,911 | | | $ | 195,458 | | | $ | 196,826 | | | $ | 195,007 | |
| Preferred stock | (24,510) | | | (23,401) | | | (22,326) | | | (22,323) | | | (25,220) | |
| Tangible common shareholders’ equity | $ | 178,232 | | | $ | 171,510 | | | $ | 173,132 | | | $ | 174,503 | | | $ | 169,787 | |
| Reconciliation of year-end assets to year-end tangible assets | | | | | | | | | |
| Assets | $ | 2,819,627 | | | $ | 2,434,079 | | | $ | 2,354,507 | | | $ | 2,281,234 | | | $ | 2,188,067 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (69,744) | |
| Intangible assets (excluding MSRs) | (2,151) | | | (1,661) | | | (1,774) | | | (2,312) | | | (2,989) | |
| Related deferred tax liabilities | 920 | | | 713 | | | 858 | | | 943 | | | 1,545 | |
| Tangible assets | $ | 2,749,445 | | | $ | 2,364,180 | | | $ | 2,284,640 | | | $ | 2,210,914 | | | $ | 2,116,879 | |
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(1)Presents reconciliations of non-GAAP financial measures to GAAP financial measures. For more information on non-GAAP financial measures and ratios we use in assessing the results of the Corporation, see Supplemental Financial Data on page 31.
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| Table 50 | Quarterly Reconciliations to GAAP Financial Measures (1) |
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| | 2020 Quarters | | 2019 Quarters |
| (Dollars in millions) | Fourth | | Third | | Second | | First | | Fourth | | Third | | Second | | First |
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| Reconciliation of average shareholders’ equity to average tangible shareholders’ equity and average tangible common shareholders’ equity | | | | | | | | | | | | | | | |
| Shareholders’ equity | $ | 271,020 | | | $ | 267,323 | | | $ | 266,316 | | | $ | 264,534 | | | $ | 266,900 | | | $ | 270,430 | | | $ | 267,975 | | | $ | 266,217 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,173) | | | (1,976) | | | (1,640) | | | (1,655) | | | (1,678) | | | (1,707) | | | (1,736) | | | (1,763) | |
| Related deferred tax liabilities | 910 | | | 855 | | | 790 | | | 728 | | | 730 | | | 752 | | | 770 | | | 841 | |
| Tangible shareholders’ equity | $ | 200,806 | | | $ | 197,251 | | | $ | 196,515 | | | $ | 194,656 | | | $ | 197,001 | | | $ | 200,524 | | | $ | 198,058 | | | $ | 196,344 | |
| Preferred stock | (24,180) | | | (23,427) | | | (23,427) | | | (23,456) | | | (23,461) | | | (23,800) | | | (22,537) | | | (22,326) | |
| Tangible common shareholders’ equity | $ | 176,626 | | | $ | 173,824 | | | $ | 173,088 | | | $ | 171,200 | | | $ | 173,540 | | | $ | 176,724 | | | $ | 175,521 | | | $ | 174,018 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Reconciliation of period-end shareholders’ equity to period-end tangible shareholders’ equity and period-end tangible common shareholders’ equity | | | | | | | | | | | | | | | |
| Shareholders’ equity | $ | 272,924 | | | $ | 268,850 | | | $ | 265,637 | | | $ | 264,918 | | | $ | 264,810 | | | $ | 268,387 | | | $ | 271,408 | | | $ | 267,010 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,151) | | | (2,185) | | | (1,630) | | | (1,646) | | | (1,661) | | | (1,690) | | | (1,718) | | | (1,747) | |
| Related deferred tax liabilities | 920 | | | 910 | | | 789 | | | 790 | | | 713 | | | 734 | | | 756 | | | 773 | |
| Tangible shareholders’ equity | $ | 202,742 | | | $ | 198,624 | | | $ | 195,845 | | | $ | 195,111 | | | $ | 194,911 | | | $ | 198,480 | | | $ | 201,495 | | | $ | 197,085 | |
| Preferred stock | (24,510) | | | (23,427) | | | (23,427) | | | (23,427) | | | (23,401) | | | (23,606) | | | (24,689) | | | (22,326) | |
| Tangible common shareholders’ equity | $ | 178,232 | | | $ | 175,197 | | | $ | 172,418 | | | $ | 171,684 | | | $ | 171,510 | | | $ | 174,874 | | | $ | 176,806 | | | $ | 174,759 | |
| Reconciliation of period-end assets to period-end tangible assets | | | | | | | | | | | | | | | |
| Assets | $ | 2,819,627 | | | $ | 2,738,452 | | | $ | 2,741,688 | | | $ | 2,619,954 | | | $ | 2,434,079 | | | $ | 2,426,330 | | | $ | 2,395,892 | | | $ | 2,377,164 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,151) | | | (2,185) | | | (1,630) | | | (1,646) | | | (1,661) | | | (1,690) | | | (1,718) | | | (1,747) | |
| Related deferred tax liabilities | 920 | | | 910 | | | 789 | | | 790 | | | 713 | | | 734 | | | 756 | | | 773 | |
| Tangible assets | $ | 2,749,445 | | | $ | 2,668,226 | | | $ | 2,671,896 | | | $ | 2,550,147 | | | $ | 2,364,180 | | | $ | 2,356,423 | | | $ | 2,325,979 | | | $ | 2,307,239 | |
(1)Presents reconciliations of non-GAAP financial measures to GAAP financial measures. For more information on non-GAAP financial measures and ratios we use in assessing the results of the Corporation, see Supplemental Financial Data on page 31.
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Table 54 | Five-year Reconciliations to GAAP Financial Measures (1) |
| | | | | | | | | | | |
| (Dollars in millions, shares in thousands) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Reconciliation of net interest income to net interest income on a fully taxable-equivalent basis | |
| | |
| | |
| | |
| | |
|
| Net interest income | $ | 44,667 |
| | $ | 41,096 |
| | $ | 38,958 |
| | $ | 40,779 |
| | $ | 40,719 |
|
| Fully taxable-equivalent adjustment | 925 |
| | 900 |
| | 889 |
| | 851 |
| | 859 |
|
| Net interest income on a fully taxable-equivalent basis | $ | 45,592 |
| | $ | 41,996 |
| | $ | 39,847 |
| | $ | 41,630 |
| | $ | 41,578 |
|
| Reconciliation of total revenue, net of interest expense to total revenue, net of interest expense on a fully taxable-equivalent basis | |
| | |
| | |
| | |
| | |
|
| Total revenue, net of interest expense | $ | 87,352 |
| | $ | 83,701 |
| | $ | 82,965 |
| | $ | 85,894 |
| | $ | 87,502 |
|
| Fully taxable-equivalent adjustment | 925 |
| | 900 |
| | 889 |
| | 851 |
| | 859 |
|
| Total revenue, net of interest expense on a fully taxable-equivalent basis | $ | 88,277 |
| | $ | 84,601 |
| | $ | 83,854 |
| | $ | 86,745 |
| | $ | 88,361 |
|
| Reconciliation of income tax expense to income tax expense on a fully taxable-equivalent basis | |
| | |
| | |
| | |
| | |
|
| Income tax expense | $ | 10,981 |
| | $ | 7,199 |
| | $ | 6,277 |
| | $ | 2,443 |
| | $ | 4,194 |
|
| Fully taxable-equivalent adjustment | 925 |
| | 900 |
| | 889 |
| | 851 |
| | 859 |
|
| Income tax expense on a fully taxable-equivalent basis | $ | 11,906 |
| | $ | 8,099 |
| | $ | 7,166 |
| | $ | 3,294 |
| | $ | 5,053 |
|
| Reconciliation of average common shareholders’ equity to average tangible common shareholders’ equity | |
| | |
| | |
| | |
| | |
|
| Common shareholders’ equity | $ | 247,101 |
| | $ | 241,187 |
| | $ | 229,576 |
| | $ | 222,907 |
| | $ | 218,340 |
|
| Goodwill | (69,286 | ) | | (69,750 | ) | | (69,772 | ) | | (69,809 | ) | | (69,910 | ) |
| Intangible assets (excluding MSRs) | (2,652 | ) | | (3,382 | ) | | (4,201 | ) | | (5,109 | ) | | (6,132 | ) |
| Related deferred tax liabilities | 1,463 |
| | 1,644 |
| | 1,852 |
| | 2,090 |
| | 2,328 |
|
| Tangible common shareholders’ equity | $ | 176,626 |
| | $ | 169,699 |
| | $ | 157,455 |
| | $ | 150,079 |
| | $ | 144,626 |
|
| Reconciliation of average shareholders’ equity to average tangible shareholders’ equity | |
| | |
| | |
| | |
| | |
|
| Shareholders’ equity | $ | 271,289 |
| | $ | 265,843 |
| | $ | 251,384 |
| | $ | 238,317 |
| | $ | 233,819 |
|
| Goodwill | (69,286 | ) | | (69,750 | ) | | (69,772 | ) | | (69,809 | ) | | (69,910 | ) |
| Intangible assets (excluding MSRs) | (2,652 | ) | | (3,382 | ) | | (4,201 | ) | | (5,109 | ) | | (6,132 | ) |
| Related deferred tax liabilities | 1,463 |
| | 1,644 |
| | 1,852 |
| | 2,090 |
| | 2,328 |
|
| Tangible shareholders’ equity | $ | 200,814 |
| | $ | 194,355 |
| | $ | 179,263 |
| | $ | 165,489 |
| | $ | 160,105 |
|
| Reconciliation of year-end common shareholders’ equity to year-end tangible common shareholders’ equity | |
| | |
| | |
| | |
| | |
|
| Common shareholders’ equity | $ | 244,823 |
| | $ | 240,975 |
| | $ | 233,343 |
| | $ | 224,167 |
| | $ | 219,124 |
|
| Goodwill | (68,951 | ) | | (69,744 | ) | | (69,761 | ) | | (69,777 | ) | | (69,844 | ) |
| Intangible assets (excluding MSRs) | (2,312 | ) | | (2,989 | ) | | (3,768 | ) | | (4,612 | ) | | (5,574 | ) |
| Related deferred tax liabilities | 943 |
| | 1,545 |
| | 1,716 |
| | 1,960 |
| | 2,166 |
|
| Tangible common shareholders’ equity | $ | 174,503 |
| | $ | 169,787 |
| | $ | 161,530 |
| | $ | 151,738 |
| | $ | 145,872 |
|
| Reconciliation of year-end shareholders’ equity to year-end tangible shareholders’ equity | |
| | |
| | |
| | |
| | |
|
| Shareholders’ equity | $ | 267,146 |
| | $ | 266,195 |
| | $ | 255,615 |
| | $ | 243,476 |
| | $ | 232,475 |
|
| Goodwill | (68,951 | ) | | (69,744 | ) | | (69,761 | ) | | (69,777 | ) | | (69,844 | ) |
| Intangible assets (excluding MSRs) | (2,312 | ) | | (2,989 | ) | | (3,768 | ) | | (4,612 | ) | | (5,574 | ) |
| Related deferred tax liabilities | 943 |
| | 1,545 |
| | 1,716 |
| | 1,960 |
| | 2,166 |
|
| Tangible shareholders’ equity | $ | 196,826 |
| | $ | 195,007 |
| | $ | 183,802 |
| | $ | 171,047 |
| | $ | 159,223 |
|
| Reconciliation of year-end assets to year-end tangible assets | |
| | |
| | |
| | |
| | |
|
| Assets | $ | 2,281,234 |
| | $ | 2,188,067 |
| | $ | 2,144,606 |
| | $ | 2,104,539 |
| | $ | 2,102,064 |
|
| Goodwill | (68,951 | ) | | (69,744 | ) | | (69,761 | ) | | (69,777 | ) | | (69,844 | ) |
| Intangible assets (excluding MSRs) | (2,312 | ) | | (2,989 | ) | | (3,768 | ) | | (4,612 | ) | | (5,574 | ) |
| Related deferred tax liabilities | 943 |
| | 1,545 |
| | 1,716 |
| | 1,960 |
| | 2,166 |
|
| Tangible assets | $ | 2,210,914 |
| | $ | 2,116,879 |
| | $ | 2,072,793 |
| | $ | 2,032,110 |
| | $ | 2,028,812 |
|
| |
(1)
| Presents reconciliations of non-GAAP financial measures to GAAP financial measures. We believe the use of these non-GAAP financial measures provides additional clarity in assessing the results of the Corporation. Other companies may define or calculate these measures differently. For more information on non-GAAP financial measures and ratios we use in assessing the results of the Corporation, see Supplemental Financial Data on page 27.
|
| | | | | | | | |
| Statistical Tables | | |
| | |
| | Bank of America 201788
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Table 55 | Quarterly Reconciliations to GAAP Financial Measures (1) |
| | | | | | | | | | | | | | | | | |
| | | 2017 Quarters | | 2016 Quarters |
| (Dollars in millions) | Fourth | | Third | | Second | | First | | Fourth | | Third | | Second | | First |
| Reconciliation of net interest income to net interest income on a fully taxable-equivalent basis | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Net interest income | $ | 11,462 |
| | $ | 11,161 |
| | $ | 10,986 |
| | $ | 11,058 |
| | $ | 10,292 |
| | $ | 10,201 |
| | $ | 10,118 |
| | $ | 10,485 |
|
| Fully taxable-equivalent adjustment | 251 |
| | 240 |
| | 237 |
| | 197 |
| | 234 |
| | 228 |
| | 223 |
| | 215 |
|
| Net interest income on a fully taxable-equivalent basis | $ | 11,713 |
| | $ | 11,401 |
| | $ | 11,223 |
| | $ | 11,255 |
| | $ | 10,526 |
| | $ | 10,429 |
| | $ | 10,341 |
| | $ | 10,700 |
|
| Reconciliation of total revenue, net of interest expense to total revenue, net of interest expense on a fully taxable-equivalent basis | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Total revenue, net of interest expense | $ | 20,436 |
| | $ | 21,839 |
| | $ | 22,829 |
| | $ | 22,248 |
| | $ | 19,990 |
| | $ | 21,635 |
| | $ | 21,286 |
| | $ | 20,790 |
|
| Fully taxable-equivalent adjustment | 251 |
| | 240 |
| | 237 |
| | 197 |
| | 234 |
| | 228 |
| | 223 |
| | 215 |
|
| Total revenue, net of interest expense on a fully taxable-equivalent basis | $ | 20,687 |
| | $ | 22,079 |
| | $ | 23,066 |
| | $ | 22,445 |
| | $ | 20,224 |
| | $ | 21,863 |
| | $ | 21,509 |
| | $ | 21,005 |
|
| Reconciliation of income tax expense to income tax expense on a fully taxable-equivalent basis | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Income tax expense | $ | 3,796 |
| | $ | 2,187 |
| | $ | 3,015 |
| | $ | 1,983 |
| | $ | 1,268 |
| | $ | 2,257 |
| | $ | 1,943 |
| | $ | 1,731 |
|
| Fully taxable-equivalent adjustment | 251 |
| | 240 |
| | 237 |
| | 197 |
| | 234 |
| | 228 |
| | 223 |
| | 215 |
|
| Income tax expense on a fully taxable-equivalent basis | $ | 4,047 |
| | $ | 2,427 |
| | $ | 3,252 |
| | $ | 2,180 |
| | $ | 1,502 |
| | $ | 2,485 |
| | $ | 2,166 |
| | $ | 1,946 |
|
| Reconciliation of average common shareholders’ equity to average tangible common shareholders’ equity | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Common shareholders’ equity | $ | 250,838 |
| | $ | 249,214 |
| | $ | 245,756 |
| | $ | 242,480 |
| | $ | 244,519 |
| | $ | 243,220 |
| | $ | 240,078 |
| | $ | 236,871 |
|
| Goodwill | (68,954 | ) | | (68,969 | ) | | (69,489 | ) | | (69,744 | ) | | (69,745 | ) | | (69,744 | ) | | (69,751 | ) | | (69,761 | ) |
| Intangible assets (excluding MSRs) | (2,399 | ) | | (2,549 | ) | | (2,743 | ) | | (2,923 | ) | | (3,091 | ) | | (3,276 | ) | | (3,480 | ) | | (3,687 | ) |
| Related deferred tax liabilities | 1,344 |
| | 1,465 |
| | 1,506 |
| | 1,539 |
| | 1,580 |
| | 1,628 |
| | 1,662 |
| | 1,707 |
|
| Tangible common shareholders’ equity | $ | 180,829 |
| | $ | 179,161 |
| | $ | 175,030 |
| | $ | 171,352 |
| | $ | 173,263 |
| | $ | 171,828 |
| | $ | 168,509 |
| | $ | 165,130 |
|
| Reconciliation of average shareholders’ equity to average tangible shareholders’ equity | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Shareholders’ equity | $ | 273,162 |
| | $ | 273,238 |
| | $ | 270,977 |
| | $ | 267,700 |
| | $ | 269,739 |
| | $ | 268,440 |
| | $ | 265,056 |
| | $ | 260,065 |
|
| Goodwill | (68,954 | ) | | (68,969 | ) | | (69,489 | ) | | (69,744 | ) | | (69,745 | ) | | (69,744 | ) | | (69,751 | ) | | (69,761 | ) |
| Intangible assets (excluding MSRs) | (2,399 | ) | | (2,549 | ) | | (2,743 | ) | | (2,923 | ) | | (3,091 | ) | | (3,276 | ) | | (3,480 | ) | | (3,687 | ) |
| Related deferred tax liabilities | 1,344 |
| | 1,465 |
| | 1,506 |
| | 1,539 |
| | 1,580 |
| | 1,628 |
| | 1,662 |
| | 1,707 |
|
| Tangible shareholders’ equity | $ | 203,153 |
| | $ | 203,185 |
| | $ | 200,251 |
| | $ | 196,572 |
| | $ | 198,483 |
| | $ | 197,048 |
| | $ | 193,487 |
| | $ | 188,324 |
|
| Reconciliation of period-end common shareholders’ equity to period-end tangible common shareholders’ equity | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Common shareholders’ equity | $ | 244,823 |
| | $ | 249,646 |
| | $ | 245,440 |
| | $ | 242,770 |
| | $ | 240,975 |
| | $ | 244,379 |
| | $ | 241,884 |
| | $ | 238,501 |
|
| Goodwill | (68,951 | ) | | (68,968 | ) | | (68,969 | ) | | (69,744 | ) | | (69,744 | ) | | (69,744 | ) | | (69,744 | ) | | (69,761 | ) |
| Intangible assets (excluding MSRs) | (2,312 | ) | | (2,459 | ) | | (2,610 | ) | | (2,827 | ) | | (2,989 | ) | | (3,168 | ) | | (3,352 | ) | | (3,578 | ) |
| Related deferred tax liabilities | 943 |
| | 1,435 |
| | 1,471 |
| | 1,513 |
| | 1,545 |
| | 1,588 |
| | 1,637 |
| | 1,667 |
|
| Tangible common shareholders’ equity | $ | 174,503 |
| | $ | 179,654 |
| | $ | 175,332 |
| | $ | 171,712 |
| | $ | 169,787 |
| | $ | 173,055 |
| | $ | 170,425 |
| | $ | 166,829 |
|
| Reconciliation of period-end shareholders’ equity to period-end tangible shareholders’ equity | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Shareholders’ equity | $ | 267,146 |
| | $ | 271,969 |
| | $ | 270,660 |
| | $ | 267,990 |
| | $ | 266,195 |
| | $ | 269,600 |
| | $ | 267,104 |
| | $ | 262,843 |
|
| Goodwill | (68,951 | ) | | (68,968 | ) | | (68,969 | ) | | (69,744 | ) | | (69,744 | ) | | (69,744 | ) | | (69,744 | ) | | (69,761 | ) |
| Intangible assets (excluding MSRs) | (2,312 | ) | | (2,459 | ) | | (2,610 | ) | | (2,827 | ) | | (2,989 | ) | | (3,168 | ) | | (3,352 | ) | | (3,578 | ) |
| Related deferred tax liabilities | 943 |
| | 1,435 |
| | 1,471 |
| | 1,513 |
| | 1,545 |
| | 1,588 |
| | 1,637 |
| | 1,667 |
|
| Tangible shareholders’ equity | $ | 196,826 |
| | $ | 201,977 |
| | $ | 200,552 |
| | $ | 196,932 |
| | $ | 195,007 |
| | $ | 198,276 |
| | $ | 195,645 |
| | $ | 191,171 |
|
| Reconciliation of period-end assets to period-end tangible assets | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Assets | $ | 2,281,234 |
| | $ | 2,284,174 |
| | $ | 2,254,714 |
| | $ | 2,247,794 |
| | $ | 2,188,067 |
| | $ | 2,195,588 |
| | $ | 2,187,149 |
| | $ | 2,185,818 |
|
| Goodwill | (68,951 | ) | | (68,968 | ) | | (68,969 | ) | | (69,744 | ) | | (69,744 | ) | | (69,744 | ) | | (69,744 | ) | | (69,761 | ) |
| Intangible assets (excluding MSRs) | (2,312 | ) | | (2,459 | ) | | (2,610 | ) | | (2,827 | ) | | (2,989 | ) | | (3,168 | ) | | (3,352 | ) | | (3,578 | ) |
| Related deferred tax liabilities | 943 |
| | 1,435 |
| | 1,471 |
| | 1,513 |
| | 1,545 |
| | 1,588 |
| | 1,637 |
| | 1,667 |
|
| Tangible assets | $ | 2,210,914 |
| | $ | 2,214,182 |
| | $ | 2,184,606 |
| | $ | 2,176,736 |
| | $ | 2,116,879 |
| | $ | 2,124,264 |
| | $ | 2,115,690 |
| | $ | 2,114,146 |
|
| |
(1)
Table of Contents | Presents reconciliations of non-GAAP financial measures to GAAP financial measures. We believe the use of these non-GAAP financial measures provides additional clarity in assessing the results of the Corporation. Other companies may define or calculate these measures differently. For more information on non-GAAP financial measures and ratios we use in assessing the results of the Corporation, see Supplemental Financial Data on page 27.
| |
| | Page |
| | |
| | |
| | |
89Bank of America 2017
| | |
Statistical Tables
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
Table I Outstanding Loans and Leases |
| | | | | | | | | | |
| | December 31 |
| (Dollars in millions) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Consumer | |
| | |
| | |
| | |
| | |
|
Residential mortgage (1) | $ | 203,811 |
| | $ | 191,797 |
| | $ | 187,911 |
| | $ | 216,197 |
| | $ | 248,066 |
|
| Home equity | 57,744 |
| | 66,443 |
| | 75,948 |
| | 85,725 |
| | 93,672 |
|
| U.S. credit card | 96,285 |
| | 92,278 |
| | 89,602 |
| | 91,879 |
| | 92,338 |
|
| Non-U.S. credit card | — |
| | 9,214 |
| | 9,975 |
| | 10,465 |
| | 11,541 |
|
Direct/Indirect consumer (2) | 93,830 |
| | 94,089 |
| | 88,795 |
| | 80,381 |
| | 82,192 |
|
Other consumer (3) | 2,678 |
| | 2,499 |
| | 2,067 |
| | 1,846 |
| | 1,977 |
|
| Total consumer loans excluding loans accounted for under the fair value option | 454,348 |
| | 456,320 |
| | 454,298 |
| | 486,493 |
| | 529,786 |
|
Consumer loans accounted for under the fair value option (4) | 928 |
| | 1,051 |
| | 1,871 |
| | 2,077 |
| | 2,164 |
|
| Total consumer | 455,276 |
| | 457,371 |
| | 456,169 |
| | 488,570 |
| | 531,950 |
|
| Commercial | | | | | | | | | |
U.S. commercial (5) | 298,485 |
| | 283,365 |
| | 265,647 |
| | 233,586 |
| | 225,851 |
|
| Non-U.S. commercial | 97,792 |
| | 89,397 |
| | 91,549 |
| | 80,083 |
| | 89,462 |
|
Commercial real estate (6) | 58,298 |
| | 57,355 |
| | 57,199 |
| | 47,682 |
| | 47,893 |
|
| Commercial lease financing | 22,116 |
| | 22,375 |
| | 21,352 |
| | 19,579 |
| | 25,199 |
|
| Total commercial loans excluding loans accounted for under the fair value option | 476,691 |
| | 452,492 |
| | 435,747 |
| | 380,930 |
| | 388,405 |
|
Commercial loans accounted for under the fair value option (4) | 4,782 |
| | 6,034 |
| | 5,067 |
| | 6,604 |
| | 7,878 |
|
| Total commercial | 481,473 |
| | 458,526 |
| | 440,814 |
| | 387,534 |
| | 396,283 |
|
Less: Loans of business held for sale (7) | — |
| | (9,214 | ) | | — |
| | — |
| | — |
|
| Total loans and leases | $ | 936,749 |
| | $ | 906,683 |
| | $ | 896,983 |
| | $ | 876,104 |
| | $ | 928,233 |
|
| |
(1)
| Includes pay option loans of $1.4 billion, $1.8 billion, $2.3 billion, $3.2 billion and $4.4 billion at December 31, 2017, 2016, 2015, 2014 and 2013, respectively. The Corporation no longer originates pay option loans.
|
| |
(2)
| Includes auto and specialty lending loans of $49.9 billion, $48.9 billion, $42.6 billion, $37.7 billion and $38.5 billion, unsecured consumer lending loans of $469 million, $585 million, $886 million, $1.5 billion and $2.7 billion, U.S. securities-based lending loans of $39.8 billion, $40.1 billion, $39.8 billion, $35.8 billion and $31.2 billion, non-U.S. consumer loans of $3.0 billion, $3.0 billion, $3.9 billion, $4.0 billion and $4.7 billion, student loans of $0, $497 million, $564 million, $632 million and $4.1 billion, and other consumer loans of $684 million, $1.1 billion, $1.0 billion, $761 million and $1.0 billion at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
|
| |
(3)
| Includes consumer finance loans of $0, $465 million, $564 million, $676 million and $1.2 billion, consumer leases of $2.5 billion, $1.9 billion, $1.4 billion, $1.0 billion and $606 million, and consumer overdrafts of $163 million, $157 million, $146 million, $162 million and $176 million at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
|
| |
(4)
| Consumer loans accounted for under the fair value option includes residential mortgage loans of $567 million, $710 million, $1.6 billion, $1.9 billion and $2.0 billion, and home equity loans of $361 million, $341 million, $250 million, $196 million and $147 million at December 31, 2017, 2016, 2015, 2014 and 2013, respectively. Commercial loans accounted for under the fair value option includes U.S. commercial loans of $2.6 billion, $2.9 billion, $2.3 billion, $1.9 billion and $1.5 billion, and non-U.S. commercial loans of $2.2 billion, $3.1 billion, $2.8 billion, $4.7 billion and $6.4 billion at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
|
| |
(5)
| Includes U.S. small business commercial loans, including card-related products, of $13.6 billion, $13.0 billion, $12.9 billion, $13.3 billion and $13.3 billion at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
|
| |
(6)
| Includes U.S. commercial real estate loans of $54.8 billion, $54.3 billion, $53.6 billion, $45.2 billion and $46.3 billion, and non-U.S. commercial real estate loans of $3.5 billion, $3.1 billion, $3.5 billion, $2.5 billion and $1.6 billion at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
|
| |
(7)
| Represents non-U.S. credit card loans, which were included in assets of business held for sale on the Consolidated Balance Sheet. |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
Table II Nonperforming Loans, Leases and Foreclosed Properties (1) |
| | | | | | | | | | |
| | December 31 |
| (Dollars in millions) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Consumer | |
| | |
| | |
| | |
| | |
|
| Residential mortgage | $ | 2,476 |
| | $ | 3,056 |
| | $ | 4,803 |
| | $ | 6,889 |
| | $ | 11,712 |
|
| Home equity | 2,644 |
| | 2,918 |
| | 3,337 |
| | 3,901 |
| | 4,075 |
|
| Direct/Indirect consumer | 46 |
| | 28 |
| | 24 |
| | 28 |
| | 35 |
|
| Other consumer | — |
| | 2 |
| | 1 |
| | 1 |
| | 18 |
|
Total consumer (2) | 5,166 |
| | 6,004 |
| | 8,165 |
| | 10,819 |
| | 15,840 |
|
| Commercial | |
| | |
| | |
| | |
| | |
|
| U.S. commercial | 814 |
| | 1,256 |
| | 867 |
| | 701 |
| | 819 |
|
| Non-U.S. commercial | 299 |
| | 279 |
| | 158 |
| | 1 |
| | 64 |
|
| Commercial real estate | 112 |
| | 72 |
| | 93 |
| | 321 |
| | 322 |
|
| Commercial lease financing | 24 |
| | 36 |
| | 12 |
| | 3 |
| | 16 |
|
| | 1,249 |
| | 1,643 |
| | 1,130 |
| | 1,026 |
| | 1,221 |
|
| U.S. small business commercial | 55 |
| | 60 |
| | 82 |
| | 87 |
| | 88 |
|
Total commercial (3) | 1,304 |
| | 1,703 |
| | 1,212 |
| | 1,113 |
| | 1,309 |
|
| Total nonperforming loans and leases | 6,470 |
| | 7,707 |
| | 9,377 |
| | 11,932 |
| | 17,149 |
|
| Foreclosed properties | 288 |
| | 377 |
| | 459 |
| | 697 |
| | 623 |
|
| Total nonperforming loans, leases and foreclosed properties | $ | 6,758 |
| | $ | 8,084 |
| | $ | 9,836 |
| | $ | 12,629 |
| | $ | 17,772 |
|
| |
(1)
| Balances do not include PCI loans even though the customer may be contractually past due. PCI loans are recorded at fair value upon acquisition and accrete interest income over the remaining life of the loan. In addition, balances do not include foreclosed properties insured by certain government-guaranteed loans, principally FHA-insured loans, that entered foreclosure of $801 million, $1.2 billion, $1.4 billion, $1.1 billion and $1.4 billion at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
|
| |
(2)
| In 2017, $867 million in interest income was estimated to be contractually due on $5.2 billion of consumer loans and leases classified as nonperforming at December 31, 2017, as presented in the table above, plus $10.1 billion of TDRs classified as performing at December 31, 2017. Approximately $578 million of the estimated $867 million in contractual interest was received and included in interest income for 2017.
|
| |
(3)
| In 2017, $90 million in interest income was estimated to be contractually due on $1.3 billion of commercial loans and leases classified as nonperforming at December 31, 2017, as presented in the table above, plus $1.1 billion of TDRs classified as performing at December 31, 2017. Approximately $58 million of the estimated $90 million in contractual interest was received and included in interest income for 2017.
|
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
Table III Accruing Loans and Leases Past Due 90 Days or More (1) |
| | | | | | | | | | |
| | December 31 |
| (Dollars in millions) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Consumer | |
| | |
| | |
| | |
| | |
|
Residential mortgage (2) | $ | 3,230 |
| | $ | 4,793 |
| | $ | 7,150 |
| | $ | 11,407 |
| | $ | 16,961 |
|
| U.S. credit card | 900 |
| | 782 |
| | 789 |
| | 866 |
| | 1,053 |
|
| Non-U.S. credit card | — |
| | 66 |
| | 76 |
| | 95 |
| | 131 |
|
| Direct/Indirect consumer | 40 |
| | 34 |
| | 39 |
| | 64 |
| | 408 |
|
| Other consumer | — |
| | 4 |
| | 3 |
| | 1 |
| | 2 |
|
| Total consumer | 4,170 |
| | 5,679 |
| | 8,057 |
| | 12,433 |
| | 18,555 |
|
| Commercial | |
| | |
| | |
| | |
| | |
| U.S. commercial | 144 |
| | 106 |
| | 113 |
| | 110 |
| | 47 |
|
| Non-U.S. commercial | 3 |
| | 5 |
| | 1 |
| | — |
| | 17 |
|
| Commercial real estate | 4 |
| | 7 |
| | 3 |
| | 3 |
| | 21 |
|
| Commercial lease financing | 19 |
| | 19 |
| | 15 |
| | 40 |
| | 41 |
|
| | 170 |
| | 137 |
| | 132 |
| | 153 |
| | 126 |
|
| U.S. small business commercial | 75 |
| | 71 |
| | 61 |
| | 67 |
| | 78 |
|
| Total commercial | 245 |
| | 208 |
| | 193 |
| | 220 |
| | 204 |
|
Total accruing loans and leases past due 90 days or more (3) | $ | 4,415 |
| | $ | 5,887 |
| | $ | 8,250 |
| | $ | 12,653 |
| | $ | 18,759 |
|
| |
(1)
| Our policy is to classify consumer real estate-secured loans as nonperforming at 90 days past due, except the PCI loan portfolio, the fully-insured loan portfolio and loans accounted for under the fair value option as referenced in footnote 3. |
| |
(2)
| Balances are fully-insured loans. |
| |
(3)
| Balances exclude loans accounted for under the fair value option. At December 31, 2017, 2016, 2015, 2014 and 2013, $2 million, $1 million, $1 million, $5 million and $8 million of loans accounted for under the fair value option were past due 90 days or more and still accruing interest.
|
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
Table IV Allowance for Credit Losses |
| | | | | | | | | | |
| (Dollars in millions) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Allowance for loan and lease losses, January 1 | $ | 11,237 |
| | $ | 12,234 |
| | $ | 14,419 |
| | $ | 17,428 |
| | $ | 24,179 |
|
| Loans and leases charged off | | | | | |
| | |
| | |
|
| Residential mortgage | (188 | ) | | (403 | ) | | (866 | ) | | (855 | ) | | (1,508 | ) |
| Home equity | (582 | ) | | (752 | ) | | (975 | ) | | (1,364 | ) | | (2,258 | ) |
| U.S. credit card | (2,968 | ) | | (2,691 | ) | | (2,738 | ) | | (3,068 | ) | | (4,004 | ) |
Non-U.S. credit card (1) | (103 | ) | | (238 | ) | | (275 | ) | | (357 | ) | | (508 | ) |
| Direct/Indirect consumer | (487 | ) | | (392 | ) | | (383 | ) | | (456 | ) | | (710 | ) |
| Other consumer | (216 | ) | | (232 | ) | | (224 | ) | | (268 | ) | | (273 | ) |
| Total consumer charge-offs | (4,544 | ) | | (4,708 | ) | | (5,461 | ) | | (6,368 | ) | | (9,261 | ) |
U.S. commercial (2) | (589 | ) | | (567 | ) | | (536 | ) | | (584 | ) | | (774 | ) |
| Non-U.S. commercial | (446 | ) | | (133 | ) | | (59 | ) | | (35 | ) | | (79 | ) |
| Commercial real estate | (24 | ) | | (10 | ) | | (30 | ) | | (29 | ) | | (251 | ) |
| Commercial lease financing | (16 | ) | | (30 | ) | | (19 | ) | | (10 | ) | | (4 | ) |
| Total commercial charge-offs | (1,075 | ) | | (740 | ) | | (644 | ) | | (658 | ) | | (1,108 | ) |
| Total loans and leases charged off | (5,619 | ) | | (5,448 | ) | | (6,105 | ) | | (7,026 | ) | | (10,369 | ) |
| Recoveries of loans and leases previously charged off | | | | | |
| | |
| | |
|
| Residential mortgage | 288 |
| | 272 |
| | 393 |
| | 969 |
| | 424 |
|
| Home equity | 369 |
| | 347 |
| | 339 |
| | 457 |
| | 455 |
|
| U.S. credit card | 455 |
| | 422 |
| | 424 |
| | 430 |
| | 628 |
|
| Non-U.S. credit card | 28 |
| | 63 |
| | 87 |
| | 115 |
| | 109 |
|
| Direct/Indirect consumer | 276 |
| | 258 |
| | 271 |
| | 287 |
| | 365 |
|
| Other consumer | 50 |
| | 27 |
| | 31 |
| | 39 |
| | 39 |
|
| Total consumer recoveries | 1,466 |
| | 1,389 |
| | 1,545 |
| | 2,297 |
| | 2,020 |
|
U.S. commercial (3) | 142 |
| | 175 |
| | 172 |
| | 214 |
| | 287 |
|
| Non-U.S. commercial | 6 |
| | 13 |
| | 5 |
| | 1 |
| | 34 |
|
| Commercial real estate | 15 |
| | 41 |
| | 35 |
| | 112 |
| | 102 |
|
| Commercial lease financing | 11 |
| | 9 |
| | 10 |
| | 19 |
| | 29 |
|
| Total commercial recoveries | 174 |
| | 238 |
| | 222 |
| | 346 |
| | 452 |
|
| Total recoveries of loans and leases previously charged off | 1,640 |
| | 1,627 |
| | 1,767 |
| | 2,643 |
| | 2,472 |
|
| Net charge-offs | (3,979 | ) | | (3,821 | ) | | (4,338 | ) | | (4,383 | ) | | (7,897 | ) |
| Write-offs of PCI loans | (207 | ) | | (340 | ) | | (808 | ) | | (810 | ) | | (2,336 | ) |
| Provision for loan and lease losses | 3,381 |
| | 3,581 |
| | 3,043 |
| | 2,231 |
| | 3,574 |
|
Other (4) | (39 | ) | | (174 | ) | | (82 | ) | | (47 | ) | | (92 | ) |
| Total allowance for loan and lease losses, December 31 | 10,393 |
| | 11,480 |
| | 12,234 |
| | 14,419 |
| | 17,428 |
|
Less: Allowance included in assets of business held for sale (5) | — |
| | (243 | ) | | — |
| | — |
| | — |
|
| Allowance for loan and lease losses, December 31 | 10,393 |
| | 11,237 |
| | 12,234 |
| | 14,419 |
| | 17,428 |
|
| Reserve for unfunded lending commitments, January 1 | 762 |
| | 646 |
| | 528 |
| | 484 |
| | 513 |
|
| Provision for unfunded lending commitments | 15 |
| | 16 |
| | 118 |
| | 44 |
| | (18 | ) |
Other (4) | — |
| | 100 |
| | — |
| | — |
| | (11 | ) |
| Reserve for unfunded lending commitments, December 31 | 777 |
| | 762 |
| | 646 |
| | 528 |
| | 484 |
|
| Allowance for credit losses, December 31 | $ | 11,170 |
| | $ | 11,999 |
| | $ | 12,880 |
| | $ | 14,947 |
| | $ | 17,912 |
|
| |
(1)
| Represents net charge-offs related to the non-U.S. credit card loan portfolio, which was included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. In 2017, the Corporation sold its non-U.S. consumer credit card business. |
| |
(2)
| Includes U.S. small business commercial charge-offs of $258 million, $253 million, $282 million, $345 million and $457 million in 2017, 2016, 2015, 2014 and 2013, respectively.
|
| |
(3)
| Includes U.S. small business commercial recoveries of $43 million, $45 million, $57 million, $63 million and $98 million in 2017, 2016, 2015, 2014 and 2013, respectively.
|
| |
(4)
| Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, foreign currency translation adjustments, transfers to held-for-sale and certain other reclassifications. |
| |
(5)
| Represents allowance related to the non-U.S. credit card loan portfolio, which was sold in 2017. |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
Table IV Allowance for Credit Losses (continued) |
| | | | | | | | | | |
| (Dollars in millions) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Loan and allowance ratios (6): | | | | | | | | | |
Loans and leases outstanding at December 31 (7) | $ | 931,039 |
| | $ | 908,812 |
| | $ | 890,045 |
| | $ | 867,422 |
| | $ | 918,191 |
|
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (7) | 1.12 | % | | 1.26 | % | | 1.37 | % | | 1.66 | % | | 1.90 | % |
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (8) | 1.18 |
| | 1.36 |
| | 1.63 |
| | 2.05 |
| | 2.53 |
|
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (9) | 1.05 |
| | 1.16 |
| | 1.11 |
| | 1.16 |
| | 1.03 |
|
Average loans and leases outstanding (7) | $ | 911,988 |
| | $ | 892,255 |
| | $ | 869,065 |
| | $ | 888,804 |
| | $ | 909,127 |
|
Net charge-offs as a percentage of average loans and leases outstanding (7, 10) | 0.44 | % | | 0.43 | % | | 0.50 | % | | 0.49 | % | | 0.87 | % |
Net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (7) | 0.46 |
| | 0.47 |
| | 0.59 |
| | 0.58 |
| | 1.13 |
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 (7, 11) | 161 |
| | 149 |
| | 130 |
| | 121 |
| | 102 |
|
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs (10) | 2.61 |
| | 3.00 |
| | 2.82 |
| | 3.29 |
| | 2.21 |
|
| Ratio of the allowance for loan and lease losses at December 31 to net charge-offs and PCI write-offs | 2.48 |
| | 2.76 |
| | 2.38 |
| | 2.78 |
| | 1.70 |
|
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (12) | $ | 3,971 |
| | $ | 3,951 |
| | $ | 4,518 |
| | $ | 5,944 |
| | $ | 7,680 |
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (7, 12) | 99 | % | | 98 | % | | 82 | % | | 71 | % | | 57 | % |
Loan and allowance ratios excluding PCI loans and the related valuation allowance (6, 13): | | | | | | | | | |
|
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (7) | 1.10 | % | | 1.24 | % | | 1.31 | % | | 1.51 | % | | 1.67 | % |
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (8) | 1.15 |
| | 1.31 |
| | 1.50 |
| | 1.79 |
| | 2.17 |
|
Net charge-offs as a percentage of average loans and leases outstanding (7) | 0.44 |
| | 0.44 |
| | 0.51 |
| | 0.50 |
| | 0.90 |
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 (7, 11) | 156 |
| | 144 |
| | 122 |
| | 107 |
| | 87 |
|
| Ratio of the allowance for loan and lease losses at December 31 to net charge-offs | 2.54 |
| | 2.89 |
| | 2.64 |
| | 2.91 |
| | 1.89 |
|
| |
(6)
| Loan and allowance ratios for 2016 include $243 million of non-U.S. credit card allowance for loan and lease losses and $9.2 billion of ending non-U.S. credit card loans, which were included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. See footnote 1 for more information.
|
| |
(7)
| Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $5.7 billion, $7.1 billion, $6.9 billion, $8.7 billion and $10.0 billion at December 31, 2017, 2016, 2015, 2014 and 2013, respectively. Average loans accounted for under the fair value option were $6.7 billion, $8.2 billion, $7.7 billion, $9.9 billion and $9.5 billion in 2017, 2016, 2015, 2014 and 2013, respectively.
|
| |
(8)
| Excludes consumer loans accounted for under the fair value option of $928 million, $1.1 billion, $1.9 billion, $2.1 billion and $2.2 billion at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
|
| |
(9)
| Excludes commercial loans accounted for under the fair value option of $4.8 billion, $6.0 billion, $5.1 billion, $6.6 billion and $7.9 billion at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
|
| |
(10)
| Net charge-offs exclude $207 million, $340 million, $808 million, $810 million and $2.3 billion of write-offs in the PCI loan portfolio in 2017, 2016, 2015, 2014 and 2013 respectively. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 60.
|
| |
(11)
| For more information on our definition of nonperforming loans, see page 62 and page 67.
|
| |
(12)
| Primarily includes amounts allocated to U.S. credit card and unsecured consumer lending portfolios in Consumer Banking, PCI loans and the non-U.S. credit portfolio in All Other.
|
| |
(13)
| For more information on the PCI loan portfolio and the valuation allowance for PCI loans, see Note 4 – Outstanding Loans and Leases and Note 5 – Allowance for Credit Lossesto the Consolidated Financial Statements.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Table I | Outstanding Loans and Leases |
| | | | | | | | | | |
| | | December 31 |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Consumer | | | | | | | | | |
| Residential mortgage | $ | 223,555 | | | $ | 236,169 | | | $ | 208,557 | | | $ | 203,811 | | | $ | 191,797 | |
| Home equity | 34,311 | | | 40,208 | | | 48,286 | | | 57,744 | | | 66,443 | |
| Credit card | 78,708 | | | 97,608 | | | 98,338 | | | 96,285 | | | 92,278 | |
| Non-U.S. credit card | — | | | — | | | — | | | — | | | 9,214 | |
Direct/Indirect consumer (1) | 91,363 | | | 90,998 | | | 91,166 | | | 96,342 | | | 95,962 | |
Other consumer (2) | 124 | | | 192 | | | 202 | | | 166 | | | 626 | |
| Total consumer loans excluding loans accounted for under the fair value option | 428,061 | | | 465,175 | | | 446,549 | | | 454,348 | | | 456,320 | |
Consumer loans accounted for under the fair value option (3) | 735 | | | 594 | | | 682 | | | 928 | | | 1,051 | |
| Total consumer | 428,796 | | | 465,769 | | | 447,231 | | | 455,276 | | | 457,371 | |
| Commercial | | | | | | | | | |
| U.S. commercial | 288,728 | | | 307,048 | | | 299,277 | | | 284,836 | | | 270,372 | |
| Non-U.S. commercial | 90,460 | | | 104,966 | | | 98,776 | | | 97,792 | | | 89,397 | |
Commercial real estate (4) | 60,364 | | | 62,689 | | | 60,845 | | | 58,298 | | | 57,355 | |
| Commercial lease financing | 17,098 | | | 19,880 | | | 22,534 | | | 22,116 | | | 22,375 | |
| | 456,650 | | | 494,583 | | | 481,432 | | | 463,042 | | | 439,499 | |
U.S. small business commercial (5) | 36,469 | | | 15,333 | | | 14,565 | | | 13,649 | | | 12,993 | |
| Total commercial loans excluding loans accounted for under the fair value option | 493,119 | | | 509,916 | | | 495,997 | | | 476,691 | | | 452,492 | |
Commercial loans accounted for under the fair value option (3) | 5,946 | | | 7,741 | | | 3,667 | | | 4,782 | | | 6,034 | |
| Total commercial | 499,065 | | | 517,657 | | | 499,664 | | | 481,473 | | | 458,526 | |
Less: Loans of business held for sale (6) | — | | | — | | | — | | | — | | | (9,214) | |
| Total loans and leases | $ | 927,861 | | | $ | 983,426 | | | $ | 946,895 | | | $ | 936,749 | | | $ | 906,683 | |
(1)Includes primarily auto and specialty lending loans and leases of $46.4 billion, $50.4 billion, $50.1 billion, $52.4 billion and $50.7 billion, U.S. securities-based lending loans of $41.1 billion, $36.7 billion, $37.0 billion, $39.8 billion and $40.1 billion and non-U.S. consumer loans of $3.0 billion, $2.8 billion, $2.9 billion, $3.0 billion and $3.0 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(2)Substantially all of other consumer at December 31, 2020, 2019, 2018 and 2017 is consumer overdrafts. Other consumer at December 31, 2016 also includes consumer finance loans of $465 million. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Table V Allocation of the Allowance for Credit Losses by Product Type |
| | | | | | | | | | | | | | | | | | | | |
| | December 31 |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (Dollars in millions) | Amount | | Percent
of Total | | Amount | | Percent
of Total | | Amount | | Percent
of Total | | Amount | | Percent
of Total | | Amount | | Percent
of Total |
| Allowance for loan and lease losses | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Residential mortgage | $ | 701 |
| | 6.74 | % | | $ | 1,012 |
| | 8.82 | % | | $ | 1,500 |
| | 12.26 | % | | $ | 2,900 |
| | 20.11 | % | | $ | 4,084 |
| | 23.43 | % |
| Home equity | 1,019 |
| | 9.80 |
| | 1,738 |
| | 15.14 |
| | 2,414 |
| | 19.73 |
| | 3,035 |
| | 21.05 |
| | 4,434 |
| | 25.44 |
|
| U.S. credit card | 3,368 |
| | 32.41 |
| | 2,934 |
| | 25.56 |
| | 2,927 |
| | 23.93 |
| | 3,320 |
| | 23.03 |
| | 3,930 |
| | 22.55 |
|
| Non-U.S. credit card | — |
| | — |
| | 243 |
| | 2.12 |
| | 274 |
| | 2.24 |
| | 369 |
| | 2.56 |
| | 459 |
| | 2.63 |
|
| Direct/Indirect consumer | 262 |
| | 2.52 |
| | 244 |
| | 2.13 |
| | 223 |
| | 1.82 |
| | 299 |
| | 2.07 |
| | 417 |
| | 2.39 |
|
| Other consumer | 33 |
| | 0.32 |
| | 51 |
| | 0.44 |
| | 47 |
| | 0.38 |
| | 59 |
| | 0.41 |
| | 99 |
| | 0.58 |
|
| Total consumer | 5,383 |
| | 51.79 |
| | 6,222 |
| | 54.21 |
| | 7,385 |
| | 60.36 |
| | 9,982 |
| | 69.23 |
| | 13,423 |
| | 77.02 |
|
U.S. commercial (1) | 3,113 |
| | 29.95 |
| | 3,326 |
| | 28.97 |
| | 2,964 |
| | 24.23 |
| | 2,619 |
| | 18.16 |
| | 2,394 |
| | 13.74 |
|
| Non-U.S. commercial | 803 |
| | 7.73 |
| | 874 |
| | 7.61 |
| | 754 |
| | 6.17 |
| | 649 |
| | 4.50 |
| | 576 |
| | 3.30 |
|
| Commercial real estate | 935 |
| | 9.00 |
| | 920 |
| | 8.01 |
| | 967 |
| | 7.90 |
| | 1,016 |
| | 7.05 |
| | 917 |
| | 5.26 |
|
| Commercial lease financing | 159 |
| | 1.53 |
| | 138 |
| | 1.20 |
| | 164 |
| | 1.34 |
| | 153 |
| | 1.06 |
| | 118 |
| | 0.68 |
|
| Total commercial | 5,010 |
| | 48.21 |
| | 5,258 |
| | 45.79 |
| | 4,849 |
| | 39.64 |
| | 4,437 |
| | 30.77 |
| | 4,005 |
| | 22.98 |
|
Total allowance for loan and lease losses (2) | 10,393 |
| | 100.00 | % | | 11,480 |
| | 100.00 | % | | 12,234 |
| | 100.00 | % | | 14,419 |
| | 100.00 | % | | 17,428 |
| | 100.00 | % |
Less: Allowance included in assets of business held for sale (3) | — |
| | | | (243 | ) | | | | — |
| | | | — |
| | | | — |
| | |
| Allowance for loan and lease losses | 10,393 |
| | | | 11,237 |
| | | | 12,234 |
| | | | 14,419 |
| | | | 17,428 |
| | |
| Reserve for unfunded lending commitments | 777 |
| | | | 762 |
| | |
| | 646 |
| | | | 528 |
| | | | 484 |
| | |
| Allowance for credit losses | $ | 11,170 |
| | | | $ | 11,999 |
| | |
| | $ | 12,880 |
| | | | $ | 14,947 |
| | | | $ | 17,912 |
| | |
| |
(1)
| Includes allowance for loan and lease losses for U.S. small business commercial loans of $439 million, $416 million, $507 million, $536 million and $462 million at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
|
| |
(2)
| Includes $289 million, $419 million, $804 million, $1.7 billion and $2.5 billion of valuation allowance presented with the allowance for loan and lease losses related to PCI loans at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
|
| |
(3)
| Represents allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which was included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. In 2017, the Corporation sold its non-U.S. consumer credit card business. |
(3)Consumer loans accounted for under the fair value option include residential mortgage loans of $298 million, $257 million, $336 million, $567 million and $710 million, and home equity loans of $437 million, $337 million, $346 million, $361 million and $341 million at December 31, 2020, 2019, 2018, 2017 and 2016, respectively. Commercial loans accounted for under the fair value option include U.S. commercial loans of $2.9 billion, $4.7 billion, $2.5 billion, $2.6 billion and $2.9 billion, and non-U.S. commercial loans of $3.0 billion, $3.1 billion, $1.1 billion, $2.2 billion and $3.1 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively. (4)Includes U.S. commercial real estate loans of $57.2 billion, $59.0 billion, $56.6 billion, $54.8 billion and $54.3 billion, and non-U.S. commercial real estate loans of $3.2 billion, $3.7 billion, $4.2 billion, $3.5 billion and $3.1 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively. |
| | | | | | | | | | | | | | | |
| | | | | | | | |
Table VI Selected Loan Maturity Data (1, 2) |
| | | | | | | | |
| | December 31, 2017 |
| (Dollars in millions) | Due in One Year or Less | | Due After One Year Through Five Years | | Due After Five Years | | Total |
| U.S. commercial | $ | 74,563 |
| | $ | 177,459 |
| | $ | 49,090 |
| | $ | 301,112 |
|
| U.S. commercial real estate | 14,015 |
| | 35,741 |
| | 5,005 |
| | 54,761 |
|
Non-U.S. and other (3) | 42,933 |
| | 53,094 |
| | 7,457 |
| | 103,484 |
|
| Total selected loans | $ | 131,511 |
| | $ | 266,294 |
| | $ | 61,552 |
| | $ | 459,357 |
|
| Percent of total | 29 | % | | 58 | % | | 13 | % | | 100 | % |
| Sensitivity of selected loans to changes in interest rates for loans due after one year: | |
| | |
| | |
| | |
|
| Fixed interest rates | |
| | $ | 17,765 |
| | $ | 27,992 |
| | |
|
| Floating or adjustable interest rates | |
| | 248,529 |
| | 33,560 |
| | |
|
| Total | |
| | $ | 266,294 |
| | $ | 61,552 |
| | |
|
| |
(1)
| Loan maturities are based on the remaining maturities under contractual terms. |
| |
(2)
| Includes loans accounted for under the fair value option. |
| |
(3)
| Loan maturities include non-U.S. commercial and commercial real estate loans. |
(6)Represents non-U.S. credit card loans, which were included in assets of business held for sale on the Consolidated Balance Sheet.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Table II | Nonperforming Loans, Leases and Foreclosed Properties (1) |
| | | | | | | | | | |
| | | December 31 |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Consumer | | | | | | | | | |
| Residential mortgage | $ | 2,005 | | | $ | 1,470 | | | $ | 1,893 | | | $ | 2,476 | | | $ | 3,056 | |
| | | | | | | | | |
| Home equity | 649 | | | 536 | | | 1,893 | | | 2,644 | | | 2,918 | |
| | | | | | | | | |
| Direct/Indirect consumer | 71 | | | 47 | | | 56 | | | 46 | | | 28 | |
| Other consumer | — | | | — | | | — | | | — | | | 2 | |
Total consumer (2) | 2,725 | | | 2,053 | | | 3,842 | | | 5,166 | | | 6,004 | |
| Commercial | | | | | | | | | |
| U.S. commercial | 1,243 | | | 1,094 | | | 794 | | | 814 | | | 1,256 | |
| Non-U.S. commercial | 418 | | | 43 | | | 80 | | | 299 | | | 279 | |
| Commercial real estate | 404 | | | 280 | | | 156 | | | 112 | | | 72 | |
| Commercial lease financing | 87 | | | 32 | | | 18 | | | 24 | | | 36 | |
| | | 2,152 | | | 1,449 | | | 1,048 | | | 1,249 | | | 1,643 | |
| U.S. small business commercial | 75 | | | 50 | | | 54 | | | 55 | | | 60 | |
Total commercial (3) | 2,227 | | | 1,499 | | | 1,102 | | | 1,304 | | | 1,703 | |
| Total nonperforming loans and leases | 4,952 | | | 3,552 | | | 4,944 | | | 6,470 | | | 7,707 | |
| Foreclosed properties | 164 | | | 285 | | | 300 | | | 288 | | | 377 | |
| Total nonperforming loans, leases and foreclosed properties | $ | 5,116 | | | $ | 3,837 | | | $ | 5,244 | | | $ | 6,758 | | | $ | 8,084 | |
(1)Balances exclude foreclosed properties insured by certain government-guaranteed loans, principally FHA-insured loans, that entered foreclosure of $119 million, $260 million, $488 million, $801 million and $1.2 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(2)In 2020, $372 million in interest income was estimated to be contractually due on $2.7 billion of consumer loans and leases classified as nonperforming at December 31, 2020, as presented in the table above, plus $4.4 billion of TDRs classified as performing at December 31, 2020. Approximately $254 million of the estimated $372 million in contractual interest was received and included in interest income for 2020.
(3)In 2020, $115 million in interest income was estimated to be contractually due on $2.2 billion of commercial loans and leases classified as nonperforming at December 31, 2020, as presented in the table above, plus $1.0 billion of TDRs classified as performing at December 31, 2020. Approximately $71 million of the estimated $115 million in contractual interest was received and included in interest income for 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Table III | Accruing Loans and Leases Past Due 90 Days or More (1) |
| | | | | | | | | | |
| | | December 31 |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Consumer | | | | | | | | | |
Residential mortgage (2) | $ | 762 | | | $ | 1,088 | | | $ | 1,884 | | | $ | 3,230 | | | $ | 4,793 | |
| Credit card | 903 | | | 1,042 | | | 994 | | | 900 | | | 782 | |
| Non-U.S. credit card | — | | | — | | | — | | | — | | | 66 | |
| Direct/Indirect consumer | 33 | | | 33 | | | 38 | | | 40 | | | 34 | |
| Other consumer | — | | | — | | | — | | | — | | | 4 | |
| Total consumer | 1,698 | | | 2,163 | | | 2,916 | | | 4,170 | | | 5,679 | |
| Commercial | | | | | | | | | |
| U.S. commercial | 228 | | | 106 | | | 197 | | | 144 | | | 106 | |
| Non-U.S. commercial | 10 | | | 8 | | | — | | | 3 | | | 5 | |
| Commercial real estate | 6 | | | 19 | | | 4 | | | 4 | | | 7 | |
| Commercial lease financing | 25 | | | 20 | | | 29 | | | 19 | | | 19 | |
| | | 269 | | | 153 | | | 230 | | | 170 | | | 137 | |
| U.S. small business commercial | 115 | | | 97 | | | 84 | | | 75 | | | 71 | |
| Total commercial | 384 | | | 250 | | | 314 | | | 245 | | | 208 | |
| Total accruing loans and leases past due 90 days or more | $ | 2,082 | | | $ | 2,413 | | | $ | 3,230 | | | $ | 4,415 | | | $ | 5,887 | |
(1)Our policy is to classify consumer real estate-secured loans as nonperforming at 90 days past due, except for the fully-insured loan portfolio and loans accounted for under the fair value option.
(2)Balances are fully-insured loans.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table IV | Selected Loan Maturity Data (1, 2) | | | | | | | |
| | | | | | | | |
| | | December 31, 2020 |
| (Dollars in millions) | Due in One
Year or Less | | Due After One Year Through Five Years | | Due After
Five Years | | Total |
| U.S. commercial | $ | 82,577 | | | $ | 198,898 | | | $ | 46,642 | | | $ | 328,117 | |
| U.S. commercial real estate | 14,073 | | | 37,552 | | | 5,552 | | | 57,177 | |
Non-U.S. and other (3) | 33,196 | | | 54,488 | | | 8,989 | | | 96,673 | |
| Total selected loans | $ | 129,846 | | | $ | 290,938 | | | $ | 61,183 | | | $ | 481,967 | |
| Percent of total | 27 | % | | 60 | % | | 13 | % | | 100 | % |
| Sensitivity of selected loans to changes in interest rates for loans due after one year: | | | | | | | |
| Fixed interest rates | | | $ | 46,911 | | | $ | 32,280 | | | |
| Floating or adjustable interest rates | | | 244,027 | | | 28,903 | | | |
| Total | | | $ | 290,938 | | | $ | 61,183 | | | |
(1)Loan maturities are based on the remaining maturities under contractual terms.
(2)Includes loans accounted for under the fair value option.
(3)Loan maturities include non-U.S. commercial and commercial real estate loans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Table V | Allowance for Credit Losses (1) | | | | | | | | | |
| | | | | | | | | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Allowance for loan and lease losses, January 1 | $ | 12,358 | | | $ | 9,601 | | | $ | 10,393 | | | $ | 11,237 | | | $ | 12,234 | |
| Loans and leases charged off | | | | | | | | | |
| Residential mortgage | (40) | | | (93) | | | (207) | | | (188) | | | (403) | |
| Home equity | (58) | | | (429) | | | (483) | | | (582) | | | (752) | |
| Credit card | (2,967) | | | (3,535) | | | (3,345) | | | (2,968) | | | (2,691) | |
Non-U.S. credit card (2) | — | | | — | | | — | | | (103) | | | (238) | |
| Direct/Indirect consumer | (372) | | | (518) | | | (495) | | | (491) | | | (392) | |
| Other consumer | (307) | | | (249) | | | (197) | | | (212) | | | (232) | |
| Total consumer charge-offs | (3,744) | | | (4,824) | | | (4,727) | | | (4,544) | | | (4,708) | |
U.S. commercial (3) | (1,163) | | | (650) | | | (575) | | | (589) | | | (567) | |
| Non-U.S. commercial | (168) | | | (115) | | | (82) | | | (446) | | | (133) | |
| Commercial real estate | (275) | | | (31) | | | (10) | | | (24) | | | (10) | |
| Commercial lease financing | (69) | | | (26) | | | (8) | | | (16) | | | (30) | |
| Total commercial charge-offs | (1,675) | | | (822) | | | (675) | | | (1,075) | | | (740) | |
| Total loans and leases charged off | (5,419) | | | (5,646) | | | (5,402) | | | (5,619) | | | (5,448) | |
| Recoveries of loans and leases previously charged off | | | | | | | | | |
| Residential mortgage | 70 | | | 140 | | | 179 | | | 288 | | | 272 | |
| Home equity | 131 | | | 787 | | | 485 | | | 369 | | | 347 | |
| Credit card | 618 | | | 587 | | | 508 | | | 455 | | | 422 | |
Non-U.S. credit card (2) | — | | | — | | | — | | | 28 | | | 63 | |
| Direct/Indirect consumer | 250 | | | 309 | | | 300 | | | 277 | | | 258 | |
| Other consumer | 23 | | | 15 | | | 15 | | | 49 | | | 27 | |
| Total consumer recoveries | 1,092 | | | 1,838 | | | 1,487 | | | 1,466 | | | 1,389 | |
U.S. commercial (4) | 178 | | | 122 | | | 120 | | | 142 | | | 175 | |
| Non-U.S. commercial | 13 | | | 31 | | | 14 | | | 6 | | | 13 | |
| Commercial real estate | 5 | | | 2 | | | 9 | | | 15 | | | 41 | |
| Commercial lease financing | 10 | | | 5 | | | 9 | | | 11 | | | 9 | |
| Total commercial recoveries | 206 | | | 160 | | | 152 | | | 174 | | | 238 | |
| Total recoveries of loans and leases previously charged off | 1,298 | | | 1,998 | | | 1,639 | | | 1,640 | | | 1,627 | |
| Net charge-offs | (4,121) | | | (3,648) | | | (3,763) | | | (3,979) | | | (3,821) | |
| | | | | | | | | |
| Provision for loan and lease losses | 10,565 | | | 3,574 | | | 3,262 | | | 3,381 | | | 3,581 | |
Other (5) | — | | | (111) | | | (291) | | | (246) | | | (514) | |
| Total allowance for loan and lease losses, December 31 | 18,802 | | | 9,416 | | | 9,601 | | | 10,393 | | | 11,480 | |
Less: Allowance included in assets of business held for sale (6) | — | | | — | | | — | | | — | | | (243) | |
| Allowance for loan and lease losses, December 31 | 18,802 | | | 9,416 | | | 9,601 | | | 10,393 | | | 11,237 | |
| Reserve for unfunded lending commitments, January 1 | 1,123 | | | 797 | | | 777 | | | 762 | | | 646 | |
| Provision for unfunded lending commitments | 755 | | | 16 | | | 20 | | | 15 | | | 16 | |
Other (5) | — | | | — | | | — | | | — | | | 100 | |
| Reserve for unfunded lending commitments, December 31 | 1,878 | | | 813 | | | 797 | | | 777 | | | 762 | |
| Allowance for credit losses, December 31 | $ | 20,680 | | | $ | 10,229 | | | $ | 10,398 | | | $ | 11,170 | | | $ | 11,999 | |
(1)On January 1, 2020, the Corporation adopted the CECL accounting standard, which increased the allowance for loan and lease losses by $2.9 billion and the reserve for unfunded lending commitments by $310 million. For more information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
(2)Represents amounts related to the non-U.S. credit card loan portfolio, which was sold in 2017.
(3)Includes U.S. small business commercial charge-offs of $321 million, $320 million, $287 million, $258 million and $253 million in 2020, 2019, 2018, 2017 and 2016, respectively.
(4)Includes U.S. small business commercial recoveries of $54 million, $48 million, $47 million, $43 million and $45 million in 2020, 2019, 2018, 2017 and 2016, respectively.
(5)Primarily represents write-offs of purchased credit-impaired loans for years prior to 2020, the net impact of portfolio sales, consolidations and deconsolidations, foreign currency translation adjustments, transfers to held for sale and certain other reclassifications.
(6)Represents allowance related to the non-U.S. credit card loan portfolio, which was sold in 2017.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Table V | Allowance for Credit Losses (continued) | | | | | | | | | |
| | | | | | | | | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
Loan and allowance ratios (7): | | | | | | | | | |
Loans and leases outstanding at December 31 (8) | $ | 921,180 | | | $ | 975,091 | | | $ | 942,546 | | | $ | 931,039 | | | $ | 908,812 | |
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (8) | 2.04 | % | | 0.97 | % | | 1.02 | % | | 1.12 | % | | 1.26 | % |
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (9) | 2.35 | | | 0.98 | | | 1.08 | | | 1.18 | | | 1.36 | |
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (10) | 1.77 | | | 0.96 | | | 0.97 | | | 1.05 | | | 1.16 | |
Average loans and leases outstanding (8) | $ | 974,281 | | | $ | 951,583 | | | $ | 927,531 | | | $ | 911,988 | | | $ | 892,255 | |
Net charge-offs as a percentage of average loans and leases outstanding (8) | 0.42 | % | | 0.38 | % | | 0.41 | % | | 0.44 | % | | 0.43 | % |
| | | | | | | | | |
| Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 | 380 | | | 265 | | | 194 | | | 161 | | | 149 | |
| Ratio of the allowance for loan and lease losses at December 31 to net charge-offs | 4.56 | | | 2.58 | | | 2.55 | | | 2.61 | | | 3.00 | |
| | | | | | | | | |
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (11) | $ | 9,854 | | | $ | 4,151 | | | $ | 4,031 | | | $ | 3,971 | | | $ | 3,951 | |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (11) | 181 | % | | 148 | % | | 113 | % | | 99 | % | | 98 | % |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
(7)Loan and allowance ratios for 2016 include $243 million of non-U.S. credit card allowance for loan and lease losses and $9.2 billion of ending non-U.S. credit card loans, which were sold in 2017.
(8)Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $6.7 billion, $8.3 billion, $4.3 billion, $5.7 billion and $7.1 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively. Average loans accounted for under the fair value option were $8.2 billion, $6.8 billion, $5.5 billion, $6.7 billion and $8.2 billion in 2020, 2019, 2018, 2017 and 2016, respectively.
(9)Excludes consumer loans accounted for under the fair value option of $735 million, $594 million, $682 million, $928 million and $1.1 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(10)Excludes commercial loans accounted for under the fair value option of $5.9 billion, $7.7 billion, $3.7 billion, $4.8 billion and $6.0 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(11)Primarily includes amounts related to credit card and unsecured consumer lending portfolios in Consumer Banking and, in 2017 and 2016, the non-U.S. credit card portfolio in All Other.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Table VI | Allocation of the Allowance for Credit Losses by Product Type (1) |
| | | | | | | | | | | | | | | | | | | | |
| | December 31 |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| (Dollars in millions) | Amount | | Percent
of Total | | Amount | | Percent
of Total | | Amount | | Percent
of Total | | Amount | | Percent
of Total | | Amount | | Percent
of Total |
| Allowance for loan and lease losses | | | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 459 | | | 2.44 | % | | $ | 325 | | | 3.45 | % | | $ | 422 | | | 4.40 | % | | $ | 701 | | | 6.74 | % | | $ | 1,012 | | | 8.82 | % |
| Home equity | 399 | | | 2.12 | | | 221 | | | 2.35 | | | 506 | | | 5.27 | | | 1,019 | | | 9.80 | | | 1,738 | | | 15.14 | |
| Credit card | 8,420 | | | 44.79 | | | 3,710 | | | 39.39 | | | 3,597 | | | 37.47 | | | 3,368 | | | 32.41 | | | 2,934 | | | 25.56 | |
| Non-U.S. credit card | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 243 | | | 2.12 | |
| Direct/Indirect consumer | 752 | | | 4.00 | | | 234 | | | 2.49 | | | 248 | | | 2.58 | | | 264 | | | 2.54 | | | 244 | | | 2.13 | |
| Other consumer | 41 | | | 0.22 | | | 52 | | | 0.55 | | | 29 | | | 0.30 | | | 31 | | | 0.30 | | | 51 | | | 0.44 | |
| Total consumer | 10,071 | | | 53.57 | | | 4,542 | | | 48.23 | | | 4,802 | | | 50.02 | | | 5,383 | | | 51.79 | | | 6,222 | | | 54.21 | |
U.S. commercial (2) | 5,043 | | | 26.82 | | | 3,015 | | | 32.02 | | | 3,010 | | | 31.35 | | | 3,113 | | | 29.95 | | | 3,326 | | | 28.97 | |
| Non-U.S. commercial | 1,241 | | | 6.60 | | | 658 | | | 6.99 | | | 677 | | | 7.05 | | | 803 | | | 7.73 | | | 874 | | | 7.61 | |
| Commercial real estate | 2,285 | | | 12.15 | | | 1,042 | | | 11.07 | | | 958 | | | 9.98 | | | 935 | | | 9.00 | | | 920 | | | 8.01 | |
| Commercial lease financing | 162 | | | 0.86 | | | 159 | | | 1.69 | | | 154 | | | 1.60 | | | 159 | | | 1.53 | | | 138 | | | 1.20 | |
| Total commercial | 8,731 | | | 46.43 | | | 4,874 | | | 51.77 | | | 4,799 | | | 49.98 | | | 5,010 | | | 48.21 | | | 5,258 | | | 45.79 | |
| Total allowance for loan and lease losses | 18,802 | | | 100.00 | % | | 9,416 | | | 100.00 | % | | 9,601 | | | 100.00 | % | | 10,393 | | | 100.00 | % | | 11,480 | | | 100.00 | % |
Less: Allowance included in assets of business held for sale (3) | — | | | | | — | | | | | — | | | | | — | | | | | (243) | | | |
| Allowance for loan and lease losses | 18,802 | | | | | 9,416 | | | | | 9,601 | | | | | 10,393 | | | | | 11,237 | | | |
| Reserve for unfunded lending commitments | 1,878 | | | | | 813 | | | | | 797 | | | | | 777 | | | | | 762 | | | |
| Allowance for credit losses | $ | 20,680 | | | | | $ | 10,229 | | | | | $ | 10,398 | | | | | $ | 11,170 | | | | | $ | 11,999 | | | |
(1)On January 1, 2020, the Corporation adopted the CECL accounting standard. For more information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
(2)Includes allowance for loan and lease losses for U.S. small business commercial loans of $1.5 billion, $523 million, $474 million, $439 million and $416 million at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(3)Represents allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which was sold in 2017.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
See Market Risk Management on page 7678 in the MD&A and the sections referenced therein for Quantitative and Qualitative Disclosures about Market Risk.
Item 8. Financial Statements and Supplementary Data
| | | | | | | | | | | | | | |
| Item 8. Financial Statements and Supplementary Data |
|
|
| Table of Contents |
Report of Management on Internal Control Over Financial Reporting
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, 20172020 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, 2017,2020, the Corporation’s internal control over financial reporting is effective.
The Corporation’s internal control over financial reporting as of December 31, 20172020 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, 2017.2020.
Brian T. Moynihan
Chairman, Chief Executive Officer and President
Paul M. Donofrio
Chief Financial Officer
Report of Independent Registered Public Accounting Firm
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 (the “Corporation”) as of December 31, 20172020 and December 31, 2016,2019, 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, 2017,2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Corporation’sCorporation's internal control over financial reporting as of December 31, 2017,2020, 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, 20172020 and December 31, 2016,2019, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change Inin 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 whencredit losses on certain stock-based compensation awards are considered authorized for purposes of determining their service inception date.financial instruments in 2020.
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’sCorporation'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.
Critical Audit Matters
Allowance for Loan and Lease Losses - Commercial and Consumer Card Loans
As described in Notes 1 and 5 to the consolidated financial statements, the allowance for loan and lease losses represents management’s estimate of the expected credit losses in the Corporation’s loan and lease portfolio, excluding loans and unfunded lending commitments accounted for under the fair value option. As of December 31, 2020, the allowance for loan and lease losses was $18.8 billion on total loans and leases of $921.2 billion, which excludes loans accounted for under the fair value option. For commercial and consumer card loans, the expected credit loss is estimated using quantitative methods
that consider a variety of factors such as historical loss experience, the current credit quality of the portfolio as well as an economic outlook over the life of the loan. In its loss forecasting framework, the Corporation incorporates forward looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets. These macroeconomic scenarios include variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to, unemployment rates, real estate prices, gross domestic product levels and corporate bond spreads. The scenarios that are chosen and the amount of weighting given to each scenario depend on a variety of factors including recent economic events, leading economic indicators, views of internal as well as third-party economists and industry trends. Also included in the allowance for loan losses are qualitative reserves to cover losses that are expected but, in the Corporation's assessment, may not be adequately reflected in the quantitative methods or the economic assumptions. Factors that the Corporation considers include changes in lending policies and procedures, business conditions, the nature and size of the portfolio, portfolio concentrations, the volume and severity of past due loans and nonaccrual loans, the effect of external factors such as competition, and legal and regulatory requirements, among others. Further, the Corporation considers the inherent uncertainty in quantitative models that are built on historical data.
The principal considerations for our determination that performing procedures relating to the allowance for loan and lease losses for the commercial and consumer card portfolios is a critical audit matter are (i) the significant judgment and estimation by management in developing lifetime economic forecast scenarios, related weightings to each scenario and certain qualitative reserves, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence obtained, and (ii) the audit effort involved professionals with specialized skill and knowledge to assist in evaluating certain audit evidence.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the allowance for loan and lease losses, including controls over the evaluation and approval of models, forecast scenarios and related weightings, and qualitative reserves. These procedures also included, among others, testing management’s process for estimating the allowance for loan losses, including (i) evaluating the appropriateness of the loss forecast models and methodology, (ii) evaluating the reasonableness of certain macroeconomic variables, (iii) evaluating the reasonableness of management’s development, selection and weighting of economic forecast scenarios used in the loss forecast models, (iv) testing the completeness and accuracy of data used in the estimate, and (v) evaluating certain qualitative reserves made to the model output results to determine the overall allowance for loan losses. The procedures also included the involvement of professionals with specialized
skill and knowledge to assist in evaluating the appropriateness of certain loss forecast models, the reasonableness of economic forecast scenarios and related weightings and the reasonableness of certain qualitative reserves.
Valuation of Certain Level 3 Financial Instruments
As described in Notes 1 and 20 to the consolidated financial statements, the Corporation carries certain financial instruments at fair value, which includes $10.0 billion of assets and $7.4 billion of liabilities classified as Level 3 fair value measurements on a recurring basis and $1.7 billion of assets classified as Level 3 fair value measurements on a nonrecurring basis, for which the determination of fair value requires significant management judgment or estimation. The Corporation determines the fair value of Level 3 financial instruments using pricing models, discounted cash flow methodologies, or similar techniques that require inputs that are both unobservable and are significant to the overall fair value measurement. Unobservable inputs, such as volatility or price, may be determined using quantitative-based extrapolations or other internal methodologies which incorporate management estimates and available market information.
The principal considerations for our determination that performing procedures relating to the valuation of certain Level 3 financial instruments is a critical audit matter are the significant judgment and estimation used by management to determine the fair value of these financial instruments, which in turn led to a high degree of auditor judgment and effort in performing procedures, including the involvement of professionals with specialized skill and knowledge to assist in evaluating certain audit evidence.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of financial instruments, including controls related to valuation models, significant unobservable inputs, and data. These procedures also included, among others, the involvement of professionalswith specialized skill and knowledge to assist in developing an independent estimate of fair value for a sample of these certain financial instruments and comparison of management’s estimate to the independently developed estimate of fair value. Developing the independent estimate involved testing the completeness and accuracy of data provided by management and evaluating the reasonableness of management’s assumptions used to develop the significant unobservable inputs.
Charlotte, North Carolina
February 22, 201824, 2021
We have served as the Corporation’s auditor since 1958.
Bank of America Corporation and Subsidiaries
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Consolidated Statement of Income |
| | | | | |
| | | | | |
| (In millions, except per share information) | | | | | 2020 | | 2019 | | 2018 |
| Net interest income | | | | | | | | | |
| Interest income | | | | | $ | 51,585 | | | $ | 71,236 | | | $ | 66,769 | |
| Interest expense | | | | | 8,225 | | | 22,345 | | | 18,607 | |
| Net interest income | | | | | 43,360 | | | 48,891 | | | 48,162 | |
| | | | | | | | | |
| Noninterest income | | | | | | | | | |
| Fees and commissions | | | | | 34,551 | | | 33,015 | | | 33,078 | |
| Market making and similar activities | | | | | 8,355 | | | 9,034 | | | 9,008 | |
| Other income | | | | | (738) | | | 304 | | | 772 | |
| Total noninterest income | | | | | 42,168 | | | 42,353 | | | 42,858 | |
| Total revenue, net of interest expense | | | | | 85,528 | | | 91,244 | | | 91,020 | |
| | | | | | | | | |
| Provision for credit losses | | | | | 11,320 | | | 3,590 | | | 3,282 | |
| | | | | | | | | |
| Noninterest expense | | | | | | | | | |
| Compensation and benefits | | | | | 32,725 | | | 31,977 | | | 31,880 | |
| Occupancy and equipment | | | | | 7,141 | | | 6,588 | | | 6,380 | |
| Information processing and communications | | | | | 5,222 | | | 4,646 | | | 4,555 | |
| Product delivery and transaction related | | | | | 3,433 | | | 2,762 | | | 2,857 | |
| Marketing | | | | | 1,701 | | | 1,934 | | | 1,674 | |
| Professional fees | | | | | 1,694 | | | 1,597 | | | 1,699 | |
| Other general operating | | | | | 3,297 | | | 5,396 | | | 4,109 | |
| | | | | | | | | |
| | | | | | | | | |
| Total noninterest expense | | | | | 55,213 | | | 54,900 | | | 53,154 | |
| Income before income taxes | | | | | 18,995 | | | 32,754 | | | 34,584 | |
| Income tax expense | | | | | 1,101 | | | 5,324 | | | 6,437 | |
| Net income | | | | | $ | 17,894 | | | $ | 27,430 | | | $ | 28,147 | |
| Preferred stock dividends | | | | | 1,421 | | | 1,432 | | | 1,451 | |
| Net income applicable to common shareholders | | | | | $ | 16,473 | | | $ | 25,998 | | | $ | 26,696 | |
| | | | | | | | | |
| Per common share information | | | | | | | | | |
| Earnings | | | | | $ | 1.88 | | | $ | 2.77 | | | $ | 2.64 | |
| Diluted earnings | | | | | 1.87 | | | 2.75 | | | 2.61 | |
| | | | | | | | | |
| Average common shares issued and outstanding | | | | | 8,753.2 | | | 9,390.5 | | | 10,096.5 | |
| Average diluted common shares issued and outstanding | | | | | 8,796.9 | | | 9,442.9 | | | 10,236.9 | |
|
| | | | | | | | | | | |
| | | | | | |
| Consolidated Statement of Income |
| | | | | | |
| (Dollars in millions, except per share information) | 2017 | | 2016 | | 2015 |
| Interest income | |
| | |
| | |
|
| Loans and leases | $ | 36,221 |
| | $ | 33,228 |
| | $ | 31,918 |
|
| Debt securities | 10,471 |
| | 9,167 |
| | 9,178 |
|
| Federal funds sold and securities borrowed or purchased under agreements to resell | 2,390 |
| | 1,118 |
| | 988 |
|
| Trading account assets | 4,474 |
| | 4,423 |
| | 4,397 |
|
| Other interest income | 4,023 |
| | 3,121 |
| | 3,026 |
|
| Total interest income | 57,579 |
| | 51,057 |
| | 49,507 |
|
| | | | | | |
| Interest expense | |
| | |
| | |
|
| Deposits | 1,931 |
| | 1,015 |
| | 861 |
|
| Short-term borrowings | 3,538 |
| | 2,350 |
| | 2,387 |
|
| Trading account liabilities | 1,204 |
| | 1,018 |
| | 1,343 |
|
| Long-term debt | 6,239 |
| | 5,578 |
| | 5,958 |
|
| Total interest expense | 12,912 |
| | 9,961 |
| | 10,549 |
|
| Net interest income | 44,667 |
| | 41,096 |
| | 38,958 |
|
| | | | | | |
| Noninterest income | |
| | |
| | |
|
| Card income | 5,902 |
| | 5,851 |
| | 5,959 |
|
| Service charges | 7,818 |
| | 7,638 |
| | 7,381 |
|
| Investment and brokerage services | 13,281 |
| | 12,745 |
| | 13,337 |
|
| Investment banking income | 6,011 |
| | 5,241 |
| | 5,572 |
|
| Trading account profits | 7,277 |
| | 6,902 |
| | 6,473 |
|
| Mortgage banking income | 224 |
| | 1,853 |
| | 2,364 |
|
| Gains on sales of debt securities | 255 |
| | 490 |
| | 1,138 |
|
| Other income | 1,917 |
| | 1,885 |
| | 1,783 |
|
| Total noninterest income | 42,685 |
| | 42,605 |
| | 44,007 |
|
| Total revenue, net of interest expense | 87,352 |
| | 83,701 |
| | 82,965 |
|
| | | | | | |
| Provision for credit losses | 3,396 |
| | 3,597 |
| | 3,161 |
|
| | | | | | |
| Noninterest expense | |
| | |
| | |
| Personnel | 31,642 |
| | 31,748 |
| | 32,751 |
|
| Occupancy | 4,009 |
| | 4,038 |
| | 4,093 |
|
| Equipment | 1,692 |
| | 1,804 |
| | 2,039 |
|
| Marketing | 1,746 |
| | 1,703 |
| | 1,811 |
|
| Professional fees | 1,888 |
| | 1,971 |
| | 2,264 |
|
| Data processing | 3,139 |
| | 3,007 |
| | 3,115 |
|
| Telecommunications | 699 |
| | 746 |
| | 823 |
|
| Other general operating | 9,928 |
| | 10,066 |
| | 10,721 |
|
| Total noninterest expense | 54,743 |
| | 55,083 |
| | 57,617 |
|
| Income before income taxes | 29,213 |
| | 25,021 |
| | 22,187 |
|
| Income tax expense | 10,981 |
| | 7,199 |
| | 6,277 |
|
| Net income | $ | 18,232 |
| | $ | 17,822 |
| | $ | 15,910 |
|
| Preferred stock dividends | 1,614 |
| | 1,682 |
| | 1,483 |
|
| Net income applicable to common shareholders | $ | 16,618 |
| | $ | 16,140 |
| | $ | 14,427 |
|
| | | | | | |
| Per common share information | |
| | |
| | |
|
| Earnings | $ | 1.63 |
| | $ | 1.57 |
| | $ | 1.38 |
|
| Diluted earnings | 1.56 |
| | 1.49 |
| | 1.31 |
|
| Dividends paid | 0.39 |
| | 0.25 |
| | 0.20 |
|
| Average common shares issued and outstanding (in thousands) | 10,195,646 |
| | 10,284,147 |
| | 10,462,282 |
|
| Average diluted common shares issued and outstanding (in thousands) | 10,778,428 |
| | 11,046,806 |
| | 11,236,230 |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Consolidated Statement of Comprehensive Income | | |
| | | | | | | | | |
| | | | | |
| (Dollars in millions) | | | | | 2020 | | 2019 | | 2018 |
| Net income | | | | | $ | 17,894 | | | $ | 27,430 | | | $ | 28,147 | |
| Other comprehensive income (loss), net-of-tax: | | | | | | | | | |
| Net change in debt securities | | | | | 4,799 | | | 5,875 | | | (3,953) | |
| Net change in debit valuation adjustments | | | | | (498) | | | (963) | | | 749 | |
| Net change in derivatives | | | | | 826 | | | 616 | | | (53) | |
| Employee benefit plan adjustments | | | | | (98) | | | 136 | | | (405) | |
| Net change in foreign currency translation adjustments | | | | | (52) | | | (86) | | | (254) | |
| Other comprehensive income (loss) | | | | | 4,977 | | | 5,578 | | | (3,916) | |
| Comprehensive income | | | | | $ | 22,871 | | | $ | 33,008 | | | $ | 24,231 | |
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
|
| | | | | | | | | | | |
| | | | | | |
| Consolidated Statement of Comprehensive Income | | |
| | | | | | |
| (Dollars in millions) | 2017 | | 2016 | | 2015 |
| Net income | $ | 18,232 |
| | $ | 17,822 |
| | $ | 15,910 |
|
| Other comprehensive income (loss), net-of-tax: | | | | | |
| Net change in debt and marketable equity securities | 61 |
| | (1,345 | ) | | (1,580 | ) |
| Net change in debit valuation adjustments | (293 | ) | | (156 | ) | | 615 |
|
| Net change in derivatives | 64 |
| | 182 |
| | 584 |
|
| Employee benefit plan adjustments | 288 |
| | (524 | ) | | 394 |
|
| Net change in foreign currency translation adjustments | 86 |
| | (87 | ) | | (123 | ) |
| Other comprehensive income (loss) | 206 |
| | (1,930 | ) | | (110 | ) |
| Comprehensive income | $ | 18,438 |
| | $ | 15,892 |
| | $ | 15,800 |
|
| | | | | | | | | | | | | | |
| | | | |
| Consolidated Balance Sheet |
| | |
| | December 31 |
| | | | |
| (Dollars in millions) | 2020 | | 2019 |
| Assets | | | |
| Cash and due from banks | $ | 36,430 | | | $ | 30,152 | |
| Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks | 344,033 | | | 131,408 | |
| Cash and cash equivalents | 380,463 | | | 161,560 | |
| Time deposits placed and other short-term investments | 6,546 | | | 7,107 | |
Federal funds sold and securities borrowed or purchased under agreements to resell (includes $108,856 and $50,364 measured at fair value) | 304,058 | | | 274,597 | |
Trading account assets (includes $91,510 and $90,946 pledged as collateral) | 198,854 | | | 229,826 | |
| Derivative assets | 47,179 | | | 40,485 | |
| Debt securities: | | | |
| Carried at fair value | 246,601 | | | 256,467 | |
Held-to-maturity, at cost (fair value – $448,180 and $219,821) | 438,249 | | | 215,730 | |
| Total debt securities | 684,850 | | | 472,197 | |
Loans and leases (includes $6,681 and $8,335 measured at fair value) | 927,861 | | | 983,426 | |
| Allowance for loan and lease losses | (18,802) | | | (9,416) | |
| Loans and leases, net of allowance | 909,059 | | | 974,010 | |
| Premises and equipment, net | 11,000 | | | 10,561 | |
| Goodwill | 68,951 | | | 68,951 | |
Loans held-for-sale (includes $1,585 and $3,709 measured at fair value) | 9,243 | | | 9,158 | |
| Customer and other receivables | 64,221 | | | 55,937 | |
Other assets (includes $15,718 and $15,518 measured at fair value) | 135,203 | | | 129,690 | |
| Total assets | $ | 2,819,627 | | | $ | 2,434,079 | |
| | | | |
| Liabilities | | | |
| Deposits in U.S. offices: | | | |
| Noninterest-bearing | $ | 650,674 | | | $ | 403,305 | |
Interest-bearing (includes $481 and $508 measured at fair value) | 1,038,341 | | | 940,731 | |
| Deposits in non-U.S. offices: | | | |
| Noninterest-bearing | 17,698 | | | 13,719 | |
| Interest-bearing | 88,767 | | | 77,048 | |
| Total deposits | 1,795,480 | | | 1,434,803 | |
Federal funds purchased and securities loaned or sold under agreements to repurchase (includes $135,391 and $16,008 measured at fair value) | 170,323 | | | 165,109 | |
| Trading account liabilities | 71,320 | | | 83,270 | |
| Derivative liabilities | 45,526 | | | 38,229 | |
Short-term borrowings (includes $5,874 and $3,941 measured at fair value) | 19,321 | | | 24,204 | |
Accrued expenses and other liabilities (includes $16,311 and $15,434 measured at fair value and $1,878 and $813 of reserve for unfunded lending commitments) | 181,799 | | | 182,798 | |
Long-term debt (includes $32,200 and $34,975 measured at fair value) | 262,934 | | | 240,856 | |
| Total liabilities | 2,546,703 | | | 2,169,269 | |
Commitments and contingencies (Note 6 – Securitizations and Other Variable Interest Entities and Note 12 – Commitments and Contingencies) | 0 | | 0 |
| Shareholders’ equity | | | |
Preferred stock, $0.01 par value; authorized – 100,000,000 shares; issued and outstanding – 3,931,440 and 3,887,440 shares | 24,510 | | | 23,401 | |
Common stock and additional paid-in capital, $0.01 par value; authorized – 12,800,000,000 shares; issued and outstanding – 8,650,814,105 and 8,836,148,954 shares | 85,982 | | | 91,723 | |
| Retained earnings | 164,088 | | | 156,319 | |
| Accumulated other comprehensive income (loss) | (1,656) | | | (6,633) | |
| | | |
| Total shareholders’ equity | 272,924 | | | 264,810 | |
| Total liabilities and shareholders’ equity | $ | 2,819,627 | | | $ | 2,434,079 | |
| | | | |
| Assets of consolidated variable interest entities included in total assets above (isolated to settle the liabilities of the variable interest entities) | | | |
| Trading account assets | $ | 5,225 | | | $ | 5,811 | |
| | | | |
| | | | |
| Loans and leases | 23,636 | | | 38,837 | |
| Allowance for loan and lease losses | (1,693) | | | (807) | |
| Loans and leases, net of allowance | 21,943 | | | 38,030 | |
| | | | |
| All other assets | 1,387 | | | 540 | |
| Total assets of consolidated variable interest entities | $ | 28,555 | | | $ | 44,381 | |
| Liabilities of consolidated variable interest entities included in total liabilities above | | | |
| Short-term borrowings (includes $22 and $0 of non-recourse short-term borrowings) | $ | 454 | | | $ | 2,175 | |
| Long-term debt (includes $7,053 and $8,717 of non-recourse debt) | 7,053 | | | 8,718 | |
| All other liabilities (includes $16 and $19 of non-recourse liabilities) | 16 | | | 22 | |
| Total liabilities of consolidated variable interest entities | $ | 7,523 | | | $ | 10,915 | |
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
|
| | | | | | | |
| | | | |
| Consolidated Balance Sheet |
| | |
| | December 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Assets | |
| | |
|
| Cash and due from banks | $ | 29,480 |
| | $ | 30,719 |
|
| Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks | 127,954 |
| | 117,019 |
|
| Cash and cash equivalents | 157,434 |
| | 147,738 |
|
| Time deposits placed and other short-term investments | 11,153 |
| | 9,861 |
|
Federal funds sold and securities borrowed or purchased under agreements to resell (includes $52,906 and $49,750 measured at fair value) | 212,747 |
| | 198,224 |
|
Trading account assets (includes $106,274 and $106,057 pledged as collateral) | 209,358 |
| | 180,209 |
|
| Derivative assets | 37,762 |
| | 42,512 |
|
| Debt securities: | |
| | |
Carried at fair value (includes $29,830 and $29,804 pledged as collateral) | 315,117 |
| | 313,660 |
|
Held-to-maturity, at cost (fair value – $123,299 and $115,285; $6,007 and $8,233 pledged as collateral) | 125,013 |
| | 117,071 |
|
| Total debt securities | 440,130 |
| | 430,731 |
|
Loans and leases (includes $5,710 and $7,085 measured at fair value and $40,051 and $31,805 pledged as collateral) | 936,749 |
| | 906,683 |
|
| Allowance for loan and lease losses | (10,393 | ) | | (11,237 | ) |
| Loans and leases, net of allowance | 926,356 |
| | 895,446 |
|
| Premises and equipment, net | 9,247 |
| | 9,139 |
|
| Mortgage servicing rights | 2,302 |
| | 2,747 |
|
| Goodwill | 68,951 |
| | 68,969 |
|
Loans held-for-sale (includes $2,156 and $4,026 measured at fair value) | 11,430 |
| | 9,066 |
|
| Customer and other receivables | 61,623 |
| | 58,759 |
|
| Assets of business held for sale (includes $619 measured at fair value at December 31, 2016) | — |
| | 10,670 |
|
Other assets (includes $20,279 and $13,802 measured at fair value) | 132,741 |
| | 123,996 |
|
| Total assets | $ | 2,281,234 |
| | $ | 2,188,067 |
|
| | | | |
| Assets of consolidated variable interest entities included in total assets above (isolated to settle the liabilities of the variable interest entities) |
| Trading account assets | $ | 6,521 |
| | $ | 5,773 |
|
| Loans and leases | 48,929 |
| | 56,001 |
|
| Allowance for loan and lease losses | (1,016 | ) | | (1,032 | ) |
| Loans and leases, net of allowance | 47,913 |
| | 54,969 |
|
| Loans held-for-sale | 27 |
| | 188 |
|
| All other assets | 1,694 |
| | 1,596 |
|
| Total assets of consolidated variable interest entities | $ | 56,155 |
| | $ | 62,526 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Consolidated Statement of Changes in Shareholders’ Equity |
| | | | | | | | | | | | | |
| Preferred
Stock | | Common Stock and
Additional Paid-in Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | | | Total
Shareholders’
Equity |
| (In millions) | | Shares | | Amount | | | | |
| Balance, December 31, 2017 | $ | 22,323 | | | 10,287.3 | | | $ | 138,089 | | | $ | 113,816 | | | $ | (7,082) | | | | | $ | 267,146 | |
Cumulative adjustment for adoption of hedge accounting
standard | | | | | | | (32) | | | 57 | | | | | 25 | |
Adoption of accounting standard related to certain tax effects
stranded in accumulated other comprehensive income (loss) | | | | | | | 1,270 | | | (1,270) | | | | | 0 | |
| Net income | | | | | | | 28,147 | | | | | | | 28,147 | |
| Net change in debt securities | | | | | | | | | (3,953) | | | | | (3,953) | |
| Net change in debit valuation adjustments | | | | | | | | | 749 | | | | | 749 | |
| Net change in derivatives | | | | | | | | | (53) | | | | | (53) | |
| Employee benefit plan adjustments | | | | | | | | | (405) | | | | | (405) | |
| Net change in foreign currency translation adjustments | | | | | | | | | (254) | | | | | (254) | |
| Dividends declared: | | | | | | | | | | | | | |
| Common | | | | | | | (5,424) | | | | | | | (5,424) | |
| Preferred | | | | | | | (1,451) | | | | | | | (1,451) | |
| Issuance of preferred stock | 4,515 | | | | | | | | | | | | | 4,515 | |
| Redemption of preferred stock | (4,512) | | | | | | | | | | | | | (4,512) | |
| Common stock issued under employee plans, net, and other | | | 58.2 | | | 901 | | | (12) | | | | | | | 889 | |
| Common stock repurchased | | | (676.2) | | | (20,094) | | | | | | | | | (20,094) | |
| Balance, December 31, 2018 | $ | 22,326 | | | 9,669.3 | | | $ | 118,896 | | | $ | 136,314 | | | $ | (12,211) | | | | | $ | 265,325 | |
Cumulative adjustment for adoption of lease accounting
standard | | | | | | | 165 | | | | | | | 165 | |
| Net income | | | | | | | 27,430 | | | | | | | 27,430 | |
| Net change in debt securities | | | | | | | | | 5,875 | | | | | 5,875 | |
| Net change in debit valuation adjustments | | | | | | | | | (963) | | | | | (963) | |
| Net change in derivatives | | | | | | | | | 616 | | | | | 616 | |
| Employee benefit plan adjustments | | | | | | | | | 136 | | | | | 136 | |
| Net change in foreign currency translation adjustments | | | | | | | | | (86) | | | | | (86) | |
| Dividends declared: | | | | | | | | | | | | | |
| Common | | | | | | | (6,146) | | | | | | | (6,146) | |
| Preferred | | | | | | | (1,432) | | | | | | | (1,432) | |
| Issuance of preferred stock | 3,643 | | | | | | | | | | | | | 3,643 | |
| Redemption of preferred stock | (2,568) | | | | | | | | | | | | | (2,568) | |
| Common stock issued under employee plans, net, and other | | | 123.3 | | | 971 | | | (12) | | | | | | | 959 | |
| Common stock repurchased | | | (956.5) | | | (28,144) | | | | | | | | | (28,144) | |
| Balance, December 31, 2019 | $ | 23,401 | | | 8,836.1 | | | $ | 91,723 | | | $ | 156,319 | | | $ | (6,633) | | | | | $ | 264,810 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Cumulative adjustment for adoption of credit loss accounting
standard | | | | | | | (2,406) | | | | | | | (2,406) | |
| Net income | | | | | | | 17,894 | | | | | | | 17,894 | |
| Net change in debt securities | | | | | | | | | 4,799 | | | | | 4,799 | |
| Net change in debit valuation adjustments | | | | | | | | | (498) | | | | | (498) | |
| Net change in derivatives | | | | | | | | | 826 | | | | | 826 | |
| Employee benefit plan adjustments | | | | | | | | | (98) | | | | | (98) | |
| Net change in foreign currency translation adjustments | | | | | | | | | (52) | | | | | (52) | |
| Dividends declared: | | | | | | | | | | | | | |
| Common | | | | | | | (6,289) | | | | | | | (6,289) | |
| Preferred | | | | | | | (1,421) | | | | | | | (1,421) | |
| Issuance of preferred stock | 2,181 | | | | | | | | | | | | | 2,181 | |
| Redemption of preferred stock | (1,072) | | | | | | | | | | | | | (1,072) | |
| Common stock issued under employee plans, net, and other | | | 41.7 | | | 1,284 | | | (9) | | | | | | | 1,275 | |
| Common stock repurchased | | | (227.0) | | | (7,025) | | | | | | | | | (7,025) | |
| Balance, December 31, 2020 | $ | 24,510 | | | 8,650.8 | | | $ | 85,982 | | | $ | 164,088 | | | $ | (1,656) | | | | | $ | 272,924 | |
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See accompanying Notes to Consolidated Financial Statements.
|
| | | | | | | |
| | 99Bank of America 2017100 | | |
Bank of America Corporation and Subsidiaries
|
| | | | | | | |
| | | | |
| Consolidated Balance Sheet (continued) |
| | |
| | December 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Liabilities | |
| | |
|
| Deposits in U.S. offices: | |
| | |
|
| Noninterest-bearing | $ | 430,650 |
| | $ | 438,125 |
|
Interest-bearing (includes $449 and $731 measured at fair value) | 796,576 |
| | 750,891 |
|
| Deposits in non-U.S. offices: | | | |
| Noninterest-bearing | 14,024 |
| | 12,039 |
|
| Interest-bearing | 68,295 |
| | 59,879 |
|
| Total deposits | 1,309,545 |
| | 1,260,934 |
|
Federal funds purchased and securities loaned or sold under agreements to repurchase (includes $36,182 and $35,766 measured at fair value) | 176,865 |
| | 170,291 |
|
| Trading account liabilities | 81,187 |
| | 63,031 |
|
| Derivative liabilities | 34,300 |
| | 39,480 |
|
Short-term borrowings (includes $1,494 and $2,024 measured at fair value) | 32,666 |
| | 23,944 |
|
Accrued expenses and other liabilities (includes $22,840 and $14,630 measured at fair value and $777 and $762 of reserve for unfunded lending commitments) | 152,123 |
| | 147,369 |
|
Long-term debt (includes $31,786 and $30,037 measured at fair value) | 227,402 |
| | 216,823 |
|
| Total liabilities | 2,014,088 |
| | 1,921,872 |
|
Commitments and contingencies (Note 6 – Securitizations and Other Variable Interest Entities, Note 7 – Representations and Warranties Obligations and Corporate Guarantees and Note 10 – Commitments and Contingencies) |
|
| |
|
|
| Shareholders’ equity | |
| | |
Preferred stock, $0.01 par value; authorized – 100,000,000 shares; issued and outstanding – 3,837,683 and 3,887,329 shares | 22,323 |
| | 25,220 |
|
Common stock and additional paid-in capital, $0.01 par value; authorized – 12,800,000,000 shares; issued and outstanding – 10,287,302,431 and 10,052,625,604 shares | 138,089 |
| | 147,038 |
|
| Retained earnings | 113,816 |
| | 101,225 |
|
| Accumulated other comprehensive income (loss) | (7,082 | ) | | (7,288 | ) |
| Total shareholders’ equity | 267,146 |
| | 266,195 |
|
| Total liabilities and shareholders’ equity | $ | 2,281,234 |
| | $ | 2,188,067 |
|
| | | | |
| Liabilities of consolidated variable interest entities included in total liabilities above | |
| | |
|
| Short-term borrowings | $ | 312 |
| | $ | 348 |
|
Long-term debt (includes $9,872 and $10,417 of non-recourse debt) | 9,873 |
| | 10,646 |
|
All other liabilities (includes $34 and $38 of non-recourse liabilities) | 37 |
| | 41 |
|
| Total liabilities of consolidated variable interest entities | $ | 10,222 |
| | $ | 11,035 |
|
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| Consolidated Statement of Cash Flows | | | | |
| | | | | | | | | |
| | | | | | | |
| | | | | | | | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | | | |
| Operating activities | | | | | | | | | |
| Net income | $ | 17,894 | | | $ | 27,430 | | | $ | 28,147 | | | | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | |
| Provision for credit losses | 11,320 | | | 3,590 | | | 3,282 | | | | | |
| Gains on sales of debt securities | (411) | | | (217) | | | (154) | | | | | |
| Depreciation and amortization | 1,843 | | | 1,729 | | | 2,063 | | | | | |
| | | | | | | | | |
| Net amortization of premium/discount on debt securities | 4,101 | | | 2,066 | | | 1,824 | | | | | |
| Deferred income taxes | (1,737) | | | 2,435 | | | 3,041 | | | | | |
| Stock-based compensation | 2,031 | | | 1,974 | | | 1,729 | | | | | |
| Impairment of equity method investment | 0 | | | 2,072 | | | 0 | | | | | |
| Loans held-for-sale: | | | | | | | | | |
| Originations and purchases | (19,657) | | | (28,874) | | | (28,071) | | | | | |
Proceeds from sales and paydowns of loans originally classified as held for sale and instruments from related securitization activities | 19,049 | | | 30,191 | | | 28,972 | | | | | |
| Net change in: | | | | | | | | | |
| Trading and derivative assets/liabilities | 16,942 | | | 7,920 | | | (23,673) | | | | | |
| Other assets | (12,883) | | | (11,113) | | | 11,920 | | | | | |
| Accrued expenses and other liabilities | (4,385) | | | 16,363 | | | 13,010 | | | | | |
| Other operating activities, net | 3,886 | | | 6,211 | | | (2,570) | | | | | |
| Net cash provided by operating activities | 37,993 | | | 61,777 | | | 39,520 | | | | | |
| Investing activities | | | | | | | | | |
| Net change in: | | | | | | | | | |
| Time deposits placed and other short-term investments | 561 | | | 387 | | | 3,659 | | | | | |
| Federal funds sold and securities borrowed or purchased under agreements to resell | (29,461) | | | (13,466) | | | (48,384) | | | | | |
| Debt securities carried at fair value: | | | | | | | | | |
| Proceeds from sales | 77,524 | | | 52,006 | | | 5,117 | | | | | |
| Proceeds from paydowns and maturities | 91,084 | | | 79,114 | | | 78,513 | | | | | |
| Purchases | (194,877) | | | (152,782) | | | (76,640) | | | | | |
| Held-to-maturity debt securities: | | | | | | | | | |
| Proceeds from paydowns and maturities | 93,835 | | | 34,770 | | | 18,789 | | | | | |
| Purchases | (257,535) | | | (37,115) | | | (35,980) | | | | | |
| Loans and leases: | | | | | | | | | |
Proceeds from sales of loans originally classified as held for investment and instruments from related securitization activities | 13,351 | | | 12,201 | | | 21,365 | | | | | |
| Purchases | (5,229) | | | (5,963) | | | (4,629) | | | | | |
| Other changes in loans and leases, net | 36,571 | | | (46,808) | | | (31,292) | | | | | |
| Other investing activities, net | (3,489) | | | (2,974) | | | (1,986) | | | | | |
| Net cash used in investing activities | (177,665) | | | (80,630) | | | (71,468) | | | | | |
| Financing activities | | | | | | | | | |
| Net change in: | | | | | | | | | |
| Deposits | 360,677 | | | 53,327 | | | 71,931 | | | | | |
| Federal funds purchased and securities loaned or sold under agreements to repurchase | 5,214 | | | (21,879) | | | 10,070 | | | | | |
| Short-term borrowings | (4,893) | | | 4,004 | | | (12,478) | | | | | |
| Long-term debt: | | | | | | | | | |
| Proceeds from issuance | 57,013 | | | 52,420 | | | 64,278 | | | | | |
| Retirement | (47,948) | | | (50,794) | | | (53,046) | | | | | |
| Preferred stock: | | | | | | | | | |
| Proceeds from issuance | 2,181 | | | 3,643 | | | 4,515 | | | | | |
| Redemption | (1,072) | | | (2,568) | | | (4,512) | | | | | |
| Common stock repurchased | (7,025) | | | (28,144) | | | (20,094) | | | | | |
| Cash dividends paid | (7,727) | | | (5,934) | | | (6,895) | | | | | |
| Other financing activities, net | (601) | | | (698) | | | (651) | | | | | |
| Net cash provided by financing activities | 355,819 | | | 3,377 | | | 53,118 | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | 2,756 | | | (368) | | | (1,200) | | | | | |
| Net increase (decrease) in cash and cash equivalents | 218,903 | | | (15,844) | | | 19,970 | | | | | |
| Cash and cash equivalents at January 1 | 161,560 | | | 177,404 | | | 157,434 | | | | | |
| Cash and cash equivalents at December 31 | $ | 380,463 | | | $ | 161,560 | | | $ | 177,404 | | | | | |
| Supplemental cash flow disclosures | | | | | | | | | |
| Interest paid | $ | 8,662 | | | $ | 22,196 | | | $ | 19,087 | | | | | |
| Income taxes paid, net | 2,894 | | | 4,359 | | | 2,470 | | | | | |
| | | | | | | | | |
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Consolidated Statement of Changes in Shareholders’ Equity |
| | | | | | | | | | | | |
| | Preferred Stock | | Common Stock and Additional Paid-in Capital | | Retained Earnings | | Accumulated
Other Comprehensive Income (Loss) | | Total Shareholders’ Equity |
| (Dollars in millions, shares in thousands) | | Shares | | Amount | | | |
| Balance, December 31, 2014 | $ | 19,309 |
| | 10,516,542 |
| | $ | 153,458 |
| | $ | 74,731 |
| | $ | (4,022 | ) | | $ | 243,476 |
|
| Cumulative adjustment for accounting change related to debit valuation adjustments | |
| | |
| | |
| | 1,226 |
| | (1,226 | ) | | — |
|
| Cumulative adjustment for accounting change related to retirement-eligible stock-based compensation expense | |
| | |
| | | | (635 | ) | |
|
| | (635 | ) |
| Net income | |
| | |
| | |
| | 15,910 |
| | | | 15,910 |
|
| Net change in debt and marketable equity securities | |
| | |
| | |
| | |
| | (1,580 | ) | | (1,580 | ) |
| Net change in debit valuation adjustments | | | | | | | | | 615 |
| | 615 |
|
| Net change in derivatives | |
| | |
| | |
| | |
| | 584 |
| | 584 |
|
| Employee benefit plan adjustments | |
| | |
| | |
| | |
| | 394 |
| | 394 |
|
| Net change in foreign currency translation adjustments | |
| | |
| | |
| | | | (123 | ) | | (123 | ) |
| Dividends declared: | |
| | |
| | |
| | | | |
| | |
| Common | | | |
| | | | (2,091 | ) | | |
| | (2,091 | ) |
| Preferred | | | |
| | |
| | (1,483 | ) | | |
| | (1,483 | ) |
| Issuance of preferred stock | 2,964 |
| | | | | | | | | | 2,964 |
|
| Common stock issued under employee plans, net, and related tax effects | | | 4,054 |
| | (42 | ) | | |
| | |
| | (42 | ) |
| Common stock repurchased | | | (140,331 | ) | | (2,374 | ) | | | | | | (2,374 | ) |
| Balance, December 31, 2015 | $ | 22,273 |
| | 10,380,265 |
| | $ | 151,042 |
| | $ | 87,658 |
| | $ | (5,358 | ) | | $ | 255,615 |
|
| Net income | | | | | | | 17,822 |
| | | | 17,822 |
|
| Net change in debt and marketable equity securities | | | | | | | | | (1,345 | ) | | (1,345 | ) |
| Net change in debit valuation adjustments | | | | | | | | | (156 | ) | | (156 | ) |
| Net change in derivatives | | | | | | | | | 182 |
| | 182 |
|
| Employee benefit plan adjustments | | | | | | | | | (524 | ) | | (524 | ) |
| Net change in foreign currency translation adjustments | | | | | | | | | (87 | ) | | (87 | ) |
| Dividends declared: | | | | | | | | | | | |
| Common | | | | | | | (2,573 | ) | | | | (2,573 | ) |
| Preferred | | | | | | | (1,682 | ) | | | | (1,682 | ) |
| Issuance of preferred stock | 2,947 |
| | | | | | | | | | 2,947 |
|
| Common stock issued under employee plans, net, and related tax effects | | | 5,111 |
| | 1,108 |
| | | | | | 1,108 |
|
| Common stock repurchased | | | (332,750 | ) | | (5,112 | ) | | | | | | (5,112 | ) |
| Balance, December 31, 2016 | $ | 25,220 |
| | 10,052,626 |
| | $ | 147,038 |
| | $ | 101,225 |
| | $ | (7,288 | ) | | $ | 266,195 |
|
| Net income | | | | | | | 18,232 |
| | | | 18,232 |
|
| Net change in debt and marketable equity securities | | | | | | | | | 61 |
| | 61 |
|
| Net change in debit valuation adjustments | | | | | | | | | (293 | ) | | (293 | ) |
| Net change in derivatives | | | | | | | | | 64 |
| | 64 |
|
| Employee benefit plan adjustments | | | | | | | | | 288 |
| | 288 |
|
| Net change in foreign currency translation adjustments | | | | | | | | | 86 |
| | 86 |
|
| Dividends declared: | | | | | | | | | | | |
| Common | | | | | | | (4,027 | ) | | | | (4,027 | ) |
| Preferred | | | | | | | (1,578 | ) | | | | (1,578 | ) |
| Common stock issued in connection with exercise of warrants and exchange of preferred stock | (2,897 | ) | | 700,000 |
| | 2,933 |
| | (36 | ) | | | | — |
|
| Common stock issued under employee plans, net and other | | | 43,329 |
| | 932 |
| | | | | | 932 |
|
| Common stock repurchased | | | (508,653 | ) | | (12,814 | ) | | | | | | (12,814 | ) |
| Balance, December 31, 2017 | $ | 22,323 |
| | 10,287,302 |
| | $ | 138,089 |
| | $ | 113,816 |
| | $ | (7,082 | ) | | $ | 267,146 |
|
See accompanying Notes to Consolidated Financial Statements.
|
| | | | | | | |
| | Bank of America 2017102100 |
Bank of America Corporation and Subsidiaries
|
| | | | | | | | | | | |
| | | | | | |
| Consolidated Statement of Cash Flows |
| | | | | | |
| | | | | | |
| (Dollars in millions) | 2017 | | 2016 | | 2015 |
| Operating activities | |
| | |
| | |
|
| Net income | $ | 18,232 |
| | $ | 17,822 |
| | $ | 15,910 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| | |
|
| Provision for credit losses | 3,396 |
| | 3,597 |
| | 3,161 |
|
| Gains on sales of debt securities | (255 | ) | | (490 | ) | | (1,138 | ) |
| Depreciation and premises improvements amortization | 1,482 |
| | 1,511 |
| | 1,555 |
|
| Amortization of intangibles | 621 |
| | 730 |
| | 834 |
|
| Net amortization of premium/discount on debt securities | 2,251 |
| | 3,134 |
| | 2,613 |
|
| Deferred income taxes | 8,175 |
| | 5,793 |
| | 2,967 |
|
| Stock-based compensation | 1,649 |
| | 1,367 |
| | (89 | ) |
| Loans held-for-sale: | | | | | |
| Originations and purchases | (43,506 | ) | | (33,107 | ) | | (37,933 | ) |
| Proceeds from sales and paydowns of loans originally classified as held-for-sale | 40,059 |
| | 31,376 |
| | 36,204 |
|
| Net change in: | | | | | |
| Trading and derivative instruments | (13,939 | ) | | (866 | ) | | 2,550 |
|
| Other assets | (19,859 | ) | | (13,802 | ) | | 2,645 |
|
| Accrued expenses and other liabilities | 4,673 |
| | (35 | ) | | 730 |
|
| Other operating activities, net | 7,424 |
| | 1,331 |
| | (1,612 | ) |
| Net cash provided by operating activities | 10,403 |
| | 18,361 |
| | 28,397 |
|
| Investing activities | |
| | |
| | |
|
| Net change in: | | | | | |
| Time deposits placed and other short-term investments | (1,292 | ) | | (2,117 | ) | | 50 |
|
| Federal funds sold and securities borrowed or purchased under agreements to resell | (14,523 | ) | | (5,742 | ) | | (659 | ) |
| Debt securities carried at fair value: | | | | | |
| Proceeds from sales | 73,353 |
| | 71,547 |
| | 137,569 |
|
| Proceeds from paydowns and maturities | 93,874 |
| | 108,592 |
| | 92,498 |
|
| Purchases | (166,975 | ) | | (189,061 | ) | | (219,412 | ) |
| Held-to-maturity debt securities: | | | | | |
| Proceeds from paydowns and maturities | 16,653 |
| | 18,677 |
| | 12,872 |
|
| Purchases | (25,088 | ) | | (39,899 | ) | | (36,575 | ) |
| Loans and leases: | | | | | |
| Proceeds from sales | 11,761 |
| | 18,230 |
| | 22,316 |
|
| Purchases | (6,846 | ) | | (12,283 | ) | | (12,629 | ) |
| Other changes in loans and leases, net | (41,104 | ) | | (31,194 | ) | | (51,895 | ) |
| Other investing activities, net | 8,180 |
| | 107 |
| | 294 |
|
| Net cash used in investing activities | (52,007 | ) | | (63,143 | ) | | (55,571 | ) |
| Financing activities | |
| | |
| | |
|
| Net change in: | | | | | |
| Deposits | 48,611 |
| | 63,675 |
| | 78,347 |
|
| Federal funds purchased and securities loaned or sold under agreements to repurchase | 7,024 |
| | (4,000 | ) | | (26,986 | ) |
| Short-term borrowings | 8,538 |
| | (4,014 | ) | | (3,074 | ) |
| Long-term debt: | | | | | |
| Proceeds from issuance | 53,486 |
| | 35,537 |
| | 43,670 |
|
| Retirement of long-term debt | (49,553 | ) | | (51,849 | ) | | (40,365 | ) |
| Preferred stock: Proceeds from issuance | — |
| | 2,947 |
| | 2,964 |
|
| Common stock repurchased | (12,814 | ) | | (5,112 | ) | | (2,374 | ) |
| Cash dividends paid | (5,700 | ) | | (4,194 | ) | | (3,574 | ) |
| Other financing activities, net | (397 | ) | | (63 | ) | | (73 | ) |
| Net cash provided by financing activities | 49,195 |
| | 32,927 |
| | 48,535 |
|
| Effect of exchange rate changes on cash and cash equivalents | 2,105 |
| | 240 |
| | (597 | ) |
| Net increase (decrease) in cash and cash equivalents | 9,696 |
| | (11,615 | ) | | 20,764 |
|
| Cash and cash equivalents at January 1 | 147,738 |
| | 159,353 |
| | 138,589 |
|
| Cash and cash equivalents at December 31 | $ | 157,434 |
| | $ | 147,738 |
| | $ | 159,353 |
|
| Supplemental cash flow disclosures | | | | | |
| Interest paid | $ | 12,852 |
| | $ | 10,510 |
| | $ | 10,623 |
|
| Income taxes paid | 3,297 |
| | 1,633 |
| | 2,326 |
|
| Income taxes refunded | (62 | ) | | (590 | ) | | (151 | ) |
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 Summary of Significant Accounting Principles
Bank of America Corporation, a bank holding company and a financial holding company, provides a diverse range of financial services and products throughout the U.S. and in certain international markets. The term “the Corporation” as used herein may refer to Bank of America Corporation, individually, Bank of America Corporation and its subsidiaries, or certain of Bank of America Corporation’s subsidiaries or affiliates.
Principles of Consolidation and Basis of Presentation
The Consolidated Financial Statements include the accounts of the Corporation and its majority-owned subsidiaries and those variable interest entities (VIEs) where the Corporation is the primary beneficiary. Intercompany accounts and transactions have been eliminated. Results of operations of acquired companies are included from the dates of acquisition, and for VIEs, from the dates that the Corporation became the primary beneficiary. Assets held in an agency or fiduciary capacity are not included in the Consolidated Financial Statements. The Corporation accounts for investments in companies for which it owns a voting interest and for which it has the ability to exercise significant influence over operating and financing decisions using the equity method of accounting. These investments are included in other assets. Equity method investments are subject to impairment testing, and the Corporation’s proportionate share of income or loss is included in other income.
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect reported amounts and disclosures. RealizedActual results could materially differ from those estimates and assumptions. Certain prior-period amounts have been reclassified to conform to current period presentation.
On June 1, 2017, the Corporation completed the sale of its non-U.S. consumer credit card business to a third party. The Corporation has indemnified the purchaser for substantially all payment protection insurance (PPI) exposure above reserves assumed by the purchaser. The impact of the sale was an after-tax gain of $103 million, and is presented in the Consolidated Statement of Income as other income of $793 million and an income tax expense of $690 million. The income tax expense was related to gains on the derivatives used to hedge the currency risk of the net investment. Total cash proceeds from the sale were $10.9 billion. The assets of the business sold primarily included consumer credit card receivables of $9.8 billion and $9.2 billion at June 1, 2017 and December 31, 2016 and goodwill of $775 million at both of those period ends. This business was 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 PronouncementsStandards
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.
Revenue Recognition
Effective January 1, 2018, the Corporation adopted the new accounting standard for recognizing revenue from contracts with customers. The new standard does not impact the timing or measurement of the Corporation’s revenue recognition asit is consistent with the Corporation’s existing accounting for contracts within the scope of the new standard. However, beginning prospectively in 2018, the Corporation’s presentation of certain costs, which are primarily related to underwriting activities, will be presented as operating expenses under the new standard rather than presented net in investment banking income, resulting in an expected increase to both line items of approximately $200 million for the year. The new accounting standard does not have a material impact on the Corporation’s consolidated financial position or results of operations and will not have a material impact on the disclosures in the Notes to the Consolidated Financial Statements.
Hedge Accounting
Effective January 1, 2018, the Corporation early adopted the new standard that simplifies and expands the ability to apply hedge accounting to certain risk management activities. The accounting standard does not have a material impact on the Corporation’s consolidated financial position or results of operations and will not have a material impact on the disclosures in the Notes to the Consolidated Financial Statements. The Corporation recognized an insignificant cumulative-effect adjustment to its January 1, 2018 opening retained earnings to reflect the impact of applying the new standard to certain outstanding hedge strategies, mainly related to fair value hedges of fixed-rate debt instruments.
Recognition and Measurement of Financial Assets and Financial Liabilities
The Financial Accounting Standards Board (FASB) issued a new accounting standard on recognition and measurement of financial instruments, including certain equity investments and financial liabilities recorded at fair value under the fair value option. Effective January 1, 2015, the Corporation early adopted the provisions related to debit valuation adjustments (DVA) on financial liabilities accounted for under the fair value option. The Corporation adopted the remaining provisions on January 1, 2018, which will not have a material impact on the Corporation’s consolidated financial position, results of operations or disclosures in the Notes to the Consolidated Financial Statements.
Tax Effects in Accumulated Other Comprehensive Income
The FASB issued a new accounting standard effective on January 1, 2019, with early adoption permitted, that addresses certain tax effects in accumulated other comprehensive income (OCI) related to the Tax Act. Under this new accounting standard, those tax effects, representing the difference between the newly enacted federal tax rate of 21 percent and the historical tax rate, may, at the entity’s election, be reclassified from accumulated OCI to retained earnings. The new accounting standard can be applied retrospectively to each period in which the effects of the change in federal tax rate are recognized or applied at the beginning of the period of adoption. The new accounting standard will not have a material impact on the Corporation’s consolidated financial position, results of operations or disclosures in the Notes to the Consolidated Financial Statements.
Lease Accounting
The FASB issued a new accounting standard effective on January 1, 2019 that requires substantially all leases to be recorded as assets and liabilities on the balance sheet. On January 5, 2018, the FASB issued an exposure draft proposing an amendment to the standard that, if approved, would permit companies the option to apply the provisions of the new lease standard either prospectively as of the effective date, without adjusting comparative periods presented, or using a modified retrospective transition applicable to all prior periods presented. The Corporation is in the process of reviewing its existing lease portfolios, including certain service contracts for embedded leases, to evaluate the impact of the standard on the consolidated financial statements, as well as the impact to regulatory capital and risk-weighted assets. The effect of the adoption will depend on the lease portfolio at the time of transition and the transition options ultimately available; however, the Corporation does not expect the new accounting standard to have a material impact on its consolidated financial position, results of operations or disclosures in the Notes to the Consolidated Financial Statements.
AccountingAllowance for Financial Instruments -- Credit Losses
The FASB issued aOn January 1, 2020, the Corporation adopted the new accounting standard effective on January 1, 2020, with early adoption permitted on January 1, 2019, that will requirerequires the earlier recognitionmeasurement of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use. The standard also requires expanded credit quality disclosures, including credit quality indicators disaggregated by vintage. The Corporation is in the process of identifying and implementing required changes to loan loss estimation models and processes and evaluating the impact of this new accounting standard, which at the date of adoption is expected to increase the allowance for credit losses with a resulting negative adjustment to retained earnings.
Significant Accounting Principles
Cash and Cash Equivalents
Cash and cash equivalents include cashbe based on hand, cash itemsmanagement’s best estimate of lifetime ECL inherent in the processCorporation’s relevant financial assets. Upon adoption of collection, cash segregated under federal and other brokerage regulations, and amounts due from correspondent banks, the Federal Reserve Bank and certain non-U.S. central banks.
Securities Financing Agreements
Securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase (securities financing agreements) are treated as collateralized financing transactions except in instances where the transaction is required to be accounted for as individual sale and purchase transactions. Generally, these agreements are recorded at acquisition or sale price plus accrued interest, except for certain securities financing agreements thatnew accounting standard, the Corporation accountsrecorded a net increase of $3.3 billion in the allowance for credit losses which was comprised of a net increase of $2.9 billion in the allowance for loan and lease losses and an increase of $310 million in the reserve for unfunded lending commitments. The net increase was primarily driven by a $3.1 billion increase related to the credit card portfolio.
The allowance for credit losses further increased by $7.2 billion from January 1, 2020 to $20.7 billion at December 31, 2020, which included a $5.0 billion reserve increase related to the commercial portfolio and a $2.2 billion reserve increase related to the consumer portfolio. The increases were driven by deterioration in the economic outlook resulting from the impact of COVID-19.
The following table presents an allocation of the allowance for credit losses by product type for December 31, 2020, January 1, 2020and December 31, 2019 (prior to the adoption of the CECL accounting standard).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Table 42 | 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) | | Amount | | Percent of
Total | | Percent of
Loans and
Leases Outstanding (1) |
| (Dollars in millions) | December 31, 2020 | | January 1, 2020 | | December 31, 2019 |
| Allowance for loan and lease losses | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 459 | | | 2.44 | % | | 0.21 | % | | $ | 212 | | | 1.72 | % | | 0.09 | % | | $ | 325 | | | 3.45 | % | | 0.14 | % |
| Home equity | 399 | | | 2.12 | | | 1.16 | | | 228 | | | 1.84 | | | 0.57 | | | 221 | | | 2.35 | | | 0.55 | |
| Credit card | 8,420 | | | 44.79 | | | 10.70 | | | 6,809 | | | 55.10 | | | 6.98 | | | 3,710 | | | 39.39 | | | 3.80 | |
| | | | | | | | | | | | | | | | | |
| Direct/Indirect consumer | 752 | | | 4.00 | | | 0.82 | | | 566 | | | 4.58 | | | 0.62 | | | 234 | | | 2.49 | | | 0.26 | |
| Other consumer | 41 | | | 0.22 | | | n/m | | 55 | | | 0.45 | | | n/m | | 52 | | | 0.55 | | | n/m |
| Total consumer | 10,071 | | | 53.57 | | | 2.35 | | | 7,870 | | | 63.69 | | | 1.69 | | | 4,542 | | | 48.23 | | | 0.98 | |
U.S. commercial (2) | 5,043 | | | 26.82 | | | 1.55 | | | 2,723 | | | 22.03 | | | 0.84 | | | 3,015 | | | 32.02 | | | 0.94 | |
| Non-U.S. commercial | 1,241 | | | 6.60 | | | 1.37 | | | 668 | | | 5.41 | | | 0.64 | | | 658 | | | 6.99 | | | 0.63 | |
| Commercial real estate | 2,285 | | | 12.15 | | | 3.79 | | | 1,036 | | | 8.38 | | | 1.65 | | | 1,042 | | | 11.07 | | | 1.66 | |
| Commercial lease financing | 162 | | | 0.86 | | | 0.95 | | | 61 | | | 0.49 | | | 0.31 | | | 159 | | | 1.69 | | | 0.80 | |
| Total commercial | 8,731 | | | 46.43 | | | 1.77 | | | 4,488 | | | 36.31 | | | 0.88 | | | 4,874 | | | 51.77 | | | 0.96 | |
| Allowance for loan and lease losses | 18,802 | | | 100.00 | % | | 2.04 | | | 12,358 | | | 100.00 | % | | 1.27 | | | 9,416 | | | 100.00 | % | | 0.97 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Reserve for unfunded lending commitments | 1,878 | | | | | | | 1,123 | | | | | | | 813 | | | | | |
| Allowance for credit losses | $ | 20,680 | | | | | | | $ | 13,481 | | | | | | | $ | 10,229 | | | | | |
| | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | |
(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. Changes in the fair value of securities financing agreements that areConsumer loans accounted for under the fair value option are recordedinclude residential mortgage loans of $298 million at December 31, 2020 and $257 million at January 1, 2020 and December 31, 2019 and home equity loans of $437 million at December 31, 2020 and $337 million at January 1, 2020 and December 31, 2019. Commercial loans accounted for under the fair value option include U.S. commercial loans of $2.9 billion, $5.1 billion and $4.7 billion at December 31, 2020, January 1, 2020 and December 31, 2019, and non-U.S. commercial loans of $3.0 billion, $3.2 billion and $3.1 billion at December 31, 2020, January 1, 2020 and December 31, 2019.
(2)Includes allowance for loan and lease losses for U.S. small business commercial loans of $1.5 billion, $831 million and $523 million at December 31, 2020, January 1, 2020 and December 31, 2019.
n/m = not meaningful
Net charge-offs for 2020 were $4.1 billion compared to $3.6 billion in trading account profits2019 driven by increases in commercial losses. The provision for credit losses increased $7.7 billion to $11.3 billion during 2020 compared to 2019. The allowance for credit losses included a reserve build of $7.2 billion for 2020, excluding the impact of the new accounting standard, primarily due to the deterioration in the economic outlook resulting from the impact of COVID-19 on both the consumer and commercial portfolios. The provision for credit losses for the consumer portfolio, including unfunded lending commitments, increased $2.0 billion to $4.9 billion during 2020 compared to 2019. The provision for credit losses for the commercial portfolio, including unfunded
lending commitments, increased $5.7 billion to $6.5 billion during 2020 compared to 2019.
The following table presents a rollforward of the allowance for credit losses, including certain loan and allowance ratios for 2020, noting that measurement of the allowance for credit losses for 2019 was based on management’s estimate of probable incurred losses. For more information on the Corporation’s credit loss accounting policies and activity related to the allowance for credit losses, see Note 1 – Summary of Significant Accounting Principles and Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Statement of Income.Financial Statements.
| | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table 43 | Allowance for Credit Losses | | | | | | | |
| | | | | | | | |
| | | | | | |
| (Dollars in millions) | 2020 | | | | | | 2019 |
| Allowance for loan and lease losses, January 1 | $ | 12,358 | | | | | | | $ | 9,601 | |
| Loans and leases charged off | | | | | | | |
| Residential mortgage | (40) | | | | | | | (93) | |
| Home equity | (58) | | | | | | | (429) | |
| Credit card | (2,967) | | | | | | | (3,535) | |
| Direct/Indirect consumer | (372) | | | | | | | (518) | |
| Other consumer | (307) | | | | | | | (249) | |
| Total consumer charge-offs | (3,744) | | | | | | | (4,824) | |
U.S. commercial (1) | (1,163) | | | | | | | (650) | |
| Non-U.S. commercial | (168) | | | | | | | (115) | |
| Commercial real estate | (275) | | | | | | | (31) | |
| Commercial lease financing | (69) | | | | | | | (26) | |
| Total commercial charge-offs | (1,675) | | | | | | | (822) | |
| Total loans and leases charged off | (5,419) | | | | | | | (5,646) | |
| Recoveries of loans and leases previously charged off | | | | | | | |
| Residential mortgage | 70 | | | | | | | 140 | |
| Home equity | 131 | | | | | | | 787 | |
| Credit card | 618 | | | | | | | 587 | |
| Direct/Indirect consumer | 250 | | | | | | | 309 | |
| Other consumer | 23 | | | | | | | 15 | |
| Total consumer recoveries | 1,092 | | | | | | | 1,838 | |
U.S. commercial (2) | 178 | | | | | | | 122 | |
| Non-U.S. commercial | 13 | | | | | | | 31 | |
| Commercial real estate | 5 | | | | | | | 2 | |
| Commercial lease financing | 10 | | | | | | | 5 | |
| Total commercial recoveries | 206 | | | | | | | 160 | |
| Total recoveries of loans and leases previously charged off | 1,298 | | | | | | | 1,998 | |
| Net charge-offs | (4,121) | | | | | | | (3,648) | |
| | | | | | | |
| Provision for loan and lease losses | 10,565 | | | | | | | 3,574 | |
| Other | — | | | | | | | (111) | |
| | | | | | | |
| | | | | | | |
| Allowance for loan and lease losses, December 31 | 18,802 | | | | | | | 9,416 | |
| Reserve for unfunded lending commitments, January 1 | 1,123 | | | | | | | 797 | |
| Provision for unfunded lending commitments | 755 | | | | | | | 16 | |
| | | | | | | |
| Reserve for unfunded lending commitments, December 31 | 1,878 | | | | | | | 813 | |
| Allowance for credit losses, December 31 | $ | 20,680 | | | | | | | $ | 10,229 | |
| | | | | | | | |
| Loan and allowance ratios: | | | | | | | |
Loans and leases outstanding at December 31 (3) | $ | 921,180 | | | | | | | $ | 975,091 | |
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (3) | 2.04 | % | | | | | | 0.97 | % |
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (4) | 2.35 | | | | | | | 0.98 | |
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (5) | 1.77 | | | | | | | 0.96 | |
Average loans and leases outstanding (3) | $ | 974,281 | | | | | | | $ | 951,583 | |
Annualized net charge-offs as a percentage of average loans and leases outstanding (3) | 0.42 | % | | | | | | 0.38 | % |
| | | | | | | |
| Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 | 380 | | | | | | | 265 | |
| Ratio of the allowance for loan and lease losses at December 31 to net charge-offs | 4.56 | | | | | | | 2.58 | |
| | | | | | | |
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (6) | $ | 9,854 | | | | | | | $ | 4,151 | |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (6) | 181 | % | | | | | | 148 | % |
(1)Includes U.S. small business commercial charge-offs of $321 million in 2020 compared to $320 million in 2019.
(2)Includes U.S. small business commercial recoveries of $54 million in 2020 compared to $48 million in 2019.
(3)Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $6.7 billion and $8.3 billion at December 31, 2020 and 2019. Average loans accounted for under the fair value option were $8.2 billion in 2020 compared to $6.8 billion in 2019.
(4)Excludes consumer loans accounted for under the fair value option of $735 million and $594 million at December 31, 2020 and 2019.
(5)Excludes commercial loans accounted for under the fair value option of $5.9 billion and $7.7 billion at December 31, 2020 and 2019.
(6)Primarily includes amounts related to credit card and unsecured consumer lending portfolios in Consumer Banking.
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 82.
We have been affected, and expect to continue to be affected, by market stress resulting from the pandemic that began in the first quarter of 2020. For more information on the effects of the pandemic, see Executive Summary – Recent Developments – COVID-19 Pandemic on page 25.
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.
Model risk is the potential for adverse consequences from decisions based on incorrect or misused model outputs and reports. Given that models are used across the Corporation, model risk impacts all risk types including credit, market and operational risks. The Enterprise Model Risk Policy defines model risk standards, consistent with our risk framework and risk appetite, prevailing regulatory guidance and industry best practice. All models, including risk management, valuation and regulatory capital models, must meet certain validation criteria, including effective challenge of the conceptual soundness of the model, independent model testing and ongoing monitoring through outcomes analysis and benchmarking. The Enterprise Model Risk Committee (EMRC), a subcommittee of the MRC, oversees that model standards are consistent with model risk requirements and monitors the effective challenge in the model validation process across the Corporation.
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 84.
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 risks 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, which 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 50.
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 policyRisk 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 44 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 44 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 44 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 44 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 44 presents year-end, average, high and low daily trading VaR for 2020 and 2019 using a 99 percent confidence
level. The amounts disclosed in Table 44 and Table 45 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 annual average of total covered positions and less liquid trading positions portfolio VaR increased for 2020 compared to 2019 primarily due to the impact of market volatility related to the pandemic in the VaR look back period.
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| Table 44 | Market Risk VaR for Trading Activities | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| 2020 | | 2019 | | | | |
| (Dollars in millions) | Year
End | | Average | | High (1) | | Low (1) | | Year
End | | Average | | High (1) | | Low (1) | | | | | | | | | | | | |
| Foreign exchange | $ | 8 | | | $ | 7 | | | $ | 25 | | | $ | 2 | | | $ | 4 | | | $ | 6 | | | $ | 13 | | | $ | 2 | | | | | | | | | | | | | |
| Interest rate | 30 | | | 19 | | | 39 | | | 7 | | | 25 | | | 24 | | | 49 | | | 14 | | | | | | | | | | | | | |
| Credit | 79 | | | 58 | | | 91 | | | 25 | | | 26 | | | 23 | | | 32 | | | 16 | | | | | | | | | | | | | |
| Equity | 20 | | | 24 | | | 162 | | | 12 | | | 29 | | | 22 | | | 33 | | | 14 | | | | | | | | | | | | | |
| Commodities | 4 | | | 6 | | | 12 | | | 3 | | | 4 | | | 6 | | | 31 | | | 4 | | | | | | | | | | | | | |
| Portfolio diversification | (72) | | | (61) | | | — | | | — | | | (47) | | | (49) | | | — | | | — | | | | | | | | | | | | | |
| Total covered positions portfolio | 69 | | | 53 | | | 171 | | | 27 | | | 41 | | | 32 | | | 47 | | | 24 | | | | | | | | | | | | | |
| Impact from less liquid exposures | 52 | | | 27 | | | — | | | — | | | — | | | 3 | | | — | | | — | | | | | | | | | | | | | |
| Total covered positions and less liquid trading positions portfolio | 121 | | | 80 | | | 169 | | | 30 | | | 41 | | | 35 | | | 53 | | | 27 | | | | | | | | | | | | | |
| Fair value option loans | 52 | | | 52 | | | 84 | | | 7 | | | 8 | | | 10 | | | 13 | | | 7 | | | | | | | | | | | | | |
| Fair value option hedges | 11 | | | 13 | | | 17 | | | 9 | | | 10 | | | 10 | | | 17 | | | 4 | | | | | | | | | | | | | |
| Fair value option portfolio diversification | (17) | | | (24) | | | — | | | — | | | (9) | | | (10) | | | — | | | — | | | | | | | | | | | | | |
| Total fair value option portfolio | 46 | | | 41 | | | 86 | | | 9 | | | 9 | | | 10 | | | 16 | | | 5 | | | | | | | | | | | | | |
| Portfolio diversification | (4) | | | (15) | | | — | | | — | | | (5) | | | (7) | | | — | | | — | | | | | | | | | | | | | |
| Total market-based portfolio | $ | 163 | | | $ | 106 | | | 171 | | | 32 | | | $ | 45 | | | $ | 38 | | | 56 | | | 28 | | | | | | | | | | | | | |
(1)The high and low for each portfolio may have occurred on different trading days than the high and low for the components. Therefore the impact from less liquid exposures and the amount of portfolio diversification, which is the difference between the total portfolio and the sum of the individual components, is not relevant.
The graph below presents the daily covered positions and less liquid trading positions portfolio VaR for 2020, corresponding to the data in Table 44. Peak VaR in mid-March 2020 was driven by increased market realized volatility and higher implied volatilities.
Additional VaR statistics produced within our single VaR model are provided in Table 45 at the same level of detail as in Table 44. Evaluating VaR with additional statistics allows for an increased understanding of the risks in the portfolio as the historical market data used in the VaR calculation does not necessarily follow a predefined statistical distribution. Table 45
presents average trading VaR statistics at 99 percent and 95 percent confidence levels for 2020 and 2019. The increase in VaR for the 99 percent confidence level for 2020 was primarily due to COVID-19 related market volatility, which impacted the 99 percent VaR average more severely than the 95 percent VaR average.
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| Table 45 | Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics |
| | | | | | | | | | | | | |
| | | |
| | | |
| | | 2020 | | | | 2019 |
| (Dollars in millions) | | 99 percent | | 95 percent | | | | | | 99 percent | | 95 percent |
| Foreign exchange | | $ | 7 | | | $ | 4 | | | | | | | $ | 6 | | | $ | 3 | |
| Interest rate | | 19 | | | 9 | | | | | | | 24 | | | 15 | |
| Credit | | 58 | | | 18 | | | | | | | 23 | | | 15 | |
| Equity | | 24 | | | 13 | | | | | | | 22 | | | 11 | |
| Commodities | | 6 | | | 3 | | | | | | | 6 | | | 3 | |
| Portfolio diversification | | (61) | | | (26) | | | | | | | (49) | | | (29) | |
| Total covered positions portfolio | | 53 | | | 21 | | | | | | | 32 | | | 18 | |
| Impact from less liquid exposures | | 27 | | | 2 | | | | | | | 3 | | | 2 | |
| Total covered positions and less liquid trading positions portfolio | | 80 | | | 23 | | | | | | | 35 | | | 20 | |
| Fair value option loans | | 52 | | | 13 | | | | | | | 10 | | | 5 | |
| Fair value option hedges | | 13 | | | 7 | | | | | | | 10 | | | 6 | |
| Fair value option portfolio diversification | | (24) | | | (8) | | | | | | | (10) | | | (5) | |
| Total fair value option portfolio | | 41 | | | 12 | | | | | | | 10 | | | 6 | |
| Portfolio diversification | | (15) | | | (6) | | | | | | | (7) | | | (5) | |
| Total market-based portfolio | | $ | 106 | | | $ | 29 | | | | | | | $ | 38 | | | $ | 21 | |
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 intra-day 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 2020, there were seven days where this subset of trading revenue had losses that exceeded 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. 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 2020 and 2019. During 2020, positive trading-related revenue was recorded for 98 percent of the trading days, of which 87 percent were daily trading gains of over $25 million, and the largest loss was $90 million. This compares to 2019 where positive trading-related revenue was recorded for 98 percent of the trading days, of which 80 percent were daily trading gains of over $25 million, and the largest loss was $35 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 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 47.
Interest Rate Risk Management for the Banking Book
The following discussion presents net interest income for banking book activities.
Interest rate risk represents the most significant market risk exposure to our banking book balance sheet. Interest rate risk is measured as the potential change in net interest income caused by movements in market interest rates. Client-facing activities, primarily lending and deposit-taking, create interest rate sensitive positions on our balance sheet.
We prepare forward-looking forecasts of net interest income. The baseline forecast takes into consideration expected future business growth, ALM positioning -and the direction of interest rate movements as implied by the market-based forward curve.
We then measure and evaluate the impact that alternative interest rate scenarios have on the baseline forecast in order to assess interest rate sensitivity under varied conditions. The net interest income forecast is frequently updated for changing assumptions and differing outlooks based on economic trends, market conditions and business strategies. Thus, we continually monitor our balance sheet position in order to maintain an acceptable level of exposure to interest rate changes.
The interest rate scenarios that we analyze incorporate balance sheet assumptions such as loan and deposit growth and pricing, changes in funding mix, product repricing, maturity characteristics and investment securities premium amortization. Our overall goal is to monitormanage interest rate risk so that movements in interest rates do not significantly adversely affect earnings and capital.
Table 46 presents the market valuespot and 12-month forward rates used in our baseline forecasts at December 31, 2020 and 2019.
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| | | | | | |
| Table 46 | Forward Rates |
| | | | | | |
| | December 31, 2020 |
| | Federal
Funds | | Three-month
LIBOR | | 10-Year
Swap |
| Spot rates | 0.25 | % | | 0.24 | % | | 0.93 | % |
| 12-month forward rates | 0.25 | | | 0.19 | | | 1.06 | |
| | | | | | |
| | December 31, 2019 |
| Spot rates | 1.75 | % | | 1.91 | % | | 1.90 | % |
| 12-month forward rates | 1.50 | | | 1.62 | | | 1.92 | |
Table 47 shows the pretax impact to forecasted net interest income over the next 12 months from December 31, 2020 and 2019 resulting from instantaneous parallel and non-parallel
shocks to the market-based forward curve. Periodically we evaluate the scenarios presented so that they are meaningful in the context of the principal amount loaned under resale agreementscurrent rate environment. The interest rate scenarios also assume U.S. dollar rates are floored at zero.
During 2020, the asset sensitivity of our balance sheet increased in both up-rate and obtain collateral from or return collateral pledged to counterparties when appropriate. Securities financing agreements do not create
material credit riskdown-rate scenarios primarily due to these collateral provisions; therefore, an allowance for loan losses is unnecessary.
In transactions wherecontinued deposit growth invested in long-term securities. We continue to be asset sensitive to a parallel upward move in interest rates with the Corporation acts asmajority of that impact coming from the lender in a securities lending agreement and receives securities that can be pledged or sold as collateral, it recognizes an asset onshort end of the Consolidated Balance Sheet at fair value, representing the securities received, and a liability, representing the obligation to return those securities.
Collateral
The Corporation accepts securities and loans as collateral that it is permitted by contract or practice to sell or repledge. At December 31, 2017 and 2016,yield curve. Additionally, higher interest rates impact the fair value of this collateral was $561.9 billiondebt securities and, $452.1 billion, of which $476.1 billionaccordingly, for debt securities classified as AFS, may adversely affect accumulated OCI and $372.0 billion was sold or repledged. The primary source of this collateralthus 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 agreementsreduced over time by offsetting positive impacts to resell.net interest income. For more information on Basel 3, see Capital Management – Regulatory Capital on page 51.
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| Table 47 | Estimated Banking Book Net Interest Income Sensitivity to Curve Changes |
| | | | | | | | |
| | Short
Rate (bps) | | Long
Rate (bps) | | | | |
| | | December 31 |
| (Dollars in millions) | | | 2020 | | 2019 |
| | | | | | | |
| Parallel Shifts | | | | | | | |
+100 bps instantaneous shift | +100 | | +100 | | $ | 10,468 | | | $ | 4,190 | |
-25 bps instantaneous shift | -25 | | | -25 | | | (2,766) | | | (1,500) | |
| Flatteners | | | | | | | |
Short-end instantaneous change | +100 | | — | | | 6,321 | | | 2,641 | |
Long-end instantaneous change | — | | | -25 | | | (1,686) | | | (653) | |
| Steepeners | | | | | | | |
Short-end instantaneous change | -25 | | | — | | | (1,084) | | | (844) | |
Long-end instantaneous change | — | | | +100 | | 4,333 | | | 1,561 | |
The Corporation also pledges company-ownedsensitivity analysis in Table 47 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 loansinterest rate and foreign exchange derivatives in managing interest rate sensitivity.
The behavior of our deposits 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 47 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 non-interest-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 collateralan 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, publiccash 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 counterpartiesforeign 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 assetsOur 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 connectionforeign 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 similarforeign currency-denominated assets and liabilities. If these market prices
Changes to the composition of our derivatives portfolio during 2020 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 determinationcurrent assessment of fair value may require significant management judgment or estimation. Realized gainseconomic 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 managesfinancial 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 results on both open and terminated cash flow hedge derivative instruments recorded in accumulated OCI were a gain of $580 million and a loss of $496 million, on a pretax basis, at December 31, 2020 and 2019. These gains and 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, 2020, the after-tax net gains are expected to be reclassified into earnings as follows: a gain of $187 million within the next year, a gain of $358 million in years two through five, a loss of $59 million in years six through ten, with the remaining loss of $50 million thereafter. For more information on derivatives designated as cash flow hedges, see Note 3 – Derivatives to the Consolidated Financial Statements.
We hedge our net investment in non-U.S. operations determined to have functional currencies other than the U.S. dollar using forward foreign exchange contracts that typically settle in less than 180 days, cross-currency basis swaps and foreign exchange options. We recorded net after-tax losses on derivatives in accumulated OCI associated with net investment hedges which were offset by gains on our net investments in consolidated non-U.S. entities at December 31, 2020.
Table 48 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, 2020 and 2019. These amounts do not include derivative hedges on our MSRs. During 2020, the fair value of receive-fixed interest rate sensitivity predominantlyswaps increased while pay-fixed interest swaps decreased, primarily driven by lower swap rates on hedges of U.S. dollar long-term debt.
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| Table 48 | Asset and Liability Management Interest Rate and Foreign Exchange Contracts |
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| | | | December 31, 2020 | | |
| | | | Expected Maturity | | |
| (Dollars in millions, average estimated duration in years) | Fair
Value | | Total | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Average
Estimated
Duration |
Receive-fixed interest rate swaps (1) | $ | 14,885 | | | | | | | | | | | | | | | | | 8.08 | |
| Notional amount | �� | | $ | 269,015 | | | $ | 11,050 | | | $ | 20,908 | | | $ | 30,654 | | | $ | 31,317 | | | $ | 32,898 | | | $ | 142,188 | | | |
| Weighted-average fixed-rate | | | 1.54 | % | | 3.25 | % | | 0.91 | % | | 1.48 | % | | 1.17 | % | | 1.07 | % | | 1.69 | % | | |
Pay-fixed interest rate swaps (1) | (5,502) | | | | | | | | | | | | | | | | | 6.52 | |
| Notional amount | | | $ | 252,698 | | | $ | 7,562 | | | $ | 21,667 | | | $ | 24,671 | | | $ | 24,406 | | | $ | 32,052 | | | $ | 142,340 | | | |
| Weighted-average fixed-rate | | | 0.89 | % | | 0.57 | % | | 0.10 | % | | 1.28 | % | | 0.86 | % | | 0.68 | % | | 1.00 | % | | |
Same-currency basis swaps (2) | (235) | | | | | | | | | | | | | | | | | |
| Notional amount | | | $ | 223,659 | | | $ | 18,769 | | | $ | 12,245 | | | $ | 9,747 | | | $ | 22,737 | | | $ | 28,222 | | | $ | 131,939 | | | |
Foreign exchange basis swaps (1, 3, 4) | (1,014) | | | | | | | | | | | | | | | | | |
| Notional amount | | | 112,465 | | | 27,424 | | | 16,038 | | | 8,066 | | | 3,819 | | | 4,446 | | | 52,672 | | | |
Foreign exchange contracts (1, 4, 5) | 349 | | | | | | | | | | | | | | | | | |
Notional amount (6) | | | (42,490) | | | (69,299) | | | 2,841 | | | 2,505 | | | 4,735 | | | 4,369 | | | 12,359 | | | |
| Futures and forward rate contracts | 47 | | | | | | | | | | | | | | | | | |
| Notional amount | | | 14,255 | | | 14,255 | | | — | | | — | | | — | | | — | | | — | | | |
| Option products | — | | | | | | | | | | | | | | | | | |
| Notional amount | | | 17 | | | — | | | — | | | 17 | | | — | | | — | | | — | | | |
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| Net ALM contracts | $ | 8,530 | | | | | | | | | | | | | | | | | |
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| Table 48 | Asset and Liability Management Interest Rate and Foreign Exchange Contracts (continued) |
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| | | | | December 31, 2019 | | |
| | | | | Expected Maturity | | |
| (Dollars in millions, average estimated duration in years) | Fair
Value | | Total | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Average
Estimated
Duration |
Receive-fixed interest rate swaps (1) | $ | 12,370 | | | | | | | | | | | | | | | | | 6.47 | |
| Notional amount | | | $ | 215,123 | | | $ | 16,347 | | | $ | 14,642 | | | $ | 21,616 | | | $ | 36,356 | | | $ | 21,257 | | | $ | 104,905 | | | |
| Weighted-average fixed-rate | | | 2.68 | % | | 2.68 | % | | 3.17 | % | | 2.48 | % | | 2.36 | % | | 2.55 | % | | 2.79 | % | | |
Pay-fixed interest rate swaps (1) | (2,669) | | | | | | | | | | | | | | | | | 6.99 | |
| Notional amount | | | $ | 69,586 | | | $ | 4,344 | | | $ | 2,117 | | | $ | — | | | $ | 13,993 | | | $ | 8,194 | | | $ | 40,938 | | | |
| Weighted-average fixed-rate | | | 2.36 | % | | 2.16 | % | | 2.15 | % | | — | % | | 2.52 | % | | 2.26 | % | | 2.35 | % | | |
Same-currency basis swaps (2) | (290) | | | | | | | | | | | | | | | | | |
| Notional amount | | | $ | 152,160 | | | $ | 18,857 | | | $ | 18,590 | | | $ | 4,306 | | | $ | 2,017 | | | $ | 14,567 | | | $ | 93,823 | | | |
Foreign exchange basis swaps (1, 3, 4) | (1,258) | | | | | | | | | | | | | | | | | |
| Notional amount | | | 113,529 | | | 23,639 | | | 24,215 | | | 14,611 | | | 7,111 | | | 3,521 | | | 40,432 | | | |
Foreign exchange contracts (1, 4, 5) | 414 | | | | | | | | | | | | | | | | | |
Notional amount (6) | | | (53,106) | | | (79,315) | | | 4,539 | | | 2,674 | | | 2,340 | | | 4,432 | | | 12,224 | | | |
| Option products | — | | | | | | | | | | | | | | | | | |
| Notional amount | | | 15 | | | — | | | — | | | — | | | 15 | | | — | | | — | | | |
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| Net ALM contracts | $ | 8,567 | | | | | | | | | | | | | | | | | |
(1)Does not include basis adjustments on either fixed-rate debt issued by the Corporation or AFS debt securities, which are hedged using derivatives designated as fair value hedging instruments, that substantially offset the fair values of these derivatives.
(2)At December 31, 2020 and 2019, the notional amount of same-currency basis swaps included $223.7 billion and $152.2 billion in both foreign currency and U.S. dollar-denominated basis swaps in which both sides of the swap are in the same currency.
(3)Foreign exchange basis swaps consisted of cross-currency variable interest rate swaps used separately or in conjunction with receive-fixed interest rate swaps.
(4)Does not include foreign currency translation adjustments on certain non-U.S. debt issued by the Corporation that substantially offset the fair values of these derivatives.
(5)The notional amount of foreign exchange contracts of $(42.5) billion at December 31, 2020 was comprised of $34.2 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(74.3) billion in net foreign currency forward rate contracts, $(3.1) billion in foreign currency-denominated interest rate swaps and $711 million in net foreign currency futures contracts. Foreign exchange contracts of $(53.1) billion at December 31, 2019 were comprised of $29.0 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(82.4) billion in net foreign currency forward rate contracts, $(313) million in foreign currency-denominated interest rate swaps and $644 million in foreign currency futures contracts.
(6)Reflects the net of long and short positions. Amounts shown as negative reflect a net short position.
Mortgage Banking Risk Management
We originate, fund and service mortgage loans, which subject us to credit, liquidity and interest rate risks, among others. We determine whether loans will be held for investment or held for sale at the time of commitment and manage credit and liquidity risks by selling or securitizing a portion of the loans we originate.
Interest rate risk and market risk can be substantial in the mortgage business. Changes in interest rates and other market factors impact the volume of mortgage originations. Changes in interest rates also impact the value of interest rate lock commitments (IRLCs) and the related residential first mortgage loans held-for-sale (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 hedged items offset, we combine them into one overall hedged item with one combined economic hedge portfolio consisting of derivative contracts and securities.
During 2020, 2019 and 2018, we recorded gains of $321 million, $291 million and $244 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 RWA used in the Basel 3 capital calculation. For more information on Basel 3 calculations, see Capital Management on page 50.
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 third-party dependencies, 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 and 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.
Corporate Audit provides independent assessment and validation through testing of key compliance and operational risk processes and controls across the Corporation.
The Corporation's Global Compliance Enterprise Policy and Operational Risk Management - Enterprise Policy 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, including as a result of malicious technological attacks, that impact the confidentiality, availability or integrity of our, or third parties' (including their downstream service providers, the financial services industry and financial data aggregators) 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, detective and responsive 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.
Climate Risk Management
Climate-related risks are divided into two major categories: (1) risks related to the transition to a low-carbon economy, which may entail extensive policy, legal, technology and market
changes, and (2) risks related to the physical impacts of climate change, driven by extreme weather events, such as hurricanes and floods, as well as chronic longer-term shifts, such as temperature increases and sea level rises. These changes and events can have broad impacts on operations, supply chains, distribution networks, customers, and markets and are otherwise referred to, respectively, as transition risk and physical risk. The financial impacts of transition risk can lead to and amplify credit risk. Physical risk can also lead to increased credit risk by diminishing borrowers’ repayment capacity or collateral values.
As climate risk is interconnected with all key risk types, we have developed and continue to enhance processes to embed climate risk considerations into our Risk Framework and risk management programs established for strategic, credit, market, liquidity, compliance, operational and reputational risks. A key element of how we manage climate risk is the Risk Identification process through which climate and other risks are identified across all FLUs and control functions, prioritized in our risk inventory and evaluated to determine estimated severity and likelihood of occurrence. Once identified, climate risks are assessed for potential impacts and incorporated into the design of macroeconomic scenarios to generate loss forecasts and assess how climate-related impacts could affect us and our clients.
Our governance framework establishes oversight of climate risk practices and strategies by the Board, supported by its Corporate Governance, ESG, and Sustainability Committee, the ERC and the Global Environmental, Social and Governance Committee, a management-level committee comprised of senior leaders across every major FLU and control function. The Climate Risk Steering Council oversees our climate risk management practices, shapes our approach to managing climate-related risks in line with our Risk Framework and meets monthly. In 2020, the climate risk management effort was bolstered through the appointment of a Global Climate Risk Executive who reports to the CRO, and establishment of a new division within our Global Risk organization to drive execution of the climate risk management program with the support of FLUs, Technology & Operations and Risk partners. For additional information about climate risk, see the Bank of America website (the content of which is not incorporated by reference into this Annual Report on Form 10-K).
Complex Accounting Estimates
Our significant accounting principles, as described in Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements, are essential in understanding the MD&A. Many of our significant accounting principles require complex judgments to estimate the values of assets and liabilities. We have procedures and processes in place to facilitate making these judgments.
The more judgmental estimates are summarized in the following discussion. We have identified and described the development of the variables most important in the estimation processes that involve mathematical models to derive the estimates. In many cases, there are numerous alternative judgments that could be used in the process of determining the inputs to the models. Where alternatives exist, we have used the factors that we believe represent the most reasonable value in developing the inputs. Actual performance that differs from our estimates of the key variables could 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
On January 1, 2020, the Corporation adopted the new accounting standard that requires the measurement of the allowance for credit losses, which includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, to be based on management’s best estimate of lifetime ECL inherent in the Corporation's relevant financial assets.
The Corporation's estimate of lifetime ECL includes the use of derivatives. Derivatives utilized byquantitative models that incorporate forward-looking macroeconomic scenarios that are applied over the contractual life of the loan portfolios, adjusted for expected prepayments and borrower-controlled extension options. These macroeconomic scenarios include variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to, unemployment rates, real estate prices, gross domestic product and corporate bond spreads. As any one economic outlook is inherently uncertain, the Corporation leverages multiple scenarios. The scenarios that are chosen each quarter and the amount of weighting given to each scenario depend on a variety of factors including recent economic events, leading economic indicators, views of internal and third-party economists and industry trends.
The Corporation also includes qualitative reserves to cover losses that are expected but, in the Corporation's assessment, may not be adequately reflected in the economic assumptions described above. For example, factors the Corporation considers include swaps, futureschanges in lending policies and forward settlement contracts,procedures, business conditions, the nature and option contracts.size of the portfolio, portfolio concentrations, the volume and severity of past due loans and nonaccrual loans, the effect of external factors such as competition and legal and regulatory requirements, among others. Further, the Corporation considers the inherent uncertainty in quantitative models that are built on historical data.
All derivatives are recordedThe allowance for credit losses can also be impacted by unanticipated changes in asset quality of the portfolio, such as increases in risk rating downgrades in our commercial portfolio, deterioration in borrower delinquencies or credit scores in our credit card portfolio or increases in LTVs in our consumer real estate portfolio. In addition, while we have incorporated our estimated impact of COVID-19 into our allowance for credit losses, the ultimate impact of the pandemic is still unknown, including how long economic activities will be impacted and what effect the unprecedented levels of government fiscal and monetary actions will have on the economy and our credit losses.
As described above, the process to determine the allowance for credit losses requires numerous estimates and assumptions, some of which require a high degree of judgment and are often interrelated. Changes in the estimates and assumptions can result in significant changes in the allowance for credit losses. Our process for determining the allowance for credit losses is further discussed in Note 1 – Summary of Significant Accounting Principles and Note 5 – Outstanding Loans
and Leases and Allowance for Credit Losses to the Consolidated Balance Sheet atFinancial Statements.
Fair Value of Financial Instruments
Under applicable accounting standards, we are required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. We classify fair value taking into considerationmeasurements of financial instruments and MSRs based on the effectsthree-level fair value hierarchy in the accounting standards.
The fair values of legally enforceable master netting agreementsassets 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 allowinformation 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 heldvaluation 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 more 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, similarvaluation 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 requirerequires significant management judgment or estimation.
Valuations of derivative assets and liabilities reflect the valueLevel 3 financial instruments may be hedged with derivatives classified as Level 1 or 2; therefore, gains or losses associated with Level 3 financial instruments may be offset by gains or losses associated with financial instruments classified in other levels of the instrument including counterparty credit risk. Thesefair 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 also takeof the assets and
liabilities became unobservable or observable, respectively, in the current marketplace. For more information on transfers into accountand out of Level 3 during 2020, 2019 and 2018, see Note 20 – Fair Value Measurements to the Corporation’s own credit standing.Consolidated Financial Statements.
Trading DerivativesAccrued Income Taxes and Other Risk Management ActivitiesDeferred Tax Assets
Derivatives held for trading purposes are included in derivativeAccrued income taxes, reported as a component of either other assets or derivativeaccrued expenses and other liabilities on the Consolidated Balance Sheet, represent the net amount of current income taxes we expect to pay to or receive from various taxing jurisdictions attributable to our operations to date. We currently file income tax returns in more than 100 jurisdictions and consider many factors, including statutory, judicial and regulatory guidance, in estimating the appropriate accrued income taxes for each jurisdiction.
Net deferred tax assets, reported as a component of other assets on the Consolidated Balance Sheet, represent the net decrease in taxes expected to be paid in the future because of net operating loss (NOL) and tax credit carryforwards and because of future reversals of temporary differences in the bases of assets and liabilities as measured by tax laws and their bases as reported in the financial statements. NOL and tax credit carryforwards result in reductions to future tax liabilities, and many of these attributes can expire if not utilized within certain periods. We consider the need for valuation allowances to reduce net deferred tax assets to the amounts that we estimate are more likely than not to be realized.
Consistent with the applicable accounting guidance, we monitor relevant tax authorities and change our estimates of accrued income taxes and/or net deferred tax assets due to changes in fair value included in trading account profits.income tax laws and their interpretation by the courts and regulatory authorities. These revisions of our estimates, which also may result from our income tax planning and from the resolution of income tax audit matters, may be material to our operating results for any given period.
Derivatives used for other risk management activities are included in derivative assets or derivative liabilities. Derivatives used in other risk management activities have not been designated in qualifying accounting hedge relationships because they did not qualify or the risk that is being mitigated pertainsSee Note 19 – Income Taxes to an item that is reported at fair value through earnings so that the effect of measuring the derivative instrument and the asset or liability to which the risk exposure pertains will offset in the Consolidated StatementFinancial Statements for a table of Incomesignificant tax attributes and additional information. For more information, see page 16 under Part I. Item 1A. Risk Factors – Regulatory, Compliance and Legal.
Goodwill and Intangible Assets
The nature of and accounting for goodwill and intangible assets are discussed in Note 1 – Summary of Significant Accounting Principles, and Note 7 – Goodwill and Intangible Assets to the extent effective. The changes inConsolidated Financial Statements.
We completed our annual goodwill impairment test as of June 30, 2020. In performing that test, we compared the fair value of derivatives that serveeach reporting unit 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 originatedits estimated carrying value as measured by the Corporation are recorded in mortgage banking income. Changes inallocated equity. We estimated the fair value of derivatives that serveeach reporting unit based on the income approach (which utilizes the present value of cash flows to mitigateestimate fair value) and the market multiplier approach (which utilizes observable market prices and metrics of peer companies to estimate fair value).
Our discounted cash flows were generally based on the Corporation’s three-year internal forecasts with a long-term growth rate of 3.68 percent. Our estimated cash flows considered the current challenging global industry and market conditions related to the pandemic, including the low interest rate environment. The cash flows were discounted using rates that ranged from 9 percent to 12 percent, which were derived from a capital asset pricing model that incorporates the risk and foreign currency risk are includeduncertainty in other income. Credit derivatives are also used by the Corporationcash flow forecasts, the financial markets and industries similar to mitigateeach of the risk associated with various credit exposures. The changes inreporting units.
Under the market multiplier approach, we estimated the fair value of these derivatives are includedthe individual reporting units utilizing various market multiples, primarily various pricing multiples, from comparable publicly-traded companies in other income.industries similar to the reporting unit and then factored in a control premium based upon observed comparable premiums paid for change-in-control transactions for financial institutions.
Derivatives Used For Hedge Accounting Purposes (Accounting Hedges)
For accounting hedges,Based on the Corporation formally documents at inception all relationships between hedging instruments and hedged items, as well asresults of 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 fortest, we determined that each reporting period thereafterunit’s estimated fair value exceeded its respective carrying value and that the goodwill assigned to assess whethereach reporting unit was not impaired. The fair values of the derivative used in an accounting hedge transaction is expectedreporting units as a percentage of their carrying values ranged from 109 percent to be213 percent. It currently remains difficult to estimate the future economic impacts related to the pandemic. If economic and has been highly effective in offsetting changesmarket conditions (both in the fair value or cash flows ofU.S. and internationally) deteriorate, our reporting units could be negatively impacted, which could change our key assumptions and related estimates and may result in a hedged item or forecasted transaction. The Corporation discontinues hedge accounting when it is determined that a derivative is not expectedfuture impairment charge.
Certain Contingent Liabilities
For more information on the complex judgments associated with certain contingent liabilities, see Note 12 – Commitments and Contingencies 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.Consolidated Financial Statements.
Non-GAAP Reconciliations
Tables 49 and 50 provide reconciliations of certain non-GAAP financial measures to GAAP financial measures.
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| Table 49 | Five-year Reconciliations to GAAP Financial Measures (1) | | |
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| (Dollars in millions, shares in thousands) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
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| Reconciliation of average shareholders’ equity to average tangible shareholders’ equity and average tangible common shareholders’ equity | | | | | | | | | |
| Shareholders’ equity | $ | 267,309 | | | $ | 267,889 | | | $ | 264,748 | | | $ | 271,289 | | | $ | 265,843 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (69,286) | | | (69,750) | |
| Intangible assets (excluding MSRs) | (1,862) | | | (1,721) | | | (2,058) | | | (2,652) | | | (3,382) | |
| Related deferred tax liabilities | 821 | | | 773 | | | 906 | | | 1,463 | | | 1,644 | |
| Tangible shareholders’ equity | $ | 197,317 | | | $ | 197,990 | | | $ | 194,645 | | | $ | 200,814 | | | $ | 194,355 | |
| Preferred stock | (23,624) | | | (23,036) | | | (22,949) | | | (24,188) | | | (24,656) | |
| Tangible common shareholders’ equity | $ | 173,693 | | | $ | 174,954 | | | $ | 171,696 | | | $ | 176,626 | | | $ | 169,699 | |
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| Reconciliation of year-end shareholders’ equity to year-end tangible shareholders’ equity and year-end tangible common shareholders’ equity | | | | | | | | | |
| Shareholders’ equity | $ | 272,924 | | | $ | 264,810 | | | $ | 265,325 | | | $ | 267,146 | | | $ | 266,195 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (69,744) | |
| Intangible assets (excluding MSRs) | (2,151) | | | (1,661) | | | (1,774) | | | (2,312) | | | (2,989) | |
| Related deferred tax liabilities | 920 | | | 713 | | | 858 | | | 943 | | | 1,545 | |
| Tangible shareholders’ equity | $ | 202,742 | | | $ | 194,911 | | | $ | 195,458 | | | $ | 196,826 | | | $ | 195,007 | |
| Preferred stock | (24,510) | | | (23,401) | | | (22,326) | | | (22,323) | | | (25,220) | |
| Tangible common shareholders’ equity | $ | 178,232 | | | $ | 171,510 | | | $ | 173,132 | | | $ | 174,503 | | | $ | 169,787 | |
| Reconciliation of year-end assets to year-end tangible assets | | | | | | | | | |
| Assets | $ | 2,819,627 | | | $ | 2,434,079 | | | $ | 2,354,507 | | | $ | 2,281,234 | | | $ | 2,188,067 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (69,744) | |
| Intangible assets (excluding MSRs) | (2,151) | | | (1,661) | | | (1,774) | | | (2,312) | | | (2,989) | |
| Related deferred tax liabilities | 920 | | | 713 | | | 858 | | | 943 | | | 1,545 | |
| Tangible assets | $ | 2,749,445 | | | $ | 2,364,180 | | | $ | 2,284,640 | | | $ | 2,210,914 | | | $ | 2,116,879 | |
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(1)Presents reconciliations of non-GAAP financial measures to GAAP financial measures. For more information on non-GAAP financial measures and ratios we use in assessing the results of the Corporation, see Supplemental Financial Data on page 31.
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| Table 50 | Quarterly Reconciliations to GAAP Financial Measures (1) |
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| | 2020 Quarters | | 2019 Quarters |
| (Dollars in millions) | Fourth | | Third | | Second | | First | | Fourth | | Third | | Second | | First |
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| Reconciliation of average shareholders’ equity to average tangible shareholders’ equity and average tangible common shareholders’ equity | | | | | | | | | | | | | | | |
| Shareholders’ equity | $ | 271,020 | | | $ | 267,323 | | | $ | 266,316 | | | $ | 264,534 | | | $ | 266,900 | | | $ | 270,430 | | | $ | 267,975 | | | $ | 266,217 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,173) | | | (1,976) | | | (1,640) | | | (1,655) | | | (1,678) | | | (1,707) | | | (1,736) | | | (1,763) | |
| Related deferred tax liabilities | 910 | | | 855 | | | 790 | | | 728 | | | 730 | | | 752 | | | 770 | | | 841 | |
| Tangible shareholders’ equity | $ | 200,806 | | | $ | 197,251 | | | $ | 196,515 | | | $ | 194,656 | | | $ | 197,001 | | | $ | 200,524 | | | $ | 198,058 | | | $ | 196,344 | |
| Preferred stock | (24,180) | | | (23,427) | | | (23,427) | | | (23,456) | | | (23,461) | | | (23,800) | | | (22,537) | | | (22,326) | |
| Tangible common shareholders’ equity | $ | 176,626 | | | $ | 173,824 | | | $ | 173,088 | | | $ | 171,200 | | | $ | 173,540 | | | $ | 176,724 | | | $ | 175,521 | | | $ | 174,018 | |
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| Reconciliation of period-end shareholders’ equity to period-end tangible shareholders’ equity and period-end tangible common shareholders’ equity | | | | | | | | | | | | | | | |
| Shareholders’ equity | $ | 272,924 | | | $ | 268,850 | | | $ | 265,637 | | | $ | 264,918 | | | $ | 264,810 | | | $ | 268,387 | | | $ | 271,408 | | | $ | 267,010 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,151) | | | (2,185) | | | (1,630) | | | (1,646) | | | (1,661) | | | (1,690) | | | (1,718) | | | (1,747) | |
| Related deferred tax liabilities | 920 | | | 910 | | | 789 | | | 790 | | | 713 | | | 734 | | | 756 | | | 773 | |
| Tangible shareholders’ equity | $ | 202,742 | | | $ | 198,624 | | | $ | 195,845 | | | $ | 195,111 | | | $ | 194,911 | | | $ | 198,480 | | | $ | 201,495 | | | $ | 197,085 | |
| Preferred stock | (24,510) | | | (23,427) | | | (23,427) | | | (23,427) | | | (23,401) | | | (23,606) | | | (24,689) | | | (22,326) | |
| Tangible common shareholders’ equity | $ | 178,232 | | | $ | 175,197 | | | $ | 172,418 | | | $ | 171,684 | | | $ | 171,510 | | | $ | 174,874 | | | $ | 176,806 | | | $ | 174,759 | |
| Reconciliation of period-end assets to period-end tangible assets | | | | | | | | | | | | | | | |
| Assets | $ | 2,819,627 | | | $ | 2,738,452 | | | $ | 2,741,688 | | | $ | 2,619,954 | | | $ | 2,434,079 | | | $ | 2,426,330 | | | $ | 2,395,892 | | | $ | 2,377,164 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,151) | | | (2,185) | | | (1,630) | | | (1,646) | | | (1,661) | | | (1,690) | | | (1,718) | | | (1,747) | |
| Related deferred tax liabilities | 920 | | | 910 | | | 789 | | | 790 | | | 713 | | | 734 | | | 756 | | | 773 | |
| Tangible assets | $ | 2,749,445 | | | $ | 2,668,226 | | | $ | 2,671,896 | | | $ | 2,550,147 | | | $ | 2,364,180 | | | $ | 2,356,423 | | | $ | 2,325,979 | | | $ | 2,307,239 | |
(1)Presents reconciliations of non-GAAP financial measures to GAAP financial measures. For more information on non-GAAP financial measures and ratios we use in assessing the results of the Corporation, see Supplemental Financial Data on page 31.
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| Table I | Outstanding Loans and Leases |
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| | | December 31 |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Consumer | | | | | | | | | |
| Residential mortgage | $ | 223,555 | | | $ | 236,169 | | | $ | 208,557 | | | $ | 203,811 | | | $ | 191,797 | |
| Home equity | 34,311 | | | 40,208 | | | 48,286 | | | 57,744 | | | 66,443 | |
| Credit card | 78,708 | | | 97,608 | | | 98,338 | | | 96,285 | | | 92,278 | |
| Non-U.S. credit card | — | | | — | | | — | | | — | | | 9,214 | |
Direct/Indirect consumer (1) | 91,363 | | | 90,998 | | | 91,166 | | | 96,342 | | | 95,962 | |
Other consumer (2) | 124 | | | 192 | | | 202 | | | 166 | | | 626 | |
| Total consumer loans excluding loans accounted for under the fair value option | 428,061 | | | 465,175 | | | 446,549 | | | 454,348 | | | 456,320 | |
Consumer loans accounted for under the fair value option (3) | 735 | | | 594 | | | 682 | | | 928 | | | 1,051 | |
| Total consumer | 428,796 | | | 465,769 | | | 447,231 | | | 455,276 | | | 457,371 | |
| Commercial | | | | | | | | | |
| U.S. commercial | 288,728 | | | 307,048 | | | 299,277 | | | 284,836 | | | 270,372 | |
| Non-U.S. commercial | 90,460 | | | 104,966 | | | 98,776 | | | 97,792 | | | 89,397 | |
Commercial real estate (4) | 60,364 | | | 62,689 | | | 60,845 | | | 58,298 | | | 57,355 | |
| Commercial lease financing | 17,098 | | | 19,880 | | | 22,534 | | | 22,116 | | | 22,375 | |
| | 456,650 | | | 494,583 | | | 481,432 | | | 463,042 | | | 439,499 | |
U.S. small business commercial (5) | 36,469 | | | 15,333 | | | 14,565 | | | 13,649 | | | 12,993 | |
| Total commercial loans excluding loans accounted for under the fair value option | 493,119 | | | 509,916 | | | 495,997 | | | 476,691 | | | 452,492 | |
Commercial loans accounted for under the fair value option (3) | 5,946 | | | 7,741 | | | 3,667 | | | 4,782 | | | 6,034 | |
| Total commercial | 499,065 | | | 517,657 | | | 499,664 | | | 481,473 | | | 458,526 | |
Less: Loans of business held for sale (6) | — | | | — | | | — | | | — | | | (9,214) | |
| Total loans and leases | $ | 927,861 | | | $ | 983,426 | | | $ | 946,895 | | | $ | 936,749 | | | $ | 906,683 | |
Fair value hedges are used to protect against changes in the fair value(1)Includes primarily auto and specialty lending loans and leases of the Corporation’s assets$46.4 billion, $50.4 billion, $50.1 billion, $52.4 billion and liabilities that are attributable to interest rate or foreign exchange volatility. Changes in the fair value$50.7 billion, U.S. securities-based lending loans of derivatives designated as fair value hedges are recorded in earnings, together$41.1 billion, $36.7 billion, $37.0 billion, $39.8 billion and in the same income statement line item with changes in the fair value$40.1 billion and non-U.S. consumer loans of the related hedged item. If a derivative instrument in a fair value hedge is terminated or the hedge designation removed, the previous adjustments to the carrying value of the hedged asset or liability are subsequently accounted for in the same manner as other components of the carrying value of that asset or liability. For interest-earning assets$3.0 billion, $2.8 billion, $2.9 billion, $3.0 billion and interest-bearing liabilities, such adjustments are amortized to earnings over the remaining life of the respective asset or liability.$3.0 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
Cash flow hedges are used primarily to minimize the variability in cash flows of assets and liabilities, or forecasted transactions caused by interest rate or foreign exchange rate fluctuations. Changes in the fair value of derivatives used in cash flow hedges are recorded in accumulated OCI and are reclassified into the line item in the income statement in which the hedged item is recorded in the same period the hedged item affects earnings. Hedge ineffectiveness and gains and losses on the component of a derivative excluded in assessing hedge effectiveness are recorded in the same income statement line item.
Net investment hedges are used to manage the foreign exchange rate sensitivity arising from a net investment in a foreign operation. Changes in the fair value of derivatives designated as net investment hedges of foreign operations, to the extent effective, are recorded as a component of accumulated OCI.
Securities
Debt securities are reported on the Consolidated Balance Sheet at their trade date. Their classification is dependent on the purpose for which the assets were acquired. Debt securities purchased for use in the Corporation’s trading activities are reported in trading account assets at fair value with unrealized gains and losses included in trading account profits. (2)Substantially all of other debt securities purchased are used in the Corporation’s assetconsumer at December 31, 2020, 2019, 2018 and liability management (ALM) activities and are reported on the Consolidated Balance Sheet as either debt securities carried2017 is consumer overdrafts. Other consumer 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.December 31, 2016 also includes consumer finance loans of $465 million.
The Corporation regularly evaluates each AFS and HTM debt security where the value has declined below amortized cost to assess whether the decline in fair value is other than temporary. In determining whether an impairment is other than temporary, the Corporation considers the severity and duration of the decline in fair value, the length of time expected for recovery, the financial condition of the issuer, and other qualitative factors, as well as whether the Corporation either plans to sell the security or it is more-likely-than-not that it will be required to sell the security before recovery of the amortized cost. For AFS debt securities the Corporation intends to hold, an analysis is performed to determine how much of the decline in fair value is related to the issuer’s credit and how much is related to market factors (e.g., interest rates). If any of the decline in fair value is due to credit, an other-than-temporary impairment (OTTI) loss is recognized in the Consolidated Statement of Income for that amount. If any of the decline in fair value is related to market factors, that amount is recognized in accumulated OCI. In certain instances, the credit
loss may exceed the total decline in fair value, in which case, the difference is due to market factors and is recognized as an unrealized gain in accumulated OCI. If the Corporation intends to sell or believes it is more-likely-than-not that it will be required to sell the debt security, it is written down to fair value as an OTTI loss.
Interest on debt securities, including amortization of premiums and accretion of discounts, is included in interest income. Premiums and discounts are amortized or accreted to interest income at a constant effective yield over the contractual lives of the securities. Realized gains and losses from the sales of debt securities are determined using the specific identification method.
Marketable equity securities are classified based on management’s intention on the date of purchase and recorded on the Consolidated Balance Sheet as of the trade date. Marketable equity securities that are bought and held principally for the purpose of resale in the near term are classified as trading and are carried at fair value with unrealized gains and losses included in trading account profits. Other marketable equity securities are accounted for as AFS and classified in other assets. All AFS marketable equity securities are carried at fair value with net unrealized gains and losses included in accumulated OCI, net-of-tax. If there is an other-than-temporary decline in the fair value of any individual AFS marketable equity security, the cost basis is reduced and the Corporation reclassifies the associated net unrealized loss out of accumulated OCI with a corresponding charge to other income. Dividend income on AFS marketable equity securities is included in other income. Realized gains and losses on the sale of all AFS marketable equity securities, which are recorded in other income, are determined using the specific identification method.
Loans and Leases
Loans, with the exception of(3)Consumer loans accounted for under the fair value option are measuredinclude residential mortgage loans of $298 million, $257 million, $336 million, $567 million and $710 million, and home equity loans of $437 million, $337 million, $346 million, $361 million and $341 million at historical costDecember 31, 2020, 2019, 2018, 2017 and reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated2016, respectively. Commercial loans andaccounted 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 changesinclude U.S. commercial loans of $2.9 billion, $4.7 billion, $2.5 billion, $2.6 billion and $2.9 billion, and non-U.S. commercial loans of $3.0 billion, $3.1 billion, $1.1 billion, $2.2 billion and $3.1 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(4)Includes U.S. commercial real estate loans of $57.2 billion, $59.0 billion, $56.6 billion, $54.8 billion and $54.3 billion, and non-U.S. commercial real estate loans of $3.2 billion, $3.7 billion, $4.2 billion, $3.5 billion and $3.1 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(5)Includes card-related products.
(6)Represents non-U.S. credit card loans, which were included in assets of business held for sale on the Consolidated Balance Sheet.
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| Table II | Nonperforming Loans, Leases and Foreclosed Properties (1) |
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| | | December 31 |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Consumer | | | | | | | | | |
| Residential mortgage | $ | 2,005 | | | $ | 1,470 | | | $ | 1,893 | | | $ | 2,476 | | | $ | 3,056 | |
| | | | | | | | | |
| Home equity | 649 | | | 536 | | | 1,893 | | | 2,644 | | | 2,918 | |
| | | | | | | | | |
| Direct/Indirect consumer | 71 | | | 47 | | | 56 | | | 46 | | | 28 | |
| Other consumer | — | | | — | | | — | | | — | | | 2 | |
Total consumer (2) | 2,725 | | | 2,053 | | | 3,842 | | | 5,166 | | | 6,004 | |
| Commercial | | | | | | | | | |
| U.S. commercial | 1,243 | | | 1,094 | | | 794 | | | 814 | | | 1,256 | |
| Non-U.S. commercial | 418 | | | 43 | | | 80 | | | 299 | | | 279 | |
| Commercial real estate | 404 | | | 280 | | | 156 | | | 112 | | | 72 | |
| Commercial lease financing | 87 | | | 32 | | | 18 | | | 24 | | | 36 | |
| | | 2,152 | | | 1,449 | | | 1,048 | | | 1,249 | | | 1,643 | |
| U.S. small business commercial | 75 | | | 50 | | | 54 | | | 55 | | | 60 | |
Total commercial (3) | 2,227 | | | 1,499 | | | 1,102 | | | 1,304 | | | 1,703 | |
| Total nonperforming loans and leases | 4,952 | | | 3,552 | | | 4,944 | | | 6,470 | | | 7,707 | |
| Foreclosed properties | 164 | | | 285 | | | 300 | | | 288 | | | 377 | |
| Total nonperforming loans, leases and foreclosed properties | $ | 5,116 | | | $ | 3,837 | | | $ | 5,244 | | | $ | 6,758 | | | $ | 8,084 | |
(1)Balances exclude foreclosed properties insured by certain government-guaranteed loans, principally FHA-insured loans, that entered foreclosure of $119 million, $260 million, $488 million, $801 million and $1.2 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(2)In 2020, $372 million in interest income was estimated to be contractually due on $2.7 billion of consumer loans and leases classified as nonperforming at December 31, 2020, as presented in the table above, plus $4.4 billion of TDRs classified as performing at December 31, 2020. Approximately $254 million of the estimated $372 million in contractual interest was received and included in interest income for 2020.
(3)In 2020, $115 million in interest income was estimated to be contractually due on $2.2 billion of commercial loans and leases classified as nonperforming at December 31, 2020, as presented in the table above, plus $1.0 billion of TDRs classified as performing at December 31, 2020. Approximately $71 million of the estimated $115 million in contractual interest was received and included in interest income for 2020.
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| Table III | Accruing Loans and Leases Past Due 90 Days or More (1) |
| | | | | | | | | | |
| | | December 31 |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Consumer | | | | | | | | | |
Residential mortgage (2) | $ | 762 | | | $ | 1,088 | | | $ | 1,884 | | | $ | 3,230 | | | $ | 4,793 | |
| Credit card | 903 | | | 1,042 | | | 994 | | | 900 | | | 782 | |
| Non-U.S. credit card | — | | | — | | | — | | | — | | | 66 | |
| Direct/Indirect consumer | 33 | | | 33 | | | 38 | | | 40 | | | 34 | |
| Other consumer | — | | | — | | | — | | | — | | | 4 | |
| Total consumer | 1,698 | | | 2,163 | | | 2,916 | | | 4,170 | | | 5,679 | |
| Commercial | | | | | | | | | |
| U.S. commercial | 228 | | | 106 | | | 197 | | | 144 | | | 106 | |
| Non-U.S. commercial | 10 | | | 8 | | | — | | | 3 | | | 5 | |
| Commercial real estate | 6 | | | 19 | | | 4 | | | 4 | | | 7 | |
| Commercial lease financing | 25 | | | 20 | | | 29 | | | 19 | | | 19 | |
| | | 269 | | | 153 | | | 230 | | | 170 | | | 137 | |
| U.S. small business commercial | 115 | | | 97 | | | 84 | | | 75 | | | 71 | |
| Total commercial | 384 | | | 250 | | | 314 | | | 245 | | | 208 | |
| Total accruing loans and leases past due 90 days or more | $ | 2,082 | | | $ | 2,413 | | | $ | 3,230 | | | $ | 4,415 | | | $ | 5,887 | |
(1)Our policy is to classify consumer real estate-secured loans as nonperforming at 90 days past due, except for the fully-insured loan portfolio and loans accounted for under the fair value reported in other income.option.
Under applicable(2)Balances are fully-insured loans.
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| Table IV | Selected Loan Maturity Data (1, 2) | | | | | | | |
| | | | | | | | |
| | | December 31, 2020 |
| (Dollars in millions) | Due in One
Year or Less | | Due After One Year Through Five Years | | Due After
Five Years | | Total |
| U.S. commercial | $ | 82,577 | | | $ | 198,898 | | | $ | 46,642 | | | $ | 328,117 | |
| U.S. commercial real estate | 14,073 | | | 37,552 | | | 5,552 | | | 57,177 | |
Non-U.S. and other (3) | 33,196 | | | 54,488 | | | 8,989 | | | 96,673 | |
| Total selected loans | $ | 129,846 | | | $ | 290,938 | | | $ | 61,183 | | | $ | 481,967 | |
| Percent of total | 27 | % | | 60 | % | | 13 | % | | 100 | % |
| Sensitivity of selected loans to changes in interest rates for loans due after one year: | | | | | | | |
| Fixed interest rates | | | $ | 46,911 | | | $ | 32,280 | | | |
| Floating or adjustable interest rates | | | 244,027 | | | 28,903 | | | |
| Total | | | $ | 290,938 | | | $ | 61,183 | | | |
(1)Loan maturities are based on the remaining maturities under contractual terms.
(2)Includes loans accounted for under the fair value option.
(3)Loan maturities include non-U.S. commercial and commercial real estate loans.
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| Table V | Allowance for Credit Losses (1) | | | | | | | | | |
| | | | | | | | | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Allowance for loan and lease losses, January 1 | $ | 12,358 | | | $ | 9,601 | | | $ | 10,393 | | | $ | 11,237 | | | $ | 12,234 | |
| Loans and leases charged off | | | | | | | | | |
| Residential mortgage | (40) | | | (93) | | | (207) | | | (188) | | | (403) | |
| Home equity | (58) | | | (429) | | | (483) | | | (582) | | | (752) | |
| Credit card | (2,967) | | | (3,535) | | | (3,345) | | | (2,968) | | | (2,691) | |
Non-U.S. credit card (2) | — | | | — | | | — | | | (103) | | | (238) | |
| Direct/Indirect consumer | (372) | | | (518) | | | (495) | | | (491) | | | (392) | |
| Other consumer | (307) | | | (249) | | | (197) | | | (212) | | | (232) | |
| Total consumer charge-offs | (3,744) | | | (4,824) | | | (4,727) | | | (4,544) | | | (4,708) | |
U.S. commercial (3) | (1,163) | | | (650) | | | (575) | | | (589) | | | (567) | |
| Non-U.S. commercial | (168) | | | (115) | | | (82) | | | (446) | | | (133) | |
| Commercial real estate | (275) | | | (31) | | | (10) | | | (24) | | | (10) | |
| Commercial lease financing | (69) | | | (26) | | | (8) | | | (16) | | | (30) | |
| Total commercial charge-offs | (1,675) | | | (822) | | | (675) | | | (1,075) | | | (740) | |
| Total loans and leases charged off | (5,419) | | | (5,646) | | | (5,402) | | | (5,619) | | | (5,448) | |
| Recoveries of loans and leases previously charged off | | | | | | | | | |
| Residential mortgage | 70 | | | 140 | | | 179 | | | 288 | | | 272 | |
| Home equity | 131 | | | 787 | | | 485 | | | 369 | | | 347 | |
| Credit card | 618 | | | 587 | | | 508 | | | 455 | | | 422 | |
Non-U.S. credit card (2) | — | | | — | | | — | | | 28 | | | 63 | |
| Direct/Indirect consumer | 250 | | | 309 | | | 300 | | | 277 | | | 258 | |
| Other consumer | 23 | | | 15 | | | 15 | | | 49 | | | 27 | |
| Total consumer recoveries | 1,092 | | | 1,838 | | | 1,487 | | | 1,466 | | | 1,389 | |
U.S. commercial (4) | 178 | | | 122 | | | 120 | | | 142 | | | 175 | |
| Non-U.S. commercial | 13 | | | 31 | | | 14 | | | 6 | | | 13 | |
| Commercial real estate | 5 | | | 2 | | | 9 | | | 15 | | | 41 | |
| Commercial lease financing | 10 | | | 5 | | | 9 | | | 11 | | | 9 | |
| Total commercial recoveries | 206 | | | 160 | | | 152 | | | 174 | | | 238 | |
| Total recoveries of loans and leases previously charged off | 1,298 | | | 1,998 | | | 1,639 | | | 1,640 | | | 1,627 | |
| Net charge-offs | (4,121) | | | (3,648) | | | (3,763) | | | (3,979) | | | (3,821) | |
| | | | | | | | | |
| Provision for loan and lease losses | 10,565 | | | 3,574 | | | 3,262 | | | 3,381 | | | 3,581 | |
Other (5) | — | | | (111) | | | (291) | | | (246) | | | (514) | |
| Total allowance for loan and lease losses, December 31 | 18,802 | | | 9,416 | | | 9,601 | | | 10,393 | | | 11,480 | |
Less: Allowance included in assets of business held for sale (6) | — | | | — | | | — | | | — | | | (243) | |
| Allowance for loan and lease losses, December 31 | 18,802 | | | 9,416 | | | 9,601 | | | 10,393 | | | 11,237 | |
| Reserve for unfunded lending commitments, January 1 | 1,123 | | | 797 | | | 777 | | | 762 | | | 646 | |
| Provision for unfunded lending commitments | 755 | | | 16 | | | 20 | | | 15 | | | 16 | |
Other (5) | — | | | — | | | — | | | — | | | 100 | |
| Reserve for unfunded lending commitments, December 31 | 1,878 | | | 813 | | | 797 | | | 777 | | | 762 | |
| Allowance for credit losses, December 31 | $ | 20,680 | | | $ | 10,229 | | | $ | 10,398 | | | $ | 11,170 | | | $ | 11,999 | |
(1)On January 1, 2020, the Corporation adopted the CECL accounting guidance,standard, which increased the allowance for reporting purposes, the loan and lease portfolio is categorizedlosses by portfolio segment$2.9 billion and within each portfolio segment,the reserve for unfunded lending commitments by class$310 million. For more information, see Note 1 – Summary of financing receivables. A portfolio segment is defined asSignificant Accounting Principles to the level at which an entity develops and documents a systematic methodologyConsolidated Financial Statements.
(2)Represents amounts related to determine the allowance for credit losses, and a class of financing receivables is defined as the level of disaggregation of portfolio segments based on the initial measurement attribute, risk characteristics and methods for assessing risk. The Corporation’s three portfolio segments are Consumer Real Estate, Credit Card and Other Consumer, and Commercial. The classes within the Consumer Real Estate portfolio segment are residential mortgage and home equity. The classes within the Credit Card and Other Consumer portfolio segment are U.S. credit card, non-U.S. credit card (soldloan portfolio, which was sold in 2017), direct/indirect consumer and other consumer. The classes within the Commercial portfolio segment are U.S. commercial, non-U.S. commercial, commercial real estate, commercial lease financing and2017.
(3)Includes U.S. small business commercial.commercial charge-offs of $321 million, $320 million, $287 million, $258 million and $253 million in 2020, 2019, 2018, 2017 and 2016, respectively.
(4)Includes U.S. small business commercial recoveries of $54 million, $48 million, $47 million, $43 million and $45 million in 2020, 2019, 2018, 2017 and 2016, respectively.
(5)Primarily represents write-offs of purchased credit-impaired loans for years prior to 2020, the net impact of portfolio sales, consolidations and deconsolidations, foreign currency translation adjustments, transfers to held for sale and certain other reclassifications.
(6)Represents allowance related to the non-U.S. credit card loan portfolio, which was sold in 2017.
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| Table V | Allowance for Credit Losses (continued) | | | | | | | | | |
| | | | | | | | | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
Loan and allowance ratios (7): | | | | | | | | | |
Loans and leases outstanding at December 31 (8) | $ | 921,180 | | | $ | 975,091 | | | $ | 942,546 | | | $ | 931,039 | | | $ | 908,812 | |
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (8) | 2.04 | % | | 0.97 | % | | 1.02 | % | | 1.12 | % | | 1.26 | % |
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (9) | 2.35 | | | 0.98 | | | 1.08 | | | 1.18 | | | 1.36 | |
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (10) | 1.77 | | | 0.96 | | | 0.97 | | | 1.05 | | | 1.16 | |
Average loans and leases outstanding (8) | $ | 974,281 | | | $ | 951,583 | | | $ | 927,531 | | | $ | 911,988 | | | $ | 892,255 | |
Net charge-offs as a percentage of average loans and leases outstanding (8) | 0.42 | % | | 0.38 | % | | 0.41 | % | | 0.44 | % | | 0.43 | % |
| | | | | | | | | |
| Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 | 380 | | | 265 | | | 194 | | | 161 | | | 149 | |
| Ratio of the allowance for loan and lease losses at December 31 to net charge-offs | 4.56 | | | 2.58 | | | 2.55 | | | 2.61 | | | 3.00 | |
| | | | | | | | | |
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (11) | $ | 9,854 | | | $ | 4,151 | | | $ | 4,031 | | | $ | 3,971 | | | $ | 3,951 | |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (11) | 181 | % | | 148 | % | | 113 | % | | 99 | % | | 98 | % |
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(7)Loan and allowance ratios for 2016 include $243 million of non-U.S. credit card allowance for loan and lease losses and $9.2 billion of ending non-U.S. credit card loans, which were sold in 2017.
(8)Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $6.7 billion, $8.3 billion, $4.3 billion, $5.7 billion and $7.1 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively. Average loans accounted for under the fair value option were $8.2 billion, $6.8 billion, $5.5 billion, $6.7 billion and $8.2 billion in 2020, 2019, 2018, 2017 and 2016, respectively.
(9)Excludes consumer loans accounted for under the fair value option of $735 million, $594 million, $682 million, $928 million and $1.1 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(10)Excludes commercial loans accounted for under the fair value option of $5.9 billion, $7.7 billion, $3.7 billion, $4.8 billion and $6.0 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(11)Primarily includes amounts related to credit card and unsecured consumer lending portfolios in Consumer Banking and, in 2017 and 2016, the non-U.S. credit card portfolio in All Other.
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| Table VI | Allocation of the Allowance for Credit Losses by Product Type (1) |
| | | | | | | | | | | | | | | | | | | | |
| | December 31 |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| (Dollars in millions) | Amount | | Percent
of Total | | Amount | | Percent
of Total | | Amount | | Percent
of Total | | Amount | | Percent
of Total | | Amount | | Percent
of Total |
| Allowance for loan and lease losses | | | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 459 | | | 2.44 | % | | $ | 325 | | | 3.45 | % | | $ | 422 | | | 4.40 | % | | $ | 701 | | | 6.74 | % | | $ | 1,012 | | | 8.82 | % |
| Home equity | 399 | | | 2.12 | | | 221 | | | 2.35 | | | 506 | | | 5.27 | | | 1,019 | | | 9.80 | | | 1,738 | | | 15.14 | |
| Credit card | 8,420 | | | 44.79 | | | 3,710 | | | 39.39 | | | 3,597 | | | 37.47 | | | 3,368 | | | 32.41 | | | 2,934 | | | 25.56 | |
| Non-U.S. credit card | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 243 | | | 2.12 | |
| Direct/Indirect consumer | 752 | | | 4.00 | | | 234 | | | 2.49 | | | 248 | | | 2.58 | | | 264 | | | 2.54 | | | 244 | | | 2.13 | |
| Other consumer | 41 | | | 0.22 | | | 52 | | | 0.55 | | | 29 | | | 0.30 | | | 31 | | | 0.30 | | | 51 | | | 0.44 | |
| Total consumer | 10,071 | | | 53.57 | | | 4,542 | | | 48.23 | | | 4,802 | | | 50.02 | | | 5,383 | | | 51.79 | | | 6,222 | | | 54.21 | |
U.S. commercial (2) | 5,043 | | | 26.82 | | | 3,015 | | | 32.02 | | | 3,010 | | | 31.35 | | | 3,113 | | | 29.95 | | | 3,326 | | | 28.97 | |
| Non-U.S. commercial | 1,241 | | | 6.60 | | | 658 | | | 6.99 | | | 677 | | | 7.05 | | | 803 | | | 7.73 | | | 874 | | | 7.61 | |
| Commercial real estate | 2,285 | | | 12.15 | | | 1,042 | | | 11.07 | | | 958 | | | 9.98 | | | 935 | | | 9.00 | | | 920 | | | 8.01 | |
| Commercial lease financing | 162 | | | 0.86 | | | 159 | | | 1.69 | | | 154 | | | 1.60 | | | 159 | | | 1.53 | | | 138 | | | 1.20 | |
| Total commercial | 8,731 | | | 46.43 | | | 4,874 | | | 51.77 | | | 4,799 | | | 49.98 | | | 5,010 | | | 48.21 | | | 5,258 | | | 45.79 | |
| Total allowance for loan and lease losses | 18,802 | | | 100.00 | % | | 9,416 | | | 100.00 | % | | 9,601 | | | 100.00 | % | | 10,393 | | | 100.00 | % | | 11,480 | | | 100.00 | % |
Less: Allowance included in assets of business held for sale (3) | — | | | | | — | | | | | — | | | | | — | | | | | (243) | | | |
| Allowance for loan and lease losses | 18,802 | | | | | 9,416 | | | | | 9,601 | | | | | 10,393 | | | | | 11,237 | | | |
| Reserve for unfunded lending commitments | 1,878 | | | | | 813 | | | | | 797 | | | | | 777 | | | | | 762 | | | |
| Allowance for credit losses | $ | 20,680 | | | | | $ | 10,229 | | | | | $ | 10,398 | | | | | $ | 11,170 | | | | | $ | 11,999 | | | |
(1)On January 1, 2020, the Corporation adopted the CECL accounting standard. For more information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
(2)Includes allowance for loan and lease losses for U.S. small business commercial loans of $1.5 billion, $523 million, $474 million, $439 million and $416 million at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(3)Represents allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which was sold in 2017.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
See Market Risk Management on page 78 in the MD&A and the sections referenced therein for Quantitative and Qualitative Disclosures about Market Risk.
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| Item 8. Financial Statements and Supplementary Data |
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| Table of Contents |
Report of Management on Internal Control Over Financial Reporting
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, 2020 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, 2020, the Corporation’s internal control over financial reporting is effective.
The Corporation’s internal control over financial reporting as of December 31, 2020 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, 2020.
Brian T. Moynihan
Chairman, Chief Executive Officer and President
Paul M. Donofrio
Chief Financial Officer
Report of Independent Registered Public Accounting Firm
Purchased Credit-impaired LoansTo the Board of Directors and Shareholders of Bank of America Corporation:
Purchased loans with evidenceOpinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of credit quality deteriorationBank of America Corporation and its subsidiaries (the “Corporation”) as of December 31, 2020 and 2019, and the purchase date for which it is probable that the Corporation will not receive all contractually required payments receivable are accounted for as purchased credit-impaired (PCI) loans. Evidencerelated consolidated statements of credit quality deterioration since origination may include past due status, refreshed credit scoresincome, comprehensive income, changes in shareholders’ equity and refreshed loan-to-value (LTV) ratios. At acquisition, PCI loans are recorded at fair value with no allowance for credit losses, and accounted for individually or aggregated in pools based on similar risk characteristics such as credit risk, collateral type and interest rate risk. The Corporation estimates the amount and timing of expected cash flows for each loan or pool of loans. The expected cash flows in excess of the amount paid forthree years in the loans isperiod ended December 31, 2020, including the related notes (collectively referred to as the accretable yield“consolidated financial statements”). We also have audited the Corporation's internal control over financial reporting as of December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, 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 credit losses on certain financial instruments in 2020.
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) 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 interest income over the remaining estimated lifenecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the loan or poolcompany are being made only in accordance with authorizations of loans. The excessmanagement and directors of the PCI loans’ contractual principalcompany; and interest(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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Allowance for Loan and Lease Losses - Commercial and Consumer Card Loans
As described in Notes 1 and 5 to the consolidated financial statements, the allowance for loan and lease losses represents management’s estimate of the expected cash flowscredit losses in the Corporation’s loan and lease portfolio, excluding loans and unfunded lending commitments accounted for under the fair value option. As of December 31, 2020, the allowance for loan and lease losses was $18.8 billion on total loans and leases of $921.2 billion, which excludes loans accounted for under the fair value option. For commercial and consumer card loans, the expected credit loss is referred toestimated using quantitative methods
that consider a variety of factors such as historical loss experience, the nonaccretable difference. Overcurrent credit quality of the portfolio as well as an economic outlook 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,loan. In its loss severity and prepayment speeds. If, upon subsequent valuation,forecasting framework, the Corporation determines it is probable thatincorporates forward looking information through the present valueuse of macroeconomic scenarios applied over the forecasted life of the expected cash flows has decreased,assets. These macroeconomic scenarios include variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to, unemployment rates, real estate prices, gross domestic product levels and corporate bond spreads. The scenarios that are chosen and the amount of weighting given to each scenario depend on a charge to the provision for credit losses is recorded with a corresponding increasevariety of factors including recent economic events, leading economic indicators, views of internal as well as third-party economists and industry trends. Also included in the allowance for credit losses. If it is probableloan losses are qualitative reserves to cover losses that there is a significant increaseare expected but, in the present valueCorporation's assessment, may not be adequately reflected in the quantitative methods or the economic assumptions. Factors that the Corporation considers include changes in lending policies and procedures, business conditions, the nature and size of expected cash flows,the portfolio, portfolio concentrations, the volume and severity of past due loans and nonaccrual loans, the effect of external factors such as competition, and legal and regulatory requirements, among others. Further, the Corporation considers the inherent uncertainty in quantitative models that are built on historical data.
The principal considerations for our determination that performing procedures relating to the allowance for creditloan and lease losses for the commercial and consumer card portfolios is reduced or, if there is no remaining allowance for credit lossesa critical audit matter are (i) the significant judgment and estimation by management in developing lifetime economic forecast scenarios, related weightings to these PCI loans,each scenario and certain qualitative reserves, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence obtained, and (ii) the accretable yield is increased through a reclassification from nonaccretable difference, resultingaudit effort involved professionals with specialized skill and knowledge to assist in a prospective increaseevaluating certain audit evidence.
Addressing the matter involved performing procedures and evaluating audit evidence in interest income. Reclassificationsconnection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to or from nonaccretable difference can also occur for changes in the PCI loans’ estimated lives. If a loan within a PCI pool is sold, foreclosed, forgiven or the expectation of any future proceeds is remote, the loan is removed from the pool at its proportional carrying value. If the loan’s recovery value is less than the loan’s carrying value, the difference is first applied against the PCI pool’s nonaccretable difference and then against the allowance for creditloan and lease losses, including controls over the evaluation and approval of models, forecast scenarios and related weightings, and qualitative reserves. These procedures also included, among others, testing management’s process for estimating the allowance for loan losses, including (i) evaluating the appropriateness of the loss forecast models and methodology, (ii) evaluating the reasonableness of certain macroeconomic variables, (iii) evaluating the reasonableness of management’s development, selection and weighting of economic forecast scenarios used in the loss forecast models, (iv) testing the completeness and accuracy of data used in the estimate, and (v) evaluating certain qualitative reserves made to the model output results to determine the overall allowance for loan losses. The procedures also included the involvement of professionals with specialized
Leases
skill and knowledge to assist in evaluating the appropriateness of certain loss forecast models, the reasonableness of economic forecast scenarios and related weightings and the reasonableness of certain qualitative reserves.
Valuation of Certain Level 3 Financial Instruments
As described in Notes 1 and 20 to the consolidated financial statements, the Corporation carries certain financial instruments at fair value, which includes $10.0 billion of assets and $7.4 billion of liabilities classified as Level 3 fair value measurements on a recurring basis and $1.7 billion of assets classified as Level 3 fair value measurements on a nonrecurring basis, for which the determination of fair value requires significant management judgment or estimation. The Corporation determines the fair value of Level 3 financial instruments using pricing models, discounted cash flow methodologies, or similar techniques that require inputs that are both unobservable and are significant to the overall fair value measurement. Unobservable inputs, such as volatility or price, may be determined using quantitative-based extrapolations or other internal methodologies which incorporate management estimates and available market information.
The Corporation provides equipment financingprincipal considerations for our determination that performing procedures relating to its customers throughthe valuation of certain Level 3 financial instruments is a variety of lease arrangements. Direct financing leasescritical audit matter are carried at the aggregate of lease payments receivable plus estimated residualsignificant judgment and estimation used by management to determine the fair value of these financial instruments, which in turn led to a high degree of auditor judgment and effort in performing procedures, including the leased property less unearnedinvolvement of professionals with specialized skill and knowledge to assist in evaluating certain audit evidence.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of financial instruments, including controls related to valuation models, significant unobservable inputs, and data. These procedures also included, among others, the involvement of professionalswith specialized skill and knowledge to assist in developing an independent estimate of fair value for a sample of these certain financial instruments and comparison of management’s estimate to the independently developed estimate of fair value. Developing the independent estimate involved testing the completeness and accuracy of data provided by management and evaluating the reasonableness of management’s assumptions used to develop the significant unobservable inputs.
Charlotte, North Carolina
February 24, 2021
We have served as the Corporation’s auditor since 1958.
Bank of America Corporation and Subsidiaries
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| Consolidated Statement of Income |
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| (In millions, except per share information) | | | | | 2020 | | 2019 | | 2018 |
| Net interest income | | | | | | | | | |
| Interest income | | | | | $ | 51,585 | | | $ | 71,236 | | | $ | 66,769 | |
| Interest expense | | | | | 8,225 | | | 22,345 | | | 18,607 | |
| Net interest income | | | | | 43,360 | | | 48,891 | | | 48,162 | |
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| Noninterest income | | | | | | | | | |
| Fees and commissions | | | | | 34,551 | | | 33,015 | | | 33,078 | |
| Market making and similar activities | | | | | 8,355 | | | 9,034 | | | 9,008 | |
| Other income | | | | | (738) | | | 304 | | | 772 | |
| Total noninterest income | | | | | 42,168 | | | 42,353 | | | 42,858 | |
| Total revenue, net of interest expense | | | | | 85,528 | | | 91,244 | | | 91,020 | |
| | | | | | | | | |
| Provision for credit losses | | | | | 11,320 | | | 3,590 | | | 3,282 | |
| | | | | | | | | |
| Noninterest expense | | | | | | | | | |
| Compensation and benefits | | | | | 32,725 | | | 31,977 | | | 31,880 | |
| Occupancy and equipment | | | | | 7,141 | | | 6,588 | | | 6,380 | |
| Information processing and communications | | | | | 5,222 | | | 4,646 | | | 4,555 | |
| Product delivery and transaction related | | | | | 3,433 | | | 2,762 | | | 2,857 | |
| Marketing | | | | | 1,701 | | | 1,934 | | | 1,674 | |
| Professional fees | | | | | 1,694 | | | 1,597 | | | 1,699 | |
| Other general operating | | | | | 3,297 | | | 5,396 | | | 4,109 | |
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| | | | | | | | | |
| Total noninterest expense | | | | | 55,213 | | | 54,900 | | | 53,154 | |
| Income before income taxes | | | | | 18,995 | | | 32,754 | | | 34,584 | |
| Income tax expense | | | | | 1,101 | | | 5,324 | | | 6,437 | |
| Net income | | | | | $ | 17,894 | | | $ | 27,430 | | | $ | 28,147 | |
| Preferred stock dividends | | | | | 1,421 | | | 1,432 | | | 1,451 | |
| Net income applicable to common shareholders | | | | | $ | 16,473 | | | $ | 25,998 | | | $ | 26,696 | |
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| Per common share information | | | | | | | | | |
| Earnings | | | | | $ | 1.88 | | | $ | 2.77 | | | $ | 2.64 | |
| Diluted earnings | | | | | 1.87 | | | 2.75 | | | 2.61 | |
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| Average common shares issued and outstanding | | | | | 8,753.2 | | | 9,390.5 | | | 10,096.5 | |
| Average diluted common shares issued and outstanding | | | | | 8,796.9 | | | 9,442.9 | | | 10,236.9 | |
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| Consolidated Statement of Comprehensive Income | | |
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| (Dollars in millions) | | | | | 2020 | | 2019 | | 2018 |
| Net income | | | | | $ | 17,894 | | | $ | 27,430 | | | $ | 28,147 | |
| Other comprehensive income (loss), net-of-tax: | | | | | | | | | |
| Net change in debt securities | | | | | 4,799 | | | 5,875 | | | (3,953) | |
| Net change in debit valuation adjustments | | | | | (498) | | | (963) | | | 749 | |
| Net change in derivatives | | | | | 826 | | | 616 | | | (53) | |
| Employee benefit plan adjustments | | | | | (98) | | | 136 | | | (405) | |
| Net change in foreign currency translation adjustments | | | | | (52) | | | (86) | | | (254) | |
| Other comprehensive income (loss) | | | | | 4,977 | | | 5,578 | | | (3,916) | |
| Comprehensive income | | | | | $ | 22,871 | | | $ | 33,008 | | | $ | 24,231 | |
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
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| Consolidated Balance Sheet |
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| | December 31 |
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| (Dollars in millions) | 2020 | | 2019 |
| Assets | | | |
| Cash and due from banks | $ | 36,430 | | | $ | 30,152 | |
| Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks | 344,033 | | | 131,408 | |
| Cash and cash equivalents | 380,463 | | | 161,560 | |
| Time deposits placed and other short-term investments | 6,546 | | | 7,107 | |
Federal funds sold and securities borrowed or purchased under agreements to resell (includes $108,856 and $50,364 measured at fair value) | 304,058 | | | 274,597 | |
Trading account assets (includes $91,510 and $90,946 pledged as collateral) | 198,854 | | | 229,826 | |
| Derivative assets | 47,179 | | | 40,485 | |
| Debt securities: | | | |
| Carried at fair value | 246,601 | | | 256,467 | |
Held-to-maturity, at cost (fair value – $448,180 and $219,821) | 438,249 | | | 215,730 | |
| Total debt securities | 684,850 | | | 472,197 | |
Loans and leases (includes $6,681 and $8,335 measured at fair value) | 927,861 | | | 983,426 | |
| Allowance for loan and lease losses | (18,802) | | | (9,416) | |
| Loans and leases, net of allowance | 909,059 | | | 974,010 | |
| Premises and equipment, net | 11,000 | | | 10,561 | |
| Goodwill | 68,951 | | | 68,951 | |
Loans held-for-sale (includes $1,585 and $3,709 measured at fair value) | 9,243 | | | 9,158 | |
| Customer and other receivables | 64,221 | | | 55,937 | |
Other assets (includes $15,718 and $15,518 measured at fair value) | 135,203 | | | 129,690 | |
| Total assets | $ | 2,819,627 | | | $ | 2,434,079 | |
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| Liabilities | | | |
| Deposits in U.S. offices: | | | |
| Noninterest-bearing | $ | 650,674 | | | $ | 403,305 | |
Interest-bearing (includes $481 and $508 measured at fair value) | 1,038,341 | | | 940,731 | |
| Deposits in non-U.S. offices: | | | |
| Noninterest-bearing | 17,698 | | | 13,719 | |
| Interest-bearing | 88,767 | | | 77,048 | |
| Total deposits | 1,795,480 | | | 1,434,803 | |
Federal funds purchased and securities loaned or sold under agreements to repurchase (includes $135,391 and $16,008 measured at fair value) | 170,323 | | | 165,109 | |
| Trading account liabilities | 71,320 | | | 83,270 | |
| Derivative liabilities | 45,526 | | | 38,229 | |
Short-term borrowings (includes $5,874 and $3,941 measured at fair value) | 19,321 | | | 24,204 | |
Accrued expenses and other liabilities (includes $16,311 and $15,434 measured at fair value and $1,878 and $813 of reserve for unfunded lending commitments) | 181,799 | | | 182,798 | |
Long-term debt (includes $32,200 and $34,975 measured at fair value) | 262,934 | | | 240,856 | |
| Total liabilities | 2,546,703 | | | 2,169,269 | |
Commitments and contingencies (Note 6 – Securitizations and Other Variable Interest Entities and Note 12 – Commitments and Contingencies) | 0 | | 0 |
| Shareholders’ equity | | | |
Preferred stock, $0.01 par value; authorized – 100,000,000 shares; issued and outstanding – 3,931,440 and 3,887,440 shares | 24,510 | | | 23,401 | |
Common stock and additional paid-in capital, $0.01 par value; authorized – 12,800,000,000 shares; issued and outstanding – 8,650,814,105 and 8,836,148,954 shares | 85,982 | | | 91,723 | |
| Retained earnings | 164,088 | | | 156,319 | |
| Accumulated other comprehensive income (loss) | (1,656) | | | (6,633) | |
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| Total shareholders’ equity | 272,924 | | | 264,810 | |
| Total liabilities and shareholders’ equity | $ | 2,819,627 | | | $ | 2,434,079 | |
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| Assets of consolidated variable interest entities included in total assets above (isolated to settle the liabilities of the variable interest entities) | | | |
| Trading account assets | $ | 5,225 | | | $ | 5,811 | |
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| Loans and leases | 23,636 | | | 38,837 | |
| Allowance for loan and lease losses | (1,693) | | | (807) | |
| Loans and leases, net of allowance | 21,943 | | | 38,030 | |
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| All other assets | 1,387 | | | 540 | |
| Total assets of consolidated variable interest entities | $ | 28,555 | | | $ | 44,381 | |
| Liabilities of consolidated variable interest entities included in total liabilities above | | | |
| Short-term borrowings (includes $22 and $0 of non-recourse short-term borrowings) | $ | 454 | | | $ | 2,175 | |
| Long-term debt (includes $7,053 and $8,717 of non-recourse debt) | 7,053 | | | 8,718 | |
| All other liabilities (includes $16 and $19 of non-recourse liabilities) | 16 | | | 22 | |
| Total liabilities of consolidated variable interest entities | $ | 7,523 | | | $ | 10,915 | |
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
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| Consolidated Statement of Changes in Shareholders’ Equity |
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| Preferred
Stock | | Common Stock and
Additional Paid-in Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | | | Total
Shareholders’
Equity |
| (In millions) | | Shares | | Amount | | | | |
| Balance, December 31, 2017 | $ | 22,323 | | | 10,287.3 | | | $ | 138,089 | | | $ | 113,816 | | | $ | (7,082) | | | | | $ | 267,146 | |
Cumulative adjustment for adoption of hedge accounting
standard | | | | | | | (32) | | | 57 | | | | | 25 | |
Adoption of accounting standard related to certain tax effects
stranded in accumulated other comprehensive income (loss) | | | | | | | 1,270 | | | (1,270) | | | | | 0 | |
| Net income | | | | | | | 28,147 | | | | | | | 28,147 | |
| Net change in debt securities | | | | | | | | | (3,953) | | | | | (3,953) | |
| Net change in debit valuation adjustments | | | | | | | | | 749 | | | | | 749 | |
| Net change in derivatives | | | | | | | | | (53) | | | | | (53) | |
| Employee benefit plan adjustments | | | | | | | | | (405) | | | | | (405) | |
| Net change in foreign currency translation adjustments | | | | | | | | | (254) | | | | | (254) | |
| Dividends declared: | | | | | | | | | | | | | |
| Common | | | | | | | (5,424) | | | | | | | (5,424) | |
| Preferred | | | | | | | (1,451) | | | | | | | (1,451) | |
| Issuance of preferred stock | 4,515 | | | | | | | | | | | | | 4,515 | |
| Redemption of preferred stock | (4,512) | | | | | | | | | | | | | (4,512) | |
| Common stock issued under employee plans, net, and other | | | 58.2 | | | 901 | | | (12) | | | | | | | 889 | |
| Common stock repurchased | | | (676.2) | | | (20,094) | | | | | | | | | (20,094) | |
| Balance, December 31, 2018 | $ | 22,326 | | | 9,669.3 | | | $ | 118,896 | | | $ | 136,314 | | | $ | (12,211) | | | | | $ | 265,325 | |
Cumulative adjustment for adoption of lease accounting
standard | | | | | | | 165 | | | | | | | 165 | |
| Net income | | | | | | | 27,430 | | | | | | | 27,430 | |
| Net change in debt securities | | | | | | | | | 5,875 | | | | | 5,875 | |
| Net change in debit valuation adjustments | | | | | | | | | (963) | | | | | (963) | |
| Net change in derivatives | | | | | | | | | 616 | | | | | 616 | |
| Employee benefit plan adjustments | | | | | | | | | 136 | | | | | 136 | |
| Net change in foreign currency translation adjustments | | | | | | | | | (86) | | | | | (86) | |
| Dividends declared: | | | | | | | | | | | | | |
| Common | | | | | | | (6,146) | | | | | | | (6,146) | |
| Preferred | | | | | | | (1,432) | | | | | | | (1,432) | |
| Issuance of preferred stock | 3,643 | | | | | | | | | | | | | 3,643 | |
| Redemption of preferred stock | (2,568) | | | | | | | | | | | | | (2,568) | |
| Common stock issued under employee plans, net, and other | | | 123.3 | | | 971 | | | (12) | | | | | | | 959 | |
| Common stock repurchased | | | (956.5) | | | (28,144) | | | | | | | | | (28,144) | |
| Balance, December 31, 2019 | $ | 23,401 | | | 8,836.1 | | | $ | 91,723 | | | $ | 156,319 | | | $ | (6,633) | | | | | $ | 264,810 | |
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Cumulative adjustment for adoption of credit loss accounting
standard | | | | | | | (2,406) | | | | | | | (2,406) | |
| Net income | | | | | | | 17,894 | | | | | | | 17,894 | |
| Net change in debt securities | | | | | | | | | 4,799 | | | | | 4,799 | |
| Net change in debit valuation adjustments | | | | | | | | | (498) | | | | | (498) | |
| Net change in derivatives | | | | | | | | | 826 | | | | | 826 | |
| Employee benefit plan adjustments | | | | | | | | | (98) | | | | | (98) | |
| Net change in foreign currency translation adjustments | | | | | | | | | (52) | | | | | (52) | |
| Dividends declared: | | | | | | | | | | | | | |
| Common | | | | | | | (6,289) | | | | | | | (6,289) | |
| Preferred | | | | | | | (1,421) | | | | | | | (1,421) | |
| Issuance of preferred stock | 2,181 | | | | | | | | | | | | | 2,181 | |
| Redemption of preferred stock | (1,072) | | | | | | | | | | | | | (1,072) | |
| Common stock issued under employee plans, net, and other | | | 41.7 | | | 1,284 | | | (9) | | | | | | | 1,275 | |
| Common stock repurchased | | | (227.0) | | | (7,025) | | | | | | | | | (7,025) | |
| Balance, December 31, 2020 | $ | 24,510 | | | 8,650.8 | | | $ | 85,982 | | | $ | 164,088 | | | $ | (1,656) | | | | | $ | 272,924 | |
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Bank of America Corporation and Subsidiaries
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| Consolidated Statement of Cash Flows | | | | |
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| (Dollars in millions) | 2020 | | 2019 | | 2018 | | | | |
| Operating activities | | | | | | | | | |
| Net income | $ | 17,894 | | | $ | 27,430 | | | $ | 28,147 | | | | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | |
| Provision for credit losses | 11,320 | | | 3,590 | | | 3,282 | | | | | |
| Gains on sales of debt securities | (411) | | | (217) | | | (154) | | | | | |
| Depreciation and amortization | 1,843 | | | 1,729 | | | 2,063 | | | | | |
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| Net amortization of premium/discount on debt securities | 4,101 | | | 2,066 | | | 1,824 | | | | | |
| Deferred income taxes | (1,737) | | | 2,435 | | | 3,041 | | | | | |
| Stock-based compensation | 2,031 | | | 1,974 | | | 1,729 | | | | | |
| Impairment of equity method investment | 0 | | | 2,072 | | | 0 | | | | | |
| Loans held-for-sale: | | | | | | | | | |
| Originations and purchases | (19,657) | | | (28,874) | | | (28,071) | | | | | |
Proceeds from sales and paydowns of loans originally classified as held for sale and instruments from related securitization activities | 19,049 | | | 30,191 | | | 28,972 | | | | | |
| Net change in: | | | | | | | | | |
| Trading and derivative assets/liabilities | 16,942 | | | 7,920 | | | (23,673) | | | | | |
| Other assets | (12,883) | | | (11,113) | | | 11,920 | | | | | |
| Accrued expenses and other liabilities | (4,385) | | | 16,363 | | | 13,010 | | | | | |
| Other operating activities, net | 3,886 | | | 6,211 | | | (2,570) | | | | | |
| Net cash provided by operating activities | 37,993 | | | 61,777 | | | 39,520 | | | | | |
| Investing activities | | | | | | | | | |
| Net change in: | | | | | | | | | |
| Time deposits placed and other short-term investments | 561 | | | 387 | | | 3,659 | | | | | |
| Federal funds sold and securities borrowed or purchased under agreements to resell | (29,461) | | | (13,466) | | | (48,384) | | | | | |
| Debt securities carried at fair value: | | | | | | | | | |
| Proceeds from sales | 77,524 | | | 52,006 | | | 5,117 | | | | | |
| Proceeds from paydowns and maturities | 91,084 | | | 79,114 | | | 78,513 | | | | | |
| Purchases | (194,877) | | | (152,782) | | | (76,640) | | | | | |
| Held-to-maturity debt securities: | | | | | | | | | |
| Proceeds from paydowns and maturities | 93,835 | | | 34,770 | | | 18,789 | | | | | |
| Purchases | (257,535) | | | (37,115) | | | (35,980) | | | | | |
| Loans and leases: | | | | | | | | | |
Proceeds from sales of loans originally classified as held for investment and instruments from related securitization activities | 13,351 | | | 12,201 | | | 21,365 | | | | | |
| Purchases | (5,229) | | | (5,963) | | | (4,629) | | | | | |
| Other changes in loans and leases, net | 36,571 | | | (46,808) | | | (31,292) | | | | | |
| Other investing activities, net | (3,489) | | | (2,974) | | | (1,986) | | | | | |
| Net cash used in investing activities | (177,665) | | | (80,630) | | | (71,468) | | | | | |
| Financing activities | | | | | | | | | |
| Net change in: | | | | | | | | | |
| Deposits | 360,677 | | | 53,327 | | | 71,931 | | | | | |
| Federal funds purchased and securities loaned or sold under agreements to repurchase | 5,214 | | | (21,879) | | | 10,070 | | | | | |
| Short-term borrowings | (4,893) | | | 4,004 | | | (12,478) | | | | | |
| Long-term debt: | | | | | | | | | |
| Proceeds from issuance | 57,013 | | | 52,420 | | | 64,278 | | | | | |
| Retirement | (47,948) | | | (50,794) | | | (53,046) | | | | | |
| Preferred stock: | | | | | | | | | |
| Proceeds from issuance | 2,181 | | | 3,643 | | | 4,515 | | | | | |
| Redemption | (1,072) | | | (2,568) | | | (4,512) | | | | | |
| Common stock repurchased | (7,025) | | | (28,144) | | | (20,094) | | | | | |
| Cash dividends paid | (7,727) | | | (5,934) | | | (6,895) | | | | | |
| Other financing activities, net | (601) | | | (698) | | | (651) | | | | | |
| Net cash provided by financing activities | 355,819 | | | 3,377 | | | 53,118 | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | 2,756 | | | (368) | | | (1,200) | | | | | |
| Net increase (decrease) in cash and cash equivalents | 218,903 | | | (15,844) | | | 19,970 | | | | | |
| Cash and cash equivalents at January 1 | 161,560 | | | 177,404 | | | 157,434 | | | | | |
| Cash and cash equivalents at December 31 | $ | 380,463 | | | $ | 161,560 | | | $ | 177,404 | | | | | |
| Supplemental cash flow disclosures | | | | | | | | | |
| Interest paid | $ | 8,662 | | | $ | 22,196 | | | $ | 19,087 | | | | | |
| Income taxes paid, net | 2,894 | | | 4,359 | | | 2,470 | | | | | |
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See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 Summary of Significant Accounting Principles
Bank of America Corporation, a bank holding company and a financial holding company, provides a diverse range of financial services and products throughout the U.S. and in certain international markets. The term “the Corporation” as used herein may refer to Bank of America Corporation, individually, Bank of America Corporation and its subsidiaries, or certain of Bank of America Corporation’s subsidiaries or affiliates.
Principles of Consolidation and Basis of Presentation
The Consolidated Financial Statements include the accounts of the Corporation and its majority-owned subsidiaries and those variable interest entities (VIEs) where the Corporation is the primary beneficiary. Intercompany accounts and transactions have been eliminated. Results of operations of acquired companies are included from the dates of acquisition, and for VIEs, from the dates that the Corporation became the primary beneficiary. Assets held in an agency or fiduciary capacity are not included in the Consolidated Financial Statements. The Corporation accounts for investments in companies for which it owns a voting interest and for which it has the ability to exercise significant influence over operating and financing decisions using the equity method of accounting. These investments are included in other assets. Equity method investments are subject to impairment testing, and the Corporation’s proportionate share of income or loss is included in other income. Leveraged leases, which are a form
The preparation of financing leases, arethe Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported net of non-recourse debt. Unearned income on leveragedamounts and direct financing leases is accreteddisclosures. Actual results could materially differ from those estimates and assumptions. Certain prior-period amounts have been reclassified to interest income over the lease terms using methods that approximate the interest method.conform to current period presentation.
New Accounting Standards
Allowance for Credit Losses
On January 1, 2020, the Corporation adopted the new accounting standard that requires the measurement of the allowance for credit losses to be based on management’s best estimate of lifetime ECL inherent in the Corporation’s relevant financial assets. Upon adoption of the new accounting standard, the Corporation recorded a net increase of $3.3 billion in the allowance for credit losses which was comprised of a net increase of $2.9 billion in the allowance for loan and lease losses and an increase of $310 million in the reserve for unfunded lending commitments. The net increase was primarily driven by a $3.1 billion increase related to the credit card portfolio.
The allowance for credit losses further increased by $7.2 billion from January 1, 2020 to $20.7 billion at December 31, 2020, which included a $5.0 billion reserve increase related to the commercial portfolio and a $2.2 billion reserve increase related to the consumer portfolio. The increases were driven by deterioration in the economic outlook resulting from the impact of COVID-19.
The following table presents an allocation of the allowance for credit losses by product type for December 31, 2020, January 1, 2020and December 31, 2019 (prior to the adoption of the CECL accounting standard).
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| Table 42 | Allocation of the Allowance for Credit Losses by Product Type | | | | |
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| Amount | | Percent of
Total | | Percent of
Loans and
Leases Outstanding (1) | | 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, 2020 | | January 1, 2020 | | December 31, 2019 |
| Allowance for loan and lease losses | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 459 | | | 2.44 | % | | 0.21 | % | | $ | 212 | | | 1.72 | % | | 0.09 | % | | $ | 325 | | | 3.45 | % | | 0.14 | % |
| Home equity | 399 | | | 2.12 | | | 1.16 | | | 228 | | | 1.84 | | | 0.57 | | | 221 | | | 2.35 | | | 0.55 | |
| Credit card | 8,420 | | | 44.79 | | | 10.70 | | | 6,809 | | | 55.10 | | | 6.98 | | | 3,710 | | | 39.39 | | | 3.80 | |
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| Direct/Indirect consumer | 752 | | | 4.00 | | | 0.82 | | | 566 | | | 4.58 | | | 0.62 | | | 234 | | | 2.49 | | | 0.26 | |
| Other consumer | 41 | | | 0.22 | | | n/m | | 55 | | | 0.45 | | | n/m | | 52 | | | 0.55 | | | n/m |
| Total consumer | 10,071 | | | 53.57 | | | 2.35 | | | 7,870 | | | 63.69 | | | 1.69 | | | 4,542 | | | 48.23 | | | 0.98 | |
U.S. commercial (2) | 5,043 | | | 26.82 | | | 1.55 | | | 2,723 | | | 22.03 | | | 0.84 | | | 3,015 | | | 32.02 | | | 0.94 | |
| Non-U.S. commercial | 1,241 | | | 6.60 | | | 1.37 | | | 668 | | | 5.41 | | | 0.64 | | | 658 | | | 6.99 | | | 0.63 | |
| Commercial real estate | 2,285 | | | 12.15 | | | 3.79 | | | 1,036 | | | 8.38 | | | 1.65 | | | 1,042 | | | 11.07 | | | 1.66 | |
| Commercial lease financing | 162 | | | 0.86 | | | 0.95 | | | 61 | | | 0.49 | | | 0.31 | | | 159 | | | 1.69 | | | 0.80 | |
| Total commercial | 8,731 | | | 46.43 | | | 1.77 | | | 4,488 | | | 36.31 | | | 0.88 | | | 4,874 | | | 51.77 | | | 0.96 | |
| Allowance for loan and lease losses | 18,802 | | | 100.00 | % | | 2.04 | | | 12,358 | | | 100.00 | % | | 1.27 | | | 9,416 | | | 100.00 | % | | 0.97 | |
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| Reserve for unfunded lending commitments | 1,878 | | | | | | | 1,123 | | | | | | | 813 | | | | | |
| Allowance for credit losses | $ | 20,680 | | | | | | | $ | 13,481 | | | | | | | $ | 10,229 | | | | | |
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(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 $298 million at December 31, 2020 and $257 million at January 1, 2020 and December 31, 2019 and home equity loans of $437 million at December 31, 2020 and $337 million at January 1, 2020 and December 31, 2019. Commercial loans accounted for under the fair value option include U.S. commercial loans of $2.9 billion, $5.1 billion and $4.7 billion at December 31, 2020, January 1, 2020 and December 31, 2019, and non-U.S. commercial loans of $3.0 billion, $3.2 billion and $3.1 billion at December 31, 2020, January 1, 2020 and December 31, 2019.
(2)Includes allowance for loan and lease losses for U.S. small business commercial loans of $1.5 billion, $831 million and $523 million at December 31, 2020, January 1, 2020 and December 31, 2019.
n/m = not meaningful
Net charge-offs for 2020 were $4.1 billion compared to $3.6 billion in 2019 driven by increases in commercial losses. The provision for credit losses increased $7.7 billion to $11.3 billion during 2020 compared to 2019. The allowance for credit losses included a reserve build of $7.2 billion for 2020, excluding the impact of the new accounting standard, primarily due to the deterioration in the economic outlook resulting from the impact of COVID-19 on both the consumer and commercial portfolios. The provision for credit losses for the consumer portfolio, including unfunded lending commitments, increased $2.0 billion to $4.9 billion during 2020 compared to 2019. The provision for credit losses for the commercial portfolio, including unfunded
lending commitments, increased $5.7 billion to $6.5 billion during 2020 compared to 2019.
The following table presents a rollforward of the allowance for credit losses, including certain loan and allowance ratios for 2020, noting that measurement of the allowance for credit losses for 2019 was based on management’s estimate of probable incurred losses. For more information on the Corporation’s credit loss accounting policies and activity related to the allowance for credit losses, see Note 1 – Summary of Significant Accounting Principles and Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements.
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| Table 43 | Allowance for Credit Losses | | | | | | | |
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| (Dollars in millions) | 2020 | | | | | | 2019 |
| Allowance for loan and lease losses, January 1 | $ | 12,358 | | | | | | | $ | 9,601 | |
| Loans and leases charged off | | | | | | | |
| Residential mortgage | (40) | | | | | | | (93) | |
| Home equity | (58) | | | | | | | (429) | |
| Credit card | (2,967) | | | | | | | (3,535) | |
| Direct/Indirect consumer | (372) | | | | | | | (518) | |
| Other consumer | (307) | | | | | | | (249) | |
| Total consumer charge-offs | (3,744) | | | | | | | (4,824) | |
U.S. commercial (1) | (1,163) | | | | | | | (650) | |
| Non-U.S. commercial | (168) | | | | | | | (115) | |
| Commercial real estate | (275) | | | | | | | (31) | |
| Commercial lease financing | (69) | | | | | | | (26) | |
| Total commercial charge-offs | (1,675) | | | | | | | (822) | |
| Total loans and leases charged off | (5,419) | | | | | | | (5,646) | |
| Recoveries of loans and leases previously charged off | | | | | | | |
| Residential mortgage | 70 | | | | | | | 140 | |
| Home equity | 131 | | | | | | | 787 | |
| Credit card | 618 | | | | | | | 587 | |
| Direct/Indirect consumer | 250 | | | | | | | 309 | |
| Other consumer | 23 | | | | | | | 15 | |
| Total consumer recoveries | 1,092 | | | | | | | 1,838 | |
U.S. commercial (2) | 178 | | | | | | | 122 | |
| Non-U.S. commercial | 13 | | | | | | | 31 | |
| Commercial real estate | 5 | | | | | | | 2 | |
| Commercial lease financing | 10 | | | | | | | 5 | |
| Total commercial recoveries | 206 | | | | | | | 160 | |
| Total recoveries of loans and leases previously charged off | 1,298 | | | | | | | 1,998 | |
| Net charge-offs | (4,121) | | | | | | | (3,648) | |
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| Provision for loan and lease losses | 10,565 | | | | | | | 3,574 | |
| Other | — | | | | | | | (111) | |
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| Allowance for loan and lease losses, December 31 | 18,802 | | | | | | | 9,416 | |
| Reserve for unfunded lending commitments, January 1 | 1,123 | | | | | | | 797 | |
| Provision for unfunded lending commitments | 755 | | | | | | | 16 | |
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| Reserve for unfunded lending commitments, December 31 | 1,878 | | | | | | | 813 | |
| Allowance for credit losses, December 31 | $ | 20,680 | | | | | | | $ | 10,229 | |
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| Loan and allowance ratios: | | | | | | | |
Loans and leases outstanding at December 31 (3) | $ | 921,180 | | | | | | | $ | 975,091 | |
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (3) | 2.04 | % | | | | | | 0.97 | % |
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (4) | 2.35 | | | | | | | 0.98 | |
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (5) | 1.77 | | | | | | | 0.96 | |
Average loans and leases outstanding (3) | $ | 974,281 | | | | | | | $ | 951,583 | |
Annualized net charge-offs as a percentage of average loans and leases outstanding (3) | 0.42 | % | | | | | | 0.38 | % |
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| Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 | 380 | | | | | | | 265 | |
| Ratio of the allowance for loan and lease losses at December 31 to net charge-offs | 4.56 | | | | | | | 2.58 | |
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Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (6) | $ | 9,854 | | | | | | | $ | 4,151 | |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (6) | 181 | % | | | | | | 148 | % |
(1)Includes U.S. small business commercial charge-offs of $321 million in 2020 compared to $320 million in 2019.
(2)Includes U.S. small business commercial recoveries of $54 million in 2020 compared to $48 million in 2019.
(3)Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $6.7 billion and $8.3 billion at December 31, 2020 and 2019. Average loans accounted for under the fair value option were $8.2 billion in 2020 compared to $6.8 billion in 2019.
(4)Excludes consumer loans accounted for under the fair value option of $735 million and $594 million at December 31, 2020 and 2019.
(5)Excludes commercial loans accounted for under the fair value option of $5.9 billion and $7.7 billion at December 31, 2020 and 2019.
(6)Primarily includes amounts related to credit card and unsecured consumer lending portfolios in Consumer Banking.
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 82.
We have been affected, and expect to continue to be affected, by market stress resulting from the pandemic that began in the first quarter of 2020. For more information on the effects of the pandemic, see Executive Summary – Recent Developments – COVID-19 Pandemic on page 25.
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.
Model risk is the potential for adverse consequences from decisions based on incorrect or misused model outputs and reports. Given that models are used across the Corporation, model risk impacts all risk types including credit, market and operational risks. The Enterprise Model Risk Policy defines model risk standards, consistent with our risk framework and risk appetite, prevailing regulatory guidance and industry best practice. All models, including risk management, valuation and regulatory capital models, must meet certain validation criteria, including effective challenge of the conceptual soundness of the model, independent model testing and ongoing monitoring through outcomes analysis and benchmarking. The Enterprise Model Risk Committee (EMRC), a subcommittee of the MRC, oversees that model standards are consistent with model risk requirements and monitors the effective challenge in the model validation process across the Corporation.
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 84.
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 risks 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, which 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 50.
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 44 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 44 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 44 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 44 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 44 presents year-end, average, high and low daily trading VaR for 2020 and 2019 using a 99 percent confidence
level. The amounts disclosed in Table 44 and Table 45 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 annual average of total covered positions and less liquid trading positions portfolio VaR increased for 2020 compared to 2019 primarily due to the impact of market volatility related to the pandemic in the VaR look back period.
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| Table 44 | Market Risk VaR for Trading Activities | | | | | | | | | | | | | | | | |
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| | | | | | |
| 2020 | | 2019 | | | | |
| (Dollars in millions) | Year
End | | Average | | High (1) | | Low (1) | | Year
End | | Average | | High (1) | | Low (1) | | | | | | | | | | | | |
| Foreign exchange | $ | 8 | | | $ | 7 | | | $ | 25 | | | $ | 2 | | | $ | 4 | | | $ | 6 | | | $ | 13 | | | $ | 2 | | | | | | | | | | | | | |
| Interest rate | 30 | | | 19 | | | 39 | | | 7 | | | 25 | | | 24 | | | 49 | | | 14 | | | | | | | | | | | | | |
| Credit | 79 | | | 58 | | | 91 | | | 25 | | | 26 | | | 23 | | | 32 | | | 16 | | | | | | | | | | | | | |
| Equity | 20 | | | 24 | | | 162 | | | 12 | | | 29 | | | 22 | | | 33 | | | 14 | | | | | | | | | | | | | |
| Commodities | 4 | | | 6 | | | 12 | | | 3 | | | 4 | | | 6 | | | 31 | | | 4 | | | | | | | | | | | | | |
| Portfolio diversification | (72) | | | (61) | | | — | | | — | | | (47) | | | (49) | | | — | | | — | | | | | | | | | | | | | |
| Total covered positions portfolio | 69 | | | 53 | | | 171 | | | 27 | | | 41 | | | 32 | | | 47 | | | 24 | | | | | | | | | | | | | |
| Impact from less liquid exposures | 52 | | | 27 | | | — | | | — | | | — | | | 3 | | | — | | | — | | | | | | | | | | | | | |
| Total covered positions and less liquid trading positions portfolio | 121 | | | 80 | | | 169 | | | 30 | | | 41 | | | 35 | | | 53 | | | 27 | | | | | | | | | | | | | |
| Fair value option loans | 52 | | | 52 | | | 84 | | | 7 | | | 8 | | | 10 | | | 13 | | | 7 | | | | | | | | | | | | | |
| Fair value option hedges | 11 | | | 13 | | | 17 | | | 9 | | | 10 | | | 10 | | | 17 | | | 4 | | | | | | | | | | | | | |
| Fair value option portfolio diversification | (17) | | | (24) | | | — | | | — | | | (9) | | | (10) | | | — | | | — | | | | | | | | | | | | | |
| Total fair value option portfolio | 46 | | | 41 | | | 86 | | | 9 | | | 9 | | | 10 | | | 16 | | | 5 | | | | | | | | | | | | | |
| Portfolio diversification | (4) | | | (15) | | | — | | | — | | | (5) | | | (7) | | | — | | | — | | | | | | | | | | | | | |
| Total market-based portfolio | $ | 163 | | | $ | 106 | | | 171 | | | 32 | | | $ | 45 | | | $ | 38 | | | 56 | | | 28 | | | | | | | | | | | | | |
(1)The high and low for each portfolio may have occurred on different trading days than the high and low for the components. Therefore the impact from less liquid exposures and the amount of portfolio diversification, which is the difference between the total portfolio and the sum of the individual components, is not relevant.
The graph below presents the daily covered positions and less liquid trading positions portfolio VaR for 2020, corresponding to the data in Table 44. Peak VaR in mid-March 2020 was driven by increased market realized volatility and higher implied volatilities.
Additional VaR statistics produced within our single VaR model are provided in Table 45 at the same level of detail as in Table 44. Evaluating VaR with additional statistics allows for an increased understanding of the risks in the portfolio as the historical market data used in the VaR calculation does not necessarily follow a predefined statistical distribution. Table 45
presents average trading VaR statistics at 99 percent and 95 percent confidence levels for 2020 and 2019. The increase in VaR for the 99 percent confidence level for 2020 was primarily due to COVID-19 related market volatility, which impacted the 99 percent VaR average more severely than the 95 percent VaR average.
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| Table 45 | Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics |
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| | | |
| | | 2020 | | | | 2019 |
| (Dollars in millions) | | 99 percent | | 95 percent | | | | | | 99 percent | | 95 percent |
| Foreign exchange | | $ | 7 | | | $ | 4 | | | | | | | $ | 6 | | | $ | 3 | |
| Interest rate | | 19 | | | 9 | | | | | | | 24 | | | 15 | |
| Credit | | 58 | | | 18 | | | | | | | 23 | | | 15 | |
| Equity | | 24 | | | 13 | | | | | | | 22 | | | 11 | |
| Commodities | | 6 | | | 3 | | | | | | | 6 | | | 3 | |
| Portfolio diversification | | (61) | | | (26) | | | | | | | (49) | | | (29) | |
| Total covered positions portfolio | | 53 | | | 21 | | | | | | | 32 | | | 18 | |
| Impact from less liquid exposures | | 27 | | | 2 | | | | | | | 3 | | | 2 | |
| Total covered positions and less liquid trading positions portfolio | | 80 | | | 23 | | | | | | | 35 | | | 20 | |
| Fair value option loans | | 52 | | | 13 | | | | | | | 10 | | | 5 | |
| Fair value option hedges | | 13 | | | 7 | | | | | | | 10 | | | 6 | |
| Fair value option portfolio diversification | | (24) | | | (8) | | | | | | | (10) | | | (5) | |
| Total fair value option portfolio | | 41 | | | 12 | | | | | | | 10 | | | 6 | |
| Portfolio diversification | | (15) | | | (6) | | | | | | | (7) | | | (5) | |
| Total market-based portfolio | | $ | 106 | | | $ | 29 | | | | | | | $ | 38 | | | $ | 21 | |
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 intra-day 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 2020, there were seven days where this subset of trading revenue had losses that exceeded 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. 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 2020 and 2019. During 2020, positive trading-related revenue was recorded for 98 percent of the trading days, of which 87 percent were daily trading gains of over $25 million, and the largest loss was $90 million. This compares to 2019 where positive trading-related revenue was recorded for 98 percent of the trading days, of which 80 percent were daily trading gains of over $25 million, and the largest loss was $35 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 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 47.
Interest Rate Risk Management for the Banking Book
The following discussion presents net interest income for banking book activities.
Interest rate risk represents the most significant market risk exposure to our banking book balance sheet. Interest rate risk is measured as the potential change in net interest income caused by movements in market interest rates. Client-facing activities, primarily lending and deposit-taking, create interest rate sensitive positions on our balance sheet.
We prepare forward-looking forecasts of net interest income. The baseline forecast takes into consideration expected future business growth, ALM positioning -and the direction of interest rate movements as implied by the market-based forward curve.
We then measure and evaluate the impact that alternative interest rate scenarios have on the baseline forecast in order to assess interest rate sensitivity under varied conditions. The net interest income forecast is frequently updated for changing assumptions and differing outlooks based on economic trends, market conditions and business strategies. Thus, we continually monitor our balance sheet position in order to maintain an acceptable level of exposure to interest rate changes.
The interest rate scenarios that we analyze incorporate balance sheet assumptions such as loan and deposit growth and pricing, changes in funding mix, product repricing, maturity characteristics and investment securities premium amortization. Our overall goal is to manage interest rate risk so that movements in interest rates do not significantly adversely affect earnings and capital.
Table 46 presents the spot and 12-month forward rates used in our baseline forecasts at December 31, 2020 and 2019.
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| Table 46 | Forward Rates |
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| | December 31, 2020 |
| | Federal
Funds | | Three-month
LIBOR | | 10-Year
Swap |
| Spot rates | 0.25 | % | | 0.24 | % | | 0.93 | % |
| 12-month forward rates | 0.25 | | | 0.19 | | | 1.06 | |
| | | | | | |
| | December 31, 2019 |
| Spot rates | 1.75 | % | | 1.91 | % | | 1.90 | % |
| 12-month forward rates | 1.50 | | | 1.62 | | | 1.92 | |
Table 47 shows the pretax impact to forecasted net interest income over the next 12 months from December 31, 2020 and 2019 resulting from instantaneous parallel and non-parallel
shocks to the market-based forward curve. Periodically we evaluate the scenarios presented so that they are meaningful in the context of the current rate environment. The interest rate scenarios also assume U.S. dollar rates are floored at zero.
During 2020, the asset sensitivity of our balance sheet increased in both up-rate and down-rate scenarios primarily due to continued deposit growth invested in long-term securities. We continue to be asset sensitive to a parallel upward move in interest rates with the majority of that impact coming from the short end of the yield curve. Additionally, higher interest rates impact the fair value of debt securities and, accordingly, for debt securities classified as AFS, may adversely affect accumulated OCI and thus capital levels under the Basel 3 capital rules. Under instantaneous upward parallel shifts, the near-term adverse impact to Basel 3 capital is reduced over time by offsetting positive impacts to net interest income. For more information on Basel 3, see Capital Management – Regulatory Capital on page 51.
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| Table 47 | Estimated Banking Book Net Interest Income Sensitivity to Curve Changes |
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| | Short
Rate (bps) | | Long
Rate (bps) | | | | |
| | | December 31 |
| (Dollars in millions) | | | 2020 | | 2019 |
| | | | | | | |
| Parallel Shifts | | | | | | | |
+100 bps instantaneous shift | +100 | | +100 | | $ | 10,468 | | | $ | 4,190 | |
-25 bps instantaneous shift | -25 | | | -25 | | | (2,766) | | | (1,500) | |
| Flatteners | | | | | | | |
Short-end instantaneous change | +100 | | — | | | 6,321 | | | 2,641 | |
Long-end instantaneous change | — | | | -25 | | | (1,686) | | | (653) | |
| Steepeners | | | | | | | |
Short-end instantaneous change | -25 | | | — | | | (1,084) | | | (844) | |
Long-end instantaneous change | — | | | +100 | | 4,333 | | | 1,561 | |
The sensitivity analysis in Table 47 assumes that we take no action in response to these rate shocks and does not assume any change in other macroeconomic variables normally correlated with changes in interest rates. As part of our ALM activities, we use securities, certain residential mortgages, and interest rate and foreign exchange derivatives in managing interest rate sensitivity.
The behavior of our deposits 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 47 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 non-interest-bearing deposits with higher yielding deposits or market-based funding would reduce our benefit in those scenarios.
Interest Rate and Foreign Exchange Derivative Contracts
Interest rate and foreign exchange derivative contracts are utilized in our ALM activities and serve as an efficient tool to manage our interest rate and foreign exchange risk. We use derivatives to hedge the variability in cash flows or changes in fair value on our balance sheet due to interest rate and foreign exchange components. For more information on our hedging
activities, see Note 3 – Derivatives to the Consolidated Financial Statements.
Our interest rate contracts are generally non-leveraged generic interest rate and foreign exchange basis swaps, options, futures and forwards. In addition, we use foreign exchange contracts, including cross-currency interest rate swaps, foreign currency futures contracts, foreign currency forward contracts and options to mitigate the foreign exchange risk associated with foreign currency-denominated assets and liabilities.
Changes to the composition of our derivatives portfolio during 2020 reflect actions taken for interest rate and foreign exchange rate risk management. The decisions to reposition our derivatives portfolio are based on the current assessment of economic and financial conditions including the interest rate and foreign currency environments, balance sheet composition and trends, and the relative mix of our cash and derivative positions.
We use interest rate derivative instruments to hedge the variability in the cash flows of our assets and liabilities and other forecasted transactions (collectively referred to as cash flow hedges). The net results on both open and terminated cash flow hedge derivative instruments recorded in accumulated OCI were a gain of $580 million and a loss of $496 million, on a pretax basis, at December 31, 2020 and 2019. These gains and 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, 2020, the after-tax net gains are expected to be reclassified into earnings as follows: a gain of $187 million within the next year, a gain of $358 million in years two through five, a loss of $59 million in years six through ten, with the remaining loss of $50 million thereafter. For more information on derivatives designated as cash flow hedges, see Note 3 – Derivatives to the Consolidated Financial Statements.
We hedge our net investment in non-U.S. operations determined to have functional currencies other than the U.S. dollar using forward foreign exchange contracts that typically settle in less than 180 days, cross-currency basis swaps and foreign exchange options. We recorded net after-tax losses on derivatives in accumulated OCI associated with net investment hedges which were offset by gains on our net investments in consolidated non-U.S. entities at December 31, 2020.
Table 48 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, 2020 and 2019. These amounts do not include derivative hedges on our MSRs. During 2020, the fair value of receive-fixed interest rate swaps increased while pay-fixed interest swaps decreased, primarily driven by lower swap rates on hedges of U.S. dollar long-term debt.
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| Table 48 | Asset and Liability Management Interest Rate and Foreign Exchange Contracts |
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| | | | December 31, 2020 | | |
| | | | Expected Maturity | | |
| (Dollars in millions, average estimated duration in years) | Fair
Value | | Total | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Average
Estimated
Duration |
Receive-fixed interest rate swaps (1) | $ | 14,885 | | | | | | | | | | | | | | | | | 8.08 | |
| Notional amount | �� | | $ | 269,015 | | | $ | 11,050 | | | $ | 20,908 | | | $ | 30,654 | | | $ | 31,317 | | | $ | 32,898 | | | $ | 142,188 | | | |
| Weighted-average fixed-rate | | | 1.54 | % | | 3.25 | % | | 0.91 | % | | 1.48 | % | | 1.17 | % | | 1.07 | % | | 1.69 | % | | |
Pay-fixed interest rate swaps (1) | (5,502) | | | | | | | | | | | | | | | | | 6.52 | |
| Notional amount | | | $ | 252,698 | | | $ | 7,562 | | | $ | 21,667 | | | $ | 24,671 | | | $ | 24,406 | | | $ | 32,052 | | | $ | 142,340 | | | |
| Weighted-average fixed-rate | | | 0.89 | % | | 0.57 | % | | 0.10 | % | | 1.28 | % | | 0.86 | % | | 0.68 | % | | 1.00 | % | | |
Same-currency basis swaps (2) | (235) | | | | | | | | | | | | | | | | | |
| Notional amount | | | $ | 223,659 | | | $ | 18,769 | | | $ | 12,245 | | | $ | 9,747 | | | $ | 22,737 | | | $ | 28,222 | | | $ | 131,939 | | | |
Foreign exchange basis swaps (1, 3, 4) | (1,014) | | | | | | | | | | | | | | | | | |
| Notional amount | | | 112,465 | | | 27,424 | | | 16,038 | | | 8,066 | | | 3,819 | | | 4,446 | | | 52,672 | | | |
Foreign exchange contracts (1, 4, 5) | 349 | | | | | | | | | | | | | | | | | |
Notional amount (6) | | | (42,490) | | | (69,299) | | | 2,841 | | | 2,505 | | | 4,735 | | | 4,369 | | | 12,359 | | | |
| Futures and forward rate contracts | 47 | | | | | | | | | | | | | | | | | |
| Notional amount | | | 14,255 | | | 14,255 | | | — | | | — | | | — | | | — | | | — | | | |
| Option products | — | | | | | | | | | | | | | | | | | |
| Notional amount | | | 17 | | | — | | | — | | | 17 | | | — | | | — | | | — | | | |
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| Net ALM contracts | $ | 8,530 | | | | | | | | | | | | | | | | | |
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| Table 48 | Asset and Liability Management Interest Rate and Foreign Exchange Contracts (continued) |
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| | | | | December 31, 2019 | | |
| | | | | Expected Maturity | | |
| (Dollars in millions, average estimated duration in years) | Fair
Value | | Total | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Average
Estimated
Duration |
Receive-fixed interest rate swaps (1) | $ | 12,370 | | | | | | | | | | | | | | | | | 6.47 | |
| Notional amount | | | $ | 215,123 | | | $ | 16,347 | | | $ | 14,642 | | | $ | 21,616 | | | $ | 36,356 | | | $ | 21,257 | | | $ | 104,905 | | | |
| Weighted-average fixed-rate | | | 2.68 | % | | 2.68 | % | | 3.17 | % | | 2.48 | % | | 2.36 | % | | 2.55 | % | | 2.79 | % | | |
Pay-fixed interest rate swaps (1) | (2,669) | | | | | | | | | | | | | | | | | 6.99 | |
| Notional amount | | | $ | 69,586 | | | $ | 4,344 | | | $ | 2,117 | | | $ | — | | | $ | 13,993 | | | $ | 8,194 | | | $ | 40,938 | | | |
| Weighted-average fixed-rate | | | 2.36 | % | | 2.16 | % | | 2.15 | % | | — | % | | 2.52 | % | | 2.26 | % | | 2.35 | % | | |
Same-currency basis swaps (2) | (290) | | | | | | | | | | | | | | | | | |
| Notional amount | | | $ | 152,160 | | | $ | 18,857 | | | $ | 18,590 | | | $ | 4,306 | | | $ | 2,017 | | | $ | 14,567 | | | $ | 93,823 | | | |
Foreign exchange basis swaps (1, 3, 4) | (1,258) | | | | | | | | | | | | | | | | | |
| Notional amount | | | 113,529 | | | 23,639 | | | 24,215 | | | 14,611 | | | 7,111 | | | 3,521 | | | 40,432 | | | |
Foreign exchange contracts (1, 4, 5) | 414 | | | | | | | | | | | | | | | | | |
Notional amount (6) | | | (53,106) | | | (79,315) | | | 4,539 | | | 2,674 | | | 2,340 | | | 4,432 | | | 12,224 | | | |
| Option products | — | | | | | | | | | | | | | | | | | |
| Notional amount | | | 15 | | | — | | | — | | | — | | | 15 | | | — | | | — | | | |
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| Net ALM contracts | $ | 8,567 | | | | | | | | | | | | | | | | | |
(1)Does not include basis adjustments on either fixed-rate debt issued by the Corporation or AFS debt securities, which are hedged using derivatives designated as fair value hedging instruments, that substantially offset the fair values of these derivatives.
(2)At December 31, 2020 and 2019, the notional amount of same-currency basis swaps included $223.7 billion and $152.2 billion in both foreign currency and U.S. dollar-denominated basis swaps in which both sides of the swap are in the same currency.
(3)Foreign exchange basis swaps consisted of cross-currency variable interest rate swaps used separately or in conjunction with receive-fixed interest rate swaps.
(4)Does not include foreign currency translation adjustments on certain non-U.S. debt issued by the Corporation that substantially offset the fair values of these derivatives.
(5)The notional amount of foreign exchange contracts of $(42.5) billion at December 31, 2020 was comprised of $34.2 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(74.3) billion in net foreign currency forward rate contracts, $(3.1) billion in foreign currency-denominated interest rate swaps and $711 million in net foreign currency futures contracts. Foreign exchange contracts of $(53.1) billion at December 31, 2019 were comprised of $29.0 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(82.4) billion in net foreign currency forward rate contracts, $(313) million in foreign currency-denominated interest rate swaps and $644 million in foreign currency futures contracts.
(6)Reflects the net of long and short positions. Amounts shown as negative reflect a net short position.
Mortgage Banking Risk Management
We originate, fund and service mortgage loans, which subject us to credit, liquidity and interest rate risks, among others. We determine whether loans will be held for investment or held for sale at the time of commitment and manage credit and liquidity risks by selling or securitizing a portion of the loans we originate.
Interest rate risk and market risk can be substantial in the mortgage business. Changes in interest rates and other market factors impact the volume of mortgage originations. Changes in interest rates also impact the value of interest rate lock commitments (IRLCs) and the related residential first mortgage loans held-for-sale (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 hedged items offset, we combine them into one overall hedged item with one combined economic hedge portfolio consisting of derivative contracts and securities.
During 2020, 2019 and 2018, we recorded gains of $321 million, $291 million and $244 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 RWA used in the Basel 3 capital calculation. For more information on Basel 3 calculations, see Capital Management on page 50.
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 third-party dependencies, 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 and 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.
Corporate Audit provides independent assessment and validation through testing of key compliance and operational risk processes and controls across the Corporation.
The Corporation's Global Compliance Enterprise Policy and Operational Risk Management - Enterprise Policy 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, including as a result of malicious technological attacks, that impact the confidentiality, availability or integrity of our, or third parties' (including their downstream service providers, the financial services industry and financial data aggregators) 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, detective and responsive 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.
Climate Risk Management
Climate-related risks are divided into two major categories: (1) risks related to the transition to a low-carbon economy, which may entail extensive policy, legal, technology and market
changes, and (2) risks related to the physical impacts of climate change, driven by extreme weather events, such as hurricanes and floods, as well as chronic longer-term shifts, such as temperature increases and sea level rises. These changes and events can have broad impacts on operations, supply chains, distribution networks, customers, and markets and are otherwise referred to, respectively, as transition risk and physical risk. The financial impacts of transition risk can lead to and amplify credit risk. Physical risk can also lead to increased credit risk by diminishing borrowers’ repayment capacity or collateral values.
As climate risk is interconnected with all key risk types, we have developed and continue to enhance processes to embed climate risk considerations into our Risk Framework and risk management programs established for strategic, credit, market, liquidity, compliance, operational and reputational risks. A key element of how we manage climate risk is the Risk Identification process through which climate and other risks are identified across all FLUs and control functions, prioritized in our risk inventory and evaluated to determine estimated severity and likelihood of occurrence. Once identified, climate risks are assessed for potential impacts and incorporated into the design of macroeconomic scenarios to generate loss forecasts and assess how climate-related impacts could affect us and our clients.
Our governance framework establishes oversight of climate risk practices and strategies by the Board, supported by its Corporate Governance, ESG, and Sustainability Committee, the ERC and the Global Environmental, Social and Governance Committee, a management-level committee comprised of senior leaders across every major FLU and control function. The Climate Risk Steering Council oversees our climate risk management practices, shapes our approach to managing climate-related risks in line with our Risk Framework and meets monthly. In 2020, the climate risk management effort was bolstered through the appointment of a Global Climate Risk Executive who reports to the CRO, and establishment of a new division within our Global Risk organization to drive execution of the climate risk management program with the support of FLUs, Technology & Operations and Risk partners. For additional information about climate risk, see the Bank of America website (the content of which is not incorporated by reference into this Annual Report on Form 10-K).
Complex Accounting Estimates
Our significant accounting principles, as described in Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements, are essential in understanding the MD&A. Many of our significant accounting principles require complex judgments to estimate the values of assets and liabilities. We have procedures and processes in place to facilitate making these judgments.
The more judgmental estimates are summarized in the following discussion. We have identified and described the development of the variables most important in the estimation processes that involve mathematical models to derive the estimates. In many cases, there are numerous alternative judgments that could be used in the process of determining the inputs to the models. Where alternatives exist, we have used the factors that we believe represent the most reasonable value in developing the inputs. Actual performance that differs from our estimates of the key variables could 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
On January 1, 2020, the Corporation adopted the new accounting standard that requires the measurement of the allowance for credit losses, which includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, to be based on management’s best estimate of lifetime ECL inherent in the Corporation's relevant financial assets.
The Corporation's estimate of lifetime ECL includes the use of quantitative models that incorporate forward-looking macroeconomic scenarios that are applied over the contractual life of the loan portfolios, adjusted for expected prepayments and borrower-controlled extension options. These macroeconomic scenarios include variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to, unemployment rates, real estate prices, gross domestic product and corporate bond spreads. As any one economic outlook is inherently uncertain, the Corporation leverages multiple scenarios. The scenarios that are chosen each quarter and the amount of weighting given to each scenario depend on a variety of factors including recent economic events, leading economic indicators, views of internal and third-party economists and industry trends.
The Corporation also includes qualitative reserves to cover losses that are expected but, in the Corporation's assessment, may not be adequately reflected in the economic assumptions described above. For example, factors the Corporation considers include changes in lending policies and procedures, business conditions, the nature and size of the portfolio, portfolio concentrations, the volume and severity of past due loans and nonaccrual loans, the effect of external factors such as competition and legal and regulatory requirements, among others. Further, the Corporation considers the inherent uncertainty in quantitative models that are built on historical data.
The allowance for credit losses can also be impacted by unanticipated changes in asset quality of the portfolio, such as increases in risk rating downgrades in our commercial portfolio, deterioration in borrower delinquencies or credit scores in our credit card portfolio or increases in LTVs in our consumer real estate portfolio. In addition, while we have incorporated our estimated impact of COVID-19 into our allowance for credit losses, the ultimate impact of the pandemic is still unknown, including how long economic activities will be impacted and what effect the unprecedented levels of government fiscal and monetary actions will have on the economy and our credit losses.
As described above, the process to determine the allowance for credit losses requires numerous estimates and assumptions, some of which require a high degree of judgment and are often interrelated. Changes in the estimates and assumptions can result in significant changes in the allowance for credit losses. Our process for determining the allowance for credit losses is further discussed in Note 1 – Summary of Significant Accounting Principles and Note 5 – Outstanding Loans
and Leases and Allowance for Credit Losses to the Consolidated Financial Statements.
Fair Value of Financial Instruments
Under applicable accounting standards, we are required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. We classify fair value measurements of financial instruments and MSRs based on the three-level fair value hierarchy in the accounting standards.
The fair values of assets and liabilities may include adjustments, such as market liquidity and credit quality, where appropriate. Valuations of products using models or other techniques are sensitive to assumptions used for the significant inputs. Where market data is available, the inputs used for valuation reflect that information as of our valuation date. Inputs to valuation models are considered unobservable if they are supported by little or no market activity. In periods of extreme volatility, lessened liquidity or in illiquid markets, there may be more variability in market pricing or a lack of market data to use in the valuation process. In keeping with the prudent application of estimates and management judgment in determining the fair value of assets and liabilities, we have in place various processes and controls that include: a model validation policy that requires review and approval of quantitative models used for deal pricing, financial statement 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 more information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value Option to the Consolidated Financial Statements.
Level 3 Assets and Liabilities
Financial assets and liabilities, and MSRs, where values are based on valuation techniques that require inputs that are both unobservable and are significant to the overall fair value measurement are classified as Level 3 under the fair value hierarchy established in applicable accounting standards. The fair value of these Level 3 financial assets and liabilities and MSRs is determined using pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value requires significant management judgment or estimation.
Level 3 financial instruments may be hedged with derivatives classified as Level 1 or 2; therefore, gains or losses associated with Level 3 financial instruments may be offset by gains or losses associated with financial instruments classified in other levels of the fair value hierarchy. The Level 3 gains and losses recorded in earnings did not have a significant impact on our liquidity or capital. We conduct a review of our fair value hierarchy classifications on a quarterly basis. Transfers into or out of Level 3 are made if the significant inputs used in the financial models measuring the fair values of the assets and
liabilities became unobservable or observable, respectively, in the current marketplace. For more information on transfers into and out of Level 3 during 2020, 2019 and 2018, see Note 20 – Fair Value Measurements to the Consolidated Financial Statements.
Accrued Income Taxes and Deferred Tax Assets
Accrued income taxes, reported as a component of either other assets or accrued expenses and other liabilities on the Consolidated Balance Sheet, represent the net amount of current income taxes we expect to pay to or receive from various taxing jurisdictions attributable to our operations to date. We currently file income tax returns in more than 100 jurisdictions and consider many factors, including statutory, judicial and regulatory guidance, in estimating the appropriate accrued income taxes for each jurisdiction.
Net deferred tax assets, reported as a component of other assets on the Consolidated Balance Sheet, represent the net decrease in taxes expected to be paid in the future because of net operating loss (NOL) and tax credit carryforwards and because of future reversals of temporary differences in the bases of assets and liabilities as measured by tax laws and their bases as reported in the financial statements. NOL and tax credit carryforwards result in reductions to future tax liabilities, and many of these attributes can expire if not utilized within certain periods. We consider the need for valuation allowances to reduce net deferred tax assets to the amounts that we estimate are more likely than not to be realized.
Consistent with the applicable accounting guidance, we monitor relevant tax authorities and change our estimates of accrued income taxes and/or net deferred tax assets due to changes in income tax laws and their interpretation by the courts and regulatory authorities. These revisions of our estimates, which also may result from our income tax planning and from the resolution of income tax audit matters, may be material to our operating results for any given period.
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 16 under Part I. Item 1A. Risk Factors – Regulatory, Compliance and Legal.
Goodwill and Intangible Assets
The nature of and accounting for goodwill and intangible assets are discussed in Note 1 – Summary of Significant Accounting Principles, and Note 7 – Goodwill and Intangible Assets to the Consolidated Financial Statements.
We completed our annual goodwill impairment test as of June 30, 2020. In performing that test, we compared the fair value of each reporting unit to its estimated carrying value as measured by allocated equity. We estimated the fair value of each reporting unit based on the income approach (which utilizes the present value of cash flows to estimate fair value) and the market multiplier approach (which utilizes observable market prices and metrics of peer companies to estimate fair value).
Our discounted cash flows were generally based on the Corporation’s three-year internal forecasts with a long-term growth rate of 3.68 percent. Our estimated cash flows considered the current challenging global industry and market conditions related to the pandemic, including the low interest rate environment. The cash flows were discounted using rates that ranged from 9 percent to 12 percent, which were derived from a capital asset pricing model that incorporates the risk and uncertainty in the cash flow forecasts, the financial markets and industries similar to each of the reporting units.
Under the market multiplier approach, we estimated the fair value of the individual reporting units utilizing various market multiples, primarily various pricing multiples, from comparable publicly-traded companies in industries similar to the reporting unit and then factored in a control premium based upon observed comparable premiums paid for change-in-control transactions for financial institutions.
Based on the results of the test, we determined that each reporting unit’s estimated fair value exceeded its respective carrying value and that the goodwill assigned to each reporting unit was not impaired. The fair values of the reporting units as a percentage of their carrying values ranged from 109 percent to 213 percent. It currently remains difficult to estimate the future economic impacts related to the pandemic. If economic and market conditions (both in the U.S. and internationally) deteriorate, our reporting units could be negatively impacted, which could change our key assumptions and related estimates and may result in a future impairment charge.
Certain Contingent Liabilities
For more information on the complex judgments associated with certain contingent liabilities, see Note 12 – Commitments and Contingencies to the Consolidated Financial Statements.
Non-GAAP Reconciliations
Tables 49 and 50 provide reconciliations of certain non-GAAP financial measures to GAAP financial measures.
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| Table 49 | Five-year Reconciliations to GAAP Financial Measures (1) | | |
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| (Dollars in millions, shares in thousands) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
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| Reconciliation of average shareholders’ equity to average tangible shareholders’ equity and average tangible common shareholders’ equity | | | | | | | | | |
| Shareholders’ equity | $ | 267,309 | | | $ | 267,889 | | | $ | 264,748 | | | $ | 271,289 | | | $ | 265,843 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (69,286) | | | (69,750) | |
| Intangible assets (excluding MSRs) | (1,862) | | | (1,721) | | | (2,058) | | | (2,652) | | | (3,382) | |
| Related deferred tax liabilities | 821 | | | 773 | | | 906 | | | 1,463 | | | 1,644 | |
| Tangible shareholders’ equity | $ | 197,317 | | | $ | 197,990 | | | $ | 194,645 | | | $ | 200,814 | | | $ | 194,355 | |
| Preferred stock | (23,624) | | | (23,036) | | | (22,949) | | | (24,188) | | | (24,656) | |
| Tangible common shareholders’ equity | $ | 173,693 | | | $ | 174,954 | | | $ | 171,696 | | | $ | 176,626 | | | $ | 169,699 | |
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| Reconciliation of year-end shareholders’ equity to year-end tangible shareholders’ equity and year-end tangible common shareholders’ equity | | | | | | | | | |
| Shareholders’ equity | $ | 272,924 | | | $ | 264,810 | | | $ | 265,325 | | | $ | 267,146 | | | $ | 266,195 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (69,744) | |
| Intangible assets (excluding MSRs) | (2,151) | | | (1,661) | | | (1,774) | | | (2,312) | | | (2,989) | |
| Related deferred tax liabilities | 920 | | | 713 | | | 858 | | | 943 | | | 1,545 | |
| Tangible shareholders’ equity | $ | 202,742 | | | $ | 194,911 | | | $ | 195,458 | | | $ | 196,826 | | | $ | 195,007 | |
| Preferred stock | (24,510) | | | (23,401) | | | (22,326) | | | (22,323) | | | (25,220) | |
| Tangible common shareholders’ equity | $ | 178,232 | | | $ | 171,510 | | | $ | 173,132 | | | $ | 174,503 | | | $ | 169,787 | |
| Reconciliation of year-end assets to year-end tangible assets | | | | | | | | | |
| Assets | $ | 2,819,627 | | | $ | 2,434,079 | | | $ | 2,354,507 | | | $ | 2,281,234 | | | $ | 2,188,067 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (69,744) | |
| Intangible assets (excluding MSRs) | (2,151) | | | (1,661) | | | (1,774) | | | (2,312) | | | (2,989) | |
| Related deferred tax liabilities | 920 | | | 713 | | | 858 | | | 943 | | | 1,545 | |
| Tangible assets | $ | 2,749,445 | | | $ | 2,364,180 | | | $ | 2,284,640 | | | $ | 2,210,914 | | | $ | 2,116,879 | |
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(1)Presents reconciliations of non-GAAP financial measures to GAAP financial measures. For more information on non-GAAP financial measures and ratios we use in assessing the results of the Corporation, see Supplemental Financial Data on page 31.
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| Table 50 | Quarterly Reconciliations to GAAP Financial Measures (1) |
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| | 2020 Quarters | | 2019 Quarters |
| (Dollars in millions) | Fourth | | Third | | Second | | First | | Fourth | | Third | | Second | | First |
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| Reconciliation of average shareholders’ equity to average tangible shareholders’ equity and average tangible common shareholders’ equity | | | | | | | | | | | | | | | |
| Shareholders’ equity | $ | 271,020 | | | $ | 267,323 | | | $ | 266,316 | | | $ | 264,534 | | | $ | 266,900 | | | $ | 270,430 | | | $ | 267,975 | | | $ | 266,217 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,173) | | | (1,976) | | | (1,640) | | | (1,655) | | | (1,678) | | | (1,707) | | | (1,736) | | | (1,763) | |
| Related deferred tax liabilities | 910 | | | 855 | | | 790 | | | 728 | | | 730 | | | 752 | | | 770 | | | 841 | |
| Tangible shareholders’ equity | $ | 200,806 | | | $ | 197,251 | | | $ | 196,515 | | | $ | 194,656 | | | $ | 197,001 | | | $ | 200,524 | | | $ | 198,058 | | | $ | 196,344 | |
| Preferred stock | (24,180) | | | (23,427) | | | (23,427) | | | (23,456) | | | (23,461) | | | (23,800) | | | (22,537) | | | (22,326) | |
| Tangible common shareholders’ equity | $ | 176,626 | | | $ | 173,824 | | | $ | 173,088 | | | $ | 171,200 | | | $ | 173,540 | | | $ | 176,724 | | | $ | 175,521 | | | $ | 174,018 | |
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| Reconciliation of period-end shareholders’ equity to period-end tangible shareholders’ equity and period-end tangible common shareholders’ equity | | | | | | | | | | | | | | | |
| Shareholders’ equity | $ | 272,924 | | | $ | 268,850 | | | $ | 265,637 | | | $ | 264,918 | | | $ | 264,810 | | | $ | 268,387 | | | $ | 271,408 | | | $ | 267,010 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,151) | | | (2,185) | | | (1,630) | | | (1,646) | | | (1,661) | | | (1,690) | | | (1,718) | | | (1,747) | |
| Related deferred tax liabilities | 920 | | | 910 | | | 789 | | | 790 | | | 713 | | | 734 | | | 756 | | | 773 | |
| Tangible shareholders’ equity | $ | 202,742 | | | $ | 198,624 | | | $ | 195,845 | | | $ | 195,111 | | | $ | 194,911 | | | $ | 198,480 | | | $ | 201,495 | | | $ | 197,085 | |
| Preferred stock | (24,510) | | | (23,427) | | | (23,427) | | | (23,427) | | | (23,401) | | | (23,606) | | | (24,689) | | | (22,326) | |
| Tangible common shareholders’ equity | $ | 178,232 | | | $ | 175,197 | | | $ | 172,418 | | | $ | 171,684 | | | $ | 171,510 | | | $ | 174,874 | | | $ | 176,806 | | | $ | 174,759 | |
| Reconciliation of period-end assets to period-end tangible assets | | | | | | | | | | | | | | | |
| Assets | $ | 2,819,627 | | | $ | 2,738,452 | | | $ | 2,741,688 | | | $ | 2,619,954 | | | $ | 2,434,079 | | | $ | 2,426,330 | | | $ | 2,395,892 | | | $ | 2,377,164 | |
| Goodwill | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,151) | | | (2,185) | | | (1,630) | | | (1,646) | | | (1,661) | | | (1,690) | | | (1,718) | | | (1,747) | |
| Related deferred tax liabilities | 920 | | | 910 | | | 789 | | | 790 | | | 713 | | | 734 | | | 756 | | | 773 | |
| Tangible assets | $ | 2,749,445 | | | $ | 2,668,226 | | | $ | 2,671,896 | | | $ | 2,550,147 | | | $ | 2,364,180 | | | $ | 2,356,423 | | | $ | 2,325,979 | | | $ | 2,307,239 | |
(1)Presents reconciliations of non-GAAP financial measures to GAAP financial measures. For more information on non-GAAP financial measures and ratios we use in assessing the results of the Corporation, see Supplemental Financial Data on page 31.
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| Table I | Outstanding Loans and Leases |
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| | | December 31 |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Consumer | | | | | | | | | |
| Residential mortgage | $ | 223,555 | | | $ | 236,169 | | | $ | 208,557 | | | $ | 203,811 | | | $ | 191,797 | |
| Home equity | 34,311 | | | 40,208 | | | 48,286 | | | 57,744 | | | 66,443 | |
| Credit card | 78,708 | | | 97,608 | | | 98,338 | | | 96,285 | | | 92,278 | |
| Non-U.S. credit card | — | | | — | | | — | | | — | | | 9,214 | |
Direct/Indirect consumer (1) | 91,363 | | | 90,998 | | | 91,166 | | | 96,342 | | | 95,962 | |
Other consumer (2) | 124 | | | 192 | | | 202 | | | 166 | | | 626 | |
| Total consumer loans excluding loans accounted for under the fair value option | 428,061 | | | 465,175 | | | 446,549 | | | 454,348 | | | 456,320 | |
Consumer loans accounted for under the fair value option (3) | 735 | | | 594 | | | 682 | | | 928 | | | 1,051 | |
| Total consumer | 428,796 | | | 465,769 | | | 447,231 | | | 455,276 | | | 457,371 | |
| Commercial | | | | | | | | | |
| U.S. commercial | 288,728 | | | 307,048 | | | 299,277 | | | 284,836 | | | 270,372 | |
| Non-U.S. commercial | 90,460 | | | 104,966 | | | 98,776 | | | 97,792 | | | 89,397 | |
Commercial real estate (4) | 60,364 | | | 62,689 | | | 60,845 | | | 58,298 | | | 57,355 | |
| Commercial lease financing | 17,098 | | | 19,880 | | | 22,534 | | | 22,116 | | | 22,375 | |
| | 456,650 | | | 494,583 | | | 481,432 | | | 463,042 | | | 439,499 | |
U.S. small business commercial (5) | 36,469 | | | 15,333 | | | 14,565 | | | 13,649 | | | 12,993 | |
| Total commercial loans excluding loans accounted for under the fair value option | 493,119 | | | 509,916 | | | 495,997 | | | 476,691 | | | 452,492 | |
Commercial loans accounted for under the fair value option (3) | 5,946 | | | 7,741 | | | 3,667 | | | 4,782 | | | 6,034 | |
| Total commercial | 499,065 | | | 517,657 | | | 499,664 | | | 481,473 | | | 458,526 | |
Less: Loans of business held for sale (6) | — | | | — | | | — | | | — | | | (9,214) | |
| Total loans and leases | $ | 927,861 | | | $ | 983,426 | | | $ | 946,895 | | | $ | 936,749 | | | $ | 906,683 | |
(1)Includes primarily auto and specialty lending loans and leases of $46.4 billion, $50.4 billion, $50.1 billion, $52.4 billion and $50.7 billion, U.S. securities-based lending loans of $41.1 billion, $36.7 billion, $37.0 billion, $39.8 billion and $40.1 billion and non-U.S. consumer loans of $3.0 billion, $2.8 billion, $2.9 billion, $3.0 billion and $3.0 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(2)Substantially all of other consumer at December 31, 2020, 2019, 2018 and 2017 is consumer overdrafts. Other consumer at December 31, 2016 also includes consumer finance loans of $465 million.
(3)Consumer loans accounted for under the fair value option include residential mortgage loans of $298 million, $257 million, $336 million, $567 million and $710 million, and home equity loans of $437 million, $337 million, $346 million, $361 million and $341 million at December 31, 2020, 2019, 2018, 2017 and 2016, respectively. Commercial loans accounted for under the fair value option include U.S. commercial loans of $2.9 billion, $4.7 billion, $2.5 billion, $2.6 billion and $2.9 billion, and non-U.S. commercial loans of $3.0 billion, $3.1 billion, $1.1 billion, $2.2 billion and $3.1 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(4)Includes U.S. commercial real estate loans of $57.2 billion, $59.0 billion, $56.6 billion, $54.8 billion and $54.3 billion, and non-U.S. commercial real estate loans of $3.2 billion, $3.7 billion, $4.2 billion, $3.5 billion and $3.1 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(5)Includes card-related products.
(6)Represents non-U.S. credit card loans, which were included in assets of business held for sale on the Consolidated Balance Sheet.
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| Table II | Nonperforming Loans, Leases and Foreclosed Properties (1) |
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| | | December 31 |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Consumer | | | | | | | | | |
| Residential mortgage | $ | 2,005 | | | $ | 1,470 | | | $ | 1,893 | | | $ | 2,476 | | | $ | 3,056 | |
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| Home equity | 649 | | | 536 | | | 1,893 | | | 2,644 | | | 2,918 | |
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| Direct/Indirect consumer | 71 | | | 47 | | | 56 | | | 46 | | | 28 | |
| Other consumer | — | | | — | | | — | | | — | | | 2 | |
Total consumer (2) | 2,725 | | | 2,053 | | | 3,842 | | | 5,166 | | | 6,004 | |
| Commercial | | | | | | | | | |
| U.S. commercial | 1,243 | | | 1,094 | | | 794 | | | 814 | | | 1,256 | |
| Non-U.S. commercial | 418 | | | 43 | | | 80 | | | 299 | | | 279 | |
| Commercial real estate | 404 | | | 280 | | | 156 | | | 112 | | | 72 | |
| Commercial lease financing | 87 | | | 32 | | | 18 | | | 24 | | | 36 | |
| | | 2,152 | | | 1,449 | | | 1,048 | | | 1,249 | | | 1,643 | |
| U.S. small business commercial | 75 | | | 50 | | | 54 | | | 55 | | | 60 | |
Total commercial (3) | 2,227 | | | 1,499 | | | 1,102 | | | 1,304 | | | 1,703 | |
| Total nonperforming loans and leases | 4,952 | | | 3,552 | | | 4,944 | | | 6,470 | | | 7,707 | |
| Foreclosed properties | 164 | | | 285 | | | 300 | | | 288 | | | 377 | |
| Total nonperforming loans, leases and foreclosed properties | $ | 5,116 | | | $ | 3,837 | | | $ | 5,244 | | | $ | 6,758 | | | $ | 8,084 | |
(1)Balances exclude foreclosed properties insured by certain government-guaranteed loans, principally FHA-insured loans, that entered foreclosure of $119 million, $260 million, $488 million, $801 million and $1.2 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(2)In 2020, $372 million in interest income was estimated to be contractually due on $2.7 billion of consumer loans and leases classified as nonperforming at December 31, 2020, as presented in the table above, plus $4.4 billion of TDRs classified as performing at December 31, 2020. Approximately $254 million of the estimated $372 million in contractual interest was received and included in interest income for 2020.
(3)In 2020, $115 million in interest income was estimated to be contractually due on $2.2 billion of commercial loans and leases classified as nonperforming at December 31, 2020, as presented in the table above, plus $1.0 billion of TDRs classified as performing at December 31, 2020. Approximately $71 million of the estimated $115 million in contractual interest was received and included in interest income for 2020.
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| Table III | Accruing Loans and Leases Past Due 90 Days or More (1) |
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| | | December 31 |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Consumer | | | | | | | | | |
Residential mortgage (2) | $ | 762 | | | $ | 1,088 | | | $ | 1,884 | | | $ | 3,230 | | | $ | 4,793 | |
| Credit card | 903 | | | 1,042 | | | 994 | | | 900 | | | 782 | |
| Non-U.S. credit card | — | | | — | | | — | | | — | | | 66 | |
| Direct/Indirect consumer | 33 | | | 33 | | | 38 | | | 40 | | | 34 | |
| Other consumer | — | | | — | | | — | | | — | | | 4 | |
| Total consumer | 1,698 | | | 2,163 | | | 2,916 | | | 4,170 | | | 5,679 | |
| Commercial | | | | | | | | | |
| U.S. commercial | 228 | | | 106 | | | 197 | | | 144 | | | 106 | |
| Non-U.S. commercial | 10 | | | 8 | | | — | | | 3 | | | 5 | |
| Commercial real estate | 6 | | | 19 | | | 4 | | | 4 | | | 7 | |
| Commercial lease financing | 25 | | | 20 | | | 29 | | | 19 | | | 19 | |
| | | 269 | | | 153 | | | 230 | | | 170 | | | 137 | |
| U.S. small business commercial | 115 | | | 97 | | | 84 | | | 75 | | | 71 | |
| Total commercial | 384 | | | 250 | | | 314 | | | 245 | | | 208 | |
| Total accruing loans and leases past due 90 days or more | $ | 2,082 | | | $ | 2,413 | | | $ | 3,230 | | | $ | 4,415 | | | $ | 5,887 | |
(1)Our policy is to classify consumer real estate-secured loans as nonperforming at 90 days past due, except for the fully-insured loan portfolio and loans accounted for under the fair value option.
(2)Balances are fully-insured loans.
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| Table IV | Selected Loan Maturity Data (1, 2) | | | | | | | |
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| | | December 31, 2020 |
| (Dollars in millions) | Due in One
Year or Less | | Due After One Year Through Five Years | | Due After
Five Years | | Total |
| U.S. commercial | $ | 82,577 | | | $ | 198,898 | | | $ | 46,642 | | | $ | 328,117 | |
| U.S. commercial real estate | 14,073 | | | 37,552 | | | 5,552 | | | 57,177 | |
Non-U.S. and other (3) | 33,196 | | | 54,488 | | | 8,989 | | | 96,673 | |
| Total selected loans | $ | 129,846 | | | $ | 290,938 | | | $ | 61,183 | | | $ | 481,967 | |
| Percent of total | 27 | % | | 60 | % | | 13 | % | | 100 | % |
| Sensitivity of selected loans to changes in interest rates for loans due after one year: | | | | | | | |
| Fixed interest rates | | | $ | 46,911 | | | $ | 32,280 | | | |
| Floating or adjustable interest rates | | | 244,027 | | | 28,903 | | | |
| Total | | | $ | 290,938 | | | $ | 61,183 | | | |
(1)Loan maturities are based on the remaining maturities under contractual terms.
(2)Includes loans accounted for under the fair value option.
(3)Loan maturities include non-U.S. commercial and commercial real estate loans.
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| Table V | Allowance for Credit Losses (1) | | | | | | | | | |
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| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Allowance for loan and lease losses, January 1 | $ | 12,358 | | | $ | 9,601 | | | $ | 10,393 | | | $ | 11,237 | | | $ | 12,234 | |
| Loans and leases charged off | | | | | | | | | |
| Residential mortgage | (40) | | | (93) | | | (207) | | | (188) | | | (403) | |
| Home equity | (58) | | | (429) | | | (483) | | | (582) | | | (752) | |
| Credit card | (2,967) | | | (3,535) | | | (3,345) | | | (2,968) | | | (2,691) | |
Non-U.S. credit card (2) | — | | | — | | | — | | | (103) | | | (238) | |
| Direct/Indirect consumer | (372) | | | (518) | | | (495) | | | (491) | | | (392) | |
| Other consumer | (307) | | | (249) | | | (197) | | | (212) | | | (232) | |
| Total consumer charge-offs | (3,744) | | | (4,824) | | | (4,727) | | | (4,544) | | | (4,708) | |
U.S. commercial (3) | (1,163) | | | (650) | | | (575) | | | (589) | | | (567) | |
| Non-U.S. commercial | (168) | | | (115) | | | (82) | | | (446) | | | (133) | |
| Commercial real estate | (275) | | | (31) | | | (10) | | | (24) | | | (10) | |
| Commercial lease financing | (69) | | | (26) | | | (8) | | | (16) | | | (30) | |
| Total commercial charge-offs | (1,675) | | | (822) | | | (675) | | | (1,075) | | | (740) | |
| Total loans and leases charged off | (5,419) | | | (5,646) | | | (5,402) | | | (5,619) | | | (5,448) | |
| Recoveries of loans and leases previously charged off | | | | | | | | | |
| Residential mortgage | 70 | | | 140 | | | 179 | | | 288 | | | 272 | |
| Home equity | 131 | | | 787 | | | 485 | | | 369 | | | 347 | |
| Credit card | 618 | | | 587 | | | 508 | | | 455 | | | 422 | |
Non-U.S. credit card (2) | — | | | — | | | — | | | 28 | | | 63 | |
| Direct/Indirect consumer | 250 | | | 309 | | | 300 | | | 277 | | | 258 | |
| Other consumer | 23 | | | 15 | | | 15 | | | 49 | | | 27 | |
| Total consumer recoveries | 1,092 | | | 1,838 | | | 1,487 | | | 1,466 | | | 1,389 | |
U.S. commercial (4) | 178 | | | 122 | | | 120 | | | 142 | | | 175 | |
| Non-U.S. commercial | 13 | | | 31 | | | 14 | | | 6 | | | 13 | |
| Commercial real estate | 5 | | | 2 | | | 9 | | | 15 | | | 41 | |
| Commercial lease financing | 10 | | | 5 | | | 9 | | | 11 | | | 9 | |
| Total commercial recoveries | 206 | | | 160 | | | 152 | | | 174 | | | 238 | |
| Total recoveries of loans and leases previously charged off | 1,298 | | | 1,998 | | | 1,639 | | | 1,640 | | | 1,627 | |
| Net charge-offs | (4,121) | | | (3,648) | | | (3,763) | | | (3,979) | | | (3,821) | |
| | | | | | | | | |
| Provision for loan and lease losses | 10,565 | | | 3,574 | | | 3,262 | | | 3,381 | | | 3,581 | |
Other (5) | — | | | (111) | | | (291) | | | (246) | | | (514) | |
| Total allowance for loan and lease losses, December 31 | 18,802 | | | 9,416 | | | 9,601 | | | 10,393 | | | 11,480 | |
Less: Allowance included in assets of business held for sale (6) | — | | | — | | | — | | | — | | | (243) | |
| Allowance for loan and lease losses, December 31 | 18,802 | | | 9,416 | | | 9,601 | | | 10,393 | | | 11,237 | |
| Reserve for unfunded lending commitments, January 1 | 1,123 | | | 797 | | | 777 | | | 762 | | | 646 | |
| Provision for unfunded lending commitments | 755 | | | 16 | | | 20 | | | 15 | | | 16 | |
Other (5) | — | | | — | | | — | | | — | | | 100 | |
| Reserve for unfunded lending commitments, December 31 | 1,878 | | | 813 | | | 797 | | | 777 | | | 762 | |
| Allowance for credit losses, December 31 | $ | 20,680 | | | $ | 10,229 | | | $ | 10,398 | | | $ | 11,170 | | | $ | 11,999 | |
(1)On January 1, 2020, the Corporation adopted the CECL accounting standard, which increased the allowance for loan and lease losses by $2.9 billion and the reserve for unfunded lending commitments by $310 million. For more information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
(2)Represents amounts related to the non-U.S. credit card loan portfolio, which was sold in 2017.
(3)Includes U.S. small business commercial charge-offs of $321 million, $320 million, $287 million, $258 million and $253 million in 2020, 2019, 2018, 2017 and 2016, respectively.
(4)Includes U.S. small business commercial recoveries of $54 million, $48 million, $47 million, $43 million and $45 million in 2020, 2019, 2018, 2017 and 2016, respectively.
(5)Primarily represents write-offs of purchased credit-impaired loans for years prior to 2020, the net impact of portfolio sales, consolidations and deconsolidations, foreign currency translation adjustments, transfers to held for sale and certain other reclassifications.
(6)Represents allowance related to the non-U.S. credit card loan portfolio, which was sold in 2017.
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| Table V | Allowance for Credit Losses (continued) | | | | | | | | | |
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| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
Loan and allowance ratios (7): | | | | | | | | | |
Loans and leases outstanding at December 31 (8) | $ | 921,180 | | | $ | 975,091 | | | $ | 942,546 | | | $ | 931,039 | | | $ | 908,812 | |
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (8) | 2.04 | % | | 0.97 | % | | 1.02 | % | | 1.12 | % | | 1.26 | % |
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (9) | 2.35 | | | 0.98 | | | 1.08 | | | 1.18 | | | 1.36 | |
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (10) | 1.77 | | | 0.96 | | | 0.97 | | | 1.05 | | | 1.16 | |
Average loans and leases outstanding (8) | $ | 974,281 | | | $ | 951,583 | | | $ | 927,531 | | | $ | 911,988 | | | $ | 892,255 | |
Net charge-offs as a percentage of average loans and leases outstanding (8) | 0.42 | % | | 0.38 | % | | 0.41 | % | | 0.44 | % | | 0.43 | % |
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| Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 | 380 | | | 265 | | | 194 | | | 161 | | | 149 | |
| Ratio of the allowance for loan and lease losses at December 31 to net charge-offs | 4.56 | | | 2.58 | | | 2.55 | | | 2.61 | | | 3.00 | |
| | | | | | | | | |
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (11) | $ | 9,854 | | | $ | 4,151 | | | $ | 4,031 | | | $ | 3,971 | | | $ | 3,951 | |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (11) | 181 | % | | 148 | % | | 113 | % | | 99 | % | | 98 | % |
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(7)Loan and allowance ratios for 2016 include $243 million of non-U.S. credit card allowance for loan and lease losses and $9.2 billion of ending non-U.S. credit card loans, which were sold in 2017.
(8)Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $6.7 billion, $8.3 billion, $4.3 billion, $5.7 billion and $7.1 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively. Average loans accounted for under the fair value option were $8.2 billion, $6.8 billion, $5.5 billion, $6.7 billion and $8.2 billion in 2020, 2019, 2018, 2017 and 2016, respectively.
(9)Excludes consumer loans accounted for under the fair value option of $735 million, $594 million, $682 million, $928 million and $1.1 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(10)Excludes commercial loans accounted for under the fair value option of $5.9 billion, $7.7 billion, $3.7 billion, $4.8 billion and $6.0 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(11)Primarily includes amounts related to credit card and unsecured consumer lending portfolios in Consumer Banking and, in 2017 and 2016, the non-U.S. credit card portfolio in All Other.
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| Table VI | Allocation of the Allowance for Credit Losses by Product Type (1) |
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| | December 31 |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| (Dollars in millions) | Amount | | Percent
of Total | | Amount | | Percent
of Total | | Amount | | Percent
of Total | | Amount | | Percent
of Total | | Amount | | Percent
of Total |
| Allowance for loan and lease losses | | | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 459 | | | 2.44 | % | | $ | 325 | | | 3.45 | % | | $ | 422 | | | 4.40 | % | | $ | 701 | | | 6.74 | % | | $ | 1,012 | | | 8.82 | % |
| Home equity | 399 | | | 2.12 | | | 221 | | | 2.35 | | | 506 | | | 5.27 | | | 1,019 | | | 9.80 | | | 1,738 | | | 15.14 | |
| Credit card | 8,420 | | | 44.79 | | | 3,710 | | | 39.39 | | | 3,597 | | | 37.47 | | | 3,368 | | | 32.41 | | | 2,934 | | | 25.56 | |
| Non-U.S. credit card | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 243 | | | 2.12 | |
| Direct/Indirect consumer | 752 | | | 4.00 | | | 234 | | | 2.49 | | | 248 | | | 2.58 | | | 264 | | | 2.54 | | | 244 | | | 2.13 | |
| Other consumer | 41 | | | 0.22 | | | 52 | | | 0.55 | | | 29 | | | 0.30 | | | 31 | | | 0.30 | | | 51 | | | 0.44 | |
| Total consumer | 10,071 | | | 53.57 | | | 4,542 | | | 48.23 | | | 4,802 | | | 50.02 | | | 5,383 | | | 51.79 | | | 6,222 | | | 54.21 | |
U.S. commercial (2) | 5,043 | | | 26.82 | | | 3,015 | | | 32.02 | | | 3,010 | | | 31.35 | | | 3,113 | | | 29.95 | | | 3,326 | | | 28.97 | |
| Non-U.S. commercial | 1,241 | | | 6.60 | | | 658 | | | 6.99 | | | 677 | | | 7.05 | | | 803 | | | 7.73 | | | 874 | | | 7.61 | |
| Commercial real estate | 2,285 | | | 12.15 | | | 1,042 | | | 11.07 | | | 958 | | | 9.98 | | | 935 | | | 9.00 | | | 920 | | | 8.01 | |
| Commercial lease financing | 162 | | | 0.86 | | | 159 | | | 1.69 | | | 154 | | | 1.60 | | | 159 | | | 1.53 | | | 138 | | | 1.20 | |
| Total commercial | 8,731 | | | 46.43 | | | 4,874 | | | 51.77 | | | 4,799 | | | 49.98 | | | 5,010 | | | 48.21 | | | 5,258 | | | 45.79 | |
| Total allowance for loan and lease losses | 18,802 | | | 100.00 | % | | 9,416 | | | 100.00 | % | | 9,601 | | | 100.00 | % | | 10,393 | | | 100.00 | % | | 11,480 | | | 100.00 | % |
Less: Allowance included in assets of business held for sale (3) | — | | | | | — | | | | | — | | | | | — | | | | | (243) | | | |
| Allowance for loan and lease losses | 18,802 | | | | | 9,416 | | | | | 9,601 | | | | | 10,393 | | | | | 11,237 | | | |
| Reserve for unfunded lending commitments | 1,878 | | | | | 813 | | | | | 797 | | | | | 777 | | | | | 762 | | | |
| Allowance for credit losses | $ | 20,680 | | | | | $ | 10,229 | | | | | $ | 10,398 | | | | | $ | 11,170 | | | | | $ | 11,999 | | | |
(1)On January 1, 2020, the Corporation adopted the CECL accounting standard. For more information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
(2)Includes allowance for loan and lease losses for U.S. small business commercial loans of $1.5 billion, $523 million, $474 million, $439 million and $416 million at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(3)Represents allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which was sold in 2017.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
See Market Risk Management on page 78 in the MD&A and the sections referenced therein for Quantitative and Qualitative Disclosures about Market Risk.
| | | | | | | | | | | | | | |
| Item 8. Financial Statements and Supplementary Data |
|
|
| Table of Contents |
Report of Management on Internal Control Over Financial Reporting
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, 2020 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, 2020, the Corporation’s internal control over financial reporting is effective.
The Corporation’s internal control over financial reporting as of December 31, 2020 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, 2020.
Brian T. Moynihan
Chairman, Chief Executive Officer and President
Paul M. Donofrio
Chief Financial Officer
Report of Independent Registered Public Accounting Firm
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 (the “Corporation”) as of December 31, 2020 and 2019, 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, 2020, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, 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 credit losses on certain financial instruments in 2020.
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) 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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Allowance for Loan and Lease Losses - Commercial and Consumer Card Loans
As described in Notes 1 and 5 to the consolidated financial statements, the allowance for loan and lease losses represents management’s estimate of probablethe expected credit losses in the Corporation’s loan and lease portfolio, excluding loans and unfunded lending commitments accounted for under the fair value option. As of December 31, 2020, the allowance for loan and lease losses was $18.8 billion on total loans and leases of $921.2 billion, which excludes loans accounted for under the fair value option. For commercial and consumer card loans, the expected credit loss is estimated using quantitative methods
that consider a variety of factors such as historical loss experience, the current credit quality of the portfolio as well as an economic outlook over the life of the loan. In its loss forecasting framework, the Corporation incorporates forward looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets. These macroeconomic scenarios include variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to, unemployment rates, real estate prices, gross domestic product levels and corporate bond spreads. The scenarios that are chosen and the amount of weighting given to each scenario depend on a variety of factors including recent economic events, leading economic indicators, views of internal as well as third-party economists and industry trends. Also included in the allowance for loan losses are qualitative reserves to cover losses that are expected but, in the Corporation's assessment, may not be adequately reflected in the quantitative methods or the economic assumptions. Factors that the Corporation considers include changes in lending policies and procedures, business conditions, the nature and size of the portfolio, portfolio concentrations, the volume and severity of past due loans and nonaccrual loans, the effect of external factors such as competition, and legal and regulatory requirements, among others. Further, the Corporation considers the inherent uncertainty in quantitative models that are built on historical data.
The principal considerations for our determination that performing procedures relating to the allowance for loan and lease losses for the commercial and consumer card portfolios is a critical audit matter are (i) the significant judgment and estimation by management in developing lifetime economic forecast scenarios, related weightings to each scenario and certain qualitative reserves, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence obtained, and (ii) the audit effort involved professionals with specialized skill and knowledge to assist in evaluating certain audit evidence.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the allowance for loan and lease losses, including controls over the evaluation and approval of models, forecast scenarios and related weightings, and qualitative reserves. These procedures also included, among others, testing management’s process for estimating the allowance for loan losses, including (i) evaluating the appropriateness of the loss forecast models and methodology, (ii) evaluating the reasonableness of certain macroeconomic variables, (iii) evaluating the reasonableness of management’s development, selection and weighting of economic forecast scenarios used in the loss forecast models, (iv) testing the completeness and accuracy of data used in the estimate, and (v) evaluating certain qualitative reserves made to the model output results to determine the overall allowance for loan losses. The procedures also included the involvement of professionals with specialized
skill and knowledge to assist in evaluating the appropriateness of certain loss forecast models, the reasonableness of economic forecast scenarios and related weightings and the reasonableness of certain qualitative reserves.
Valuation of Certain Level 3 Financial Instruments
As described in Notes 1 and 20 to the consolidated financial statements, the Corporation carries certain financial instruments at fair value, which includes $10.0 billion of assets and $7.4 billion of liabilities classified as Level 3 fair value measurements on a recurring basis and $1.7 billion of assets classified as Level 3 fair value measurements on a nonrecurring basis, for which the determination of fair value requires significant management judgment or estimation. The Corporation determines the fair value of Level 3 financial instruments using pricing models, discounted cash flow methodologies, or similar techniques that require inputs that are both unobservable and are significant to the overall fair value measurement. Unobservable inputs, such as volatility or price, may be determined using quantitative-based extrapolations or other internal methodologies which incorporate management estimates and available market information.
The principal considerations for our determination that performing procedures relating to the valuation of certain Level 3 financial instruments is a critical audit matter are the significant judgment and estimation used by management to determine the fair value of these financial instruments, which in turn led to a high degree of auditor judgment and effort in performing procedures, including the involvement of professionals with specialized skill and knowledge to assist in evaluating certain audit evidence.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of financial instruments, including controls related to valuation models, significant unobservable inputs, and data. These procedures also included, among others, the involvement of professionalswith specialized skill and knowledge to assist in developing an independent estimate of fair value for a sample of these certain financial instruments and comparison of management’s estimate to the independently developed estimate of fair value. Developing the independent estimate involved testing the completeness and accuracy of data provided by management and evaluating the reasonableness of management’s assumptions used to develop the significant unobservable inputs.
Charlotte, North Carolina
February 24, 2021
We have served as the Corporation’s auditor since 1958.
Bank of America Corporation and Subsidiaries
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Consolidated Statement of Income |
| | | | | |
| | | | | |
| (In millions, except per share information) | | | | | 2020 | | 2019 | | 2018 |
| Net interest income | | | | | | | | | |
| Interest income | | | | | $ | 51,585 | | | $ | 71,236 | | | $ | 66,769 | |
| Interest expense | | | | | 8,225 | | | 22,345 | | | 18,607 | |
| Net interest income | | | | | 43,360 | | | 48,891 | | | 48,162 | |
| | | | | | | | | |
| Noninterest income | | | | | | | | | |
| Fees and commissions | | | | | 34,551 | | | 33,015 | | | 33,078 | |
| Market making and similar activities | | | | | 8,355 | | | 9,034 | | | 9,008 | |
| Other income | | | | | (738) | | | 304 | | | 772 | |
| Total noninterest income | | | | | 42,168 | | | 42,353 | | | 42,858 | |
| Total revenue, net of interest expense | | | | | 85,528 | | | 91,244 | | | 91,020 | |
| | | | | | | | | |
| Provision for credit losses | | | | | 11,320 | | | 3,590 | | | 3,282 | |
| | | | | | | | | |
| Noninterest expense | | | | | | | | | |
| Compensation and benefits | | | | | 32,725 | | | 31,977 | | | 31,880 | |
| Occupancy and equipment | | | | | 7,141 | | | 6,588 | | | 6,380 | |
| Information processing and communications | | | | | 5,222 | | | 4,646 | | | 4,555 | |
| Product delivery and transaction related | | | | | 3,433 | | | 2,762 | | | 2,857 | |
| Marketing | | | | | 1,701 | | | 1,934 | | | 1,674 | |
| Professional fees | | | | | 1,694 | | | 1,597 | | | 1,699 | |
| Other general operating | | | | | 3,297 | | | 5,396 | | | 4,109 | |
| | | | | | | | | |
| | | | | | | | | |
| Total noninterest expense | | | | | 55,213 | | | 54,900 | | | 53,154 | |
| Income before income taxes | | | | | 18,995 | | | 32,754 | | | 34,584 | |
| Income tax expense | | | | | 1,101 | | | 5,324 | | | 6,437 | |
| Net income | | | | | $ | 17,894 | | | $ | 27,430 | | | $ | 28,147 | |
| Preferred stock dividends | | | | | 1,421 | | | 1,432 | | | 1,451 | |
| Net income applicable to common shareholders | | | | | $ | 16,473 | | | $ | 25,998 | | | $ | 26,696 | |
| | | | | | | | | |
| Per common share information | | | | | | | | | |
| Earnings | | | | | $ | 1.88 | | | $ | 2.77 | | | $ | 2.64 | |
| Diluted earnings | | | | | 1.87 | | | 2.75 | | | 2.61 | |
| | | | | | | | | |
| Average common shares issued and outstanding | | | | | 8,753.2 | | | 9,390.5 | | | 10,096.5 | |
| Average diluted common shares issued and outstanding | | | | | 8,796.9 | | | 9,442.9 | | | 10,236.9 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Consolidated Statement of Comprehensive Income | | |
| | | | | | | | | |
| | | | | |
| (Dollars in millions) | | | | | 2020 | | 2019 | | 2018 |
| Net income | | | | | $ | 17,894 | | | $ | 27,430 | | | $ | 28,147 | |
| Other comprehensive income (loss), net-of-tax: | | | | | | | | | |
| Net change in debt securities | | | | | 4,799 | | | 5,875 | | | (3,953) | |
| Net change in debit valuation adjustments | | | | | (498) | | | (963) | | | 749 | |
| Net change in derivatives | | | | | 826 | | | 616 | | | (53) | |
| Employee benefit plan adjustments | | | | | (98) | | | 136 | | | (405) | |
| Net change in foreign currency translation adjustments | | | | | (52) | | | (86) | | | (254) | |
| Other comprehensive income (loss) | | | | | 4,977 | | | 5,578 | | | (3,916) | |
| Comprehensive income | | | | | $ | 22,871 | | | $ | 33,008 | | | $ | 24,231 | |
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
| | | | | | | | | | | | | | |
| | | | |
| Consolidated Balance Sheet |
| | |
| | December 31 |
| | | | |
| (Dollars in millions) | 2020 | | 2019 |
| Assets | | | |
| Cash and due from banks | $ | 36,430 | | | $ | 30,152 | |
| Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks | 344,033 | | | 131,408 | |
| Cash and cash equivalents | 380,463 | | | 161,560 | |
| Time deposits placed and other short-term investments | 6,546 | | | 7,107 | |
Federal funds sold and securities borrowed or purchased under agreements to resell (includes $108,856 and $50,364 measured at fair value) | 304,058 | | | 274,597 | |
Trading account assets (includes $91,510 and $90,946 pledged as collateral) | 198,854 | | | 229,826 | |
| Derivative assets | 47,179 | | | 40,485 | |
| Debt securities: | | | |
| Carried at fair value | 246,601 | | | 256,467 | |
Held-to-maturity, at cost (fair value – $448,180 and $219,821) | 438,249 | | | 215,730 | |
| Total debt securities | 684,850 | | | 472,197 | |
Loans and leases (includes $6,681 and $8,335 measured at fair value) | 927,861 | | | 983,426 | |
| Allowance for loan and lease losses | (18,802) | | | (9,416) | |
| Loans and leases, net of allowance | 909,059 | | | 974,010 | |
| Premises and equipment, net | 11,000 | | | 10,561 | |
| Goodwill | 68,951 | | | 68,951 | |
Loans held-for-sale (includes $1,585 and $3,709 measured at fair value) | 9,243 | | | 9,158 | |
| Customer and other receivables | 64,221 | | | 55,937 | |
Other assets (includes $15,718 and $15,518 measured at fair value) | 135,203 | | | 129,690 | |
| Total assets | $ | 2,819,627 | | | $ | 2,434,079 | |
| | | | |
| Liabilities | | | |
| Deposits in U.S. offices: | | | |
| Noninterest-bearing | $ | 650,674 | | | $ | 403,305 | |
Interest-bearing (includes $481 and $508 measured at fair value) | 1,038,341 | | | 940,731 | |
| Deposits in non-U.S. offices: | | | |
| Noninterest-bearing | 17,698 | | | 13,719 | |
| Interest-bearing | 88,767 | | | 77,048 | |
| Total deposits | 1,795,480 | | | 1,434,803 | |
Federal funds purchased and securities loaned or sold under agreements to repurchase (includes $135,391 and $16,008 measured at fair value) | 170,323 | | | 165,109 | |
| Trading account liabilities | 71,320 | | | 83,270 | |
| Derivative liabilities | 45,526 | | | 38,229 | |
Short-term borrowings (includes $5,874 and $3,941 measured at fair value) | 19,321 | | | 24,204 | |
Accrued expenses and other liabilities (includes $16,311 and $15,434 measured at fair value and $1,878 and $813 of reserve for unfunded lending commitments) | 181,799 | | | 182,798 | |
Long-term debt (includes $32,200 and $34,975 measured at fair value) | 262,934 | | | 240,856 | |
| Total liabilities | 2,546,703 | | | 2,169,269 | |
Commitments and contingencies (Note 6 – Securitizations and Other Variable Interest Entities and Note 12 – Commitments and Contingencies) | 0 | | 0 |
| Shareholders’ equity | | | |
Preferred stock, $0.01 par value; authorized – 100,000,000 shares; issued and outstanding – 3,931,440 and 3,887,440 shares | 24,510 | | | 23,401 | |
Common stock and additional paid-in capital, $0.01 par value; authorized – 12,800,000,000 shares; issued and outstanding – 8,650,814,105 and 8,836,148,954 shares | 85,982 | | | 91,723 | |
| Retained earnings | 164,088 | | | 156,319 | |
| Accumulated other comprehensive income (loss) | (1,656) | | | (6,633) | |
| | | |
| Total shareholders’ equity | 272,924 | | | 264,810 | |
| Total liabilities and shareholders’ equity | $ | 2,819,627 | | | $ | 2,434,079 | |
| | | | |
| Assets of consolidated variable interest entities included in total assets above (isolated to settle the liabilities of the variable interest entities) | | | |
| Trading account assets | $ | 5,225 | | | $ | 5,811 | |
| | | | |
| | | | |
| Loans and leases | 23,636 | | | 38,837 | |
| Allowance for loan and lease losses | (1,693) | | | (807) | |
| Loans and leases, net of allowance | 21,943 | | | 38,030 | |
| | | | |
| All other assets | 1,387 | | | 540 | |
| Total assets of consolidated variable interest entities | $ | 28,555 | | | $ | 44,381 | |
| Liabilities of consolidated variable interest entities included in total liabilities above | | | |
| Short-term borrowings (includes $22 and $0 of non-recourse short-term borrowings) | $ | 454 | | | $ | 2,175 | |
| Long-term debt (includes $7,053 and $8,717 of non-recourse debt) | 7,053 | | | 8,718 | |
| All other liabilities (includes $16 and $19 of non-recourse liabilities) | 16 | | | 22 | |
| Total liabilities of consolidated variable interest entities | $ | 7,523 | | | $ | 10,915 | |
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Consolidated Statement of Changes in Shareholders’ Equity |
| | | | | | | | | | | | | |
| Preferred
Stock | | Common Stock and
Additional Paid-in Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | | | Total
Shareholders’
Equity |
| (In millions) | | Shares | | Amount | | | | |
| Balance, December 31, 2017 | $ | 22,323 | | | 10,287.3 | | | $ | 138,089 | | | $ | 113,816 | | | $ | (7,082) | | | | | $ | 267,146 | |
Cumulative adjustment for adoption of hedge accounting
standard | | | | | | | (32) | | | 57 | | | | | 25 | |
Adoption of accounting standard related to certain tax effects
stranded in accumulated other comprehensive income (loss) | | | | | | | 1,270 | | | (1,270) | | | | | 0 | |
| Net income | | | | | | | 28,147 | | | | | | | 28,147 | |
| Net change in debt securities | | | | | | | | | (3,953) | | | | | (3,953) | |
| Net change in debit valuation adjustments | | | | | | | | | 749 | | | | | 749 | |
| Net change in derivatives | | | | | | | | | (53) | | | | | (53) | |
| Employee benefit plan adjustments | | | | | | | | | (405) | | | | | (405) | |
| Net change in foreign currency translation adjustments | | | | | | | | | (254) | | | | | (254) | |
| Dividends declared: | | | | | | | | | | | | | |
| Common | | | | | | | (5,424) | | | | | | | (5,424) | |
| Preferred | | | | | | | (1,451) | | | | | | | (1,451) | |
| Issuance of preferred stock | 4,515 | | | | | | | | | | | | | 4,515 | |
| Redemption of preferred stock | (4,512) | | | | | | | | | | | | | (4,512) | |
| Common stock issued under employee plans, net, and other | | | 58.2 | | | 901 | | | (12) | | | | | | | 889 | |
| Common stock repurchased | | | (676.2) | | | (20,094) | | | | | | | | | (20,094) | |
| Balance, December 31, 2018 | $ | 22,326 | | | 9,669.3 | | | $ | 118,896 | | | $ | 136,314 | | | $ | (12,211) | | | | | $ | 265,325 | |
Cumulative adjustment for adoption of lease accounting
standard | | | | | | | 165 | | | | | | | 165 | |
| Net income | | | | | | | 27,430 | | | | | | | 27,430 | |
| Net change in debt securities | | | | | | | | | 5,875 | | | | | 5,875 | |
| Net change in debit valuation adjustments | | | | | | | | | (963) | | | | | (963) | |
| Net change in derivatives | | | | | | | | | 616 | | | | | 616 | |
| Employee benefit plan adjustments | | | | | | | | | 136 | | | | | 136 | |
| Net change in foreign currency translation adjustments | | | | | | | | | (86) | | | | | (86) | |
| Dividends declared: | | | | | | | | | | | | | |
| Common | | | | | | | (6,146) | | | | | | | (6,146) | |
| Preferred | | | | | | | (1,432) | | | | | | | (1,432) | |
| Issuance of preferred stock | 3,643 | | | | | | | | | | | | | 3,643 | |
| Redemption of preferred stock | (2,568) | | | | | | | | | | | | | (2,568) | |
| Common stock issued under employee plans, net, and other | | | 123.3 | | | 971 | | | (12) | | | | | | | 959 | |
| Common stock repurchased | | | (956.5) | | | (28,144) | | | | | | | | | (28,144) | |
| Balance, December 31, 2019 | $ | 23,401 | | | 8,836.1 | | | $ | 91,723 | | | $ | 156,319 | | | $ | (6,633) | | | | | $ | 264,810 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Cumulative adjustment for adoption of credit loss accounting
standard | | | | | | | (2,406) | | | | | | | (2,406) | |
| Net income | | | | | | | 17,894 | | | | | | | 17,894 | |
| Net change in debt securities | | | | | | | | | 4,799 | | | | | 4,799 | |
| Net change in debit valuation adjustments | | | | | | | | | (498) | | | | | (498) | |
| Net change in derivatives | | | | | | | | | 826 | | | | | 826 | |
| Employee benefit plan adjustments | | | | | | | | | (98) | | | | | (98) | |
| Net change in foreign currency translation adjustments | | | | | | | | | (52) | | | | | (52) | |
| Dividends declared: | | | | | | | | | | | | | |
| Common | | | | | | | (6,289) | | | | | | | (6,289) | |
| Preferred | | | | | | | (1,421) | | | | | | | (1,421) | |
| Issuance of preferred stock | 2,181 | | | | | | | | | | | | | 2,181 | |
| Redemption of preferred stock | (1,072) | | | | | | | | | | | | | (1,072) | |
| Common stock issued under employee plans, net, and other | | | 41.7 | | | 1,284 | | | (9) | | | | | | | 1,275 | |
| Common stock repurchased | | | (227.0) | | | (7,025) | | | | | | | | | (7,025) | |
| Balance, December 31, 2020 | $ | 24,510 | | | 8,650.8 | | | $ | 85,982 | | | $ | 164,088 | | | $ | (1,656) | | | | | $ | 272,924 | |
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Bank of America Corporation and Subsidiaries
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| Consolidated Statement of Cash Flows | | | | |
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| (Dollars in millions) | 2020 | | 2019 | | 2018 | | | | |
| Operating activities | | | | | | | | | |
| Net income | $ | 17,894 | | | $ | 27,430 | | | $ | 28,147 | | | | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | |
| Provision for credit losses | 11,320 | | | 3,590 | | | 3,282 | | | | | |
| Gains on sales of debt securities | (411) | | | (217) | | | (154) | | | | | |
| Depreciation and amortization | 1,843 | | | 1,729 | | | 2,063 | | | | | |
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| Net amortization of premium/discount on debt securities | 4,101 | | | 2,066 | | | 1,824 | | | | | |
| Deferred income taxes | (1,737) | | | 2,435 | | | 3,041 | | | | | |
| Stock-based compensation | 2,031 | | | 1,974 | | | 1,729 | | | | | |
| Impairment of equity method investment | 0 | | | 2,072 | | | 0 | | | | | |
| Loans held-for-sale: | | | | | | | | | |
| Originations and purchases | (19,657) | | | (28,874) | | | (28,071) | | | | | |
Proceeds from sales and paydowns of loans originally classified as held for sale and instruments from related securitization activities | 19,049 | | | 30,191 | | | 28,972 | | | | | |
| Net change in: | | | | | | | | | |
| Trading and derivative assets/liabilities | 16,942 | | | 7,920 | | | (23,673) | | | | | |
| Other assets | (12,883) | | | (11,113) | | | 11,920 | | | | | |
| Accrued expenses and other liabilities | (4,385) | | | 16,363 | | | 13,010 | | | | | |
| Other operating activities, net | 3,886 | | | 6,211 | | | (2,570) | | | | | |
| Net cash provided by operating activities | 37,993 | | | 61,777 | | | 39,520 | | | | | |
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| Time deposits placed and other short-term investments | 561 | | | 387 | | | 3,659 | | | | | |
| Federal funds sold and securities borrowed or purchased under agreements to resell | (29,461) | | | (13,466) | | | (48,384) | | | | | |
| Debt securities carried at fair value: | | | | | | | | | |
| Proceeds from sales | 77,524 | | | 52,006 | | | 5,117 | | | | | |
| Proceeds from paydowns and maturities | 91,084 | | | 79,114 | | | 78,513 | | | | | |
| Purchases | (194,877) | | | (152,782) | | | (76,640) | | | | | |
| Held-to-maturity debt securities: | | | | | | | | | |
| Proceeds from paydowns and maturities | 93,835 | | | 34,770 | | | 18,789 | | | | | |
| Purchases | (257,535) | | | (37,115) | | | (35,980) | | | | | |
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Proceeds from sales of loans originally classified as held for investment and instruments from related securitization activities | 13,351 | | | 12,201 | | | 21,365 | | | | | |
| Purchases | (5,229) | | | (5,963) | | | (4,629) | | | | | |
| Other changes in loans and leases, net | 36,571 | | | (46,808) | | | (31,292) | | | | | |
| Other investing activities, net | (3,489) | | | (2,974) | | | (1,986) | | | | | |
| Net cash used in investing activities | (177,665) | | | (80,630) | | | (71,468) | | | | | |
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| Net change in: | | | | | | | | | |
| Deposits | 360,677 | | | 53,327 | | | 71,931 | | | | | |
| Federal funds purchased and securities loaned or sold under agreements to repurchase | 5,214 | | | (21,879) | | | 10,070 | | | | | |
| Short-term borrowings | (4,893) | | | 4,004 | | | (12,478) | | | | | |
| Long-term debt: | | | | | | | | | |
| Proceeds from issuance | 57,013 | | | 52,420 | | | 64,278 | | | | | |
| Retirement | (47,948) | | | (50,794) | | | (53,046) | | | | | |
| Preferred stock: | | | | | | | | | |
| Proceeds from issuance | 2,181 | | | 3,643 | | | 4,515 | | | | | |
| Redemption | (1,072) | | | (2,568) | | | (4,512) | | | | | |
| Common stock repurchased | (7,025) | | | (28,144) | | | (20,094) | | | | | |
| Cash dividends paid | (7,727) | | | (5,934) | | | (6,895) | | | | | |
| Other financing activities, net | (601) | | | (698) | | | (651) | | | | | |
| Net cash provided by financing activities | 355,819 | | | 3,377 | | | 53,118 | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | 2,756 | | | (368) | | | (1,200) | | | | | |
| Net increase (decrease) in cash and cash equivalents | 218,903 | | | (15,844) | | | 19,970 | | | | | |
| Cash and cash equivalents at January 1 | 161,560 | | | 177,404 | | | 157,434 | | | | | |
| Cash and cash equivalents at December 31 | $ | 380,463 | | | $ | 161,560 | | | $ | 177,404 | | | | | |
| Supplemental cash flow disclosures | | | | | | | | | |
| Interest paid | $ | 8,662 | | | $ | 22,196 | | | $ | 19,087 | | | | | |
| Income taxes paid, net | 2,894 | | | 4,359 | | | 2,470 | | | | | |
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See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 Summary of Significant Accounting Principles
Bank of America Corporation, a bank holding company and a financial holding company, provides a diverse range of financial services and products throughout the U.S. and in certain international markets. The term “the Corporation” as used herein may refer to Bank of America Corporation, individually, Bank of America Corporation and its subsidiaries, or certain of Bank of America Corporation’s subsidiaries or affiliates.
Principles of Consolidation and Basis of Presentation
The Consolidated Financial Statements include the accounts of the Corporation and its majority-owned subsidiaries and those variable interest entities (VIEs) where the Corporation is the primary beneficiary. Intercompany accounts and transactions have been eliminated. Results of operations of acquired companies are included from the dates of acquisition, and for VIEs, from the dates that the Corporation became the primary beneficiary. Assets held in an agency or fiduciary capacity are not included in the Consolidated Financial Statements. The Corporation accounts for investments in companies for which it owns a voting interest and for which it has the ability to exercise significant influence over operating and financing decisions using the equity method of accounting. These investments are included in other assets. Equity method investments are subject to impairment testing, and the Corporation’s proportionate share of income or loss is included in other income.
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual 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
Accounting for Financial Instruments -- Credit Losses
On January 1, 2020, the Corporation adopted the new accounting standard that requires the measurement of the allowance for credit losses to be based on management’s best estimate of lifetime expected credit losses (ECL) inherent in the Corporation’s relevant financial assets. Upon adoption of the standard on January 1, 2020, the Corporation recorded a $3.3 billion, or 32 percent, increase to the allowance for credit losses. After adjusting for deferred taxes and other adoption effects, a $2.4 billion decrease was recorded in retained earnings through a cumulative-effect adjustment. Prior to January 1, 2020, the allowance for credit losses was determined based on management’s estimate of probable incurred losses.
Reference Rate Reform
The Financial Accounting Standards Board (FASB) issued a new accounting standard in March 2020, which was subsequently amended in January 2021, related to contracts or hedging relationships that reference London Interbank Offered Rate (LIBOR) or other reference rates that are expected to be discontinued due to reference rate reform. The new standard provides for optional expedients and other guidance regarding the accounting related to modifications of contracts, hedging
relationships and other transactions affected by reference rate reform. The Corporation has elected to retrospectively adopt the new standard as of January 1, 2020. The adoption did not have a material accounting impact on the Corporation’s consolidated financial position or results of operations; however, it did ease the administrative burden in accounting for certain effects of reference rate reform.
Significant Accounting Principles
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash items in the process of collection, cash segregated under federal and other brokerage regulations, and amounts due from correspondent banks, the Federal Reserve Bank and certain non-U.S. central banks. Certain cash balances are restricted as to withdrawal or usage by legally binding contractual agreements or regulatory requirements.
Securities Financing Agreements
Securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase (securities financing agreements) are treated as collateralized financing transactions except in instances where the transaction is required to be accounted for as individual sale and purchase transactions. Generally, these agreements are recorded at acquisition or sale price plus accrued interest, except for securities financing agreements that the Corporation accounts for under the fair value option. Changes in the fair value of securities financing agreements that are accounted for under the fair value option are recorded in market making and similar activities in the Consolidated Statement of Income.
The Corporation’s policy is to monitor the market value of the principal amount loaned under resale agreements and obtain collateral from or return collateral pledged to counterparties when appropriate. Securities financing agreements do not create material credit risk due to these collateral provisions; therefore, an allowance for loan losses is not necessary.
In transactions where the Corporation acts as the lender in a securities lending agreement and receives securities that can be pledged or sold as collateral, it recognizes an asset on the Consolidated Balance Sheet at fair value, representing the securities received, and a liability, representing the obligation to return those securities.
Collateral
The Corporation accepts securities and loans as collateral that it is permitted by contract or practice to sell or repledge. At December 31, 2020 and 2019, the fair value of this collateral was $812.4 billion and $693.0 billion, of which $758.5 billion and $593.8 billion were sold or repledged. The primary source of this collateral is securities borrowed or purchased under agreements to resell.
The Corporation also pledges company-owned securities and loans as collateral in transactions that include repurchase agreements, securities loaned, public and trust deposits, U.S. Treasury tax and loan notes, and short-term borrowings. This collateral, which in some cases can be sold or repledged by the counterparties to the transactions, is parenthetically disclosed on the Consolidated Balance Sheet.
In certain cases, the Corporation has transferred assets to consolidated VIEs where those restricted assets serve as collateral for the interests issued by the VIEs. These assets are included on the Consolidated Balance Sheet in Assets of Consolidated VIEs.
In addition, the Corporation obtains collateral in connection with its derivative contracts. Required collateral levels vary depending on the credit risk rating and the type of counterparty. Generally, the Corporation accepts collateral in the form of cash, U.S. Treasury securities and other marketable securities. Based on provisions contained in master netting agreements, the Corporation nets cash collateral received against derivative assets. The Corporation also pledges collateral on its own derivative positions which can be applied against derivative liabilities.
Trading Instruments
Financial instruments utilized in trading activities are carried at fair value. Fair value is generally based on quoted market prices for the same or similar assets and liabilities. If these market prices are not available, fair values are estimated based on dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques where the determination of fair value may require significant management judgment or estimation. Realized gains and losses are recorded on a trade-date basis. Realized and unrealized gains and losses are recognized in market making and similar activities.
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 interest rate and foreign currency exchange rate sensitivity predominantly through the use of derivatives. Derivatives utilized by the Corporation include swaps, futures and forward settlement contracts, and option contracts.
All derivatives are recorded on the Consolidated Balance Sheet at fair value, taking into consideration the effects of legally enforceable master netting agreements that allow the Corporation to settle positive and negative positions and offset cash collateral held with the same counterparty on a net basis. For exchange-traded contracts, fair value is based on quoted market prices in active or inactive markets or is derived from observable market-based pricing parameters, similar to those applied to over-the-counter (OTC) derivatives. For non-exchange traded contracts, fair value is based on dealer quotes, pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value may require significant management judgment or estimation.
Valuations of derivative assets and liabilities reflect the value of the instrument including counterparty credit risk. These values also take into account the Corporation’s own credit standing.
Trading Derivatives and Other Risk Management Activities
Derivatives held for trading purposes are included in derivative assets or derivative liabilities on the Consolidated Balance Sheet with changes in fair value included in market making and similar activities.
Derivatives used for other risk management activities are included in derivative assets or derivative liabilities. Derivatives used in other risk management activities have not been designated in qualifying accounting hedge relationships because they did not qualify or the risk that is being mitigated pertains to an item that is reported at fair value through earnings so that
the effect of measuring the derivative instrument and the asset or liability to which the risk exposure pertains will offset in the Consolidated Statement of Income to the extent effective. The changes in the fair value of derivatives that serve to mitigate certain risks associated with mortgage servicing rights (MSRs), interest rate lock commitments (IRLCs) and first-lien mortgage loans held-for-sale (LHFS) that are originated by the Corporation are recorded in other income. Changes in the fair value of derivatives that serve to mitigate interest rate risk and foreign currency risk are included in market making and similar activities. 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 market making and similar activities and other income.
Derivatives Used For Hedge Accounting Purposes (Accounting Hedges)
For accounting hedges, the Corporation formally documents at inception all relationships between hedging instruments and hedged items, as well as the risk management objectives and strategies for undertaking various accounting hedges. Additionally, the Corporation primarily uses regression analysis at the inception of a hedge and for each reporting period thereafter to assess whether the derivative used in an accounting hedge transaction is expected to be and has been highly effective in offsetting changes in the fair value or cash flows of a hedged item or forecasted transaction. The Corporation discontinues hedge accounting when it is determined that a derivative is not expected to be or has ceased to be highly effective as a hedge, and then reflects changes in fair value of the derivative in earnings after termination of the hedge relationship.
Fair value hedges are used to protect against changes in the fair value of the Corporation’s assets and liabilities that are attributable to interest rate or foreign exchange volatility. Changes in the fair value of derivatives designated as fair value hedges are recorded in earnings, together and in the same income statement line item with changes in the fair value of the related hedged item. If a derivative instrument in a fair value hedge is terminated or the hedge designation removed, the previous adjustments to the carrying value of the hedged asset or liability are subsequently accounted for in the same manner as other components of the carrying value of that asset or liability. For interest-earning assets and interest-bearing liabilities, such adjustments are amortized to earnings over the remaining life of the respective asset or liability.
Cash flow hedges are used primarily to minimize the variability in cash flows of assets and liabilities or forecasted transactions caused by interest rate or foreign exchange rate fluctuations. The Corporation also uses cash flow hedges to hedge the price risk associated with deferred compensation. Changes in the fair value of derivatives used in cash flow hedges are recorded in accumulated other comprehensive income (OCI) and are reclassified into the line item in the income statement in which the hedged item is recorded in the same period the hedged item affects earnings. Components of a derivative that are excluded in assessing hedge effectiveness are recorded in the same income statement line item as the hedged item.
Net investment hedges are used to manage the foreign exchange rate sensitivity arising from a net investment in a foreign operation. Changes in the spot prices of derivatives that are designated as net investment hedges of foreign operations are recorded as a component of accumulated OCI. The remaining components of these derivatives are excluded in
assessing hedge effectiveness and are recorded in market making and similar activities.
Securities
Debt securities are reported on the Consolidated Balance Sheet at their trade date. Their classification is dependent on the purpose for which the securities were acquired. Debt securities purchased for use in the Corporation’s trading activities are reported in trading account assets at fair value with unrealized gains and losses included in market making and similar activities. Substantially all other debt securities purchased are used in the Corporation’s asset and liability management (ALM) activities and are reported on the Consolidated Balance Sheet as either debt securities carried at fair value or as held-to-maturity (HTM) debt securities. Debt securities carried at fair value are either available-for-sale (AFS) securities with unrealized gains and losses net-of-tax included in accumulated OCI or carried at fair value with unrealized gains and losses reported in market making and similar activities. HTM debt securities are debt securities that management has the intent and ability to hold to maturity and are reported at amortized cost.
The Corporation evaluates each AFS security where the value has declined below amortized cost. 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 through earnings. For AFS debt securities the Corporation intends to hold, the Corporation evaluates the debt securities for ECL except for debt securities that are guaranteed by the U.S. Treasury, U.S. government agencies or sovereign entities of high credit quality where the Corporation applies a zero credit loss assumption. For the remaining AFS debt securities, the Corporation considers qualitative parameters such as internal and external credit ratings and the value of underlying collateral. If an AFS debt security fails any of the qualitative parameters, a discounted cash flow analysis is used by the Corporation to determine if a portion of the unrealized loss is a result of an expected credit loss. The Corporation will then recognize either credit loss expense or a reversal of credit loss expense in other income for the amount necessary to adjust the debt securities valuation allowance to its current estimate of excepted credit losses. Cash flows expected to be collected are estimated using all relevant information available such as remaining payment terms, prepayment speeds, the financial condition of the issuer, expected defaults and the value of the underlying collateral. 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 allowance recorded is limited to the difference between the amortized cost and the fair value of the asset.
The Corporation separately evaluates its HTM debt securities for any credit losses, of which substantially all qualify for the zero loss assumption. For the remaining securities, the Corporation performs a discounted cash flow analysis to estimate any credit losses which are then recognized as part of the allowance for credit losses.
Interest on debt securities, including amortization of premiums and accretion of discounts, is included in interest income. Premiums and discounts are amortized or accreted to interest income at a constant effective yield over the contractual lives of the securities. Realized gains and losses from the sales of debt securities are determined using the specific identification method.
Equity securities with readily determinable fair values that are not held for trading purposes are carried at fair value with unrealized gains and losses included in other income. Equity securities that do not have readily determinable fair values are recorded at cost less impairment, if any, plus or minus qualifying observable price changes. These securities are reported in other assets.
Loans and Leases
Loans, with the exception of loans accounted for under the fair value option, are measured at historical cost and reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and for purchased loans, net of any unamortized premiums or discounts. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to interest income over the lives of the related loans. Unearned income, discounts and premiums are amortized to interest income using a level yield methodology. The Corporation elects to account for certain consumer and commercial loans under the fair value option with interest reported in interest income and changes in fair value reported in market making and similar activities or other income.
Under applicable accounting guidance, for reporting purposes, the loan and lease portfolio is categorized by portfolio segment and, within each portfolio segment, by class of financing receivables. A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine the allowance for credit losses, and a class of financing receivables is defined as the level of disaggregation of portfolio segments based on the initial measurement attribute, risk characteristics and methods for assessing risk. The Corporation’s 3 portfolio segments are Consumer Real Estate, Credit Card and Other Consumer, and Commercial. The classes within the Consumer Real Estate portfolio segment are residential mortgage and home equity. The classes within the Credit Card and Other Consumer portfolio segment are credit card, direct/indirect consumer and other consumer. The classes within the Commercial portfolio segment are U.S. commercial, non-U.S. commercial, commercial real estate, commercial lease financing and U.S. small business commercial.
Leases
The Corporation provides equipment financing to its customers through a variety of lessor arrangements. Direct financing leases and sales-type leases are carried at the aggregate of lease payments receivable plus the estimated residual value of the leased property less unearned income, which is accreted to interest income over the lease terms using methods that approximate the interest method. Operating lease income is recognized on a straight-line basis. The Corporation's lease arrangements generally do not contain non-lease components.
Allowance for Credit Losses
The allowance for credit losses includes both the allowance for loan and lease losses and the reserve for unfunded lending commitments and represents management’s estimate of the ECL in the Corporation’s loan and lease portfolio, excluding loans and unfunded lending commitments accounted for under the fair value option. The allowance for loan and lease losses represents the estimated probable credit lossesECL on funded consumer and commercial loans and leases whileis referred to as the reserveallowance for loan and lease losses and is reported separately as a contra-asset to loans and leases on the Consolidated Balance Sheet. The ECL for unfunded lending commitments, including home
equity lines of credit (HELOCs), standby letters of credit
(SBLCs) and binding unfunded loan commitments represents estimated probableis reported on the Consolidated Balance Sheet in accrued expenses and other liabilities. The provision for credit losses on theserelated to the loan and lease portfolio and unfunded credit instruments based on utilization assumptions. Lending-related credit exposures deemed to be uncollectible, excludinglending commitments is reported in the Consolidated Statement of Income.
For loans carried at fair value, are charged off against these accounts. Write-offs on PCI loans on which thereand leases, the ECL is a valuation allowance are recorded against the valuation allowance. For more information, see Purchased Credit-impaired Loans in this Note.
The Corporation performs periodic and systematic detailed reviews of its lending portfolios to identify credit risks and to assess the overall collectability of those portfolios. The allowance on certain homogeneous consumer loan portfolios, which generally consist of consumer real estate loans within the Consumer Real Estate portfolio segment and credit card loans within the Credit Card and Other Consumer portfolio segment, is based on aggregated portfolio segment evaluations generally by product type. Loss forecast models are utilized for these portfolios whichtypically estimated using quantitative methods that consider a variety of factors including,such as historical loss experience, the current credit quality of the portfolio as well as an economic outlook over the life of the loan. The life of the loan for closed-ended products is based on the contractual maturity of the loan adjusted for any expected prepayments. The contractual maturity includes any extension options that are at the sole discretion of the borrower. For open-ended products (e.g., lines of credit), the ECL is determined based on the maximum repayment term associated with future draws from credit lines unless those lines of credit are unconditionally cancellable (e.g., credit cards) in which case the Corporation does not record any allowance.
In its loss forecasting framework, the Corporation incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets. These macroeconomic scenarios include variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to, historical loss experience, estimated defaults or foreclosuresunemployment rates, real estate prices, gross domestic product levels and corporate bond spreads. As any one economic outlook is inherently uncertain, the Corporation leverages multiple scenarios. The scenarios that are chosen each quarter and the weighting given to each scenario depend on a variety of factors including recent economic events, leading economic indicators, views of internal and third-party economists and industry trends.
The estimate of credit losses includes expected recoveries of amounts previously charged off (i.e., negative allowance). If a loan has been charged off, the expected cash flows on the loan are not limited by the current amortized cost balance. Instead, expected cash flows can be assumed up to the unpaid principal balance immediately prior to the charge-off.
The allowance for loan and lease losses for troubled debt restructurings (TDR) is measured based on the present value of projected future lifetime principal and interest cash flows discounted at the loan’s original effective interest rate, or in cases where foreclosure is probable or the loan is collateral dependent, at the loan’s collateral value or its observable market price, if available. The measurement of ECL for the renegotiated consumer credit card TDR portfolio trends, delinquencies, bankruptcies,is based on the present value of projected cash flows discounted using the average TDR portfolio contractual interest rate, excluding promotionally priced loans, in effect prior to restructuring. Projected cash flows for TDRs use the same economic conditions, credit scoresoutlook as discussed above. For purposes of computing this specific loss component of the allowance, larger impaired loans are evaluated individually and the amount of losssmaller impaired loans are evaluated as a pool.
Also included in the eventallowance for loan and lease losses are qualitative reserves to cover losses that are expected but, in the Corporation's assessment, may not be adequately reflected in the quantitative methods or the economic assumptions described above. For example, factors that the Corporation considers include changes in lending policies and procedures, business conditions, the nature and size of default.the portfolio, portfolio concentrations, the volume and severity of past due loans and nonaccrual loans, the effect of external factors such as competition, and legal and regulatory requirements, among
others. Further, the Corporation considers the inherent uncertainty in quantitative models that are built on historical data.
With the exception of the Corporation's credit card portfolio, the Corporation does not include reserves for interest receivable in the measurement of the allowance for credit losses as the Corporation generally classifies consumer loans as nonperforming at 90 days past due and reverses interest income for these loans at that time. For credit card loans, the Corporation reserves for interest and fees as part of the allowance for loan and lease losses. Upon charge-off of a credit card loan, the Corporation reverses the interest and fee income against the income statement line item where it was originally recorded.
The Corporation has identified the following 3 portfolio segments and measures the allowance for credit losses using the following methods.
Consumer Real Estate
To estimate ECL for consumer loans secured by residential real estate, using statistical modeling methodologies, the Corporation estimates the number of loans that will default based onover the individual loan attributes aggregated into poolslife of homogeneous loans with similar attributes.the existing portfolio, after factoring in estimated prepayments, using quantitative modeling methodologies. The attributes that are most significant toin estimating the probability of default and are used to estimate defaultsCorporation’s ECL include refreshed LTVloan-to-value (LTV) or, in the case of a subordinated lien, refreshed combined LTV (CLTV), borrower credit score, months since origination (referred to as vintage) and geography, all of which are further broken down by present collection status (whether the loan is current, delinquent, in default, or in bankruptcy). The severity or loss given default is estimated based on the refreshed LTV for first mortgages or CLTV for subordinated liens. The estimates are based on the Corporation’s historical experience with the loan portfolio, adjusted to reflect an assessment of environmental factors not yet reflected in the historical data underlyingeconomic outlook. The outlook on the loss estimates, such as changes inunemployment rate and consumer real estate values, localprices are key factors that impact the frequency and national economies, underwriting standardsseverity of loss estimates. The Corporation does not reserve for credit losses on the unpaid principal balance of loans insured by the Federal Housing Administration (FHA) and long-term standby loans, as these loans are fully insured. The Corporation records a reserve for unfunded lending commitments for the regulatory environment. The probabilityECL associated with the undrawn portion of default models also incorporate recent experience with modification programs including re-defaults subsequent to modification, a loan’s default history prior to modification and the change in borrower payments post-modification. On home equity loans whereCorporation’s HELOCs, which can only be canceled by the Corporation holds only a second-lien position and foreclosure is not the best alternative, the loss severity is estimated at 100 percent.
if certain criteria are met. The allowance on certain commercial loans (except business card and certain small business loans)ECL associated with these unfunded lending commitments is calculated using loss rates delineated by risk ratingthe same models and product type. Factors considered when assessing loss rates include the valuemethodologies noted above and incorporate utilization assumptions at time of the underlying collateral, if applicable, the industry of the obligor, and the obligor’s liquidity and other financial indicators along with certain qualitative factors. These statistical models are updated regularly for changes in economic and business conditions. Included in the analysis of consumer and commercial loan portfolios are reserves which are maintained to cover uncertainties that affect the Corporation’s estimate of probable losses including domestic and global economic uncertainty and large single-name defaults.
For impaired loans, which include nonperforming commercial loans as well as consumer and commercial loans and leases modified in a troubled debt restructuring (TDR), management measures impairment primarily based on the present value of payments expected to be received, discounted at the loans’ original effective contractual interest rates. Credit card loans are discounted at the portfolio average contractual annual percentage rate, excluding promotionally priced loans, in effect prior to restructuring. Impaired loans and TDRs may also be measured based on observable market prices, or for loans that are solely dependentmore than 180 days past due and collateral-dependent TDRs, the Corporation bases the allowance on the collateral for repayment, the estimated fair value of the underlying collateral as of the reporting date less costs to sell. If the recorded investment in impaired loans exceeds this amount, a specific allowance is established as a component of the allowance for loan and lease losses unless these are secured consumer loans that are solely dependent on the collateral for repayment, in which case the amount that exceeds the fair value of the collateral is charged off.
Generally, the Corporation initially estimates theThe fair value of the collateral securing these consumer real estate-secured loans is generally determined using an automated valuation model (AVM). An AVM is a tool that estimates the value of a property by reference to market data including sales of comparable properties and price trends specific to the Metropolitan Statistical Area in which the property being valued is located. In the event that an AVM value is not available, the Corporation utilizes publicized indices or if these methods provide less reliable valuations, the Corporation uses appraisals or broker price opinions to estimate the fair value of the collateral. While there is inherent imprecision in these valuations, the Corporation believes that they are representative of thethis portfolio in the aggregate.
For loans that are more than 180 days past due and collateral-dependent TDRs, with the exception of the Corporation’s fully insured portfolio, the outstanding balance of loans that is in excess of the estimated property value after
adjusting for costs to sell is charged off. If the estimated property value decreases in periods subsequent to the initial charge-off, the Corporation will record an additional charge-off; however, if the value increases in periods subsequent to the charge-off, the Corporation will adjust the allowance to account for the increase but not to a level above the cumulative charge-off amount.
Credit Cards and Other Consumer
Credit cards are revolving lines of credit without a defined maturity date. The estimated life of a credit card receivable is determined by estimating the amount and timing of expected future payments (e.g., borrowers making full payments, minimum payments or somewhere in between) that it will take for a receivable balance to pay off. The ECL on the future payments incorporates the spending behavior of a borrower through time using key borrower-specific factors and the economic outlook described above. The Corporation applies all expected payments in accordance with the Credit Card Accountability Responsibility and Disclosure Act of 2009 (i.e., paying down the highest interest rate bucket first). Then forecasted future payments are prioritized to pay off the oldest balance until it is brought to zero or an expected charge-off amount. Unemployment rate outlook, borrower credit score, delinquency status and historical payment behavior are all key inputs into the credit card receivable loss forecasting model. Future draws on the credit card lines are excluded from the ECL as they are unconditionally cancellable.
The ECL for the consumer vehicle lending portfolio is also determined using quantitative methods supplemented with qualitative analysis. The quantitative model estimates ECL giving consideration to key borrower and loan characteristics such as delinquency status, borrower credit score, LTV ratio, underlying collateral type and collateral value.
Commercial
The ECL on commercial loans is forecasted using models that estimate credit losses over the loan’s contractual life at an individual loan level. The models use the contractual terms to forecast future principal cash flows while also considering expected prepayments. For open-ended commitments such as revolving lines of credit, changes in funded balance are captured by forecasting a borrower’s draw and payment behavior over the remaining life of the commitment. For loans collateralized with commercial real estate and for which the underlying asset is the primary source of repayment, the loss forecasting models consider key loan and customer attributes such as LTV ratio, net operating income and debt service coverage, and captures variations in behavior according to property type and region. The outlook on the unemployment rate, gross domestic product, and forecasted real estate prices are utilized to determine indicators such as rent levels and vacancy rates, which impact the ECL estimate. For all other commercial loans and leases, the loss forecasting model determines the probabilities of transition to different credit risk ratings or default at each point over the life of the asset based on the borrower’s current credit risk rating, industry sector, size of the exposure and the geographic market. The severity of loss is determined based on the type of collateral securing the exposure, the size of the exposure, the borrower’s industry sector, any guarantors and the geographic market. Assumptions of expected loss are conditioned to the economic outlook, and the model considers key economic variables such as unemployment rate, gross domestic product, corporate bond spreads, real estate and other asset prices and equity market returns.
In addition to the allowance for loan and lease losses, the Corporation also estimates probable lossesECL 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. Reserves are estimated for the unfunded loan commitments. Unfunded lending commitments are subject to individual reviewsexposure using the same models and methodologies as the funded exposure and are analyzed and segregated by risk according to the Corporation’s internal risk rating scale. These risk classifications, in conjunction with an analysis of historical loss experience, utilization assumptions, current economic conditions, performance trends within the portfolio and any other pertinent information, result in the estimation of the reservereported as reserves for unfunded lending commitments.
The allowance for credit losses related to the loan and lease portfolio is reported separately on the Consolidated Balance Sheet whereas the reserve for unfunded lending commitments is reported on the Consolidated Balance Sheet in accrued expenses and other liabilities. The provision for credit losses related to the loan and lease portfolio and unfunded lending commitments is reported in the Consolidated Statement of Income.
Nonperforming Loans and Leases, Charge-offs and Delinquencies
Nonperforming loans and leases generally include loans and leases that have been placed on nonaccrual status. Loans accounted for under the fair value option PCI loans and LHFS are not reported as nonperforming.
In accordance with the Corporation’s policies, consumer real estate-secured loans, including residential mortgages and home equity loans, are generally placed on nonaccrual status and classified as nonperforming at 90 days past due unless repayment of the loan is insured by the Federal Housing Administration (FHA)FHA or through individually insured long-term standby agreements with Fannie Mae (FNMA) or Freddie Mac (FHLMC) (the fully-insured
portfolio). Residential mortgage loans in the fully-insured portfolio are not placed on nonaccrual status and, therefore, are not reported as nonperforming. Junior-lien home equity loans are placed on nonaccrual status and classified as nonperforming when the underlying first-lien mortgage loan becomes 90 days past due even if the junior-lien loan is current. The outstanding balance of real estate-secured loans that is in excess of the estimated property value less costs to sell is charged off no later than the end of the month in which the loan becomes 180 days past due unless the loan is fully insured, or for loans in bankruptcy, within 60 days of receipt of notification of filing, with the remaining balance classified as nonperforming.
Consumer loans secured by personal property, credit card loans and other unsecured consumer loans are not placed on nonaccrual status prior to charge-off and, therefore, are not reported as nonperforming loans, except for certain secured consumer loans, including those that have been modified in a TDR. Personal property-secured loans (including auto loans) are charged off to collateral value no later than the end of the month in which the account becomes 120 days past due, or upon repossession of an auto or, for loans in bankruptcy, within 60 days of receipt of notification of filing. Credit card and other unsecured customer loans are charged off no later than the end of the month in which the account becomes 180 days past due, or within 60 days after receipt of notification of death or bankruptcy, or upon confirmation of fraud.
Commercial loans and leases, excluding business card loans, that are past due 90 days or more as to principal or interest, or where reasonable doubt exists as to timely collection, including loans that are individually identified as being impaired, are generally placed on nonaccrual status and classified as nonperforming unless well-secured and in the process of collection.
Business card loans are charged off no later thanin the end of the month in which the account becomes 180 days past due or 60 days after receipt of notification of death or bankruptcy. These loans are not placed on nonaccrual status prior to charge-off and, therefore, are not reportedsame manner as nonperformingconsumer credit card loans. Other commercial loans and leases are generally charged off when all or a portion of the principal amount is determined to be uncollectible.
The entire balance of a consumer loan or commercial loan or lease is contractually delinquent if the minimum payment is not received by the specified due date on the customer’s billing statement. Interest and fees continue to accrue on past due loans and leases until the date the loan is placed on nonaccrual
status, if applicable. Accrued interest receivable is reversed when loans and leases are placed on nonaccrual status. Interest collections on nonaccruing loans and leases for which the ultimate collectability of principal is uncertain are applied as principal reductions; otherwise, such collections are credited to income when received. Loans and leases may be restored to accrual status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected.
PCI loans are recorded at fair value at the acquisition date. Although the PCI loans may be contractually delinquent, the Corporation does not classify these loans as nonperforming as the loans were written down to fair value at the acquisition date and the accretable yield is recognized in interest income over the remaining life of the loan. In addition, reported net charge-offs exclude write-offs on PCI loans as the fair value already considers the estimated credit losses.
Troubled Debt Restructurings
Consumer and commercial loans and leases whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties are classified as TDRs. Concessions could include a reduction in the interest rate to a rate that is below market on the loan, payment extensions, forgiveness of principal, forbearance or other actions designed to maximize collections. Loans that are carried at fair value LHFS and PCI loansLHFS are not classified as TDRs.
Loans and leases whose contractual terms have been modified in a TDR and are current at the time of restructuring may remain on accrual status if there is demonstrated performance prior to the restructuring and payment in full under the restructured terms is expected. Otherwise, the loans are placed on nonaccrual status and reported as nonperforming, except for fully-insured consumer real estate loans, until there is sustained repayment performance for a reasonable period, generally six months. If accruing TDRs cease to perform in accordance with their modified contractual terms, they are placed on nonaccrual status and reported as nonperforming TDRs.
Secured consumer loans that have been discharged in Chapter 7 bankruptcy and have not been reaffirmed by the borrower are classified as TDRs at the time of discharge. Such loans are placed on nonaccrual status and written down to the estimated collateral value less costs to sell no later than at the time of discharge. If these loans are contractually current, interest collections are generally recorded in interest income on a cash basis. Consumer real estate-secured loans for which a binding offer to restructure has been extended are also classified as TDRs. Credit card and other unsecured consumer loans that have been renegotiated in a TDR generally remain on accrual status until the loan is either paid in full or charged off, which occurs no later than the end of the month in which the loan becomes 180 days past due or, for loans that have been placed on a fixed payment plan, 120 days past due.
A loan that had previously been modified in a TDR and is subsequently refinanced under current underwriting standards at a market rate with no concessionary terms is accounted for as a new loan and is no longer reported as a TDR.
COVID-19 Programs
The Corporation has implemented various consumer and commercial loan modification programs to provide its borrowers relief from the economic impacts of the COVID-19 pandemic (the pandemic). In accordance with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Corporation has elected to not apply TDR classification to eligible COVID-19 related loan modifications that were performed after March 1, 2020 to loans that were current as of December 31, 2019. Accordingly, these restructurings are not classified as TDRs. The availability of this election expires upon the earlier of January 1, 2022 or 60 days after the national emergency related to COVID-19 terminates. In
addition, for loans modified in response to the pandemic that do not meet the above criteria (e.g., current payment status at December 31, 2019), the Corporation is applying the guidance included in an interagency statement issued by the bank regulatory agencies. This guidance states that loan modifications performed in light of the pandemic, including loan payment deferrals that are up to six months in duration, that were granted to borrowers who were current as of the implementation date of a loan modification program or modifications granted under government mandated modification programs, are not TDRs. For loan modifications that include a payment deferral and are not TDRs, the borrowers' past due and nonaccrual status have not been impacted during the deferral period. The Corporation has continued to accrue interest during the deferral period using a constant effective yield method. For most mortgage, HELOC and commercial loan modifications, the contractual interest that accrued during the deferral period is payable at the maturity of the loan. The Corporation includes these amounts with the unpaid principal balance when computing its allowance for credit losses. Amounts that are subsequently deemed uncollectible are written off against the allowance for credit losses.
Loans Held-for-sale
Loans that are intendedthe Corporation intends to be soldsell in the foreseeable future, including residential mortgages, loan syndications, and to a lesser degree, commercial real estate, consumer finance and other loans, are reported as LHFS and are carried at the lower of aggregate cost or fair value. The Corporation accounts for certain LHFS, including residential mortgage LHFS, under the fair value option. Loan origination costs related to LHFS that the Corporation accounts for under the fair value option are recognized in noninterest expense when incurred. Loan origination costs for LHFS carried at the lower of cost or fair value are capitalized as part of the carrying value of the loans and, recognized as a reduction of noninterest income upon the sale of such loans.a loan, are recognized as part of the gain or loss in noninterest income. LHFS that are on nonaccrual status and are reported as nonperforming, as defined in the policy herein, are reported separately from nonperforming loans and leases.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are recognized using the straight-line method over the estimated useful lives of the assets. Estimated lives range up to 40 years for buildings, up to 12 years for furniture and equipment, and the
shorter of lease term or estimated useful life for leasehold improvements.
Other Assets
For the Corporation’s financial assets that are measured at amortized cost and are not included in debt securities or loans and leases on the Consolidated Balance Sheet, the Corporation evaluates these assets for ECL using various techniques. For assets that are subject to collateral maintenance provisions, including federal funds sold and securities borrowed or purchased under agreements to resell, where the collateral consists of daily margining of liquid and marketable assets where the margining is expected to be maintained into the foreseeable future, the expected losses are assumed to be 0. For all other assets, the Corporation performs qualitative analyses, including consideration of historical losses and current economic conditions, to estimate any ECL which are then included in a valuation account that is recorded as a contra-asset against the amortized cost basis of the financial asset.
Lessee Arrangements
Substantially all of the Corporation’s lessee arrangements are operating leases. Under these arrangements, the Corporation records right-of-use assets and lease liabilities at lease commencement. Right-of-use assets are reported in other assets on the Consolidated Balance Sheet, and the related lease liabilities are reported in accrued expenses and other liabilities. All leases are recorded on the Consolidated Balance Sheet except leases with an initial term less than 12 months for which the Corporation made the short-term lease election. Lease expense is recognized on a straight-line basis over the lease term and is recorded in occupancy and equipment expense in the Consolidated Statement of Income.
The Corporation made an accounting policy election not to separate lease and non-lease components of a contract that is or contains a lease for its real estate and equipment leases. As such, lease payments represent payments on both lease and non-lease components. At lease commencement, lease liabilities are recognized based on the present value of the remaining lease payments and discounted using the Corporation’s incremental borrowing rate. Right-of-use assets initially equal the lease liability, adjusted for any lease payments made prior to lease commencement and for any lease incentives.
Goodwill and Intangible Assets
Goodwill is the purchase premium after adjusting for the fair value of net assets acquired. Goodwill is not amortized but is reviewed for potential impairment on an annual basis, or when events or circumstances indicate a potential impairment, at the reporting unit level. A reporting unit is a business segment or one level below a business segment.
The Corporation comparesassesses the fair value of each reporting unit withagainst its carrying value, including goodwill, as measured by allocated equity. For purposes of goodwill impairment testing, the Corporation utilizes allocated equity as a proxy for the carrying value of its reporting units. Allocated equity in the reporting units is comprised of allocated capital plus capital for the portion of goodwill and intangibles specifically assigned to the reporting unit.
In performing its goodwill impairment testing, the Corporation first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors include, among other things, macroeconomic conditions, industry and market considerations, financial performance of the respective reporting unit and other relevant entity- and reporting-unit specific considerations.
If the Corporation concludes it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative assessment is performed. The Corporation has an unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. The Corporation may resume performing the qualitative assessment in any subsequent period.
When performing the quantitative assessment, if the fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit iswould not be considered not impaired; however, ifimpaired. If the carrying value of the reporting unit exceeds its fair value, an additional step musta goodwill impairment loss would be performed to measure potential impairment.
This step involves calculating an implied fair value of goodwillrecognized for the amount by which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregateunit’s allocated equity exceeds its fair values of the assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of goodwill, an impairment charge is recorded for the excess.value. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit. An impairment loss establishes a new basis in the goodwill, and subsequent
reversals of goodwill impairment losses are not permitted under applicable accounting guidance.
For intangible assets subject to amortization, an impairment loss is recognized if the carrying value of the intangible asset is not recoverable and exceeds fair value. The carrying value of the intangible asset is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset. Intangible assets deemed to have indefinite useful lives are not subject to amortization. An impairment loss is recognized if the carrying value of the intangible asset with an indefinite life exceeds its fair value.
Variable Interest Entities
A VIE is an entity that lacks equity investors or whose equity investors do not have a controlling financial interest in the entity through their equity investments. The Corporation consolidates a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. On a quarterly basis, the Corporation reassesses its involvement with the VIE and evaluates the impact of changes in governing documents and its financial interests in the VIE. The consolidation status of the VIEs with which the Corporation is involved may change as a result of such reassessments.
The Corporation primarily uses VIEs for its securitization activities, in which the Corporation transfers whole loans or debt securities into a trust or other vehicle. When the Corporation is the servicer of whole loans held in a securitization trust, including non-agency residential mortgages, home equity loans, credit cards, and other loans, the Corporation has the power to direct the most significant activities of the trust. The Corporation generally does
not have the power to direct the most significant activities of a residential mortgage agency trust except in certain circumstances in which the Corporation holds substantially all of the issued securities and has the unilateral right to liquidate the trust. The power to direct the most significant activities of a commercial mortgage securitization trust is typically held by the special servicer or by the party holding specific subordinate securities which embody certain controlling rights. The Corporation consolidates a whole-loan securitization trust if it has the power to direct the most significant activities and also holds securities issued by the trust or has other contractual arrangements, other than standard representations and warranties, that could potentially be significant to the trust.
The Corporation may also transfer trading account securities and AFS securities into municipal bond or resecuritization trusts. The Corporation consolidates a municipal bond or resecuritization trust if it has control over the ongoing activities of the trust such as the remarketing of the trust’s liabilities or, if there are no ongoing activities, sole discretion over the design of the trust, including the identification of securities to be transferred in and the structure of securities to be issued, and also retains securities or has liquidity or other commitments that could potentially be significant to the trust. The Corporation does not consolidate a municipal bond or resecuritization trust if one or a limited number of third-party investors share responsibility for the design of the trust or have control over the significant activities of the trust through liquidation or other substantive rights.
Other VIEs used by the Corporation include collateralized debt obligations (CDOs), investment vehicles created on behalf of customers and other investment vehicles. The Corporation does not routinely serve as collateral manager for CDOs and, therefore, does not typically have the power to direct the
activities that most significantly impact the economic performance of a CDO. However, following an event of default, if the Corporation is a majority holder of senior securities issued by a CDO and acquires the power to manage its assets, the Corporation consolidates the CDO.
The Corporation consolidates a customer or other investment vehicle if it has control over the initial design of the vehicle or manages the assets in the vehicle and also absorbs potentially significant gains or losses through an investment in the vehicle, derivative contracts or other arrangements. The Corporation does not consolidate an investment vehicle if a single investor controlled the initial design of the vehicle or manages the assets in the vehicles or if the Corporation does not have a variable interest that could potentially be significant to the vehicle.
Retained interests in securitized assets are initially recorded at fair value. In addition, the Corporation may invest in debt securities issued by unconsolidated VIEs. Fair values of these debt securities, which are classified as trading account assets, debt securities carried at fair value or HTM securities, are based primarily on quoted market prices in active or inactive markets. Generally, quoted market prices for retained residual interests are not available; therefore, the Corporation estimates fair values based on the present value of the associated expected future cash flows.
Fair Value
The Corporation measures the fair values of its assets and liabilities, where applicable, in accordance with accounting guidance that requires an entity to base fair value on exit price. Under this guidance, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. A hierarchy is established which categorizesUnder applicable accounting standards, fair value measurements are categorized into one of three levels based on
the inputs to the valuation technique with the highest priority given to unadjusted quoted prices in active markets and the lowest priority given to unobservable inputs. The Corporation categorizes its fair value measurements of financial instruments based on this three-level hierarchy.
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Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in OTC markets. |
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Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts where fair value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. government and agency mortgage-backed (MBS) and asset-backed securities (ABS), corporate debt securities, derivative contracts, certain loans and LHFS. |
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Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the overall fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments for which the determination of fair value requires significant management judgment or estimation. The fair value for such assets and liabilities is generally determined using pricing models, discounted cash flow methodologies or similar techniques that incorporate the assumptions a market participant would use in pricing the asset or liability. This category generally includes retained residual interests in securitizations, consumer MSRs, certain ABS, highly structured, complex or long-dated derivative contracts, certain loans and LHFS, IRLCs and certain CDOs where independent pricing information cannot be obtained for a significant portion of the underlying assets. |
Level 1Unadjusted quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in OTC markets.
Level 2Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts where fair value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. government and agency mortgage-backed (MBS) and asset-backed securities (ABS), corporate debt securities, derivative contracts, certain loans and LHFS.
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the overall
fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments for which the determination of fair value requires significant management judgment or estimation. The fair value for such assets and liabilities is generally determined using pricing models, discounted cash flow methodologies or similar techniques that incorporate the assumptions a market participant would use in pricing the asset or liability. This category generally includes retained residual interests in securitizations, consumer MSRs, certain ABS, highly structured, complex or long-dated derivative contracts, certain loans and LHFS, IRLCs and certain CDOs where independent pricing information cannot be obtained for a significant portion of the underlying assets.
Income Taxes
There are two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. These gross deferred tax assets and liabilities represent decreases or increases in taxes expected to be paid in the future because of future reversals of temporary differences in the bases of assets and liabilities as measured by tax laws and their bases as reported in the financial statements. Deferred tax assets are also recognized for tax attributes such as net operating loss carryforwards and tax credit carryforwards. Valuation allowances are recorded to reduce deferred tax assets to the amounts management concludes are more-likely-than-notmore likely than not to be realized.
Income tax benefits are recognized and measured based upon a two-step model: first, a tax position must be more-likely-than-notmore likely than not to be sustained based solely on its technical merits in order to be recognized, and second, the benefit is measured as the largest dollar amount of that position that is more-likely-than-notmore likely than not to be sustained upon settlement. The difference between the benefit
recognized and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit. The Corporation records income tax-related interest and penalties, if applicable, within income tax expense.
Revenue Recognition
Revenue is recorded when earned, which is generally over the period services are provided and no contingencies exist. The following summarizes the Corporation’s revenue recognition accounting policies as they relate tofor certain noninterest income line items in the Consolidated Statement of Income.activities.
Card Income
Card income includes annual, late and over-limit fees as well as interchange, cash advances and other miscellaneous items from credit and debit card transactions and from processing card transactions for merchants. Card income is presented net of direct costs. Interchange fees are recognized upon settlement of the credit and debit card payment transactions and are generally determined on a percentage basis for credit cards and fixed rates for debit cards based on the corresponding payment network’s rates. Substantially all card fees are recognized at the transaction date, except for certain time-based fees such as interchange, cash advance, annual late, over-limitfees, which are recognized over 12 months. Fees charged to cardholders and other miscellaneous fees. Uncollected feesmerchants that are included in customer card receivables balances with an amount recordedestimated to be uncollectible are reserved in the allowance for loan and lease losseslosses. Included in direct cost are rewards and credit card partner payments. Rewards paid to cardholders are related to points earned by the cardholder that can be redeemed for a broad range of rewards including cash, travel and gift cards. The points to be redeemed are estimated uncollectiblebased on past redemption behavior, card receivables. Uncollected feesproduct type, account
transaction activity and other historical card performance. The liability is reduced as the points are written off when aredeemed. The Corporation also makes payments to credit card receivable reaches 180 days past due.partners. The payments are based on revenue-sharing agreements that are generally driven by cardholder transactions and partner sales volumes. As part of the revenue-sharing agreements, the credit card partner provides the Corporation exclusive rights to market to the credit card partner’s members or customers on behalf of the Corporation.
Service Charges
Service charges include deposit and lending-related fees. Deposit-related fees consist of fees earned on consumer and commercial deposit activities and are generally recognized when the transactions occur or as the service is performed. Consumer fees are earned on consumer deposit accounts for account maintenance and various transaction-based services, such as ATM transactions, wire transfer activities, check and money order processing and insufficient funds, overdraftsfunds/overdraft transactions. Commercial deposit-related fees are from the Corporation’s Global Transaction Services business and consist of commercial deposit and treasury management services, including account maintenance and other bankingservices, such as payroll, sweep account and other cash management services. UncollectedLending-related fees are included in outstandinggenerally represent transactional fees earned from certain loan balances with an amount recorded for estimated uncollectible service fees receivable. Uncollected fees are written off when a fee receivable reaches 60 days past due.commitments, financial guarantees and SBLCs.
Investment and Brokerage Services
Investment and brokerage services revenue consists primarilyconsist of asset management fees and brokerage income.fees. Asset management fees consist primarilyare earned from the management of client assets under advisory agreements or the full discretion of the Corporation’s financial advisors (collectively referred to as assets under management (AUM)). Asset management fees are earned as a percentage of the client’s AUM and generally range from 50 basis points (bps) to 150 bps of the AUM. In cases where a third party is used to obtain a client’s investment allocation, the fee remitted to the third party is recorded net and is not reflected in the transaction price, as the Corporation is an agent for those services.
Brokerage fees include income earned from transaction-based services that are performed as part of investment management and trust services and are generally based on the dollar amounta fixed price per unit or as a percentage of the assets being managed.total transaction amount. Brokerage income generally includesfees also include distribution fees and sales commissions that are primarily in the Global Wealth & Investment Management (GWIM) segment and are earned over time. In addition, primarily in the Global Markets segment, brokerage fees are earned onwhen the sale ofCorporation fills customer orders to buy or sell various financial products.products or when it acknowledges, affirms, settles and clears transactions and/or submits trade information to the appropriate clearing broker. Certain customers pay brokerage, clearing and/or exchange fees imposed by relevant regulatory bodies or exchanges in order to execute or clear trades. These fees are recorded net and are not reflected in the transaction price, as the Corporation is an agent for those services.
Investment Banking Income
Investment banking income includes underwriting income and financial advisory services income. Underwriting consists primarily of advisoryfees earned for the placement of a customer’s debt or equity securities. The revenue is generally earned based on a percentage of the fixed number of shares or principal placed. Once the number of shares or notes is determined and the service is completed, the underwriting fees which are recognized. The Corporation incurs certain out-of-pocket expenses, such as legal costs, in performing these services. These expenses are
recovered through the revenue the Corporation earns from the customer and are included in operating expenses. Syndication fees represent fees earned as the agent or lead lender responsible for structuring, arranging and administering a loan syndication.
Financial advisory services consist of fees earned for assisting clients with transactions related to mergers and acquisitions and financial restructurings. Revenue varies depending on the size of the transaction and scope of services performed and is generally contingent on successful completion of the transaction. Revenue is typically recognized netonce the transaction is completed and all services have been rendered. Additionally, the Corporation may earn a fixed fee in merger and acquisition transactions to provide a fairness opinion, with the fees recognized when the opinion is delivered to the client.
Other Revenue Measurement and Recognition Policies
The Corporation did not disclose the value of any direct expenses. Non-reimbursed expenses are recordedopen performance obligations at December 31, 2020, as noninterest expense.its contracts with customers generally have a fixed term that is less than one year, an open term with a cancellation period that is less than one year, or provisions that allow the Corporation to recognize revenue at the amount it has the right to invoice.
Earnings Per Common Share
Earnings per common share (EPS) is computed by dividing net income allocated to common shareholders by the weighted-average common shares outstanding, excluding unvested common shares subject to repurchase or cancellation. Net income allocated to common shareholders is net income adjusted for preferred stock dividends including dividends declared, accretion of discounts on preferred stock including accelerated accretion when preferred stock is repaid early, and cumulative dividends related to the current dividend period that have not been declared as of period end, less income allocated to participating securities (see below for more information).securities. Diluted EPS is computed by dividing income allocated to common shareholders plus dividends on
dilutive convertible preferred stock and preferred stock that can be tendered to exercise warrants, by the weighted-average common shares outstanding plus amounts representing the dilutive effect of stock options outstanding, restricted stock, restricted stock units (RSUs), outstanding warrants and the dilution resulting from the conversion of convertible preferred stock, if applicable.
Foreign Currency Translation
Assets, liabilities and operations of foreign branches and subsidiaries are recorded based on the functional currency of each entity. When the functional currency of a foreign operation is the local currency, the assets, liabilities and operations are translated, for consolidation purposes, from the local currency to the U.S. dollar reporting currency at period-end rates for assets and liabilities and generally at average rates for results of operations. The resulting unrealized gains and losses are reported as a component of accumulated OCI, net-of-tax. When the foreign entity’s functional currency is the U.S. dollar, the resulting remeasurement gains or losses on foreign currency-denominated assets or liabilities are included in earnings.
Credit Card and Deposit Arrangements
Endorsing Organization AgreementsPaycheck Protection Program
The Corporation contractsis participating in the Paycheck Protection Program (PPP), which is a loan program that originated from the CARES Act and was subsequently expanded by the Paycheck Protection Program and Health Care Enhancement Act. The PPP is designed to provide U.S. small businesses with other organizations to obtain their endorsement ofcash-flow assistance through loans fully guaranteed by the Corporation’s loan and deposit products. This endorsement may provide to the Corporation exclusive rights to market to the organization’s members or to customers on behalf of the Corporation. These organizations endorse the Corporation’s loan and deposit products and provide the Corporation with their mailing lists and marketing activities. These agreements generally have terms that range five or more years. The Corporation typically pays royalties in exchange for the endorsement. Compensation costs related to the credit card agreements are recorded as contra-revenue in card income.
Cardholder Reward Agreements
The Corporation offers reward programs that allow its cardholders to earn points that can be redeemed for a broad range of rewards including cash, travel and gift cards. The Corporation establishes a rewards liability based upon the points earned that are expected to be redeemed and the average cost per point redeemed. The points to be redeemed are estimated based on past redemption behavior, card product type, account transaction activity and other historical card performance. The liability is reduced as the points are redeemed. The estimated cost of the rewards programs is recorded as contra-revenue in card income.Small
Business Administration (SBA). If the borrower meets certain criteria and uses the proceeds towards certain eligible expenses, the borrower’s obligation to repay the loan can be forgiven up to the full principal amount of the loan and any accrued interest. Upon borrower forgiveness, the SBA pays the Corporation for the principal and accrued interest owed on the loan. If the full principal of the loan is not forgiven, the loan will operate according to the original loan terms with the 100 percent SBA guaranty remaining. As of December 31, 2020, the
Corporation had approximately 332,000 PPP loans with a carrying value of $22.7 billion. As compensation for originating the loans, the Corporation received lender processing fees from the SBA, which are capitalized, along with the loan origination costs, and will be amortized over the loans’ contractual lives and recognized as interest income. Upon forgiveness of a loan and repayment by the SBA, any unrecognized net capitalized fees and costs related to the loan will be recognized as interest income in that period.
NOTE 2 Net Interest Income and Noninterest Income
The table below presents the Corporation’s net interest income and noninterest income disaggregated by revenue source for 2020, 2019 and 2018. For more information, see Note 1 – Summary of Significant Accounting Principles. For a disaggregation of noninterest income by business segment and All Other, see Note 23 – Business Segment Information.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | | | | | | | | | | |
| Net interest income | | | | | | | | | | | | | | | | |
| Interest income | | | | | | | | | | | | | | | | |
| Loans and leases | $ | 34,029 | | | $ | 43,086 | | | $ | 40,811 | | | | | | | | | | | | |
| Debt securities | 9,790 | | | 11,806 | | | 11,724 | | | | | | | | | | | | |
| Federal funds sold and securities borrowed or purchased under agreements to resell | 903 | | | 4,843 | | | 3,176 | | | | | | | | | | | | |
| Trading account assets | 4,128 | | | 5,196 | | | 4,811 | | | | | | | | | | | | |
| Other interest income | 2,735 | | | 6,305 | | | 6,247 | | | | | | | | | | | | |
| Total interest income | 51,585 | | | 71,236 | | | 66,769 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Interest expense | | | | | | | | | | | | | | | | |
| Deposits | 1,943 | | | 7,188 | | | 4,495 | | | | | | | | | | | | |
| Short-term borrowings | 987 | | | 7,208 | | | 5,839 | | | | | | | | | | | | |
| Trading account liabilities | 974 | | | 1,249 | | | 1,358 | | | | | | | | | | | | |
| Long-term debt | 4,321 | | | 6,700 | | | 6,915 | | | | | | | | | | | | |
| Total interest expense | 8,225 | | | 22,345 | | | 18,607 | | | | | | | | | | | | |
| Net interest income | $ | 43,360 | | | $ | 48,891 | | | $ | 48,162 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Noninterest income | | | | | | | | | | | | | | | | |
| Fees and commissions | | | | | | | | | | | | | | | | |
| Card income | | | | | | | | | | | | | | | | |
Interchange fees (1) | $ | 3,954 | | | $ | 3,834 | | | $ | 3,866 | | | | | | | | | | | | |
| Other card income | 1,702 | | | 1,963 | | | 1,958 | | | | | | | | | | | | |
| Total card income | 5,656 | | | 5,797 | | | 5,824 | | | | | | | | | | | | |
| Service charges | | | | | | | | | | | | | | | | |
| Deposit-related fees | 5,991 | | | 6,588 | | | 6,667 | | | | | | | | | | | | |
| Lending-related fees | 1,150 | | | 1,086 | | | 1,100 | | | | | | | | | | | | |
| Total service charges | 7,141 | | | 7,674 | | | 7,767 | | | | | | | | | | | | |
| Investment and brokerage services | | | | | | | | | | | | | | | | |
| Asset management fees | 10,708 | | | 10,241 | | | 10,189 | | | | | | | | | | | | |
| Brokerage fees | 3,866 | | | 3,661 | | | 3,971 | | | | | | | | | | | | |
| Total investment and brokerage services | 14,574 | | | 13,902 | | | 14,160 | | | | | | | | | | | | |
| Investment banking fees | | | | | | | | | | | | | | | | |
| Underwriting income | 4,698 | | | 2,998 | | | 2,722 | | | | | | | | | | | | |
| Syndication fees | 861 | | | 1,184 | | | 1,347 | | | | | | | | | | | | |
| Financial advisory services | 1,621 | | | 1,460 | | | 1,258 | | | | | | | | | | | | |
| Total investment banking fees | 7,180 | | | 5,642 | | | 5,327 | | | | | | | | | | | | |
| Total fees and commissions | 34,551 | | | 33,015 | | | 33,078 | | | | | | | | | | | | |
| Market making and similar activities | 8,355 | | | 9,034 | | | 9,008 | | | | | | | | | | | | |
| Other income (loss) | (738) | | | 304 | | | 772 | | | | | | | | | | | | |
| Total noninterest income | $ | 42,168 | | | $ | 42,353 | | | $ | 42,858 | | | | | | | | | | | | |
(1)Gross interchange fees were $9.2 billion, $10.0 billion and $9.5 billion for 2020, 2019 and 2018, respectively, and are presented net of $5.5 billion, $6.2 billion and $5.6 billion of expenses for rewards and partner payments as well as certain other card costs for the same periods.
| | | | | | | | |
| | Bank of America 2017112110 |
NOTE 2 3 Derivatives
Derivative Balances
Derivatives are entered into on behalf of customers, for trading or to support risk management activities. Derivatives used in risk management activities include derivatives that may or may not be designated in qualifying hedge accounting relationships. Derivatives that are not designated in qualifying hedge accounting relationships are referred to as other risk management derivatives. For more information on the
Corporation’s derivatives and hedging
activities, see Note 1 – Summary of Significant Accounting Principles. Principles. The following tables present derivative instruments included on the Consolidated Balance Sheet in derivative assets and liabilities at December 31, 20172020 and 2016.2019. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and have been reduced by the cash collateral received or paid.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | December 31, 2020 |
| | | Gross Derivative Assets | | Gross Derivative Liabilities |
| (Dollars in billions) | Contract/ Notional (1) | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting
Hedges | | Total | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting
Hedges | | Total |
| Interest rate contracts | | | | | | | | | | | | | |
| Swaps | $ | 13,242.8 | | | $ | 199.9 | | | $ | 10.9 | | | $ | 210.8 | | | $ | 209.3 | | | $ | 1.3 | | | $ | 210.6 | |
| Futures and forwards | 3,222.2 | | | 3.5 | | | 0.1 | | | 3.6 | | | 3.6 | | | 0 | | | 3.6 | |
| Written options | 1,530.5 | | | 0 | | | 0 | | | 0 | | | 40.5 | | | 0 | | | 40.5 | |
| Purchased options | 1,545.8 | | | 45.3 | | | 0 | | | 45.3 | | | 0 | | | 0 | | | 0 | |
| Foreign exchange contracts | | | | | | | | | | | | | |
| Swaps | 1,475.8 | | | 37.1 | | | 0.3 | | | 37.4 | | | 39.7 | | | 0.6 | | | 40.3 | |
| Spot, futures and forwards | 3,710.7 | | | 53.4 | | | 0 | | | 53.4 | | | 54.5 | | | 0.5 | | | 55.0 | |
| Written options | 289.6 | | | 0 | | | 0 | | | 0 | | | 4.8 | | | 0 | | | 4.8 | |
| Purchased options | 279.3 | | | 5.0 | | | 0 | | | 5.0 | | | 0 | | | 0 | | | 0 | |
| Equity contracts | | | | | | | | | | | | | |
| Swaps | 320.2 | | | 13.3 | | | 0 | | | 13.3 | | | 14.5 | | | 0 | | | 14.5 | |
| Futures and forwards | 106.2 | | | 0.3 | | | 0 | | | 0.3 | | | 1.4 | | | 0 | | | 1.4 | |
| Written options | 599.1 | | | 0 | | | 0 | | | 0 | | | 48.8 | | | 0 | | | 48.8 | |
| Purchased options | 541.2 | | | 52.6 | | | 0 | | | 52.6 | | | 0 | | | 0 | | | 0 | |
| Commodity contracts | | | | | | | | | | | | | |
| Swaps | 36.4 | | | 1.9 | | | 0 | | | 1.9 | | | 4.4 | | | 0 | | | 4.4 | |
| Futures and forwards | 63.6 | | | 2.0 | | | 0 | | | 2.0 | | | 1.0 | | | 0 | | | 1.0 | |
| Written options | 24.6 | | | 0 | | | 0 | | | 0 | | | 1.4 | | | 0 | | | 1.4 | |
| Purchased options | 24.7 | | | 1.5 | | | 0 | | | 1.5 | | | 0 | | | 0 | | | 0 | |
Credit derivatives (2) | | | | | | | | | | | | | |
| Purchased credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 322.7 | | | 2.3 | | | 0 | | | 2.3 | | | 4.4 | | | 0 | | | 4.4 | |
| Total return swaps/options | 63.6 | | | 0.2 | | | 0 | | | 0.2 | | | 1.0 | | | 0 | | | 1.0 | |
| Written credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 301.5 | | | 4.4 | | | 0 | | | 4.4 | | | 1.9 | | | 0 | | | 1.9 | |
| Total return swaps/options | 68.6 | | | 0.6 | | | 0 | | | 0.6 | | | 0.4 | | | 0 | | | 0.4 | |
| Gross derivative assets/liabilities | | | $ | 423.3 | | | $ | 11.3 | | | $ | 434.6 | | | $ | 431.6 | | | $ | 2.4 | | | $ | 434.0 | |
| Less: Legally enforceable master netting agreements | | | | | | | (344.9) | | | | | | | (344.9) | |
| Less: Cash collateral received/paid | | | | | | | (42.5) | | | | | | | (43.6) | |
| Total derivative assets/liabilities | | | | | | | $ | 47.2 | | | | | | | $ | 45.5 | |
(1)Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2)The net derivative asset (liability) and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names were $2.2 billion and $269.8 billion at December 31, 2020.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | December 31, 2017 |
| | | | Gross Derivative Assets | | Gross Derivative Liabilities |
| (Dollars in billions) | Contract/ Notional (1) | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting Hedges | | Total | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting Hedges | | Total |
| Interest rate contracts | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Swaps (2) | $ | 15,416.4 |
| | $ | 175.1 |
| | $ | 2.9 |
| | $ | 178.0 |
| | $ | 172.5 |
| | $ | 1.7 |
| | $ | 174.2 |
|
Futures and forwards (2) | 4,332.4 |
| | 0.5 |
| | — |
| | 0.5 |
| | 0.5 |
| | — |
| | 0.5 |
|
| Written options | 1,170.5 |
| | — |
| | — |
| | — |
| | 35.5 |
| | — |
| | 35.5 |
|
| Purchased options | 1,184.5 |
| | 37.6 |
| | — |
| | 37.6 |
| | — |
| | — |
| | — |
|
| Foreign exchange contracts | | | | | |
| | |
| | |
| | |
| | |
|
| Swaps | 2,011.1 |
| | 35.6 |
| | 2.2 |
| | 37.8 |
| | 36.1 |
| | 2.7 |
| | 38.8 |
|
| Spot, futures and forwards | 3,543.3 |
| | 39.1 |
| | 0.7 |
| | 39.8 |
| | 39.1 |
| | 0.8 |
| | 39.9 |
|
| Written options | 291.8 |
| | — |
| | — |
| | — |
| | 5.1 |
| | — |
| | 5.1 |
|
| Purchased options | 271.9 |
| | 4.6 |
| | — |
| | 4.6 |
| | — |
| | — |
| | — |
|
| Equity contracts | | | |
| | |
| | |
| | |
| | |
| | |
|
| Swaps | 265.6 |
| | 4.8 |
| | — |
| | 4.8 |
| | 4.4 |
| | — |
| | 4.4 |
|
| Futures and forwards | 106.9 |
| | 1.5 |
| | — |
| | 1.5 |
| | 0.9 |
| | — |
| | 0.9 |
|
| Written options | 480.8 |
| | — |
| | — |
| | — |
| | 23.9 |
| | — |
| | 23.9 |
|
| Purchased options | 428.2 |
| | 24.7 |
| | — |
| | 24.7 |
| | — |
| | — |
| | — |
|
| Commodity contracts | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Swaps | 46.1 |
| | 1.8 |
| | — |
| | 1.8 |
| | 4.6 |
| | — |
| | 4.6 |
|
| Futures and forwards | 47.1 |
| | 3.5 |
| | — |
| | 3.5 |
| | 0.6 |
| | — |
| | 0.6 |
|
| Written options | 21.7 |
| | — |
| | — |
| | — |
| | 1.4 |
| | — |
| | 1.4 |
|
| Purchased options | 22.9 |
| | 1.4 |
| | — |
| | 1.4 |
| | — |
| | — |
| | — |
|
Credit derivatives (3) | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Purchased credit derivatives: | |
| | |
| | |
| | | | |
| | |
| | |
Credit default swaps (2) | 470.9 |
| | 4.1 |
| | — |
| | 4.1 |
| | 11.1 |
| | — |
| | 11.1 |
|
| Total return swaps/options | 54.1 |
| | 0.1 |
| | — |
| | 0.1 |
| | 1.3 |
| | — |
| | 1.3 |
|
| Written credit derivatives: |
|
| |
|
| | |
| |
|
| |
|
| | |
| |
|
|
Credit default swaps (2) | 448.2 |
| | 10.6 |
| | — |
| | 10.6 |
| | 3.6 |
| | — |
| | 3.6 |
|
| Total return swaps/options | 55.2 |
| | 0.8 |
| | — |
| | 0.8 |
| | 0.2 |
| | — |
| | 0.2 |
|
| Gross derivative assets/liabilities | | | $ | 345.8 |
| | $ | 5.8 |
| | $ | 351.6 |
| | $ | 340.8 |
| | $ | 5.2 |
| | $ | 346.0 |
|
Less: Legally enforceable master netting agreements (2) | |
| | |
| | |
| | (279.2 | ) | | |
| | |
| | (279.2 | ) |
Less: Cash collateral received/paid (2) | |
| | |
| | |
| | (34.6 | ) | | |
| | |
| | (32.5 | ) |
| Total derivative assets/liabilities | |
| | |
| | |
| | $ | 37.8 |
| | |
| | |
| | $ | 34.3 |
|
| |
(1)
| Represents the total contract/notional amount of derivative assets and liabilities outstanding. |
| |
(2)
| Derivative assets and liabilities reflect the effects of contractual amendments by two central clearing counterparties to legally re-characterize daily cash variation margin from collateral, which secures an outstanding exposure, to settlement, which discharges an outstanding exposure. One of these central clearing counterparties amended its governing documents, which became effective in January 2017. In addition, the Corporation elected to transfer its existing positions to the settlement platform for the other central clearing counterparty in September 2017.
|
| |
(3)
| The net derivative asset and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names were $6.4 billion and $435.1 billion at December 31, 2017.
|
|
| | |
113111Bank of America 2017
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | December 31, 2016 |
| | | | Gross Derivative Assets | | Gross Derivative Liabilities |
| (Dollars in billions) | Contract/ Notional (1) | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting Hedges | | Total | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting Hedges | | Total |
| Interest rate contracts | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Swaps | $ | 16,977.7 |
| | $ | 385.0 |
| | $ | 5.9 |
| | $ | 390.9 |
| | $ | 386.9 |
| | $ | 2.0 |
| | $ | 388.9 |
|
| Futures and forwards | 5,609.5 |
| | 2.2 |
| | — |
| | 2.2 |
| | 2.1 |
| | — |
| | 2.1 |
|
| Written options | 1,146.2 |
| | — |
| | — |
| | — |
| | 52.2 |
| | — |
| | 52.2 |
|
| Purchased options | 1,178.7 |
| | 53.3 |
| | — |
| | 53.3 |
| | — |
| | — |
| | — |
|
| Foreign exchange contracts | | | |
| | |
| | |
| | |
| | |
| | |
|
| Swaps | 1,828.6 |
| | 54.6 |
| | 4.2 |
| | 58.8 |
| | 58.8 |
| | 6.2 |
| | 65.0 |
|
| Spot, futures and forwards | 3,410.7 |
| | 58.8 |
| | 1.7 |
| | 60.5 |
| | 56.6 |
| | 0.8 |
| | 57.4 |
|
| Written options | 356.6 |
| | — |
| | — |
| | — |
| | 9.4 |
| | — |
| | 9.4 |
|
| Purchased options | 342.4 |
| | 8.9 |
| | — |
| | 8.9 |
| | — |
| | — |
| | — |
|
| Equity contracts | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Swaps | 189.7 |
| | 3.4 |
| | — |
| | 3.4 |
| | 4.0 |
| | — |
| | 4.0 |
|
| Futures and forwards | 68.7 |
| | 0.9 |
| | — |
| | 0.9 |
| | 0.9 |
| | — |
| | 0.9 |
|
| Written options | 431.5 |
| | — |
| | — |
| | — |
| | 21.4 |
| | — |
| | 21.4 |
|
| Purchased options | 385.5 |
| | 23.9 |
| | — |
| | 23.9 |
| | — |
| | — |
| | — |
|
| Commodity contracts | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Swaps | 48.2 |
| | 2.5 |
| | — |
| | 2.5 |
| | 5.1 |
| | — |
| | 5.1 |
|
| Futures and forwards | 49.1 |
| | 3.6 |
| | — |
| | 3.6 |
| | 0.5 |
| | — |
| | 0.5 |
|
| Written options | 29.3 |
| | — |
| | — |
| | — |
| | 1.9 |
| | — |
| | 1.9 |
|
| Purchased options | 28.9 |
| | 2.0 |
| | — |
| | 2.0 |
| | — |
| | — |
| | — |
|
Credit derivatives (2) | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Purchased credit derivatives: | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Credit default swaps | 604.0 |
| | 8.1 |
| | — |
| | 8.1 |
| | 10.3 |
| | — |
| | 10.3 |
|
| Total return swaps/options | 21.2 |
| | 0.4 |
| | — |
| | 0.4 |
| | 1.5 |
| | — |
| | 1.5 |
|
| Written credit derivatives: | |
| | |
| | |
| | |
| | | | |
| | |
|
| Credit default swaps | 614.4 |
| | 10.7 |
| | — |
| | 10.7 |
| | 7.5 |
| | — |
| | 7.5 |
|
| Total return swaps/options | 25.4 |
| | 1.0 |
| | — |
| | 1.0 |
| | 0.2 |
| | — |
| | 0.2 |
|
| Gross derivative assets/liabilities | |
| | $ | 619.3 |
| | $ | 11.8 |
| | $ | 631.1 |
| | $ | 619.3 |
| | $ | 9.0 |
| | $ | 628.3 |
|
| Less: Legally enforceable master netting agreements | |
| | |
| | |
| | (545.3 | ) | | |
| | |
| | (545.3 | ) |
| Less: Cash collateral received/paid | |
| | |
| | |
| | (43.3 | ) | | |
| | |
| | (43.5 | ) |
| Total derivative assets/liabilities | |
| | |
| | |
| | $ | 42.5 |
| | |
| | |
| | $ | 39.5 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | December 31, 2019 |
| | | Gross Derivative Assets | | Gross Derivative Liabilities |
| (Dollars in billions) | Contract/ Notional (1) | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting
Hedges | | Total | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting
Hedges | | Total |
| Interest rate contracts | | | | | | | | | | | | | |
| Swaps | $ | 15,074.4 | | | $ | 162.0 | | | $ | 9.7 | | | $ | 171.7 | | | $ | 168.5 | | | $ | 0.4 | | | $ | 168.9 | |
| Futures and forwards | 3,279.8 | | | 1.0 | | | 0 | | | 1.0 | | | 1.0 | | | 0 | | | 1.0 | |
| Written options | 1,767.7 | | | 0 | | | 0 | | | 0 | | | 32.5 | | | 0 | | | 32.5 | |
| Purchased options | 1,673.6 | | | 37.4 | | | 0 | | | 37.4 | | | 0 | | | 0 | | | 0 | |
| Foreign exchange contracts | | | | | | | | | | | | | |
| Swaps | 1,657.7 | | | 30.3 | | | 0.7 | | | 31.0 | | | 31.7 | | | 0.9 | | | 32.6 | |
| Spot, futures and forwards | 3,792.7 | | | 35.9 | | | 0.1 | | | 36.0 | | | 38.7 | | | 0.3 | | | 39.0 | |
| Written options | 274.3 | | | 0 | | | 0 | | | 0 | | | 3.8 | | | 0 | | | 3.8 | |
| Purchased options | 261.6 | | | 4.0 | | | 0 | | | 4.0 | | | 0 | | | 0 | | | 0 | |
| Equity contracts | | | | | | | | | | | | | |
| Swaps | 315.0 | | | 6.5 | | | 0 | | | 6.5 | | | 8.1 | | | 0 | | | 8.1 | |
| Futures and forwards | 125.1 | | | 0.3 | | | 0 | | | 0.3 | | | 1.1 | | | 0 | | | 1.1 | |
| Written options | 731.1 | | | 0 | | | 0 | | | 0 | | | 34.6 | | | 0 | | | 34.6 | |
| Purchased options | 668.6 | | | 42.4 | | | 0 | | | 42.4 | | | 0 | | | 0 | | | 0 | |
| Commodity contracts | | | | | | | | | | | | | |
| Swaps | 42.0 | | | 2.1 | | | 0 | | | 2.1 | | | 4.4 | | | 0 | | | 4.4 | |
| Futures and forwards | 61.3 | | | 1.7 | | | 0 | | | 1.7 | | | 0.4 | | | 0 | | | 0.4 | |
| Written options | 33.2 | | | 0 | | | 0 | | | 0 | | | 1.4 | | | 0 | | | 1.4 | |
| Purchased options | 37.9 | | | 1.4 | | | 0 | | | 1.4 | | | 0 | | | 0 | | | 0 | |
Credit derivatives (2) | | | | | | | | | | | | | |
| Purchased credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 321.6 | | | 2.7 | | | 0 | | | 2.7 | | | 5.6 | | | 0 | | | 5.6 | |
| Total return swaps/options | 86.6 | | | 0.4 | | | 0 | | | 0.4 | | | 1.3 | | | 0 | | | 1.3 | |
| Written credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 300.2 | | | 5.4 | | | 0 | | | 5.4 | | | 2.0 | | | 0 | | | 2.0 | |
| Total return swaps/options | 86.2 | | | 0.8 | | | 0 | | | 0.8 | | | 0.4 | | | 0 | | | 0.4 | |
| Gross derivative assets/liabilities | | | $ | 334.3 | | | $ | 10.5 | | | $ | 344.8 | | | $ | 335.5 | | | $ | 1.6 | | | $ | 337.1 | |
| Less: Legally enforceable master netting agreements | | | | | | | (270.4) | | | | | | | (270.4) | |
| Less: Cash collateral received/paid | | | | | | | (33.9) | | | | | | | (28.5) | |
| Total derivative assets/liabilities | | | | | | | $ | 40.5 | | | | | | | $ | 38.2 | |
(1)Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2)The net derivative asset (liability) and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names were $2.8 billion and $309.7 billion at December 31, 2019.
Represents the total contract/notional amount of derivative assets and liabilities outstanding. | | |
(2)
| The net derivative asset and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names were $2.2 billion and $548.9 billion at December 31, 2016.
|
Offsetting of Derivatives
The Corporation enters into International Swaps and Derivatives Association, Inc. (ISDA) master netting agreements or similar agreements with substantially all of the Corporation’s derivative counterparties. Where legally enforceable, these master netting agreements give the Corporation, in the event of default by the counterparty, the right to liquidate securities held as collateral and to offset receivables and payables with the same counterparty. For purposes of the Consolidated Balance Sheet, the Corporation offsets derivative assets and liabilities and cash collateral held with the same counterparty where it has such a legally enforceable master netting agreement.
The following table presents derivative instruments included in derivative assets and liabilities on the Consolidated Balance
Sheet at December 31, 20172020 and 20162019 by primary risk (e.g., interest rate risk) and the platform, where applicable, on which these derivatives are transacted. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total gross derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements which includesinclude reducing the balance for counterparty netting and cash collateral received or paid.
For more information on offsetting of securities financing agreements, see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements, and Short-term Borrowings and Restricted Cash.
|
| | | | | | | |
| | Bank of America 2017114112 |
| | | | | | | | | | | |
Offsetting of Derivatives (1) | | | | | | | | Offsetting of Derivatives (1) | |
| | | | | | | | | |
| | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities | | Derivative
Assets | | Derivative Liabilities | | Derivative
Assets | | Derivative Liabilities |
| (Dollars in billions) | December 31, 2017 | | December 31, 2016 | (Dollars in billions) | December 31, 2020 | | December 31, 2019 |
| Interest rate contracts | |
| | |
| | |
| | |
| Interest rate contracts | | | | | | | |
| Over-the-counter | $ | 211.7 |
| | $ | 206.0 |
| | $ | 267.3 |
| | $ | 258.2 |
| Over-the-counter | $ | 247.7 | | | $ | 243.5 | | | $ | 203.1 | | | $ | 196.6 | |
Over-the-counter cleared (2) | 1.9 |
| | 1.8 |
| | 177.2 |
| | 182.8 |
| |
| Exchange-traded | | Exchange-traded | 0 | | | 0 | | | 0.1 | | | 0.1 | |
| Over-the-counter cleared | | Over-the-counter cleared | 10.2 | | | 9.1 | | | 6.0 | | | 5.3 | |
| Foreign exchange contracts | | | | | | | | Foreign exchange contracts | |
| Over-the-counter | 78.7 |
| | 80.8 |
| | 124.3 |
| | 126.7 |
| Over-the-counter | 92.2 | | | 96.5 | | | 69.2 | | | 73.1 | |
| Over-the-counter cleared | 0.9 |
| | 0.7 |
| | 0.3 |
| | 0.3 |
| Over-the-counter cleared | 1.4 | | | 1.3 | | | 0.5 | | | 0.5 | |
| Equity contracts | | | | | | | | Equity contracts | |
| Over-the-counter | 18.3 |
| | 16.2 |
| | 15.6 |
| | 13.7 |
| Over-the-counter | 31.3 | | | 28.3 | | | 21.3 | | | 17.8 | |
| Exchange-traded | 9.1 |
| | 8.5 |
| | 11.4 |
| | 10.8 |
| Exchange-traded | 32.3 | | | 31.0 | | | 26.4 | | | 22.8 | |
| Commodity contracts | | | | | | | | Commodity contracts | |
| Over-the-counter | 2.9 |
| | 4.4 |
| | 3.7 |
| | 4.9 |
| Over-the-counter | 3.5 | | | 5.0 | | | 2.8 | | | 4.2 | |
| Exchange-traded | 0.7 |
| | 0.8 |
| | 1.1 |
| | 1.0 |
| Exchange-traded | 0.7 | | | 0.7 | | | 0.8 | | | 0.8 | |
| Over-the-counter cleared | | Over-the-counter cleared | 0 | | | 0 | | | 0 | | | 0.1 | |
| Credit derivatives | | | | | | | | Credit derivatives | |
| Over-the-counter | 9.1 |
| | 9.6 |
| | 15.3 |
| | 14.7 |
| Over-the-counter | 5.2 | | | 5.6 | | | 6.4 | | | 6.6 | |
Over-the-counter cleared (2) | 6.1 |
| | 6.0 |
| | 4.3 |
| | 4.3 |
| |
| Over-the-counter cleared | | Over-the-counter cleared | 2.2 | | | 1.9 | | | 2.5 | | | 2.2 | |
| Total gross derivative assets/liabilities, before netting | | | | | | | | Total gross derivative assets/liabilities, before netting | |
| Over-the-counter | 320.7 |
| | 317.0 |
| | 426.2 |
| | 418.2 |
| Over-the-counter | 379.9 | | | 378.9 | | | 302.8 | | | 298.3 | |
| Exchange-traded | 9.8 |
| | 9.3 |
| | 12.5 |
| | 11.8 |
| Exchange-traded | 33.0 | | | 31.7 | | | 27.3 | | | 23.7 | |
Over-the-counter cleared (2) | 8.9 |
| | 8.5 |
| | 181.8 |
| | 187.4 |
| |
| Over-the-counter cleared | | Over-the-counter cleared | 13.8 | | | 12.3 | | | 9.0 | | | 8.1 | |
| Less: Legally enforceable master netting agreements and cash collateral received/paid | | | | | | | | Less: Legally enforceable master netting agreements and cash collateral received/paid | |
| Over-the-counter | (296.9 | ) | | (294.6 | ) | | (398.2 | ) | | (392.6 | ) | Over-the-counter | (345.7) | | | (347.2) | | | (274.7) | | | (269.3) | |
| Exchange-traded | (8.6 | ) | | (8.6 | ) | | (8.9 | ) | | (8.9 | ) | Exchange-traded | (29.5) | | | (29.5) | | | (21.5) | | | (21.5) | |
Over-the-counter cleared (2) | (8.3 | ) | | (8.5 | ) | | (181.5 | ) | | (187.3 | ) | |
| Over-the-counter cleared | | Over-the-counter cleared | (12.2) | | | (11.8) | | | (8.1) | | | (8.1) | |
| Derivative assets/liabilities, after netting | 25.6 |
| | 23.1 |
| | 31.9 |
| | 28.6 |
| Derivative assets/liabilities, after netting | 39.3 | | | 34.4 | | | 34.8 | | | 31.2 | |
Other gross derivative assets/liabilities (3) | 12.2 |
| | 11.2 |
| | 10.6 |
| | 10.9 |
| |
Other gross derivative assets/liabilities (2) | | Other gross derivative assets/liabilities (2) | 7.9 | | | 11.1 | | | 5.7 | | | 7.0 | |
| Total derivative assets/liabilities | 37.8 |
| | 34.3 |
| | 42.5 |
| | 39.5 |
| Total derivative assets/liabilities | 47.2 | | | 45.5 | | | 40.5 | | | 38.2 | |
Less: Financial instruments collateral (4) | (11.2 | ) | | (10.4 | ) | | (13.5 | ) | | (10.5 | ) | |
Less: Financial instruments collateral (3) | | Less: Financial instruments collateral (3) | (16.1) | | | (16.6) | | | (14.6) | | | (16.1) | |
| Total net derivative assets/liabilities | $ | 26.6 |
| | $ | 23.9 |
| | $ | 29.0 |
| | $ | 29.0 |
| Total net derivative assets/liabilities | $ | 31.1 | | | $ | 28.9 | | | $ | 25.9 | | | $ | 22.1 | |
| |
(1)(1)OTC derivatives include bilateral transactions between the Corporation and a particular counterparty. OTC-cleared derivatives include bilateral transactions between the Corporation and a counterparty where the transaction is cleared through a clearinghouse. Exchange-traded derivatives include listed options transacted on an exchange. (2)Consists of derivatives entered into under master netting agreements where the enforceability of these agreements is uncertain under bankruptcy laws in some countries or industries. (3)Amounts are limited to the derivative asset/liability balance and, accordingly, do not include excess collateral received/pledged. Financial instruments collateral includes securities collateral received or pledged and cash securities held and posted at third-party custodians that are not offset on the Consolidated Balance Sheet but shown as a reduction to derive net derivative assets and liabilities. | OTC derivatives include bilateral transactions between the Corporation and a particular counterparty. OTC-cleared derivatives include bilateral transactions between the Corporation and a counterparty where the transaction is cleared through a clearinghouse, and exchange-traded derivatives include listed options transacted on an exchange. |
| |
(2)
| Derivative assets and liabilities reflect the effects of contractual amendments by two central clearing counterparties to legally re-characterize daily cash variation margin from collateral, which secures an outstanding exposure, to settlement, which discharges an outstanding exposure. One of these central clearing counterparties amended its governing documents, which became effective in January 2017. In addition, the Corporation elected to transfer its existing positions to the settlement platform for the other central clearing counterparty in September 2017.
|
| |
(3)
| Consists of derivatives entered into under master netting agreements where the enforceability of these agreements is uncertain under bankruptcy laws in some countries or industries. |
| |
(4)
| Amounts are limited to the derivative asset/liability balance and, accordingly, do not include excess collateral received/pledged. Financial instruments collateral includes securities collateral received or pledged and cash securities held and posted at third-party custodians that are not offset on the Consolidated Balance Sheet but shown as a reduction to derive net derivative assets and liabilities. |
ALM and Risk Management Derivatives
The Corporation’s ALM and risk management activities include the use of derivatives to mitigate risk to the Corporation including derivatives designated in qualifying hedge accounting relationships and derivatives used in other risk management activities. Interest rate, foreign exchange, equity, commodity and credit contracts are utilized in the Corporation’sCorporation's ALM and risk management activities.
TheCorporation maintains an overall interest rate risk management strategy that incorporates the use of interest rate contracts, which are generally non-leveraged generic interest rate and basis swaps, options, futures and forwards, to minimize significant fluctuations in earnings caused by interest rate volatility. The Corporation’s goal is to manage interest rate sensitivity and volatility so that movements in interest rates do not significantly adversely affect earnings or capital. As a result of interest rate fluctuations, hedged fixed-rate assets and liabilities appreciate or depreciate in fair value. Gains or losses on the derivative instruments that are linked to the hedged fixed-rate assets and liabilities are expected to substantially offset this unrealized appreciation or depreciation.
Market risk, including interest rate risk, can be substantial in the mortgage business. Market risk in the mortgage business is the risk that values of mortgage assets or revenues will be adversely affected by changes in market conditions such as interest rate movements. To mitigate the interest rate risk in mortgage banking production income, the Corporation utilizes
forward loan sale commitments and other derivative instruments, including purchased options, and certain debt securities. The Corporation also utilizes derivatives such as interest rate options, interest rate swaps, forward settlement contracts and eurodollar futures to hedge certain market risks of MSRs. For more information on MSRs, see Note 20 – Fair Value Measurements.
The Corporation uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities, as well as the Corporation’s investments in non-U.S. subsidiaries. Foreign exchange contracts, which include spot and forward contracts, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. Exposure to loss on these contracts will increase or decrease over their respective lives as currency exchange and interest rates fluctuate.
The Corporation purchases credit derivatives to manage credit risk related to certain funded and unfunded credit exposures. Credit derivatives include credit default swaps (CDS), total return swaps and swaptions. These derivatives are recorded on the Consolidated Balance Sheet at fair value with changes in fair value recorded in other income.
Derivatives Designated as Accounting Hedges
The Corporation uses various types of interest rate commodity and foreign exchange derivative contracts to protect against changes in the fair value of its assets and liabilities due to fluctuations in interest rates commodity prices and exchange rates (fair value hedges). The Corporation also uses these types of contracts and equity derivatives to protect against changes in the cash flows of its assets and liabilities,
and other forecasted transactions (cash flow hedges). The Corporation hedges its net investment in consolidated non-U.S. operations determined to
have functional currencies other than
the U.S. dollar using forward exchange contracts and cross-currency basis swaps, and by issuing foreign currency-denominated debt (net investment hedges).
Fair Value Hedges
The following table summarizes information related to fair value hedges for 2017, 20162020, 2019 and 2015, including hedges2018.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| Gains and Losses on Derivatives Designated as Fair Value Hedges | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Derivative | | Hedged Item |
| (Dollars in millions) | | | | | | | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
Interest rate risk on long-term debt (1) | | | | | | | | | | | $ | 7,091 | | | $ | 6,113 | | | $ | (1,538) | | | $ | (7,220) | | | $ | (6,110) | | | $ | 1,429 | |
Interest rate and foreign currency risk on long-term debt (2) | | | | | | | | | | | 783 | | | 119 | | | (1,187) | | | (783) | | | (101) | | | 1,079 | |
Interest rate risk on available-for-sale securities (3) | | | | | | | | | | | (44) | | | (102) | | | (52) | | | 49 | | | 98 | | | 50 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | | | | | | | | | | $ | 7,830 | | | $ | 6,130 | | | $ | (2,777) | | | $ | (7,954) | | | $ | (6,113) | | | $ | 2,558 | |
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(1)Amounts are recorded in interest expense in the Consolidated Statement of Income.
(2)In 2020, 2019 and 2018, the derivative amount includes gains (losses) of $701 million, $73 million and $(116) million in interest rate riskexpense, $73 million, $28 million and $(992) million in market making and similar activities, and $9 million, $18 million and $(79) million in accumulated OCI, respectively. Line item totals are in the Consolidated Statement of Income and on the Consolidated Balance Sheet.
(3)Amounts are recorded in interest income in the Consolidated Statement of Income.
The table below summarizes the carrying value of hedged assets and liabilities that are designated and qualifying in fair value hedging relationships along with the cumulative amount of fair value hedging adjustments included in the carrying value that have been recorded in the current hedging relationships. These fair value hedging adjustments are open basis adjustments that are not subject to amortization as long as the hedging relationship remains designated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Designated Fair Value Hedged Assets (Liabilities) | |
| | | | | | | | | | | | |
| | | | | | | | |
| Carrying Value | | Cumulative Fair Value Adjustments (1) | | Carrying Value | | Cumulative Fair Value Adjustments (1) | | | | | |
| (Dollars in millions) | December 31, 2020 | | December 31, 2019 | | | | | |
Long-term debt (2) | $ | (150,556) | | | $ | (8,910) | | | $ | (162,389) | | | $ | (8,685) | | | | | | |
Available-for-sale debt securities (2, 3, 4) | 116,252 | | | 114 | | | 1,654 | | | 64 | | | | | | |
Trading account assets (5) | 427 | | | 15 | | | 0 | | | 0 | | | | | | |
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(1)For assets, increase (decrease) to carrying value and for liabilities, (increase) decrease to carrying value.
(2)At December 31, 2020 and 2019, the cumulative fair value adjustments remaining on long-term debt that were acquired as partand AFS debt securities from discontinued hedging relationships resulted in an (increase) decrease in the related liability of a business combination$(3.7) billion and redesignated at that time. At redesignation,$1.3 billion and an increase (decrease) in the fair valuerelated asset of $(69) million and $8 million, which are being amortized over the remaining contractual life of the derivativesde-designated hedged items.
(3)These amounts include the amortized cost basis of the prepayable financial assets used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship (i.e. last-of-layer hedging relationship). At December 31, 2020, the amortized cost of the closed portfolios used in these hedging relationships was positive. As the derivatives mature, the fair value will approach zero. As a result, ineffectiveness will occur and the fair value changes$34.6 billion, of which $7.0 billion was designated in the derivatives and the long-term debt being hedged may be directionally the same in certain scenarios. Based on a regression analysis, the derivatives continuelast-of-layer hedging relationship. The cumulative basis adjustments associated with these hedging relationships were not significant.
(4)Carrying value represents amortized cost.
(5)Represents hedging activities related to be highly effective at offsetting changes in the fair value of the long-term debt attributable to interest rate risk.precious metals inventory.
|
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| | | | | | | | | | | | | | | |
| Derivatives Designated as Fair Value Hedges | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Gains (Losses) | Derivative | | Hedged Item | | Hedge Ineffectiveness |
| (Dollars in millions) | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
Interest rate risk on long-term debt (1) | $ | (1,537 | ) | | $ | (1,488 | ) | | $ | (718 | ) | | $ | 1,045 |
| | $ | 646 |
| | $ | (77 | ) | | $ | (492 | ) | | $ | (842 | ) | | $ | (795 | ) |
Interest rate and foreign currency risk on long-term debt (1) | 1,811 |
| | (941 | ) | | (1,898 | ) | | (1,767 | ) | | 944 |
| | 1,812 |
| | 44 |
| | 3 |
| | (86 | ) |
Interest rate risk on available-for-sale securities (2) | (67 | ) | | 227 |
| | 105 |
| | 35 |
| | (286 | ) | | (127 | ) | | (32 | ) | | (59 | ) | | (22 | ) |
| Total | $ | 207 |
| | $ | (2,202 | ) | | $ | (2,511 | ) | | $ | (687 | ) | | $ | 1,304 |
| | $ | 1,608 |
| | $ | (480 | ) | | $ | (898 | ) | | $ | (903 | ) |
| |
(1)
| Amounts are recorded in interest expense on long-term debt and in other income. |
| |
(2)
| Amounts are recorded in interest income on debt securities. |
Cash Flow and Net Investment Hedges
The following table below summarizes certain information related to cash flow hedges and net investment hedges for 2017, 2016,2020, 2019 and 2015.2018. Of the $831$426 million after-tax net lossgain ($1.3 billion pre-tax)566 million pretax) on derivatives in accumulated OCI at December 31, 2017, $1302020, gains of $190 million after-tax ($208254 million pre-tax) ispretax) related to both open and terminated hedges are expected to be
reclassified into earnings in the next 12 months. These net lossesgains reclassified into earnings are expected to primarily reduceincrease net interest income
related to the respective hedged items. Amounts related to price risk on restricted stock awards reclassified from accumulated OCI are recorded in personnel expense. For terminated cash flow hedges, the time period over which the majority of the forecasted transactions are hedged is approximately seven3 years, with a maximum length of time for certain forecasted transactions of 1916 years.
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| Gains and Losses on Derivatives Designated as Cash Flow and Net Investment Hedges | | | |
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| Gains (Losses) Recognized in
Accumulated OCI on Derivatives | | Gains (Losses) in Income
Reclassified from Accumulated OCI | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions, amounts pretax) | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 | | | | | | | | | | | | | | | | | | |
| Cash flow hedges | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate risk on variable-rate assets (1) | $ | 763 | | | $ | 671 | | | $ | (159) | | | $ | (7) | | | $ | (104) | | | $ | (165) | | | | | | | | | | | | | | | | | | | | | | | |
Price risk on forecasted MBS purchases (1) | 241 | | | 0 | | | 0 | | | 9 | | | 0 | | | 0 | | | | | | | | | | | | | | | | | | | | | | | |
Price risk on certain compensation plans (2) | 85 | | | 34 | | | 4 | | | 12 | | | (2) | | | 27 | | | | | | | | | | | | | | | | | | | | | | | |
| Total | $ | 1,089 | | | $ | 705 | | | $ | (155) | | | $ | 14 | | | $ | (106) | | | $ | (138) | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment hedges | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange risk (3) | $ | (834) | | | $ | 22 | | | $ | 989 | | | $ | 4 | | | $ | 366 | | | $ | 411 | | | | | | | | | | | | | | | | | | | | | | | |
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(1)Amounts reclassified from accumulated OCI are recorded in interest income in the Consolidated Statement of Income.
(2)Amounts reclassified from accumulated OCI are recorded in compensation and benefits expense in the Consolidated Statement of Income.
(3)Amounts reclassified from accumulated OCI are recorded in other income in the Consolidated Statement of Income. Amounts excluded from effectiveness testing and recognized in market making and similar activities were gains (losses) of $(11) million, $154 million and $47 million in 2020, 2019 and 2018, respectively.
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| Derivatives Designated as Cash Flow and Net Investment Hedges | | | |
| | | | | | | | | | | | |
| | Gains (Losses) Recognized in Accumulated OCI on Derivatives | | Gains (Losses) in Income
Reclassified from Accumulated OCI |
| (Dollars in millions, amounts pre-tax) | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Cash flow hedges | | | | | | | | | | | |
|
| Interest rate risk on variable-rate portfolios | $ | (109 | ) | | $ | (340 | ) | | $ | 95 |
| | $ | (327 | ) | | $ | (553 | ) | | $ | (974 | ) |
Price risk on certain restricted stock awards (1) | 59 |
| | 41 |
| | (40 | ) | | 148 |
| | (32 | ) | | 91 |
|
Total (2) | $ | (50 | ) | | $ | (299 | ) | | $ | 55 |
| | $ | (179 | ) | | $ | (585 | ) | | $ | (883 | ) |
| Net investment hedges | |
| | |
| | |
| | |
| | |
| | |
Foreign exchange risk (3) | $ | (1,588 | ) | | $ | 1,636 |
| | $ | 3,010 |
| | $ | 1,782 |
| | $ | 3 |
| | $ | 153 |
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(1)
| Gains (losses) recognized in accumulated OCI are primarily related to the change in the Corporation’s stock price for the period. |
| |
(2)
| In 2017, 2016 and 2015, amounts representing hedge ineffectiveness were not significant.
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(3)
| In 2017, substantially all of the gains in income reclassified from accumulated OCI were comprised of the gain recognized on derivatives used to hedge the currency risk of the Corporation’s net investment in its non-U.S. consumer credit card business, which was sold in 2017. For more information, see Note 14 – Accumulated Other Comprehensive Income (Loss). In 2017, 2016 and 2015, amounts excluded from effectiveness testing in total were $120 million, $325 million and $298 million.
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| | Bank of America 2017116114 |
Other Risk Management Derivatives
Other risk management derivatives are used by the Corporation to reduce certain risk exposures. These derivatives are not qualifying accounting hedges because either they did not qualify for or were not designated as accounting hedges.exposures by economically hedging various assets and liabilities. The following table below presents gains (losses) on these derivatives for 2017, 20162020, 2019 and 2015.2018. These gains (losses) are largely offset by the income or expense that is recorded on the hedged item.
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| Gains and Losses on Other Risk Management Derivatives |
| | | | | | | | | |
| | | | | | | | | |
| (Dollars in millions) | | | | | 2020 | | 2019 | | 2018 |
Interest rate risk on mortgage activities (1, 2) | | | | | $ | 446 | | | $ | 315 | | | $ | (107) | |
Credit risk on loans (2) | | | | | (68) | | | (58) | | | 9 | |
Interest rate and foreign currency risk on ALM activities (3) | | | | | (2,971) | | | 1,112 | | | 3,278 | |
Price risk on certain compensation plans (4) | | | | | 700 | | | 943 | | | (495) | |
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| | | | | | |
| Other Risk Management Derivatives |
| | | | | | |
| Gains (Losses) | | | | | |
| (Dollars in millions) | 2017 | | 2016 | | 2015 |
Interest rate risk on mortgage banking income (1) | $ | 8 |
| | $ | 461 |
| | $ | 254 |
|
Credit risk on loans (2) | (6 | ) | | (107 | ) | | (22 | ) |
Interest rate and foreign currency risk on ALM activities (3) | (36 | ) | | (754 | ) | | (222 | ) |
Price risk on certain restricted stock awards (4) | 301 |
| | 9 |
| | (267 | ) |
| |
(1)(2)Gains (losses) on these derivatives are recorded in other income. (3)Gains (losses) on these derivatives are recorded in market making and similar activities. (4)Gains (losses) on these derivatives are recorded in compensation and benefits expense. | Net gains (losses) on these derivatives are recorded in mortgage banking income as they are used to mitigate the interest rate risk related to MSRs, IRLCs and mortgage LHFS, all of which are measured at fair value with changes in fair value recorded in mortgage banking income. The fair value of IRLCs is derived from the fair value of related mortgage loans which is based on observable market data and includes the expected net future cash flows related to servicing of the loans. The net gains on IRLCs related to the origination of mortgage loans that are held-for-sale, which are not included in the table but are considered derivative instruments, were $220 million, $533 million and $714 million for 2017, 2016 and 2015, respectively.
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(2)
| Primarily related to derivatives that are economic hedges of credit risk on loans. Net gains (losses) on these derivatives are recorded in other income. |
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(3)
| Primarily related to hedges of debt securities carried at fair value and hedges of foreign currency-denominated debt. Gains (losses) on these derivatives and the related hedged items are recorded in other income. |
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(4)
| Gains (losses) on these derivatives are recorded in personnel expense. |
Transfers of Financial Assets with Risk Retained through Derivatives
The Corporation enters into certain transactions involving the transfer of financial assets that are accounted for as sales where substantially all of the economic exposure to the transferred financial assets is retained through derivatives (e.g., interest rate and/or credit), but the Corporation does not retain control over the assets transferred. ThroughAt both December 31, 20172020 and 2016,2019, the Corporation had transferred $6.0 billion and $6.6$5.2 billion of non-U.S. government-guaranteed MBSmortgage-backed securities to a third-party trust and retained economic exposure to the transferred assets through derivative contracts. In connection with these transfers, the
Corporation received gross cash proceeds of $6.0$5.2 billion and $6.6 billion at theas of both transfer dates. At December 31, 20172020 and 2016,2019, the fair value of the transferred securities was $6.1$5.5 billion and $6.3$5.3 billion. Derivative assets of $46 million and $43 million and liabilities of $3 million and $10 million were recorded at December 31, 2017 and 2016, and are included in credit derivatives in the derivative instruments table on page 113.
Sales and Trading Revenue
The Corporation enters into trading derivatives to facilitate client transactions and to manage risk exposures arising from trading account assets and liabilities. It is the Corporation’s policy to include these derivative instruments in its trading activities, which include derivatives and non-derivative cash instruments. The resulting risk from these derivatives is managed on a portfolio basis as part of the Corporation’s Global Markets business segment. The related sales and trading revenue generated within Global Markets is recorded in various income statement line items, including trading account profitsmarket making and similar activities and net interest income as well as other revenue categories.
Sales and trading revenue includes changes in the fair value and realized gains and losses on the sales of trading and other assets, net interest income, and fees primarily from commissions on equity securities. Revenue is generated by the difference in the client price for an instrument and the price at which the trading desk can execute the trade in the dealer market. For equity securities, commissions related to purchases and sales are recorded in the “Other” column in the Sales and Trading Revenue table. Changes in the fair value of these securities are included in trading account profits.market making and similar activities. For debt securities, revenue, with the exception of interest associated with the debt securities, is typically included in trading account profits.
market making and similar activities. Unlike commissions for equity securities, the initial revenue related to broker-dealer services for debt securities is typically included in the pricing of the instrument rather than being charged through separate fee arrangements. Therefore, this revenue is recorded in trading account profitsmarket making and similar activities as part of the initial mark to fair value. For derivatives, the majority of revenue is included in trading account profits.market making and similar activities. In transactions where the Corporation acts as agent, which include exchange-traded futures and options, fees are recorded in other income.
The following table, below, which includes both derivatives and non-derivative cash instruments, identifies the amounts in the respective income statement line items attributable to the Corporation’s sales and trading revenue in Global Markets, categorized by primary risk, for 2017, 20162020, 2019 and 2015. The difference between total trading account profits in the following
table and in the Consolidated Statement of Income represents trading activities in business segments other than Global Markets.2018. This table includes DVAdebit valuation adjustment (DVA) and funding valuation adjustment (FVA) gains (losses). Global Markets results in Note 23 – Business Segment Information are presented on a fully taxable-equivalent (FTE) basis. The following table below is not presented on an FTE basis.
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| Sales and Trading Revenue |
| | | | | | | | | | | | | | | |
| | | | | | | | | Market making and similar activities | | Net Interest
Income | | Other (1) | | Total |
| (Dollars in millions) | | | 2020 |
| Interest rate risk | | | | | | | | | $ | 2,211 | | | $ | 2,400 | | | $ | 231 | | | $ | 4,842 | |
| Foreign exchange risk | | | | | | | | | 1,482 | | | (20) | | | 3 | | | 1,465 | |
| Equity risk | | | | | | | | | 3,656 | | | (77) | | | 1,801 | | | 5,380 | |
| Credit risk | | | | | | | | | 812 | | | 1,638 | | | 328 | | | 2,778 | |
| Other risk | | | | | | | | | 308 | | | 4 | | | 44 | | | 356 | |
| Total sales and trading revenue | | | | | | | | | $ | 8,469 | | | $ | 3,945 | | | $ | 2,407 | | | $ | 14,821 | |
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| | | | | | | | | | | | | | | |
| | | 2019 |
| Interest rate risk | | | | | | | | | $ | 1,000 | | | $ | 1,817 | | | $ | 113 | | | $ | 2,930 | |
| Foreign exchange risk | | | | | | | | | 1,288 | | | 62 | | | 57 | | | 1,407 | |
| Equity risk | | | | | | | | | 3,563 | | | (634) | | | 1,569 | | | 4,498 | |
| Credit risk | | | | | | | | | 1,091 | | | 1,807 | | | 519 | | | 3,417 | |
| Other risk | | | | | | | | | 120 | | | 70 | | | 53 | | | 243 | |
| Total sales and trading revenue | | | | | | | | | $ | 7,062 | | | $ | 3,122 | | | $ | 2,311 | | | $ | 12,495 | |
| | | | | | | | | | | | | | | |
| | | 2018 |
| Interest rate risk | | | | | | | | | $ | 810 | | | $ | 1,651 | | | $ | 245 | | | $ | 2,706 | |
| Foreign exchange risk | | | | | | | | | 1,504 | | | 31 | | | 22 | | | 1,557 | |
| Equity risk | | | | | | | | | 3,870 | | | (657) | | | 1,643 | | | 4,856 | |
| Credit risk | | | | | | | | | 1,034 | | | 1,886 | | | 600 | | | 3,520 | |
| Other risk | | | | | | | | | 40 | | | 197 | | | 49 | | | 286 | |
| Total sales and trading revenue | | | | | | | | | $ | 7,258 | | | $ | 3,108 | | | $ | 2,559 | | | $ | 12,925 | |
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| | | | | | | | |
| Sales and Trading Revenue | | | | | | | |
| | | | | | | | |
| | Trading Account Profits | | Net Interest Income | | Other (1) | | Total |
| (Dollars in millions) | 2017 |
| Interest rate risk | $ | 1,145 |
| | $ | 980 |
| | $ | 417 |
| | $ | 2,542 |
|
| Foreign exchange risk | 1,417 |
| | (1 | ) | | (162 | ) | | 1,254 |
|
| Equity risk | 2,689 |
| | (525 | ) | | 1,904 |
| | 4,068 |
|
| Credit risk | 1,251 |
| | 2,537 |
| | 577 |
| | 4,365 |
|
| Other risk | 204 |
| | 33 |
| | 75 |
| | 312 |
|
| Total sales and trading revenue | $ | 6,706 |
| | $ | 3,024 |
| | $ | 2,811 |
| | $ | 12,541 |
|
| | | | | | | | |
| | 2016 |
| Interest rate risk | $ | 1,613 |
| | $ | 1,410 |
| | $ | 304 |
| | $ | 3,327 |
|
| Foreign exchange risk | 1,360 |
| | (10 | ) | | (154 | ) | | 1,196 |
|
| Equity risk | 1,917 |
| | 20 |
| | 2,074 |
| | 4,011 |
|
| Credit risk | 1,250 |
| | 2,569 |
| | 424 |
| | 4,243 |
|
| Other risk | 407 |
| | (20 | ) | | 40 |
| | 427 |
|
| Total sales and trading revenue | $ | 6,547 |
| | $ | 3,969 |
| | $ | 2,688 |
| | $ | 13,204 |
|
| | | | | | | | |
| | 2015 |
| Interest rate risk | $ | 1,290 |
| | $ | 1,333 |
| | $ | (259 | ) | | $ | 2,364 |
|
| Foreign exchange risk | 1,322 |
| | (10 | ) | | (117 | ) | | 1,195 |
|
| Equity risk | 2,115 |
| | 56 |
| | 2,152 |
| | 4,323 |
|
| Credit risk | 920 |
| | 2,333 |
| | 445 |
| | 3,698 |
|
| Other risk | 459 |
| | (81 | ) | | 62 |
| | 440 |
|
| Total sales and trading revenue | $ | 6,106 |
| | $ | 3,631 |
| | $ | 2,283 |
| | $ | 12,020 |
|
| |
(1)
| Represents amounts in investment and brokerage services and other income that are recorded in Global Markets and included in the definition of sales and trading revenue. Includes investment and brokerage services revenue of $2.0 billion, $2.1 billion, and $2.2 billion for 2017, 2016, and 2015, respectively.
|
Credit Derivatives
The Corporation enters into credit derivatives primarily to facilitate client transactions and to manage credit risk exposures. Credit derivatives derive value based on an underlying third-party referenced obligation or a portfolio of referenced obligations and generally require the Corporation, as the seller of credit protection, to make payments to a buyer upon the occurrence of a pre-definedpredefined credit event. Such credit events generally include bankruptcy of the referenced credit entity and failure to pay under the obligation,
as well as acceleration of indebtedness and payment repudiation or
moratorium. For credit derivatives based on a portfolio of referenced credits or credit indices, the Corporation may not be required to make payment until a specified amount of loss has occurred and/or may only be required to make payment up to a specified amount.
Credit derivative instruments where the Corporation is the seller of credit protection and their expiration at December 31, 2017 and 2016 are summarized in the following table.
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| Credit Derivative Instruments | | | | | | | | | |
| | | | | | | | | | |
| | Less than One Year | | One to Three Years | | Three to Five Years | | Over Five Years | | Total |
| | December 31, 2017 |
| (Dollars in millions) | Carrying Value |
| Credit default swaps: | |
| | |
| | |
| | |
| | |
|
| Investment grade | $ | 4 |
| | $ | 3 |
| | $ | 61 |
| | $ | 245 |
| | $ | 313 |
|
| Non-investment grade | 203 |
| | 453 |
| | 484 |
| | 2,133 |
| | 3,273 |
|
| Total | 207 |
| | 456 |
| | 545 |
| | 2,378 |
| | 3,586 |
|
| Total return swaps/options: | |
| | |
| | |
| | |
| | |
|
| Investment grade | 30 |
| | — |
| | — |
| | — |
| | 30 |
|
| Non-investment grade | 150 |
| | — |
| | — |
| | 3 |
| | 153 |
|
| Total | 180 |
| | — |
| | — |
| | 3 |
| | 183 |
|
| Total credit derivatives | $ | 387 |
| | $ | 456 |
| | $ | 545 |
| | $ | 2,381 |
| | $ | 3,769 |
|
| Credit-related notes: | |
| | |
| | |
| | |
| | |
|
| Investment grade | $ | — |
| | $ | — |
| | $ | 7 |
| | $ | 689 |
| | $ | 696 |
|
| Non-investment grade | 12 |
| | 4 |
| | 34 |
| | 1,548 |
| | 1,598 |
|
| Total credit-related notes | $ | 12 |
| | $ | 4 |
| | $ | 41 |
| | $ | 2,237 |
| | $ | 2,294 |
|
| | Maximum Payout/Notional |
| Credit default swaps: | |
| | |
| | |
| | |
| | |
|
| Investment grade | $ | 61,388 |
| | $ | 115,480 |
| | $ | 107,081 |
| | $ | 21,579 |
| | $ | 305,528 |
|
| Non-investment grade | 39,312 |
| | 49,843 |
| | 39,098 |
| | 14,420 |
| | 142,673 |
|
| Total | 100,700 |
| | 165,323 |
| | 146,179 |
| | 35,999 |
| | 448,201 |
|
| Total return swaps/options: | |
| | |
| | |
| | |
| | |
|
| Investment grade | 37,394 |
| | 2,581 |
| | — |
| | 143 |
| | 40,118 |
|
| Non-investment grade | 13,751 |
| | 514 |
| | 143 |
| | 697 |
| | 15,105 |
|
| Total | 51,145 |
| | 3,095 |
| | 143 |
| | 840 |
| | 55,223 |
|
| Total credit derivatives | $ | 151,845 |
| | $ | 168,418 |
| | $ | 146,322 |
| | $ | 36,839 |
| | $ | 503,424 |
|
| | | | | | | | | | |
| | December 31, 2016 |
| | Carrying Value |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 10 |
| | $ | 64 |
| | $ | 535 |
| | $ | 783 |
| | $ | 1,392 |
|
| Non-investment grade | 771 |
| | 1,053 |
| | 908 |
| | 3,339 |
| | 6,071 |
|
| Total | 781 |
| | 1,117 |
| | 1,443 |
| | 4,122 |
| | 7,463 |
|
| Total return swaps/options: | |
| | |
| | |
| | |
| | |
|
| Investment grade | 16 |
| | — |
| | — |
| | — |
| | 16 |
|
| Non-investment grade | 127 |
| | 10 |
| | 2 |
| | 1 |
| | 140 |
|
| Total | 143 |
| | 10 |
| | 2 |
| | 1 |
| | 156 |
|
| Total credit derivatives | $ | 924 |
| | $ | 1,127 |
| | $ | 1,445 |
| | $ | 4,123 |
| | $ | 7,619 |
|
| Credit-related notes: | |
| | |
| | |
| | |
| | |
|
| Investment grade | $ | — |
| | $ | 12 |
| | $ | 542 |
| | $ | 1,423 |
| | $ | 1,977 |
|
| Non-investment grade | 70 |
| | 22 |
| | 60 |
| | 1,318 |
| | 1,470 |
|
| Total credit-related notes | $ | 70 |
| | $ | 34 |
| | $ | 602 |
| | $ | 2,741 |
| | $ | 3,447 |
|
| | Maximum Payout/Notional |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 121,083 |
| | $ | 143,200 |
| | $ | 116,540 |
| | $ | 21,905 |
| | $ | 402,728 |
|
| Non-investment grade | 84,755 |
| | 67,160 |
| | 41,001 |
| | 18,711 |
| | 211,627 |
|
| Total | 205,838 |
| | 210,360 |
| | 157,541 |
| | 40,616 |
| | 614,355 |
|
| Total return swaps/options: | |
| | |
| | |
| | |
| | |
|
| Investment grade | 12,792 |
| | — |
| | — |
| | — |
| | 12,792 |
|
| Non-investment grade | 6,638 |
| | 5,127 |
| | 589 |
| | 208 |
| | 12,562 |
|
| Total | 19,430 |
| | 5,127 |
| | 589 |
| | 208 |
| | 25,354 |
|
| Total credit derivatives | $ | 225,268 |
| | $ | 215,487 |
| | $ | 158,130 |
| | $ | 40,824 |
| | $ | 639,709 |
|
Credit derivatives are classified as investment and non-investment grade based on the credit quality of the underlying referenced obligation. The Corporation considers ratings of BBB-
or higher as investment grade. Non-investment grade includes non-rated credit derivative instruments. The Corporation discloses internal categorizations of investment grade and non-investment grade consistent with how risk is managed for these instruments.
Credit derivative instruments where the Corporation is the seller of credit protection and their expiration at December 31, 2020 and 2019 are summarized in the following table.
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| | | | | | | | | |
| Credit Derivative Instruments | | | | | | | | | |
| | | | | | | | | |
| Less than
One Year | | One to
Three Years | | Three to
Five Years | | Over Five
Years | | Total |
| December 31, 2020 |
| (Dollars in millions) | Carrying Value |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 0 | | | $ | 1 | | | $ | 35 | | | $ | 94 | | | $ | 130 | |
| Non-investment grade | 26 | | | 233 | | | 364 | | | 1,163 | | | 1,786 | |
| Total | 26 | | | 234 | | | 399 | | | 1,257 | | | 1,916 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 21 | | | 4 | | | 0 | | | 0 | | | 25 | |
| Non-investment grade | 345 | | | 0 | | | 0 | | | 0 | | | 345 | |
| Total | 366 | | | 4 | | | 0 | | | 0 | | | 370 | |
| Total credit derivatives | $ | 392 | | | $ | 238 | | | $ | 399 | | | $ | 1,257 | | | $ | 2,286 | |
| Credit-related notes: | | | | | | | | | |
| Investment grade | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 572 | | | $ | 572 | |
| Non-investment grade | 64 | | | 2 | | | 10 | | | 947 | | | 1,023 | |
| Total credit-related notes | $ | 64 | | | $ | 2 | | | $ | 10 | | | $ | 1,519 | | | $ | 1,595 | |
| | Maximum Payout/Notional |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 33,474 | | | $ | 75,731 | | | $ | 87,218 | | | $ | 16,822 | | | $ | 213,245 | |
| Non-investment grade | 13,664 | | | 28,770 | | | 35,978 | | | 9,852 | | | 88,264 | |
| Total | 47,138 | | | 104,501 | | | 123,196 | | | 26,674 | | | 301,509 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 30,961 | | | 1,061 | | | 77 | | | 0 | | | 32,099 | |
| Non-investment grade | 36,128 | | | 364 | | | 27 | | | 5 | | | 36,524 | |
| Total | 67,089 | | | 1,425 | | | 104 | | | 5 | | | 68,623 | |
| Total credit derivatives | $ | 114,227 | | | $ | 105,926 | | | $ | 123,300 | | | $ | 26,679 | | | $ | 370,132 | |
| | | | | | | | | |
| December 31, 2019 |
| Carrying Value |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 0 | | | $ | 5 | | | $ | 60 | | | $ | 164 | | | $ | 229 | |
| Non-investment grade | 70 | | | 292 | | | 561 | | | 808 | | | 1,731 | |
| Total | 70 | | | 297 | | | 621 | | | 972 | | | 1,960 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 35 | | | 0 | | | 0 | | | 0 | | | 35 | |
| Non-investment grade | 344 | | | 0 | | | 0 | | | 0 | | | 344 | |
| Total | 379 | | | 0 | | | 0 | | | 0 | | | 379 | |
| Total credit derivatives | $ | 449 | | | $ | 297 | | | $ | 621 | | | $ | 972 | | | $ | 2,339 | |
| Credit-related notes: | | | | | | | | | |
| Investment grade | $ | 0 | | | $ | 3 | | | $ | 1 | | | $ | 639 | | | $ | 643 | |
| Non-investment grade | 6 | | | 2 | | | 1 | | | 1,125 | | | 1,134 | |
| Total credit-related notes | $ | 6 | | | $ | 5 | | | $ | 2 | | | $ | 1,764 | | | $ | 1,777 | |
| | Maximum Payout/Notional |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 55,827 | | | $ | 67,838 | | | $ | 71,320 | | | $ | 17,708 | | | $ | 212,693 | |
| Non-investment grade | 19,049 | | | 26,521 | | | 29,618 | | | 12,337 | | | 87,525 | |
| Total | 74,876 | | | 94,359 | | | 100,938 | | | 30,045 | | | 300,218 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 56,488 | | | 0 | | | 62 | | | 76 | | | 56,626 | |
| Non-investment grade | 28,707 | | | 657 | | | 104 | | | 60 | | | 29,528 | |
| Total | 85,195 | | | 657 | | | 166 | | | 136 | | | 86,154 | |
| Total credit derivatives | $ | 160,071 | | | $ | 95,016 | | | $ | 101,104 | | | $ | 30,181 | | | $ | 386,372 | |
The notional amount represents the maximum amount payable by the Corporation for most credit derivatives. However, the Corporation does not monitor its exposure to credit derivatives based solely on the notional amount because this measure does
not take into consideration the probability of occurrence. As such, the notional amount is not a reliable indicator of the Corporation’s exposure to these contracts. Instead, a risk framework is used to define risk tolerances and establish limits so that certain credit risk-related losses occur
within acceptable, predefined limits.
Credit-related notes in the table above include investments in securities issued by CDO, collateralized loan obligation (CLO) and credit-linked note vehicles. These instruments are primarily classified as trading securities. The carrying value of these instruments equals the Corporation’s maximum exposure to loss.
The Corporation is not obligated to make any payments to the entities under the terms of the securities owned.
Credit-related Contingent Features and Collateral
TheCorporation executes the majority of its derivative contracts in the OTC market with large, international financial institutions, including broker-dealers and, to a lesser degree, with a variety of non-financial companies. A significant majority of the derivative transactions are executed on a daily margin basis. Therefore, events such as a credit rating downgrade (depending on the ultimate rating level) or a breach of credit covenants would typically require an increase in the amount of collateral required of the counterparty, where applicable, and/or allow the Corporation to take additional protective measures such as early termination of all trades. Further, as previously discussed on page 114,112, the Corporation enters into legally enforceable master netting agreements whichthat reduce risk by permitting closeout and netting of transactions with the same counterparty upon the occurrence of certain events.
A majorityCertain of the Corporation’s derivative contracts contain credit risk-related contingent features, primarily in the form of ISDA
master netting agreements and credit support documentation that enhance the creditworthiness of these instruments compared to other obligations of the respective counterparty with whom the Corporation has transacted. These contingent features may be for the benefit of the Corporation as well as its counterparties with respect to changes in the Corporation’s creditworthiness and the mark-to-market exposure under the derivative transactions. At December 31, 20172020 and 2016,2019, the Corporation held cash and securities collateral of $77.2$96.5 billion and $85.5$84.3 billion and posted cash and securities collateral of $59.2$88.6 billion and $71.1$69.1 billion in the normal course of business under derivative agreements, excluding cross-product margining agreements where clients are permitted to margin on a net basis for both derivative and secured financing arrangements.
In connection with certain OTC derivative contracts and other trading agreements, the Corporation can be required to provide additional collateral or to terminate transactions with certain counterparties in the event of a downgrade of the senior debt ratings of the Corporation or certain subsidiaries. The amount of
additional collateral required depends on the contract and is usually a fixed incremental amount and/or the market value of the exposure.
At December 31, 2017,2020, the amount of collateral, calculated based on the terms of the contracts, that the Corporation and
certain subsidiaries could be required to post to counterparties but had not yet posted to counterparties was approximately $3.2$2.6 billion,, including $2.1$1.2 billion for Bank of America, National Association (Bank of America, N.A. or BANA)(BANA).
Some counterparties are currently able to unilaterally terminate certain contracts, or the Corporation or certain subsidiaries may be required to take other action such as find a suitable replacement or obtain a guarantee. At December 31, 20172020 and 2016,2019, the liability recorded for these derivative contracts was not significant.
The following table presents the amount of additional collateral that would have been contractually required by derivative contracts and other trading agreements at December 31, 20172020 if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by one incremental notch and by an additional second incremental notch.
| | | | | | | | | | | |
| | | |
| Additional Collateral Required to be Posted Upon Downgrade at December 31, 2020 |
| | | |
| (Dollars in millions) | One
incremental notch | | Second
incremental notch |
| Bank of America Corporation | $ | 300 | | | $ | 735 | |
Bank of America, N.A. and subsidiaries (1) | 61 | | | 570 | |
|
| | | | | | |
| | | |
| Additional Collateral Required to be Posted Upon Downgrade at December 31, 2017 |
| | | |
| (Dollars in millions) | One incremental notch | Second incremental notch |
| Bank of America Corporation | $ | 779 |
| $ | 487 |
|
Bank of America, N.A. and subsidiaries (1) | 391 |
| 230 |
|
| |
(1)
| Included in Bank of America Corporation collateral requirements in this table. |
The following table below presents the derivative liabilities that would be subject to unilateral termination by counterparties and the amounts of collateral that would have been contractually required at December 31, 20172020 if the long-term senior debt ratings for the Corporation or certain subsidiaries had been lower by one incremental notch and by an additional second incremental notch.
| | | | | |
| Derivative Liabilities Subject to Unilateral Termination Upon Downgrade at December 31, 2017 | |
| Derivative Liabilities Subject to Unilateral Termination Upon Downgrade at December 31, 2020 | | Derivative Liabilities Subject to Unilateral Termination Upon Downgrade at December 31, 2020 |
| | | |
| (Dollars in millions) | One incremental notch | Second incremental notch | (Dollars in millions) | One
incremental notch | | Second
incremental notch |
| Derivative liabilities | $ | 428 |
| $ | 1,163 |
| Derivative liabilities | $ | 45 | | | $ | 1,035 | |
| Collateral posted | 339 |
| 800 |
| Collateral posted | 23 | | | 544 | |
Valuation Adjustments on Derivatives
TheCorporation records credit risk valuation adjustments on derivatives in order to properly reflect the credit quality of the counterparties and its own credit quality. The Corporation calculates valuation adjustments on derivatives based on a modeled expected exposure that incorporates current market risk factors. The exposure also takes into consideration credit mitigants such as enforceable master netting agreements and collateral. CDS spread data is used to estimate the default probabilities and severities that are applied to the exposures. Where no observable credit default data is available for counterparties, the Corporation uses proxies and other market data to estimate default probabilities and severity.
Valuation adjustments on derivatives are affected by changes in market spreads, non-credit related market factors such as interest rate and currency changes that affect the expected exposure, and other factors like changes in collateral arrangements and partial payments. Credit spreads and non-credit factors can move independently. For example, for an interest rate swap, changes in interest rates may increase the expected exposure, which would increase the counterparty credit valuation adjustment (CVA). Independently, counterparty credit spreads may tighten, which would result in an offsetting decrease to CVA.
The Corporation enters into risk management activities to offset market driven exposures. The Corporation often hedges the counterparty spread risk in CVA with CDS. The Corporation hedges other market risks in both CVA and DVA primarily with currency and interest rate swaps. In certain instances, the net-of-hedge amounts in the table below move in the same direction as the gross amount or may move in the opposite direction. This movement is a consequence of the complex interaction of the risks being hedged, resulting in limitations in the ability to perfectly hedge all of the market exposures at all times.
The table below presents CVA,credit valuation adjustment (CVA), DVA and FVA gains (losses) on derivatives (excluding the effect of any related hedge activities), which are recorded in trading account profits, on a grossmarket making and net of hedge basissimilar activities, for 2017, 20162020, 2019 and 2015.2018. CVA gains reduce the cumulative CVA thereby increasing the derivative assets balance. DVA gains increase the cumulative DVA thereby decreasing the derivative liabilities balance. CVA and DVA losses have the opposite impact. FVA gains related to derivative assets reduce the cumulative FVA thereby increasing the derivative assets balance. FVA gains related to derivative liabilities increase the cumulative FVA thereby decreasing the derivative liabilities balance. FVA losses have the opposite impact.
| | | | | | | | | | | | | | | | | |
| | | | | |
Valuation Adjustments Gains (Losses) on Derivatives (1) |
| | | | | |
| | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 |
| Derivative assets (CVA) | $ | (118) | | | $ | 72 | | | $ | 77 | |
| Derivative assets/liabilities (FVA) | (24) | | | (2) | | | (15) | |
| Derivative liabilities (DVA) | 24 | | | (147) | | | (19) | |
| | | | | |
(1)At December 31, 2020, 2019 and 2018, cumulative CVA reduced the derivative assets balance by $646 million, $528 million and $600 million, cumulative FVA reduced the net derivatives balance by $177 million, $153 million and $151 million, and cumulative DVA reduced the derivative liabilities balance by $309 million, $285 million and $432 million, respectively.
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
Valuation Adjustments on Derivatives (1) | | | |
| | | | | | | | | |
| Gains (Losses) | Gross | Net | | Gross | Net | | Gross | Net |
| (Dollars in millions) | 2017 | | 2016 | | 2015 |
| Derivative assets (CVA) | $ | 330 |
| $ | 98 |
| | $ | 374 |
| $ | 214 |
| | $ | 255 |
| $ | 227 |
|
| Derivative assets/liabilities (FVA) | 160 |
| 178 |
| | 186 |
| 102 |
| | 16 |
| 16 |
|
| Derivative liabilities (DVA) | (324 | ) | (281 | ) | | 24 |
| (141 | ) | | (18 | ) | (153 | ) |
| |
(1)
| At December 31, 2017, 2016 and 2015, cumulative CVA reduced the derivative assets balance by $677 million, $1.0 billion and $1.4 billion, cumulative FVA reduced the net derivatives balance by $136 million, $296 million and $481 million, and cumulative DVA reduced the derivative liabilities balance by $450 million, $774 million and $750 million, respectively.
|
|
| | | |
121117Bank of America 2017
| | |
The table below presents the amortized cost, gross unrealized gains and losses, and fair value of AFS debt securities, other debt securities carried at fair value and HTM debt securities and AFS marketable equity securities at December 31, 20172020 and 2016.2019.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Debt Securities | | | | |
| |
| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| (Dollars in millions) | December 31, 2020 |
| Available-for-sale debt securities | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
| Agency | $ | 59,518 | | | $ | 2,370 | | | $ | (39) | | | $ | 61,849 | |
| Agency-collateralized mortgage obligations | 5,112 | | | 161 | | | (13) | | | 5,260 | |
| Commercial | 15,470 | | | 1,025 | | | (4) | | | 16,491 | |
Non-agency residential (1) | 899 | | | 127 | | | (17) | | | 1,009 | |
| Total mortgage-backed securities | 80,999 | | | 3,683 | | | (73) | | | 84,609 | |
| U.S. Treasury and agency securities | 114,157 | | | 2,236 | | | (13) | | | 116,380 | |
| Non-U.S. securities | 14,009 | | | 15 | | | (7) | | | 14,017 | |
| | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 2,656 | | | 61 | | | (6) | | | 2,711 | |
| Total taxable securities | 211,821 | | | 5,995 | | | (99) | | | 217,717 | |
| Tax-exempt securities | 16,417 | | | 389 | | | (32) | | | 16,774 | |
Total available-for-sale debt securities (3) | 228,238 | | | 6,384 | | | (131) | | | 234,491 | |
Other debt securities carried at fair value (2) | 11,720 | | | 429 | | | (39) | | | 12,110 | |
| Total debt securities carried at fair value | 239,958 | | | 6,813 | | | (170) | | | 246,601 | |
Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities (3) | 438,279 | | | 10,095 | | | (194) | | | 448,180 | |
Total debt securities (3,4) | $ | 678,237 | | | $ | 16,908 | | | $ | (364) | | | $ | 694,781 | |
| | | | | | | |
| | | | | | | |
| December 31, 2019 |
| Available-for-sale debt securities | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
| Agency | $ | 121,698 | | | $ | 1,013 | | | $ | (183) | | | $ | 122,528 | |
| Agency-collateralized mortgage obligations | 4,587 | | | 78 | | | (24) | | | 4,641 | |
| Commercial | 14,797 | | | 249 | | | (25) | | | 15,021 | |
Non-agency residential (1) | 948 | | | 138 | | | (9) | | | 1,077 | |
| Total mortgage-backed securities | 142,030 | | | 1,478 | | | (241) | | | 143,267 | |
| U.S. Treasury and agency securities | 67,700 | | | 1,023 | | | (195) | | | 68,528 | |
| Non-U.S. securities | 11,987 | | | 6 | | | (2) | | | 11,991 | |
| | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 3,874 | | | 67 | | | 0 | | | 3,941 | |
| Total taxable securities | 225,591 | | | 2,574 | | | (438) | | | 227,727 | |
| Tax-exempt securities | 17,716 | | | 202 | | | (6) | | | 17,912 | |
| Total available-for-sale debt securities | 243,307 | | | 2,776 | | | (444) | | | 245,639 | |
Other debt securities carried at fair value (2) | 10,596 | | | 255 | | | (23) | | | 10,828 | |
| Total debt securities carried at fair value | 253,903 | | | 3,031 | | | (467) | | | 256,467 | |
| Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities | 215,730 | | | 4,433 | | | (342) | | | 219,821 | |
Total debt securities (3, 4) | $ | 469,633 | | | $ | 7,464 | | | $ | (809) | | | $ | 476,288 | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| Debt Securities and Available-for-Sale Marketable Equity Securities | | | | |
| | |
| | Amortized Cost | | Gross
Unrealized Gains | | Gross
Unrealized Losses | | Fair Value |
| (Dollars in millions) | December 31, 2017 |
| Available-for-sale debt securities | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
|
| Agency | $ | 194,119 |
| | $ | 506 |
| | $ | (1,696 | ) | | $ | 192,929 |
|
| Agency-collateralized mortgage obligations | 6,846 |
| | 39 |
| | (81 | ) | | 6,804 |
|
| Commercial | 13,864 |
| | 28 |
| | (208 | ) | | 13,684 |
|
Non-agency residential (1) | 2,410 |
| | 267 |
| | (8 | ) | | 2,669 |
|
| Total mortgage-backed securities | 217,239 |
| | 840 |
| | (1,993 | ) | | 216,086 |
|
| U.S. Treasury and agency securities | 54,523 |
| | 18 |
| | (1,018 | ) | | 53,523 |
|
| Non-U.S. securities | 6,669 |
| | 9 |
| | (1 | ) | | 6,677 |
|
| Other taxable securities, substantially all asset-backed securities | 5,699 |
| | 73 |
| | (2 | ) | | 5,770 |
|
| Total taxable securities | 284,130 |
| | 940 |
| | (3,014 | ) | | 282,056 |
|
| Tax-exempt securities | 20,541 |
| | 138 |
| | (104 | ) | | 20,575 |
|
| Total available-for-sale debt securities | 304,671 |
| | 1,078 |
| | (3,118 | ) | | 302,631 |
|
| Other debt securities carried at fair value | 12,273 |
| | 252 |
| | (39 | ) | | 12,486 |
|
| Total debt securities carried at fair value | 316,944 |
| | 1,330 |
| | (3,157 | ) | | 315,117 |
|
| Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities | 125,013 |
| | 111 |
| | (1,825 | ) | | 123,299 |
|
Total debt securities (2) | $ | 441,957 |
| | $ | 1,441 |
| | $ | (4,982 | ) | | $ | 438,416 |
|
Available-for-sale marketable equity securities (3) | $ | 27 |
| | $ | — |
| | $ | (2 | ) | | $ | 25 |
|
| | | | | | | | |
| | December 31, 2016 |
| Available-for-sale debt securities | | | | | | | |
| Mortgage-backed securities: | |
| | |
| | |
| | |
|
| Agency | $ | 190,809 |
| | $ | 640 |
| | $ | (1,963 | ) | | $ | 189,486 |
|
| Agency-collateralized mortgage obligations | 8,296 |
| | 85 |
| | (51 | ) | | 8,330 |
|
| Commercial | 12,594 |
| | 21 |
| | (293 | ) | | 12,322 |
|
Non-agency residential (1) | 1,863 |
| | 181 |
| | (31 | ) | | 2,013 |
|
| Total mortgage-backed securities | 213,562 |
| | 927 |
| | (2,338 | ) | | 212,151 |
|
| U.S. Treasury and agency securities | 48,800 |
| | 204 |
| | (752 | ) | | 48,252 |
|
| Non-U.S. securities | 6,372 |
| | 13 |
| | (3 | ) | | 6,382 |
|
| Other taxable securities, substantially all asset-backed securities | 10,573 |
| | 64 |
| | (23 | ) | | 10,614 |
|
| Total taxable securities | 279,307 |
| | 1,208 |
| | (3,116 | ) | | 277,399 |
|
| Tax-exempt securities | 17,272 |
| | 72 |
| | (184 | ) | | 17,160 |
|
| Total available-for-sale debt securities | 296,579 |
| | 1,280 |
| | (3,300 | ) | | 294,559 |
|
Less: Available-for-sale securities of business held for sale (4) | (619 | ) | | — |
| | — |
| | (619 | ) |
| Other debt securities carried at fair value | 19,748 |
| | 121 |
| | (149 | ) | | 19,720 |
|
| Total debt securities carried at fair value | 315,708 |
| | 1,401 |
| | (3,449 | ) | | 313,660 |
|
| Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities | 117,071 |
| | 248 |
| | (2,034 | ) | | 115,285 |
|
Total debt securities (2) | $ | 432,779 |
| | $ | 1,649 |
| | $ | (5,483 | ) | | $ | 428,945 |
|
Available-for-sale marketable equity securities (3) | $ | 325 |
| | $ | 51 |
| | $ | (1 | ) | | $ | 375 |
|
| |
(1)(2)Primarily includes non-U.S. securities used to satisfy certain international regulatory requirements. Any changes in value are reported in market making and similar activities. For detail on the components, see Note 20 – Fair Value Measurements. (3)Includes securities pledged as collateral of $65.5 billion and $67.0 billion at December 31, 2020 and 2019. (4)The Corporation held debt securities from FNMA and FHLMC that each exceeded 10 percent of shareholders’ equity, with an amortized cost of $260.1 billion and $118.1 billion, and a fair value of $267.5 billion and $120.7 billion at December 31, 2020, and an amortized cost of $157.2 billion and $54.1 billion, and a fair value of $160.6 billion and $55.1 billion at December 31, 2019.
| At December 31, 2017 and 2016, the underlying collateral type included approximately 62 percent and 60 percent prime, 13 percent and 19 percent Alt-A, and 25 percent and 21 percent subprime.
|
| |
(2)
| The Corporation had debt securities from FNMA and FHLMC that each exceeded 10 percent of shareholders’ equity, with an amortized cost of $163.6 billion and $50.3 billion, and a fair value of $162.1 billion and $50.0 billion at December 31, 2017, and an amortized cost of $156.4 billion and $48.7 billion, and a fair value of $154.4 billion and $48.3 billion at December 31, 2016.
|
| |
(3)
| Classified in other assets on the Consolidated Balance Sheet. |
| |
(4)
| Represents AFS debt securities of business held for sale. In 2017, the Corporation sold its non-U.S. consumer credit card business. |
At December 31, 2017,2020, the accumulated net unrealized lossgain on AFS debt securities, excluding the amount related to debt securities previously transferred to held to maturity, included in accumulated OCI was $1.2$4.7 billion, net of the related income tax benefitexpense of $872 million. At December 31, 2017 and 2016, the$1.6 billion. The Corporation had nonperforming AFS debt securities of $99$20 million and $121 million.
$9 million at December 31, 2020 and 2019.The following table presentsEffective January 1, 2020, the componentsCorporation adopted the new accounting standard for credit losses that requires evaluation of otherAFS and HTM debt securities carriedfor any expected losses with recognition of an allowance for credit losses, when applicable. For more information, see Note 1 – Summary of Significant Accounting Principles. At December 31, 2020, the Corporation had $200.0 billion in AFS debt securities, which were primarily
U.S. agency and U.S. Treasury securities that have a zero credit loss assumption. For the remaining $34.5 billion in AFS debt securities, the amount of ECL was insignificant. Substantially all of the Corporation's HTM debt securities are U.S. agency and U.S. Treasury securities and have a zero credit loss assumption.
At December 31, 2020 and 2019, the Corporation held equity securities at an aggregate fair value whereof $769 million and $891 million and other equity securities, as valued under the changesmeasurement alternative, at a carrying value of $240 million and $183 million, both of which are included in other assets. At December 31, 2020 and 2019, the Corporation also held money market investments at a fair value of $1.6 billion and $1.0 billion, which are reportedincluded in time deposits placed and other income. In 2017, the Corporation recorded unrealized mark-to-market net gains of $243 million and realized net losses of $49 million compared to unrealized mark-to-market net gains of $51 million and realized net losses of $128 million in 2016. These amounts exclude hedge results.short-term investments.
|
| | | | | | | |
| | Bank of America 2017122118 |
|
| | | | | | | |
| | | | |
| Other Debt Securities Carried at Fair Value |
| | |
| | December 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Mortgage-backed securities: | | | |
| Agency-collateralized mortgage obligations | $ | 5 |
| | $ | 5 |
|
| Non-agency residential | 2,764 |
| | 3,139 |
|
| Total mortgage-backed securities | 2,769 |
| | 3,144 |
|
Non-U.S. securities (1) | 9,488 |
| | 16,336 |
|
| Other taxable securities, substantially all asset-backed securities | 229 |
| | 240 |
|
| Total | $ | 12,486 |
| | $ | 19,720 |
|
| |
(1)
| These securities are primarily used to satisfy certain international regulatory liquidity requirements. |
The gross realized gains and losses on sales of AFS debt securities for 2017, 20162020, 2019 and 20152018 are presented in the table below.
|
| | | | | | | | | | | |
| | | | | | |
| Gains and Losses on Sales of AFS Debt Securities |
| | | | | | |
| (Dollars in millions) | 2017 | | 2016 | | 2015 |
| Gross gains | $ | 352 |
| | $ | 520 |
| | $ | 1,174 |
|
| Gross losses | (97 | ) | | (30 | ) | | (36 | ) |
| Net gains on sales of AFS debt securities | $ | 255 |
| | $ | 490 |
| | $ | 1,138 |
|
| Income tax expense attributable to realized net gains on sales of AFS debt securities | $ | 97 |
| | $ | 186 |
| | $ | 432 |
|
| | | | | | | | | | | | | | | | | |
| | | | | |
| Gains and Losses on Sales of AFS Debt Securities |
| | | |
| | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 |
| Gross gains | $ | 423 | | | $ | 336 | | | $ | 169 | |
| Gross losses | (12) | | | (119) | | | (15) | |
| Net gains on sales of AFS debt securities | $ | 411 | | | $ | 217 | | | $ | 154 | |
| Income tax expense attributable to realized net gains on sales of AFS debt securities | $ | 103 | | | $ | 54 | | | $ | 37 | |
The table below presents the fair value and the associated gross unrealized losses on AFS debt securities and whether these securities have had gross unrealized losses for less than 12 months or for 12 months or longer at December 31, 20172020 and 2016.2019.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Temporarily Impaired and Other-than-temporarily Impaired AFS Debt Securities | | | | | | |
| | |
| | Less than Twelve Months | | Twelve Months or Longer | | Total |
| | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
| (Dollars in millions) | December 31, 2017 |
| Temporarily impaired AFS debt securities | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | |
| Agency | $ | 73,535 |
| | $ | (352 | ) | | $ | 72,612 |
| | $ | (1,344 | ) | | $ | 146,147 |
| | $ | (1,696 | ) |
| Agency-collateralized mortgage obligations | 2,743 |
| | (29 | ) | | 1,684 |
| | (52 | ) | | 4,427 |
| | (81 | ) |
| Commercial | 5,575 |
| | (50 | ) | | 4,586 |
| | (158 | ) | | 10,161 |
| | (208 | ) |
| Non-agency residential | 335 |
| | (7 | ) | | — |
| | — |
| | 335 |
| | (7 | ) |
| Total mortgage-backed securities | 82,188 |
| | (438 | ) | | 78,882 |
| | (1,554 | ) | | 161,070 |
| | (1,992 | ) |
| U.S. Treasury and agency securities | 27,537 |
| | (251 | ) | | 24,035 |
| | (767 | ) | | 51,572 |
| | (1,018 | ) |
| Non-U.S. securities | 772 |
| | (1 | ) | | — |
| | — |
| | 772 |
| | (1 | ) |
| Other taxable securities, substantially all asset-backed securities | — |
| | — |
| | 92 |
| | (2 | ) | | 92 |
| | (2 | ) |
| Total taxable securities | 110,497 |
| | (690 | ) | | 103,009 |
| | (2,323 | ) | | 213,506 |
| | (3,013 | ) |
| Tax-exempt securities | 1,090 |
| | (2 | ) | | 7,100 |
| | (102 | ) | | 8,190 |
| | (104 | ) |
| Total temporarily impaired AFS debt securities | 111,587 |
| | (692 | ) | | 110,109 |
| | (2,425 | ) | | 221,696 |
| | (3,117 | ) |
Other-than-temporarily impaired AFS debt securities (1) | | | | | | | | | | | |
| Non-agency residential mortgage-backed securities | 58 |
| | (1 | ) | | — |
| | — |
| | 58 |
| | (1 | ) |
Total temporarily impaired and other-than-temporarily impaired AFS debt securities | $ | 111,645 |
| | $ | (693 | ) | | $ | 110,109 |
| | $ | (2,425 | ) | | $ | 221,754 |
| | $ | (3,118 | ) |
| | �� | | | | | | | | | | |
| | December 31, 2016 |
| Temporarily impaired AFS debt securities | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | |
| Agency | $ | 135,210 |
| | $ | (1,846 | ) | | $ | 3,770 |
| | $ | (117 | ) | | $ | 138,980 |
| | $ | (1,963 | ) |
| Agency-collateralized mortgage obligations | 3,229 |
| | (25 | ) | | 1,028 |
| | (26 | ) | | 4,257 |
| | (51 | ) |
| Commercial | 9,018 |
| | (293 | ) | | — |
| | — |
| | 9,018 |
| | (293 | ) |
| Non-agency residential | 212 |
| | (1 | ) | | 204 |
| | (13 | ) | | 416 |
| | (14 | ) |
| Total mortgage-backed securities | 147,669 |
| | (2,165 | ) | | 5,002 |
| | (156 | ) | | 152,671 |
| | (2,321 | ) |
| U.S. Treasury and agency securities | 28,462 |
| | (752 | ) | | — |
| | — |
| | 28,462 |
| | (752 | ) |
| Non-U.S. securities | 52 |
| | (1 | ) | | 142 |
| | (2 | ) | | 194 |
| | (3 | ) |
| Other taxable securities, substantially all asset-backed securities | 762 |
| | (5 | ) | | 1,438 |
| | (18 | ) | | 2,200 |
| | (23 | ) |
| Total taxable securities | 176,945 |
| | (2,923 | ) | | 6,582 |
| | (176 | ) | | 183,527 |
| | (3,099 | ) |
| Tax-exempt securities | 4,782 |
| | (148 | ) | | 1,873 |
| | (36 | ) | | 6,655 |
| | (184 | ) |
| Total temporarily impaired AFS debt securities | 181,727 |
| | (3,071 | ) | | 8,455 |
| | (212 | ) | | 190,182 |
| | (3,283 | ) |
Other-than-temporarily impaired AFS debt securities (1) | | | | | | | | | | | |
| Non-agency residential mortgage-backed securities | 94 |
| | (1 | ) | | 401 |
| | (16 | ) | | 495 |
| | (17 | ) |
Total temporarily impaired and other-than-temporarily impaired AFS debt securities | $ | 181,821 |
| | $ | (3,072 | ) | | $ | 8,856 |
| | $ | (228 | ) | | $ | 190,677 |
| | $ | (3,300 | ) |
| |
(1)
| Includes OTTI AFS debt securities on which an OTTI loss, primarily related to changes in interest rates, remains in accumulated OCI. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Total AFS Debt Securities in a Continuous Unrealized Loss Position | | | | | | |
| |
| Less than Twelve Months | | Twelve Months or Longer | | Total |
| Fair
Value | | Gross Unrealized Losses | | Fair
Value | | Gross Unrealized Losses | | Fair
Value | | Gross Unrealized Losses |
| (Dollars in millions) | December 31, 2020 |
| Continuously unrealized loss-positioned AFS debt securities | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | |
| Agency | $ | 2,841 | | | $ | (39) | | | $ | 2 | | | $ | 0 | | | $ | 2,843 | | | $ | (39) | |
| Agency-collateralized mortgage obligations | 187 | | | (2) | | | 364 | | | (11) | | | 551 | | | (13) | |
| Commercial | 566 | | | (4) | | | 9 | | | 0 | | | 575 | | | (4) | |
| Non-agency residential | 342 | | | (9) | | | 56 | | | (8) | | | 398 | | | (17) | |
| Total mortgage-backed securities | 3,936 | | | (54) | | | 431 | | | (19) | | | 4,367 | | | (73) | |
| U.S. Treasury and agency securities | 8,282 | | | (9) | | | 498 | | | (4) | | | 8,780 | | | (13) | |
| Non-U.S. securities | 1,861 | | | (6) | | | 135 | | | (1) | | | 1,996 | | | (7) | |
| | | | | | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 576 | | | (2) | | | 396 | | | (4) | | | 972 | | | (6) | |
| Total taxable securities | 14,655 | | | (71) | | | 1,460 | | | (28) | | | 16,115 | | | (99) | |
| Tax-exempt securities | 4,108 | | | (29) | | | 617 | | | (3) | | | 4,725 | | | (32) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total AFS debt securities in a continuous
unrealized loss position | $ | 18,763 | | | $ | (100) | | | $ | 2,077 | | | $ | (31) | | | $ | 20,840 | | | $ | (131) | |
| | | | | | | | | | | |
| December 31, 2019 |
| Continuously unrealized loss-positioned AFS debt securities | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | |
| Agency | $ | 17,641 | | | $ | (41) | | | $ | 17,238 | | | $ | (142) | | | $ | 34,879 | | | $ | (183) | |
| Agency-collateralized mortgage obligations | 255 | | | (1) | | | 925 | | | (23) | | | 1,180 | | | (24) | |
| Commercial | 2,180 | | | (22) | | | 442 | | | (3) | | | 2,622 | | | (25) | |
| Non-agency residential | 122 | | | (6) | | | 22 | | | (3) | | | 144 | | | (9) | |
| Total mortgage-backed securities | 20,198 | | | (70) | | | 18,627 | | | (171) | | | 38,825 | | | (241) | |
| U.S. Treasury and agency securities | 12,836 | | | (71) | | | 18,866 | | | (124) | | | 31,702 | | | (195) | |
| Non-U.S. securities | 851 | | | 0 | | | 837 | | | (2) | | | 1,688 | | | (2) | |
| | | | | | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 938 | | | 0 | | | 222 | | | 0 | | | 1,160 | | | 0 | |
| Total taxable securities | 34,823 | | | (141) | | | 38,552 | | | (297) | | | 73,375 | | | (438) | |
| Tax-exempt securities | 4,286 | | | (5) | | | 190 | | | (1) | | | 4,476 | | | (6) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total AFS debt securities in a continuous
unrealized loss position | $ | 39,109 | | | $ | (146) | | | $ | 38,742 | | | $ | (298) | | | $ | 77,851 | | | $ | (444) | |
The Corporation had $41 million, $19 million and $81 million of credit-related OTTI losses on AFS debt securities that were recognized in other income in 2017, 2016 and 2015, respectfully. The amount of noncredit-related OTTI losses, which is recognized in OCI, was insignificant for all periods presented.
The cumulative credit loss component of OTTI losses that have been recognized in income related to AFS debt securities that the Corporation does not intend to sell was $274 million, $253 million and $266 million at December 31, 2017, 2016 and 2015, respectfully.
The Corporation estimates the portion of a loss on a security that is attributable to credit using a discounted cash flow model and estimates the expected cash flows of the underlying collateral using internal credit, interest rate and prepayment risk models that incorporate management’s best estimate of current key assumptions such as default rates, loss severity and prepayment rates. Assumptions used for the underlying loans that support the MBS can vary widely from loan to loan and are influenced by such factors as loan interest rate, geographic location of the borrower, borrower characteristics and collateral type. Based on these assumptions, the Corporation then determines how the underlying collateral cash flows will be distributed to each MBS issued from the applicable special purpose entity. Expected principal and interest cash flows on an impaired AFS debt security are discounted using the effective yield of each individual impaired AFS debt security.
Significant assumptions used in estimating the expected cash flows for measuring credit losses on non-agency residential mortgage-backed securities (RMBS) were as follows at December 31, 2017.
|
| | | | | | | | |
| | | | | | |
| Significant Assumptions |
| | | | |
| | | | Range (1) |
| | Weighted-
average | | 10th Percentile (2) | | 90th Percentile (2) |
| Prepayment speed | 12.4 | % | | 3.0 | % | | 21.3 | % |
| Loss severity | 20.2 |
| | 9.1 |
| | 36.7 |
|
| Life default rate | 20.9 |
| | 1.2 |
| | 76.6 |
|
| |
(1)
| Represents the range of inputs/assumptions based upon the underlying collateral. |
| |
(2)
| The value of a variable below which the indicated percentile of observations will fall. |
Annual constant prepayment speed and loss severity rates are projected considering collateral characteristics such as LTV, creditworthiness of borrowers as measured using Fair Isaac Corporation (FICO) scores, and geographic concentrations. The weighted-average severity by collateral type was 17.5 percent for prime, 18.1 percent for Alt-A and 29.0 percent for subprime at December 31, 2017. Default rates are projected by considering collateral characteristics including, but not limited to, LTV, FICO and geographic concentration. Weighted-average life default rates by collateral type were 16.9 percent for prime, 21.4 percent for Alt-A and 21.6 percent for subprime at December 31, 2017.
|
| | | | | | | |
| | 119Bank of America 2017124 | | |
The remaining contractual maturity distribution and yields of the Corporation’s debt securities carried at fair value and HTM debt securities at December 31, 20172020 are summarized in the table below. Actual duration and yields may differ as prepayments on the loans underlying the mortgages or other ABS are passed through to the Corporation.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Maturities of Debt Securities Carried at Fair Value and Held-to-maturity Debt Securities |
| | | | | | | | | | | | | | | | | | | |
| Due in One
Year or Less | | Due after One Year
through Five Years | | Due after Five Years
through Ten Years | | Due after
Ten Years | | Total |
| (Dollars in millions) | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) |
| Amortized cost of debt securities carried at fair value | | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | |
| Agency | $ | 0 | | | 0 | % | | $ | 7 | | | 5.69 | % | | $ | 56 | | | 4.44 | % | | $ | 59,455 | | | 3.36 | % | | $ | 59,518 | | | 3.36 | % |
| Agency-collateralized mortgage obligations | 0 | | | 0 | | | 0 | | | 0 | | | 24 | | | 2.57 | | | 5,088 | | | 2.94 | | | 5,112 | | | 2.94 | |
| Commercial | 26 | | | 3.04 | | | 6,669 | | | 2.52 | | | 7,711 | | | 2.32 | | | 1,077 | | | 2.64 | | | 15,483 | | | 2.43 | |
| Non-agency residential | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 0 | | | 1,620 | | | 6.77 | | | 1,621 | | | 6.77 | |
| Total mortgage-backed securities | 26 | | | 3.04 | | | 6,676 | | | 2.52 | | | 7,792 | | | 2.34 | | | 67,240 | | | 3.40 | | | 81,734 | | | 3.23 | |
| U.S. Treasury and agency securities | 10,020 | | | 1.26 | | | 29,533 | | | 1.85 | | | 74,665 | | | 0.74 | | | 32 | | | 2.55 | | | 114,250 | | | 1.07 | |
| Non-U.S. securities | 22,862 | | | 0.31 | | | 926 | | | 1.81 | | | 581 | | | 1.09 | | | 532 | | | 1.79 | | | 24,901 | | | 0.42 | |
| | | | | | | | | | | | | | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 699 | | | 1.15 | | | 1,336 | | | 2.46 | | | 366 | | | 2.26 | | | 255 | | | 1.60 | | | 2,656 | | | 2.00 | |
| Total taxable securities | 33,607 | | | 0.61 | | | 38,471 | | | 1.99 | | | 83,404 | | | 0.89 | | | 68,059 | | | 3.38 | | | 223,541 | | | 1.80 | |
| Tax-exempt securities | 872 | | | 0.87 | | | 8,430 | | | 1.27 | | | 4,397 | | | 1.66 | | | 2,718 | | | 1.41 | | | 16,417 | | | 1.38 | |
| Total amortized cost of debt securities carried at fair value | $ | 34,479 | | | 0.62 | | | $ | 46,901 | | | 1.86 | | | $ | 87,801 | | | 0.93 | | | $ | 70,777 | | | 3.30 | | | $ | 239,958 | | | 1.77 | |
Amortized cost of HTM debt securities (2) | $ | 15 | | | 3.78 | | | $ | 66 | | | 2.73 | | | $ | 17,133 | | | 1.86 | | | $ | 421,065 | | | 2.40 | | | $ | 438,279 | | | 2.38 | |
| | | | | | | | | | | | | | | | | | | |
| Debt securities carried at fair value | | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | |
| Agency | $ | 0 | | | | | $ | 7 | | | | | $ | 61 | | | | | $ | 61,781 | | | | | $ | 61,849 | | | |
| Agency-collateralized mortgage obligations | 0 | | | | | 0 | | | | | 24 | | | | | 5,236 | | | | | 5,260 | | | |
| Commercial | 26 | | | | | 7,077 | | | | | 8,242 | | | | | 1,160 | | | | | 16,505 | | | |
| Non-agency residential | 0 | | | | | 0 | | | | | 7 | | | | | 1,776 | | | | | 1,783 | | | |
| Total mortgage-backed securities | 26 | | | | | 7,084 | | | | | 8,334 | | | | | 69,953 | | | | | 85,397 | | | |
| U.S. Treasury and agency securities | 10,056 | | | | | 30,873 | | | | | 75,511 | | | | | 33 | | | | | 116,473 | | | |
| Non-U.S. securities | 23,187 | | | | | 940 | | | | | 582 | | | | | 534 | | | | | 25,243 | | | |
| | | | | | | | | | | | | | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 702 | | | | | 1,369 | | | | | 379 | | | | | 264 | | | | | 2,714 | | | |
| Total taxable securities | 33,971 | | | | | 40,266 | | | | | 84,806 | | | | | 70,784 | | | | | 229,827 | | | |
| Tax-exempt securities | 874 | | | | | 8,554 | | | | | 4,566 | | | | | 2,780 | | | | | 16,774 | | | |
| Total debt securities carried at fair value | $ | 34,845 | | | | | $ | 48,820 | | | | | $ | 89,372 | | | | | $ | 73,564 | | | | | $ | 246,601 | | | |
Fair value of HTM debt securities (2) | $ | 14 | | | | | $ | 69 | | | | | $ | 17,139 | | | | | $ | 430,958 | | | | | $ | 448,180 | | | |
(1)The weighted-average yield is computed based on a constant effective interest rate over the contractual life of each security. The average yield considers the contractual coupon and the amortization of premiums and accretion of discounts, excluding the effect of related hedging derivatives.
(2)Substantially all U.S. agency MBS.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Maturities of Debt Securities Carried at Fair Value and Held-to-maturity Debt Securities |
| | | | | | | | | | | | | | | | | | | | |
| | Due in One Year or Less | | Due after One Year through Five Years | | Due after Five Years through Ten Years | | Due after Ten Years | | Total |
| | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) |
| (Dollars in millions) | December 31, 2017 |
| Amortized cost of debt securities carried at fair value | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Mortgage-backed securities: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Agency | $ | 5 |
| | 4.20 | % | | $ | 28 |
| | 3.69 | % | | $ | 555 |
| | 2.57 | % | | $ | 193,531 |
| | 3.22 | % | | $ | 194,119 |
| | 3.22 | % |
| Agency-collateralized mortgage obligations | — |
| | — |
| | — |
| | — |
| | 33 |
| | 2.52 |
| | 6,817 |
| | 3.18 |
| | 6,850 |
| | 3.18 |
|
| Commercial | 54 |
| | 7.45 |
| | 974 |
| | 1.98 |
| | 11,866 |
| | 2.43 |
| | 970 |
| | 2.78 |
| | 13,864 |
| | 2.44 |
|
| Non-agency residential | — |
| | — |
| | — |
| | — |
| | 24 |
| | 0.01 |
| | 4,955 |
| | 9.32 |
| | 4,979 |
| | 9.28 |
|
| Total mortgage-backed securities | 59 |
| | 7.18 |
| | 1,002 |
| | 2.03 |
| | 12,478 |
| | 2.43 |
| | 206,273 |
| | 3.36 |
| | 219,812 |
| | 3.31 |
|
| U.S. Treasury and agency securities | 490 |
| | 0.39 |
| | 23,395 |
| | 1.42 |
| | 30,615 |
| | 2.03 |
| | 23 |
| | 2.52 |
| | 54,523 |
| | 1.75 |
|
| Non-U.S. securities | 13,832 |
| | 1.02 |
| | 2,111 |
| | 0.97 |
| | 48 |
| | 0.72 |
| | 167 |
| | 6.60 |
| | 16,158 |
| | 1.07 |
|
| Other taxable securities, substantially all asset-backed securities | 1,979 |
| | 2.53 |
| | 2,029 |
| | 3.02 |
| | 1,151 |
| | 3.22 |
| | 751 |
| | 4.74 |
| | 5,910 |
| | 3.11 |
|
| Total taxable securities | 16,360 |
| | 1.21 |
| | 28,537 |
| | 1.52 |
| | 44,292 |
| | 2.17 |
| | 207,214 |
| | 3.37 |
| | 296,403 |
| | 2.89 |
|
| Tax-exempt securities | 1,327 |
| | 1.81 |
| | 6,927 |
| | 1.88 |
| | 9,132 |
| | 1.79 |
| | 3,155 |
| | 1.84 |
| | 20,541 |
| | 1.83 |
|
| Total amortized cost of debt securities carried at fair value | $ | 17,687 |
| | 1.25 |
| | $ | 35,464 |
| | 1.59 |
| | $ | 53,424 |
| | 2.11 |
| | $ | 210,369 |
| | 3.35 |
| | $ | 316,944 |
| | 2.82 |
|
Amortized cost of HTM debt securities (2) | $ | 1 |
| | 5.82 |
| | $ | 71 |
| | 3.06 |
| | $ | 1,144 |
| | 2.65 |
| | $ | 123,797 |
| | 3.03 |
| | $ | 125,013 |
| | 3.03 |
|
| | | | | | | | | | | | | | | | | | | | |
| Debt securities carried at fair value | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Mortgage-backed securities: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Agency | $ | 5 |
| | |
| | $ | 28 |
| | |
| | $ | 555 |
| | |
| | $ | 192,341 |
| | |
| | $ | 192,929 |
| | |
|
| Agency-collateralized mortgage obligations | — |
| | |
| | — |
| | |
| | 32 |
| | |
| | 6,777 |
| | |
| | 6,809 |
| | |
|
| Commercial | 54 |
| | |
| | 969 |
| | |
| | 11,703 |
| | |
| | 958 |
| | |
| | 13,684 |
| | |
|
| Non-agency residential | — |
| | |
| | — |
| | |
| | 33 |
| | |
| | 5,400 |
| | |
| | 5,433 |
| | |
|
| Total mortgage-backed securities | 59 |
| | | | 997 |
| | | | 12,323 |
| | | | 205,476 |
| | | | 218,855 |
| | |
| U.S. Treasury and agency securities | 491 |
| | | | 22,898 |
| | | | 30,111 |
| | | | 23 |
| | | | 53,523 |
| | |
| Non-U.S. securities | 13,830 |
| | |
| | 2,115 |
| | |
| | 48 |
| | |
| | 172 |
| | |
| | 16,165 |
| | |
|
| Other taxable securities, substantially all asset-backed securities | 1,981 |
| | |
| | 2,006 |
| | |
| | 1,184 |
| | |
| | 828 |
| | |
| | 5,999 |
| | |
|
| Total taxable securities | 16,361 |
| | |
| | 28,016 |
| | |
| | 43,666 |
| | |
| | 206,499 |
| | |
| | 294,542 |
| | |
|
| Tax-exempt securities | 1,326 |
| | |
| | 6,934 |
| | |
| | 9,162 |
| | |
| | 3,153 |
| | |
| | 20,575 |
| | |
|
| Total debt securities carried at fair value | $ | 17,687 |
| | |
| | $ | 34,950 |
| | |
| | $ | 52,828 |
| | |
| | $ | 209,652 |
| | |
| | $ | 315,117 |
| | |
|
Fair value of HTM debt securities (2) | $ | 1 |
| | | | $ | 71 |
| | | | $ | 1,117 |
| | | | $ | 122,110 |
| | | | $ | 123,299 |
| | |
| |
(1)
| The average yield is computed based on a constant effective interest rate over the contractual life of each security. The average yield considers the contractual coupon and the amortization of premiums and accretion of discounts, excluding the effect of related hedging derivatives. |
| |
(2)
| Substantially all U.S. agency MBS. |
| | |
| | |
125Bank of America 2017120
| | |
NOTE 45Outstanding Loans and Leases and Allowance for Credit Losses
The following tables present total outstanding loans and leases and an aging analysis for the Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at December 31, 20172020 and 2016.2019.
In 2017, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| 30-59 Days Past Due (1) | | 60-89 Days Past Due (1) | | 90 Days or
More Past Due (1) | | Total Past
Due 30 Days
or More | | Total Current or Less Than 30 Days Past Due (1) | | | | Loans Accounted for Under the Fair Value Option | | Total
Outstandings |
| (Dollars in millions) | December 31, 2020 |
| Consumer real estate | | | | | | | | | | | | | | | |
| Core portfolio | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 1,157 | | | $ | 175 | | | $ | 786 | | | $ | 2,118 | | | $ | 213,155 | | | | | | | $ | 215,273 | |
| Home equity | 126 | | | 61 | | | 269 | | | 456 | | | 29,872 | | | | | | | 30,328 | |
| Non-core portfolio | | | | | | | | | | | | | | | |
| Residential mortgage | 273 | | | 122 | | | 913 | | | 1,308 | | | 6,974 | | | | | | | 8,282 | |
| Home equity | 28 | | | 17 | | | 76 | | | 121 | | | 3,862 | | | | | | | 3,983 | |
| Credit card and other consumer | | | | | | | | | | | | | | | |
| Credit card | 445 | | | 341 | | | 903 | | | 1,689 | | | 77,019 | | | | | | | 78,708 | |
| | | | | | | | | | | | | | | |
Direct/Indirect consumer (2) | 209 | | | 67 | | | 37 | | | 313 | | | 91,050 | | | | | | | 91,363 | |
| Other consumer | 0 | | | 0 | | | 0 | | | 0 | | | 124 | | | | | | | 124 | |
| Total consumer | 2,238 | | | 783 | | | 2,984 | | | 6,005 | | | 422,056 | | | | | | | 428,061 | |
Consumer loans accounted for under the fair value option (3) | | | | | | | | | | | | | $ | 735 | | | 735 | |
| Total consumer loans and leases | 2,238 | | | 783 | | | 2,984 | | | 6,005 | | | 422,056 | | | | | 735 | | | 428,796 | |
| Commercial | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| U.S. commercial | 561 | | | 214 | | | 512 | | | 1,287 | | | 287,441 | | | | | | | 288,728 | |
| Non-U.S. commercial | 61 | | | 44 | | | 11 | | | 116 | | | 90,344 | | | | | | | 90,460 | |
Commercial real estate (4) | 128 | | | 113 | | | 226 | | | 467 | | | 59,897 | | | | | | | 60,364 | |
| Commercial lease financing | 86 | | | 20 | | | 57 | | | 163 | | | 16,935 | | | | | | | 17,098 | |
U.S. small business commercial (5) | 84 | | | 56 | | | 123 | | | 263 | | | 36,206 | | | | | | | 36,469 | |
| Total commercial | 920 | | | 447 | | | 929 | | | 2,296 | | | 490,823 | | | | | | | 493,119 | |
Commercial loans accounted for under the fair value option (3) | | | | | | | | | | | | | 5,946 | | | 5,946 | |
| Total commercial loans and leases | 920 | | | 447 | | | 929 | | | 2,296 | | | 490,823 | | | | | 5,946 | | | 499,065 | |
Total loans and leases (6) | $ | 3,158 | | | $ | 1,230 | | | $ | 3,913 | | | $ | 8,301 | | | $ | 912,879 | | | | | $ | 6,681 | | | $ | 927,861 | |
| Percentage of outstandings | 0.34 | % | | 0.13 | % | | 0.42 | % | | 0.89 | % | | 98.39 | % | | | | 0.72 | % | | 100.00 | % |
(1)Consumer real estate loans 30-59 days past due includes fully-insured loans of $225 million and nonperforming loans of $126 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $103 million and nonperforming loans of $95 million. Consumer real estate loans 90 days or more past due includes fully-insured loans of $762 million. Consumer real estate loans current or less than 30 days past due includes $1.2 billion and direct/indirect consumer includes $66 million of nonperforming loans. For information on the Corporation sold its non-U.S. consumer credit card business. This business, which at December 31, 2016 included
$9.2 billion of non-U.S. credit card loansCorporation's interest accrual policies and the related allowancedelinquency status for loan and lease losses of $243 million, was presented in assets of business held for sale onmodifications related to the Consolidated Balance Sheet. In this Note, all applicable amounts for December 31, 2016 include these balances, unless otherwise noted. For more information,pandemic, see Note 1 – Summary of Significant Accounting Principles.
(2)Total outstandings primarily includes auto and specialty lending loans and leases of $46.4 billion, U.S. securities-based lending loans of $41.1 billion and non-U.S. consumer loans of $3.0 billion. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | 30-59 Days Past Due (1) | | 60-89 Days Past Due (1) | | 90 Days or
More Past Due (2) | | Total Past
Due 30 Days or More | | Total Current or Less Than 30 Days Past Due (3) | | Purchased
Credit-impaired (4) | | Loans Accounted for Under the Fair Value Option | | Total Outstandings |
| (Dollars in millions) | December 31, 2017 |
| Consumer real estate | |
| | | | |
| | |
| | |
| | |
| | |
| | |
|
| Core portfolio | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 1,242 |
| | $ | 321 |
| | $ | 1,040 |
| | $ | 2,603 |
| | $ | 174,015 |
| | | | | | $ | 176,618 |
|
| Home equity | 215 |
| | 108 |
| | 473 |
| | 796 |
| | 43,449 |
| | | | | | 44,245 |
|
| Non-core portfolio | | | | | | | | | | | | | | | |
Residential mortgage (5) | 1,028 |
| | 468 |
| | 3,535 |
| | 5,031 |
| | 14,161 |
| | $ | 8,001 |
| | | | 27,193 |
|
| Home equity | 224 |
| | 121 |
| | 572 |
| | 917 |
| | 9,866 |
| | 2,716 |
| | | | 13,499 |
|
| Credit card and other consumer | | | | | | | | | | | | | | | |
| U.S. credit card | 542 |
| | 405 |
| | 900 |
| | 1,847 |
| | 94,438 |
| | | | | | 96,285 |
|
Direct/Indirect consumer (6) | 320 |
| | 102 |
| | 43 |
| | 465 |
| | 93,365 |
| | | | | | 93,830 |
|
Other consumer (7) | 10 |
| | 2 |
| | 1 |
| | 13 |
| | 2,665 |
| | | | | | 2,678 |
|
| Total consumer | 3,581 |
| | 1,527 |
| | 6,564 |
| | 11,672 |
| | 431,959 |
| | 10,717 |
| | | | 454,348 |
|
Consumer loans accounted for under the fair value option (8) | |
| | |
| | |
| | |
| | |
| | |
| | $ | 928 |
| | 928 |
|
| Total consumer loans and leases | 3,581 |
| | 1,527 |
| | 6,564 |
| | 11,672 |
| | 431,959 |
| | 10,717 |
| | 928 |
| | 455,276 |
|
| Commercial | | | | | | | | | | | | | | | |
| U.S. commercial | 547 |
| | 244 |
| | 425 |
| | 1,216 |
| | 283,620 |
| | | | | | 284,836 |
|
| Non-U.S. commercial | 52 |
| | 1 |
| | 3 |
| | 56 |
| | 97,736 |
| | | | | | 97,792 |
|
Commercial real estate (9) | 48 |
| | 10 |
| | 29 |
| | 87 |
| | 58,211 |
| | | | | | 58,298 |
|
| Commercial lease financing | 110 |
| | 68 |
| | 26 |
| | 204 |
| | 21,912 |
| | | | | | 22,116 |
|
| U.S. small business commercial | 95 |
| | 45 |
| | 88 |
| | 228 |
| | 13,421 |
| | | | | | 13,649 |
|
| Total commercial | 852 |
| | 368 |
| | 571 |
| | 1,791 |
| | 474,900 |
| | | | | | 476,691 |
|
Commercial loans accounted for under the fair value option (8) | |
| | |
| | |
| | |
| | |
| | |
| | 4,782 |
| | 4,782 |
|
| Total commercial loans and leases | 852 |
| | 368 |
| | 571 |
| | 1,791 |
| | 474,900 |
| | | | 4,782 |
| | 481,473 |
|
Total loans and leases (10) | $ | 4,433 |
| | $ | 1,895 |
| | $ | 7,135 |
| | $ | 13,463 |
| | $ | 906,859 |
| | $ | 10,717 |
| | $ | 5,710 |
| | $ | 936,749 |
|
| Percentage of outstandings | 0.48 | % | | 0.20 | % | | 0.76 | % | | 1.44 | % | | 96.81 | % | | 1.14 | % | | 0.61 | % | | 100.00 | % |
| |
(1)
| Consumer real estate loans 30-59 days past due includes fully-insured loans of $850 million and nonperforming loans of $253 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $386 million and nonperforming loans of $195 million.
|
| |
(2)
| Consumer real estate includes fully-insured loans of $3.2 billion.
|
| |
(3)
| Consumer real estate includes $2.3 billion and direct/indirect consumer includes $43 million of nonperforming loans.
|
| |
(4)
| PCI loan amounts are shown gross of the valuation allowance. |
| |
(5)
| Total outstandings includes pay option loans of $1.4 billion. The Corporation no longer originates this product.
|
| |
(6)
| Total outstandings includes auto and specialty lending loans of $49.9 billion, unsecured consumer lending loans of $469 million, U.S. securities-based lending loans of $39.8 billion, non-U.S. consumer loans of $3.0 billion and other consumer loans of $684 million.
|
| |
(7)
| Total outstandings includes consumer leases of $2.5 billion and consumer overdrafts of $163 million.
|
| |
(8)
| Consumer loans accounted for under the fair value option includes residential mortgage loans of $567 million and home equity loans of $361 million. Commercial loans accounted for under the fair value option includes U.S. commercial loans of $2.6 billion and non-U.S. commercial loans of $2.2 billion. For more information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value Option.
|
| |
(9)
| Total outstandings includes U.S. commercial real estate loans of $54.8 billion and non-U.S. commercial real estate loans of $3.5 billion.
|
| |
(10)
| The Corporation pledged $160.3 billion of loans to secure potential borrowing capacity with the Federal Reserve Bank and Federal Home Loan Bank (FHLB). This amount is not included in the parenthetical disclosure of loans and leases pledged as collateral on the Consolidated Balance Sheet as there were no related outstanding borrowings.
|
(4)Total outstandings includes U.S. commercial real estate loans of $57.2 billion and non-U.S. commercial real estate loans of $3.2 billion.
(5)Includes PPP loans.
(6)Total outstandings includes loans and leases pledged as collateral of $15.5 billion. The Corporation also pledged $153.1 billion of loans with no related outstanding borrowings to secure potential borrowing capacity with the Federal Reserve Bank and Federal Home Loan Bank.
|
| | | | | | | |
| | 121Bank of America 2017126 | | |
| | | | | | | | | | | | | | | | | | | | | |
| | 30-59 Days
Past Due (1) | | 60-89 Days Past Due (1) | | 90 Days or
More
Past Due (2) | | Total Past
Due 30 Days
or More | | Total Current or Less Than 30 Days Past Due (3) | | Purchased
Credit-impaired (4) | | Loans Accounted for Under the Fair Value Option | | Total Outstandings | | 30-59 Days
Past Due (1) | | 60-89 Days Past Due (1) | | 90 Days or
More
Past Due (1) | | Total Past
Due 30 Days
or More | | Total Current or Less Than 30 Days Past Due (1) | | | Loans
Accounted
for Under
the Fair
Value Option | | Total Outstandings |
| (Dollars in millions) | December 31, 2016 | (Dollars in millions) | December 31, 2019 |
| Consumer real estate | |
| | | | |
| | |
| | |
| | |
| | |
| | |
| Consumer real estate | | | | | | | | | | | | |
| Core portfolio | | | | | | | | | | | | | | | | Core portfolio | | | |
| Residential mortgage | $ | 1,340 |
| | $ | 425 |
| | $ | 1,213 |
| | $ | 2,978 |
| | $ | 153,519 |
| |
|
| | |
| | $ | 156,497 |
| Residential mortgage | $ | 1,378 | | | $ | 261 | | | $ | 565 | | | $ | 2,204 | | | $ | 223,566 | | | | | | $ | 225,770 | |
| Home equity | 239 |
| | 105 |
| | 451 |
| | 795 |
| | 48,578 |
| |
|
| | |
| | 49,373 |
| Home equity | 135 | | | 70 | | | 198 | | | 403 | | | 34,823 | | | | | | 35,226 | |
| Non-core portfolio | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| Non-core portfolio | | | | | | | | | | | | | | |
Residential mortgage (5) | 1,338 |
| | 674 |
| | 5,343 |
| | 7,355 |
| | 17,818 |
| | $ | 10,127 |
| | |
| | 35,300 |
| |
| Residential mortgage | | Residential mortgage | 458 | | | 209 | | | 1,263 | | | 1,930 | | | 8,469 | | | | | | 10,399 | |
| Home equity | 260 |
| | 136 |
| | 832 |
| | 1,228 |
| | 12,231 |
| | 3,611 |
| | |
| | 17,070 |
| Home equity | 34 | | | 16 | | | 72 | | | 122 | | | 4,860 | | | | | | 4,982 | |
| Credit card and other consumer | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| Credit card and other consumer | | | | | | | | | | | | | | |
| U.S. credit card | 472 |
| | 341 |
| | 782 |
| | 1,595 |
| | 90,683 |
| | | | |
| | 92,278 |
| |
| Non-U.S. credit card | 37 |
| | 27 |
| | 66 |
| | 130 |
| | 9,084 |
| | | | |
| | 9,214 |
| |
Direct/Indirect consumer (6) | 272 |
| | 79 |
| | 34 |
| | 385 |
| | 93,704 |
| | | | |
| | 94,089 |
| |
Other consumer (7) | 26 |
| | 8 |
| | 6 |
| | 40 |
| | 2,459 |
| | | | |
| | 2,499 |
| |
| Credit card | | Credit card | 564 | | | 429 | | | 1,042 | | | 2,035 | | | 95,573 | | | | | | 97,608 | |
| Direct/Indirect consumer (2) | | Direct/Indirect consumer (2) | 297 | | | 85 | | | 35 | | | 417 | | | 90,581 | | | | | | 90,998 | |
| Other consumer | | Other consumer | 0 | | | 0 | | | 0 | | | 0 | | | 192 | | | | | | 192 | |
| Total consumer | 3,984 |
| | 1,795 |
| | 8,727 |
| | 14,506 |
| | 428,076 |
| | 13,738 |
| | |
| 456,320 |
| Total consumer | 2,866 | | | 1,070 | | | 3,175 | | | 7,111 | | | 458,064 | | | | | 465,175 | |
Consumer loans accounted for under the fair value option (8) | | | | | | | | | | | | | $ | 1,051 |
|
| 1,051 |
| |
Consumer loans accounted for under the fair value option (3) | | Consumer loans accounted for under the fair value option (3) | | | $ | 594 | | | 594 | |
| Total consumer loans and leases | 3,984 |
| | 1,795 |
| | 8,727 |
| | 14,506 |
| | 428,076 |
| | 13,738 |
| | 1,051 |
| | 457,371 |
| Total consumer loans and leases | 2,866 | | | 1,070 | | | 3,175 | | | 7,111 | | | 458,064 | | | | 594 | | | 465,769 | |
| Commercial | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| Commercial | | | | | | | | | | | | | | |
| | U.S. commercial | 952 |
| | 263 |
| | 400 |
| | 1,615 |
| | 268,757 |
| | | | |
| | 270,372 |
| U.S. commercial | 788 | | | 279 | | | 371 | | | 1,438 | | | 305,610 | | | | | | 307,048 | |
| Non-U.S. commercial | 348 |
| | 4 |
| | 5 |
| | 357 |
| | 89,040 |
| | | | |
| | 89,397 |
| Non-U.S. commercial | 35 | | | 23 | | | 8 | | | 66 | | | 104,900 | | | | | | 104,966 | |
Commercial real estate (9)(4) | 20 |
| | 10 |
| | 56 |
| | 86 |
| | 57,269 |
| | | | |
| | 57,355 |
| 144 | | | 19 | | | 119 | | | 282 | | | 62,407 | | | | | | 62,689 | |
| Commercial lease financing | 167 |
| | 21 |
| | 27 |
| | 215 |
| | 22,160 |
| | | | |
| | 22,375 |
| Commercial lease financing | 100 | | | 56 | | | 39 | | | 195 | | | 19,685 | | | | | | 19,880 | |
| U.S. small business commercial | 96 |
| | 49 |
| | 84 |
| | 229 |
| | 12,764 |
| | | | |
| | 12,993 |
| U.S. small business commercial | 119 | | | 56 | | | 107 | | | 282 | | | 15,051 | | | | | | 15,333 | |
| Total commercial | 1,583 |
| | 347 |
| | 572 |
| | 2,502 |
| | 449,990 |
| | | | |
| | 452,492 |
| Total commercial | 1,186 | | | 433 | | | 644 | | | 2,263 | | | 507,653 | | | | | | 509,916 | |
Commercial loans accounted for under the fair value option (8)(3) | | | | | | | | | | | | | 6,034 |
| | 6,034 |
| | | 7,741 | | | 7,741 | |
| Total commercial loans and leases | 1,583 |
| | 347 |
| | 572 |
| | 2,502 |
| | 449,990 |
| | | | 6,034 |
| | 458,526 |
| Total commercial loans and leases | 1,186 | | | 433 | | | 644 | | | 2,263 | | | 507,653 | | | | 7,741 | | | 517,657 | |
Total consumer and commercial loans and leases (10) | $ | 5,567 |
| | $ | 2,142 |
| | $ | 9,299 |
| | $ | 17,008 |
| | $ | 878,066 |
| | $ | 13,738 |
| | $ | 7,085 |
| | $ | 915,897 |
| |
Less: Loans of business held for sale (10) | | | | | | | | | | | | | | | (9,214 | ) | |
Total loans and leases (11) | | | | | | | | | | | | | | | $ | 906,683 |
| |
Percentage of outstandings (10) | 0.61 | % | | 0.23 | % | | 1.02 | % | | 1.86 | % | | 95.87 | % | | 1.50 | % | | 0.77 | % | | 100.00 | % | |
| Total loans and leases (5) | | Total loans and leases (5) | $ | 4,052 | | | $ | 1,503 | | | $ | 3,819 | | | $ | 9,374 | | | $ | 965,717 | | | | $ | 8,335 | | | $ | 983,426 | |
| Percentage of outstandings | | Percentage of outstandings | 0.41 | % | | 0.15 | % | | 0.39 | % | | 0.95 | % | | 98.20 | % | | | 0.85 | % | | 100.00 | % |
| |
(1)(1)Consumer real estate loans 30-59 days past due includes fully-insured loans of $517 million and nonperforming loans of $139 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $206 million and nonperforming loans of $114 million. Consumer real estate loans 90 days or more past due includes fully-insured loans of $1.1 billion. Consumer real estate loans current or less than 30 days past due includes $856 million and direct/indirect consumer includes $45 million of nonperforming loans. (2)Total outstandings primarily includes auto and specialty lending loans and leases of $50.4 billion, U.S. securities-based lending loans of $36.7 billion and non-U.S. consumer loans of $2.8 billion. (3)Consumer loans accounted for under the fair value option includes residential mortgage loans of $257 million and home equity loans of $337 million. Commercial loans accounted for under the fair value option includes U.S. commercial loans of $4.7 billion and non-U.S. commercial loans of $3.1 billion. For more information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value Option. (4)Total outstandings includes U.S. commercial real estate loans of $59.0 billion and non-U.S. commercial real estate loans of $3.7 billion. (5)Total outstandings includes loans and leases pledged as collateral of $25.9 billion. The Corporation also pledged $168.2 billion of loans with no related outstanding borrowings to secure potential borrowing capacity with the Federal Reserve Bank and Federal Home Loan Bank. | Consumer real estate loans 30-59 days past due includes fully-insured loans of $1.1 billion and nonperforming loans of $266 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $547 million and nonperforming loans of $216 million.
|
| |
(2)
| Consumer real estate includes fully-insured loans of $4.8 billion.
|
| |
(3)
| Consumer real estate includes $2.5 billion and direct/indirect consumer includes $27 million of nonperforming loans.
|
| |
(4)
| PCI loan amounts are shown gross of the valuation allowance. |
| |
(5)
| Total outstandings includes pay option loans of $1.8 billion. The Corporation no longer originates this product.
|
| |
(6)
| Total outstandings includes auto and specialty lending loans of $48.9 billion, unsecured consumer lending loans of $585 million, U.S. securities-based lending loans of $40.1 billion, non-U.S. consumer loans of $3.0 billion, student loans of $497 million and other consumer loans of $1.1 billion.
|
| |
(7)
| Total outstandings includes consumer finance loans of $465 million, consumer leases of $1.9 billion and consumer overdrafts of $157 million.
|
| |
(8)
| Consumer loans accounted for under the fair value option includes residential mortgage loans of $710 million and home equity loans of $341 million. Commercial loans accounted for under the fair value option includes U.S. commercial loans of $2.9 billion and non-U.S. commercial loans of $3.1 billion. For more information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value Option.
|
| |
(9)
| Total outstandings includes U.S. commercial real estate loans of $54.3 billion and non-U.S. commercial real estate loans of $3.1 billion.
|
| |
(10)
| Includes non-U.S. credit card loans, which were included in assets of business held for sale on the Consolidated Balance Sheet. |
| |
(11)
| The Corporation pledged $143.1 billion of loans to secure potential borrowing capacity with the Federal Reserve Bank and FHLB. This amount is not included in the parenthetical disclosure of loans and leases pledged as collateral on the Consolidated Balance Sheet as there were no related outstanding borrowings.
|
The Corporation categorizes consumer real estate loans as core and non-core based on loan and customer characteristics such as origination date, product type, LTV, FICOFair Isaac Corporation (FICO) score and delinquency status consistent with its current consumer and mortgage servicing strategy. Generally, loans that were originated after January 1, 2010, qualified under government-sponsored enterprise (GSE) underwriting guidelines, or otherwise met the Corporation’s underwriting guidelines in place in 2015 are characterized as core loans. All other loans are generally characterized as non-core loans and represent run-offrunoff portfolios.
The Corporation has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling $6.3$9.0 billion and $6.4$7.5 billion at December 31, 20172020 and 2016,2019, providing full credit protection on residential mortgage loans that become severely delinquent. All of these loans are individually insured, and therefore the Corporation does not record an allowance for credit losses related to these loans.
Nonperforming Loans and Leases
The Corporation classifies junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. At December 31, 2017 and 2016, $330 million and $428 million of such junior-lien home equity loans were included in nonperforming loans.
The Corporation classifies consumer real estate loans that have been discharged in Chapter 7 bankruptcy and not reaffirmed by the borrower as TDRs, irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified. The Corporation continues to have a lien on the underlying collateral. At December 31, 2017,Commercial nonperforming loans discharged in Chapter 7 bankruptcy with no change in repayment terms were $358 million of which $209 million were current on their contractual payments, while $124 million were 90 days or more past due. Of the contractually current nonperforming loans, 66 percent were discharged in Chapter 7
bankruptcy over 12 months ago, and 57 percent were discharged 24 months or more ago.
During 2017, the Corporation sold nonperforming and other delinquent consumer real estate loans with a carrying value of $1.3 billion, including $803 million of PCI loans, comparedincreased to $2.2 billion including $549at December 31, 2020 from $1.5 billion at December 31, 2019 with broad-based increases across multiple industries. Consumer nonperforming loans increased to $2.7 billion at December 31, 2020 from $2.1 billion at December 31, 2019 driven by deferral activity, as well as the inclusion of $144 million of PCIcertain loans in 2016. The Corporation recorded net recoveries of $105 million related to these sales during 2017that were previously classified as purchased credit-impaired loans and net charge-offs of $30 million during 2016. Gains related to these sales of $57 million and $75 million were recorded in other income in the Consolidated Statement of Income during 2017 and 2016. In 2017 and 2016, the Corporation
accounted for under a pool basis.transferred consumer nonperforming loans with a net carrying value of $198 million and $55 million to held-for-sale.
The table below presents the Corporation’s nonperforming loans and leases including nonperforming TDRs, and loans accruing past due 90 days or more at December 31, 20172020 and 2016.2019. Nonperforming LHFS are excluded from nonperforming loans and leases as they are recorded at either fair value or the lower of cost or fair value. For more information on the Corporation's interest accrual policies, delinquency status for loan modifications related to the pandemic and the criteria for classification as nonperforming, see Note 1 – Summary of Significant Accounting Principles.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Credit Quality | | |
| | | | | | | |
| |
| Nonperforming Loans
and Leases | | Accruing Past Due 90 Days or More (1) |
| December 31 |
| (Dollars in millions) | 2020 | | 2019 | | 2020 | | 2019 |
Residential mortgage (2) | $ | 2,005 | | | $ | 1,470 | | | $ | 762 | | | $ | 1,088 | |
With no related allowance (3) | 1,378 | | | n/a | | 0 | | | 0 | |
Home equity (2) | 649 | | | 536 | | | 0 | | | 0 | |
With no related allowance (3) | 347 | | | n/a | | 0 | | | 0 | |
| Credit Card | n/a | | n/a | | 903 | | | 1,042 | |
| Direct/indirect consumer | 71 | | | 47 | | | 33 | | | 33 | |
| | | | | | | |
| Total consumer | 2,725 | | | 2,053 | | | 1,698 | | | 2,163 | |
| U.S. commercial | 1,243 | | | 1,094 | | | 228 | | | 106 | |
| Non-U.S. commercial | 418 | | | 43 | | | 10 | | | 8 | |
| Commercial real estate | 404 | | | 280 | | | 6 | | | 19 | |
| Commercial lease financing | 87 | | | 32 | | | 25 | | | 20 | |
| U.S. small business commercial | 75 | | | 50 | | | 115 | | | 97 | |
| Total commercial | 2,227 | | | 1,499 | | | 384 | | | 250 | |
| Total nonperforming loans | $ | 4,952 | | | $ | 3,552 | | | $ | 2,082 | | | $ | 2,413 | |
| Percentage of outstanding loans and leases | 0.54 | % | | 0.36 | % | | 0.23 | % | | 0.25 | % |
(1)For information on the Corporation's interest accrual policies and delinquency status for loan modifications related to the pandemic, see Note 1 – Summary of Significant Accounting Principles.
(2)Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At December 31, 2020 and 2019 residential mortgage includes $537 million and $740 million of loans on which interest had been curtailed by the FHA, and therefore were no longer accruing interest, although principal was still insured, and $225 million and $348 million of loans on which interest was still accruing.(3)Primarily relates to loans for which the estimated fair value of the underlying collateral less any costs to sell is greater than the amortized cost of the loans as of the reporting date.
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| Credit Quality | | |
| | | | | | | | |
| | Nonperforming Loans and Leases | | Accruing Past Due 90 Days or More |
| | December 31
2017 |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Consumer real estate | |
| | |
| | |
| | |
|
| Core portfolio | | | | | | | |
Residential mortgage (1) | $ | 1,087 |
| | $ | 1,274 |
| | $ | 417 |
| | $ | 486 |
|
| Home equity | 1,079 |
| | 969 |
| | — |
| | — |
|
| Non-core portfolio | |
| | |
| | |
| | |
Residential mortgage (1) | 1,389 |
| | 1,782 |
| | 2,813 |
| | 4,307 |
|
| Home equity | 1,565 |
| | 1,949 |
| | — |
| | — |
|
| Credit card and other consumer | |
| | |
| | | | |
| U.S. credit card | n/a |
| | n/a |
| | 900 |
| | 782 |
|
| Non-U.S. credit card | n/a |
| | n/a |
| | — |
| | 66 |
|
| Direct/Indirect consumer | 46 |
| | 28 |
| | 40 |
| | 34 |
|
| Other consumer | — |
| | 2 |
| | — |
| | 4 |
|
| Total consumer | 5,166 |
| | 6,004 |
| | 4,170 |
| | 5,679 |
|
| Commercial | |
| | |
| | |
| | |
|
| U.S. commercial | 814 |
| | 1,256 |
| | 144 |
| | 106 |
|
| Non-U.S. commercial | 299 |
| | 279 |
| | 3 |
| | 5 |
|
| Commercial real estate | 112 |
| | 72 |
| | 4 |
| | 7 |
|
| Commercial lease financing | 24 |
| | 36 |
| | 19 |
| | 19 |
|
| U.S. small business commercial | 55 |
| | 60 |
| | 75 |
| | 71 |
|
| Total commercial | 1,304 |
| | 1,703 |
| | 245 |
| | 208 |
|
| Total loans and leases | $ | 6,470 |
| | $ | 7,707 |
| | $ | 4,415 |
| | $ | 5,887 |
|
| |
(1)
| Residential mortgage loans in the core and non-core portfolios accruing past due 90 days or more are fully-insured loans. At December 31, 2017 and 2016, residential mortgage includes $2.2 billion and $3.0 billion of loans on which interest has been curtailed by the FHA, and therefore are no longer accruing interest, although principal is still insured, and $1.0 billion and $1.8 billion of loans on which interest is still accruing.
|
n/a = not applicable
Included in the December 31, 2020 nonperforming loans are $127 million and $17 million of residential mortgage and home equity loans that prior to the January 1, 2020 adoption of the new credit loss standard were not included in nonperforming loans, as they were previously classified as purchased credit-impaired loans and accounted for under a pool basis.
Credit Quality Indicators
The Corporation monitors credit quality within its Consumer Real Estate
To estimate ECL for consumer loans secured by residential real estate, the Corporation estimates the number of loans that will default over the life of the existing portfolio, after factoring in estimated prepayments, using quantitative modeling methodologies. The attributes that are most significant in estimating the Corporation’s ECL include refreshed loan-to-value (LTV) or, in the case of a subordinated lien, refreshed combined LTV (CLTV), borrower credit score, months since origination and geography, all of which are further broken down by present collection status (whether the loan is current, delinquent, in default, or in bankruptcy). The estimates are based on the Corporation’s historical experience with the loan portfolio, adjusted to reflect the economic outlook. The outlook on the unemployment rate and consumer real estate prices are key factors that impact the frequency and severity of loss estimates. The Corporation does not reserve for credit losses on the unpaid principal balance of loans insured by the Federal Housing Administration (FHA) and long-term standby loans, as these loans are fully insured. The Corporation records a reserve for unfunded lending commitments for the ECL associated with the undrawn portion of the Corporation’s HELOCs, which can only be canceled by the Corporation if certain criteria are met. The ECL associated with these unfunded lending commitments is calculated using the same models and methodologies noted above and incorporate utilization assumptions at time of default.
For loans that are more than 180 days past due and collateral-dependent TDRs, the Corporation bases the allowance on the estimated fair value of the underlying collateral as of the reporting date less costs to sell. The fair value of the collateral securing these loans is generally determined using an automated valuation model (AVM) that estimates the value of a property by reference to market data including sales of comparable properties and price trends specific to the Metropolitan Statistical Area in which the property being valued is located. In the event that an AVM value is not available, the Corporation utilizes publicized indices or if these methods provide less reliable valuations, the Corporation uses appraisals or broker price opinions to estimate the fair value of the collateral. While there is inherent imprecision in these valuations, the Corporation believes that they are representative of this portfolio in the aggregate.
For loans that are more than 180 days past due and collateral-dependent TDRs, with the exception of the Corporation’s fully insured portfolio, the outstanding balance of loans that is in excess of the estimated property value after
adjusting for costs to sell is charged off. If the estimated property value decreases in periods subsequent to the initial charge-off, the Corporation will record an additional charge-off; however, if the value increases in periods subsequent to the charge-off, the Corporation will adjust the allowance to account for the increase but not to a level above the cumulative charge-off amount.
Credit Cards and Other Consumer
Credit cards are revolving lines of credit without a defined maturity date. The estimated life of a credit card receivable is determined by estimating the amount and timing of expected future payments (e.g., borrowers making full payments, minimum payments or somewhere in between) that it will take for a receivable balance to pay off. The ECL on the future payments incorporates the spending behavior of a borrower through time using key borrower-specific factors and the economic outlook described above. The Corporation applies all expected payments in accordance with the Credit Card Accountability Responsibility and Disclosure Act of 2009 (i.e., paying down the highest interest rate bucket first). Then forecasted future payments are prioritized to pay off the oldest balance until it is brought to zero or an expected charge-off amount. Unemployment rate outlook, borrower credit score, delinquency status and historical payment behavior are all key inputs into the credit card receivable loss forecasting model. Future draws on the credit card lines are excluded from the ECL as they are unconditionally cancellable.
The ECL for the consumer vehicle lending portfolio is also determined using quantitative methods supplemented with qualitative analysis. The quantitative model estimates ECL giving consideration to key borrower and loan characteristics such as delinquency status, borrower credit score, LTV ratio, underlying collateral type and collateral value.
Commercial
The ECL on commercial loans is forecasted using models that estimate credit losses over the loan’s contractual life at an individual loan level. The models use the contractual terms to forecast future principal cash flows while also considering expected prepayments. For open-ended commitments such as revolving lines of credit, changes in funded balance are captured by forecasting a borrower’s draw and payment behavior over the remaining life of the commitment. For loans collateralized with commercial real estate and for which the underlying asset is the primary source of repayment, the loss forecasting models consider key loan and customer attributes such as LTV ratio, net operating income and debt service coverage, and captures variations in behavior according to property type and region. The outlook on the unemployment rate, gross domestic product, and forecasted real estate prices are utilized to determine indicators such as rent levels and vacancy rates, which impact the ECL estimate. For all other commercial loans and leases, the loss forecasting model determines the probabilities of transition to different credit risk ratings or default at each point over the life of the asset based on the borrower’s current credit risk rating, industry sector, size of the exposure and the geographic market. The severity of loss is determined based on the type of collateral securing the exposure, the size of the exposure, the borrower’s industry sector, any guarantors and the geographic market. Assumptions of expected loss are conditioned to the economic outlook, and the model considers key economic variables such as unemployment rate, gross domestic product, corporate bond spreads, real estate and other asset prices and equity market returns.
In addition to the allowance for loan and lease losses, the Corporation also estimates ECL 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. Reserves are estimated for the unfunded exposure using the same models and methodologies as the funded exposure and are reported as reserves for unfunded lending commitments.
Nonperforming Loans and Leases, Charge-offs and Delinquencies
Nonperforming loans and leases generally include loans and leases that have been placed on nonaccrual status. Loans accounted for under the fair value option and LHFS are not reported as nonperforming.
In accordance with the Corporation’s policies, consumer real estate-secured loans, including residential mortgages and home equity loans, are generally placed on nonaccrual status and classified as nonperforming at 90 days past due unless repayment of the loan is insured by the FHA or through individually insured long-term standby agreements with Fannie Mae (FNMA) or Freddie Mac (FHLMC) (the fully-insured portfolio). Residential mortgage loans in the fully-insured portfolio are not placed on nonaccrual status and, therefore, are not reported as nonperforming. Junior-lien home equity loans are placed on nonaccrual status and classified as nonperforming when the underlying first-lien mortgage loan becomes 90 days past due even if the junior-lien loan is current. The outstanding balance of real estate-secured loans that is in excess of the estimated property value less costs to sell is charged off no later than the end of the month in which the loan becomes 180 days past due unless the loan is fully insured, or for loans in bankruptcy, within 60 days of receipt of notification of filing, with the remaining balance classified as nonperforming.
Consumer loans secured by personal property, credit card loans and other unsecured consumer loans are not placed on nonaccrual status prior to charge-off and, therefore, are not reported as nonperforming loans, except for certain secured consumer loans, including those that have been modified in a TDR. Personal property-secured loans (including auto loans) are charged off to collateral value no later than the end of the month in which the account becomes 120 days past due, or upon repossession of an auto or, for loans in bankruptcy, within 60 days of receipt of notification of filing. Credit card and other unsecured customer loans are charged off no later than the end of the month in which the account becomes 180 days past due, within 60 days after receipt of notification of death or bankruptcy, or upon confirmation of fraud.
Commercial loans and leases, excluding business card loans, that are past due 90 days or more as to principal or interest, or where reasonable doubt exists as to timely collection, including loans that are individually identified as being impaired, are generally placed on nonaccrual status and classified as nonperforming unless well-secured and in the process of collection.
Business card loans are charged off in the same manner as consumer credit card loans. Other commercial loans and leases are generally charged off when all or a portion of the principal amount is determined to be uncollectible.
The entire balance of a consumer loan or commercial loan or lease is contractually delinquent if the minimum payment is not received by the specified due date on the customer’s billing statement. Interest and fees continue to accrue on past due loans and leases until the date the loan is placed on nonaccrual
status, if applicable. Accrued interest receivable is reversed when loans and leases are placed on nonaccrual status. Interest collections on nonaccruing loans and leases for which the ultimate collectability of principal is uncertain are applied as principal reductions; otherwise, such collections are credited to income when received. Loans and leases may be restored to accrual status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected.
Troubled Debt Restructurings
Consumer and Commercial portfolio segmentscommercial loans and leases whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties are classified as TDRs. Concessions could include a reduction in the interest rate to a rate that is below market on the loan, payment extensions, forgiveness of principal, forbearance or other actions designed to maximize collections. Loans that are carried at fair value and LHFS are not classified as TDRs.
Loans and leases whose contractual terms have been modified in a TDR and are current at the time of restructuring may remain on accrual status if there is demonstrated performance prior to the restructuring and payment in full under the restructured terms is expected. Otherwise, the loans are placed on nonaccrual status and reported as nonperforming, except for fully-insured consumer real estate loans, until there is sustained repayment performance for a reasonable period, generally six months. If accruing TDRs cease to perform in accordance with their modified contractual terms, they are placed on nonaccrual status and reported as nonperforming TDRs.
Secured consumer loans that have been discharged in Chapter 7 bankruptcy and have not been reaffirmed by the borrower are classified as TDRs at the time of discharge. Such loans are placed on nonaccrual status and written down to the estimated collateral value less costs to sell no later than at the time of discharge. If these loans are contractually current, interest collections are generally recorded in interest income on a cash basis. Consumer real estate-secured loans for which a binding offer to restructure has been extended are also classified as TDRs. Credit card and other unsecured consumer loans that have been renegotiated in a TDR generally remain on accrual status until the loan is either paid in full or charged off, which occurs no later than the end of the month in which the loan becomes 180 days past due or, for loans that have been placed on a fixed payment plan, 120 days past due.
A loan that had previously been modified in a TDR and is subsequently refinanced under current underwriting standards at a market rate with no concessionary terms is accounted for as a new loan and is no longer reported as a TDR.
COVID-19 Programs
The Corporation has implemented various consumer and commercial loan modification programs to provide its borrowers relief from the economic impacts of the COVID-19 pandemic (the pandemic). In accordance with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Corporation has elected to not apply TDR classification to eligible COVID-19 related loan modifications that were performed after March 1, 2020 to loans that were current as of December 31, 2019. Accordingly, these restructurings are not classified as TDRs. The availability of this election expires upon the earlier of January 1, 2022 or 60 days after the national emergency related to COVID-19 terminates. In
addition, for loans modified in response to the pandemic that do not meet the above criteria (e.g., current payment status at December 31, 2019), the Corporation is applying the guidance included in an interagency statement issued by the bank regulatory agencies. This guidance states that loan modifications performed in light of the pandemic, including loan payment deferrals that are up to six months in duration, that were granted to borrowers who were current as of the implementation date of a loan modification program or modifications granted under government mandated modification programs, are not TDRs. For loan modifications that include a payment deferral and are not TDRs, the borrowers' past due and nonaccrual status have not been impacted during the deferral period. The Corporation has continued to accrue interest during the deferral period using a constant effective yield method. For most mortgage, HELOC and commercial loan modifications, the contractual interest that accrued during the deferral period is payable at the maturity of the loan. The Corporation includes these amounts with the unpaid principal balance when computing its allowance for credit losses. Amounts that are subsequently deemed uncollectible are written off against the allowance for credit losses.
Loans Held-for-sale
Loans that the Corporation intends to sell in the foreseeable future, including residential mortgages, loan syndications, and to a lesser degree, commercial real estate, consumer finance and other loans, are reported as LHFS and are carried at the lower of aggregate cost or fair value. The Corporation accounts for certain LHFS, including residential mortgage LHFS, under the fair value option. Loan origination costs for LHFS carried at the lower of cost or fair value are capitalized as part of the carrying value of the loans and, upon the sale of a loan, are recognized as part of the gain or loss in noninterest income. LHFS that are on nonaccrual status and are reported as nonperforming, as defined in the policy herein, are reported separately from nonperforming loans and leases.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are recognized using the straight-line method over the estimated useful lives of the assets. Estimated lives range up to 40 years for buildings, up to 12 years for furniture and equipment, and the shorter of lease term or estimated useful life for leasehold improvements.
Other Assets
For the Corporation’s financial assets that are measured at amortized cost and are not included in debt securities or loans and leases on the Consolidated Balance Sheet, the Corporation evaluates these assets for ECL using various techniques. For assets that are subject to collateral maintenance provisions, including federal funds sold and securities borrowed or purchased under agreements to resell, where the collateral consists of daily margining of liquid and marketable assets where the margining is expected to be maintained into the foreseeable future, the expected losses are assumed to be 0. For all other assets, the Corporation performs qualitative analyses, including consideration of historical losses and current economic conditions, to estimate any ECL which are then included in a valuation account that is recorded as a contra-asset against the amortized cost basis of the financial asset.
Lessee Arrangements
Substantially all of the Corporation’s lessee arrangements are operating leases. Under these arrangements, the Corporation records right-of-use assets and lease liabilities at lease commencement. Right-of-use assets are reported in other assets on the Consolidated Balance Sheet, and the related lease liabilities are reported in accrued expenses and other liabilities. All leases are recorded on the Consolidated Balance Sheet except leases with an initial term less than 12 months for which the Corporation made the short-term lease election. Lease expense is recognized on a straight-line basis over the lease term and is recorded in occupancy and equipment expense in the Consolidated Statement of Income.
The Corporation made an accounting policy election not to separate lease and non-lease components of a contract that is or contains a lease for its real estate and equipment leases. As such, lease payments represent payments on both lease and non-lease components. At lease commencement, lease liabilities are recognized based on primarythe present value of the remaining lease payments and discounted using the Corporation’s incremental borrowing rate. Right-of-use assets initially equal the lease liability, adjusted for any lease payments made prior to lease commencement and for any lease incentives.
Goodwill and Intangible Assets
Goodwill is the purchase premium after adjusting for the fair value of net assets acquired. Goodwill is not amortized but is reviewed for potential impairment on an annual basis, or when events or circumstances indicate a potential impairment, at the reporting unit level. A reporting unit is a business segment or one level below a business segment.
The Corporation assesses the fair value of each reporting unit against its carrying value, including goodwill, as measured by allocated equity. For purposes of goodwill impairment testing, the Corporation utilizes allocated equity as a proxy for the carrying value of its reporting units. Allocated equity in the reporting units is comprised of allocated capital plus capital for the portion of goodwill and intangibles specifically assigned to the reporting unit.
In performing its goodwill impairment testing, the Corporation first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors include, among other things, macroeconomic conditions, industry and market considerations, financial performance of the respective reporting unit and other relevant entity- and reporting-unit specific considerations.
If the Corporation concludes it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative assessment is performed. The Corporation has an unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. The Corporation may resume performing the qualitative assessment in any subsequent period.
When performing the quantitative assessment, if the fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit would not be considered impaired. If the carrying value of the reporting unit exceeds its fair value, a goodwill impairment loss would be recognized for the amount by which the reporting unit’s allocated equity exceeds its fair value. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit. An impairment loss establishes a new basis in the goodwill, and subsequent
reversals of goodwill impairment losses are not permitted under applicable accounting guidance.
For intangible assets subject to amortization, an impairment loss is recognized if the carrying value of the intangible asset is not recoverable and exceeds fair value. The carrying value of the intangible asset is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset. Intangible assets deemed to have indefinite useful lives are not subject to amortization. An impairment loss is recognized if the carrying value of the intangible asset with an indefinite life exceeds its fair value.
Variable Interest Entities
A VIE is an entity that lacks equity investors or whose equity investors do not have a controlling financial interest in the entity through their equity investments. The Corporation consolidates a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. On a quarterly basis, the Corporation reassesses its involvement with the VIE and evaluates the impact of changes in governing documents and its financial interests in the VIE. The consolidation status of the VIEs with which the Corporation is involved may change as a result of such reassessments.
The Corporation primarily uses VIEs for its securitization activities, in which the Corporation transfers whole loans or debt securities into a trust or other vehicle. When the Corporation is the servicer of whole loans held in a securitization trust, including non-agency residential mortgages, home equity loans, credit quality indicators.cards, and other loans, the Corporation has the power to direct the most significant activities of the trust. The Corporation generally does not have the power to direct the most significant activities of a residential mortgage agency trust except in certain circumstances in which the Corporation holds substantially all of the issued securities and has the unilateral right to liquidate the trust. The power to direct the most significant activities of a commercial mortgage securitization trust is typically held by the special servicer or by the party holding specific subordinate securities which embody certain controlling rights. The Corporation consolidates a whole-loan securitization trust if it has the power to direct the most significant activities and also holds securities issued by the trust or has other contractual arrangements, other than standard representations and warranties, that could potentially be significant to the trust.
The Corporation may also transfer trading account securities and AFS securities into municipal bond or resecuritization trusts. The Corporation consolidates a municipal bond or resecuritization trust if it has control over the ongoing activities of the trust such as the remarketing of the trust’s liabilities or, if there are no ongoing activities, sole discretion over the design of the trust, including the identification of securities to be transferred in and the structure of securities to be issued, and also retains securities or has liquidity or other commitments that could potentially be significant to the trust. The Corporation does not consolidate a municipal bond or resecuritization trust if one or a limited number of third-party investors share responsibility for the design of the trust or have control over the significant activities of the trust through liquidation or other substantive rights.
Other VIEs used by the Corporation include collateralized debt obligations (CDOs), investment vehicles created on behalf of customers and other investment vehicles. The Corporation does not routinely serve as collateral manager for CDOs and, therefore, does not typically have the power to direct the
activities that most significantly impact the economic performance of a CDO. However, following an event of default, if the Corporation is a majority holder of senior securities issued by a CDO and acquires the power to manage its assets, the Corporation consolidates the CDO.
The Corporation consolidates a customer or other investment vehicle if it has control over the initial design of the vehicle or manages the assets in the vehicle and also absorbs potentially significant gains or losses through an investment in the vehicle, derivative contracts or other arrangements. The Corporation does not consolidate an investment vehicle if a single investor controlled the initial design of the vehicle or manages the assets in the vehicles or if the Corporation does not have a variable interest that could potentially be significant to the vehicle.
Retained interests in securitized assets are initially recorded at fair value. In addition, the Corporation may invest in debt securities issued by unconsolidated VIEs. Fair values of these debt securities, which are classified as trading account assets, debt securities carried at fair value or HTM securities, are based primarily on quoted market prices in active or inactive markets. Generally, quoted market prices for retained residual interests are not available; therefore, the Corporation estimates fair values based on the present value of the associated expected future cash flows.
Fair Value
The Corporation measures the fair values of its assets and liabilities, where applicable, in accordance with accounting guidance that requires an entity to base fair value on exit price. Under this guidance, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. Under applicable accounting standards, fair value measurements are categorized into one of three levels based on the inputs to the valuation technique with the highest priority given to unadjusted quoted prices in active markets and the lowest priority given to unobservable inputs. The Corporation categorizes its fair value measurements of financial instruments based on this three-level hierarchy.
Level 1Unadjusted quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in OTC markets.
Level 2Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts where fair value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. government and agency mortgage-backed (MBS) and asset-backed securities (ABS), corporate debt securities, derivative contracts, certain loans and LHFS.
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the overall
fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments for which the determination of fair value requires significant management judgment or estimation. The fair value for such assets and liabilities is generally determined using pricing models, discounted cash flow methodologies or similar techniques that incorporate the assumptions a market participant would use in pricing the asset or liability. This category generally includes retained residual interests in securitizations, consumer MSRs, certain ABS, highly structured, complex or long-dated derivative contracts, certain loans and LHFS, IRLCs and certain CDOs where independent pricing information cannot be obtained for a significant portion of the underlying assets.
Income Taxes
There are two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. These gross deferred tax assets and liabilities represent decreases or increases in taxes expected to be paid in the future because of future reversals of temporary differences in the bases of assets and liabilities as measured by tax laws and their bases as reported in the financial statements. Deferred tax assets are also recognized for tax attributes such as net operating loss carryforwards and tax credit carryforwards. Valuation allowances are recorded to reduce deferred tax assets to the amounts management concludes are more likely than not to be realized.
Income tax benefits are recognized and measured based upon a two-step model: first, a tax position must be more likely than not to be sustained based solely on its technical merits in order to be recognized, and second, the benefit is measured as the largest dollar amount of that position that is more likely than not to be sustained upon settlement. The difference between the benefit recognized and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit. The Corporation records income tax-related interest and penalties, if applicable, within income tax expense.
Revenue Recognition
The following summarizes the Corporation’s revenue recognition accounting policies for certain noninterest income activities.
Card Income
Card income includes annual, late and over-limit fees as well as interchange, cash advances and other miscellaneous items from credit and debit card transactions and from processing card transactions for merchants. Card income is presented net of direct costs. Interchange fees are recognized upon settlement of the credit and debit card payment transactions and are generally determined on a percentage basis for credit cards and fixed rates for debit cards based on the corresponding payment network’s rates. Substantially all card fees are recognized at the transaction date, except for certain time-based fees such as annual fees, which are recognized over 12 months. Fees charged to cardholders and merchants that are estimated to be uncollectible are reserved in the allowance for loan and lease losses. Included in direct cost are rewards and credit card partner payments. Rewards paid to cardholders are related to points earned by the cardholder that can be redeemed for a broad range of rewards including cash, travel and gift cards. The points to be redeemed are estimated based on past redemption behavior, card product type, account
transaction activity and other historical card performance. The liability is reduced as the points are redeemed. The Corporation also makes payments to credit card partners. The payments are based on revenue-sharing agreements that are generally driven by cardholder transactions and partner sales volumes. As part of the revenue-sharing agreements, the credit card partner provides the Corporation exclusive rights to market to the credit card partner’s members or customers on behalf of the Corporation.
Service Charges
Service charges include deposit and lending-related fees. Deposit-related fees consist of fees earned on consumer and commercial deposit activities and are generally recognized when the transactions occur or as the service is performed. Consumer fees are earned on consumer deposit accounts for account maintenance and various transaction-based services, such as ATM transactions, wire transfer activities, check and money order processing and insufficient funds/overdraft transactions. Commercial deposit-related fees are from the Corporation’s Global Transaction Services business and consist of commercial deposit and treasury management services, including account maintenance and other services, such as payroll, sweep account and other cash management services. Lending-related fees generally represent transactional fees earned from certain loan commitments, financial guarantees and SBLCs.
Investment and Brokerage Services
Investment and brokerage services consist of asset management and brokerage fees. Asset management fees are earned from the management of client assets under advisory agreements or the full discretion of the Corporation’s financial advisors (collectively referred to as assets under management (AUM)). Asset management fees are earned as a percentage of the client’s AUM and generally range from 50 basis points (bps) to 150 bps of the AUM. In cases where a third party is used to obtain a client’s investment allocation, the fee remitted to the third party is recorded net and is not reflected in the transaction price, as the Corporation is an agent for those services.
Brokerage fees include income earned from transaction-based services that are performed as part of investment management services and are based on a fixed price per unit or as a percentage of the total transaction amount. Brokerage fees also include distribution fees and sales commissions that are primarily in the Global Wealth & Investment Management (GWIM) segment and are earned over time. In addition, primarily in the Global Markets segment, brokerage fees are earned when the Corporation fills customer orders to buy or sell various financial products or when it acknowledges, affirms, settles and clears transactions and/or submits trade information to the appropriate clearing broker. Certain customers pay brokerage, clearing and/or exchange fees imposed by relevant regulatory bodies or exchanges in order to execute or clear trades. These fees are recorded net and are not reflected in the transaction price, as the Corporation is an agent for those services.
Investment Banking Income
Investment banking income includes underwriting income and financial advisory services income. Underwriting consists of fees earned for the placement of a customer’s debt or equity securities. The revenue is generally earned based on a percentage of the fixed number of shares or principal placed. Once the number of shares or notes is determined and the service is completed, the underwriting fees are recognized. The Corporation incurs certain out-of-pocket expenses, such as legal costs, in performing these services. These expenses are
recovered through the revenue the Corporation earns from the customer and are included in operating expenses. Syndication fees represent fees earned as the agent or lead lender responsible for structuring, arranging and administering a loan syndication.
Financial advisory services consist of fees earned for assisting clients with transactions related to mergers and acquisitions and financial restructurings. Revenue varies depending on the size of the transaction and scope of services performed and is generally contingent on successful completion of the transaction. Revenue is typically recognized once the transaction is completed and all services have been rendered. Additionally, the Corporation may earn a fixed fee in merger and acquisition transactions to provide a fairness opinion, with the fees recognized when the opinion is delivered to the client.
Other Revenue Measurement and Recognition Policies
The Corporation did not disclose the value of any open performance obligations at December 31, 2020, as its contracts with customers generally have a fixed term that is less than one year, an open term with a cancellation period that is less than one year, or provisions that allow the Corporation to recognize revenue at the amount it has the right to invoice.
Earnings Per Common Share
Earnings per common share (EPS) is computed by dividing net income allocated to common shareholders by the weighted-average common shares outstanding, excluding unvested common shares subject to repurchase or cancellation. Net income allocated to common shareholders is net income adjusted for preferred stock dividends including dividends declared, accretion of discounts on preferred stock including accelerated accretion when preferred stock is repaid early, and cumulative dividends related to the current dividend period that have not been declared as of period end, less income allocated to participating securities. Diluted EPS is computed by dividing income allocated to common shareholders plus dividends on dilutive convertible preferred stock and preferred stock that can be tendered to exercise warrants, by the weighted-average common shares outstanding plus amounts representing the dilutive effect of stock options outstanding, restricted stock, restricted stock units (RSUs), outstanding warrants and the dilution resulting from the conversion of convertible preferred stock, if applicable.
Foreign Currency Translation
Assets, liabilities and operations of foreign branches and subsidiaries are recorded based on the functional currency of each entity. When the functional currency of a foreign operation is the local currency, the assets, liabilities and operations are translated, for consolidation purposes, from the local currency to the U.S. dollar reporting currency at period-end rates for assets and liabilities and generally at average rates for results of operations. The resulting unrealized gains and losses are reported as a component of accumulated OCI, net-of-tax. When the foreign entity’s functional currency is the U.S. dollar, the resulting remeasurement gains or losses on foreign currency-denominated assets or liabilities are included in earnings.
Paycheck Protection Program
The Corporation is participating in the Paycheck Protection Program (PPP), which is a loan program that originated from the CARES Act and was subsequently expanded by the Paycheck Protection Program and Health Care Enhancement Act. The PPP is designed to provide U.S. small businesses with cash-flow assistance through loans fully guaranteed by the Small
Business Administration (SBA). If the borrower meets certain criteria and uses the proceeds towards certain eligible expenses, the borrower’s obligation to repay the loan can be forgiven up to the full principal amount of the loan and any accrued interest. Upon borrower forgiveness, the SBA pays the Corporation for the principal and accrued interest owed on the loan. If the full principal of the loan is not forgiven, the loan will operate according to the original loan terms with the 100 percent SBA guaranty remaining. As of December 31, 2020, the
Corporation had approximately 332,000 PPP loans with a carrying value of $22.7 billion. As compensation for originating the loans, the Corporation received lender processing fees from the SBA, which are capitalized, along with the loan origination costs, and will be amortized over the loans’ contractual lives and recognized as interest income. Upon forgiveness of a loan and repayment by the SBA, any unrecognized net capitalized fees and costs related to the loan will be recognized as interest income in that period.
NOTE 2 Net Interest Income and Noninterest Income
The table below presents the Corporation’s net interest income and noninterest income disaggregated by revenue source for 2020, 2019 and 2018. For more information, see Note 1 – Summary of Significant Accounting Principles. For a disaggregation of noninterest income by business segment and All Other, see Note 23 – Business Segment Information.
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| (Dollars in millions) | 2020 | | 2019 | | 2018 | | | | | | | | | | | |
| Net interest income | | | | | | | | | | | | | | | | |
| Interest income | | | | | | | | | | | | | | | | |
| Loans and leases | $ | 34,029 | | | $ | 43,086 | | | $ | 40,811 | | | | | | | | | | | | |
| Debt securities | 9,790 | | | 11,806 | | | 11,724 | | | | | | | | | | | | |
| Federal funds sold and securities borrowed or purchased under agreements to resell | 903 | | | 4,843 | | | 3,176 | | | | | | | | | | | | |
| Trading account assets | 4,128 | | | 5,196 | | | 4,811 | | | | | | | | | | | | |
| Other interest income | 2,735 | | | 6,305 | | | 6,247 | | | | | | | | | | | | |
| Total interest income | 51,585 | | | 71,236 | | | 66,769 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Interest expense | | | | | | | | | | | | | | | | |
| Deposits | 1,943 | | | 7,188 | | | 4,495 | | | | | | | | | | | | |
| Short-term borrowings | 987 | | | 7,208 | | | 5,839 | | | | | | | | | | | | |
| Trading account liabilities | 974 | | | 1,249 | | | 1,358 | | | | | | | | | | | | |
| Long-term debt | 4,321 | | | 6,700 | | | 6,915 | | | | | | | | | | | | |
| Total interest expense | 8,225 | | | 22,345 | | | 18,607 | | | | | | | | | | | | |
| Net interest income | $ | 43,360 | | | $ | 48,891 | | | $ | 48,162 | | | | | | | | | | | | |
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| Noninterest income | | | | | | | | | | | | | | | | |
| Fees and commissions | | | | | | | | | | | | | | | | |
| Card income | | | | | | | | | | | | | | | | |
Interchange fees (1) | $ | 3,954 | | | $ | 3,834 | | | $ | 3,866 | | | | | | | | | | | | |
| Other card income | 1,702 | | | 1,963 | | | 1,958 | | | | | | | | | | | | |
| Total card income | 5,656 | | | 5,797 | | | 5,824 | | | | | | | | | | | | |
| Service charges | | | | | | | | | | | | | | | | |
| Deposit-related fees | 5,991 | | | 6,588 | | | 6,667 | | | | | | | | | | | | |
| Lending-related fees | 1,150 | | | 1,086 | | | 1,100 | | | | | | | | | | | | |
| Total service charges | 7,141 | | | 7,674 | | | 7,767 | | | | | | | | | | | | |
| Investment and brokerage services | | | | | | | | | | | | | | | | |
| Asset management fees | 10,708 | | | 10,241 | | | 10,189 | | | | | | | | | | | | |
| Brokerage fees | 3,866 | | | 3,661 | | | 3,971 | | | | | | | | | | | | |
| Total investment and brokerage services | 14,574 | | | 13,902 | | | 14,160 | | | | | | | | | | | | |
| Investment banking fees | | | | | | | | | | | | | | | | |
| Underwriting income | 4,698 | | | 2,998 | | | 2,722 | | | | | | | | | | | | |
| Syndication fees | 861 | | | 1,184 | | | 1,347 | | | | | | | | | | | | |
| Financial advisory services | 1,621 | | | 1,460 | | | 1,258 | | | | | | | | | | | | |
| Total investment banking fees | 7,180 | | | 5,642 | | | 5,327 | | | | | | | | | | | | |
| Total fees and commissions | 34,551 | | | 33,015 | | | 33,078 | | | | | | | | | | | | |
| Market making and similar activities | 8,355 | | | 9,034 | | | 9,008 | | | | | | | | | | | | |
| Other income (loss) | (738) | | | 304 | | | 772 | | | | | | | | | | | | |
| Total noninterest income | $ | 42,168 | | | $ | 42,353 | | | $ | 42,858 | | | | | | | | | | | | |
(1)Gross interchange fees were $9.2 billion, $10.0 billion and $9.5 billion for 2020, 2019 and 2018, respectively, and are presented net of $5.5 billion, $6.2 billion and $5.6 billion of expenses for rewards and partner payments as well as certain other card costs for the same periods.
NOTE 3 Derivatives
Derivative Balances
Derivatives are entered into on behalf of customers, for trading or to support risk management activities. Derivatives used in risk management activities include derivatives that may or may not be designated in qualifying hedge accounting relationships. Derivatives that are not designated in qualifying hedge accounting relationships are referred to as other risk management derivatives. For more information on the
Corporation’s derivatives and hedging activities, see Note 1 – Summary of Significant Accounting Principles. The following tables present derivative instruments included on the Consolidated Balance Sheet in derivative assets and liabilities at December 31, 2020 and 2019. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and have been reduced by cash collateral received or paid.
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| | | December 31, 2020 |
| | | Gross Derivative Assets | | Gross Derivative Liabilities |
| (Dollars in billions) | Contract/ Notional (1) | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting
Hedges | | Total | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting
Hedges | | Total |
| Interest rate contracts | | | | | | | | | | | | | |
| Swaps | $ | 13,242.8 | | | $ | 199.9 | | | $ | 10.9 | | | $ | 210.8 | | | $ | 209.3 | | | $ | 1.3 | | | $ | 210.6 | |
| Futures and forwards | 3,222.2 | | | 3.5 | | | 0.1 | | | 3.6 | | | 3.6 | | | 0 | | | 3.6 | |
| Written options | 1,530.5 | | | 0 | | | 0 | | | 0 | | | 40.5 | | | 0 | | | 40.5 | |
| Purchased options | 1,545.8 | | | 45.3 | | | 0 | | | 45.3 | | | 0 | | | 0 | | | 0 | |
| Foreign exchange contracts | | | | | | | | | | | | | |
| Swaps | 1,475.8 | | | 37.1 | | | 0.3 | | | 37.4 | | | 39.7 | | | 0.6 | | | 40.3 | |
| Spot, futures and forwards | 3,710.7 | | | 53.4 | | | 0 | | | 53.4 | | | 54.5 | | | 0.5 | | | 55.0 | |
| Written options | 289.6 | | | 0 | | | 0 | | | 0 | | | 4.8 | | | 0 | | | 4.8 | |
| Purchased options | 279.3 | | | 5.0 | | | 0 | | | 5.0 | | | 0 | | | 0 | | | 0 | |
| Equity contracts | | | | | | | | | | | | | |
| Swaps | 320.2 | | | 13.3 | | | 0 | | | 13.3 | | | 14.5 | | | 0 | | | 14.5 | |
| Futures and forwards | 106.2 | | | 0.3 | | | 0 | | | 0.3 | | | 1.4 | | | 0 | | | 1.4 | |
| Written options | 599.1 | | | 0 | | | 0 | | | 0 | | | 48.8 | | | 0 | | | 48.8 | |
| Purchased options | 541.2 | | | 52.6 | | | 0 | | | 52.6 | | | 0 | | | 0 | | | 0 | |
| Commodity contracts | | | | | | | | | | | | | |
| Swaps | 36.4 | | | 1.9 | | | 0 | | | 1.9 | | | 4.4 | | | 0 | | | 4.4 | |
| Futures and forwards | 63.6 | | | 2.0 | | | 0 | | | 2.0 | | | 1.0 | | | 0 | | | 1.0 | |
| Written options | 24.6 | | | 0 | | | 0 | | | 0 | | | 1.4 | | | 0 | | | 1.4 | |
| Purchased options | 24.7 | | | 1.5 | | | 0 | | | 1.5 | | | 0 | | | 0 | | | 0 | |
Credit derivatives (2) | | | | | | | | | | | | | |
| Purchased credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 322.7 | | | 2.3 | | | 0 | | | 2.3 | | | 4.4 | | | 0 | | | 4.4 | |
| Total return swaps/options | 63.6 | | | 0.2 | | | 0 | | | 0.2 | | | 1.0 | | | 0 | | | 1.0 | |
| Written credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 301.5 | | | 4.4 | | | 0 | | | 4.4 | | | 1.9 | | | 0 | | | 1.9 | |
| Total return swaps/options | 68.6 | | | 0.6 | | | 0 | | | 0.6 | | | 0.4 | | | 0 | | | 0.4 | |
| Gross derivative assets/liabilities | | | $ | 423.3 | | | $ | 11.3 | | | $ | 434.6 | | | $ | 431.6 | | | $ | 2.4 | | | $ | 434.0 | |
| Less: Legally enforceable master netting agreements | | | | | | | (344.9) | | | | | | | (344.9) | |
| Less: Cash collateral received/paid | | | | | | | (42.5) | | | | | | | (43.6) | |
| Total derivative assets/liabilities | | | | | | | $ | 47.2 | | | | | | | $ | 45.5 | |
(1)Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2)The net derivative asset (liability) and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names were $2.2 billion and $269.8 billion at December 31, 2020.
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| | | December 31, 2019 |
| | | Gross Derivative Assets | | Gross Derivative Liabilities |
| (Dollars in billions) | Contract/ Notional (1) | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting
Hedges | | Total | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting
Hedges | | Total |
| Interest rate contracts | | | | | | | | | | | | | |
| Swaps | $ | 15,074.4 | | | $ | 162.0 | | | $ | 9.7 | | | $ | 171.7 | | | $ | 168.5 | | | $ | 0.4 | | | $ | 168.9 | |
| Futures and forwards | 3,279.8 | | | 1.0 | | | 0 | | | 1.0 | | | 1.0 | | | 0 | | | 1.0 | |
| Written options | 1,767.7 | | | 0 | | | 0 | | | 0 | | | 32.5 | | | 0 | | | 32.5 | |
| Purchased options | 1,673.6 | | | 37.4 | | | 0 | | | 37.4 | | | 0 | | | 0 | | | 0 | |
| Foreign exchange contracts | | | | | | | | | | | | | |
| Swaps | 1,657.7 | | | 30.3 | | | 0.7 | | | 31.0 | | | 31.7 | | | 0.9 | | | 32.6 | |
| Spot, futures and forwards | 3,792.7 | | | 35.9 | | | 0.1 | | | 36.0 | | | 38.7 | | | 0.3 | | | 39.0 | |
| Written options | 274.3 | | | 0 | | | 0 | | | 0 | | | 3.8 | | | 0 | | | 3.8 | |
| Purchased options | 261.6 | | | 4.0 | | | 0 | | | 4.0 | | | 0 | | | 0 | | | 0 | |
| Equity contracts | | | | | | | | | | | | | |
| Swaps | 315.0 | | | 6.5 | | | 0 | | | 6.5 | | | 8.1 | | | 0 | | | 8.1 | |
| Futures and forwards | 125.1 | | | 0.3 | | | 0 | | | 0.3 | | | 1.1 | | | 0 | | | 1.1 | |
| Written options | 731.1 | | | 0 | | | 0 | | | 0 | | | 34.6 | | | 0 | | | 34.6 | |
| Purchased options | 668.6 | | | 42.4 | | | 0 | | | 42.4 | | | 0 | | | 0 | | | 0 | |
| Commodity contracts | | | | | | | | | | | | | |
| Swaps | 42.0 | | | 2.1 | | | 0 | | | 2.1 | | | 4.4 | | | 0 | | | 4.4 | |
| Futures and forwards | 61.3 | | | 1.7 | | | 0 | | | 1.7 | | | 0.4 | | | 0 | | | 0.4 | |
| Written options | 33.2 | | | 0 | | | 0 | | | 0 | | | 1.4 | | | 0 | | | 1.4 | |
| Purchased options | 37.9 | | | 1.4 | | | 0 | | | 1.4 | | | 0 | | | 0 | | | 0 | |
Credit derivatives (2) | | | | | | | | | | | | | |
| Purchased credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 321.6 | | | 2.7 | | | 0 | | | 2.7 | | | 5.6 | | | 0 | | | 5.6 | |
| Total return swaps/options | 86.6 | | | 0.4 | | | 0 | | | 0.4 | | | 1.3 | | | 0 | | | 1.3 | |
| Written credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 300.2 | | | 5.4 | | | 0 | | | 5.4 | | | 2.0 | | | 0 | | | 2.0 | |
| Total return swaps/options | 86.2 | | | 0.8 | | | 0 | | | 0.8 | | | 0.4 | | | 0 | | | 0.4 | |
| Gross derivative assets/liabilities | | | $ | 334.3 | | | $ | 10.5 | | | $ | 344.8 | | | $ | 335.5 | | | $ | 1.6 | | | $ | 337.1 | |
| Less: Legally enforceable master netting agreements | | | | | | | (270.4) | | | | | | | (270.4) | |
| Less: Cash collateral received/paid | | | | | | | (33.9) | | | | | | | (28.5) | |
| Total derivative assets/liabilities | | | | | | | $ | 40.5 | | | | | | | $ | 38.2 | |
(1)Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2)The net derivative asset (liability) and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names were $2.8 billion and $309.7 billion at December 31, 2019.
Offsetting of Derivatives
The Corporation enters into International Swaps and Derivatives Association, Inc. (ISDA) master netting agreements or similar agreements with substantially all of the Corporation’s derivative counterparties. Where legally enforceable, these master netting agreements give the Corporation, in the event of default by the counterparty, the right to liquidate securities held as collateral and to offset receivables and payables with the same counterparty. For purposes of the Consolidated Balance Sheet, the Corporation offsets derivative assets and liabilities and cash collateral held with the same counterparty where it has such a legally enforceable master netting agreement.
The following table presents derivative instruments included in derivative assets and liabilities on the Consolidated Balance
Sheet at December 31, 2020 and 2019 by primary risk (e.g., interest rate risk) and the platform, where applicable, on which these derivatives are transacted. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total gross derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements which include reducing the balance for counterparty netting and cash collateral received or paid.
For more information on offsetting of securities financing agreements, see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements, Short-term Borrowings and Restricted Cash.
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Offsetting of Derivatives (1) | | | | | | | |
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| Derivative
Assets | | Derivative Liabilities | | Derivative
Assets | | Derivative Liabilities |
| (Dollars in billions) | December 31, 2020 | | December 31, 2019 |
| Interest rate contracts | | | | | | | |
| Over-the-counter | $ | 247.7 | | | $ | 243.5 | | | $ | 203.1 | | | $ | 196.6 | |
| Exchange-traded | 0 | | | 0 | | | 0.1 | | | 0.1 | |
| Over-the-counter cleared | 10.2 | | | 9.1 | | | 6.0 | | | 5.3 | |
| Foreign exchange contracts | | | | | | | |
| Over-the-counter | 92.2 | | | 96.5 | | | 69.2 | | | 73.1 | |
| Over-the-counter cleared | 1.4 | | | 1.3 | | | 0.5 | | | 0.5 | |
| Equity contracts | | | | | | | |
| Over-the-counter | 31.3 | | | 28.3 | | | 21.3 | | | 17.8 | |
| Exchange-traded | 32.3 | | | 31.0 | | | 26.4 | | | 22.8 | |
| Commodity contracts | | | | | | | |
| Over-the-counter | 3.5 | | | 5.0 | | | 2.8 | | | 4.2 | |
| Exchange-traded | 0.7 | | | 0.7 | | | 0.8 | | | 0.8 | |
| Over-the-counter cleared | 0 | | | 0 | | | 0 | | | 0.1 | |
| Credit derivatives | | | | | | | |
| Over-the-counter | 5.2 | | | 5.6 | | | 6.4 | | | 6.6 | |
| Over-the-counter cleared | 2.2 | | | 1.9 | | | 2.5 | | | 2.2 | |
| Total gross derivative assets/liabilities, before netting | | | | | | | |
| Over-the-counter | 379.9 | | | 378.9 | | | 302.8 | | | 298.3 | |
| Exchange-traded | 33.0 | | | 31.7 | | | 27.3 | | | 23.7 | |
| Over-the-counter cleared | 13.8 | | | 12.3 | | | 9.0 | | | 8.1 | |
| Less: Legally enforceable master netting agreements and cash collateral received/paid | | | | | | | |
| Over-the-counter | (345.7) | | | (347.2) | | | (274.7) | | | (269.3) | |
| Exchange-traded | (29.5) | | | (29.5) | | | (21.5) | | | (21.5) | |
| Over-the-counter cleared | (12.2) | | | (11.8) | | | (8.1) | | | (8.1) | |
| Derivative assets/liabilities, after netting | 39.3 | | | 34.4 | | | 34.8 | | | 31.2 | |
Other gross derivative assets/liabilities (2) | 7.9 | | | 11.1 | | | 5.7 | | | 7.0 | |
| Total derivative assets/liabilities | 47.2 | | | 45.5 | | | 40.5 | | | 38.2 | |
Less: Financial instruments collateral (3) | (16.1) | | | (16.6) | | | (14.6) | | | (16.1) | |
| Total net derivative assets/liabilities | $ | 31.1 | | | $ | 28.9 | | | $ | 25.9 | | | $ | 22.1 | |
(1)OTC derivatives include bilateral transactions between the Corporation and a particular counterparty. OTC-cleared derivatives include bilateral transactions between the Corporation and a counterparty where the transaction is cleared through a clearinghouse. Exchange-traded derivatives include listed options transacted on an exchange.
(2)Consists of derivatives entered into under master netting agreements where the enforceability of these agreements is uncertain under bankruptcy laws in some countries or industries.
(3)Amounts are limited to the derivative asset/liability balance and, accordingly, do not include excess collateral received/pledged. Financial instruments collateral includes securities collateral received or pledged and cash securities held and posted at third-party custodians that are not offset on the Consolidated Balance Sheet but shown as a reduction to derive net derivative assets and liabilities.
ALM and Risk Management Derivatives
The Corporation’s ALM and risk management activities include the use of derivatives to mitigate risk to the Corporation including derivatives designated in qualifying hedge accounting relationships and derivatives used in other risk management activities. Interest rate, foreign exchange, equity, commodity and credit contracts are utilized in the Corporation's ALM and risk management activities.
TheCorporation maintains an overall interest rate risk management strategy that incorporates the use of interest rate contracts, which are generally non-leveraged generic interest rate and basis swaps, options, futures and forwards, to minimize significant fluctuations in earnings caused by interest rate volatility. The Corporation’s goal is to manage interest rate sensitivity and volatility so that movements in interest rates do not significantly adversely affect earnings or capital. As a result of interest rate fluctuations, hedged fixed-rate assets and liabilities appreciate or depreciate in fair value. Gains or losses on the derivative instruments that are linked to the hedged fixed-rate assets and liabilities are expected to substantially offset this unrealized appreciation or depreciation.
Market risk, including interest rate risk, can be substantial in the mortgage business. Market risk in the mortgage business is the risk that values of mortgage assets or revenues will be adversely affected by changes in market conditions such as interest rate movements. To mitigate the interest rate risk in mortgage banking production income, the Corporation utilizes
forward loan sale commitments and other derivative instruments, including purchased options, and certain debt securities. The Corporation also utilizes derivatives such as interest rate options, interest rate swaps, forward settlement contracts and eurodollar futures to hedge certain market risks of MSRs.
The Corporation uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities, as well as the Corporation’s investments in non-U.S. subsidiaries. Exposure to loss on these contracts will increase or decrease over their respective lives as currency exchange and interest rates fluctuate.
The Corporation purchases credit derivatives to manage credit risk related to certain funded and unfunded credit exposures. Credit derivatives include credit default swaps (CDS), total return swaps and swaptions. These derivatives are recorded on the Consolidated Balance Sheet at fair value with changes in fair value recorded in other income.
Derivatives Designated as Accounting Hedges
The Corporation uses various types of interest rate and foreign exchange derivative contracts to protect against changes in the fair value of its assets and liabilities due to fluctuations in interest rates and exchange rates (fair value hedges). The Corporation also uses these types of contracts to protect against changes in the cash flows of its assets and liabilities,
and other forecasted transactions (cash flow hedges). The Corporation hedges its net investment in consolidated non-U.S. operations determined to have functional currencies other than
the U.S. dollar using forward exchange contracts and cross-currency basis swaps, and by issuing foreign currency-denominated debt (net investment hedges).
Fair Value Hedges
The following table summarizes information related to fair value hedges for 2020, 2019 and 2018.
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| Gains and Losses on Derivatives Designated as Fair Value Hedges | | | | | | |
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| | | | | | | | | | | Derivative | | Hedged Item |
| (Dollars in millions) | | | | | | | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
Interest rate risk on long-term debt (1) | | | | | | | | | | | $ | 7,091 | | | $ | 6,113 | | | $ | (1,538) | | | $ | (7,220) | | | $ | (6,110) | | | $ | 1,429 | |
Interest rate and foreign currency risk on long-term debt (2) | | | | | | | | | | | 783 | | | 119 | | | (1,187) | | | (783) | | | (101) | | | 1,079 | |
Interest rate risk on available-for-sale securities (3) | | | | | | | | | | | (44) | | | (102) | | | (52) | | | 49 | | | 98 | | | 50 | |
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| Total | | | | | | | | | | | $ | 7,830 | | | $ | 6,130 | | | $ | (2,777) | | | $ | (7,954) | | | $ | (6,113) | | | $ | 2,558 | |
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(1)Amounts are recorded in interest expense in the Consolidated Statement of Income.
(2)In 2020, 2019 and 2018, the derivative amount includes gains (losses) of $701 million, $73 million and $(116) million in interest expense, $73 million, $28 million and $(992) million in market making and similar activities, and $9 million, $18 million and $(79) million in accumulated OCI, respectively. Line item totals are in the Consolidated Statement of Income and on the Consolidated Balance Sheet.
(3)Amounts are recorded in interest income in the Consolidated Statement of Income.
The table below summarizes the carrying value of hedged assets and liabilities that are designated and qualifying in fair value hedging relationships along with the cumulative amount of fair value hedging adjustments included in the carrying value that have been recorded in the current hedging relationships. These fair value hedging adjustments are open basis adjustments that are not subject to amortization as long as the hedging relationship remains designated.
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| Designated Fair Value Hedged Assets (Liabilities) | |
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| Carrying Value | | Cumulative Fair Value Adjustments (1) | | Carrying Value | | Cumulative Fair Value Adjustments (1) | | | | | |
| (Dollars in millions) | December 31, 2020 | | December 31, 2019 | | | | | |
Long-term debt (2) | $ | (150,556) | | | $ | (8,910) | | | $ | (162,389) | | | $ | (8,685) | | | | | | |
Available-for-sale debt securities (2, 3, 4) | 116,252 | | | 114 | | | 1,654 | | | 64 | | | | | | |
Trading account assets (5) | 427 | | | 15 | | | 0 | | | 0 | | | | | | |
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(1)For assets, increase (decrease) to carrying value and for liabilities, (increase) decrease to carrying value.
(2)At December 31, 2020 and 2019, the cumulative fair value adjustments remaining on long-term debt and AFS debt securities from discontinued hedging relationships resulted in an (increase) decrease in the related liability of $(3.7) billion and $1.3 billion and an increase (decrease) in the related asset of $(69) million and $8 million, which are being amortized over the remaining contractual life of the de-designated hedged items.
(3)These amounts include the amortized cost basis of the prepayable financial assets used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship (i.e. last-of-layer hedging relationship). At December 31, 2020, the amortized cost of the closed portfolios used in these hedging relationships was $34.6 billion, of which $7.0 billion was designated in the last-of-layer hedging relationship. The cumulative basis adjustments associated with these hedging relationships were not significant.
(4)Carrying value represents amortized cost.
(5)Represents hedging activities related to precious metals inventory.
Cash Flow and Net Investment Hedges
The following table summarizes certain information related to cash flow hedges and net investment hedges for 2020, 2019 and 2018. Of the $426 million after-tax net gain ($566 million pretax) on derivatives in accumulated OCI at December 31, 2020, gains of $190 million after-tax ($254 million pretax) related to both open and terminated hedges are expected to be
reclassified into earnings in the next 12 months. These net gains reclassified into earnings are expected to primarily increase net interest income related to the respective hedged items. For terminated cash flow hedges, the time period over which the majority of the forecasted transactions are hedged is approximately 3 years, with a maximum length of time for certain forecasted transactions of 16 years.
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| Gains and Losses on Derivatives Designated as Cash Flow and Net Investment Hedges | | | |
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| Gains (Losses) Recognized in
Accumulated OCI on Derivatives | | Gains (Losses) in Income
Reclassified from Accumulated OCI | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions, amounts pretax) | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 | | | | | | | | | | | | | | | | | | |
| Cash flow hedges | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate risk on variable-rate assets (1) | $ | 763 | | | $ | 671 | | | $ | (159) | | | $ | (7) | | | $ | (104) | | | $ | (165) | | | | | | | | | | | | | | | | | | | | | | | |
Price risk on forecasted MBS purchases (1) | 241 | | | 0 | | | 0 | | | 9 | | | 0 | | | 0 | | | | | | | | | | | | | | | | | | | | | | | |
Price risk on certain compensation plans (2) | 85 | | | 34 | | | 4 | | | 12 | | | (2) | | | 27 | | | | | | | | | | | | | | | | | | | | | | | |
| Total | $ | 1,089 | | | $ | 705 | | | $ | (155) | | | $ | 14 | | | $ | (106) | | | $ | (138) | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment hedges | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange risk (3) | $ | (834) | | | $ | 22 | | | $ | 989 | | | $ | 4 | | | $ | 366 | | | $ | 411 | | | | | | | | | | | | | | | | | | | | | | | |
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(1)Amounts reclassified from accumulated OCI are recorded in interest income in the Consolidated Statement of Income.
(2)Amounts reclassified from accumulated OCI are recorded in compensation and benefits expense in the Consolidated Statement of Income.
(3)Amounts reclassified from accumulated OCI are recorded in other income in the Consolidated Statement of Income. Amounts excluded from effectiveness testing and recognized in market making and similar activities were gains (losses) of $(11) million, $154 million and $47 million in 2020, 2019 and 2018, respectively.
Other Risk Management Derivatives
Other risk management derivatives are used by the Corporation to reduce certain risk exposures by economically hedging various assets and liabilities. The following table presents gains (losses) on these derivatives for 2020, 2019 and 2018. These gains (losses) are largely offset by the income or expense recorded on the hedged item.
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| Gains and Losses on Other Risk Management Derivatives |
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| (Dollars in millions) | | | | | 2020 | | 2019 | | 2018 |
Interest rate risk on mortgage activities (1, 2) | | | | | $ | 446 | | | $ | 315 | | | $ | (107) | |
Credit risk on loans (2) | | | | | (68) | | | (58) | | | 9 | |
Interest rate and foreign currency risk on ALM activities (3) | | | | | (2,971) | | | 1,112 | | | 3,278 | |
Price risk on certain compensation plans (4) | | | | | 700 | | | 943 | | | (495) | |
(1)Primarily related to hedges of interest rate risk on MSRs and IRLCs to originate mortgage loans that will be held for sale. The net gains on IRLCs, which are not included in the table but are considered derivative instruments, were $165 million, $73 million and $47 million in 2020, 2019 and 2018.
(2)Gains (losses) on these derivatives are recorded in other income.
(3)Gains (losses) on these derivatives are recorded in market making and similar activities.
(4)Gains (losses) on these derivatives are recorded in compensation and benefits expense.
Transfers of Financial Assets with Risk Retained through Derivatives
The Corporation enters into certain transactions involving the transfer of financial assets that are accounted for as sales where substantially all of the economic exposure to the transferred financial assets is retained through derivatives (e.g., interest rate and/or credit), but the Corporation does not retain control over the assets transferred. At both December 31, 2020 and 2019, the Corporation had transferred $5.2 billion of non-U.S. government-guaranteed mortgage-backed securities to a third-party trust and retained economic exposure to the transferred assets through derivative contracts. In connection with these transfers, the Corporation received gross cash proceeds of $5.2 billion as of both transfer dates. At December 31, 2020 and 2019, the fair value of the transferred securities was $5.5 billion and $5.3 billion.
Sales and Trading Revenue
The Corporation enters into trading derivatives to facilitate client transactions and to manage risk exposures arising from trading account assets and liabilities. It is the Corporation’s policy to include these derivative instruments in its trading activities, which include derivatives and non-derivative cash instruments. The resulting risk from these derivatives is managed on a portfolio segments,basis as part of the Corporation’s Global Markets business segment. The related sales and trading revenue generated within Global Markets is recorded in various income statement line items, including market making and similar activities and net interest income as well as other revenue categories.
Sales and trading revenue includes changes in the fair value and realized gains and losses on the sales of trading and other assets, net interest income, and fees primarily from commissions on equity securities. Revenue is generated by the difference in the client price for an instrument and the price at which the trading desk can execute the trade in the dealer market. For equity securities, commissions related to purchases and sales are recorded in the “Other” column in the Sales and Trading Revenue table. Changes in the fair value of these securities are included in market making and similar activities. For debt securities, revenue, with the exception of interest associated with the debt securities, is typically included in
market making and similar activities. Unlike commissions for equity securities, the initial revenue related to broker-dealer services for debt securities is typically included in the pricing of the instrument rather than being charged through separate fee arrangements. Therefore, this revenue is recorded in market making and similar activities as part of the initial mark to fair value. For derivatives, the majority of revenue is included in market making and similar activities. In transactions where the Corporation acts as agent, which include exchange-traded futures and options, fees are recorded in other income.
The following table, which includes both derivatives and non-derivative cash instruments, identifies the amounts in the respective income statement line items attributable to the Corporation’s sales and trading revenue in Global Markets, categorized by primary risk, for 2020, 2019 and 2018. This table includes debit valuation adjustment (DVA) and funding valuation adjustment (FVA) gains (losses). Global Markets results in Note 23 – Business Segment Information are presented on a fully taxable-equivalent (FTE) basis. The table below is not presented on an FTE basis.
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| Sales and Trading Revenue |
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| | | | | | | | | Market making and similar activities | | Net Interest
Income | | Other (1) | | Total |
| (Dollars in millions) | | | 2020 |
| Interest rate risk | | | | | | | | | $ | 2,211 | | | $ | 2,400 | | | $ | 231 | | | $ | 4,842 | |
| Foreign exchange risk | | | | | | | | | 1,482 | | | (20) | | | 3 | | | 1,465 | |
| Equity risk | | | | | | | | | 3,656 | | | (77) | | | 1,801 | | | 5,380 | |
| Credit risk | | | | | | | | | 812 | | | 1,638 | | | 328 | | | 2,778 | |
| Other risk | | | | | | | | | 308 | | | 4 | | | 44 | | | 356 | |
| Total sales and trading revenue | | | | | | | | | $ | 8,469 | | | $ | 3,945 | | | $ | 2,407 | | | $ | 14,821 | |
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| | | 2019 |
| Interest rate risk | | | | | | | | | $ | 1,000 | | | $ | 1,817 | | | $ | 113 | | | $ | 2,930 | |
| Foreign exchange risk | | | | | | | | | 1,288 | | | 62 | | | 57 | | | 1,407 | |
| Equity risk | | | | | | | | | 3,563 | | | (634) | | | 1,569 | | | 4,498 | |
| Credit risk | | | | | | | | | 1,091 | | | 1,807 | | | 519 | | | 3,417 | |
| Other risk | | | | | | | | | 120 | | | 70 | | | 53 | | | 243 | |
| Total sales and trading revenue | | | | | | | | | $ | 7,062 | | | $ | 3,122 | | | $ | 2,311 | | | $ | 12,495 | |
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| | | 2018 |
| Interest rate risk | | | | | | | | | $ | 810 | | | $ | 1,651 | | | $ | 245 | | | $ | 2,706 | |
| Foreign exchange risk | | | | | | | | | 1,504 | | | 31 | | | 22 | | | 1,557 | |
| Equity risk | | | | | | | | | 3,870 | | | (657) | | | 1,643 | | | 4,856 | |
| Credit risk | | | | | | | | | 1,034 | | | 1,886 | | | 600 | | | 3,520 | |
| Other risk | | | | | | | | | 40 | | | 197 | | | 49 | | | 286 | |
| Total sales and trading revenue | | | | | | | | | $ | 7,258 | | | $ | 3,108 | | | $ | 2,559 | | | $ | 12,925 | |
(1)Represents amounts in investment and brokerage services and other income that are recorded in Global Markets and included in the definition of sales and trading revenue. Includes investment and brokerage services revenue of $1.9 billion, $1.7 billion and $1.7 billion in 2020, 2019 and 2018, respectively.
Credit Derivatives
The Corporation enters into credit derivatives primarily to facilitate client transactions and to manage credit risk exposures. Credit derivatives derive value based on an underlying third-party referenced obligation or a portfolio of referenced obligations and generally require the Corporation, as the seller of credit protection, to make payments to a buyer upon the occurrence of a predefined credit event. Such credit events generally include bankruptcy of the referenced credit entity and failure to pay under the obligation, as well as acceleration of indebtedness and payment repudiation or
moratorium. For credit derivatives based on a portfolio of referenced credits or credit indices, the Corporation may not be required to make payment until a specified amount of loss has occurred and/or may only be required to make payment up to a specified amount.
Credit derivatives are classified as investment and non-investment grade based on the credit quality of the underlying referenced obligation. The Corporation considers ratings of BBB-
or higher as investment grade. Non-investment grade includes non-rated credit derivative instruments. The Corporation discloses internal categorizations of investment grade and non-investment grade consistent with how risk is managed for these instruments.
Credit derivative instruments where the Corporation is the seller of credit protection and their expiration at December 31, 2020 and 2019 are summarized in the following table.
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| Credit Derivative Instruments | | | | | | | | | |
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| Less than
One Year | | One to
Three Years | | Three to
Five Years | | Over Five
Years | | Total |
| December 31, 2020 |
| (Dollars in millions) | Carrying Value |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 0 | | | $ | 1 | | | $ | 35 | | | $ | 94 | | | $ | 130 | |
| Non-investment grade | 26 | | | 233 | | | 364 | | | 1,163 | | | 1,786 | |
| Total | 26 | | | 234 | | | 399 | | | 1,257 | | | 1,916 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 21 | | | 4 | | | 0 | | | 0 | | | 25 | |
| Non-investment grade | 345 | | | 0 | | | 0 | | | 0 | | | 345 | |
| Total | 366 | | | 4 | | | 0 | | | 0 | | | 370 | |
| Total credit derivatives | $ | 392 | | | $ | 238 | | | $ | 399 | | | $ | 1,257 | | | $ | 2,286 | |
| Credit-related notes: | | | | | | | | | |
| Investment grade | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 572 | | | $ | 572 | |
| Non-investment grade | 64 | | | 2 | | | 10 | | | 947 | | | 1,023 | |
| Total credit-related notes | $ | 64 | | | $ | 2 | | | $ | 10 | | | $ | 1,519 | | | $ | 1,595 | |
| | Maximum Payout/Notional |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 33,474 | | | $ | 75,731 | | | $ | 87,218 | | | $ | 16,822 | | | $ | 213,245 | |
| Non-investment grade | 13,664 | | | 28,770 | | | 35,978 | | | 9,852 | | | 88,264 | |
| Total | 47,138 | | | 104,501 | | | 123,196 | | | 26,674 | | | 301,509 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 30,961 | | | 1,061 | | | 77 | | | 0 | | | 32,099 | |
| Non-investment grade | 36,128 | | | 364 | | | 27 | | | 5 | | | 36,524 | |
| Total | 67,089 | | | 1,425 | | | 104 | | | 5 | | | 68,623 | |
| Total credit derivatives | $ | 114,227 | | | $ | 105,926 | | | $ | 123,300 | | | $ | 26,679 | | | $ | 370,132 | |
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| December 31, 2019 |
| Carrying Value |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 0 | | | $ | 5 | | | $ | 60 | | | $ | 164 | | | $ | 229 | |
| Non-investment grade | 70 | | | 292 | | | 561 | | | 808 | | | 1,731 | |
| Total | 70 | | | 297 | | | 621 | | | 972 | | | 1,960 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 35 | | | 0 | | | 0 | | | 0 | | | 35 | |
| Non-investment grade | 344 | | | 0 | | | 0 | | | 0 | | | 344 | |
| Total | 379 | | | 0 | | | 0 | | | 0 | | | 379 | |
| Total credit derivatives | $ | 449 | | | $ | 297 | | | $ | 621 | | | $ | 972 | | | $ | 2,339 | |
| Credit-related notes: | | | | | | | | | |
| Investment grade | $ | 0 | | | $ | 3 | | | $ | 1 | | | $ | 639 | | | $ | 643 | |
| Non-investment grade | 6 | | | 2 | | | 1 | | | 1,125 | | | 1,134 | |
| Total credit-related notes | $ | 6 | | | $ | 5 | | | $ | 2 | | | $ | 1,764 | | | $ | 1,777 | |
| | Maximum Payout/Notional |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 55,827 | | | $ | 67,838 | | | $ | 71,320 | | | $ | 17,708 | | | $ | 212,693 | |
| Non-investment grade | 19,049 | | | 26,521 | | | 29,618 | | | 12,337 | | | 87,525 | |
| Total | 74,876 | | | 94,359 | | | 100,938 | | | 30,045 | | | 300,218 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 56,488 | | | 0 | | | 62 | | | 76 | | | 56,626 | |
| Non-investment grade | 28,707 | | | 657 | | | 104 | | | 60 | | | 29,528 | |
| Total | 85,195 | | | 657 | | | 166 | | | 136 | | | 86,154 | |
| Total credit derivatives | $ | 160,071 | | | $ | 95,016 | | | $ | 101,104 | | | $ | 30,181 | | | $ | 386,372 | |
The notional amount represents the maximum amount payable by the Corporation for most credit derivatives. However, the Corporation does not monitor its exposure to credit derivatives based solely on the notional amount because this measure does not take into consideration the probability of occurrence. As such, the notional amount is not a reliable indicator of the Corporation’s exposure to these contracts. Instead, a risk framework is used to define risk tolerances and establish limits so that certain credit risk-related losses occur
within acceptable, predefined limits.
Credit-related notes in the table above include investments in securities issued by CDO, collateralized loan obligation (CLO) and credit-linked note vehicles. These instruments are primarily classified as trading securities. The carrying value of these instruments equals the Corporation’s maximum exposure to loss. The Corporation is not obligated to make any payments to the entities under the terms of the securities owned.
Credit-related Contingent Features and Collateral
The Corporation executes the majority of its derivative contracts in the OTC market with large, international financial institutions, including broker-dealers and, to a lesser degree, with a variety of non-financial companies. A significant majority of the derivative transactions are executed on a daily margin basis. Therefore, events such as a credit rating downgrade (depending on the ultimate rating level) or a breach of credit covenants would typically require an increase in the amount of collateral required of the counterparty, where applicable, and/or allow the Corporation to take additional protective measures such as early termination of all trades. Further, as previously discussed on page 112, the Corporation enters into legally enforceable master netting agreements that reduce risk by permitting closeout and netting of transactions with the same counterparty upon the occurrence of certain events.
Certain of the Corporation’s derivative contracts contain credit risk-related contingent features, primarily in the form of ISDA master netting agreements and credit support documentation that enhance the creditworthiness of these instruments compared to other obligations of the respective counterparty with whom the Corporation has transacted. These contingent features may be for the benefit of the Corporation as well as its counterparties with respect to changes in the Corporation’s creditworthiness and the mark-to-market exposure under the derivative transactions. At December 31, 2020 and 2019, the Corporation held cash and securities collateral of $96.5 billion and $84.3 billion and posted cash and securities collateral of $88.6 billion and $69.1 billion in the normal course of business under derivative agreements, excluding cross-product margining agreements where clients are permitted to margin on a net basis for both derivative and secured financing arrangements.
In connection with certain OTC derivative contracts and other trading agreements, the Corporation can be required to provide additional collateral or to terminate transactions with certain counterparties in the event of a downgrade of the senior debt ratings of the Corporation or certain subsidiaries. The amount of additional collateral required depends on the contract and is usually a fixed incremental amount and/or the market value of the exposure.
At December 31, 2020, the amount of collateral, calculated based on the terms of the contracts, that the Corporation and certain subsidiaries could be required to post to counterparties but had not yet posted to counterparties was $2.6 billion, including $1.2 billion for Bank of America, National Association (BANA).
Some counterparties are currently able to unilaterally terminate certain contracts, or the Corporation or certain subsidiaries may be required to take other action such as find a suitable replacement or obtain a guarantee. At December 31, 2020 and 2019, the liability recorded for these derivative contracts was not significant.
The following table presents the amount of additional collateral that would have been contractually required by derivative contracts and other trading agreements at December 31, 2020 if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by one incremental notch and by an additional second incremental notch.
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| Additional Collateral Required to be Posted Upon Downgrade at December 31, 2020 |
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| (Dollars in millions) | One
incremental notch | | Second
incremental notch |
| Bank of America Corporation | $ | 300 | | | $ | 735 | |
Bank of America, N.A. and subsidiaries (1) | 61 | | | 570 | |
(1)Included in Bank of America Corporation collateral requirements in this table.
The following table presents the derivative liabilities that would be subject to unilateral termination by counterparties and the amounts of collateral that would have been contractually required at December 31, 2020 if the long-term senior debt ratings for the Corporation or certain subsidiaries had been lower by one incremental notch and by an additional second incremental notch.
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| Derivative Liabilities Subject to Unilateral Termination Upon Downgrade at December 31, 2020 |
| | | |
| (Dollars in millions) | One
incremental notch | | Second
incremental notch |
| Derivative liabilities | $ | 45 | | | $ | 1,035 | |
| Collateral posted | 23 | | | 544 | |
Valuation Adjustments on Derivatives
TheCorporation records credit risk valuation adjustments on derivatives in order to properly reflect the credit quality of the counterparties and its own credit quality. The Corporation calculates valuation adjustments on derivatives based on a modeled expected exposure that incorporates current market risk factors. The exposure also takes into consideration credit mitigants such as enforceable master netting agreements and collateral. CDS spread data is used to estimate the default probabilities and severities that are applied to the exposures. Where no observable credit default data is available for counterparties, the Corporation uses proxies and other market data to estimate default probabilities and severity.
The table below presents credit valuation adjustment (CVA), DVA and FVA gains (losses) on derivatives (excluding the effect of any related hedge activities), which are recorded in market making and similar activities, for 2020, 2019 and 2018. CVA gains reduce the cumulative CVA thereby increasing the derivative assets balance. DVA gains increase the cumulative DVA thereby decreasing the derivative liabilities balance. CVA and DVA losses have the opposite impact. FVA gains related to derivative assets reduce the cumulative FVA thereby increasing the derivative assets balance. FVA gains related to derivative liabilities increase the cumulative FVA thereby decreasing the derivative liabilities balance. FVA losses have the opposite impact.
| | | | | | | | | | | | | | | | | |
| | | | | |
Valuation Adjustments Gains (Losses) on Derivatives (1) |
| | | | | |
| | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 |
| Derivative assets (CVA) | $ | (118) | | | $ | 72 | | | $ | 77 | |
| Derivative assets/liabilities (FVA) | (24) | | | (2) | | | (15) | |
| Derivative liabilities (DVA) | 24 | | | (147) | | | (19) | |
| | | | | |
(1)At December 31, 2020, 2019 and 2018, cumulative CVA reduced the derivative assets balance by $646 million, $528 million and $600 million, cumulative FVA reduced the net derivatives balance by $177 million, $153 million and $151 million, and cumulative DVA reduced the derivative liabilities balance by $309 million, $285 million and $432 million, respectively.
NOTE 4 Securities
The table below presents the amortized cost, gross unrealized gains and losses, and fair value of AFS debt securities, other debt securities carried at fair value and HTM debt securities at December 31, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Debt Securities | | | | |
| |
| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| (Dollars in millions) | December 31, 2020 |
| Available-for-sale debt securities | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
| Agency | $ | 59,518 | | | $ | 2,370 | | | $ | (39) | | | $ | 61,849 | |
| Agency-collateralized mortgage obligations | 5,112 | | | 161 | | | (13) | | | 5,260 | |
| Commercial | 15,470 | | | 1,025 | | | (4) | | | 16,491 | |
Non-agency residential (1) | 899 | | | 127 | | | (17) | | | 1,009 | |
| Total mortgage-backed securities | 80,999 | | | 3,683 | | | (73) | | | 84,609 | |
| U.S. Treasury and agency securities | 114,157 | | | 2,236 | | | (13) | | | 116,380 | |
| Non-U.S. securities | 14,009 | | | 15 | | | (7) | | | 14,017 | |
| | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 2,656 | | | 61 | | | (6) | | | 2,711 | |
| Total taxable securities | 211,821 | | | 5,995 | | | (99) | | | 217,717 | |
| Tax-exempt securities | 16,417 | | | 389 | | | (32) | | | 16,774 | |
Total available-for-sale debt securities (3) | 228,238 | | | 6,384 | | | (131) | | | 234,491 | |
Other debt securities carried at fair value (2) | 11,720 | | | 429 | | | (39) | | | 12,110 | |
| Total debt securities carried at fair value | 239,958 | | | 6,813 | | | (170) | | | 246,601 | |
Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities (3) | 438,279 | | | 10,095 | | | (194) | | | 448,180 | |
Total debt securities (3,4) | $ | 678,237 | | | $ | 16,908 | | | $ | (364) | | | $ | 694,781 | |
| | | | | | | |
| | | | | | | |
| December 31, 2019 |
| Available-for-sale debt securities | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
| Agency | $ | 121,698 | | | $ | 1,013 | | | $ | (183) | | | $ | 122,528 | |
| Agency-collateralized mortgage obligations | 4,587 | | | 78 | | | (24) | | | 4,641 | |
| Commercial | 14,797 | | | 249 | | | (25) | | | 15,021 | |
Non-agency residential (1) | 948 | | | 138 | | | (9) | | | 1,077 | |
| Total mortgage-backed securities | 142,030 | | | 1,478 | | | (241) | | | 143,267 | |
| U.S. Treasury and agency securities | 67,700 | | | 1,023 | | | (195) | | | 68,528 | |
| Non-U.S. securities | 11,987 | | | 6 | | | (2) | | | 11,991 | |
| | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 3,874 | | | 67 | | | 0 | | | 3,941 | |
| Total taxable securities | 225,591 | | | 2,574 | | | (438) | | | 227,727 | |
| Tax-exempt securities | 17,716 | | | 202 | | | (6) | | | 17,912 | |
| Total available-for-sale debt securities | 243,307 | | | 2,776 | | | (444) | | | 245,639 | |
Other debt securities carried at fair value (2) | 10,596 | | | 255 | | | (23) | | | 10,828 | |
| Total debt securities carried at fair value | 253,903 | | | 3,031 | | | (467) | | | 256,467 | |
| Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities | 215,730 | | | 4,433 | | | (342) | | | 219,821 | |
Total debt securities (3, 4) | $ | 469,633 | | | $ | 7,464 | | | $ | (809) | | | $ | 476,288 | |
| | | | | | | |
(1)At December 31, 2020 and 2019, the underlying collateral type included approximately 37 percent and 49 percent prime, 2 percent and 6 percent Alt-A and 61 percent and 45 percent subprime.
(2)Primarily includes non-U.S. securities used to satisfy certain international regulatory requirements. Any changes in value are reported in market making and similar activities. For detail on the components, see Note 20 – Fair Value Measurements.
(3)Includes securities pledged as collateral of $65.5 billion and $67.0 billion at December 31, 2020 and 2019.
(4)The Corporation held debt securities from FNMA and FHLMC that each exceeded 10 percent of shareholders’ equity, with an amortized cost of $260.1 billion and $118.1 billion, and a fair value of $267.5 billion and $120.7 billion at December 31, 2020, and an amortized cost of $157.2 billion and $54.1 billion, and a fair value of $160.6 billion and $55.1 billion at December 31, 2019.
At December 31, 2020, the accumulated net unrealized gain on AFS debt securities, excluding the amount related to debt securities previously transferred to held to maturity, included in accumulated OCI was $4.7 billion, net of the related income tax expense of $1.6 billion. The Corporation had nonperforming AFS debt securities of $20 million and $9 million at December 31, 2020 and 2019.
Effective January 1, 2020, the Corporation adopted the new accounting standard for credit losses that requires evaluation of AFS and HTM debt securities for any expected losses with recognition of an allowance for credit losses, when applicable. For more information, see Note 1 – Summary of Significant Accounting Principles. WithinAt December 31, 2020, the Consumer Real Estate portfolio segment,Corporation had $200.0 billion in AFS debt securities, which were primarily
U.S. agency and U.S. Treasury securities that have a zero credit loss assumption. For the primaryremaining $34.5 billion in AFS debt securities, the amount of ECL was insignificant. Substantially all of the Corporation's HTM debt securities are U.S. agency and U.S. Treasury securities and have a zero credit quality indicators are refreshed LTVloss assumption.
At December 31, 2020 and refreshed FICO score. Refreshed LTV measures2019, the Corporation held equity securities at an aggregate fair value of $769 million and $891 million and other equity securities, as valued under the measurement alternative, at a carrying value of $240 million and $183 million, both of which are included in other assets. At December 31, 2020 and 2019, the loan asCorporation also held money market investments at a percentage of thefair value of the property securing the loan, refreshed quarterly. Home equity loans are evaluated using CLTV which measures the carrying value of the Corporation’s loan$1.6 billion and available line of credit combined with any outstanding senior liens against the property as a percentage of the value of the property securing the loan, refreshed quarterly. FICO score measures the creditworthiness of the borrower based on the financial obligations of the borrower and the borrower’s credit history. FICO scores are typically refreshed quarterly or more
frequently. Certain borrowers (e.g., borrowers that have had debts discharged in a bankruptcy proceeding) may not have their FICO scores updated. FICO scores are also a primary credit quality indicator for the Credit Card and Other Consumer portfolio segment and the business card portfolio within U.S. small business commercial. Within the Commercial portfolio segment, loans are evaluated using the internal classifications of pass rated or reservable criticized as the primary credit quality indicators. The term reservable criticized refers to those commercial loans that are internally classified or listed by the Corporation as Special Mention, Substandard or Doubtful,$1.0 billion, which are asset quality categories defined by regulatory authorities. These assets have an elevated level of riskincluded in time deposits placed and may have a high probability of default or total loss. Pass rated refers to all loans not considered reservable criticized. In addition to these primary credit quality indicators, the Corporation uses other credit quality indicators for certain types of loans.short-term investments.
|
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| | Bank of America 2017128118 |
The gross realized gains and losses on sales of AFS debt securities for 2020, 2019 and 2018 are presented in the table below.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Gains and Losses on Sales of AFS Debt Securities |
| | | |
| | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 |
| Gross gains | $ | 423 | | | $ | 336 | | | $ | 169 | |
| Gross losses | (12) | | | (119) | | | (15) | |
| Net gains on sales of AFS debt securities | $ | 411 | | | $ | 217 | | | $ | 154 | |
| Income tax expense attributable to realized net gains on sales of AFS debt securities | $ | 103 | | | $ | 54 | | | $ | 37 | |
The table below presents the fair value and the associated gross unrealized losses on AFS debt securities and whether these securities have had gross unrealized losses for less than 12 months or for 12 months or longer at December 31, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Total AFS Debt Securities in a Continuous Unrealized Loss Position | | | | | | |
| |
| Less than Twelve Months | | Twelve Months or Longer | | Total |
| Fair
Value | | Gross Unrealized Losses | | Fair
Value | | Gross Unrealized Losses | | Fair
Value | | Gross Unrealized Losses |
| (Dollars in millions) | December 31, 2020 |
| Continuously unrealized loss-positioned AFS debt securities | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | |
| Agency | $ | 2,841 | | | $ | (39) | | | $ | 2 | | | $ | 0 | | | $ | 2,843 | | | $ | (39) | |
| Agency-collateralized mortgage obligations | 187 | | | (2) | | | 364 | | | (11) | | | 551 | | | (13) | |
| Commercial | 566 | | | (4) | | | 9 | | | 0 | | | 575 | | | (4) | |
| Non-agency residential | 342 | | | (9) | | | 56 | | | (8) | | | 398 | | | (17) | |
| Total mortgage-backed securities | 3,936 | | | (54) | | | 431 | | | (19) | | | 4,367 | | | (73) | |
| U.S. Treasury and agency securities | 8,282 | | | (9) | | | 498 | | | (4) | | | 8,780 | | | (13) | |
| Non-U.S. securities | 1,861 | | | (6) | | | 135 | | | (1) | | | 1,996 | | | (7) | |
| | | | | | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 576 | | | (2) | | | 396 | | | (4) | | | 972 | | | (6) | |
| Total taxable securities | 14,655 | | | (71) | | | 1,460 | | | (28) | | | 16,115 | | | (99) | |
| Tax-exempt securities | 4,108 | | | (29) | | | 617 | | | (3) | | | 4,725 | | | (32) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total AFS debt securities in a continuous
unrealized loss position | $ | 18,763 | | | $ | (100) | | | $ | 2,077 | | | $ | (31) | | | $ | 20,840 | | | $ | (131) | |
| | | | | | | | | | | |
| December 31, 2019 |
| Continuously unrealized loss-positioned AFS debt securities | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | |
| Agency | $ | 17,641 | | | $ | (41) | | | $ | 17,238 | | | $ | (142) | | | $ | 34,879 | | | $ | (183) | |
| Agency-collateralized mortgage obligations | 255 | | | (1) | | | 925 | | | (23) | | | 1,180 | | | (24) | |
| Commercial | 2,180 | | | (22) | | | 442 | | | (3) | | | 2,622 | | | (25) | |
| Non-agency residential | 122 | | | (6) | | | 22 | | | (3) | | | 144 | | | (9) | |
| Total mortgage-backed securities | 20,198 | | | (70) | | | 18,627 | | | (171) | | | 38,825 | | | (241) | |
| U.S. Treasury and agency securities | 12,836 | | | (71) | | | 18,866 | | | (124) | | | 31,702 | | | (195) | |
| Non-U.S. securities | 851 | | | 0 | | | 837 | | | (2) | | | 1,688 | | | (2) | |
| | | | | | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 938 | | | 0 | | | 222 | | | 0 | | | 1,160 | | | 0 | |
| Total taxable securities | 34,823 | | | (141) | | | 38,552 | | | (297) | | | 73,375 | | | (438) | |
| Tax-exempt securities | 4,286 | | | (5) | | | 190 | | | (1) | | | 4,476 | | | (6) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total AFS debt securities in a continuous
unrealized loss position | $ | 39,109 | | | $ | (146) | | | $ | 38,742 | | | $ | (298) | | | $ | 77,851 | | | $ | (444) | |
The remaining contractual maturity distribution and yields of the Corporation’s debt securities carried at fair value and HTM debt securities at December 31, 2020 are summarized in the table below. Actual duration and yields may differ as prepayments on the loans underlying the mortgages or other ABS are passed through to the Corporation.
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| | | | | | | | | | | | | | | | | | | |
| Maturities of Debt Securities Carried at Fair Value and Held-to-maturity Debt Securities |
| | | | | | | | | | | | | | | | | | | |
| Due in One
Year or Less | | Due after One Year
through Five Years | | Due after Five Years
through Ten Years | | Due after
Ten Years | | Total |
| (Dollars in millions) | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) |
| Amortized cost of debt securities carried at fair value | | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | |
| Agency | $ | 0 | | | 0 | % | | $ | 7 | | | 5.69 | % | | $ | 56 | | | 4.44 | % | | $ | 59,455 | | | 3.36 | % | | $ | 59,518 | | | 3.36 | % |
| Agency-collateralized mortgage obligations | 0 | | | 0 | | | 0 | | | 0 | | | 24 | | | 2.57 | | | 5,088 | | | 2.94 | | | 5,112 | | | 2.94 | |
| Commercial | 26 | | | 3.04 | | | 6,669 | | | 2.52 | | | 7,711 | | | 2.32 | | | 1,077 | | | 2.64 | | | 15,483 | | | 2.43 | |
| Non-agency residential | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 0 | | | 1,620 | | | 6.77 | | | 1,621 | | | 6.77 | |
| Total mortgage-backed securities | 26 | | | 3.04 | | | 6,676 | | | 2.52 | | | 7,792 | | | 2.34 | | | 67,240 | | | 3.40 | | | 81,734 | | | 3.23 | |
| U.S. Treasury and agency securities | 10,020 | | | 1.26 | | | 29,533 | | | 1.85 | | | 74,665 | | | 0.74 | | | 32 | | | 2.55 | | | 114,250 | | | 1.07 | |
| Non-U.S. securities | 22,862 | | | 0.31 | | | 926 | | | 1.81 | | | 581 | | | 1.09 | | | 532 | | | 1.79 | | | 24,901 | | | 0.42 | |
| | | | | | | | | | | | | | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 699 | | | 1.15 | | | 1,336 | | | 2.46 | | | 366 | | | 2.26 | | | 255 | | | 1.60 | | | 2,656 | | | 2.00 | |
| Total taxable securities | 33,607 | | | 0.61 | | | 38,471 | | | 1.99 | | | 83,404 | | | 0.89 | | | 68,059 | | | 3.38 | | | 223,541 | | | 1.80 | |
| Tax-exempt securities | 872 | | | 0.87 | | | 8,430 | | | 1.27 | | | 4,397 | | | 1.66 | | | 2,718 | | | 1.41 | | | 16,417 | | | 1.38 | |
| Total amortized cost of debt securities carried at fair value | $ | 34,479 | | | 0.62 | | | $ | 46,901 | | | 1.86 | | | $ | 87,801 | | | 0.93 | | | $ | 70,777 | | | 3.30 | | | $ | 239,958 | | | 1.77 | |
Amortized cost of HTM debt securities (2) | $ | 15 | | | 3.78 | | | $ | 66 | | | 2.73 | | | $ | 17,133 | | | 1.86 | | | $ | 421,065 | | | 2.40 | | | $ | 438,279 | | | 2.38 | |
| | | | | | | | | | | | | | | | | | | |
| Debt securities carried at fair value | | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | |
| Agency | $ | 0 | | | | | $ | 7 | | | | | $ | 61 | | | | | $ | 61,781 | | | | | $ | 61,849 | | | |
| Agency-collateralized mortgage obligations | 0 | | | | | 0 | | | | | 24 | | | | | 5,236 | | | | | 5,260 | | | |
| Commercial | 26 | | | | | 7,077 | | | | | 8,242 | | | | | 1,160 | | | | | 16,505 | | | |
| Non-agency residential | 0 | | | | | 0 | | | | | 7 | | | | | 1,776 | | | | | 1,783 | | | |
| Total mortgage-backed securities | 26 | | | | | 7,084 | | | | | 8,334 | | | | | 69,953 | | | | | 85,397 | | | |
| U.S. Treasury and agency securities | 10,056 | | | | | 30,873 | | | | | 75,511 | | | | | 33 | | | | | 116,473 | | | |
| Non-U.S. securities | 23,187 | | | | | 940 | | | | | 582 | | | | | 534 | | | | | 25,243 | | | |
| | | | | | | | | | | | | | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 702 | | | | | 1,369 | | | | | 379 | | | | | 264 | | | | | 2,714 | | | |
| Total taxable securities | 33,971 | | | | | 40,266 | | | | | 84,806 | | | | | 70,784 | | | | | 229,827 | | | |
| Tax-exempt securities | 874 | | | | | 8,554 | | | | | 4,566 | | | | | 2,780 | | | | | 16,774 | | | |
| Total debt securities carried at fair value | $ | 34,845 | | | | | $ | 48,820 | | | | | $ | 89,372 | | | | | $ | 73,564 | | | | | $ | 246,601 | | | |
Fair value of HTM debt securities (2) | $ | 14 | | | | | $ | 69 | | | | | $ | 17,139 | | | | | $ | 430,958 | | | | | $ | 448,180 | | | |
(1)The weighted-average yield is computed based on a constant effective interest rate over the contractual life of each security. The average yield considers the contractual coupon and the amortization of premiums and accretion of discounts, excluding the effect of related hedging derivatives.
(2)Substantially all U.S. agency MBS.
NOTE 5Outstanding Loans and Leases and Allowance for Credit Losses
The following tables present certain credit quality indicatorstotal outstanding loans and leases and an aging analysis for the Corporation’s Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at December 31, 20172020 and 2016.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| 30-59 Days Past Due (1) | | 60-89 Days Past Due (1) | | 90 Days or
More Past Due (1) | | Total Past
Due 30 Days
or More | | Total Current or Less Than 30 Days Past Due (1) | | | | Loans Accounted for Under the Fair Value Option | | Total
Outstandings |
| (Dollars in millions) | December 31, 2020 |
| Consumer real estate | | | | | | | | | | | | | | | |
| Core portfolio | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 1,157 | | | $ | 175 | | | $ | 786 | | | $ | 2,118 | | | $ | 213,155 | | | | | | | $ | 215,273 | |
| Home equity | 126 | | | 61 | | | 269 | | | 456 | | | 29,872 | | | | | | | 30,328 | |
| Non-core portfolio | | | | | | | | | | | | | | | |
| Residential mortgage | 273 | | | 122 | | | 913 | | | 1,308 | | | 6,974 | | | | | | | 8,282 | |
| Home equity | 28 | | | 17 | | | 76 | | | 121 | | | 3,862 | | | | | | | 3,983 | |
| Credit card and other consumer | | | | | | | | | | | | | | | |
| Credit card | 445 | | | 341 | | | 903 | | | 1,689 | | | 77,019 | | | | | | | 78,708 | |
| | | | | | | | | | | | | | | |
Direct/Indirect consumer (2) | 209 | | | 67 | | | 37 | | | 313 | | | 91,050 | | | | | | | 91,363 | |
| Other consumer | 0 | | | 0 | | | 0 | | | 0 | | | 124 | | | | | | | 124 | |
| Total consumer | 2,238 | | | 783 | | | 2,984 | | | 6,005 | | | 422,056 | | | | | | | 428,061 | |
Consumer loans accounted for under the fair value option (3) | | | | | | | | | | | | | $ | 735 | | | 735 | |
| Total consumer loans and leases | 2,238 | | | 783 | | | 2,984 | | | 6,005 | | | 422,056 | | | | | 735 | | | 428,796 | |
| Commercial | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| U.S. commercial | 561 | | | 214 | | | 512 | | | 1,287 | | | 287,441 | | | | | | | 288,728 | |
| Non-U.S. commercial | 61 | | | 44 | | | 11 | | | 116 | | | 90,344 | | | | | | | 90,460 | |
Commercial real estate (4) | 128 | | | 113 | | | 226 | | | 467 | | | 59,897 | | | | | | | 60,364 | |
| Commercial lease financing | 86 | | | 20 | | | 57 | | | 163 | | | 16,935 | | | | | | | 17,098 | |
U.S. small business commercial (5) | 84 | | | 56 | | | 123 | | | 263 | | | 36,206 | | | | | | | 36,469 | |
| Total commercial | 920 | | | 447 | | | 929 | | | 2,296 | | | 490,823 | | | | | | | 493,119 | |
Commercial loans accounted for under the fair value option (3) | | | | | | | | | | | | | 5,946 | | | 5,946 | |
| Total commercial loans and leases | 920 | | | 447 | | | 929 | | | 2,296 | | | 490,823 | | | | | 5,946 | | | 499,065 | |
Total loans and leases (6) | $ | 3,158 | | | $ | 1,230 | | | $ | 3,913 | | | $ | 8,301 | | | $ | 912,879 | | | | | $ | 6,681 | | | $ | 927,861 | |
| Percentage of outstandings | 0.34 | % | | 0.13 | % | | 0.42 | % | | 0.89 | % | | 98.39 | % | | | | 0.72 | % | | 100.00 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Consumer Real Estate – Credit Quality Indicators (1) |
| | | | | | | | | | | | |
| | Core Residential Mortgage (2) | | Non-core Residential
Mortgage (2) | | Residential Mortgage PCI (3) | | Core Home Equity (2) | | Non-core Home Equity (2) | | Home Equity PCI |
| (Dollars in millions) | December 31, 2017 |
Refreshed LTV (4) | |
| | |
| | |
| | |
| | | | |
| Less than or equal to 90 percent | $ | 153,669 |
| | $ | 12,135 |
| | $ | 6,872 |
| | $ | 43,048 |
| | $ | 7,944 |
| | $ | 1,781 |
|
| Greater than 90 percent but less than or equal to 100 percent | 3,082 |
| | 850 |
| | 559 |
| | 549 |
| | 1,053 |
| | 412 |
|
| Greater than 100 percent | 1,322 |
| | 1,011 |
| | 570 |
| | 648 |
| | 1,786 |
| | 523 |
|
Fully-insured loans (5) | 18,545 |
| | 5,196 |
| | — |
| | — |
| | — |
| | — |
|
| Total consumer real estate | $ | 176,618 |
| | $ | 19,192 |
| | $ | 8,001 |
| | $ | 44,245 |
| | $ | 10,783 |
| | $ | 2,716 |
|
| Refreshed FICO score | | | | | | | | | | | |
| Less than 620 | $ | 2,234 |
| | $ | 2,390 |
| | $ | 1,941 |
| | $ | 1,169 |
| | $ | 2,098 |
| | $ | 452 |
|
| Greater than or equal to 620 and less than 680 | 4,531 |
| | 2,086 |
| | 1,657 |
| | 2,371 |
| | 2,393 |
| | 466 |
|
| Greater than or equal to 680 and less than 740 | 22,934 |
| | 3,519 |
| | 2,396 |
| | 8,115 |
| | 2,723 |
| | 786 |
|
| Greater than or equal to 740 | 128,374 |
| | 6,001 |
| | 2,007 |
| | 32,590 |
| | 3,569 |
| | 1,012 |
|
Fully-insured loans (5) | 18,545 |
| | 5,196 |
| | — |
| | — |
| | — |
| | — |
|
| Total consumer real estate | $ | 176,618 |
| | $ | 19,192 |
| | $ | 8,001 |
| | $ | 44,245 |
| | $ | 10,783 |
| | $ | 2,716 |
|
| |
(1)
| Excludes $928 million of loans accounted for under the fair value option.
|
| |
(3)
| Includes $1.2 billion of pay option loans. The Corporation no longer originates this product.
|
| |
(4)
| Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance. |
| |
(5)
| Credit quality indicators are not reported for fully-insured loans as principal repayment is insured. |
(1)Consumer real estate loans 30-59 days past due includes fully-insured loans of $225 million and nonperforming loans of $126 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $103 million and nonperforming loans of $95 million. Consumer real estate loans 90 days or more past due includes fully-insured loans of $762 million. Consumer real estate loans current or less than 30 days past due includes $1.2 billion and direct/indirect consumer includes $66 million of nonperforming loans. For information on the Corporation's interest accrual policies and delinquency status for loan modifications related to the pandemic, see Note 1 – Summary of Significant Accounting Principles. |
| | | | | | | | | | | |
| | | | | | |
| Credit Card and Other Consumer – Credit Quality Indicators |
| | | | | | |
| | U.S. Credit Card | | Direct/Indirect Consumer | | Other Consumer |
| (Dollars in millions) | December 31, 2017 |
| Refreshed FICO score | |
| | |
| | |
|
| Less than 620 | $ | 4,730 |
| | $ | 1,630 |
| | $ | 49 |
|
| Greater than or equal to 620 and less than 680 | 12,422 |
| | 2,000 |
| | 143 |
|
| Greater than or equal to 680 and less than 740 | 35,656 |
| | 11,906 |
| | 398 |
|
| Greater than or equal to 740 | 43,477 |
| | 34,838 |
| | 1,921 |
|
Other internal credit metrics (1, 2) | — |
| | 43,456 |
| | 167 |
|
| Total credit card and other consumer | $ | 96,285 |
| | $ | 93,830 |
| | $ | 2,678 |
|
| |
(1)
| Other internal credit metrics may include delinquency status, geography or other factors. |
| |
(2)
| Direct/indirect consumer includes $42.8 billion of securities-based(2)Total outstandings primarily includes auto and specialty lending which is overcollateralized and therefore has minimal credit risk.
|
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
Commercial – Credit Quality Indicators (1) | | | | |
| | | | | | | | | | |
| | U.S. Commercial | | Non-U.S. Commercial | | Commercial Real Estate | | Commercial
Lease Financing | | U.S. Small
Business Commercial (2) |
| (Dollars in millions) | December 31, 2017 |
| Risk ratings | |
| | |
| | |
| | |
| | |
|
| Pass rated | $ | 275,904 |
| | $ | 96,199 |
| | $ | 57,732 |
| | $ | 21,535 |
| | $ | 322 |
|
| Reservable criticized | 8,932 |
| | 1,593 |
| | 566 |
| | 581 |
| | 50 |
|
Refreshed FICO score (3) | | | | | | | | | |
|
| Less than 620 | |
| | | | | | | | 223 |
|
| Greater than or equal to 620 and less than 680 | | | | | | | | | 625 |
|
| Greater than or equal to 680 and less than 740 | | | | | | | | | 1,875 |
|
| Greater than or equal to 740 | | | | | | | | | 3,713 |
|
Other internal credit metrics (3, 4) | | | | | | | | | 6,841 |
|
| Total commercial | $ | 284,836 |
| | $ | 97,792 |
| | $ | 58,298 |
| | $ | 22,116 |
| | $ | 13,649 |
|
| |
(1)
| Excludes $4.8 billion of loans accounted for under the fair value option.
|
| |
(2)
| U.S. small business commercial includes $709 million of criticized business card and small business loans which are evaluated using refreshed FICO scores or internal credit metrics, including delinquency status, rather than risk ratings. At December 31, 2017, 98 percent of the balances where internal credit metrics are used was current or less than 30 days past due.
|
| |
(3)
| Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio. |
| |
(4)
| Other internal credit metrics may include delinquency status, application scores, geography or other factors. |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Consumer Real Estate – Credit Quality Indicators (1) |
| | | | | | | | | | | | |
| | Core Residential Mortgage (2) | | Non-core Residential
Mortgage (2) | | Residential Mortgage PCI (3) | | Core Home Equity (2) | | Non-core Home Equity (2) | | Home Equity PCI |
| (Dollars in millions) | December 31, 2016 |
Refreshed LTV (4) | |
| | |
| | |
| | |
| | | | |
| Less than or equal to 90 percent | $ | 129,737 |
| | $ | 14,280 |
| | $ | 7,811 |
| | $ | 47,171 |
| | $ | 8,480 |
| | $ | 1,942 |
|
| Greater than 90 percent but less than or equal to 100 percent | 3,634 |
| | 1,446 |
| | 1,021 |
| | 1,006 |
| | 1,668 |
| | 630 |
|
| Greater than 100 percent | 1,872 |
| | 1,972 |
| | 1,295 |
| | 1,196 |
| | 3,311 |
| | 1,039 |
|
Fully-insured loans (5) | 21,254 |
| | 7,475 |
| | — |
| | — |
| | — |
| | — |
|
| Total consumer real estate | $ | 156,497 |
| | $ | 25,173 |
| | $ | 10,127 |
| | $ | 49,373 |
| | $ | 13,459 |
| | $ | 3,611 |
|
| Refreshed FICO score | |
| | |
| | |
| | |
| | |
| | |
|
| Less than 620 | $ | 2,479 |
| | $ | 3,198 |
| | $ | 2,741 |
| | $ | 1,254 |
| | $ | 2,692 |
| | $ | 559 |
|
| Greater than or equal to 620 and less than 680 | 5,094 |
| | 2,807 |
| | 2,241 |
| | 2,853 |
| | 3,094 |
| | 636 |
|
| Greater than or equal to 680 and less than 740 | 22,629 |
| | 4,512 |
| | 2,916 |
| | 10,069 |
| | 3,176 |
| | 1,069 |
|
| Greater than or equal to 740 | 105,041 |
| | 7,181 |
| | 2,229 |
| | 35,197 |
| | 4,497 |
| | 1,347 |
|
Fully-insured loans (5) | 21,254 |
| | 7,475 |
| | — |
| | — |
| | — |
| | — |
|
| Total consumer real estate | $ | 156,497 |
| | $ | 25,173 |
| | $ | 10,127 |
| | $ | 49,373 |
| | $ | 13,459 |
| | $ | 3,611 |
|
| |
(1)
| Excludes $1.1 billion of loans accounted for under the fair value option.
|
| |
(3)
| Includes $1.6 billion of pay option loans. The Corporation no longer originates this product.
|
| |
(4)
| Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance. |
| |
(5)
| Credit quality indicators are not reported for fully-insured loans as principal repayment is insured. |
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| Credit Card and Other Consumer – Credit Quality Indicators |
| | | | | | | | |
| | U.S. Credit Card | | Non-U.S. Credit Card | | Direct/Indirect Consumer | | Other Consumer (1) |
| (Dollars in millions) | December 31, 2016 |
| Refreshed FICO score | |
| | |
| | |
| | |
|
| Less than 620 | $ | 4,431 |
| | $ | — |
| | $ | 1,478 |
| | $ | 187 |
|
| Greater than or equal to 620 and less than 680 | 12,364 |
| | — |
| | 2,070 |
| | 222 |
|
| Greater than or equal to 680 and less than 740 | 34,828 |
| | — |
| | 12,491 |
| | 404 |
|
| Greater than or equal to 740 | 40,655 |
| | — |
| | 33,420 |
| | 1,525 |
|
Other internal credit metrics (2, 3, 4) | — |
| | 9,214 |
| | 44,630 |
| | 161 |
|
| Total credit card and other consumer | $ | 92,278 |
| | $ | 9,214 |
| | $ | 94,089 |
| | $ | 2,499 |
|
| |
(1)
| At December 31, 2016, 19 percent of the other consumer portfolio was associated with portfolios from certain consumer finance businesses that the Corporation previously exited.
|
| |
(2)
| Other internal credit metrics may include delinquency status, geography or other factors. |
| |
(3)
| Direct/indirect consumer includes $43.1 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $499 million of loans the Corporation no longer originates, primarily student loans.
|
| |
(4)
| Non-U.S. credit card represents the U.K. credit card portfolio which was evaluated using internal credit metrics, including delinquency status. At December 31, 2016, 98 percent of this portfolio was current or less than 30 days past due, one percent was 30-89 days past due and one percent was 90 days or more past due.
|
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
Commercial – Credit Quality Indicators (1) | | | | |
| | | | | | | | | | |
| | U.S. Commercial | | Non-U.S. Commercial | | Commercial Real Estate | | Commercial
Lease Financing | | U.S. Small
Business Commercial (2) |
| (Dollars in millions) | December 31, 2016 |
| Risk ratings | |
| | |
| | |
| | |
| | |
|
| Pass rated | $ | 261,214 |
| | $ | 85,689 |
| | $ | 56,957 |
| | $ | 21,565 |
| | $ | 453 |
|
| Reservable criticized | 9,158 |
| | 3,708 |
| | 398 |
| | 810 |
| | 71 |
|
Refreshed FICO score (3) | | | | | | | | | |
| Less than 620 | | | | | | | | | 200 |
|
| Greater than or equal to 620 and less than 680 | | | | | | | | | 591 |
|
| Greater than or equal to 680 and less than 740 | | | | | | | | | 1,741 |
|
| Greater than or equal to 740 | | | | | | | | | 3,264 |
|
Other internal credit metrics (3, 4) | | | | | | | | | 6,673 |
|
| Total commercial | $ | 270,372 |
| | $ | 89,397 |
| | $ | 57,355 |
| | $ | 22,375 |
| | $ | 12,993 |
|
| |
(1)
| Excludes $6.0 billion of loans accounted for under the fair value option.
|
| |
(2)
| U.S. small business commercial includes $755 million of criticized business card and small business loans which are evaluated using refreshed FICO scores or internal credit metrics, including delinquency status, rather than risk ratings. At December 31, 2016, 98 percent of the balances where internal credit metrics are used was current or less than 30 days past due.
|
| |
(3)
| Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio. |
| |
(4)
| Other internal credit metrics may include delinquency status, application scores, geography or other factors. |
Impaired Loans and Troubled Debt Restructurings
A loan is considered impaired when, based on current information, it is probable that the Corporation will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans and all consumerleases of $46.4 billion, U.S. securities-based lending loans of $41.1 billion and commercial TDRs. Impaired loans exclude nonperformingnon-U.S. consumer loans and nonperforming commercial leases unless they are classified as TDRs. Loansof $3.0 billion.
(3)Consumer loans accounted for under the fair value option are also excluded. PCIincludes residential mortgage loans are excludedof $298 million and reported separately on page 137.home equity loans of $437 million. Commercial loans accounted for under the fair value option includes U.S. commercial loans of $2.9 billion and non-U.S. commercial loans of $3.0 billion. For more information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value Option.
(4)Total outstandings includes U.S. commercial real estate loans of $57.2 billion and non-U.S. commercial real estate loans of $3.2 billion.
(5)Includes PPP loans.
(6)Total outstandings includes loans and leases pledged as collateral of $15.5 billion. The Corporation also pledged $153.1 billion of loans with no related outstanding borrowings to secure potential borrowing capacity with the Federal Reserve Bank and Federal Home Loan Bank.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| 30-59 Days
Past Due (1) | | 60-89 Days Past Due (1) | | 90 Days or
More
Past Due (1) | | Total Past
Due 30 Days
or More | | Total Current or Less Than 30 Days Past Due (1) | | | | Loans
Accounted
for Under
the Fair
Value Option | | Total Outstandings |
| (Dollars in millions) | December 31, 2019 |
| Consumer real estate | | | | | | | | | | | | | | | |
| Core portfolio | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 1,378 | | | $ | 261 | | | $ | 565 | | | $ | 2,204 | | | $ | 223,566 | | | | | | | $ | 225,770 | |
| Home equity | 135 | | | 70 | | | 198 | | | 403 | | | 34,823 | | | | | | | 35,226 | |
| Non-core portfolio | | | | | | | | | | | | | | | |
| Residential mortgage | 458 | | | 209 | | | 1,263 | | | 1,930 | | | 8,469 | | | | | | | 10,399 | |
| Home equity | 34 | | | 16 | | | 72 | | | 122 | | | 4,860 | | | | | | | 4,982 | |
| Credit card and other consumer | | | | | | | | | | | | | | | |
| Credit card | 564 | | | 429 | | | 1,042 | | | 2,035 | | | 95,573 | | | | | | | 97,608 | |
| | | | | | | | | | | | | | | |
Direct/Indirect consumer (2) | 297 | | | 85 | | | 35 | | | 417 | | | 90,581 | | | | | | | 90,998 | |
| Other consumer | 0 | | | 0 | | | 0 | | | 0 | | | 192 | | | | | | | 192 | |
| Total consumer | 2,866 | | | 1,070 | | | 3,175 | | | 7,111 | | | 458,064 | | | | | | | 465,175 | |
Consumer loans accounted for under the fair value option (3) | | | | | | | | | | | | | $ | 594 | | | 594 | |
| Total consumer loans and leases | 2,866 | | | 1,070 | | | 3,175 | | | 7,111 | | | 458,064 | | | | | 594 | | | 465,769 | |
| Commercial | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| U.S. commercial | 788 | | | 279 | | | 371 | | | 1,438 | | | 305,610 | | | | | | | 307,048 | |
| Non-U.S. commercial | 35 | | | 23 | | | 8 | | | 66 | | | 104,900 | | | | | | | 104,966 | |
Commercial real estate (4) | 144 | | | 19 | | | 119 | | | 282 | | | 62,407 | | | | | | | 62,689 | |
| Commercial lease financing | 100 | | | 56 | | | 39 | | | 195 | | | 19,685 | | | | | | | 19,880 | |
| U.S. small business commercial | 119 | | | 56 | | | 107 | | | 282 | | | 15,051 | | | | | | | 15,333 | |
| Total commercial | 1,186 | | | 433 | | | 644 | | | 2,263 | | | 507,653 | | | | | | | 509,916 | |
Commercial loans accounted for under the fair value option (3) | | | | | | | | | | | | | 7,741 | | | 7,741 | |
| Total commercial loans and leases | 1,186 | | | 433 | | | 644 | | | 2,263 | | | 507,653 | | | | | 7,741 | | | 517,657 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total loans and leases (5) | $ | 4,052 | | | $ | 1,503 | | | $ | 3,819 | | | $ | 9,374 | | | $ | 965,717 | | | | | $ | 8,335 | | | $ | 983,426 | |
| Percentage of outstandings | 0.41 | % | | 0.15 | % | | 0.39 | % | | 0.95 | % | | 98.20 | % | | | | 0.85 | % | | 100.00 | % |
(1)Consumer real estate loans 30-59 days past due includes fully-insured loans of $517 million and nonperforming loans of $139 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $206 million and nonperforming loans of $114 million. Consumer real estate loans 90 days or more past due includes fully-insured loans of $1.1 billion. Consumer real estate loans current or less than 30 days past due includes $856 million and direct/indirect consumer includes $45 million of nonperforming loans.
(2)Total outstandings primarily includes auto and specialty lending loans and leases of $50.4 billion, U.S. securities-based lending loans of $36.7 billion and non-U.S. consumer loans of $2.8 billion.
(3)Consumer loans accounted for under the fair value option includes residential mortgage loans of $257 million and home equity loans of $337 million. Commercial loans accounted for under the fair value option includes U.S. commercial loans of $4.7 billion and non-U.S. commercial loans of $3.1 billion. For more information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value Option.
(4)Total outstandings includes U.S. commercial real estate loans of $59.0 billion and non-U.S. commercial real estate loans of $3.7 billion.
(5)Total outstandings includes loans and leases pledged as collateral of $25.9 billion. The Corporation also pledged $168.2 billion of loans with no related outstanding borrowings to secure potential borrowing capacity with the Federal Reserve Bank and Federal Home Loan Bank.
The Corporation categorizes consumer real estate loans as core and non-core based on loan and customer characteristics such as origination date, product type, LTV, Fair Isaac Corporation (FICO) score and delinquency status consistent with its current consumer and mortgage servicing strategy. Generally, loans that were originated after January 1, 2010, qualified under government-sponsored enterprise (GSE) underwriting guidelines, or otherwise met the Corporation’s underwriting guidelines in place in 2015 are characterized as core loans. All other loans are generally characterized as non-core loans and represent runoff portfolios.
The Corporation has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling $9.0 billion and $7.5 billion at December 31, 2020 and 2019, providing full credit protection on residential mortgage loans that become severely delinquent. All of these loans are individually insured, and therefore the Corporation does not record an allowance for credit losses related to these loans.
Nonperforming Loans and Leases
Commercial nonperforming loans increased to $2.2 billion at December 31, 2020 from $1.5 billion at December 31, 2019 with broad-based increases across multiple industries. Consumer nonperforming loans increased to $2.7 billion at December 31, 2020 from $2.1 billion at December 31, 2019 driven by deferral activity, as well as the inclusion of $144 million of certain loans that were previously classified as purchased credit-impaired loans and accounted for under a pool basis.
The table below presents the Corporation’s nonperforming loans and leases including nonperforming TDRs, and loans accruing past due 90 days or more at December 31, 2020 and 2019. Nonperforming LHFS are excluded from nonperforming loans and leases as they are recorded at either fair value or the lower of cost or fair value. For information on the Corporation's interest accrual policies, delinquency status for loan modifications related to the pandemic and the criteria for classification as nonperforming, see Note 1 – Summary of Significant Accounting Principles.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Credit Quality | | |
| | | | | | | |
| |
| Nonperforming Loans
and Leases | | Accruing Past Due 90 Days or More (1) |
| December 31 |
| (Dollars in millions) | 2020 | | 2019 | | 2020 | | 2019 |
Residential mortgage (2) | $ | 2,005 | | | $ | 1,470 | | | $ | 762 | | | $ | 1,088 | |
With no related allowance (3) | 1,378 | | | n/a | | 0 | | | 0 | |
Home equity (2) | 649 | | | 536 | | | 0 | | | 0 | |
With no related allowance (3) | 347 | | | n/a | | 0 | | | 0 | |
| Credit Card | n/a | | n/a | | 903 | | | 1,042 | |
| Direct/indirect consumer | 71 | | | 47 | | | 33 | | | 33 | |
| | | | | | | |
| Total consumer | 2,725 | | | 2,053 | | | 1,698 | | | 2,163 | |
| U.S. commercial | 1,243 | | | 1,094 | | | 228 | | | 106 | |
| Non-U.S. commercial | 418 | | | 43 | | | 10 | | | 8 | |
| Commercial real estate | 404 | | | 280 | | | 6 | | | 19 | |
| Commercial lease financing | 87 | | | 32 | | | 25 | | | 20 | |
| U.S. small business commercial | 75 | | | 50 | | | 115 | | | 97 | |
| Total commercial | 2,227 | | | 1,499 | | | 384 | | | 250 | |
| Total nonperforming loans | $ | 4,952 | | | $ | 3,552 | | | $ | 2,082 | | | $ | 2,413 | |
| Percentage of outstanding loans and leases | 0.54 | % | | 0.36 | % | | 0.23 | % | | 0.25 | % |
(1)For information on the Corporation's interest accrual policies and delinquency status for loan modifications related to the pandemic, see Note 1 – Summary of Significant Accounting Principles.
(2)Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At December 31, 2020 and 2019 residential mortgage includes $537 million and $740 million of loans on which interest had been curtailed by the FHA, and therefore were no longer accruing interest, although principal was still insured, and $225 million and $348 million of loans on which interest was still accruing.
(3)Primarily relates to loans for which the estimated fair value of the underlying collateral less any costs to sell is greater than the amortized cost of the loans as of the reporting date.
n/a = not applicable
Included in the December 31, 2020 nonperforming loans are $127 million and $17 million of residential mortgage and home equity loans that prior to the January 1, 2020 adoption of the new credit loss standard were not included in nonperforming loans, as they were previously classified as purchased credit-impaired loans and accounted for under a pool basis.
Consumer Real Estate
ImpairedTo estimate ECL for consumer loans secured by residential real estate, the Corporation estimates the number of loans that will default over the life of the existing portfolio, after factoring in estimated prepayments, using quantitative modeling methodologies. The attributes that are most significant in estimating the Corporation’s ECL include refreshed loan-to-value (LTV) or, in the case of a subordinated lien, refreshed combined LTV (CLTV), borrower credit score, months since origination and geography, all of which are further broken down by present collection status (whether the loan is current, delinquent, in default, or in bankruptcy). The estimates are based on the Corporation’s historical experience with the loan portfolio, adjusted to reflect the economic outlook. The outlook on the unemployment rate and consumer real estate prices are key factors that impact the frequency and severity of loss estimates. The Corporation does not reserve for credit losses on the unpaid principal balance of loans insured by the Federal Housing Administration (FHA) and long-term standby loans, as these loans are fully insured. The Corporation records a reserve for unfunded lending commitments for the ECL associated with the undrawn portion of the Corporation’s HELOCs, which can only be canceled by the Corporation if certain criteria are met. The ECL associated with these unfunded lending commitments is calculated using the same models and methodologies noted above and incorporate utilization assumptions at time of default.
For loans that are more than 180 days past due and collateral-dependent TDRs, the Corporation bases the allowance on the estimated fair value of the underlying collateral as of the reporting date less costs to sell. The fair value of the collateral securing these loans is generally determined using an automated valuation model (AVM) that estimates the value of a property by reference to market data including sales of comparable properties and price trends specific to the Metropolitan Statistical Area in which the property being valued is located. In the event that an AVM value is not available, the Corporation utilizes publicized indices or if these methods provide less reliable valuations, the Corporation uses appraisals or broker price opinions to estimate the fair value of the collateral. While there is inherent imprecision in these valuations, the Corporation believes that they are representative of this portfolio in the aggregate.
For loans that are more than 180 days past due and collateral-dependent TDRs, with the exception of the Corporation’s fully insured portfolio, the outstanding balance of loans that is in excess of the estimated property value after
adjusting for costs to sell is charged off. If the estimated property value decreases in periods subsequent to the initial charge-off, the Corporation will record an additional charge-off; however, if the value increases in periods subsequent to the charge-off, the Corporation will adjust the allowance to account for the increase but not to a level above the cumulative charge-off amount.
Credit Cards and Other Consumer
Credit cards are revolving lines of credit without a defined maturity date. The estimated life of a credit card receivable is determined by estimating the amount and timing of expected future payments (e.g., borrowers making full payments, minimum payments or somewhere in between) that it will take for a receivable balance to pay off. The ECL on the future payments incorporates the spending behavior of a borrower through time using key borrower-specific factors and the economic outlook described above. The Corporation applies all expected payments in accordance with the Credit Card Accountability Responsibility and Disclosure Act of 2009 (i.e., paying down the highest interest rate bucket first). Then forecasted future payments are prioritized to pay off the oldest balance until it is brought to zero or an expected charge-off amount. Unemployment rate outlook, borrower credit score, delinquency status and historical payment behavior are all key inputs into the credit card receivable loss forecasting model. Future draws on the credit card lines are excluded from the ECL as they are unconditionally cancellable.
The ECL for the consumer vehicle lending portfolio is also determined using quantitative methods supplemented with qualitative analysis. The quantitative model estimates ECL giving consideration to key borrower and loan characteristics such as delinquency status, borrower credit score, LTV ratio, underlying collateral type and collateral value.
Commercial
The ECL on commercial loans is forecasted using models that estimate credit losses over the loan’s contractual life at an individual loan level. The models use the contractual terms to forecast future principal cash flows while also considering expected prepayments. For open-ended commitments such as revolving lines of credit, changes in funded balance are captured by forecasting a borrower’s draw and payment behavior over the remaining life of the commitment. For loans collateralized with commercial real estate and for which the underlying asset is the primary source of repayment, the loss forecasting models consider key loan and customer attributes such as LTV ratio, net operating income and debt service coverage, and captures variations in behavior according to property type and region. The outlook on the unemployment rate, gross domestic product, and forecasted real estate prices are utilized to determine indicators such as rent levels and vacancy rates, which impact the ECL estimate. For all other commercial loans and leases, the loss forecasting model determines the probabilities of transition to different credit risk ratings or default at each point over the life of the asset based on the borrower’s current credit risk rating, industry sector, size of the exposure and the geographic market. The severity of loss is determined based on the type of collateral securing the exposure, the size of the exposure, the borrower’s industry sector, any guarantors and the geographic market. Assumptions of expected loss are conditioned to the economic outlook, and the model considers key economic variables such as unemployment rate, gross domestic product, corporate bond spreads, real estate and other asset prices and equity market returns.
In addition to the allowance for loan and lease losses, the Corporation also estimates ECL 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. Reserves are estimated for the unfunded exposure using the same models and methodologies as the funded exposure and are reported as reserves for unfunded lending commitments.
Nonperforming Loans and Leases, Charge-offs and Delinquencies
Nonperforming loans and leases generally include loans and leases that have been placed on nonaccrual status. Loans accounted for under the fair value option and LHFS are not reported as nonperforming.
In accordance with the Corporation’s policies, consumer real estate-secured loans, including residential mortgages and home equity loans, are generally placed on nonaccrual status and classified as nonperforming at 90 days past due unless repayment of the loan is insured by the FHA or through individually insured long-term standby agreements with Fannie Mae (FNMA) or Freddie Mac (FHLMC) (the fully-insured portfolio). Residential mortgage loans in the fully-insured portfolio are not placed on nonaccrual status and, therefore, are not reported as nonperforming. Junior-lien home equity loans are placed on nonaccrual status and classified as nonperforming when the underlying first-lien mortgage loan becomes 90 days past due even if the junior-lien loan is current. The outstanding balance of real estate-secured loans that is in excess of the estimated property value less costs to sell is charged off no later than the end of the month in which the loan becomes 180 days past due unless the loan is fully insured, or for loans in bankruptcy, within 60 days of receipt of notification of filing, with the remaining balance classified as nonperforming.
Consumer loans secured by personal property, credit card loans and other unsecured consumer loans are not placed on nonaccrual status prior to charge-off and, therefore, are not reported as nonperforming loans, except for certain secured consumer loans, including those that have been modified in a TDR. Personal property-secured loans (including auto loans) are charged off to collateral value no later than the end of the month in which the account becomes 120 days past due, or upon repossession of an auto or, for loans in bankruptcy, within 60 days of receipt of notification of filing. Credit card and other unsecured customer loans are charged off no later than the end of the month in which the account becomes 180 days past due, within 60 days after receipt of notification of death or bankruptcy, or upon confirmation of fraud.
Commercial loans and leases, excluding business card loans, that are past due 90 days or more as to principal or interest, or where reasonable doubt exists as to timely collection, including loans that are individually identified as being impaired, are generally placed on nonaccrual status and classified as nonperforming unless well-secured and in the process of collection.
Business card loans are charged off in the same manner as consumer credit card loans. Other commercial loans and leases are generally charged off when all or a portion of the principal amount is determined to be uncollectible.
The entire balance of a consumer loan or commercial loan or lease is contractually delinquent if the minimum payment is not received by the specified due date on the customer’s billing statement. Interest and fees continue to accrue on past due loans and leases until the date the loan is placed on nonaccrual
status, if applicable. Accrued interest receivable is reversed when loans and leases are placed on nonaccrual status. Interest collections on nonaccruing loans and leases for which the ultimate collectability of principal is uncertain are applied as principal reductions; otherwise, such collections are credited to income when received. Loans and leases may be restored to accrual status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected.
Troubled Debt Restructurings
Consumer and commercial loans and leases whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties are classified as TDRs. Concessions could include a reduction in the interest rate to a rate that is below market on the loan, payment extensions, forgiveness of principal, forbearance or other actions designed to maximize collections. Loans that are carried at fair value and LHFS are not classified as TDRs.
Loans and leases whose contractual terms have been modified in a TDR and are current at the time of restructuring may remain on accrual status if there is demonstrated performance prior to the restructuring and payment in full under the restructured terms is expected. Otherwise, the loans are placed on nonaccrual status and reported as nonperforming, except for fully-insured consumer real estate loans, until there is sustained repayment performance for a reasonable period, generally six months. If accruing TDRs cease to perform in accordance with their modified contractual terms, they are placed on nonaccrual status and reported as nonperforming TDRs.
Secured consumer loans that have been discharged in Chapter 7 bankruptcy and have not been reaffirmed by the borrower are classified as TDRs at the time of discharge. Such loans are placed on nonaccrual status and written down to the estimated collateral value less costs to sell no later than at the time of discharge. If these loans are contractually current, interest collections are generally recorded in interest income on a cash basis. Consumer real estate-secured loans for which a binding offer to restructure has been extended are also classified as TDRs. Credit card and other unsecured consumer loans that have been renegotiated in a TDR generally remain on accrual status until the loan is either paid in full or charged off, which occurs no later than the end of the month in which the loan becomes 180 days past due or, for loans that have been placed on a fixed payment plan, 120 days past due.
A loan that had previously been modified in a TDR and is subsequently refinanced under current underwriting standards at a market rate with no concessionary terms is accounted for as a new loan and is no longer reported as a TDR.
COVID-19 Programs
The Corporation has implemented various consumer and commercial loan modification programs to provide its borrowers relief from the economic impacts of the COVID-19 pandemic (the pandemic). In accordance with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Corporation has elected to not apply TDR classification to eligible COVID-19 related loan modifications that were performed after March 1, 2020 to loans that were current as of December 31, 2019. Accordingly, these restructurings are not classified as TDRs. The availability of this election expires upon the earlier of January 1, 2022 or 60 days after the national emergency related to COVID-19 terminates. In
addition, for loans modified in response to the pandemic that do not meet the above criteria (e.g., current payment status at December 31, 2019), the Corporation is applying the guidance included in an interagency statement issued by the bank regulatory agencies. This guidance states that loan modifications performed in light of the pandemic, including loan payment deferrals that are up to six months in duration, that were granted to borrowers who were current as of the implementation date of a loan modification program or modifications granted under government mandated modification programs, are not TDRs. For loan modifications that include a payment deferral and are not TDRs, the borrowers' past due and nonaccrual status have not been impacted during the deferral period. The Corporation has continued to accrue interest during the deferral period using a constant effective yield method. For most mortgage, HELOC and commercial loan modifications, the contractual interest that accrued during the deferral period is payable at the maturity of the loan. The Corporation includes these amounts with the unpaid principal balance when computing its allowance for credit losses. Amounts that are subsequently deemed uncollectible are written off against the allowance for credit losses.
Loans Held-for-sale
Loans that the Corporation intends to sell in the foreseeable future, including residential mortgages, loan syndications, and to a lesser degree, commercial real estate, consumer finance and other loans, are reported as LHFS and are carried at the lower of aggregate cost or fair value. The Corporation accounts for certain LHFS, including residential mortgage LHFS, under the fair value option. Loan origination costs for LHFS carried at the lower of cost or fair value are capitalized as part of the carrying value of the loans and, upon the sale of a loan, are recognized as part of the gain or loss in noninterest income. LHFS that are on nonaccrual status and are reported as nonperforming, as defined in the policy herein, are reported separately from nonperforming loans and leases.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are recognized using the straight-line method over the estimated useful lives of the assets. Estimated lives range up to 40 years for buildings, up to 12 years for furniture and equipment, and the shorter of lease term or estimated useful life for leasehold improvements.
Other Assets
For the Corporation’s financial assets that are measured at amortized cost and are not included in debt securities or loans and leases on the Consolidated Balance Sheet, the Corporation evaluates these assets for ECL using various techniques. For assets that are subject to collateral maintenance provisions, including federal funds sold and securities borrowed or purchased under agreements to resell, where the collateral consists of daily margining of liquid and marketable assets where the margining is expected to be maintained into the foreseeable future, the expected losses are assumed to be 0. For all other assets, the Corporation performs qualitative analyses, including consideration of historical losses and current economic conditions, to estimate any ECL which are then included in a valuation account that is recorded as a contra-asset against the amortized cost basis of the financial asset.
Lessee Arrangements
Substantially all of the Corporation’s lessee arrangements are operating leases. Under these arrangements, the Corporation records right-of-use assets and lease liabilities at lease commencement. Right-of-use assets are reported in other assets on the Consolidated Balance Sheet, and the related lease liabilities are reported in accrued expenses and other liabilities. All leases are recorded on the Consolidated Balance Sheet except leases with an initial term less than 12 months for which the Corporation made the short-term lease election. Lease expense is recognized on a straight-line basis over the lease term and is recorded in occupancy and equipment expense in the Consolidated Statement of Income.
The Corporation made an accounting policy election not to separate lease and non-lease components of a contract that is or contains a lease for its real estate and equipment leases. As such, lease payments represent payments on both lease and non-lease components. At lease commencement, lease liabilities are recognized based on the present value of the remaining lease payments and discounted using the Corporation’s incremental borrowing rate. Right-of-use assets initially equal the lease liability, adjusted for any lease payments made prior to lease commencement and for any lease incentives.
Goodwill and Intangible Assets
Goodwill is the purchase premium after adjusting for the fair value of net assets acquired. Goodwill is not amortized but is reviewed for potential impairment on an annual basis, or when events or circumstances indicate a potential impairment, at the reporting unit level. A reporting unit is a business segment or one level below a business segment.
The Corporation assesses the fair value of each reporting unit against its carrying value, including goodwill, as measured by allocated equity. For purposes of goodwill impairment testing, the Corporation utilizes allocated equity as a proxy for the carrying value of its reporting units. Allocated equity in the reporting units is comprised of allocated capital plus capital for the portion of goodwill and intangibles specifically assigned to the reporting unit.
In performing its goodwill impairment testing, the Corporation first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors include, among other things, macroeconomic conditions, industry and market considerations, financial performance of the respective reporting unit and other relevant entity- and reporting-unit specific considerations.
If the Corporation concludes it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative assessment is performed. The Corporation has an unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. The Corporation may resume performing the qualitative assessment in any subsequent period.
When performing the quantitative assessment, if the fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit would not be considered impaired. If the carrying value of the reporting unit exceeds its fair value, a goodwill impairment loss would be recognized for the amount by which the reporting unit’s allocated equity exceeds its fair value. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit. An impairment loss establishes a new basis in the goodwill, and subsequent
reversals of goodwill impairment losses are not permitted under applicable accounting guidance.
For intangible assets subject to amortization, an impairment loss is recognized if the carrying value of the intangible asset is not recoverable and exceeds fair value. The carrying value of the intangible asset is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset. Intangible assets deemed to have indefinite useful lives are not subject to amortization. An impairment loss is recognized if the carrying value of the intangible asset with an indefinite life exceeds its fair value.
Variable Interest Entities
A VIE is an entity that lacks equity investors or whose equity investors do not have a controlling financial interest in the entity through their equity investments. The Corporation consolidates a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. On a quarterly basis, the Corporation reassesses its involvement with the VIE and evaluates the impact of changes in governing documents and its financial interests in the VIE. The consolidation status of the VIEs with which the Corporation is involved may change as a result of such reassessments.
The Corporation primarily uses VIEs for its securitization activities, in which the Corporation transfers whole loans or debt securities into a trust or other vehicle. When the Corporation is the servicer of whole loans held in a securitization trust, including non-agency residential mortgages, home equity loans, credit cards, and other loans, the Corporation has the power to direct the most significant activities of the trust. The Corporation generally does not have the power to direct the most significant activities of a residential mortgage agency trust except in certain circumstances in which the Corporation holds substantially all of the issued securities and has the unilateral right to liquidate the trust. The power to direct the most significant activities of a commercial mortgage securitization trust is typically held by the special servicer or by the party holding specific subordinate securities which embody certain controlling rights. The Corporation consolidates a whole-loan securitization trust if it has the power to direct the most significant activities and also holds securities issued by the trust or has other contractual arrangements, other than standard representations and warranties, that could potentially be significant to the trust.
The Corporation may also transfer trading account securities and AFS securities into municipal bond or resecuritization trusts. The Corporation consolidates a municipal bond or resecuritization trust if it has control over the ongoing activities of the trust such as the remarketing of the trust’s liabilities or, if there are no ongoing activities, sole discretion over the design of the trust, including the identification of securities to be transferred in and the structure of securities to be issued, and also retains securities or has liquidity or other commitments that could potentially be significant to the trust. The Corporation does not consolidate a municipal bond or resecuritization trust if one or a limited number of third-party investors share responsibility for the design of the trust or have control over the significant activities of the trust through liquidation or other substantive rights.
Other VIEs used by the Corporation include collateralized debt obligations (CDOs), investment vehicles created on behalf of customers and other investment vehicles. The Corporation does not routinely serve as collateral manager for CDOs and, therefore, does not typically have the power to direct the
activities that most significantly impact the economic performance of a CDO. However, following an event of default, if the Corporation is a majority holder of senior securities issued by a CDO and acquires the power to manage its assets, the Corporation consolidates the CDO.
The Corporation consolidates a customer or other investment vehicle if it has control over the initial design of the vehicle or manages the assets in the vehicle and also absorbs potentially significant gains or losses through an investment in the vehicle, derivative contracts or other arrangements. The Corporation does not consolidate an investment vehicle if a single investor controlled the initial design of the vehicle or manages the assets in the vehicles or if the Corporation does not have a variable interest that could potentially be significant to the vehicle.
Retained interests in securitized assets are initially recorded at fair value. In addition, the Corporation may invest in debt securities issued by unconsolidated VIEs. Fair values of these debt securities, which are classified as trading account assets, debt securities carried at fair value or HTM securities, are based primarily on quoted market prices in active or inactive markets. Generally, quoted market prices for retained residual interests are not available; therefore, the Corporation estimates fair values based on the present value of the associated expected future cash flows.
Fair Value
The Corporation measures the fair values of its assets and liabilities, where applicable, in accordance with accounting guidance that requires an entity to base fair value on exit price. Under this guidance, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. Under applicable accounting standards, fair value measurements are categorized into one of three levels based on the inputs to the valuation technique with the highest priority given to unadjusted quoted prices in active markets and the lowest priority given to unobservable inputs. The Corporation categorizes its fair value measurements of financial instruments based on this three-level hierarchy.
Level 1Unadjusted quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in OTC markets.
Level 2Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts where fair value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. government and agency mortgage-backed (MBS) and asset-backed securities (ABS), corporate debt securities, derivative contracts, certain loans and LHFS.
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the overall
fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments for which the determination of fair value requires significant management judgment or estimation. The fair value for such assets and liabilities is generally determined using pricing models, discounted cash flow methodologies or similar techniques that incorporate the assumptions a market participant would use in pricing the asset or liability. This category generally includes retained residual interests in securitizations, consumer MSRs, certain ABS, highly structured, complex or long-dated derivative contracts, certain loans and LHFS, IRLCs and certain CDOs where independent pricing information cannot be obtained for a significant portion of the underlying assets.
Income Taxes
There are two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. These gross deferred tax assets and liabilities represent decreases or increases in taxes expected to be paid in the future because of future reversals of temporary differences in the bases of assets and liabilities as measured by tax laws and their bases as reported in the financial statements. Deferred tax assets are also recognized for tax attributes such as net operating loss carryforwards and tax credit carryforwards. Valuation allowances are recorded to reduce deferred tax assets to the amounts management concludes are more likely than not to be realized.
Income tax benefits are recognized and measured based upon a two-step model: first, a tax position must be more likely than not to be sustained based solely on its technical merits in order to be recognized, and second, the benefit is measured as the largest dollar amount of that position that is more likely than not to be sustained upon settlement. The difference between the benefit recognized and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit. The Corporation records income tax-related interest and penalties, if applicable, within income tax expense.
Revenue Recognition
The following summarizes the Corporation’s revenue recognition accounting policies for certain noninterest income activities.
Card Income
Card income includes annual, late and over-limit fees as well as interchange, cash advances and other miscellaneous items from credit and debit card transactions and from processing card transactions for merchants. Card income is presented net of direct costs. Interchange fees are recognized upon settlement of the credit and debit card payment transactions and are generally determined on a percentage basis for credit cards and fixed rates for debit cards based on the corresponding payment network’s rates. Substantially all card fees are recognized at the transaction date, except for certain time-based fees such as annual fees, which are recognized over 12 months. Fees charged to cardholders and merchants that are estimated to be uncollectible are reserved in the allowance for loan and lease losses. Included in direct cost are rewards and credit card partner payments. Rewards paid to cardholders are related to points earned by the cardholder that can be redeemed for a broad range of rewards including cash, travel and gift cards. The points to be redeemed are estimated based on past redemption behavior, card product type, account
transaction activity and other historical card performance. The liability is reduced as the points are redeemed. The Corporation also makes payments to credit card partners. The payments are based on revenue-sharing agreements that are generally driven by cardholder transactions and partner sales volumes. As part of the revenue-sharing agreements, the credit card partner provides the Corporation exclusive rights to market to the credit card partner’s members or customers on behalf of the Corporation.
Service Charges
Service charges include deposit and lending-related fees. Deposit-related fees consist of fees earned on consumer and commercial deposit activities and are generally recognized when the transactions occur or as the service is performed. Consumer fees are earned on consumer deposit accounts for account maintenance and various transaction-based services, such as ATM transactions, wire transfer activities, check and money order processing and insufficient funds/overdraft transactions. Commercial deposit-related fees are from the Corporation’s Global Transaction Services business and consist of commercial deposit and treasury management services, including account maintenance and other services, such as payroll, sweep account and other cash management services. Lending-related fees generally represent transactional fees earned from certain loan commitments, financial guarantees and SBLCs.
Investment and Brokerage Services
Investment and brokerage services consist of asset management and brokerage fees. Asset management fees are earned from the management of client assets under advisory agreements or the full discretion of the Corporation’s financial advisors (collectively referred to as assets under management (AUM)). Asset management fees are earned as a percentage of the client’s AUM and generally range from 50 basis points (bps) to 150 bps of the AUM. In cases where a third party is used to obtain a client’s investment allocation, the fee remitted to the third party is recorded net and is not reflected in the transaction price, as the Corporation is an agent for those services.
Brokerage fees include income earned from transaction-based services that are performed as part of investment management services and are based on a fixed price per unit or as a percentage of the total transaction amount. Brokerage fees also include distribution fees and sales commissions that are primarily in the Global Wealth & Investment Management (GWIM) segment and are earned over time. In addition, primarily in the Global Markets segment, brokerage fees are earned when the Corporation fills customer orders to buy or sell various financial products or when it acknowledges, affirms, settles and clears transactions and/or submits trade information to the appropriate clearing broker. Certain customers pay brokerage, clearing and/or exchange fees imposed by relevant regulatory bodies or exchanges in order to execute or clear trades. These fees are recorded net and are not reflected in the transaction price, as the Corporation is an agent for those services.
Investment Banking Income
Investment banking income includes underwriting income and financial advisory services income. Underwriting consists of fees earned for the placement of a customer’s debt or equity securities. The revenue is generally earned based on a percentage of the fixed number of shares or principal placed. Once the number of shares or notes is determined and the service is completed, the underwriting fees are recognized. The Corporation incurs certain out-of-pocket expenses, such as legal costs, in performing these services. These expenses are
recovered through the revenue the Corporation earns from the customer and are included in operating expenses. Syndication fees represent fees earned as the agent or lead lender responsible for structuring, arranging and administering a loan syndication.
Financial advisory services consist of fees earned for assisting clients with transactions related to mergers and acquisitions and financial restructurings. Revenue varies depending on the size of the transaction and scope of services performed and is generally contingent on successful completion of the transaction. Revenue is typically recognized once the transaction is completed and all services have been rendered. Additionally, the Corporation may earn a fixed fee in merger and acquisition transactions to provide a fairness opinion, with the fees recognized when the opinion is delivered to the client.
Other Revenue Measurement and Recognition Policies
The Corporation did not disclose the value of any open performance obligations at December 31, 2020, as its contracts with customers generally have a fixed term that is less than one year, an open term with a cancellation period that is less than one year, or provisions that allow the Corporation to recognize revenue at the amount it has the right to invoice.
Earnings Per Common Share
Earnings per common share (EPS) is computed by dividing net income allocated to common shareholders by the weighted-average common shares outstanding, excluding unvested common shares subject to repurchase or cancellation. Net income allocated to common shareholders is net income adjusted for preferred stock dividends including dividends declared, accretion of discounts on preferred stock including accelerated accretion when preferred stock is repaid early, and cumulative dividends related to the current dividend period that have not been declared as of period end, less income allocated to participating securities. Diluted EPS is computed by dividing income allocated to common shareholders plus dividends on dilutive convertible preferred stock and preferred stock that can be tendered to exercise warrants, by the weighted-average common shares outstanding plus amounts representing the dilutive effect of stock options outstanding, restricted stock, restricted stock units (RSUs), outstanding warrants and the dilution resulting from the conversion of convertible preferred stock, if applicable.
Foreign Currency Translation
Assets, liabilities and operations of foreign branches and subsidiaries are recorded based on the functional currency of each entity. When the functional currency of a foreign operation is the local currency, the assets, liabilities and operations are translated, for consolidation purposes, from the local currency to the U.S. dollar reporting currency at period-end rates for assets and liabilities and generally at average rates for results of operations. The resulting unrealized gains and losses are reported as a component of accumulated OCI, net-of-tax. When the foreign entity’s functional currency is the U.S. dollar, the resulting remeasurement gains or losses on foreign currency-denominated assets or liabilities are included in earnings.
Paycheck Protection Program
The Corporation is participating in the Paycheck Protection Program (PPP), which is a loan program that originated from the CARES Act and was subsequently expanded by the Paycheck Protection Program and Health Care Enhancement Act. The PPP is designed to provide U.S. small businesses with cash-flow assistance through loans fully guaranteed by the Small
Business Administration (SBA). If the borrower meets certain criteria and uses the proceeds towards certain eligible expenses, the borrower’s obligation to repay the loan can be forgiven up to the full principal amount of the loan and any accrued interest. Upon borrower forgiveness, the SBA pays the Corporation for the principal and accrued interest owed on the loan. If the full principal of the loan is not forgiven, the loan will operate according to the original loan terms with the 100 percent SBA guaranty remaining. As of December 31, 2020, the
Corporation had approximately 332,000 PPP loans with a carrying value of $22.7 billion. As compensation for originating the loans, the Corporation received lender processing fees from the SBA, which are capitalized, along with the loan origination costs, and will be amortized over the loans’ contractual lives and recognized as interest income. Upon forgiveness of a loan and repayment by the SBA, any unrecognized net capitalized fees and costs related to the loan will be recognized as interest income in that period.
NOTE 2 Net Interest Income and Noninterest Income
The table below presents the Corporation’s net interest income and noninterest income disaggregated by revenue source for 2020, 2019 and 2018. For more information, see Note 1 – Summary of Significant Accounting Principles. For a disaggregation of noninterest income by business segment and All Other, see Note 23 – Business Segment Information.
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| (Dollars in millions) | 2020 | | 2019 | | 2018 | | | | | | | | | | | |
| Net interest income | | | | | | | | | | | | | | | | |
| Interest income | | | | | | | | | | | | | | | | |
| Loans and leases | $ | 34,029 | | | $ | 43,086 | | | $ | 40,811 | | | | | | | | | | | | |
| Debt securities | 9,790 | | | 11,806 | | | 11,724 | | | | | | | | | | | | |
| Federal funds sold and securities borrowed or purchased under agreements to resell | 903 | | | 4,843 | | | 3,176 | | | | | | | | | | | | |
| Trading account assets | 4,128 | | | 5,196 | | | 4,811 | | | | | | | | | | | | |
| Other interest income | 2,735 | | | 6,305 | | | 6,247 | | | | | | | | | | | | |
| Total interest income | 51,585 | | | 71,236 | | | 66,769 | | | | | | | | | | | | |
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| Interest expense | | | | | | | | | | | | | | | | |
| Deposits | 1,943 | | | 7,188 | | | 4,495 | | | | | | | | | | | | |
| Short-term borrowings | 987 | | | 7,208 | | | 5,839 | | | | | | | | | | | | |
| Trading account liabilities | 974 | | | 1,249 | | | 1,358 | | | | | | | | | | | | |
| Long-term debt | 4,321 | | | 6,700 | | | 6,915 | | | | | | | | | | | | |
| Total interest expense | 8,225 | | | 22,345 | | | 18,607 | | | | | | | | | | | | |
| Net interest income | $ | 43,360 | | | $ | 48,891 | | | $ | 48,162 | | | | | | | | | | | | |
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| Noninterest income | | | | | | | | | | | | | | | | |
| Fees and commissions | | | | | | | | | | | | | | | | |
| Card income | | | | | | | | | | | | | | | | |
Interchange fees (1) | $ | 3,954 | | | $ | 3,834 | | | $ | 3,866 | | | | | | | | | | | | |
| Other card income | 1,702 | | | 1,963 | | | 1,958 | | | | | | | | | | | | |
| Total card income | 5,656 | | | 5,797 | | | 5,824 | | | | | | | | | | | | |
| Service charges | | | | | | | | | | | | | | | | |
| Deposit-related fees | 5,991 | | | 6,588 | | | 6,667 | | | | | | | | | | | | |
| Lending-related fees | 1,150 | | | 1,086 | | | 1,100 | | | | | | | | | | | | |
| Total service charges | 7,141 | | | 7,674 | | | 7,767 | | | | | | | | | | | | |
| Investment and brokerage services | | | | | | | | | | | | | | | | |
| Asset management fees | 10,708 | | | 10,241 | | | 10,189 | | | | | | | | | | | | |
| Brokerage fees | 3,866 | | | 3,661 | | | 3,971 | | | | | | | | | | | | |
| Total investment and brokerage services | 14,574 | | | 13,902 | | | 14,160 | | | | | | | | | | | | |
| Investment banking fees | | | | | | | | | | | | | | | | |
| Underwriting income | 4,698 | | | 2,998 | | | 2,722 | | | | | | | | | | | | |
| Syndication fees | 861 | | | 1,184 | | | 1,347 | | | | | | | | | | | | |
| Financial advisory services | 1,621 | | | 1,460 | | | 1,258 | | | | | | | | | | | | |
| Total investment banking fees | 7,180 | | | 5,642 | | | 5,327 | | | | | | | | | | | | |
| Total fees and commissions | 34,551 | | | 33,015 | | | 33,078 | | | | | | | | | | | | |
| Market making and similar activities | 8,355 | | | 9,034 | | | 9,008 | | | | | | | | | | | | |
| Other income (loss) | (738) | | | 304 | | | 772 | | | | | | | | | | | | |
| Total noninterest income | $ | 42,168 | | | $ | 42,353 | | | $ | 42,858 | | | | | | | | | | | | |
(1)Gross interchange fees were $9.2 billion, $10.0 billion and $9.5 billion for 2020, 2019 and 2018, respectively, and are presented net of $5.5 billion, $6.2 billion and $5.6 billion of expenses for rewards and partner payments as well as certain other card costs for the same periods.
NOTE 3 Derivatives
Derivative Balances
Derivatives are entered into on behalf of customers, for trading or to support risk management activities. Derivatives used in risk management activities include derivatives that may or may not be designated in qualifying hedge accounting relationships. Derivatives that are not designated in qualifying hedge accounting relationships are referred to as other risk management derivatives. For more information on the
Corporation’s derivatives and hedging activities, see Note 1 – Summary of Significant Accounting Principles. The following tables present derivative instruments included on the Consolidated Balance Sheet in derivative assets and liabilities at December 31, 2020 and 2019. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and have been reduced by cash collateral received or paid.
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| | | December 31, 2020 |
| | | Gross Derivative Assets | | Gross Derivative Liabilities |
| (Dollars in billions) | Contract/ Notional (1) | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting
Hedges | | Total | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting
Hedges | | Total |
| Interest rate contracts | | | | | | | | | | | | | |
| Swaps | $ | 13,242.8 | | | $ | 199.9 | | | $ | 10.9 | | | $ | 210.8 | | | $ | 209.3 | | | $ | 1.3 | | | $ | 210.6 | |
| Futures and forwards | 3,222.2 | | | 3.5 | | | 0.1 | | | 3.6 | | | 3.6 | | | 0 | | | 3.6 | |
| Written options | 1,530.5 | | | 0 | | | 0 | | | 0 | | | 40.5 | | | 0 | | | 40.5 | |
| Purchased options | 1,545.8 | | | 45.3 | | | 0 | | | 45.3 | | | 0 | | | 0 | | | 0 | |
| Foreign exchange contracts | | | | | | | | | | | | | |
| Swaps | 1,475.8 | | | 37.1 | | | 0.3 | | | 37.4 | | | 39.7 | | | 0.6 | | | 40.3 | |
| Spot, futures and forwards | 3,710.7 | | | 53.4 | | | 0 | | | 53.4 | | | 54.5 | | | 0.5 | | | 55.0 | |
| Written options | 289.6 | | | 0 | | | 0 | | | 0 | | | 4.8 | | | 0 | | | 4.8 | |
| Purchased options | 279.3 | | | 5.0 | | | 0 | | | 5.0 | | | 0 | | | 0 | | | 0 | |
| Equity contracts | | | | | | | | | | | | | |
| Swaps | 320.2 | | | 13.3 | | | 0 | | | 13.3 | | | 14.5 | | | 0 | | | 14.5 | |
| Futures and forwards | 106.2 | | | 0.3 | | | 0 | | | 0.3 | | | 1.4 | | | 0 | | | 1.4 | |
| Written options | 599.1 | | | 0 | | | 0 | | | 0 | | | 48.8 | | | 0 | | | 48.8 | |
| Purchased options | 541.2 | | | 52.6 | | | 0 | | | 52.6 | | | 0 | | | 0 | | | 0 | |
| Commodity contracts | | | | | | | | | | | | | |
| Swaps | 36.4 | | | 1.9 | | | 0 | | | 1.9 | | | 4.4 | | | 0 | | | 4.4 | |
| Futures and forwards | 63.6 | | | 2.0 | | | 0 | | | 2.0 | | | 1.0 | | | 0 | | | 1.0 | |
| Written options | 24.6 | | | 0 | | | 0 | | | 0 | | | 1.4 | | | 0 | | | 1.4 | |
| Purchased options | 24.7 | | | 1.5 | | | 0 | | | 1.5 | | | 0 | | | 0 | | | 0 | |
Credit derivatives (2) | | | | | | | | | | | | | |
| Purchased credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 322.7 | | | 2.3 | | | 0 | | | 2.3 | | | 4.4 | | | 0 | | | 4.4 | |
| Total return swaps/options | 63.6 | | | 0.2 | | | 0 | | | 0.2 | | | 1.0 | | | 0 | | | 1.0 | |
| Written credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 301.5 | | | 4.4 | | | 0 | | | 4.4 | | | 1.9 | | | 0 | | | 1.9 | |
| Total return swaps/options | 68.6 | | | 0.6 | | | 0 | | | 0.6 | | | 0.4 | | | 0 | | | 0.4 | |
| Gross derivative assets/liabilities | | | $ | 423.3 | | | $ | 11.3 | | | $ | 434.6 | | | $ | 431.6 | | | $ | 2.4 | | | $ | 434.0 | |
| Less: Legally enforceable master netting agreements | | | | | | | (344.9) | | | | | | | (344.9) | |
| Less: Cash collateral received/paid | | | | | | | (42.5) | | | | | | | (43.6) | |
| Total derivative assets/liabilities | | | | | | | $ | 47.2 | | | | | | | $ | 45.5 | |
(1)Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2)The net derivative asset (liability) and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names were $2.2 billion and $269.8 billion at December 31, 2020.
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| | | December 31, 2019 |
| | | Gross Derivative Assets | | Gross Derivative Liabilities |
| (Dollars in billions) | Contract/ Notional (1) | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting
Hedges | | Total | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting
Hedges | | Total |
| Interest rate contracts | | | | | | | | | | | | | |
| Swaps | $ | 15,074.4 | | | $ | 162.0 | | | $ | 9.7 | | | $ | 171.7 | | | $ | 168.5 | | | $ | 0.4 | | | $ | 168.9 | |
| Futures and forwards | 3,279.8 | | | 1.0 | | | 0 | | | 1.0 | | | 1.0 | | | 0 | | | 1.0 | |
| Written options | 1,767.7 | | | 0 | | | 0 | | | 0 | | | 32.5 | | | 0 | | | 32.5 | |
| Purchased options | 1,673.6 | | | 37.4 | | | 0 | | | 37.4 | | | 0 | | | 0 | | | 0 | |
| Foreign exchange contracts | | | | | | | | | | | | | |
| Swaps | 1,657.7 | | | 30.3 | | | 0.7 | | | 31.0 | | | 31.7 | | | 0.9 | | | 32.6 | |
| Spot, futures and forwards | 3,792.7 | | | 35.9 | | | 0.1 | | | 36.0 | | | 38.7 | | | 0.3 | | | 39.0 | |
| Written options | 274.3 | | | 0 | | | 0 | | | 0 | | | 3.8 | | | 0 | | | 3.8 | |
| Purchased options | 261.6 | | | 4.0 | | | 0 | | | 4.0 | | | 0 | | | 0 | | | 0 | |
| Equity contracts | | | | | | | | | | | | | |
| Swaps | 315.0 | | | 6.5 | | | 0 | | | 6.5 | | | 8.1 | | | 0 | | | 8.1 | |
| Futures and forwards | 125.1 | | | 0.3 | | | 0 | | | 0.3 | | | 1.1 | | | 0 | | | 1.1 | |
| Written options | 731.1 | | | 0 | | | 0 | | | 0 | | | 34.6 | | | 0 | | | 34.6 | |
| Purchased options | 668.6 | | | 42.4 | | | 0 | | | 42.4 | | | 0 | | | 0 | | | 0 | |
| Commodity contracts | | | | | | | | | | | | | |
| Swaps | 42.0 | | | 2.1 | | | 0 | | | 2.1 | | | 4.4 | | | 0 | | | 4.4 | |
| Futures and forwards | 61.3 | | | 1.7 | | | 0 | | | 1.7 | | | 0.4 | | | 0 | | | 0.4 | |
| Written options | 33.2 | | | 0 | | | 0 | | | 0 | | | 1.4 | | | 0 | | | 1.4 | |
| Purchased options | 37.9 | | | 1.4 | | | 0 | | | 1.4 | | | 0 | | | 0 | | | 0 | |
Credit derivatives (2) | | | | | | | | | | | | | |
| Purchased credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 321.6 | | | 2.7 | | | 0 | | | 2.7 | | | 5.6 | | | 0 | | | 5.6 | |
| Total return swaps/options | 86.6 | | | 0.4 | | | 0 | | | 0.4 | | | 1.3 | | | 0 | | | 1.3 | |
| Written credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 300.2 | | | 5.4 | | | 0 | | | 5.4 | | | 2.0 | | | 0 | | | 2.0 | |
| Total return swaps/options | 86.2 | | | 0.8 | | | 0 | | | 0.8 | | | 0.4 | | | 0 | | | 0.4 | |
| Gross derivative assets/liabilities | | | $ | 334.3 | | | $ | 10.5 | | | $ | 344.8 | | | $ | 335.5 | | | $ | 1.6 | | | $ | 337.1 | |
| Less: Legally enforceable master netting agreements | | | | | | | (270.4) | | | | | | | (270.4) | |
| Less: Cash collateral received/paid | | | | | | | (33.9) | | | | | | | (28.5) | |
| Total derivative assets/liabilities | | | | | | | $ | 40.5 | | | | | | | $ | 38.2 | |
(1)Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2)The net derivative asset (liability) and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names were $2.8 billion and $309.7 billion at December 31, 2019.
Offsetting of Derivatives
The Corporation enters into International Swaps and Derivatives Association, Inc. (ISDA) master netting agreements or similar agreements with substantially all of the Corporation’s derivative counterparties. Where legally enforceable, these master netting agreements give the Corporation, in the event of default by the counterparty, the right to liquidate securities held as collateral and to offset receivables and payables with the same counterparty. For purposes of the Consolidated Balance Sheet, the Corporation offsets derivative assets and liabilities and cash collateral held with the same counterparty where it has such a legally enforceable master netting agreement.
The following table presents derivative instruments included in derivative assets and liabilities on the Consolidated Balance
Sheet at December 31, 2020 and 2019 by primary risk (e.g., interest rate risk) and the platform, where applicable, on which these derivatives are transacted. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total gross derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements which include reducing the balance for counterparty netting and cash collateral received or paid.
For more information on offsetting of securities financing agreements, see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements, Short-term Borrowings and Restricted Cash.
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Offsetting of Derivatives (1) | | | | | | | |
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| Derivative
Assets | | Derivative Liabilities | | Derivative
Assets | | Derivative Liabilities |
| (Dollars in billions) | December 31, 2020 | | December 31, 2019 |
| Interest rate contracts | | | | | | | |
| Over-the-counter | $ | 247.7 | | | $ | 243.5 | | | $ | 203.1 | | | $ | 196.6 | |
| Exchange-traded | 0 | | | 0 | | | 0.1 | | | 0.1 | |
| Over-the-counter cleared | 10.2 | | | 9.1 | | | 6.0 | | | 5.3 | |
| Foreign exchange contracts | | | | | | | |
| Over-the-counter | 92.2 | | | 96.5 | | | 69.2 | | | 73.1 | |
| Over-the-counter cleared | 1.4 | | | 1.3 | | | 0.5 | | | 0.5 | |
| Equity contracts | | | | | | | |
| Over-the-counter | 31.3 | | | 28.3 | | | 21.3 | | | 17.8 | |
| Exchange-traded | 32.3 | | | 31.0 | | | 26.4 | | | 22.8 | |
| Commodity contracts | | | | | | | |
| Over-the-counter | 3.5 | | | 5.0 | | | 2.8 | | | 4.2 | |
| Exchange-traded | 0.7 | | | 0.7 | | | 0.8 | | | 0.8 | |
| Over-the-counter cleared | 0 | | | 0 | | | 0 | | | 0.1 | |
| Credit derivatives | | | | | | | |
| Over-the-counter | 5.2 | | | 5.6 | | | 6.4 | | | 6.6 | |
| Over-the-counter cleared | 2.2 | | | 1.9 | | | 2.5 | | | 2.2 | |
| Total gross derivative assets/liabilities, before netting | | | | | | | |
| Over-the-counter | 379.9 | | | 378.9 | | | 302.8 | | | 298.3 | |
| Exchange-traded | 33.0 | | | 31.7 | | | 27.3 | | | 23.7 | |
| Over-the-counter cleared | 13.8 | | | 12.3 | | | 9.0 | | | 8.1 | |
| Less: Legally enforceable master netting agreements and cash collateral received/paid | | | | | | | |
| Over-the-counter | (345.7) | | | (347.2) | | | (274.7) | | | (269.3) | |
| Exchange-traded | (29.5) | | | (29.5) | | | (21.5) | | | (21.5) | |
| Over-the-counter cleared | (12.2) | | | (11.8) | | | (8.1) | | | (8.1) | |
| Derivative assets/liabilities, after netting | 39.3 | | | 34.4 | | | 34.8 | | | 31.2 | |
Other gross derivative assets/liabilities (2) | 7.9 | | | 11.1 | | | 5.7 | | | 7.0 | |
| Total derivative assets/liabilities | 47.2 | | | 45.5 | | | 40.5 | | | 38.2 | |
Less: Financial instruments collateral (3) | (16.1) | | | (16.6) | | | (14.6) | | | (16.1) | |
| Total net derivative assets/liabilities | $ | 31.1 | | | $ | 28.9 | | | $ | 25.9 | | | $ | 22.1 | |
(1)OTC derivatives include bilateral transactions between the Corporation and a particular counterparty. OTC-cleared derivatives include bilateral transactions between the Corporation and a counterparty where the transaction is cleared through a clearinghouse. Exchange-traded derivatives include listed options transacted on an exchange.
(2)Consists of derivatives entered into under master netting agreements where the enforceability of these agreements is uncertain under bankruptcy laws in some countries or industries.
(3)Amounts are limited to the derivative asset/liability balance and, accordingly, do not include excess collateral received/pledged. Financial instruments collateral includes securities collateral received or pledged and cash securities held and posted at third-party custodians that are not offset on the Consolidated Balance Sheet but shown as a reduction to derive net derivative assets and liabilities.
ALM and Risk Management Derivatives
The Corporation’s ALM and risk management activities include the use of derivatives to mitigate risk to the Corporation including derivatives designated in qualifying hedge accounting relationships and derivatives used in other risk management activities. Interest rate, foreign exchange, equity, commodity and credit contracts are utilized in the Corporation's ALM and risk management activities.
TheCorporation maintains an overall interest rate risk management strategy that incorporates the use of interest rate contracts, which are generally non-leveraged generic interest rate and basis swaps, options, futures and forwards, to minimize significant fluctuations in earnings caused by interest rate volatility. The Corporation’s goal is to manage interest rate sensitivity and volatility so that movements in interest rates do not significantly adversely affect earnings or capital. As a result of interest rate fluctuations, hedged fixed-rate assets and liabilities appreciate or depreciate in fair value. Gains or losses on the derivative instruments that are linked to the hedged fixed-rate assets and liabilities are expected to substantially offset this unrealized appreciation or depreciation.
Market risk, including interest rate risk, can be substantial in the mortgage business. Market risk in the mortgage business is the risk that values of mortgage assets or revenues will be adversely affected by changes in market conditions such as interest rate movements. To mitigate the interest rate risk in mortgage banking production income, the Corporation utilizes
forward loan sale commitments and other derivative instruments, including purchased options, and certain debt securities. The Corporation also utilizes derivatives such as interest rate options, interest rate swaps, forward settlement contracts and eurodollar futures to hedge certain market risks of MSRs.
The Corporation uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities, as well as the Corporation’s investments in non-U.S. subsidiaries. Exposure to loss on these contracts will increase or decrease over their respective lives as currency exchange and interest rates fluctuate.
The Corporation purchases credit derivatives to manage credit risk related to certain funded and unfunded credit exposures. Credit derivatives include credit default swaps (CDS), total return swaps and swaptions. These derivatives are recorded on the Consolidated Balance Sheet at fair value with changes in fair value recorded in other income.
Derivatives Designated as Accounting Hedges
The Corporation uses various types of interest rate and foreign exchange derivative contracts to protect against changes in the fair value of its assets and liabilities due to fluctuations in interest rates and exchange rates (fair value hedges). The Corporation also uses these types of contracts to protect against changes in the cash flows of its assets and liabilities,
and other forecasted transactions (cash flow hedges). The Corporation hedges its net investment in consolidated non-U.S. operations determined to have functional currencies other than
the U.S. dollar using forward exchange contracts and cross-currency basis swaps, and by issuing foreign currency-denominated debt (net investment hedges).
Fair Value Hedges
The following table summarizes information related to fair value hedges for 2020, 2019 and 2018.
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| Gains and Losses on Derivatives Designated as Fair Value Hedges | | | | | | |
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| | | | | | | | | | | Derivative | | Hedged Item |
| (Dollars in millions) | | | | | | | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
Interest rate risk on long-term debt (1) | | | | | | | | | | | $ | 7,091 | | | $ | 6,113 | | | $ | (1,538) | | | $ | (7,220) | | | $ | (6,110) | | | $ | 1,429 | |
Interest rate and foreign currency risk on long-term debt (2) | | | | | | | | | | | 783 | | | 119 | | | (1,187) | | | (783) | | | (101) | | | 1,079 | |
Interest rate risk on available-for-sale securities (3) | | | | | | | | | | | (44) | | | (102) | | | (52) | | | 49 | | | 98 | | | 50 | |
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| Total | | | | | | | | | | | $ | 7,830 | | | $ | 6,130 | | | $ | (2,777) | | | $ | (7,954) | | | $ | (6,113) | | | $ | 2,558 | |
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(1)Amounts are recorded in interest expense in the Consolidated Statement of Income.
(2)In 2020, 2019 and 2018, the derivative amount includes gains (losses) of $701 million, $73 million and $(116) million in interest expense, $73 million, $28 million and $(992) million in market making and similar activities, and $9 million, $18 million and $(79) million in accumulated OCI, respectively. Line item totals are in the Consolidated Statement of Income and on the Consolidated Balance Sheet.
(3)Amounts are recorded in interest income in the Consolidated Statement of Income.
The table below summarizes the carrying value of hedged assets and liabilities that are designated and qualifying in fair value hedging relationships along with the cumulative amount of fair value hedging adjustments included in the carrying value that have been recorded in the current hedging relationships. These fair value hedging adjustments are open basis adjustments that are not subject to amortization as long as the hedging relationship remains designated.
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| Designated Fair Value Hedged Assets (Liabilities) | |
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| Carrying Value | | Cumulative Fair Value Adjustments (1) | | Carrying Value | | Cumulative Fair Value Adjustments (1) | | | | | |
| (Dollars in millions) | December 31, 2020 | | December 31, 2019 | | | | | |
Long-term debt (2) | $ | (150,556) | | | $ | (8,910) | | | $ | (162,389) | | | $ | (8,685) | | | | | | |
Available-for-sale debt securities (2, 3, 4) | 116,252 | | | 114 | | | 1,654 | | | 64 | | | | | | |
Trading account assets (5) | 427 | | | 15 | | | 0 | | | 0 | | | | | | |
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(1)For assets, increase (decrease) to carrying value and for liabilities, (increase) decrease to carrying value.
(2)At December 31, 2020 and 2019, the cumulative fair value adjustments remaining on long-term debt and AFS debt securities from discontinued hedging relationships resulted in an (increase) decrease in the related liability of $(3.7) billion and $1.3 billion and an increase (decrease) in the related asset of $(69) million and $8 million, which are being amortized over the remaining contractual life of the de-designated hedged items.
(3)These amounts include the amortized cost basis of the prepayable financial assets used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship (i.e. last-of-layer hedging relationship). At December 31, 2020, the amortized cost of the closed portfolios used in these hedging relationships was $34.6 billion, of which $7.0 billion was designated in the last-of-layer hedging relationship. The cumulative basis adjustments associated with these hedging relationships were not significant.
(4)Carrying value represents amortized cost.
(5)Represents hedging activities related to precious metals inventory.
Cash Flow and Net Investment Hedges
The following table summarizes certain information related to cash flow hedges and net investment hedges for 2020, 2019 and 2018. Of the $426 million after-tax net gain ($566 million pretax) on derivatives in accumulated OCI at December 31, 2020, gains of $190 million after-tax ($254 million pretax) related to both open and terminated hedges are expected to be
reclassified into earnings in the next 12 months. These net gains reclassified into earnings are expected to primarily increase net interest income related to the respective hedged items. For terminated cash flow hedges, the time period over which the majority of the forecasted transactions are hedged is approximately 3 years, with a maximum length of time for certain forecasted transactions of 16 years.
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| Gains and Losses on Derivatives Designated as Cash Flow and Net Investment Hedges | | | |
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| Gains (Losses) Recognized in
Accumulated OCI on Derivatives | | Gains (Losses) in Income
Reclassified from Accumulated OCI | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions, amounts pretax) | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 | | | | | | | | | | | | | | | | | | |
| Cash flow hedges | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate risk on variable-rate assets (1) | $ | 763 | | | $ | 671 | | | $ | (159) | | | $ | (7) | | | $ | (104) | | | $ | (165) | | | | | | | | | | | | | | | | | | | | | | | |
Price risk on forecasted MBS purchases (1) | 241 | | | 0 | | | 0 | | | 9 | | | 0 | | | 0 | | | | | | | | | | | | | | | | | | | | | | | |
Price risk on certain compensation plans (2) | 85 | | | 34 | | | 4 | | | 12 | | | (2) | | | 27 | | | | | | | | | | | | | | | | | | | | | | | |
| Total | $ | 1,089 | | | $ | 705 | | | $ | (155) | | | $ | 14 | | | $ | (106) | | | $ | (138) | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment hedges | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange risk (3) | $ | (834) | | | $ | 22 | | | $ | 989 | | | $ | 4 | | | $ | 366 | | | $ | 411 | | | | | | | | | | | | | | | | | | | | | | | |
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(1)Amounts reclassified from accumulated OCI are recorded in interest income in the Consolidated Statement of Income.
(2)Amounts reclassified from accumulated OCI are recorded in compensation and benefits expense in the Consolidated Statement of Income.
(3)Amounts reclassified from accumulated OCI are recorded in other income in the Consolidated Statement of Income. Amounts excluded from effectiveness testing and recognized in market making and similar activities were gains (losses) of $(11) million, $154 million and $47 million in 2020, 2019 and 2018, respectively.
Other Risk Management Derivatives
Other risk management derivatives are used by the Corporation to reduce certain risk exposures by economically hedging various assets and liabilities. The following table presents gains (losses) on these derivatives for 2020, 2019 and 2018. These gains (losses) are largely offset by the income or expense recorded on the hedged item.
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Gains and Losses on Other Risk Management Derivatives |
| | | | | | | | | |
| | | | | | | | | |
| (Dollars in millions) | | | | | 2020 | | 2019 | | 2018 |
Interest rate risk on mortgage activities (1, 2) | | | | | $ | 446 | | | $ | 315 | | | $ | (107) | |
Credit risk on loans (2) | | | | | (68) | | | (58) | | | 9 | |
Interest rate and foreign currency risk on ALM activities (3) | | | | | (2,971) | | | 1,112 | | | 3,278 | |
Price risk on certain compensation plans (4) | | | | | 700 | | | 943 | | | (495) | |
(1)Primarily related to hedges of interest rate risk on MSRs and IRLCs to originate mortgage loans that will be held for sale. The net gains on IRLCs, which are not included in the table but are considered derivative instruments, were $165 million, $73 million and $47 million in 2020, 2019 and 2018.
(2)Gains (losses) on these derivatives are recorded in other income.
(3)Gains (losses) on these derivatives are recorded in market making and similar activities.
(4)Gains (losses) on these derivatives are recorded in compensation and benefits expense.
Transfers of Financial Assets with Risk Retained through Derivatives
The Corporation enters into certain transactions involving the transfer of financial assets that are accounted for as sales where substantially all of the economic exposure to the transferred financial assets is retained through derivatives (e.g., interest rate and/or credit), but the Corporation does not retain control over the assets transferred. At both December 31, 2020 and 2019, the Corporation had transferred $5.2 billion of non-U.S. government-guaranteed mortgage-backed securities to a third-party trust and retained economic exposure to the transferred assets through derivative contracts. In connection with these transfers, the Corporation received gross cash proceeds of $5.2 billion as of both transfer dates. At December 31, 2020 and 2019, the fair value of the transferred securities was $5.5 billion and $5.3 billion.
Sales and Trading Revenue
The Corporation enters into trading derivatives to facilitate client transactions and to manage risk exposures arising from trading account assets and liabilities. It is the Corporation’s policy to include these derivative instruments in its trading activities, which include derivatives and non-derivative cash instruments. The resulting risk from these derivatives is managed on a portfolio basis as part of the Corporation’s Global Markets business segment. The related sales and trading revenue generated within Global Markets is recorded in various income statement line items, including market making and similar activities and net interest income as well as other revenue categories.
Sales and trading revenue includes changes in the fair value and realized gains and losses on the sales of trading and other assets, net interest income, and fees primarily from commissions on equity securities. Revenue is generated by the difference in the client price for an instrument and the price at which the trading desk can execute the trade in the dealer market. For equity securities, commissions related to purchases and sales are recorded in the “Other” column in the Sales and Trading Revenue table. Changes in the fair value of these securities are included in market making and similar activities. For debt securities, revenue, with the exception of interest associated with the debt securities, is typically included in
market making and similar activities. Unlike commissions for equity securities, the initial revenue related to broker-dealer services for debt securities is typically included in the pricing of the instrument rather than being charged through separate fee arrangements. Therefore, this revenue is recorded in market making and similar activities as part of the initial mark to fair value. For derivatives, the majority of revenue is included in market making and similar activities. In transactions where the Corporation acts as agent, which include exchange-traded futures and options, fees are recorded in other income.
The following table, which includes both derivatives and non-derivative cash instruments, identifies the amounts in the respective income statement line items attributable to the Corporation’s sales and trading revenue in Global Markets, categorized by primary risk, for 2020, 2019 and 2018. This table includes debit valuation adjustment (DVA) and funding valuation adjustment (FVA) gains (losses). Global Markets results in Note 23 – Business Segment Information are presented on a fully taxable-equivalent (FTE) basis. The table below is not presented on an FTE basis.
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| | | | | | | | | | | | | | | |
| Sales and Trading Revenue |
| | | | | | | | | | | | | | | |
| | | | | | | | | Market making and similar activities | | Net Interest
Income | | Other (1) | | Total |
| (Dollars in millions) | | | 2020 |
| Interest rate risk | | | | | | | | | $ | 2,211 | | | $ | 2,400 | | | $ | 231 | | | $ | 4,842 | |
| Foreign exchange risk | | | | | | | | | 1,482 | | | (20) | | | 3 | | | 1,465 | |
| Equity risk | | | | | | | | | 3,656 | | | (77) | | | 1,801 | | | 5,380 | |
| Credit risk | | | | | | | | | 812 | | | 1,638 | | | 328 | | | 2,778 | |
| Other risk | | | | | | | | | 308 | | | 4 | | | 44 | | | 356 | |
| Total sales and trading revenue | | | | | | | | | $ | 8,469 | | | $ | 3,945 | | | $ | 2,407 | | | $ | 14,821 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | 2019 |
| Interest rate risk | | | | | | | | | $ | 1,000 | | | $ | 1,817 | | | $ | 113 | | | $ | 2,930 | |
| Foreign exchange risk | | | | | | | | | 1,288 | | | 62 | | | 57 | | | 1,407 | |
| Equity risk | | | | | | | | | 3,563 | | | (634) | | | 1,569 | | | 4,498 | |
| Credit risk | | | | | | | | | 1,091 | | | 1,807 | | | 519 | | | 3,417 | |
| Other risk | | | | | | | | | 120 | | | 70 | | | 53 | | | 243 | |
| Total sales and trading revenue | | | | | | | | | $ | 7,062 | | | $ | 3,122 | | | $ | 2,311 | | | $ | 12,495 | |
| | | | | | | | | | | | | | | |
| | | 2018 |
| Interest rate risk | | | | | | | | | $ | 810 | | | $ | 1,651 | | | $ | 245 | | | $ | 2,706 | |
| Foreign exchange risk | | | | | | | | | 1,504 | | | 31 | | | 22 | | | 1,557 | |
| Equity risk | | | | | | | | | 3,870 | | | (657) | | | 1,643 | | | 4,856 | |
| Credit risk | | | | | | | | | 1,034 | | | 1,886 | | | 600 | | | 3,520 | |
| Other risk | | | | | | | | | 40 | | | 197 | | | 49 | | | 286 | |
| Total sales and trading revenue | | | | | | | | | $ | 7,258 | | | $ | 3,108 | | | $ | 2,559 | | | $ | 12,925 | |
(1)Represents amounts in investment and brokerage services and other income that are recorded in Global Markets and included in the definition of sales and trading revenue. Includes investment and brokerage services revenue of $1.9 billion, $1.7 billion and $1.7 billion in 2020, 2019 and 2018, respectively.
Credit Derivatives
The Corporation enters into credit derivatives primarily to facilitate client transactions and to manage credit risk exposures. Credit derivatives derive value based on an underlying third-party referenced obligation or a portfolio of referenced obligations and generally require the Corporation, as the seller of credit protection, to make payments to a buyer upon the occurrence of a predefined credit event. Such credit events generally include bankruptcy of the referenced credit entity and failure to pay under the obligation, as well as acceleration of indebtedness and payment repudiation or
moratorium. For credit derivatives based on a portfolio of referenced credits or credit indices, the Corporation may not be required to make payment until a specified amount of loss has occurred and/or may only be required to make payment up to a specified amount.
Credit derivatives are classified as investment and non-investment grade based on the credit quality of the underlying referenced obligation. The Corporation considers ratings of BBB-
or higher as investment grade. Non-investment grade includes non-rated credit derivative instruments. The Corporation discloses internal categorizations of investment grade and non-investment grade consistent with how risk is managed for these instruments.
Credit derivative instruments where the Corporation is the seller of credit protection and their expiration at December 31, 2020 and 2019 are summarized in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Credit Derivative Instruments | | | | | | | | | |
| | | | | | | | | |
| Less than
One Year | | One to
Three Years | | Three to
Five Years | | Over Five
Years | | Total |
| December 31, 2020 |
| (Dollars in millions) | Carrying Value |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 0 | | | $ | 1 | | | $ | 35 | | | $ | 94 | | | $ | 130 | |
| Non-investment grade | 26 | | | 233 | | | 364 | | | 1,163 | | | 1,786 | |
| Total | 26 | | | 234 | | | 399 | | | 1,257 | | | 1,916 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 21 | | | 4 | | | 0 | | | 0 | | | 25 | |
| Non-investment grade | 345 | | | 0 | | | 0 | | | 0 | | | 345 | |
| Total | 366 | | | 4 | | | 0 | | | 0 | | | 370 | |
| Total credit derivatives | $ | 392 | | | $ | 238 | | | $ | 399 | | | $ | 1,257 | | | $ | 2,286 | |
| Credit-related notes: | | | | | | | | | |
| Investment grade | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 572 | | | $ | 572 | |
| Non-investment grade | 64 | | | 2 | | | 10 | | | 947 | | | 1,023 | |
| Total credit-related notes | $ | 64 | | | $ | 2 | | | $ | 10 | | | $ | 1,519 | | | $ | 1,595 | |
| | Maximum Payout/Notional |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 33,474 | | | $ | 75,731 | | | $ | 87,218 | | | $ | 16,822 | | | $ | 213,245 | |
| Non-investment grade | 13,664 | | | 28,770 | | | 35,978 | | | 9,852 | | | 88,264 | |
| Total | 47,138 | | | 104,501 | | | 123,196 | | | 26,674 | | | 301,509 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 30,961 | | | 1,061 | | | 77 | | | 0 | | | 32,099 | |
| Non-investment grade | 36,128 | | | 364 | | | 27 | | | 5 | | | 36,524 | |
| Total | 67,089 | | | 1,425 | | | 104 | | | 5 | | | 68,623 | |
| Total credit derivatives | $ | 114,227 | | | $ | 105,926 | | | $ | 123,300 | | | $ | 26,679 | | | $ | 370,132 | |
| | | | | | | | | |
| December 31, 2019 |
| Carrying Value |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 0 | | | $ | 5 | | | $ | 60 | | | $ | 164 | | | $ | 229 | |
| Non-investment grade | 70 | | | 292 | | | 561 | | | 808 | | | 1,731 | |
| Total | 70 | | | 297 | | | 621 | | | 972 | | | 1,960 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 35 | | | 0 | | | 0 | | | 0 | | | 35 | |
| Non-investment grade | 344 | | | 0 | | | 0 | | | 0 | | | 344 | |
| Total | 379 | | | 0 | | | 0 | | | 0 | | | 379 | |
| Total credit derivatives | $ | 449 | | | $ | 297 | | | $ | 621 | | | $ | 972 | | | $ | 2,339 | |
| Credit-related notes: | | | | | | | | | |
| Investment grade | $ | 0 | | | $ | 3 | | | $ | 1 | | | $ | 639 | | | $ | 643 | |
| Non-investment grade | 6 | | | 2 | | | 1 | | | 1,125 | | | 1,134 | |
| Total credit-related notes | $ | 6 | | | $ | 5 | | | $ | 2 | | | $ | 1,764 | | | $ | 1,777 | |
| | Maximum Payout/Notional |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 55,827 | | | $ | 67,838 | | | $ | 71,320 | | | $ | 17,708 | | | $ | 212,693 | |
| Non-investment grade | 19,049 | | | 26,521 | | | 29,618 | | | 12,337 | | | 87,525 | |
| Total | 74,876 | | | 94,359 | | | 100,938 | | | 30,045 | | | 300,218 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 56,488 | | | 0 | | | 62 | | | 76 | | | 56,626 | |
| Non-investment grade | 28,707 | | | 657 | | | 104 | | | 60 | | | 29,528 | |
| Total | 85,195 | | | 657 | | | 166 | | | 136 | | | 86,154 | |
| Total credit derivatives | $ | 160,071 | | | $ | 95,016 | | | $ | 101,104 | | | $ | 30,181 | | | $ | 386,372 | |
The notional amount represents the maximum amount payable by the Corporation for most credit derivatives. However, the Corporation does not monitor its exposure to credit derivatives based solely on the notional amount because this measure does not take into consideration the probability of occurrence. As such, the notional amount is not a reliable indicator of the Corporation’s exposure to these contracts. Instead, a risk framework is used to define risk tolerances and establish limits so that certain credit risk-related losses occur
within acceptable, predefined limits.
Credit-related notes in the table above include investments in securities issued by CDO, collateralized loan obligation (CLO) and credit-linked note vehicles. These instruments are primarily classified as trading securities. The carrying value of these instruments equals the Corporation’s maximum exposure to loss. The Corporation is not obligated to make any payments to the entities under the terms of the securities owned.
Credit-related Contingent Features and Collateral
The Corporation executes the majority of its derivative contracts in the OTC market with large, international financial institutions, including broker-dealers and, to a lesser degree, with a variety of non-financial companies. A significant majority of the derivative transactions are executed on a daily margin basis. Therefore, events such as a credit rating downgrade (depending on the ultimate rating level) or a breach of credit covenants would typically require an increase in the amount of collateral required of the counterparty, where applicable, and/or allow the Corporation to take additional protective measures such as early termination of all trades. Further, as previously discussed on page 112, the Corporation enters into legally enforceable master netting agreements that reduce risk by permitting closeout and netting of transactions with the same counterparty upon the occurrence of certain events.
Certain of the Corporation’s derivative contracts contain credit risk-related contingent features, primarily in the form of ISDA master netting agreements and credit support documentation that enhance the creditworthiness of these instruments compared to other obligations of the respective counterparty with whom the Corporation has transacted. These contingent features may be for the benefit of the Corporation as well as its counterparties with respect to changes in the Corporation’s creditworthiness and the mark-to-market exposure under the derivative transactions. At December 31, 2020 and 2019, the Corporation held cash and securities collateral of $96.5 billion and $84.3 billion and posted cash and securities collateral of $88.6 billion and $69.1 billion in the normal course of business under derivative agreements, excluding cross-product margining agreements where clients are permitted to margin on a net basis for both derivative and secured financing arrangements.
In connection with certain OTC derivative contracts and other trading agreements, the Corporation can be required to provide additional collateral or to terminate transactions with certain counterparties in the event of a downgrade of the senior debt ratings of the Corporation or certain subsidiaries. The amount of additional collateral required depends on the contract and is usually a fixed incremental amount and/or the market value of the exposure.
At December 31, 2020, the amount of collateral, calculated based on the terms of the contracts, that the Corporation and certain subsidiaries could be required to post to counterparties but had not yet posted to counterparties was $2.6 billion, including $1.2 billion for Bank of America, National Association (BANA).
Some counterparties are currently able to unilaterally terminate certain contracts, or the Corporation or certain subsidiaries may be required to take other action such as find a suitable replacement or obtain a guarantee. At December 31, 2020 and 2019, the liability recorded for these derivative contracts was not significant.
The following table presents the amount of additional collateral that would have been contractually required by derivative contracts and other trading agreements at December 31, 2020 if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by one incremental notch and by an additional second incremental notch.
| | | | | | | | | | | |
| | | |
| Additional Collateral Required to be Posted Upon Downgrade at December 31, 2020 |
| | | |
| (Dollars in millions) | One
incremental notch | | Second
incremental notch |
| Bank of America Corporation | $ | 300 | | | $ | 735 | |
Bank of America, N.A. and subsidiaries (1) | 61 | | | 570 | |
(1)Included in Bank of America Corporation collateral requirements in this table.
The following table presents the derivative liabilities that would be subject to unilateral termination by counterparties and the amounts of collateral that would have been contractually required at December 31, 2020 if the long-term senior debt ratings for the Corporation or certain subsidiaries had been lower by one incremental notch and by an additional second incremental notch.
| | | | | | | | | | | |
| | | |
| Derivative Liabilities Subject to Unilateral Termination Upon Downgrade at December 31, 2020 |
| | | |
| (Dollars in millions) | One
incremental notch | | Second
incremental notch |
| Derivative liabilities | $ | 45 | | | $ | 1,035 | |
| Collateral posted | 23 | | | 544 | |
Valuation Adjustments on Derivatives
TheCorporation records credit risk valuation adjustments on derivatives in order to properly reflect the credit quality of the counterparties and its own credit quality. The Corporation calculates valuation adjustments on derivatives based on a modeled expected exposure that incorporates current market risk factors. The exposure also takes into consideration credit mitigants such as enforceable master netting agreements and collateral. CDS spread data is used to estimate the default probabilities and severities that are applied to the exposures. Where no observable credit default data is available for counterparties, the Corporation uses proxies and other market data to estimate default probabilities and severity.
The table below presents credit valuation adjustment (CVA), DVA and FVA gains (losses) on derivatives (excluding the effect of any related hedge activities), which are recorded in market making and similar activities, for 2020, 2019 and 2018. CVA gains reduce the cumulative CVA thereby increasing the derivative assets balance. DVA gains increase the cumulative DVA thereby decreasing the derivative liabilities balance. CVA and DVA losses have the opposite impact. FVA gains related to derivative assets reduce the cumulative FVA thereby increasing the derivative assets balance. FVA gains related to derivative liabilities increase the cumulative FVA thereby decreasing the derivative liabilities balance. FVA losses have the opposite impact.
| | | | | | | | | | | | | | | | | |
| | | | | |
Valuation Adjustments Gains (Losses) on Derivatives (1) |
| | | | | |
| | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 |
| Derivative assets (CVA) | $ | (118) | | | $ | 72 | | | $ | 77 | |
| Derivative assets/liabilities (FVA) | (24) | | | (2) | | | (15) | |
| Derivative liabilities (DVA) | 24 | | | (147) | | | (19) | |
| | | | | |
(1)At December 31, 2020, 2019 and 2018, cumulative CVA reduced the derivative assets balance by $646 million, $528 million and $600 million, cumulative FVA reduced the net derivatives balance by $177 million, $153 million and $151 million, and cumulative DVA reduced the derivative liabilities balance by $309 million, $285 million and $432 million, respectively.
NOTE 4 Securities
The table below presents the amortized cost, gross unrealized gains and losses, and fair value of AFS debt securities, other debt securities carried at fair value and HTM debt securities at December 31, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Debt Securities | | | | |
| |
| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| (Dollars in millions) | December 31, 2020 |
| Available-for-sale debt securities | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
| Agency | $ | 59,518 | | | $ | 2,370 | | | $ | (39) | | | $ | 61,849 | |
| Agency-collateralized mortgage obligations | 5,112 | | | 161 | | | (13) | | | 5,260 | |
| Commercial | 15,470 | | | 1,025 | | | (4) | | | 16,491 | |
Non-agency residential (1) | 899 | | | 127 | | | (17) | | | 1,009 | |
| Total mortgage-backed securities | 80,999 | | | 3,683 | | | (73) | | | 84,609 | |
| U.S. Treasury and agency securities | 114,157 | | | 2,236 | | | (13) | | | 116,380 | |
| Non-U.S. securities | 14,009 | | | 15 | | | (7) | | | 14,017 | |
| | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 2,656 | | | 61 | | | (6) | | | 2,711 | |
| Total taxable securities | 211,821 | | | 5,995 | | | (99) | | | 217,717 | |
| Tax-exempt securities | 16,417 | | | 389 | | | (32) | | | 16,774 | |
Total available-for-sale debt securities (3) | 228,238 | | | 6,384 | | | (131) | | | 234,491 | |
Other debt securities carried at fair value (2) | 11,720 | | | 429 | | | (39) | | | 12,110 | |
| Total debt securities carried at fair value | 239,958 | | | 6,813 | | | (170) | | | 246,601 | |
Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities (3) | 438,279 | | | 10,095 | | | (194) | | | 448,180 | |
Total debt securities (3,4) | $ | 678,237 | | | $ | 16,908 | | | $ | (364) | | | $ | 694,781 | |
| | | | | | | |
| | | | | | | |
| December 31, 2019 |
| Available-for-sale debt securities | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
| Agency | $ | 121,698 | | | $ | 1,013 | | | $ | (183) | | | $ | 122,528 | |
| Agency-collateralized mortgage obligations | 4,587 | | | 78 | | | (24) | | | 4,641 | |
| Commercial | 14,797 | | | 249 | | | (25) | | | 15,021 | |
Non-agency residential (1) | 948 | | | 138 | | | (9) | | | 1,077 | |
| Total mortgage-backed securities | 142,030 | | | 1,478 | | | (241) | | | 143,267 | |
| U.S. Treasury and agency securities | 67,700 | | | 1,023 | | | (195) | | | 68,528 | |
| Non-U.S. securities | 11,987 | | | 6 | | | (2) | | | 11,991 | |
| | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 3,874 | | | 67 | | | 0 | | | 3,941 | |
| Total taxable securities | 225,591 | | | 2,574 | | | (438) | | | 227,727 | |
| Tax-exempt securities | 17,716 | | | 202 | | | (6) | | | 17,912 | |
| Total available-for-sale debt securities | 243,307 | | | 2,776 | | | (444) | | | 245,639 | |
Other debt securities carried at fair value (2) | 10,596 | | | 255 | | | (23) | | | 10,828 | |
| Total debt securities carried at fair value | 253,903 | | | 3,031 | | | (467) | | | 256,467 | |
| Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities | 215,730 | | | 4,433 | | | (342) | | | 219,821 | |
Total debt securities (3, 4) | $ | 469,633 | | | $ | 7,464 | | | $ | (809) | | | $ | 476,288 | |
| | | | | | | |
(1)At December 31, 2020 and 2019, the underlying collateral type included approximately 37 percent and 49 percent prime, 2 percent and 6 percent Alt-A and 61 percent and 45 percent subprime.
(2)Primarily includes non-U.S. securities used to satisfy certain international regulatory requirements. Any changes in value are reported in market making and similar activities. For detail on the components, see Note 20 – Fair Value Measurements.
(3)Includes securities pledged as collateral of $65.5 billion and $67.0 billion at December 31, 2020 and 2019.
(4)The Corporation held debt securities from FNMA and FHLMC that each exceeded 10 percent of shareholders’ equity, with an amortized cost of $260.1 billion and $118.1 billion, and a fair value of $267.5 billion and $120.7 billion at December 31, 2020, and an amortized cost of $157.2 billion and $54.1 billion, and a fair value of $160.6 billion and $55.1 billion at December 31, 2019.
At December 31, 2020, the accumulated net unrealized gain on AFS debt securities, excluding the amount related to debt securities previously transferred to held to maturity, included in accumulated OCI was $4.7 billion, net of the related income tax expense of $1.6 billion. The Corporation had nonperforming AFS debt securities of $20 million and $9 million at December 31, 2020 and 2019.
Effective January 1, 2020, the Corporation adopted the new accounting standard for credit losses that requires evaluation of AFS and HTM debt securities for any expected losses with recognition of an allowance for credit losses, when applicable. For more information, see Note 1 – Summary of Significant Accounting Principles. At December 31, 2020, the Corporation had $200.0 billion in AFS debt securities, which were primarily
U.S. agency and U.S. Treasury securities that have a zero credit loss assumption. For the remaining $34.5 billion in AFS debt securities, the amount of ECL was insignificant. Substantially all of the Corporation's HTM debt securities are U.S. agency and U.S. Treasury securities and have a zero credit loss assumption.
At December 31, 2020 and 2019, the Corporation held equity securities at an aggregate fair value of $769 million and $891 million and other equity securities, as valued under the measurement alternative, at a carrying value of $240 million and $183 million, both of which are included in other assets. At December 31, 2020 and 2019, the Corporation also held money market investments at a fair value of $1.6 billion and $1.0 billion, which are included in time deposits placed and other short-term investments.
The gross realized gains and losses on sales of AFS debt securities for 2020, 2019 and 2018 are presented in the table below.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Gains and Losses on Sales of AFS Debt Securities |
| | | |
| | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 |
| Gross gains | $ | 423 | | | $ | 336 | | | $ | 169 | |
| Gross losses | (12) | | | (119) | | | (15) | |
| Net gains on sales of AFS debt securities | $ | 411 | | | $ | 217 | | | $ | 154 | |
| Income tax expense attributable to realized net gains on sales of AFS debt securities | $ | 103 | | | $ | 54 | | | $ | 37 | |
The table below presents the fair value and the associated gross unrealized losses on AFS debt securities and whether these securities have had gross unrealized losses for less than 12 months or for 12 months or longer at December 31, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Total AFS Debt Securities in a Continuous Unrealized Loss Position | | | | | | |
| |
| Less than Twelve Months | | Twelve Months or Longer | | Total |
| Fair
Value | | Gross Unrealized Losses | | Fair
Value | | Gross Unrealized Losses | | Fair
Value | | Gross Unrealized Losses |
| (Dollars in millions) | December 31, 2020 |
| Continuously unrealized loss-positioned AFS debt securities | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | |
| Agency | $ | 2,841 | | | $ | (39) | | | $ | 2 | | | $ | 0 | | | $ | 2,843 | | | $ | (39) | |
| Agency-collateralized mortgage obligations | 187 | | | (2) | | | 364 | | | (11) | | | 551 | | | (13) | |
| Commercial | 566 | | | (4) | | | 9 | | | 0 | | | 575 | | | (4) | |
| Non-agency residential | 342 | | | (9) | | | 56 | | | (8) | | | 398 | | | (17) | |
| Total mortgage-backed securities | 3,936 | | | (54) | | | 431 | | | (19) | | | 4,367 | | | (73) | |
| U.S. Treasury and agency securities | 8,282 | | | (9) | | | 498 | | | (4) | | | 8,780 | | | (13) | |
| Non-U.S. securities | 1,861 | | | (6) | | | 135 | | | (1) | | | 1,996 | | | (7) | |
| | | | | | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 576 | | | (2) | | | 396 | | | (4) | | | 972 | | | (6) | |
| Total taxable securities | 14,655 | | | (71) | | | 1,460 | | | (28) | | | 16,115 | | | (99) | |
| Tax-exempt securities | 4,108 | | | (29) | | | 617 | | | (3) | | | 4,725 | | | (32) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total AFS debt securities in a continuous
unrealized loss position | $ | 18,763 | | | $ | (100) | | | $ | 2,077 | | | $ | (31) | | | $ | 20,840 | | | $ | (131) | |
| | | | | | | | | | | |
| December 31, 2019 |
| Continuously unrealized loss-positioned AFS debt securities | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | |
| Agency | $ | 17,641 | | | $ | (41) | | | $ | 17,238 | | | $ | (142) | | | $ | 34,879 | | | $ | (183) | |
| Agency-collateralized mortgage obligations | 255 | | | (1) | | | 925 | | | (23) | | | 1,180 | | | (24) | |
| Commercial | 2,180 | | | (22) | | | 442 | | | (3) | | | 2,622 | | | (25) | |
| Non-agency residential | 122 | | | (6) | | | 22 | | | (3) | | | 144 | | | (9) | |
| Total mortgage-backed securities | 20,198 | | | (70) | | | 18,627 | | | (171) | | | 38,825 | | | (241) | |
| U.S. Treasury and agency securities | 12,836 | | | (71) | | | 18,866 | | | (124) | | | 31,702 | | | (195) | |
| Non-U.S. securities | 851 | | | 0 | | | 837 | | | (2) | | | 1,688 | | | (2) | |
| | | | | | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 938 | | | 0 | | | 222 | | | 0 | | | 1,160 | | | 0 | |
| Total taxable securities | 34,823 | | | (141) | | | 38,552 | | | (297) | | | 73,375 | | | (438) | |
| Tax-exempt securities | 4,286 | | | (5) | | | 190 | | | (1) | | | 4,476 | | | (6) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total AFS debt securities in a continuous
unrealized loss position | $ | 39,109 | | | $ | (146) | | | $ | 38,742 | | | $ | (298) | | | $ | 77,851 | | | $ | (444) | |
The remaining contractual maturity distribution and yields of the Corporation’s debt securities carried at fair value and HTM debt securities at December 31, 2020 are summarized in the table below. Actual duration and yields may differ as prepayments on the loans underlying the mortgages or other ABS are passed through to the Corporation.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Maturities of Debt Securities Carried at Fair Value and Held-to-maturity Debt Securities |
| | | | | | | | | | | | | | | | | | | |
| Due in One
Year or Less | | Due after One Year
through Five Years | | Due after Five Years
through Ten Years | | Due after
Ten Years | | Total |
| (Dollars in millions) | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) |
| Amortized cost of debt securities carried at fair value | | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | |
| Agency | $ | 0 | | | 0 | % | | $ | 7 | | | 5.69 | % | | $ | 56 | | | 4.44 | % | | $ | 59,455 | | | 3.36 | % | | $ | 59,518 | | | 3.36 | % |
| Agency-collateralized mortgage obligations | 0 | | | 0 | | | 0 | | | 0 | | | 24 | | | 2.57 | | | 5,088 | | | 2.94 | | | 5,112 | | | 2.94 | |
| Commercial | 26 | | | 3.04 | | | 6,669 | | | 2.52 | | | 7,711 | | | 2.32 | | | 1,077 | | | 2.64 | | | 15,483 | | | 2.43 | |
| Non-agency residential | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 0 | | | 1,620 | | | 6.77 | | | 1,621 | | | 6.77 | |
| Total mortgage-backed securities | 26 | | | 3.04 | | | 6,676 | | | 2.52 | | | 7,792 | | | 2.34 | | | 67,240 | | | 3.40 | | | 81,734 | | | 3.23 | |
| U.S. Treasury and agency securities | 10,020 | | | 1.26 | | | 29,533 | | | 1.85 | | | 74,665 | | | 0.74 | | | 32 | | | 2.55 | | | 114,250 | | | 1.07 | |
| Non-U.S. securities | 22,862 | | | 0.31 | | | 926 | | | 1.81 | | | 581 | | | 1.09 | | | 532 | | | 1.79 | | | 24,901 | | | 0.42 | |
| | | | | | | | | | | | | | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 699 | | | 1.15 | | | 1,336 | | | 2.46 | | | 366 | | | 2.26 | | | 255 | | | 1.60 | | | 2,656 | | | 2.00 | |
| Total taxable securities | 33,607 | | | 0.61 | | | 38,471 | | | 1.99 | | | 83,404 | | | 0.89 | | | 68,059 | | | 3.38 | | | 223,541 | | | 1.80 | |
| Tax-exempt securities | 872 | | | 0.87 | | | 8,430 | | | 1.27 | | | 4,397 | | | 1.66 | | | 2,718 | | | 1.41 | | | 16,417 | | | 1.38 | |
| Total amortized cost of debt securities carried at fair value | $ | 34,479 | | | 0.62 | | | $ | 46,901 | | | 1.86 | | | $ | 87,801 | | | 0.93 | | | $ | 70,777 | | | 3.30 | | | $ | 239,958 | | | 1.77 | |
Amortized cost of HTM debt securities (2) | $ | 15 | | | 3.78 | | | $ | 66 | | | 2.73 | | | $ | 17,133 | | | 1.86 | | | $ | 421,065 | | | 2.40 | | | $ | 438,279 | | | 2.38 | |
| | | | | | | | | | | | | | | | | | | |
| Debt securities carried at fair value | | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | |
| Agency | $ | 0 | | | | | $ | 7 | | | | | $ | 61 | | | | | $ | 61,781 | | | | | $ | 61,849 | | | |
| Agency-collateralized mortgage obligations | 0 | | | | | 0 | | | | | 24 | | | | | 5,236 | | | | | 5,260 | | | |
| Commercial | 26 | | | | | 7,077 | | | | | 8,242 | | | | | 1,160 | | | | | 16,505 | | | |
| Non-agency residential | 0 | | | | | 0 | | | | | 7 | | | | | 1,776 | | | | | 1,783 | | | |
| Total mortgage-backed securities | 26 | | | | | 7,084 | | | | | 8,334 | | | | | 69,953 | | | | | 85,397 | | | |
| U.S. Treasury and agency securities | 10,056 | | | | | 30,873 | | | | | 75,511 | | | | | 33 | | | | | 116,473 | | | |
| Non-U.S. securities | 23,187 | | | | | 940 | | | | | 582 | | | | | 534 | | | | | 25,243 | | | |
| | | | | | | | | | | | | | | | | | | |
| Other taxable securities, substantially all asset-backed securities | 702 | | | | | 1,369 | | | | | 379 | | | | | 264 | | | | | 2,714 | | | |
| Total taxable securities | 33,971 | | | | | 40,266 | | | | | 84,806 | | | | | 70,784 | | | | | 229,827 | | | |
| Tax-exempt securities | 874 | | | | | 8,554 | | | | | 4,566 | | | | | 2,780 | | | | | 16,774 | | | |
| Total debt securities carried at fair value | $ | 34,845 | | | | | $ | 48,820 | | | | | $ | 89,372 | | | | | $ | 73,564 | | | | | $ | 246,601 | | | |
Fair value of HTM debt securities (2) | $ | 14 | | | | | $ | 69 | | | | | $ | 17,139 | | | | | $ | 430,958 | | | | | $ | 448,180 | | | |
(1)The weighted-average yield is computed based on a constant effective interest rate over the contractual life of each security. The average yield considers the contractual coupon and the amortization of premiums and accretion of discounts, excluding the effect of related hedging derivatives.
(2)Substantially all U.S. agency MBS.
NOTE 5Outstanding Loans and Leases and Allowance for Credit Losses
The following tables present total outstanding loans and leases and an aging analysis for the Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at December 31, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| 30-59 Days Past Due (1) | | 60-89 Days Past Due (1) | | 90 Days or
More Past Due (1) | | Total Past
Due 30 Days
or More | | Total Current or Less Than 30 Days Past Due (1) | | | | Loans Accounted for Under the Fair Value Option | | Total
Outstandings |
| (Dollars in millions) | December 31, 2020 |
| Consumer real estate | | | | | | | | | | | | | | | |
| Core portfolio | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 1,157 | | | $ | 175 | | | $ | 786 | | | $ | 2,118 | | | $ | 213,155 | | | | | | | $ | 215,273 | |
| Home equity | 126 | | | 61 | | | 269 | | | 456 | | | 29,872 | | | | | | | 30,328 | |
| Non-core portfolio | | | | | | | | | | | | | | | |
| Residential mortgage | 273 | | | 122 | | | 913 | | | 1,308 | | | 6,974 | | | | | | | 8,282 | |
| Home equity | 28 | | | 17 | | | 76 | | | 121 | | | 3,862 | | | | | | | 3,983 | |
| Credit card and other consumer | | | | | | | | | | | | | | | |
| Credit card | 445 | | | 341 | | | 903 | | | 1,689 | | | 77,019 | | | | | | | 78,708 | |
| | | | | | | | | | | | | | | |
Direct/Indirect consumer (2) | 209 | | | 67 | | | 37 | | | 313 | | | 91,050 | | | | | | | 91,363 | |
| Other consumer | 0 | | | 0 | | | 0 | | | 0 | | | 124 | | | | | | | 124 | |
| Total consumer | 2,238 | | | 783 | | | 2,984 | | | 6,005 | | | 422,056 | | | | | | | 428,061 | |
Consumer loans accounted for under the fair value option (3) | | | | | | | | | | | | | $ | 735 | | | 735 | |
| Total consumer loans and leases | 2,238 | | | 783 | | | 2,984 | | | 6,005 | | | 422,056 | | | | | 735 | | | 428,796 | |
| Commercial | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| U.S. commercial | 561 | | | 214 | | | 512 | | | 1,287 | | | 287,441 | | | | | | | 288,728 | |
| Non-U.S. commercial | 61 | | | 44 | | | 11 | | | 116 | | | 90,344 | | | | | | | 90,460 | |
Commercial real estate (4) | 128 | | | 113 | | | 226 | | | 467 | | | 59,897 | | | | | | | 60,364 | |
| Commercial lease financing | 86 | | | 20 | | | 57 | | | 163 | | | 16,935 | | | | | | | 17,098 | |
U.S. small business commercial (5) | 84 | | | 56 | | | 123 | | | 263 | | | 36,206 | | | | | | | 36,469 | |
| Total commercial | 920 | | | 447 | | | 929 | | | 2,296 | | | 490,823 | | | | | | | 493,119 | |
Commercial loans accounted for under the fair value option (3) | | | | | | | | | | | | | 5,946 | | | 5,946 | |
| Total commercial loans and leases | 920 | | | 447 | | | 929 | | | 2,296 | | | 490,823 | | | | | 5,946 | | | 499,065 | |
Total loans and leases (6) | $ | 3,158 | | | $ | 1,230 | | | $ | 3,913 | | | $ | 8,301 | | | $ | 912,879 | | | | | $ | 6,681 | | | $ | 927,861 | |
| Percentage of outstandings | 0.34 | % | | 0.13 | % | | 0.42 | % | | 0.89 | % | | 98.39 | % | | | | 0.72 | % | | 100.00 | % |
(1)Consumer real estate loans 30-59 days past due includes fully-insured loans of $225 million and nonperforming loans of $126 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $103 million and nonperforming loans of $95 million. Consumer real estate loans 90 days or more past due includes fully-insured loans of $762 million. Consumer real estate loans current or less than 30 days past due includes $1.2 billion and direct/indirect consumer includes $66 million of nonperforming loans. For information on the Corporation's interest accrual policies and delinquency status for loan modifications related to the pandemic, see Note 1 – Summary of Significant Accounting Principles.
(2)Total outstandings primarily includes auto and specialty lending loans and leases of $46.4 billion, U.S. securities-based lending loans of $41.1 billion and non-U.S. consumer loans of $3.0 billion.
(3)Consumer loans accounted for under the fair value option includes residential mortgage loans of $298 million and home equity loans of $437 million. Commercial loans accounted for under the fair value option includes U.S. commercial loans of $2.9 billion and non-U.S. commercial loans of $3.0 billion. For more information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value Option.
(4)Total outstandings includes U.S. commercial real estate loans of $57.2 billion and non-U.S. commercial real estate loans of $3.2 billion.
(5)Includes PPP loans.
(6)Total outstandings includes loans and leases pledged as collateral of $15.5 billion. The Corporation also pledged $153.1 billion of loans with no related outstanding borrowings to secure potential borrowing capacity with the Federal Reserve Bank and Federal Home Loan Bank.
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| | | | | | | | | | | | | | | |
| 30-59 Days
Past Due (1) | | 60-89 Days Past Due (1) | | 90 Days or
More
Past Due (1) | | Total Past
Due 30 Days
or More | | Total Current or Less Than 30 Days Past Due (1) | | | | Loans
Accounted
for Under
the Fair
Value Option | | Total Outstandings |
| (Dollars in millions) | December 31, 2019 |
| Consumer real estate | | | | | | | | | | | | | | | |
| Core portfolio | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 1,378 | | | $ | 261 | | | $ | 565 | | | $ | 2,204 | | | $ | 223,566 | | | | | | | $ | 225,770 | |
| Home equity | 135 | | | 70 | | | 198 | | | 403 | | | 34,823 | | | | | | | 35,226 | |
| Non-core portfolio | | | | | | | | | | | | | | | |
| Residential mortgage | 458 | | | 209 | | | 1,263 | | | 1,930 | | | 8,469 | | | | | | | 10,399 | |
| Home equity | 34 | | | 16 | | | 72 | | | 122 | | | 4,860 | | | | | | | 4,982 | |
| Credit card and other consumer | | | | | | | | | | | | | | | |
| Credit card | 564 | | | 429 | | | 1,042 | | | 2,035 | | | 95,573 | | | | | | | 97,608 | |
| | | | | | | | | | | | | | | |
Direct/Indirect consumer (2) | 297 | | | 85 | | | 35 | | | 417 | | | 90,581 | | | | | | | 90,998 | |
| Other consumer | 0 | | | 0 | | | 0 | | | 0 | | | 192 | | | | | | | 192 | |
| Total consumer | 2,866 | | | 1,070 | | | 3,175 | | | 7,111 | | | 458,064 | | | | | | | 465,175 | |
Consumer loans accounted for under the fair value option (3) | | | | | | | | | | | | | $ | 594 | | | 594 | |
| Total consumer loans and leases | 2,866 | | | 1,070 | | | 3,175 | | | 7,111 | | | 458,064 | | | | | 594 | | | 465,769 | |
| Commercial | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| U.S. commercial | 788 | | | 279 | | | 371 | | | 1,438 | | | 305,610 | | | | | | | 307,048 | |
| Non-U.S. commercial | 35 | | | 23 | | | 8 | | | 66 | | | 104,900 | | | | | | | 104,966 | |
Commercial real estate (4) | 144 | | | 19 | | | 119 | | | 282 | | | 62,407 | | | | | | | 62,689 | |
| Commercial lease financing | 100 | | | 56 | | | 39 | | | 195 | | | 19,685 | | | | | | | 19,880 | |
| U.S. small business commercial | 119 | | | 56 | | | 107 | | | 282 | | | 15,051 | | | | | | | 15,333 | |
| Total commercial | 1,186 | | | 433 | | | 644 | | | 2,263 | | | 507,653 | | | | | | | 509,916 | |
Commercial loans accounted for under the fair value option (3) | | | | | | | | | | | | | 7,741 | | | 7,741 | |
| Total commercial loans and leases | 1,186 | | | 433 | | | 644 | | | 2,263 | | | 507,653 | | | | | 7,741 | | | 517,657 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total loans and leases (5) | $ | 4,052 | | | $ | 1,503 | | | $ | 3,819 | | | $ | 9,374 | | | $ | 965,717 | | | | | $ | 8,335 | | | $ | 983,426 | |
| Percentage of outstandings | 0.41 | % | | 0.15 | % | | 0.39 | % | | 0.95 | % | | 98.20 | % | | | | 0.85 | % | | 100.00 | % |
(1)Consumer real estate loans 30-59 days past due includes fully-insured loans of $517 million and nonperforming loans of $139 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $206 million and nonperforming loans of $114 million. Consumer real estate loans 90 days or more past due includes fully-insured loans of $1.1 billion. Consumer real estate loans current or less than 30 days past due includes $856 million and direct/indirect consumer includes $45 million of nonperforming loans.
(2)Total outstandings primarily includes auto and specialty lending loans and leases of $50.4 billion, U.S. securities-based lending loans of $36.7 billion and non-U.S. consumer loans of $2.8 billion.
(3)Consumer loans accounted for under the fair value option includes residential mortgage loans of $257 million and home equity loans of $337 million. Commercial loans accounted for under the fair value option includes U.S. commercial loans of $4.7 billion and non-U.S. commercial loans of $3.1 billion. For more information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value Option.
(4)Total outstandings includes U.S. commercial real estate loans of $59.0 billion and non-U.S. commercial real estate loans of $3.7 billion.
(5)Total outstandings includes loans and leases pledged as collateral of $25.9 billion. The Corporation also pledged $168.2 billion of loans with no related outstanding borrowings to secure potential borrowing capacity with the Federal Reserve Bank and Federal Home Loan Bank.
The Corporation categorizes consumer real estate loans as core and non-core based on loan and customer characteristics such as origination date, product type, LTV, Fair Isaac Corporation (FICO) score and delinquency status consistent with its current consumer and mortgage servicing strategy. Generally, loans that were originated after January 1, 2010, qualified under government-sponsored enterprise (GSE) underwriting guidelines, or otherwise met the Corporation’s underwriting guidelines in place in 2015 are characterized as core loans. All other loans are generally characterized as non-core loans and represent runoff portfolios.
The Corporation has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling $9.0 billion and $7.5 billion at December 31, 2020 and 2019, providing full credit protection on residential mortgage loans that become severely delinquent. All of these loans are individually insured, and therefore the Corporation does not record an allowance for credit losses related to these loans.
Nonperforming Loans and Leases
Commercial nonperforming loans increased to $2.2 billion at December 31, 2020 from $1.5 billion at December 31, 2019 with broad-based increases across multiple industries. Consumer nonperforming loans increased to $2.7 billion at December 31, 2020 from $2.1 billion at December 31, 2019 driven by deferral activity, as well as the inclusion of $144 million of certain loans that were previously classified as purchased credit-impaired loans and accounted for under a pool basis.
The table below presents the Corporation’s nonperforming loans and leases including nonperforming TDRs, and loans accruing past due 90 days or more at December 31, 2020 and 2019. Nonperforming LHFS are excluded from nonperforming loans and leases as they are recorded at either fair value or the lower of cost or fair value. For information on the Corporation's interest accrual policies, delinquency status for loan modifications related to the pandemic and the criteria for classification as nonperforming, see Note 1 – Summary of Significant Accounting Principles.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Credit Quality | | |
| | | | | | | |
| |
| Nonperforming Loans
and Leases | | Accruing Past Due 90 Days or More (1) |
| December 31 |
| (Dollars in millions) | 2020 | | 2019 | | 2020 | | 2019 |
Residential mortgage (2) | $ | 2,005 | | | $ | 1,470 | | | $ | 762 | | | $ | 1,088 | |
With no related allowance (3) | 1,378 | | | n/a | | 0 | | | 0 | |
Home equity (2) | 649 | | | 536 | | | 0 | | | 0 | |
With no related allowance (3) | 347 | | | n/a | | 0 | | | 0 | |
| Credit Card | n/a | | n/a | | 903 | | | 1,042 | |
| Direct/indirect consumer | 71 | | | 47 | | | 33 | | | 33 | |
| | | | | | | |
| Total consumer | 2,725 | | | 2,053 | | | 1,698 | | | 2,163 | |
| U.S. commercial | 1,243 | | | 1,094 | | | 228 | | | 106 | |
| Non-U.S. commercial | 418 | | | 43 | | | 10 | | | 8 | |
| Commercial real estate | 404 | | | 280 | | | 6 | | | 19 | |
| Commercial lease financing | 87 | | | 32 | | | 25 | | | 20 | |
| U.S. small business commercial | 75 | | | 50 | | | 115 | | | 97 | |
| Total commercial | 2,227 | | | 1,499 | | | 384 | | | 250 | |
| Total nonperforming loans | $ | 4,952 | | | $ | 3,552 | | | $ | 2,082 | | | $ | 2,413 | |
| Percentage of outstanding loans and leases | 0.54 | % | | 0.36 | % | | 0.23 | % | | 0.25 | % |
(1)For information on the Corporation's interest accrual policies and delinquency status for loan modifications related to the pandemic, see Note 1 – Summary of Significant Accounting Principles.
(2)Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At December 31, 2020 and 2019 residential mortgage includes $537 million and $740 million of loans on which interest had been curtailed by the FHA, and therefore were no longer accruing interest, although principal was still insured, and $225 million and $348 million of loans on which interest was still accruing.
(3)Primarily relates to loans for which the estimated fair value of the underlying collateral less any costs to sell is greater than the amortized cost of the loans as of the reporting date.
n/a = not applicable
Included in the December 31, 2020 nonperforming loans are $127 million and $17 million of residential mortgage and home equity loans that prior to the January 1, 2020 adoption of the new credit loss standard were not included in nonperforming loans, as they were previously classified as purchased credit-impaired loans and accounted for under a pool basis.
Credit Quality Indicators
The Corporation monitors credit quality within its Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments based on primary credit quality indicators. For more information on the portfolio segments, see Note 1 – Summary of Significant Accounting Principles. Within the Consumer Real Estate portfolio segment, consist entirelythe primary credit quality indicators are refreshed LTV and refreshed FICO score. Refreshed LTV measures the carrying value of TDRs. Excluding PCIthe loan as a percentage of the value of the property securing the loan, refreshed quarterly. Home equity loans are evaluated using CLTV, which measures the carrying value of the Corporation’s loan and available line of credit combined with any outstanding senior liens against the property as a percentage of the value of the property securing the loan, refreshed quarterly. FICO score measures the creditworthiness of the borrower based on the financial obligations of the borrower and the borrower’s credit history. FICO scores are typically refreshed quarterly or more
frequently. Certain borrowers (e.g., borrowers that have had debts discharged in a bankruptcy proceeding) may not have their FICO scores updated. FICO scores are also a primary credit quality indicator for the Credit Card and Other Consumer portfolio segment and the business card portfolio within U.S. small business commercial. Within the Commercial portfolio segment, loans are evaluated using the internal classifications of pass rated or reservable criticized as the primary credit quality indicators. The term reservable criticized refers to those commercial loans that are internally classified or listed by the Corporation as Special Mention, Substandard or Doubtful, which are asset quality categories defined by regulatory authorities. These assets have an elevated level of risk and may have a high probability of default or total loss. Pass rated refers to all loans not considered reservable criticized. In addition to these primary credit quality indicators, the Corporation uses other credit quality indicators for certain types of loans.
The following tables present certain credit quality indicators for the Corporation's Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments by class of financing receivables and year of origination for term loan balances at December 31, 2020, including revolving loans that converted to term loans without an additional credit decision after origination or through a TDR.
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| Residential Mortgage – Credit Quality Indicators By Vintage |
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| | | Term Loans by Origination Year | | | | | | |
| (Dollars in millions) | Total as of December 31, 2020 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | | | Prior | | | | | | |
| Total Residential Mortgage | | | | | | | | | | | | | | | | | | | | | |
Refreshed LTV | | | | | | | | | | | | | | | | | | | | | |
| Less than or equal to 90 percent | $ | 207,389 | | | $ | 68,907 | | | $ | 43,771 | | | $ | 14,658 | | | $ | 21,589 | | | $ | 22,967 | | | | | $ | 35,497 | | | | | | | |
| Greater than 90 percent but less than or equal to 100 percent | 3,138 | | | 1,970 | | | 684 | | | 128 | | | 70 | | | 96 | | | | | 190 | | | | | | | |
| Greater than 100 percent | 1,210 | | | 702 | | | 174 | | | 47 | | | 39 | | | 37 | | | | | 211 | | | | | | | |
| Fully-insured loans | 11,818 | | | 3,826 | | | 2,014 | | | 370 | | | 342 | | | 1,970 | | | | | 3,296 | | | | | | | |
| Total Residential Mortgage | $ | 223,555 | | | $ | 75,405 | | | $ | 46,643 | | | $ | 15,203 | | | $ | 22,040 | | | $ | 25,070 | | | | | $ | 39,194 | | | | | | | |
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| Total Residential Mortgage | | | | | | | | | | | | | | | | | | | | | |
| Refreshed FICO score | | | | | | | | | | | | | | | | | | | | | |
| Less than 620 | $ | 2,717 | | | $ | 823 | | | $ | 177 | | | $ | 139 | | | $ | 170 | | | $ | 150 | | | | | $ | 1,258 | | | | | | | |
| Greater than or equal to 620 and less than 680 | 5,462 | | | 1,804 | | | 666 | | | 468 | | | 385 | | | 368 | | | | | 1,771 | | | | | | | |
| Greater than or equal to 680 and less than 740 | 25,349 | | | 8,533 | | | 4,679 | | | 1,972 | | | 2,427 | | | 2,307 | | | | | 5,431 | | | | | | | |
| Greater than or equal to 740 | 178,209 | | | 60,419 | | | 39,107 | | | 12,254 | | | 18,716 | | | 20,275 | | | | | 27,438 | | | | | | | |
| Fully-insured loans | 11,818 | | | 3,826 | | | 2,014 | | | 370 | | | 342 | | | 1,970 | | | | | 3,296 | | | | | | | |
| Total Residential Mortgage | $ | 223,555 | | | $ | 75,405 | | | $ | 46,643 | | | $ | 15,203 | | | $ | 22,040 | | | $ | 25,070 | | | | | $ | 39,194 | | | | | | | |
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| Home Equity - Credit Quality Indicators |
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| Total | | Home Equity Loans and Reverse Mortgages (1) | | Revolving Loans | | Revolving Loans Converted to Term Loans | | | | |
| (Dollars in millions) | December 31, 2020 | | |
| Total Home Equity | | | | | | | | | | | |
Refreshed LTV | | | | | | | | | | | |
| Less than or equal to 90 percent | $ | 33,447 | | | $ | 1,919 | | | $ | 22,639 | | | $ | 8,889 | | | | | |
| Greater than 90 percent but less than or equal to 100 percent | 351 | | | 126 | | | 94 | | | 131 | | | | | |
| Greater than 100 percent | 513 | | | 172 | | | 118 | | | 223 | | | | | |
| Total Home Equity | $ | 34,311 | | | $ | 2,217 | | | $ | 22,851 | | | $ | 9,243 | | | | | |
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| Total Home Equity | | | | | | | | | | | |
| Refreshed FICO score | | | | | | | | | | | |
| Less than 620 | $ | 1,082 | | | $ | 250 | | | $ | 244 | | | $ | 588 | | | | | |
| Greater than or equal to 620 and less than 680 | 1,798 | | | 263 | | | 568 | | | 967 | | | | | |
| Greater than or equal to 680 and less than 740 | 5,762 | | | 556 | | | 2,905 | | | 2,301 | | | | | |
| Greater than or equal to 740 | 25,669 | | | 1,148 | | | 19,134 | | | 5,387 | | | | | |
| Total Home Equity | $ | 34,311 | | | $ | 2,217 | | | $ | 22,851 | | | $ | 9,243 | | | | | |
(1)Includes reverse mortgages of $1.3 billion and home equity loans of $885 million which are no longer originated.
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| Credit Card and Direct/Indirect Consumer – Credit Quality Indicators By Vintage |
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| Direct/Indirect | | |
| | | | | Term Loans by Origination Year | | Credit Card |
| (Dollars in millions) | Total Direct/Indirect as of December 31, 2020 | | Revolving Loans | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total Credit Card as of December 31, 2020 | | Revolving Loans | | Revolving Loans Converted to Term Loans (3) |
| Refreshed FICO score | | | | | | | | | | | | | | | | | | | | | |
| Less than 620 | $ | 959 | | | $ | 19 | | | $ | 111 | | | $ | 200 | | | $ | 175 | | | $ | 243 | | | $ | 148 | | | $ | 63 | | | $ | 4,018 | | | $ | 3,832 | | | $ | 186 | |
| Greater than or equal to 620 and less than 680 | 2,143 | | | 20 | | | 653 | | | 559 | | | 329 | | | 301 | | | 176 | | | 105 | | | 9,419 | | | 9,201 | | | 218 | |
| Greater than or equal to 680 and less than 740 | 7,431 | | | 80 | | | 2,848 | | | 2,015 | | | 1,033 | | | 739 | | | 400 | | | 316 | | | 27,585 | | | 27,392 | | | 193 | |
| Greater than or equal to 740 | 36,064 | | | 120 | | | 12,540 | | | 10,588 | | | 5,869 | | | 3,495 | | | 1,781 | | | 1,671 | | | 37,686 | | | 37,642 | | | 44 | |
Other internal credit metrics (1, 2) | 44,766 | | | 44,098 | | | 74 | | | 115 | | | 84 | | | 67 | | | 52 | | | 276 | | | 0 | | | 0 | | | 0 | |
Total credit card and other
consumer | $ | 91,363 | | | $ | 44,337 | | | $ | 16,226 | | | $ | 13,477 | | | $ | 7,490 | | | $ | 4,845 | | | $ | 2,557 | | | $ | 2,431 | | | $ | 78,708 | | | $ | 78,067 | | | $ | 641 | |
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(1)Other internal credit metrics may include delinquency status, geography or other factors.
(2)Direct/indirect consumer includes $44.1 billion of securities-based lending which is typically supported by highly liquid collateral with market value greater than or equal to the outstanding loan balance and therefore has minimal credit risk at December 31, 2020.
(3)Represents TDRs that were modified into term loans.
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Commercial – Credit Quality Indicators By Vintage (1, 2) | | | | | | |
| | | Term Loans | | |
| | | Amortized Cost Basis by Origination Year | | |
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| (Dollars in millions) | Total as of December 31, 2020 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Revolving Loans |
| U.S. Commercial | | | | | | | | | | | | | | | |
| Risk ratings | | | | | | | | | | | | | | | |
| Pass rated | $ | 268,812 | | | $ | 33,456 | | | $ | 33,305 | | | $ | 17,363 | | | $ | 14,102 | | | $ | 7,420 | | | $ | 21,784 | | | $ | 141,382 | |
| Reservable criticized | 19,916 | | | 2,524 | | | 2,542 | | | 2,689 | | | 854 | | | 698 | | | 1,402 | | | 9,207 | |
| Total U.S. Commercial | $ | 288,728 | | | $ | 35,980 | | | $ | 35,847 | | | $ | 20,052 | | | $ | 14,956 | | | $ | 8,118 | | | $ | 23,186 | | | $ | 150,589 | |
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| Non-U.S. Commercial | | | | | | | | | | | | | | | |
| Risk ratings | | | | | | | | | | | | | | | |
| Pass rated | $ | 85,914 | | | $ | 16,301 | | | $ | 11,396 | | | $ | 7,451 | | | $ | 5,037 | | | $ | 1,674 | | | $ | 2,194 | | | $ | 41,861 | |
| Reservable criticized | 4,546 | | | 914 | | | 572 | | | 492 | | | 436 | | | 138 | | | 259 | | | 1,735 | |
| Total Non-U.S. Commercial | $ | 90,460 | | | $ | 17,215 | | | $ | 11,968 | | | $ | 7,943 | | | $ | 5,473 | | | $ | 1,812 | | | $ | 2,453 | | | $ | 43,596 | |
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| Commercial Real Estate | | | | | | | | | | | | | | | |
| Risk ratings | | | | | | | | | | | | | | | |
| Pass rated | $ | 50,260 | | | $ | 8,429 | | | $ | 14,126 | | | $ | 8,228 | | | $ | 4,599 | | | $ | 3,299 | | | $ | 6,542 | | | $ | 5,037 | |
| Reservable criticized | 10,104 | | | 933 | | | 2,558 | | | 2,115 | | | 1,582 | | | 606 | | | 1,436 | | | 874 | |
| Total Commercial Real Estate | $ | 60,364 | | | $ | 9,362 | | | $ | 16,684 | | | $ | 10,343 | | | $ | 6,181 | | | $ | 3,905 | | | $ | 7,978 | | | $ | 5,911 | |
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| Commercial Lease Financing | | | | | | | | | | | | | | | |
| Risk ratings | | | | | | | | | | | | | | | |
| Pass rated | $ | 16,384 | | | $ | 3,083 | | | $ | 3,242 | | | $ | 2,956 | | | $ | 2,532 | | | $ | 1,703 | | | $ | 2,868 | | | $ | 0 | |
| Reservable criticized | 714 | | | 117 | | | 117 | | | 132 | | | 81 | | | 88 | | | 179 | | | 0 | |
| Total Commercial Lease Financing | $ | 17,098 | | | $ | 3,200 | | | $ | 3,359 | | | $ | 3,088 | | | $ | 2,613 | | | $ | 1,791 | | | $ | 3,047 | | | $ | 0 | |
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U.S. Small Business Commercial (3) | | | | | | | | | | | | | | | |
| Risk ratings | | | | | | | | | | | | | | | |
| Pass rated | $ | 28,786 | | | $ | 24,539 | | | $ | 1,121 | | | $ | 837 | | | $ | 735 | | | $ | 527 | | | $ | 855 | | | $ | 172 | |
| Reservable criticized | 1,148 | | | 76 | | | 239 | | | 210 | | | 175 | | | 113 | | | 322 | | | 13 | |
| Total U.S. Small Business Commercial | $ | 29,934 | | | $ | 24,615 | | | $ | 1,360 | | | $ | 1,047 | | | $ | 910 | | | $ | 640 | | | $ | 1,177 | | | $ | 185 | |
Total (1, 2) | $ | 486,584 | | | $ | 90,372 | | | $ | 69,218 | | | $ | 42,473 | | | $ | 30,133 | | | $ | 16,266 | | | $ | 37,841 | | | $ | 200,281 | |
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(1) Excludes $5.9 billion of loans accounted for under the fair value option at December 31, 2020.
(2) Includes $58 million of loans that converted from revolving to term loans.
(3) Excludes U.S. Small Business Card loans of $6.5 billion. Refreshed FICO scores for this portfolio are $265 million for less than 620; $582 million for greater than or equal to 620 and less than 680; $1.7 billion for greater than or equal to 680 and less than 740; and $3.9 billion greater than or equal to 740.
Due to the economic impact of COVID-19, commercial asset quality weakened during 2020. Commercial reservable criticized utilized exposure increased to $38.7 billion at December 31, 2020 from $11.5 billion (to 7.31 percent from 2.09 percent of total commercial reservable utilized exposure) at December 31, 2019 with increases spread across multiple industries, including travel and entertainment.
Troubled Debt Restructurings
The Corporation has been entering into loan modifications with borrowers in response to the pandemic, most modifications of consumer real estatewhich are not classified as TDRs, and therefore are not included in the discussion below. For more information on the criteria for classifying loans meet the definitionas TDRs, see Note 1 – Summary of TDRs when a binding offer is extended to a borrower. Significant Accounting Principles.
Consumer Real Estate
Modifications of consumer real estate loans are done in accordance with government programs orclassified as TDRs when the Corporation’s proprietary programs. These modifications are considered to be TDRs if concessions have been granted to borrowersborrower is experiencing financial difficulties.difficulties and a concession has been granted. Concessions may include reductions in interest rates, capitalization of past due amounts, principal and/or interest forbearance, payment extensions, principal and/or interest forgiveness, or combinations thereof.
Prior to permanently modifying a loan, the Corporation may enter into trial modifications with certain borrowers under both government and proprietary programs. Trial modifications generally represent a three- to four-month period during which the borrower makes monthly payments under the anticipated
modified payment terms. Upon successful completion of the trial period, the Corporation and the borrower enter into a permanent modification. Binding trial modifications are classified as TDRs when the trial offer is made and continue to be classified as TDRs regardless of whether the borrower enters into a permanent modification.
Consumer real estate loans of $372 million that have been discharged in Chapter 7 bankruptcy with no change in repayment terms and not reaffirmed by the borrower of $1.2 billion were included in TDRs at December 31, 2017,2020, of which $358$102 million were classified as nonperforming and $419$68 million were loans fully-insured by the FHA. For more information on loans discharged in Chapter 7 bankruptcy, see Nonperforming Loans and Leases in this Note.fully insured.
Consumer real estate TDRs are measured primarily based on the net present value of the estimated cash flows discounted at
the loan’s original effective interest rate. If the carrying value of a TDR exceeds this amount, a specific allowance is recorded as a component of the allowance for loan and lease losses. Alternatively, consumer real estate TDRs that are considered to be dependent solely on the collateral for repayment (e.g., due to the lack of income verification) are measured based on the estimated fair value of the collateral, and a charge-off is recorded if the carrying value exceeds the fair value of the collateral. Consumer real estate loans that reachedreach 180 days past due prior to modification had beenare charged off to their net realizable value, less costs to sell, before they wereare modified as TDRs in accordance with established policy. Therefore, modifications of consumer real estate loans that are 180 or more days past due as TDRs do not have an impact on the allowance for loan and lease losses nor are additional charge-offs required at the time of modification. Subsequent declines in the fair value of the collateral after a loan has reached 180 days past due are recorded as charge-offs. Fully-insured loans are
protected against principal loss, and therefore, the Corporation does not record an allowance for loan and lease losses on the outstanding principal balance, even after they have been modified in a TDR.
At December 31, 20172020 and 2016,2019, remaining commitments to lend additional funds to debtors whose terms have been modified in a consumer real estate TDR were immaterial.not significant. Consumer real estate foreclosed properties totaled $236$123 million and $363$229 million at December 31, 20172020 and 2016.2019. The carrying value of consumer real estate loans, including fully-insured and PCI loans, for which formal foreclosure proceedings were in process at December 31, 20172020 was $3.6$1.2 billion. During 2017Although the Corporation has paused formal loan foreclosure proceedings and 2016,foreclosure sales for occupied properties, during 2020, the Corporation reclassified $815$182 million and $1.4 billion of consumer real estate
loans completed or which were in process prior to the pause in foreclosures, to foreclosed properties or, for properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans), to other assets. The reclassifications represent non-cash investing activities and, accordingly, are not reflected in the Consolidated Statement of Cash Flows.
The following table provides the unpaid principal balance, carrying value and related allowance at December 31, 2017 and 2016, and the average carrying value and interest income recognized for 2017, 2016 and 2015 for impaired loans in the Corporation’s Consumer Real Estate portfolio segment. Certain impaired consumer real estate loans do not have a related allowance as the current valuation of these impaired loans exceeded the carrying value, which is net of previously recorded charge-offs.
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| Impaired Loans – Consumer Real Estate | | |
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| | Unpaid
Principal Balance | | Carrying Value | | Related Allowance | | Unpaid
Principal Balance | | Carrying Value | | Related Allowance |
| (Dollars in millions) | December 31, 2017 | | December 31, 2016 |
| With no recorded allowance | |
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| Residential mortgage | $ | 8,856 |
| | $ | 6,870 |
| | $ | — |
| | $ | 11,151 |
| | $ | 8,695 |
| | $ | — |
|
| Home equity | 3,622 |
| | 1,956 |
| | — |
| | 3,704 |
| | 1,953 |
| | — |
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| With an allowance recorded | | | | | |
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| Residential mortgage | $ | 2,908 |
| | $ | 2,828 |
| | $ | 174 |
| | $ | 4,041 |
| | $ | 3,936 |
| | $ | 219 |
|
| Home equity | 972 |
| | 900 |
| | 174 |
| | 910 |
| | 824 |
| | 137 |
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| Total | |
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| Residential mortgage | $ | 11,764 |
| | $ | 9,698 |
| | $ | 174 |
| | $ | 15,192 |
| | $ | 12,631 |
| | $ | 219 |
|
| Home equity | 4,594 |
| | 2,856 |
| | 174 |
| | 4,614 |
| | 2,777 |
| | 137 |
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| | Average
Carrying
Value | | Interest
Income
Recognized (1) | | Average
Carrying
Value | | Interest
Income
Recognized (1) | | Average
Carrying
Value | | Interest
Income
Recognized (1) |
| | 2017 | | 2016 | | 2015 |
| With no recorded allowance | | | | | | | | | | | |
| Residential mortgage | $ | 7,737 |
| | $ | 311 |
| | $ | 10,178 |
| | $ | 360 |
| | $ | 13,867 |
| | $ | 403 |
|
| Home equity | 1,997 |
| | 109 |
| | 1,906 |
| | 90 |
| | 1,777 |
| | 89 |
|
| With an allowance recorded | | | | | | | | | | | |
| Residential mortgage | $ | 3,414 |
| | $ | 123 |
| | $ | 5,067 |
| | $ | 167 |
| | $ | 7,290 |
| | $ | 236 |
|
| Home equity | 858 |
| | 24 |
| | 852 |
| | 24 |
| | 785 |
| | 24 |
|
| Total | | | | | | | | | | | |
| Residential mortgage | $ | 11,151 |
| | $ | 434 |
| | $ | 15,245 |
| | $ | 527 |
| | $ | 21,157 |
| | $ | 639 |
|
| Home equity | 2,855 |
| | 133 |
| | 2,758 |
| | 114 |
| | 2,562 |
| | 113 |
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(1)
| Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible. |
The table below presents the December 31, 2017, 20162020, 2019 and 20152018 unpaid principal balance, carrying value, and average pre- and post-modification interest rates onof consumer real estate loans that were modified in TDRs during 2017, 20162020, 2019 and 2015, and net charge-offs recorded during the period in which the modification occurred.2018. The following Consumer Real Estate portfolio segment tables include loans that were initially classified as TDRs during the period and also loans that had previously been classified as TDRs and were modified again during the period.
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Consumer Real Estate – TDRs Entered into During 2017, 2016 and 2015 (1) |
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| | Unpaid Principal Balance | | Carrying Value | | Pre-Modification Interest Rate | | Post-Modification Interest Rate (2) | | Net Charge-offs (3) |
| (Dollars in millions) | December 31, 2017 | | 2017 |
| Residential mortgage | $ | 824 |
| | $ | 712 |
| | 4.43 | % | | 4.16 | % | | $ | 6 |
|
| Home equity | 764 |
| | 590 |
| | 4.22 |
| | 3.49 |
| | 42 |
|
| Total | $ | 1,588 |
| | $ | 1,302 |
| | 4.33 |
| | 3.83 |
| | $ | 48 |
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| | December 31, 2016 | | 2016 |
| Residential mortgage | $ | 1,130 |
| | $ | 1,017 |
| | 4.73 | % | | 4.16 | % | | $ | 11 |
|
| Home equity | 849 |
| | 649 |
| | 3.95 |
| | 2.72 |
| | 61 |
|
| Total | $ | 1,979 |
| | $ | 1,666 |
| | 4.40 |
| | 3.54 |
| | $ | 72 |
|
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| | December 31, 2015 | | 2015 |
| Residential mortgage | $ | 2,986 |
| | $ | 2,655 |
| | 4.98 | % | | 4.43 | % | | $ | 97 |
|
| Home equity | 1,019 |
| | 775 |
| | 3.54 |
| | 3.17 |
| | 84 |
|
| Total | $ | 4,005 |
| | $ | 3,430 |
| | 4.61 |
| | 4.11 |
| | $ | 181 |
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(1)
| During 2017, there was no forgiveness of principal related to residential mortgage loans in connection with TDRs compared to $13 million and $396 million during 2016 and 2015.
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(2)
| The post-modification interest rate reflects the interest rate applicable only to permanently completed modifications, which exclude loans that are in a trial modification period. |
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(3)
| Net charge-offs include amounts recorded on loans modified during the period that are no longer held by the Corporation at December 31, 2017, 2016 and 2015 due to sales and other dispositions.
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Consumer Real Estate – TDRs Entered into During 2020, 2019 and 2018 (1) |
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| | | | | | | | | Unpaid Principal Balance | | Carrying
Value | | Pre-Modification Interest Rate | | Post-Modification Interest Rate (2) |
| (Dollars in millions) | | | December 31, 2020 |
| Residential mortgage | | | | | | | | | $ | 732 | | | $ | 646 | | | 3.66 | % | | 3.59 | % |
| Home equity | | | | | | | | | 87 | | | 69 | | | 3.67 | | | 3.61 | |
| Total | | | | | | | | | $ | 819 | | | $ | 715 | | | 3.66 | | | 3.59 | |
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| | | December 31, 2019 |
| Residential mortgage | | | | | | | | | $ | 464 | | | $ | 377 | | | 4.19 | % | | 4.13 | % |
| Home equity | | | | | | | | | 141 | | | 101 | | | 5.04 | | | 4.31 | |
| Total | | | | | | | | | $ | 605 | | | $ | 478 | | | 4.39 | | | 4.17 | |
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| | | December 31, 2018 |
| Residential mortgage | | | | | | | | | $ | 774 | | | $ | 641 | | | 4.33 | % | | 4.21 | % |
| Home equity | | | | | | | | | 489 | | | 358 | | | 4.46 | | | 3.74 | |
| Total | | | | | | | | | $ | 1,263 | | | $ | 999 | | | 4.38 | | | 4.03 | |
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(1)For more information on the Corporation's loan modification programs offered in response to the pandemic, most of which are not TDRs, see Note 1 – Summary of Significant Accounting Principles.
(2)The post-modification interest rate reflects the interest rate applicable only to permanently completed modifications, which exclude loans that are in a trial modification period.
The table below presents the December 31, 2017, 20162020, 2019 and 20152018 carrying value for consumer real estate loans that were modified in a TDR during 2017, 20162020, 2019 and 2015,2018, by type of modification.
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Consumer Real Estate – Modification Programs (1) | | | | | | | | | | |
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| | | | | | | TDRs Entered into During |
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| (Dollars in millions) | | | | | | | 2020 | | 2019 | | 2018 |
| Modifications under government programs | | | | | | | $ | 13 | | | $ | 35 | | | $ | 61 | |
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| Modifications under proprietary programs | | | | | | | 570 | | | 174 | | | 523 | |
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Loans discharged in Chapter 7 bankruptcy (2) | | | | | | | 53 | | | 68 | | | 130 | |
| Trial modifications | | | | | | | 79 | | | 201 | | | 285 | |
| Total modifications | | | | | | | $ | 715 | | | $ | 478 | | | $ | 999 | |
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| Consumer Real Estate – Modification Programs | | | | |
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| | TDRs Entered into During |
| (Dollars in millions) | 2017 | | 2016 | | 2015 |
| Modifications under government programs | | | | | |
| Contractual interest rate reduction | $ | 59 |
| | $ | 151 |
| | $ | 431 |
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| Principal and/or interest forbearance | 4 |
| | 13 |
| | 11 |
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Other modifications (1) | 22 |
| | 23 |
| | 46 |
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| Total modifications under government programs | 85 |
| | 187 |
| | 488 |
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| Modifications under proprietary programs | | | | | |
| Contractual interest rate reduction | 281 |
| | 235 |
| | 219 |
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| Capitalization of past due amounts | 63 |
| | 40 |
| | 79 |
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| Principal and/or interest forbearance | 38 |
| | 72 |
| | 168 |
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Other modifications (1) | 55 |
| | 75 |
| | 129 |
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| Total modifications under proprietary programs | 437 |
| | 422 |
| | 595 |
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| Trial modifications | 569 |
| | 831 |
| | 1,968 |
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Loans discharged in Chapter 7 bankruptcy (2) | 211 |
| | 226 |
| | 379 |
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| Total modifications | $ | 1,302 |
| | $ | 1,666 |
| | $ | 3,430 |
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(1)(2)Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs. | Includes other modifications such as term or payment extensions and repayment plans. |
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(2)
| Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs. |
The table below presents the carrying value of consumer real estate loans that entered into payment default during 2017, 20162020, 2019 and 20152018 that were modified in a TDR during the 12 months preceding payment default. A payment default for consumer real estate TDRs is recognized when a borrower has missed three3 monthly payments (not necessarily consecutively) since modification.
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Consumer Real Estate – TDRs Entering Payment Default that were Modified During the Preceding 12 Months (1) | | | | | |
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| (Dollars in millions) | | | | | 2020 | | 2019 | | 2018 | | | | | | | | |
| Modifications under government programs | | | | | $ | 16 | | | $ | 26 | | | $ | 39 | | | | | | | | | | | |
| Modifications under proprietary programs | | | | | 51 | | | 88 | | | 158 | | | | | | | | | | | |
Loans discharged in Chapter 7 bankruptcy (2) | | | | | 19 | | | 30 | | | 64 | | | | | | | | | | | |
Trial modifications (3) | | | | | 54 | | | 57 | | | 107 | | | | | | | | | | | |
| Total modifications | | | | | $ | 140 | | | $ | 201 | | | $ | 368 | | | | | | | | | | | |
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(1)For more information on the Corporation's loan modification programs offered in response to the pandemic, most of which are not TDRs, see Note 1 – Summary of Significant Accounting Principles.
(2)Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs.
(3)Includes trial modification offers to which the customer did not respond.
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| Consumer Real Estate – TDRs Entering Payment Default that were Modified During the Preceding 12 Months |
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| (Dollars in millions) | 2017 | | 2016 | | 2015 |
| Modifications under government programs | $ | 81 |
| | $ | 262 |
| | $ | 457 |
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| Modifications under proprietary programs | 138 |
| | 196 |
| | 287 |
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Loans discharged in Chapter 7 bankruptcy (1) | 116 |
| | 158 |
| | 285 |
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Trial modifications (2) | 391 |
| | 824 |
| | 3,178 |
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| Total modifications | $ | 726 |
| | $ | 1,440 |
| | $ | 4,207 |
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(1)
| Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs. | Bank of America 126 |
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(2)
| Includes trial modification offers to which the customer did not respond. |
Credit Card and Other Consumer
Impaired loans within the Credit Card and Other Consumer portfolio segment consist entirely of loans that have been modified in TDRs. The Corporation seeks to assist customers that are experiencing financial difficulty by modifying loans while ensuring compliance with federal local and internationallocal laws and guidelines. Credit card and other consumer loan modifications generally involve reducing the interest rate on the account, and placing the customer on a fixed payment plan not exceeding 60 months all of which are considered TDRs. In substantially all cases,and canceling the customer’s available line of credit, is canceled.all of which are considered TDRs. The Corporation makes loan modifications directly with borrowers for debt held only by the Corporation (internal programs). Additionally, the Corporation makes loan modifications for borrowers working with third-party renegotiation
renegotiation agencies that provide solutions to customers’ entire unsecured debt structures (external programs). The Corporation classifies other secured consumer loans that have been discharged in Chapter 7 bankruptcy as TDRs, which are written down to collateral value and placed on nonaccrual status no later than the time of discharge. For more information on the regulatory guidance on loans discharged in Chapter 7 bankruptcy, see Nonperforming Loans and Leases in this Note.
The following table provides the unpaid principal balance, carrying value and related allowance at December 31, 2017 and 2016, and the average carrying value and interest income recognized for 2017, 2016 and 2015 on TDRs within the Credit Card and Other Consumer portfolio segment.
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| Impaired Loans – Credit Card and Other Consumer | | |
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| | | Unpaid
Principal Balance | | Carrying Value (1) | | Related Allowance | | Unpaid
Principal Balance | | Carrying Value (1) | | Related Allowance |
| (Dollars in millions) | | December 31, 2017 | | December 31, 2016 |
| With no recorded allowance | | |
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| Direct/Indirect consumer | | $ | 58 |
| | $ | 28 |
| | $ | — |
| | $ | 49 |
| | $ | 22 |
| | $ | — |
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| With an allowance recorded | | |
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| U.S. credit card | | $ | 454 |
| | $ | 461 |
| | $ | 125 |
| | $ | 479 |
| | $ | 485 |
| | $ | 128 |
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| Non-U.S. credit card | | n/a |
| | n/a |
| | n/a |
| | 88 |
| | 100 |
| | 61 |
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| Direct/Indirect consumer | | 1 |
| | 1 |
| | — |
| | 3 |
| | 3 |
| | — |
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| Total | | |
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| U.S. credit card | | $ | 454 |
| | $ | 461 |
| | $ | 125 |
| | $ | 479 |
| | $ | 485 |
| | $ | 128 |
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| Non-U.S. credit card | | n/a |
| | n/a |
| | n/a |
| | 88 |
| | 100 |
| | 61 |
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| Direct/Indirect consumer | | 59 |
| | 29 |
| | — |
| | 52 |
| | 25 |
| | — |
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| | | Average
Carrying
Value | | Interest
Income
Recognized (2) | | Average
Carrying
Value | | Interest
Income
Recognized (2) | | Average
Carrying
Value | | Interest
Income
Recognized (2) |
| | | 2017 | | 2016 | | 2015 |
| With no recorded allowance | | | | | | | | | | | | |
| Direct/Indirect consumer | | $ | 21 |
| | $ | 2 |
| | $ | 20 |
| | $ | — |
| | $ | 22 |
| | $ | — |
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| With an allowance recorded | | |
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| U.S. credit card | | $ | 464 |
| | $ | 25 |
| | $ | 556 |
| | $ | 31 |
| | $ | 749 |
| | $ | 43 |
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| Non-U.S. credit card | | 47 |
| | 1 |
| | 111 |
| | 3 |
| | 145 |
| | 4 |
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| Direct/Indirect consumer | | 2 |
| | — |
| | 10 |
| | 1 |
| | 51 |
| | 3 |
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| Total | | |
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| U.S. credit card | | $ | 464 |
| | $ | 25 |
| | $ | 556 |
| | $ | 31 |
| | $ | 749 |
| | $ | 43 |
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| Non-U.S. credit card | | 47 |
| | 1 |
| | 111 |
| | 3 |
| | 145 |
| | 4 |
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| Direct/Indirect consumer | | 23 |
| | 2 |
| | 30 |
| | 1 |
| | 73 |
| | 3 |
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(1)
| Includes accrued interest and fees. |
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(2)
| Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible. |
n/a = not applicable
The table below provides information on the Corporation’s primary modification programs for the Credit Card and Other Consumer TDR portfolio at December 31, 2017 and 2016.
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| Credit Card and Other Consumer – TDRs by Program Type at December 31 |
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| | Internal Programs | | External Programs | | Other (1) | | Total | | Percent of Balances Current or Less Than 30 Days Past Due |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| U.S. credit card | $ | 203 |
| | $ | 220 |
| | $ | 257 |
| | $ | 264 |
| | $ | 1 |
| | $ | 1 |
| | $ | 461 |
| | $ | 485 |
| | 86.92 | % | | 88.99 | % |
| Non-U.S. credit card | n/a |
| | 11 |
| | n/a |
| | 7 |
| | n/a |
| | 82 |
| | n/a |
| | 100 |
| | n/a |
| | 38.47 |
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| Direct/Indirect consumer | 1 |
| | 2 |
| | — |
| | 1 |
| | 28 |
| | 22 |
| | 29 |
| | 25 |
| | 88.16 |
| | 90.49 |
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| Total TDRs by program type | $ | 204 |
| | $ | 233 |
| | $ | 257 |
| | $ | 272 |
| | $ | 29 |
| | $ | 105 |
| | $ | 490 |
| | $ | 610 |
| | 87.00 |
| | 80.79 |
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(1)
| Other TDRs for non-U.S. credit card included modifications of accounts that are ineligible for a fixed payment plan. |
n/a = not applicable
The table below provides information on the Corporation’s Credit Card and Other Consumer TDR portfolio including the December 31, 2017, 20162020, 2019 and 20152018 unpaid principal balance, carrying value, and average pre- and post-modification interest rates of loans that were modified in TDRs during 2017, 20162020, 2019 and 2015,2018.
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Credit Card and Other Consumer – TDRs Entered into During 2020, 2019 and 2018 (1) |
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| | | | | | | | | | Unpaid Principal Balance | | Carrying
Value (2) | | Pre-Modification Interest Rate | | Post-Modification Interest Rate | | | | | |
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| (Dollars in millions) | | | December 31, 2020 | | | | | |
| Credit card | | | | | | | | | $ | 269 | | | $ | 277 | | | 18.16 | % | | 5.63 | % | | | | | |
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| Direct/Indirect consumer | | | | | | | | | 52 | | | 37 | | | 5.83 | | | 5.83 | | | | | | |
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| Total | | | | | | | | | $ | 321 | | | $ | 314 | | | 16.70 | | | 5.65 | | | | | | |
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| | | December 31, 2019 | | | | | |
| Credit card | | | | | | | | | $ | 340 | | | $ | 355 | | | 19.18 | % | | 5.35 | % | | | | | |
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| Direct/Indirect consumer | | | | | | | | | 40 | | | 21 | | | 5.23 | | | 5.21 | | | | | | |
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| Total | | | | | | | | | $ | 380 | | | $ | 376 | | | 18.42 | | | 5.34 | | | | | | |
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| | | | | | | | | December 31, 2018 | | | | | |
| Credit card | | | | | | | | | $ | 278 | | | $ | 292 | | | 19.49 | % | | 5.24 | % | | | | | |
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| Direct/Indirect consumer | | | | | | | | | 42 | | | 23 | | | 5.10 | | | 4.95 | | | | | | |
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| Total | | | | | | | | | $ | 320 | | | $ | 315 | | | 18.45 | | | 5.22 | | | | | | |
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(1)For more information on the Corporation's loan modification programs offered in response to the pandemic, most of which are not TDRs, see Note 1 – Summary of Significant Accounting Principles.
(2)Includes accrued interest and net charge-offs recordedfees.
The table below presents the December 31, 2020, 2019 and 2018 carrying value for Credit Card and Other Consumer loans that were modified in a TDR during 2020, 2019 and 2018, by program type.
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Credit Card and Other Consumer – TDRs by Program Type at December 31 (1) |
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| (Dollars in millions) | | | | | 2020 | | 2019 | | 2018 | | | | | | | | | | | | | | | | |
| Internal programs | | | | | $ | 225 | | | $ | 247 | | | $ | 199 | | | | | | | | | | | | | | | | | |
| External programs | | | | | 73 | | | 108 | | | 93 | | | | | | | | | | | | | | | | | |
| Other | | | | | 16 | | | 21 | | | 23 | | | | | | | | | | | | | | | | | |
| Total | | | | | $ | 314 | | | $ | 376 | | | $ | 315 | | | | | | | | | | | | | | | | | |
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(1)Includes accrued interest and fees. For more information on the periodCorporation's loan modification programs offered in response to the pandemic, most of which the modification occurred.are not TDRs, see Note 1 – Summary of Significant Accounting Principles.
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| Credit Card and Other Consumer – TDRs Entered into During 2017, 2016 and 2015 |
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| | Unpaid Principal Balance | | Carrying Value (1) | | Pre- Modification Interest Rate | | Post- Modification Interest Rate |
| (Dollars in millions) | December 31, 2017 |
| U.S. credit card | $ | 203 |
| | $ | 213 |
| | 18.47 | % | | 5.32 | % |
| Direct/Indirect consumer | 37 |
| | 22 |
| | 4.81 |
| | 4.30 |
|
Total (2) | $ | 240 |
| | $ | 235 |
| | 17.17 |
| | 5.22 |
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| | December 31, 2016 |
| U.S. credit card | $ | 163 |
| | $ | 172 |
| | 17.54 | % | | 5.47 | % |
| Non-U.S. credit card | 66 |
| | 75 |
| | 23.99 |
| | 0.52 |
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| Direct/Indirect consumer | 21 |
| | 13 |
| | 3.44 |
| | 3.29 |
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Total (2) | $ | 250 |
| | $ | 260 |
| | 18.73 |
| | 3.93 |
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| | December 31, 2015 |
| U.S. credit card | $ | 205 |
| | $ | 218 |
| | 17.07 | % | | 5.08 | % |
| Non-U.S. credit card | 74 |
| | 86 |
| | 24.05 |
| | 0.53 |
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| Direct/Indirect consumer | 19 |
| | 12 |
| | 5.95 |
| | 5.19 |
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Total (2) | $ | 298 |
| | $ | 316 |
| | 18.58 |
| | 3.84 |
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(1)
| Includes accrued interest and fees. |
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(2)
| Net charge-offs were $52 million, $74 million and $98 million in 2017, 2016 and 2015, respectively.
|
Credit card and other consumer loans are deemed to be in payment default during the quarter in which a borrower misses the second of two2 consecutive payments. Payment defaults are one of the factors considered when projecting future cash flows in the calculation of the allowance for loan and lease losses for impaired credit card and other consumer loans.consumer. Based on historical experience, the Corporation estimates that 13 percent of new U.S. credit card TDRs and 1519 percent of new direct/indirect consumer TDRs may be in payment default within 12 months after modification. Loans that entered into payment default during 2017, 2016 and 2015 that had been modified in a TDR during the preceding 12 months were $28 million, $30 million and $43 million for U.S. credit card, $0, $127 million and $152 million for non-U.S. credit card, and $4 million, $2 million and $3 million for direct/indirect consumer.
Commercial Loans
Impaired commercial loans include nonperforming loans and TDRs (both performing and nonperforming). Modifications of loans to commercial borrowers that are experiencing financial difficulty are designed to reduce the Corporation’s loss exposure while providing the borrower with an opportunity to work through financial difficulties, often to avoid foreclosure or bankruptcy. Each modification is unique and reflects the individual circumstances of the borrower. Modifications that result in a TDR may include extensions of
maturity at a concessionary (below market) rate of
interest, payment forbearances or other actions designed to benefit the customerborrower while mitigating the Corporation’s risk exposure. Reductions in interest rates are rare. Instead, the interest rates are typically increased, although the increased rate may not represent a market rate of interest. Infrequently, concessions may also include principal forgiveness in connection with foreclosure, short sale or other settlement agreements leading to termination or sale of the loan.
At the time of restructuring, the loans are remeasured to reflect the impact, if any, on projected cash flows resulting from the modified terms. If there was no forgiveness of principal and the interest rate was not decreased, the modification may have little or no impact on the allowance established for the loan. If a portion of the loan is deemed to be uncollectible, a charge-off may be recorded at the time of restructuring. Alternatively, a charge-off may have already been recorded in a previous period such that no charge-off is required at the time of modification. For more information on modifications for the U.S. small business commercial portfolio, see Credit Card and Other Consumer in this Note.
At December 31, 20172020 and 2016,2019, the Corporation had $1.7 billion and $2.2 billion of commercial TDRs with remaining commitments to lend additional funds to debtors whose terms have been modified in a commercial loan TDR were $205of $402 million and $461$445 million.
Commercial foreclosed properties totaled $52 The balance of commercial TDRs in payment default was $218 million and $14$207 million at December 31, 20172020 and 2016.
The table below provides information on impaired loans in the Commercial loan portfolio segment including the unpaid principal balance, carrying value and related allowance at December 31, 2017 and 2016, and the average carrying value and interest income recognized for 2017, 2016 and 2015. Certain impaired commercial loans do not have a related allowance as the valuation of these impaired loans exceeded the carrying value, which is net of previously recorded charge-offs.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Impaired Loans – Commercial | | |
| | | | | | | | | | | | |
| | Unpaid
Principal Balance | | Carrying Value | | Related Allowance | | Unpaid
Principal Balance | | Carrying Value | | Related Allowance |
| (Dollars in millions) | December 31, 2017 | | December 31, 2016 |
| With no recorded allowance | |
| | |
| | |
| | |
| | |
| | |
| U.S. commercial | $ | 576 |
| | $ | 571 |
| | $ | — |
| | $ | 860 |
| | $ | 827 |
| | $ | — |
|
| Non-U.S. commercial | 14 |
| | 11 |
| | — |
| | 130 |
| | 130 |
| | — |
|
| Commercial real estate | 83 |
| | 80 |
| | — |
| | 77 |
| | 71 |
| | — |
|
| With an allowance recorded | | | | | | | | | | | |
|
| U.S. commercial | $ | 1,393 |
| | $ | 1,109 |
| | $ | 98 |
| | $ | 2,018 |
| | $ | 1,569 |
| | $ | 132 |
|
| Non-U.S. commercial | 528 |
| | 507 |
| | 58 |
| | 545 |
| | 432 |
| | 104 |
|
| Commercial real estate | 133 |
| | 41 |
| | 4 |
| | 243 |
| | 96 |
| | 10 |
|
| Commercial lease financing | 20 |
| | 18 |
| | 3 |
| | 6 |
| | 4 |
| | — |
|
U.S. small business commercial (1) | 84 |
| | 70 |
| | 27 |
| | 85 |
| | 73 |
| | 27 |
|
| Total | |
| | |
| | |
| | | | | | |
| U.S. commercial | $ | 1,969 |
| | $ | 1,680 |
| | $ | 98 |
| | $ | 2,878 |
| | $ | 2,396 |
| | $ | 132 |
|
| Non-U.S. commercial | 542 |
| | 518 |
| | 58 |
| | 675 |
| | 562 |
| | 104 |
|
| Commercial real estate | 216 |
| | 121 |
| | 4 |
| | 320 |
| | 167 |
| | 10 |
|
| Commercial lease financing | 20 |
| | 18 |
| | 3 |
| | 6 |
| | 4 |
| | — |
|
U.S. small business commercial (1) | 84 |
| | 70 |
| | 27 |
| | 85 |
| | 73 |
| | 27 |
|
| | | | | | | | | | | | |
| | Average
Carrying
Value | | Interest
Income
Recognized (2) | | Average
Carrying
Value | | Interest
Income
Recognized (2) | | Average
Carrying
Value | | Interest
Income
Recognized (2) |
| | 2017 | | 2016 | | 2015 |
| With no recorded allowance | |
| | |
| | |
| | |
| | | | |
| U.S. commercial | $ | 772 |
| | $ | 12 |
| | $ | 787 |
| | $ | 14 |
| | $ | 688 |
| | $ | 14 |
|
| Non-U.S. commercial | 46 |
| | — |
| | 34 |
| | 1 |
| | 29 |
| | 1 |
|
| Commercial real estate | 69 |
| | 1 |
| | 67 |
| | — |
| | 75 |
| | 1 |
|
| With an allowance recorded | | | | | | | | | | | |
| U.S. commercial | $ | 1,260 |
| | $ | 33 |
| | $ | 1,569 |
| | $ | 59 |
| | $ | 953 |
| | $ | 48 |
|
| Non-U.S. commercial | 463 |
| | 13 |
| | 409 |
| | 14 |
| | 125 |
| | 7 |
|
| Commercial real estate | 73 |
| | 2 |
| | 92 |
| | 4 |
| | 216 |
| | 7 |
|
| Commercial lease financing | 8 |
| | — |
| | 2 |
| | — |
| | — |
| | — |
|
U.S. small business commercial (1) | 73 |
| | — |
| | 87 |
| | 1 |
| | 109 |
| | 1 |
|
| Total | |
| | |
| | |
| | |
| | | | |
| U.S. commercial | $ | 2,032 |
| | $ | 45 |
| | $ | 2,356 |
| | $ | 73 |
| | $ | 1,641 |
| | $ | 62 |
|
| Non-U.S. commercial | 509 |
| | 13 |
| | 443 |
| | 15 |
| | 154 |
| | 8 |
|
| Commercial real estate | 142 |
| | 3 |
| | 159 |
| | 4 |
| | 291 |
| | 8 |
|
| Commercial lease financing | 8 |
| | — |
| | 2 |
| | — |
| | — |
| | — |
|
U.S. small business commercial (1) | 73 |
| | — |
| | 87 |
| | 1 |
| | 109 |
| | 1 |
|
| |
(1)
| Includes U.S. small business commercial renegotiated TDR loans and related allowance. |
| |
(2)
| Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible. |
The table below presents the December 31, 2017, 2016 and 2015 unpaid principal balance and carrying value of commercial loans that were modified as TDRs during 2017, 2016 and 2015, and net charge-offs that were recorded during the period in which the modification occurred. The table below includes loans that were initially classified as TDRs during the period and also loans that had previously been classified as TDRs and were modified again during the period.
|
| | | | | | | |
| | | | |
| Commercial – TDRs Entered into During 2017, 2016 and 2015 |
| | |
| | Unpaid Principal Balance | | Carrying Value |
| (Dollars in millions) | December 31, 2017 |
| U.S. commercial | $ | 1,033 |
| | $ | 922 |
|
| Non-U.S. commercial | 105 |
| | 105 |
|
| Commercial real estate | 35 |
| | 24 |
|
| Commercial lease financing | 20 |
| | 17 |
|
U.S. small business commercial (1) | 13 |
| | 13 |
|
Total (2) | $ | 1,206 |
| | $ | 1,081 |
|
| | | | |
| | December 31, 2016 |
| U.S. commercial | $ | 1,556 |
| | $ | 1,482 |
|
| Non-U.S. commercial | 255 |
| | 253 |
|
| Commercial real estate | 77 |
| | 77 |
|
| Commercial lease financing | 6 |
| | 4 |
|
U.S. small business commercial (1) | 1 |
| | 1 |
|
Total (2) | $ | 1,895 |
| | $ | 1,817 |
|
| | | | |
| | December 31, 2015 |
| U.S. commercial | $ | 853 |
| | $ | 779 |
|
| Non-U.S. commercial | 329 |
| | 326 |
|
| Commercial real estate | 42 |
| | 42 |
|
U.S. small business commercial (1) | 14 |
| | 11 |
|
Total (2) | $ | 1,238 |
| | $ | 1,158 |
|
| |
(1)
| U.S. small business commercial TDRs are comprised of renegotiated small business card loans. |
| |
(2)
| Net charge-offs were $138 million, $137 million and $31 million in 2017, 2016 and 2015, respectively.
|
A commercial TDR is generally deemed to be in payment default when the loan is 90 days or more past due, including delinquencies that were not resolved as part of the modification. U.S. small business commercial TDRs are deemed to be in payment default during the quarter in which a borrower misses the second of two consecutive payments. Payment defaults are one of the factors considered when projecting future cash flows, along with observable market prices or fair value of collateral when measuring the allowance for loan and lease losses. TDRs that were in payment
default had a carrying value of $64 million, $140 million and $105 million for U.S. commercial and $19 million, $34 million and $25 million for commercial real estate at December 31, 2017, 2016 and 2015, respectively.
Purchased Credit-impaired Loans
The table below shows activity for the accretable yield on PCI loans, which include the Countrywide Financial Corporation (Countrywide) portfolio and loans repurchased in connection with the 2013 settlement with FNMA. The amount of accretable yield is affected by changes in credit outlooks, including metrics such as default rates and loss severities, prepayment speeds, which can change the amount and period of time over which interest payments are expected to be received, and the interest rates on variable rate loans. The reclassifications from nonaccretable difference during 2017 and 2016 were primarily due to an increase in the expected principal and interest cash flows due to lower default estimates and rising interest rate environment.
|
| | | | |
| | | |
| Rollforward of Accretable Yield | | |
| | | |
| (Dollars in millions) | | |
| Accretable yield, January 1, 2016 | | $ | 4,569 |
|
| Accretion | | (722 | ) |
| Disposals/transfers | | (486 | ) |
| Reclassifications from nonaccretable difference | | 444 |
|
| Accretable yield, December 31, 2016 | | 3,805 |
|
| Accretion | | (601 | ) |
| Disposals/transfers | | (634 | ) |
| Reclassifications from nonaccretable difference | | 219 |
|
| Accretable yield, December 31, 2017 | | $ | 2,789 |
|
During 2017 and 2016, the Corporation sold PCI loans with a carrying value of $803 million and $549 million. For more information on PCI loans, see Note 1 – Summary of Significant Accounting Principles and for the carrying value and valuation allowance for PCI loans, see Note 5 – Allowance for Credit Losses.2019.
Loans Held-for-sale
The Corporation had LHFS of $11.4 billion and $9.1$9.2 billion at both December 31, 20172020 and 2016.2019. Cash and non-cash proceeds from sales and paydowns of loans originally classified as LHFS were $41.3$20.1 billion, $32.6$30.6 billion and $41.2$29.2 billion for 2017, 20162020, 2019 and 2015,2018, respectively. Cash used for originations and purchases of LHFS totaled $43.5approximately $19.7 billion, $33.1$28.9 billion and $37.9$28.1 billion for 2017, 20162020, 2019 and 2015,2018, respectively.
Accrued Interest Receivable
Accrued interest receivable for loans and leases and loans held-for-sale at December 31, 2020 and 2019 was $2.4 billion and $2.6 billion and is reported in customer and other receivables on the Consolidated Balance Sheet.
Outstanding credit card loan balances include unpaid principal, interest and fees. Credit card loans are not classified as nonperforming but are charged off no later than the end of the month in which the account becomes 180 days past due, within 60 days after receipt of notification of death or bankruptcy, or upon confirmation of fraud. During 2020, the Corporation reversed $512 million of interest and fee income against the income statement line item in which it was originally recorded upon charge-off of the principal balance of the loan.
For the outstanding residential mortgage, home equity, direct/indirect consumer and commercial loan balances classified as nonperforming during 2020, the Corporation reversed $44 million of interest and fee income at the time the loans were classified as nonperforming against the income statement line item in which it was originally recorded. For more information on the Corporation's nonperforming loan policies, see Note 1 – Summary of Significant Accounting Principles.
Allowance for Credit Losses
On January 1, 2020, the Corporation adopted the new accounting standard that requires the measurement of the allowance for credit losses to be based on management’s best estimate of lifetime ECL inherent in the Corporation’s relevant financial assets. Upon adoption of the new accounting standard, the Corporation recorded a $3.3 billion, or 32 percent, increase in the allowance for credit losses on January 1, 2020, which was comprised of a net increase of $2.9 billion in the allowance for loan and lease losses and a $310 million increase in the reserve for unfunded lending commitments. The net increase in the allowance for loan and lease losses was primarily driven by a $3.1 billion increase in credit card as the Corporation now reserves for the life of these receivables. The increase in the reserve for unfunded lending commitments included $119 million in the consumer portfolio for the undrawn portion of HELOCs and $191 million in the commercial portfolio. For more information on the Corporation's credit loss accounting policies including the allowance for credit losses see Note 1 – Summary of Significant Accounting Principles.
The allowance for credit losses is estimated using quantitative and qualitative methods that consider a variety of factors, such as historical loss experience, the current credit
quality of the portfolio and an economic outlook over the life of the loan. Qualitative reserves cover losses that are expected but, in the Corporation's assessment, may not be adequately reflected in the quantitative methods or the economic assumptions. The Corporation incorporates forward-looking information through the use of several macroeconomic scenarios in determining the weighted economic outlook over the forecasted life of the assets. These scenarios include key macroeconomic variables such as gross domestic product, unemployment rate, real estate prices and corporate bond spreads. The scenarios that are chosen each quarter and the weighting given to each scenario depend on a variety of factors including recent economic events, leading economic indicators, internal and third-party economist views, and industry trends.
As of January 1, 2020, to determine the allowance for credit losses, the Corporation used a series of economic outlooks that resulted in an economic outlook that was weighted towards the potential of a recession with some expectation of tail risk similar to the severely adverse scenario used in stress testing. Various economic outlooks were also used in the December 31, 2020 estimate for allowance for credit losses that included consensus estimates, multiple downside scenarios which assumed a significantly longer period until economic recovery, a tail risk scenario similar to the severely adverse scenario used in stress testing and an upside scenario to reflect the potential for continued improvement in the consensus outlooks. The weighted economic outlook assumes that the U.S. unemployment rate at the end of 2021 would be relatively consistent with the level as of December 2020, slightly above 6.5 percent. Additionally, in this economic outlook, U.S. gross domestic product returns to pre-pandemic levels in the early part of 2022. The allowance for credit losses considers the impact of enacted government stimulus, including the COVID-19 Emergency Relief Act of 2020, and continues to factor in the unprecedented nature of the current health crisis.
The Corporation also factored into its allowance for credit losses an estimated impact from higher-risk segments that included leveraged loans and industries such as travel and entertainment, which have been adversely impacted by the effects of COVID-19, as well as the energy sector. The Corporation also holds additional reserves for borrowers who requested deferrals that take into account their credit characteristics and payment behavior subsequent to deferral.
The allowance for credit losses at December 31, 2020 was $20.7 billion, an increase of $7.2 billion compared to January 1, 2020. The increase in the allowance for credit losses was driven by the deterioration in the economic outlook resulting from the impact of COVID-19. The increase in the allowance for credit losses was comprised of a net increase of $6.4 billion in the allowance for loan and lease losses and a $755 million increase in the reserve for unfunded lending commitments. The increase in the allowance for loan and lease losses was attributed to $418 million in the consumer real estate portfolio, $1.8 billion in the credit card and other consumer portfolio, and $4.2 billion in the commercial portfolio.
Outstanding loans and leases excluding loans accounted for under the fair value option decreased $53.9 billion in 2020, driven by consumer loans, which decreased $37.1 billion primarily due to a decline in credit card loans from reduced retail spending and higher payments.
| | | | | | | | |
| | |
137Bank of America 2017128
| | |
NOTE 5 Allowance for Credit Losses
The table below summarizes the changes in the allowance for credit losses, byincluding net charge-offs and provision for loan and lease losses, are detailed in the table below.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Consumer
Real Estate | | Credit Card and
Other Consumer | | Commercial | | Total |
| |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| (Dollars in millions) | 2020 |
| Allowance for loan and lease losses, January 1 | $ | 440 | | | $ | 7,430 | | | $ | 4,488 | | | $ | 12,358 | |
| Loans and leases charged off | (98) | | | (3,646) | | | (1,675) | | | (5,419) | |
| Recoveries of loans and leases previously charged off | 201 | | | 891 | | | 206 | | | 1,298 | |
| Net charge-offs | 103 | | | (2,755) | | | (1,469) | | | (4,121) | |
| Provision for loan and lease losses | 307 | | | 4,538 | | | 5,720 | | | 10,565 | |
Other (1) | 8 | | | 0 | | | (8) | | | 0 | |
| Allowance for loan and lease losses, December 31 | 858 | | | 9,213 | | | 8,731 | | | 18,802 | |
| Reserve for unfunded lending commitments, January 1 | 119 | | | 0 | | | 1,004 | | | 1,123 | |
| Provision for unfunded lending commitments | 18 | | | 0 | | | 737 | | | 755 | |
| | | | | | | |
| Reserve for unfunded lending commitments, December 31 | 137 | | | 0 | | | 1,741 | | | 1,878 | |
| Allowance for credit losses, December 31 | $ | 995 | | | $ | 9,213 | | | $ | 10,472 | | | $ | 20,680 | |
| | | | | | | |
| 2019 |
| Allowance for loan and lease losses, January 1 | $ | 928 | | | $ | 3,874 | | | $ | 4,799 | | | $ | 9,601 | |
| Loans and leases charged off | (522) | | | (4,302) | | | (822) | | | (5,646) | |
| Recoveries of loans and leases previously charged off | 927 | | | 911 | | | 160 | | | 1,998 | |
| Net charge-offs | 405 | | | (3,391) | | | (662) | | | (3,648) | |
| Provision for loan and lease losses | (680) | | | 3,512 | | | 742 | | | 3,574 | |
Other (1) | (107) | | | 1 | | | (5) | | | (111) | |
| Allowance for loan and lease losses, December 31 | 546 | | | 3,996 | | | 4,874 | | | 9,416 | |
| Reserve for unfunded lending commitments, January 1 | 0 | | | 0 | | | 797 | | | 797 | |
| Provision for unfunded lending commitments | 0 | | | 0 | | | 16 | | | 16 | |
| Reserve for unfunded lending commitments, December 31 | 0 | | | 0 | | | 813 | | | 813 | |
| Allowance for credit losses, December 31 | $ | 546 | | | $ | 3,996 | | | $ | 5,687 | | | $ | 10,229 | |
| | | | | | | |
| 2018 |
| Allowance for loan and lease losses, January 1 | $ | 1,720 | | | $ | 3,663 | | | $ | 5,010 | | | $ | 10,393 | |
| Loans and leases charged off | (690) | | | (4,037) | | | (675) | | | (5,402) | |
| Recoveries of loans and leases previously charged off | 664 | | | 823 | | | 152 | | | 1,639 | |
| Net charge-offs | (26) | | | (3,214) | | | (523) | | | (3,763) | |
| | | | | | | |
| Provision for loan and lease losses | (492) | | | 3,441 | | | 313 | | | 3,262 | |
Other (1) | (274) | | | (16) | | | (1) | | | (291) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Allowance for loan and lease losses, December 31 | 928 | | | 3,874 | | | 4,799 | | | 9,601 | |
| Reserve for unfunded lending commitments, January 1 | 0 | | | 0 | | | 777 | | | 777 | |
| Provision for unfunded lending commitments | 0 | | | 0 | | | 20 | | | 20 | |
| | | | | | | |
| Reserve for unfunded lending commitments, December 31 | 0 | | | 0 | | | 797 | | | 797 | |
| Allowance for credit losses, December 31 | $ | 928 | | | $ | 3,874 | | | $ | 5,596 | | | $ | 10,398 | |
(1)Primarily represents write-offs of purchased credit-impaired loans in 2019, and the net impact of portfolio segment for 2017, 2016sales, transfers to held-for-sale and 2015.transfers to foreclosed properties.
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| | Consumer Real Estate (1) | | Credit Card and Other Consumer | | Commercial | | Total Allowance |
| (Dollars in millions) | 2017 |
| Allowance for loan and lease losses, January 1 | $ | 2,750 |
| | $ | 3,229 |
| | $ | 5,258 |
| | $ | 11,237 |
|
| Loans and leases charged off | (770 | ) | | (3,774 | ) | | (1,075 | ) | | (5,619 | ) |
| Recoveries of loans and leases previously charged off | 657 |
| | 809 |
| | 174 |
| | 1,640 |
|
Net charge-offs (2) | (113 | ) | | (2,965 | ) | | (901 | ) | | (3,979 | ) |
Write-offs of PCI loans (3) | (207 | ) | | — |
| | — |
| | (207 | ) |
Provision for loan and lease losses (4) | (710 | ) | | 3,437 |
| | 654 |
| | 3,381 |
|
Other (5) | — |
| | (38 | ) | | (1 | ) | | (39 | ) |
Allowance for loan and lease losses, December 31 | 1,720 |
| | 3,663 |
| | 5,010 |
| | 10,393 |
|
| Reserve for unfunded lending commitments, January 1 | — |
| | — |
| | 762 |
| | 762 |
|
| Provision for unfunded lending commitments | — |
| | — |
| | 15 |
| | 15 |
|
| Reserve for unfunded lending commitments, December 31 | — |
| | — |
| | 777 |
| | 777 |
|
Allowance for credit losses, December 31 | $ | 1,720 |
| | $ | 3,663 |
| | $ | 5,787 |
| | $ | 11,170 |
|
|
| | | | | | | | | | | | | | | |
| | 2016 |
| Allowance for loan and lease losses, January 1 | $ | 3,914 |
| | $ | 3,471 |
| | $ | 4,849 |
| | $ | 12,234 |
|
| Loans and leases charged off | (1,155 | ) | | (3,553 | ) | | (740 | ) | | (5,448 | ) |
| Recoveries of loans and leases previously charged off | 619 |
| | 770 |
| | 238 |
| | 1,627 |
|
Net charge-offs (2) | (536 | ) | | (2,783 | ) | | (502 | ) | | (3,821 | ) |
Write-offs of PCI loans (3) | (340 | ) | | — |
| | — |
| | (340 | ) |
Provision for loan and lease losses (4) | (258 | ) | | 2,826 |
| | 1,013 |
| | 3,581 |
|
Other (5) | (30 | ) | | (42 | ) | | (102 | ) | | (174 | ) |
| Total allowance for loan and lease losses, December 31 | 2,750 |
| | 3,472 |
| | 5,258 |
| | 11,480 |
|
Less: Allowance included in assets of business held for sale (6) | — |
| | (243 | ) | | — |
| | (243 | ) |
| Allowance for loan and lease losses, December 31 | 2,750 |
| | 3,229 |
| | 5,258 |
| | 11,237 |
|
| Reserve for unfunded lending commitments, January 1 | — |
| | — |
| | 646 |
| | 646 |
|
| Provision for unfunded lending commitments | — |
| | — |
| | 16 |
| | 16 |
|
Other (5) | — |
| | — |
| | 100 |
| | 100 |
|
| Reserve for unfunded lending commitments, December 31 | — |
| | — |
| | 762 |
| | 762 |
|
| Allowance for credit losses, December 31 | $ | 2,750 |
| | $ | 3,229 |
| | $ | 6,020 |
| | $ | 11,999 |
|
|
| | | | | | | | | | | | | | | |
| | 2015 |
| Allowance for loan and lease losses, January 1 | $ | 5,935 |
| | $ | 4,047 |
| | $ | 4,437 |
| | $ | 14,419 |
|
| Loans and leases charged off | (1,841 | ) | | (3,620 | ) | | (644 | ) | | (6,105 | ) |
| Recoveries of loans and leases previously charged off | 732 |
| | 813 |
| | 222 |
| | 1,767 |
|
| Net charge-offs | (1,109 | ) | | (2,807 | ) | | (422 | ) | | (4,338 | ) |
Write-offs of PCI loans (3) | (808 | ) | | — |
| | — |
| | (808 | ) |
Provision for loan and lease losses (4) | (70 | ) | | 2,278 |
| | 835 |
| | 3,043 |
|
Other (5) | (34 | ) | | (47 | ) | | (1 | ) | | (82 | ) |
| Allowance for loan and lease losses, December 31 | 3,914 |
| | 3,471 |
| | 4,849 |
| | 12,234 |
|
| Reserve for unfunded lending commitments, January 1 | — |
| | — |
| | 528 |
| | 528 |
|
| Provision for unfunded lending commitments | — |
| | — |
| | 118 |
| | 118 |
|
| Reserve for unfunded lending commitments, December 31 | — |
| | — |
| | 646 |
| | 646 |
|
| Allowance for credit losses, December 31 | $ | 3,914 |
| | $ | 3,471 |
| | $ | 5,495 |
| | $ | 12,880 |
|
| |
(1)
| Includes valuation allowance associated with the PCI loan portfolio. |
| |
(2)
| Includes net charge-offs related to the non-U.S. credit card loan portfolio, which was included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. In 2017, the Corporation sold its non-U.S. consumer credit card business. |
| |
(3)
| Includes write-offs of $87 million, $60 million and $234 million associated with the sale of PCI loans in 2017, 2016 and 2015, respectively.
|
| |
(4)
| Includes provision expense of $76 million and a benefit of $45 million and $40 million associated with the PCI loan portfolio in 2017, 2016 and 2015, respectively.
|
| |
(5)
| Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, foreign currency translation adjustments, transfers to held-for-sale and certain other reclassifications. |
| |
(6)
| Represents allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which was sold in 2017. |
The table below presents the allowance and the carrying value of outstanding loans and leases by portfolio segment at December 31, 2017 and 2016.
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| Allowance and Carrying Value by Portfolio Segment | | | | | | |
| | | | | | | | |
| | Consumer
Real Estate | | Credit Card and Other Consumer | | Commercial | | Total |
| (Dollars in millions) | December 31, 2017 |
Impaired loans and troubled debt restructurings (1) | |
| | |
| | |
| | |
|
Allowance for loan and lease losses (2) | $ | 348 |
| | $ | 125 |
| | $ | 190 |
| | $ | 663 |
|
Carrying value (3) | 12,554 |
| | 490 |
| | 2,407 |
| | 15,451 |
|
| Allowance as a percentage of carrying value | 2.77 | % | | 25.51 | % | | 7.89 | % | | 4.29 | % |
| Loans collectively evaluated for impairment | |
| | |
| | |
| | |
|
| Allowance for loan and lease losses | $ | 1,083 |
| | $ | 3,538 |
| | $ | 4,820 |
| | $ | 9,441 |
|
Carrying value (3, 4) | 238,284 |
| | 192,303 |
| | 474,284 |
| | 904,871 |
|
Allowance as a percentage of carrying value (4) | 0.45 | % | | 1.84 | % | | 1.02 | % | | 1.04 | % |
| Purchased credit-impaired loans | |
| | | | |
| | |
|
| Valuation allowance | $ | 289 |
| | n/a |
| | n/a |
| | $ | 289 |
|
| Carrying value gross of valuation allowance | 10,717 |
| | n/a |
| | n/a |
| | 10,717 |
|
| Valuation allowance as a percentage of carrying value | 2.70 | % | | n/a |
| | n/a |
| | 2.70 | % |
| Total | |
| | |
| | |
| | |
|
| Allowance for loan and lease losses | $ | 1,720 |
| | $ | 3,663 |
| | $ | 5,010 |
| | $ | 10,393 |
|
Carrying value (3, 4) | 261,555 |
| | 192,793 |
| | 476,691 |
| | 931,039 |
|
Allowance as a percentage of carrying value (4) | 0.66 | % | | 1.90 | % | | 1.05 | % | | 1.12 | % |
|
| | | | | | | | | | | | | | | |
| | December 31, 2016 |
Impaired loans and troubled debt restructurings (1) | |
| | |
| | |
| | |
|
Allowance for loan and lease losses (2) | $ | 356 |
| | $ | 189 |
| | $ | 273 |
| | $ | 818 |
|
Carrying value (3) | 15,408 |
| | 610 |
| | 3,202 |
| | 19,220 |
|
| Allowance as a percentage of carrying value | 2.31 | % | | 30.98 | % | | 8.53 | % | | 4.26 | % |
| Loans collectively evaluated for impairment | |
| | |
| | |
| | |
| Allowance for loan and lease losses | $ | 1,975 |
| | $ | 3,283 |
| | $ | 4,985 |
| | $ | 10,243 |
|
Carrying value (3, 4) | 229,094 |
| | 197,470 |
| | 449,290 |
| | 875,854 |
|
Allowance as a percentage of carrying value (4) | 0.86 | % | | 1.66 | % | | 1.11 | % | | 1.17 | % |
| Purchased credit-impaired loans | |
| | | | |
| | |
| Valuation allowance | $ | 419 |
| | n/a |
| | n/a |
| | $ | 419 |
|
| Carrying value gross of valuation allowance | 13,738 |
| | n/a |
| | n/a |
| | 13,738 |
|
| Valuation allowance as a percentage of carrying value | 3.05 | % | | n/a |
| | n/a |
| | 3.05 | % |
Less: Assets of business held for sale (5) | | | | | | | |
Allowance for loan and lease losses (6) | n/a |
| | $ | (243 | ) | | n/a |
| | $ | (243 | ) |
Carrying value (3) | n/a |
| | (9,214 | ) | | n/a |
| | (9,214 | ) |
| Total | |
| | |
| | |
| | |
| Allowance for loan and lease losses | $ | 2,750 |
| | $ | 3,229 |
| | $ | 5,258 |
| | $ | 11,237 |
|
Carrying value (3, 4) | 258,240 |
| | 188,866 |
| | 452,492 |
| | 899,598 |
|
Allowance as a percentage of carrying value (4) | 1.06 | % | | 1.71 | % | | 1.16 | % | | 1.25 | % |
| |
(1)
| Impaired loans include nonperforming commercial loans and all TDRs, including both commercial and consumer TDRs. Impaired loans exclude nonperforming consumer loans unless they are TDRs, and all consumer and commercial loans accounted for under the fair value option. |
| |
(2)
| Allowance for loan and lease losses includes $27 million related to impaired U.S. small business commercial at both December 31, 2017 and 2016.
|
| |
(3)
| Amounts are presented gross of the allowance for loan and lease losses. |
| |
(4)
| Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $5.7 billion and $7.1 billion at December 31, 2017 and 2016.
|
| |
(5)
| Represents allowance for loan and lease losses and loans related to the non-U.S. credit card loan portfolio, which was included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. In 2017, the Corporation sold its non-U.S. consumer credit card business.
|
| |
(6)
| Includes $61 million of allowance for loan and lease losses related to impaired loans and TDRs and $182 million related to loans collectively evaluated for impairment at December 31, 2016.
|
n/a = not applicable
NOTE 6Securitizations and Other Variable Interest Entities
The Corporation utilizes VIEs in the ordinary course of business to support its own and its customers’ financing and investing needs. The Corporation routinely securitizes loans and debt securities using VIEs as a source of funding for the Corporation and as a means of transferring the economic risk of the loans or debt securities to third parties. The assets are transferred into a trust or other securitization vehicle such that the assets are legally isolated from the creditors of the Corporation and are not available to satisfy its obligations. These assets can only be used to settle obligations of the trust or other securitization vehicle. The Corporation also administers, structures or invests in other VIEs including CDOs, investment vehicles and other entities. For more information on the Corporation’s use of VIEs, see Note 1 – Summary of Significant Accounting Principles.Principles.
The tables in this Note present the assets and liabilities of consolidated and unconsolidated VIEs at December 31, 20172020 and 20162019 in situations where the Corporation has continuing involvement with transferred assets or if the Corporation otherwise has a variable interest in the VIE. The tables also
present the Corporation’s maximum loss exposure at December 31, 20172020 and 20162019 resulting from its involvement with consolidated VIEs and unconsolidated VIEs in which the Corporation holds a variable interest. The Corporation’s maximum loss exposure is based on the unlikely event that all of the assets in the VIEs become worthless and incorporates not only potential losses associated with assets recorded on the Consolidated Balance Sheet but also potential losses associated with off-balance sheet commitments, such as unfunded liquidity commitments and other contractual arrangements. The Corporation’s maximum loss exposure does not include losses previously recognized through write-downs of assets.
The Corporation invests in ABS issued by third-party VIEs with which it has no other form of involvement and enters into certain commercial lending arrangements that may also incorporate the
use of VIEs, for example to hold collateral. These securities and loans are included in Note 34 – Securities or Note 45 – Outstanding Loans and Leases.Leases and Allowance for Credit Losses. In addition, the Corporation useshas used VIEs such as trust preferred securities trusts in connection with its funding activities. For more information, see Note 11 – Long-term Debt. These VIEs, which are generally not consolidated by the Corporation, as applicable, are not included in the tables herein.
Except as described below, the
The Corporation did not provide financial support to consolidated or unconsolidated VIEs during 2017, 20162020, 2019 and 20152018 that it was not previously contractually required to provide, nor does it intend to do so.
The Corporation had liquidity commitments, including written put options and collateral value guarantees, with certain unconsolidated VIEs of $929 million and $1.1 billion at December 31, 2020 and 2019.
First-lien Mortgage Securitizations
First-lien Mortgages
As part of its mortgage banking activities, the Corporation securitizes a portion of the first-lien residential mortgage loans it originates or purchases from third parties, generally in the form of RMBSresidential mortgage-backed securities (RMBS) guaranteed by government-sponsored enterprises, FNMA and FHLMC (collectively the GSEs), or the Government National Mortgage Association (GNMA) primarily in the case of FHA-insuredFHA-
insured and U.S. Department of Veterans Affairs (VA)-guaranteed mortgage loans. Securitization usually occurs in conjunction with or shortly after origination or purchase, and the Corporation may also securitize loans held in its residential mortgage portfolio. In addition, the Corporation may, from time to time, securitize commercial mortgages it originates or purchases from other entities. The Corporation typically services the loans it securitizes. Further, the Corporation may retain beneficial interests in the securitization trusts including senior and subordinate securities and equity tranches issued by the trusts. Except as described belowin Note 12 – Commitments and in Note 7 – Representations and Warranties Obligations and Corporate GuaranteesContingencies, the Corporation does not provide guarantees or recourse to the securitization trusts other than standard representations and warranties.
The table below summarizes select information related to first-lien mortgage securitizations for 2017, 20162020, 2019 and 2015.2018.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| First-lien Mortgage Securitizations | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Residential Mortgage - Agency | | | | | | Commercial Mortgage |
| | | | | | | |
| | | | | | | | | | | |
| (Dollars in millions) | | | | | 2020 | | 2019 | | 2018 | | | | | | 2020 | | 2019 | | 2018 |
Proceeds from loan sales (1) | | | | | $ | 15,823 | | | $ | 6,858 | | | $ | 5,801 | | | | | | | $ | 5,084 | | | $ | 8,661 | | | $ | 6,991 | |
Gains on securitizations (2) | | | | | 728 | | | 27 | | | 62 | | | | | | | 61 | | | 103 | | | 101 | |
Repurchases from securitization trusts (3) | | | | | 436 | | | 881 | | | 1,485 | | | | | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| First-lien Mortgage Securitizations | | | | | | | | | | |
| | Residential Mortgage - Agency | | Commercial Mortgage |
| (Dollars in millions) | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
Cash proceeds from new securitizations (1) | $ | 14,467 |
| | $ | 24,201 |
| | $ | 27,164 |
| | $ | 5,641 |
| | $ | 3,887 |
| | $ | 7,945 |
|
Gains on securitizations (2) | 158 |
| | 370 |
| | 894 |
| | 91 |
| | 38 |
| | 49 |
|
Repurchases from securitization trusts (3) | 2,713 |
| | 3,611 |
| | 3,716 |
| | — |
| | — |
| | — |
|
| |
(1)
| (1)The Corporation transfers residential mortgage loans to securitizations sponsored primarily by the GSEs or GNMA in the normal course of business and receives RMBS in exchange which may then be sold into the market to third-party investors for cash proceeds. |
| |
(2)
| A majority of the first-lien residential mortgage loans securitized are initially classified as LHFS and accounted for under the fair value option. Gains recognized on these LHFS prior to securitization, which totaled $243 million, $487 million and $750 million net of hedges, during 2017, 2016 and 2015, respectively, are not included in the table above.
|
| |
(3)
| The Corporation may have the option to repurchase delinquent loans out of securitization trusts, which reduces the amount of servicing advances it is required to make. The Corporation may also repurchase loans from securitization trusts to perform modifications. Repurchased loans include FHA-insured mortgages collateralizing GNMA securities. |
In addition to cash proceeds as reported in the table above, the Corporation received securities with an initial fair valuenormal course of $1.9 billion, $4.2 billionbusiness and $22.3 billionprimarily receives RMBS in connection with first-lien mortgage securitizations in 2017, 2016 and 2015. The receipt of these securities represents non-cash operating and investing activities and, accordingly, is not reflected in the Consolidated Statement of Cash Flows.exchange. Substantially all of these securities were initiallyare classified as Level 2 assets within the fair value hierarchy. During 2017, 2016hierarchy and 2015, there were no changesare typically sold shortly after receipt.
(2)A majority of the first-lien residential mortgage loans securitized are initially classified as LHFS and accounted for under the fair value option. Gains recognized on these LHFS prior to securitization, which totaled $160 million, $64 million and $71 million net of hedges, during 2020, 2019 and 2018, respectively, are not included in the initial classification.table above.
(3)The Corporation may have the option to repurchase delinquent loans out of securitization trusts, which reduces the amount of servicing advances it is required to make. The Corporation may also repurchase loans from securitization trusts to perform modifications. Repurchased loans include FHA-insured mortgages collateralizing GNMA securities.
The Corporation recognizes consumer MSRs from the sale or securitization of consumer real estate loans. The unpaid principal balance of loans serviced for investors, including residential mortgage and home equity loans, totaled $277.6$160.4 billion and $326.2$192.1 billion at December 31, 20172020 and 2016.2019. Servicing fee and ancillary fee income on serviced loans was $893$474 million, $1.2 billion$585 million and $1.4 billion in 2017, 2016$710 million during 2020, 2019 and 2015.2018, respectively. Servicing advances on serviced loans, including loans serviced for others and loans held for investment, were $4.5$2.2 billion and $6.2$2.4 billion at December 31, 20172020 and 2016.2019. For more information on MSRs, see Note 20 – Fair Value Measurements.
During 2016 and 2015,2020, the Corporation deconsolidated agency residential mortgage securitization vehicles with total assets of $3.8 billion and $4.5 billion, and total liabilities of $628
million and $0 followingcompleted the sale of retained interests to third parties, after which$9.3 billion of consumer real estate loans through GNMA loan securitizations. As part of the securitizations, the Corporation no longer had the unilateral ability to liquidate the vehicles. Of the balances deconsolidated in 2016, $706 millionretained $8.4 billion of assets and $628 million of liabilities represent non-cash investing and financing activities and, accordingly,MBS, which are not reflectedclassified as debt securities carried at fair value on the Consolidated StatementBalance Sheet. Total gains on loan sales of Cash Flows. Gains on sale of $125$704 million and $287 million in 2016 and 2015 related to these deconsolidations were recorded in other income in the Consolidated Statement of Income. There were no deconsolidations of agency residential mortgage securitizations in 2017.
The following table below summarizes select information related to first-lien mortgage securitization trusts in which the Corporation held a variable interest at December 31, 20172020 and 2016.2019.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| First-lien Mortgage VIEs | | | | | | | | | | | |
| | Residential Mortgage | | |
| |
|
| | |
| |
| | Non-agency | | |
| |
|
| | Agency | | Prime | | Subprime | | Alt-A | | Commercial Mortgage |
| | December 31 |
| (Dollars in millions) | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 |
| Unconsolidated VIEs | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
|
Maximum loss exposure (1) | $ | 19,110 |
| $ | 22,661 |
| | $ | 689 |
| $ | 757 |
| | $ | 2,643 |
| $ | 2,750 |
| | $ | 403 |
| $ | 560 |
| | $ | 585 |
| $ | 344 |
|
| On-balance sheet assets | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
|
| Senior securities: | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
|
| Trading account assets | $ | 716 |
| $ | 1,399 |
| | $ | 6 |
| $ | 20 |
| | $ | 10 |
| $ | 112 |
| | $ | 50 |
| $ | 118 |
| | $ | 108 |
| $ | 51 |
|
| Debt securities carried at fair value | 15,036 |
| 17,620 |
| | 477 |
| 441 |
| | 2,221 |
| 2,235 |
| | 351 |
| 305 |
| | — |
| — |
|
| Held-to-maturity securities | 3,348 |
| 3,630 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | 274 |
| 64 |
|
| Subordinate securities | — |
| — |
| | 5 |
| 9 |
| | 38 |
| 25 |
| | 2 |
| 24 |
| | 69 |
| 81 |
|
| Residual interests | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | 19 |
| 25 |
|
All other assets (2) | 10 |
| 12 |
| | — |
| 28 |
| | — |
| — |
| | — |
| 113 |
| | — |
| — |
|
| Total retained positions | $ | 19,110 |
| $ | 22,661 |
| | $ | 488 |
| $ | 498 |
| | $ | 2,269 |
| $ | 2,372 |
| | $ | 403 |
| $ | 560 |
| | $ | 470 |
| $ | 221 |
|
Principal balance outstanding (3) | $ | 232,761 |
| $ | 265,332 |
| | $ | 10,549 |
| $ | 16,280 |
| | $ | 10,254 |
| $ | 19,373 |
| | $ | 28,129 |
| $ | 35,788 |
| | $ | 26,504 |
| $ | 23,826 |
|
| | | | | | | | | | | | | | | |
| Consolidated VIEs | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
|
Maximum loss exposure (1) | $ | 14,502 |
| $ | 18,084 |
| | $ | 571 |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | 25 |
| | $ | — |
| $ | — |
|
| On-balance sheet assets | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
|
| Trading account assets | $ | 232 |
| $ | 434 |
| | $ | 571 |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | 99 |
| | $ | — |
| $ | — |
|
| Loans and leases, net | 14,030 |
| 17,223 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
|
| All other assets | 240 |
| 427 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
|
| Total assets | $ | 14,502 |
| $ | 18,084 |
| | $ | 571 |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | 99 |
| | $ | — |
| $ | — |
|
| On-balance sheet liabilities | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
|
| Long-term debt | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | 74 |
| | $ | — |
| $ | — |
|
| All other liabilities | 3 |
| 4 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
|
| Total liabilities | $ | 3 |
| $ | 4 |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | 74 |
| | $ | — |
| $ | — |
|
| |
(1)
| Maximum loss exposure includes obligations under loss-sharing reinsurance and other arrangements for non-agency residential mortgage and commercial mortgage securitizations, but excludes the reserve for representations and warranties obligations and corporate guarantees and also excludes servicing advances and other servicing rights and obligations. For more information, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees and Note 20 – Fair Value Measurements.
|
| |
(2)
| Not included in the table above are all other assets of $148 million and $189 million, representing the unpaid principal balance of mortgage loans eligible for repurchase from unconsolidated residential mortgage securitization vehicles, principally guaranteed by GNMA, and all other liabilities of $148 million and $189 million, representing the principal amount that would be payable to the securitization vehicles if the Corporation was to exercise the repurchase option, at December 31, 2017 and 2016.
|
| |
(3)
| Principal balance outstanding includes loans where the Corporation was the transferor to securitization vehicles with which it has continuing involvement, which may include servicing the loans. |
|
| | |
141Bank of America 2017130
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| First-lien Mortgage VIEs | | | | | | | | | | | |
| | | | |
| Residential Mortgage | | | |
| | | | | Non-agency | | | |
| | Agency | | Prime | | Subprime | | Alt-A | | Commercial Mortgage |
| | December 31 |
| (Dollars in millions) | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 |
| Unconsolidated VIEs | | | | | | | | | | | | | | |
Maximum loss exposure (1) | $ | 13,477 | | $ | 12,554 | | | $ | 250 | | $ | 340 | | | $ | 1,031 | | $ | 1,622 | | | $ | 46 | | $ | 98 | | | $ | 1,169 | | $ | 1,036 | |
| On-balance sheet assets | | | | | | | | | | | | | | |
| Senior securities: | | | | | | | | | | | | | | |
| Trading account assets | $ | 152 | | $ | 627 | | | $ | 2 | | $ | 5 | | | $ | 8 | | $ | 54 | | | $ | 12 | | $ | 24 | | | $ | 60 | | $ | 65 | |
| Debt securities carried at fair value | 7,588 | | 6,392 | | | 103 | | 193 | | | 676 | | 1,178 | | | 33 | | 72 | | | 0 | | 0 | |
| Held-to-maturity securities | 5,737 | | 5,535 | | | 0 | | 0 | | | 0 | | 0 | | | 0 | | 0 | | | 925 | | 809 | |
| All other assets | 0 | | 0 | | | 6 | | 2 | | | 26 | | 49 | | | 1 | | 2 | | | 50 | | 38 | |
| Total retained positions | $ | 13,477 | | $ | 12,554 | | | $ | 111 | | $ | 200 | | | $ | 710 | | $ | 1,281 | | | $ | 46 | | $ | 98 | | | $ | 1,035 | | $ | 912 | |
Principal balance outstanding (2) | $ | 133,497 | | $ | 160,226 | | | $ | 6,081 | | $ | 7,268 | | | $ | 6,691 | | $ | 8,594 | | | $ | 16,554 | | $ | 19,878 | | | $ | 59,268 | | $ | 60,129 | |
| | | | | | | | | | | | | | |
| Consolidated VIEs | | | | | | | | | | | | | | |
Maximum loss exposure (1) | $ | 1,328 | | $ | 10,857 | | | $ | 66 | | $ | 5 | | | $ | 53 | | $ | 44 | | | $ | 0 | | $ | 0 | | | $ | 0 | | $ | 0 | |
| On-balance sheet assets | | | | | | | | | | | | | | |
| Trading account assets | $ | 1,328 | | $ | 780 | | | $ | 350 | | $ | 116 | | | $ | 260 | | $ | 149 | | | $ | 0 | | $ | 0 | | | $ | 0 | | $ | 0 | |
| Loans and leases, net | 0 | | 9,917 | | | 0 | | 0 | | | 0 | | 0 | | | 0 | | 0 | | | 0 | | 0 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| All other assets | 0 | | 161 | | | 0 | | 0 | | | 0 | | 0 | | | 0 | | 0 | | | 0 | | 0 | |
| Total assets | $ | 1,328 | | $ | 10,858 | | | $ | 350 | | $ | 116 | | | $ | 260 | | $ | 149 | | | $ | 0 | | $ | 0 | | | $ | 0 | | $ | 0 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Total liabilities | $ | 0 | | $ | 4 | | | $ | 284 | | $ | 111 | | | $ | 207 | | $ | 105 | | | $ | 0 | | $ | 0 | | | $ | 0 | | $ | 0 | |
(1)Maximum loss exposure includes obligations under loss-sharing reinsurance and other arrangements for non-agency residential mortgage and commercial mortgage securitizations, but excludes the reserve for representations and warranties obligations and corporate guarantees and also excludes servicing advances and other servicing rights and obligations. For more information, see Note 12 – Commitments and Contingencies and Note 20 – Fair Value Measurements.
(2)Principal balance outstanding includes loans where the Corporation was the transferor to securitization VIEs with which it has continuing involvement, which may include servicing the loans.
Other Asset-backed Securitizations
The following table below summarizes select information related to home equity, loan, credit card and other asset-backed VIEs in which the Corporation held a variable interest at December 31, 20172020 and 2016.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Home Equity Loan, Credit Card and Other Asset-backed VIEs | | | | | | | |
| | | | | | | | | | | |
| | Home Equity (1) | | Credit Card (2) | | Resecuritization Trusts | | Municipal Bond Trusts | | |
| | December 31 |
| | | | |
| (Dollars in millions) | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 | | | |
| Unconsolidated VIEs | | | | | | | | | | | | | | |
| Maximum loss exposure | $ | 206 | | $ | 412 | | | $ | 0 | | $ | 0 | | | $ | 8,543 | | $ | 7,526 | | | $ | 3,507 | | $ | 3,701 | | | | |
| On-balance sheet assets | | | | | | | | | | | | | | |
Securities (3): | | | | | | | | | | | | | | |
| Trading account assets | $ | 0 | | $ | 0 | | | $ | 0 | | $ | 0 | | | $ | 948 | | $ | 2,188 | | | $ | 0 | | $ | 0 | | | | |
| Debt securities carried at fair value | 2 | | 11 | | | 0 | | 0 | | | 2,727 | | 1,126 | | | 0 | | 0 | | | | |
| Held-to-maturity securities | 0 | | 0 | | | 0 | | 0 | | | 4,868 | | 4,212 | | | 0 | | 0 | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Total retained positions | $ | 2 | | $ | 11 | | | $ | 0 | | $ | 0 | | | $ | 8,543 | | $ | 7,526 | | | $ | 0 | | $ | 0 | | | | |
| Total assets of VIEs | $ | 609 | | $ | 1,023 | | | $ | 0 | | $ | 0 | | | $ | 17,250 | | $ | 21,234 | | | $ | 4,042 | | $ | 4,395 | | | | |
| | | | | | | | | | | | | | |
| Consolidated VIEs | | | | | | | | | | | | | | |
| Maximum loss exposure | $ | 58 | | $ | 64 | | | $ | 14,606 | | $ | 17,915 | | | $ | 217 | | $ | 54 | | | $ | 1,030 | | $ | 2,656 | | | | |
| On-balance sheet assets | | | | | | | | | | | | | | |
| Trading account assets | $ | 0 | | $ | 0 | | | $ | 0 | | $ | 0 | | | $ | 217 | | $ | 73 | | | $ | 990 | | $ | 2,480 | | | | |
| | | | | | | | | | | | | | |
| Loans and leases | 218 | | 122 | | | 21,310 | | 26,985 | | | 0 | | 0 | | | 0 | | 0 | | | | |
| Allowance for loan and lease losses | 14 | | (2) | | | (1,704) | | (800) | | | 0 | | 0 | | | 0 | | 0 | | | | |
| | | | | | | | | | | | | | |
| All other assets | 4 | | 3 | | | 1,289 | | 119 | | | 0 | | 0 | | | 40 | | 176 | | | | |
| Total assets | $ | 236 | | $ | 123 | | | $ | 20,895 | | $ | 26,304 | | | $ | 217 | | $ | 73 | | | $ | 1,030 | | $ | 2,656 | | | | |
| On-balance sheet liabilities | | | | | | | | | | | | | | |
| Short-term borrowings | $ | 0 | | $ | 0 | | | $ | 0 | | $ | 0 | | | $ | 0 | | $ | 0 | | | $ | 432 | | $ | 2,175 | | | | |
| Long-term debt | 178 | | 64 | | | 6,273 | | 8,372 | | | 0 | | 19 | | | 0 | | 0 | | | | |
| All other liabilities | 0 | | 0 | | | 16 | | 17 | | | 0 | | 0 | | | 0 | | 0 | | | | |
| Total liabilities | $ | 178 | | $ | 64 | | | $ | 6,289 | | $ | 8,389 | | | $ | 0 | | $ | 19 | | | $ | 432 | | $ | 2,175 | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Home Equity Loan, Credit Card and Other Asset-backed VIEs | | | | |
| | | | | | | | | |
| | Home Equity Loan (1) | | Credit Card (2, 3) | | Resecuritization Trusts | | Municipal Bond Trusts |
| | December 31 |
| (Dollars in millions) | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 |
| Unconsolidated VIEs | |
| |
| | | | | |
| |
| | |
| |
|
| Maximum loss exposure | $ | 1,522 |
| $ | 2,732 |
| | $ | — |
| $ | — |
| | $ | 8,204 |
| $ | 9,906 |
| | $ | 1,631 |
| $ | 1,635 |
|
| On-balance sheet assets | |
| |
| | | | | |
| |
| | |
| |
|
Senior securities (4): | |
| |
| | | | | |
| |
| | |
| |
|
| Trading account assets | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | 869 |
| $ | 902 |
| | $ | 33 |
| $ | — |
|
| Debt securities carried at fair value | 36 |
| 46 |
| | — |
| — |
| | 1,661 |
| 2,338 |
| | — |
| — |
|
| Held-to-maturity securities | — |
| — |
| | — |
| — |
| | 5,644 |
| 6,569 |
| | — |
| — |
|
Subordinate securities (4) | — |
| — |
| | — |
| — |
| | 30 |
| 97 |
| | — |
| — |
|
| Total retained positions | $ | 36 |
| $ | 46 |
| | $ | — |
| $ | — |
| | $ | 8,204 |
| $ | 9,906 |
| | $ | 33 |
| $ | — |
|
Total assets of VIEs (5) | $ | 2,432 |
| $ | 4,274 |
| | $ | — |
| $ | — |
| | $ | 19,281 |
| $ | 22,155 |
| | $ | 2,287 |
| $ | 2,406 |
|
| | | | | | | | | | | | |
| Consolidated VIEs | |
| |
| | | | | |
| |
| | |
| |
|
| Maximum loss exposure | $ | 112 |
| $ | 149 |
| | $ | 24,337 |
| $ | 25,859 |
| | $ | 628 |
| $ | 420 |
| | $ | 1,453 |
| $ | 1,442 |
|
| On-balance sheet assets | |
| |
| | | | | |
| |
| | |
| |
|
| Trading account assets | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | 1,557 |
| $ | 1,428 |
| | $ | 1,452 |
| $ | 1,454 |
|
| Loans and leases | 177 |
| 244 |
| | 32,554 |
| 35,135 |
| | — |
| — |
| | — |
| — |
|
| Allowance for loan and lease losses | (9 | ) | (16 | ) | | (988 | ) | (1,007 | ) | | — |
| — |
| | — |
| — |
|
| All other assets | 6 |
| 7 |
| | 1,385 |
| 793 |
| | — |
| — |
| | 1 |
| — |
|
| Total assets | $ | 174 |
| $ | 235 |
| | $ | 32,951 |
| $ | 34,921 |
| | $ | 1,557 |
| $ | 1,428 |
| | $ | 1,453 |
| $ | 1,454 |
|
| On-balance sheet liabilities | |
| |
| | | | | |
| |
| | |
| |
|
| Short-term borrowings | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | 312 |
| $ | 348 |
|
| Long-term debt | 76 |
| 108 |
| | 8,598 |
| 9,049 |
| | 929 |
| 1,008 |
| | — |
| 12 |
|
| All other liabilities | — |
| — |
| | 16 |
| 13 |
| | — |
| — |
| | — |
| — |
|
| Total liabilities | $ | 76 |
| $ | 108 |
| | $ | 8,614 |
| $ | 9,062 |
| | $ | 929 |
| $ | 1,008 |
| | $ | 312 |
| $ | 360 |
|
| |
(1)(2)At December 31, 2020 and 2019, loans and leases in the consolidated credit card trust included $7.6 billion and $10.5 billion of seller’s interest. (3)The retained senior securities were valued using quoted market prices or observable market inputs (Level 2 of the fair value hierarchy). | For unconsolidated home equity loan VIEs, the maximum loss exposure includes outstanding trust certificates issued by trusts in rapid amortization, net of recorded reserves. For both consolidated and unconsolidated home equity loan VIEs, the maximum loss exposure excludes the reserve for representations and warranties obligations and corporate guarantees. For more information, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees.
|
| |
(2)
| At December 31, 2017 and 2016, loans and leases in the consolidated credit card trust included $15.6 billion and $17.6 billion of seller’s interest.
|
| |
(3)
| At December 31, 2017 and 2016, all other assets in the consolidated credit card trust included restricted cash, certain short-term investments, and unbilled accrued interest and fees.
|
| |
(4)
| The retained senior and subordinate securities were valued using quoted market prices or observable market inputs (Level 2 of the fair value hierarchy). |
| |
(5)
| Total assets include loans the Corporation transferred with which it has continuing involvement, which may include servicing the loan. |
Home Equity Loans
The Corporation retains interests, primarily senior securities, in home equity securitization trusts to which it transferred home equity loans. These retained interests primarily include senior securities. In addition, the Corporation may be obligated to
provide subordinate funding to the trusts during a rapid amortization event. This obligation is included in the maximum loss exposure in the table above. The charges that will ultimately be recorded as a result of the rapid amortization
events depend on the undrawn portion of the home equity lines of credit (HELOCs),HELOCs, performance of the loans, the amount of subsequent draws and the timing of related cash flows.
During 2015, the Corporation deconsolidated several HELOC trusts with total assets of $488 million and total liabilities of $611 million as its obligation to provide subordinated funding is no longer considered to be a potentially significant variable interest in the trusts following a decline in the amount of credit available to be drawn by borrowers. In connection with deconsolidation, the Corporation recorded a gain of $123 million in other income in the Consolidated Statement of Income. The derecognition of assets and liabilities represents non-cash investing and financing activities and, accordingly, is not reflected on the Consolidated Statement of Cash Flows. There were no deconsolidations of HELOC trusts in 2017 or 2016.
Credit Card Securitizations
The Corporation securitizes originated and purchased credit card loans. The Corporation’s continuing involvement with the securitization trust includes servicing the receivables, retaining an undivided interest (seller’s interest) in the receivables, and holding certain retained interests including subordinate interests in accrued interest and fees on the securitized receivables and cash reserve accounts.
During 2017, 20162020, 2019 and 2015, 2018, the Corporation issued new senior debt securities issued to third-party investors from the credit card securitization trust were $3.1of $1.0 billion, $750 million$1.3 billion and $2.3 billion.$4.0 billion, respectively.
At December 31, 20172020 and 2016,2019, the Corporation held subordinate securities issued by the credit card securitization trust with a notional principal amount of $7.4$6.8 billion and $7.5$7.4 billion. These securities serve as a form of credit enhancement to the senior debt securities and have a stated interest rate of zero percent.0 percent. During 2017, 20162020, 2019 and 2015,2018, the credit card securitization trust issued $500$161 million, $121$202 million and $371$650 million, respectively, of these subordinate securities.
Resecuritization Trusts
The Corporation transfers securities, typically MBS, into resecuritization vehiclesVIEs generally at the request of customers seeking securities with specific characteristics. Generally, there are no significant ongoing activities performed in a resecuritization trust, and no single investor has the unilateral ability to liquidate the trust.
The Corporation resecuritized $25.1$39.0 billion, $23.4$24.4 billion and $30.7$22.8 billion of securities in 2017, 2016during 2020, 2019 and 2015.2018, respectively. Securities transferred into resecuritization vehicles during 2017, 2016 and 2015VIEs were measured at fair value with changes in fair value recorded
in trading account profitsmarket making and similar activities prior to the resecuritization and, accordingly, no gain or loss on sale was recorded. During 2017, 2016 and 2015,Securities received from the resecuritization proceeds included securities with an initialVIEs were recognized at their fair value of $3.3$6.1 billion, $3.3$5.2 billion and $9.8$4.1 billion including $6.9 billion whichduring 2020, 2019 and 2018, respectively. In 2019 and 2018, substantially all of the securities were classified as HTM during 2015. Substantially alltrading account assets. All of the other securities received as resecuritization proceeds during 2020 were classified as trading account assets. Of the securities received as resecuritizations proceeds during 2020, $2.4 billion, $2.1 billion and $1.7 billion were classified as trading account assets, debt securities carried at fair value and HTM securities, respectively. Substantially all of the trading account securities and debt securities carried at fair value were categorized as Level 2 within the fair value hierarchy.
Municipal Bond Trusts
The Corporation administers municipal bond trusts that hold highly-rated, long-term, fixed-rate municipal bonds. The trusts obtain financing by issuing floating-rate trust certificates that reprice on a weekly or other short-term basis to third-party investors.
The Corporation’s liquidity commitments to unconsolidated municipal bond trusts, including those for which the Corporation was transferor, totaled $1.6$3.5 billion and $3.7 billion at both December 31, 20172020 and 2016.2019. The weighted-average remaining life of bonds held in the trusts at December 31, 20172020 was 6.06.8 years. There were no materialsignificant write-downs or downgrades of assets or issuers during 2017, 20162020, 2019 and 2015.2018.
Other Variable Interest Entities
The table below summarizes select information related to other VIEs in which the Corporation held a variable interest at December 31, 20172020 and 2016.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Other VIEs | | | | | | | | |
| |
| | | |
| Consolidated | | Unconsolidated | | Total | | Consolidated | | Unconsolidated | | Total |
| | | | | | | | | | | |
| (Dollars in millions) | December 31, 2020 | | December 31, 2019 |
Maximum loss exposure (1) | $ | 4,106 | | | $ | 23,870 | | | $ | 27,976 | | | $ | 4,055 | | | $ | 21,069 | | | $ | 25,124 | |
| On-balance sheet assets | | | | | | | | | | | |
Trading account assets (1) | $ | 2,080 | | | $ | 623 | | | $ | 2,703 | | | $ | 2,213 | | | $ | 549 | | | $ | 2,762 | |
Debt securities carried at fair value (1) | 0 | | | 9 | | | 9 | | | 0 | | | 10 | | | 10 | |
Loans and leases (1) | 2,108 | | | 184 | | | 2,292 | | | 1,810 | | | 533 | | | 2,343 | |
Allowance for loan and lease losses (1) | (3) | | | (3) | | | (6) | | | (2) | | | 0 | | | (2) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
All other assets (1) | 54 | | | 22,553 | | | 22,607 | | | 81 | | | 19,354 | | | 19,435 | |
Total (1) | $ | 4,239 | | | $ | 23,366 | | | $ | 27,605 | | | $ | 4,102 | | | $ | 20,446 | | | $ | 24,548 | |
| On-balance sheet liabilities | | | | | | | | | | | |
| | | | | | | | | | | |
| Short-term borrowings | $ | 22 | | | $ | 0 | | | $ | 22 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Long-term debt | 111 | | | 0 | | | 111 | | | 46 | | | 0 | | | 46 | |
All other liabilities (1) | 0 | | | 5,658 | | | 5,658 | | | 2 | | | 4,896 | | | 4,898 | |
Total (1) | $ | 133 | | | $ | 5,658 | | | $ | 5,791 | | | $ | 48 | | | $ | 4,896 | | | $ | 4,944 | |
Total assets of VIEs (1) | $ | 4,239 | | | $ | 77,984 | | | $ | 82,223 | | | $ | 4,102 | | | $ | 70,120 | | | $ | 74,222 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other VIEs | | | | | | | | |
| | | | |
| | Consolidated | | Unconsolidated | | Total | | Consolidated | | Unconsolidated | | Total |
| | December 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Maximum loss exposure | $ | 4,660 |
| | $ | 19,785 |
| | $ | 24,445 |
| | $ | 6,114 |
| | $ | 17,754 |
| | $ | 23,868 |
|
| On-balance sheet assets | |
| | |
| | |
| | |
| | |
| | |
|
| Trading account assets | $ | 2,709 |
| | $ | 346 |
| | $ | 3,055 |
| | $ | 2,358 |
| | $ | 233 |
| | $ | 2,591 |
|
| Debt securities carried at fair value | — |
| | 160 |
| | 160 |
| | — |
| | 122 |
| | 122 |
|
| Loans and leases | 2,152 |
| | 3,596 |
| | 5,748 |
| | 3,399 |
| | 3,249 |
| | 6,648 |
|
| Allowance for loan and lease losses | (3 | ) | | (32 | ) | | (35 | ) | | (9 | ) | | (24 | ) | | (33 | ) |
| Loans held-for-sale | 27 |
| | 940 |
| | 967 |
| | 188 |
| | 464 |
| | 652 |
|
| All other assets | 62 |
| | 14,276 |
| | 14,338 |
| | 369 |
| | 13,156 |
| | 13,525 |
|
| Total | $ | 4,947 |
| | $ | 19,286 |
| | $ | 24,233 |
| | $ | 6,305 |
| | $ | 17,200 |
| | $ | 23,505 |
|
| On-balance sheet liabilities | |
| | |
| | |
| | |
| | |
| | |
|
Long-term debt (1) | $ | 270 |
| | $ | — |
| | $ | 270 |
| | $ | 395 |
| | $ | — |
| | $ | 395 |
|
| All other liabilities | 18 |
| | 3,417 |
| | 3,435 |
| | 24 |
| | 2,959 |
| | 2,983 |
|
| Total | $ | 288 |
| | $ | 3,417 |
| | $ | 3,705 |
| | $ | 419 |
| | $ | 2,959 |
| | $ | 3,378 |
|
| Total assets of VIEs | $ | 4,947 |
| | $ | 69,746 |
| | $ | 74,693 |
| | $ | 6,305 |
| | $ | 62,269 |
| | $ | 68,574 |
|
| |
(1)
| Includes $1 million and $229 million of long-term debt at December 31, 2017 and 2016 issued by other consolidated VIEs, which has recourse to the general credit of the Corporation.
|
Customer VehiclesVIEs
Customer vehiclesVIEs include credit-linked, equity-linked and commodity-linked note vehicles,VIEs, repackaging vehicles,VIEs and asset acquisition vehicles,VIEs, which are typically created on behalf of customers who wish to obtain market or credit exposure to a specific company, index, commodity or financial instrument.
The Corporation’s maximum loss exposure to consolidated and unconsolidated customer vehiclesVIEs totaled $2.3 billion and $2.9$2.2 billion at December 31, 20172020 and 2016,2019, including the notional amount of derivatives to which the Corporation is a counterparty, net of losses previously recorded, and the
Corporation’s investment, if any, in securities issued by the vehicles. The Corporation also had liquidity commitments, including written put options and collateral value guarantees, with certain unconsolidated vehicles of $442 million and $323 million at December 31, 2017 and 2016, that are included in the table above.VIEs.
Collateralized Debt Obligation VehiclesVIEs
The Corporation receives fees for structuring CDO vehicles,VIEs, which hold diversified pools of fixed-income securities, typically corporate debt or ABS, which the CDO vehiclesVIEs fund by issuing multiple tranches of debt and equity securities. CDOs are generally managed by third-party portfolio managers. The Corporation typically transfers assets to these CDOs, holds securities issued
by the CDOs and may be a derivative
counterparty to the CDOs. The Corporation’s maximum loss exposure to consolidated and unconsolidated CDOs totaled $358$298 million and $430$304 million at December 31, 20172020 and 2016.2019.
Investment VehiclesVIEs
The Corporation sponsors, invests in or provides financing, which may be in connection with the sale of assets, to a variety of investment vehiclesVIEs that hold loans, real estate, debt securities or other financial instruments and are designed to provide the desired investment profile to investors or the Corporation. At December 31, 20172020 and 2016,2019, the Corporation’s consolidated investment vehiclesVIEs had total assets of $249$494 million and $846 million.$104 million. The Corporation also held investments in unconsolidated vehiclesVIEs with total assets of $20.3$5.4 billion and $17.3$5.1 billion at December 31, 20172020 and 2016.2019. The Corporation’s maximum loss exposure associated with both consolidated and unconsolidated investment vehiclesVIEs totaled $5.7$1.5 billion and $5.1$1.6 billion at December 31, 20172020 and 20162019 comprised primarily of on-balance sheet assets less non-recourse liabilities.
In prior periods, the Corporation transferred servicing advance receivables to independent third parties in connection with the sale of MSRs. Portions of the receivables were transferred into unconsolidated securitization trusts. The Corporation retained senior interests in such receivables with a maximum loss exposure and funding obligation of $50 million and $150 million,
including a funded balance of $39 million and $75 million at December 31, 2017 and 2016, which were classified in other debt securities carried at fair value.
Leveraged Lease Trusts
The Corporation’s net investment in consolidated leveraged lease trusts totaled $2.0 billion and $2.6$1.7 billion at both December 31, 20172020 and 2016.2019. The trusts hold long-lived equipment such as rail cars, power generation and distribution equipment, and commercial aircraft. The Corporation structures the trusts and holds a significant residual interest. The net investment represents the Corporation’s maximum loss exposure to the trusts in the unlikely event that the leveraged lease investments become worthless. Debt issued by the leveraged lease trusts is non-recourse to the Corporation.
Tax Credit VehiclesVIEs
The Corporation holds investments in unconsolidated limited partnerships and similar entities that construct, own and operate affordable housing, wind and solar projects. An unrelated third party is typically the general partner or managing member and has control over the significant activities of the vehicle.VIE. The Corporation earns a return primarily through the receipt of tax credits allocated to the projects. The maximum loss exposure included in the Other VIEs table was $13.8$22.0 billion and $12.6$18.9 billion at December 31, 20172020 and 2016.2019. The Corporation’s risk of loss is generally mitigated by policies requiring that the project qualify for the expected tax credits prior to making its investment.
The Corporation’s investments in affordable housing partnerships, which are reported in other assets on the Consolidated Balance Sheet, totaled $8.0$11.2 billion and $7.4$10.0 billion, including unfunded commitments to provide capital contributions of $3.1$5.0 billion and $2.7$4.3 billion at December 31, 20172020 and 2016.2019. The unfunded commitments are expected to be paid over the next 5five years. During 2017, 20162020, 2019 and 2015,2018, the Corporation recognized tax credits and other tax
benefits from investments in affordable housing partnerships of $1.2 billion, $1.0 billion $1.1 billion and $928$981 million and reported pre-taxpretax losses in other noninterest income of $766 million, $789$1.0 billion, $882 million and $629$798 million, respectively. Tax credits are recognized as part of the Corporation’s annual effective tax rate used to determine tax expense in a given quarter. Accordingly, the portion of a year’s expected tax benefits recognized in any given quarter may differ from 25 percent. The Corporation may from time to time be asked to invest additional amounts to support a troubled affordable housing project. Such additional investments have not been and are not expected to be significant.
NOTE 7Goodwill and Intangible Assets
Goodwill
The table below presents goodwill balances by business segment and All Other at December 31, 2020 and 2019. The reporting units utilized for goodwill impairment testing are the operating segments or one level below.
| | | | | | | | | | | |
| | | |
| Goodwill | | | |
| | | |
| December 31 |
| | | |
| | | |
| (Dollars in millions) | December 31
2020 | | December 31
2019 |
| | | |
| | | |
| Consumer Banking | $ | 30,123 | | | $ | 30,123 | |
| | | |
| | | |
| Global Wealth & Investment Management | 9,677 | | | 9,677 | |
| | | |
| | | |
| | | |
| Global Banking | 23,923 | | | 23,923 | |
| Global Markets | 5,182 | | | 5,182 | |
| All Other | 46 | | | 46 | |
| Total goodwill | $ | 68,951 | | | $ | 68,951 | |
During 2020, the Corporation completed its annual goodwill impairment test as of June 30, 2020 using a quantitative assessment for all applicable reporting units. Based on the results of the annual goodwill impairment test, the Corporation determined there was 0 impairment. For more information on the use of quantitative assessments, see Note 1 – Summary of Significant Accounting Principles.
Intangible Assets
At December 31, 2020 and 2019, the net carrying value of intangible assets was $2.2 billion and $1.7 billion. During 2020, the Corporation recognized a $585 million intangible asset, which is being amortized over a 10-year life, related to the merchant contracts that were distributed to the Corporation from its merchant servicing joint venture. For more information, see Note 12 – Commitments and Contingencies.
At both December 31, 2020 and 2019, intangible assets included $1.6 billion of intangible assets associated with trade names, substantially all of which had an indefinite life and, accordingly, are not being amortized. Amortization of intangibles expense was $95 million, $112 million and $538 million for 2020, 2019 and 2018.
NOTE 8 Leases
The Corporation enters into both lessor and lessee arrangements. For more information on lease accounting, see Note 1 – Summary of Significant Accounting Principles and on lease financing receivables, see Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses.
Lessor Arrangements
The Corporation’s lessor arrangements primarily consist of operating, sales-type and direct financing leases for equipment. Lease agreements may include options to renew and for the lessee to purchase the leased equipment at the end of the lease term.
The following table presents the net investment in sales-type and direct financing leases at December 31, 2020 and 2019.
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Net Investment (1) | | | | | | | | | |
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| | | | | December 31 | | |
| (Dollars in millions) | | | | | 2020 | | 2019 | | |
| Lease receivables | | | | | $ | 17,627 | | | $ | 19,312 | | | |
| Unguaranteed residuals | | | | | 2,303 | | | 2,550 | | | |
Total net investment in sales-type and direct
financing leases | | | | | $ | 19,930 | | | $ | 21,862 | | | |
(1) In certain cases, the Corporation obtains third-party residual value insurance to reduce its residual asset risk. The carrying value of residual assets with third-party residual value insurance for at least a portion of the asset value was $6.9 billion and $5.8 billion at December 31, 2020 and 2019.
The following table presents lease income at December 31, 2020 and 2019.
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| Lease Income | | | | | | | | | |
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| | | | | |
| | | | | December 31 | | |
| (Dollars in millions) | | | | | 2020 | | 2019 | | |
| Sales-type and direct financing leases | | | | | $ | 707 | | | $ | 797 | | | |
| Operating leases | | | | | 931 | | | 891 | | | |
| Total lease income | | | | | $ | 1,638 | | | $ | 1,688 | | | |
Lessee Arrangements
The Corporation's lessee arrangements predominantly consist of operating leases for premises and equipment; the Corporation's financing leases are not significant.
Lease terms may contain renewal and extension options and early termination features. Generally, these options do not impact the lease term because the Corporation is not reasonably certain that it will exercise the options.
The following table provides information on the right-of-use assets, lease liabilities and weighted-average discount rates and lease terms at December 31, 2020 and 2019.
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| Lessee Arrangements |
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| December 31 |
| (Dollars in millions) | 2020 | | 2019 |
| Right-of-use asset | $ | 10,000 | | | $ | 9,735 | |
| Lease liabilities | 10,474 | | | 10,093 | |
| Weighted-average discount rate used to calculate present value of future minimum lease payments | 3.38 | % | | 3.68 | % |
| Weighted-average lease term (in years) | 8.4 | | 8.2 |
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| Lease Cost and Supplemental Information: | | | |
| Operating lease cost | $ | 2,149 | | | $ | 2,085 | |
Variable lease cost (1) | 474 | | | 498 | |
Total lease cost (2) | $ | 2,623 | | | $ | 2,583 | |
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Right-of-use assets obtained in exchange for new operating lease liabilities (3) | $ | 851 | | | $ | 931 | |
Operating cash flows from operating leases (4) | 2,039 | | | 2,009 | |
(1)Primarily consists of payments for common area maintenance and property taxes.
(2)Amounts are recorded in occupancy and equipment expense in the Consolidated Statement of Income.
(3)Represents non-cash activity and, accordingly, is not reflected in the Consolidated Statement of Cash Flows.
(4)Represents cash paid for amounts included in the measurements of lease liabilities.
Maturity Analysis
The maturities of lessor and lessee arrangements outstanding at December 31, 2020 are presented in the table below based on undiscounted cash flows.
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| Maturities of Lessor and Lessee Arrangements |
| | | | | |
| Lessor | | Lessee (1) |
| Operating
Leases | | Sales-type and Direct Financing Leases (2) | | Operating
Leases |
| (Dollars in millions) | December 31, 2020 |
| 2021 | $ | 843 | | | $ | 5,424 | | | $ | 1,927 | |
| 2022 | 748 | | | 4,934 | | | 1,715 | |
| 2023 | 630 | | | 3,637 | | | 1,454 | |
| 2024 | 479 | | | 2,089 | | | 1,308 | |
| 2025 | 339 | | | 1,143 | | | 1,087 | |
| Thereafter | 886 | | | 1,668 | | | 4,609 | |
Total undiscounted cash flows | $ | 3,925 | | | 18,895 | | | 12,100 | |
Less: Net present value adjustment | | | 1,268 | | | 1,626 | |
Total (3) | | | $ | 17,627 | | | $ | 10,474 | |
(1)Excludes $885 million in commitments under lessee arrangements that have not yet commenced with lease terms that will begin in 2021.
(2)Includes $12.7 billion in commercial lease financing receivables and $4.9 billion in direct/indirect consumer lease financing receivables.
(3)Represents lease receivables for lessor arrangements and lease liabilities for lessee arrangements.
NOTE 9 Deposits
The table below presents information about the Corporation’s time deposits of $100,000 or more at December 31, 2020 and 2019. The Corporation also had aggregate time deposits of $10.7 billion and $15.8 billion in denominations that met or exceeded the Federal Deposit Insurance Corporation (FDIC) insurance limit at December 31, 2020 and 2019.
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| Time Deposits of $100,000 or More | | | | | | | | |
| | | | | | | | | |
| December 31, 2020 | | December 31
2019 |
| (Dollars in millions) | Three Months
or Less | | Over Three
Months to
Twelve Months | | Thereafter | | Total | | Total |
| U.S. certificates of deposit and other time deposits | $ | 12,485 | | | $ | 10,668 | | | $ | 1,445 | | | $ | 24,598 | | | $ | 39,739 | |
| Non-U.S. certificates of deposit and other time deposits | 8,568 | | | 1,925 | | | 1,432 | | | 11,925 | | | 13,034 | |
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The scheduled contractual maturities for total time deposits at December 31, 2020 are presented in the table below.
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| Contractual Maturities of Total Time Deposits | | | | | |
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| (Dollars in millions) | U.S. | | Non-U.S. | | Total |
| | | | | |
| Due in 2021 | $ | 40,052 | | | $ | 10,609 | | | $ | 50,661 | |
| Due in 2022 | 2,604 | | | 167 | | | 2,771 | |
| Due in 2023 | 431 | | | 4 | | | 435 | |
| Due in 2024 | 222 | | | 5 | | | 227 | |
| Due in 2025 | 186 | | | 13 | | | 199 | |
| Thereafter | 276 | | | 1,287 | | | 1,563 | |
| Total time deposits | $ | 43,771 | | | $ | 12,085 | | | $ | 55,856 | |
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NOTE 10 Federal Funds Sold or Purchased, Securities Financing Agreements, Short-term Borrowings and Restricted Cash
The table below presents federal funds sold or purchased, securities financing agreements (which include securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase) and short-term borrowings. The Corporation elects to account for certain securities financing agreements and short-term borrowings under the fair value option. For more information on the fair value option, see Note 21 – Fair Value Option.
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| | | | | | | | | Amount | | Rate | | Amount | | Rate |
| | | |
| (Dollars in millions) | | | | | 2020 | | 2019 |
| Federal funds sold and securities borrowed or purchased under agreements to resell | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Average during year | | | | | | | | | $ | 309,945 | | | 0.29 | % | | $ | 279,610 | | | 1.73 | % |
| Maximum month-end balance during year | | | | | | | | | 451,179 | | | n/a | | 281,684 | | | n/a |
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| Federal funds purchased and securities loaned or sold under agreements to repurchase | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Average during year | | | | | | | | | $ | 192,479 | | | 0.69 | % | | $ | 201,797 | | | 2.31 | % |
| Maximum month-end balance during year | | | | | | | | | 206,493 | | | n/a | | 203,063 | | | n/a |
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| Short-term borrowings | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Average during year | | | | | | | | | 22,486 | | | 0.54 | | | 24,301 | | | 2.42 | |
| Maximum month-end balance during year | | | | | | | | | 30,118 | | | n/a | | 36,538 | | | n/a |
n/a = not applicable
Bank of America, N.A. maintains a global program to offer up to a maximum of $75.0 billion outstanding at any one time, of bank notes with fixed or floating rates and maturities of at least seven days from the date of issue. Short-term bank notes outstanding under this program totaled $3.9 billion and $11.7 billion at December 31, 2020 and 2019. These short-term bank notes, along with Federal Home Loan Bank advances, U.S. Treasury tax and loan notes, and term federal funds purchased, are included in short-term borrowings on the Consolidated Balance Sheet.
Offsetting of Securities Financing Agreements
The Corporation enters into securities financing agreements to accommodate customers (also referred to as “matched-book transactions”), obtain securities to cover short positions and finance inventory positions. Substantially all of the Corporation’s securities financing activities are transacted under legally enforceable master repurchase agreements or legally enforceable master securities lending agreements that give the Corporation, in the event of default by the counterparty, the right
to liquidate securities held and to offset receivables and payables with the same counterparty. The Corporation offsets securities financing transactions with the same counterparty on the Consolidated Balance Sheet where it has such a legally enforceable master netting agreement and the transactions have the same maturity date.
The Securities Financing Agreements table presents securities financing agreements included on the Consolidated Balance Sheet in federal funds sold and securities borrowed or purchased under agreements to resell, and in federal funds purchased and securities loaned or sold under agreements to repurchase at December 31, 2020 and 2019. Balances are presented on a gross basis, prior to the application of counterparty netting. Gross assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements. For more information on the offsetting of derivatives, see Note 3 – Derivatives.
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| Securities Financing Agreements |
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| Gross Assets/Liabilities (1) | | Amounts Offset | | Net Balance Sheet Amount | | Financial Instruments (2) | | Net Assets/Liabilities |
| (Dollars in millions) | December 31, 2020 |
Securities borrowed or purchased under agreements to resell (3) | $ | 492,387 | | | $ | (188,329) | | | $ | 304,058 | | | $ | (272,351) | | | $ | 31,707 | |
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| Securities loaned or sold under agreements to repurchase | $ | 358,652 | | | $ | (188,329) | | | $ | 170,323 | | | $ | (158,867) | | | $ | 11,456 | |
Other (4) | 16,210 | | | 0 | | | 16,210 | | | (16,210) | | | 0 | |
| Total | $ | 374,862 | | | $ | (188,329) | | | $ | 186,533 | | | $ | (175,077) | | | $ | 11,456 | |
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| December 31, 2019 |
Securities borrowed or purchased under agreements to resell (3) | $ | 434,257 | | | $ | (159,660) | | | $ | 274,597 | | | $ | (244,486) | | | $ | 30,111 | |
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| Securities loaned or sold under agreements to repurchase | $ | 324,769 | | | $ | (159,660) | | | $ | 165,109 | | | $ | (141,482) | | | $ | 23,627 | |
Other (4) | 15,346 | | | 0 | | | 15,346 | | | (15,346) | | | 0 | |
| Total | $ | 340,115 | | | $ | (159,660) | | | $ | 180,455 | | | $ | (156,828) | | | $ | 23,627 | |
(1)Includes activity where uncertainty exists as to the enforceability of certain master netting agreements under bankruptcy laws in some countries or industries.
(2)Includes securities collateral received or pledged under repurchase or securities lending agreements where there is a legally enforceable master netting agreement. These amounts are not offset on the Consolidated Balance Sheet, but are shown as a reduction to derive a net asset or liability. Securities collateral received or pledged where the legal enforceability of the master netting agreements is uncertain is excluded from the table.
(3)Excludes repurchase activity of $14.7 billion and $12.9 billion reported in loans and leases on the Consolidated Balance Sheet at December 31, 2020 and 2019.
(4)Balance is reported in accrued expenses and other liabilities on the Consolidated Balance Sheet and relates to transactions where the Corporation acts as the lender in a securities lending agreement and receives securities that can be pledged as collateral or sold. In these transactions, the Corporation recognizes an asset at fair value, representing the securities received, and a liability, representing the obligation to return those securities.
Repurchase Agreements and Securities Loaned Transactions Accounted for as Secured Borrowings
The following tables present securities sold under agreements to repurchase and securities loaned by remaining contractual term to maturity and class of collateral pledged. Included in “Other” are transactions where the Corporation acts as the lender in a securities lending agreement and receives securities that can be pledged as collateral or sold. Certain agreements contain a right to substitute collateral and/or terminate the agreement prior to maturity at the option of the Corporation or the counterparty. Such agreements are included in the table below based on the remaining contractual term to maturity.
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| Remaining Contractual Maturity |
| | | | | | | | | |
| |
| Overnight and Continuous | | 30 Days or Less | | After 30 Days Through 90 Days | | Greater than 90 Days (1) | | Total |
| (Dollars in millions) | December 31, 2020 |
| Securities sold under agreements to repurchase | $ | 158,400 | | | $ | 122,448 | | | $ | 32,149 | | | $ | 22,684 | | | $ | 335,681 | |
| Securities loaned | 19,140 | | | 271 | | | 1,029 | | | 2,531 | | | 22,971 | |
| Other | 16,210 | | | 0 | | | 0 | | | 0 | | | 16,210 | |
| Total | $ | 193,750 | | | $ | 122,719 | | | $ | 33,178 | | | $ | 25,215 | | | $ | 374,862 | |
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| December 31, 2019 |
| Securities sold under agreements to repurchase | $ | 129,455 | | | $ | 122,685 | | | $ | 25,322 | | | $ | 21,922 | | | $ | 299,384 | |
| Securities loaned | 18,766 | | | 3,329 | | | 1,241 | | | 2,049 | | | 25,385 | |
| Other | 15,346 | | | 0 | | | 0 | | | 0 | | | 15,346 | |
| Total | $ | 163,567 | | | $ | 126,014 | | | $ | 26,563 | | | $ | 23,971 | | | $ | 340,115 | |
(1)NaN agreements have maturities greater than three years.
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| Class of Collateral Pledged |
| | | | | | | |
| |
| Securities Sold Under Agreements to Repurchase | | Securities
Loaned | | Other | | Total |
| (Dollars in millions) | December 31, 2020 |
| U.S. government and agency securities | $ | 195,167 | | | $ | 5 | | | $ | 0 | | | $ | 195,172 | |
| Corporate securities, trading loans and other | 8,633 | | | 1,628 | | | 1,217 | | | 11,478 | |
| Equity securities | 14,752 | | | 21,125 | | | 14,931 | | | 50,808 | |
| Non-U.S. sovereign debt | 113,142 | | | 213 | | | 62 | | | 113,417 | |
| Mortgage trading loans and ABS | 3,987 | | | 0 | | | 0 | | | 3,987 | |
| Total | $ | 335,681 | | | $ | 22,971 | | | $ | 16,210 | | | $ | 374,862 | |
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| December 31, 2019 |
| U.S. government and agency securities | $ | 173,533 | | | $ | 1 | | | $ | 0 | | | $ | 173,534 | |
| Corporate securities, trading loans and other | 10,467 | | | 2,014 | | | 258 | | | 12,739 | |
| Equity securities | 14,933 | | | 20,026 | | | 15,024 | | | 49,983 | |
| Non-U.S. sovereign debt | 96,576 | | | 3,344 | | | 64 | | | 99,984 | |
| Mortgage trading loans and ABS | 3,875 | | | 0 | | | 0 | | | 3,875 | |
| Total | $ | 299,384 | | | $ | 25,385 | | | $ | 15,346 | | | $ | 340,115 | |
Under repurchase agreements, the Corporation is required to post collateral with a market value equal to or in excess of the principal amount borrowed. For securities loaned transactions, the Corporation receives collateral in the form of cash, letters of credit or other securities. To determine whether the market value of the underlying collateral remains sufficient, collateral is generally valued daily, and the Corporation may be required to deposit additional collateral or may receive or return collateral pledged when appropriate. Repurchase agreements and securities loaned transactions are generally either overnight, continuous (i.e., no stated term) or short-term. The Corporation manages liquidity risks related to these agreements by sourcing
funding from a diverse group of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate.
Restricted Cash
At December 31, 2020 and 2019, the Corporation held restricted cash included within cash and cash equivalents on the Consolidated Balance Sheet of $7.0 billion and $24.4 billion, predominantly related to cash held on deposit with the Federal Reserve Bank and non-U.S. central banks to meet reserve requirements and cash segregated in compliance with securities regulations.
NOTE 11 Long-term Debt
Long-term debt consists of borrowings having an original maturity of one year or more. The table below presents the balance of long-term debt at December 31, 2020 and 2019, and the related contractual rates and maturity dates as of December 31, 2020.
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| Weighted-average Rate | | | | | | | December 31 |
| (Dollars in millions) | | Interest Rates | | Maturity Dates | | 2020 | | 2019 |
Notes issued by Bank of America Corporation (1) | | | | | | | | | | | |
| Senior notes: | | | | | | | | | | | |
| Fixed | 3.05 | | % | | 0.25 - 8.05 | % | | 2021 - 2051 | | $ | 174,385 | | | $ | 140,265 | |
| Floating | 0.74 | | | | 0.09 - 4.96 | | | 2021 - 2044 | | 16,788 | | | 19,552 | |
| Senior structured notes | | | | | | | | | 17,033 | | | 16,941 | |
| Subordinated notes: | | | | | | | | | | | |
| Fixed | 4.89 | | | | 2.94 - 8.57 | | | 2021 - 2045 | | 23,337 | | | 21,632 | |
| Floating | 1.15 | | | | 0.88 - 1.41 | | | 2022 - 2026 | | 799 | | | 782 | |
| Junior subordinated notes: | | | | | | | | | | | |
| Fixed | 6.71 | | | | 6.45 - 8.05 | | | 2027 - 2066 | | 738 | | | 736 | |
| Floating | 1.03 | | | | 1.03 | | | | 2056 | | 1 | | | 1 | |
| Total notes issued by Bank of America Corporation | | | | | | | | | 233,081 | | | 199,909 | |
| Notes issued by Bank of America, N.A. | | | | | | | | | | | |
| Senior notes: | | | | | | | | | | | |
| Fixed | 3.34 | | | | 3.34 | | | | 2023 | | 511 | | | 508 | |
| Floating | 0.33 | | | | 0.28 - 0.49 | | | 2021 - 2041 | | 2,323 | | | 6,519 | |
| Subordinated notes | 6.00 | | | | 6.00 | | | | 2036 | | 1,883 | | | 1,744 | |
| Advances from Federal Home Loan Banks: | | | | | | | | | | | |
| Fixed | 0.99 | | | | 0.01 - 7.72 | | | 2021 - 2034 | | 599 | | | 112 | |
| Floating | | | | | | | | | 0 | | | 2,500 | |
Securitizations and other BANA VIEs (2) | | | | | | | | | 6,296 | | | 8,373 | |
| Other | | | | | | | | | 683 | | | 402 | |
| Total notes issued by Bank of America, N.A. | | | | | | | | | 12,295 | | | 20,158 | |
| Other debt | | | | | | | | | | | |
| Structured liabilities | | | | | | | | | 16,792 | | | 20,442 | |
Nonbank VIEs (2) | | | | | | | | | 757 | | | 347 | |
| Other | | | | | | | | | 9 | | | 0 | |
| Total notes issued by nonbank and other entities | | | | | | | | | 17,558 | | | 20,789 | |
| Total long-term debt | | | | | | | | | $ | 262,934 | | | $ | 240,856 | |
(1)Includes total loss-absorbing capacity compliant debt.
(2)Represents liabilities of consolidated VIEs included in total long-term debt on the Consolidated Balance Sheet.
During 2020, the Corporation issued $56.9 billion of long-term debt consisting of $43.8 billion of notes issued by Bank of America Corporation, $4.8 billion of notes issued by Bank of America, N.A. and $8.3 billion of other debt. During 2019, the Corporation issued $52.5 billion of long-term debt consisting of $29.3 billion of notes issued by Bank of America Corporation, $10.9 billion of notes issued by Bank of America, N.A. and $12.3 billion of other debt.
During 2020, the Corporation had total long-term debt maturities and redemptions in the aggregate of $47.1 billion consisting of $22.6 billion for Bank of America Corporation, $11.5 billion for Bank of America, N.A. and $13.0 billion of other debt. During 2019, the Corporation had total long-term debt maturities and redemptions in the aggregate of $50.6 billion consisting of $21.1 billion for Bank of America Corporation, $19.9 billion for Bank of America, N.A. and $9.6 billion of other debt.
Bank of America Corporation and Bank of America, N.A. maintain various U.S. and non-U.S. debt programs to offer both senior and subordinated notes. The notes may be denominated in U.S. dollars or foreign currencies. At December 31, 2020 and 2019, the amount of foreign currency-denominated debt translated into U.S. dollars included in total long-term debt was $54.6 billion and $49.6 billion. Foreign currency contracts may be used to convert certain foreign currency-denominated debt into U.S. dollars.
At December 31, 2020, long-term debt of consolidated VIEs in the table above included debt from credit card, residential mortgage, home equity and other VIEs of $6.3 billion, $491 million, $178 million and $111 million, respectively. Long-term debt of VIEs is collateralized by the assets of the VIEs. For more information, see Note 6 – Securitizations and Other Variable Interest Entities.
The weighted-average effective interest rates for total long-term debt (excluding senior structured notes), total fixed-rate debt and total floating-rate debt were 3.02 percent, 3.29 percent and 0.71 percent, respectively, at December 31, 2020, and 3.26 percent, 3.55 percent and 1.92 percent, respectively, at December 31, 2019. The Corporation’s ALM activities maintain an overall interest rate risk management strategy that incorporates the use of interest rate contracts to manage fluctuations in earnings caused by interest rate volatility. The Corporation’s goal is to manage interest rate sensitivity so that movements in interest rates do not have a significantly adverse effect on earnings and capital. The weighted-average rates are the contractual interest rates on the debt and do not reflect the impacts of derivative transactions.
Debt outstanding of $4.8 billion at December 31, 2020 was issued by BofA Finance LLC, a consolidated finance subsidiary
of Bank of America Corporation, the parent company, and is fully and unconditionally guaranteed by the parent company.
The table below shows the carrying value for aggregate annual contractual maturities of long-term debt as of December 31, 2020. Included in the table are certain structured notes issued by the Corporation that contain provisions whereby the borrowings are redeemable at the option of the holder (put options) at specified dates prior to maturity. Other structured notes have coupon or repayment terms linked to the performance of debt or equity securities, indices, currencies or commodities, and the maturity may be accelerated based on the value of a referenced index or security. In both cases, the Corporation or a subsidiary may be required to settle the obligation for cash or other securities prior to the contractual maturity date. These borrowings are reflected in the table as maturing at their contractual maturity date.
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| Long-term Debt by Maturity |
| | | | | | | | | | | | | | |
| (Dollars in millions) | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total |
| Bank of America Corporation | | | | | | | | | | | | | |
| Senior notes | $ | 8,888 | | | $ | 15,380 | | | $ | 23,872 | | | $ | 21,407 | | | $ | 15,723 | | | $ | 105,903 | | | $ | 191,173 | |
| Senior structured notes | 469 | | | 2,034 | | | 597 | | | 190 | | | 549 | | | 13,194 | | | 17,033 | |
| Subordinated notes | 371 | | | 393 | | | 0 | | | 3,351 | | | 5,537 | | | 14,484 | | | 24,136 | |
| Junior subordinated notes | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 739 | | | 739 | |
| Total Bank of America Corporation | 9,728 | | | 17,807 | | | 24,469 | | | 24,948 | | | 21,809 | | | 134,320 | | | 233,081 | |
| Bank of America, N.A. | | | | | | | | | | | | | |
| Senior notes | 1,340 | | | 975 | | | 511 | | | 0 | | | 0 | | | 8 | | | 2,834 | |
| Subordinated notes | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,883 | | | 1,883 | |
| Advances from Federal Home Loan Banks | 502 | | | 3 | | | 1 | | | 0 | | | 18 | | | 75 | | | 599 | |
Securitizations and other Bank VIEs (1) | 4,056 | | | 1,241 | | | 977 | | | 0 | | | 0 | | | 22 | | | 6,296 | |
| Other | 112 | | | 16 | | | 189 | | | 0 | | | 279 | | | 87 | | | 683 | |
| Total Bank of America, N.A. | 6,010 | | | 2,235 | | | 1,678 | | | 0 | | | 297 | | | 2,075 | | | 12,295 | |
| Other debt | | | | | | | | | | | | | |
| Structured Liabilities | 4,613 | | | 2,414 | | | 2,221 | | | 655 | | | 859 | | | 6,030 | | | 16,792 | |
Nonbank VIEs (1) | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 756 | | | 757 | |
| Other | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 9 | | | 9 | |
| Total other debt | 4,614 | | | 2,414 | | | 2,221 | | | 655 | | | 859 | | | 6,795 | | | 17,558 | |
| Total long-term debt | $ | 20,352 | | | $ | 22,456 | | | $ | 28,368 | | | $ | 25,603 | | | $ | 22,965 | | | $ | 143,190 | | | $ | 262,934 | |
(1) Represents liabilities of consolidated VIEs included in total long-term debt on the Consolidated Balance Sheet.
NOTE 12 Commitments and Contingencies
In the normal course of business, the Corporation enters into a number of off-balance sheet commitments. These commitments expose the Corporation to varying degrees of credit and market risk and are subject to the same credit and market risk limitation reviews as those instruments recorded on the Consolidated Balance Sheet.
Credit Extension Commitments
The Corporation enters into commitments to extend credit such as loan commitments, SBLCs and commercial letters of credit to meet the financing needs of its customers. The following table includes the notional amount of unfunded legally binding lending commitments net of amounts distributed (i.e., syndicated or participated) to other financial institutions. The distributed amounts were $10.5 billion and $10.6 billion at December 31, 2020 and 2019. The carrying value of these commitments at December 31, 2020 and 2019, excluding commitments accounted for under the fair value option, was
$1.9 billion and $829 million, which primarily related to the reserve for unfunded lending commitments. The carrying value of these commitments is classified in accrued expenses and other liabilities on the Consolidated Balance Sheet.
Legally binding commitments to extend credit generally have specified rates and maturities. Certain of these commitments have adverse change clauses that help to protect the Corporation against deterioration in the borrower’s ability to pay.
The table below includes the notional amount of commitments of $4.0 billion and $4.4 billion at December 31, 2020 and 2019 that are accounted for under the fair value option. However, the table excludes cumulative net fair value of $99 million and $90 million at December 31, 2020 and 2019 on these commitments, which is classified in accrued expenses and other liabilities. For more information regarding the Corporation’s loan commitments accounted for under the fair value option, see Note 21 – Fair Value Option.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Credit Extension Commitments | | | | | | | | | |
| |
| Expire in One
Year or Less | | Expire After One
Year Through
Three Years | | Expire After Three Years Through
Five Years | | Expire After
Five Years | | Total |
| (Dollars in millions) | December 31, 2020 |
| Notional amount of credit extension commitments | | | | | | | | | |
Loan commitments (1) | $ | 109,406 | | | $ | 171,887 | | | $ | 139,508 | | | $ | 16,091 | | | $ | 436,892 | |
| Home equity lines of credit | 710 | | | 2,992 | | | 8,738 | | | 29,892 | | | 42,332 | |
Standby letters of credit and financial guarantees (2) | 19,962 | | | 12,038 | | | 2,397 | | | 1,257 | | | 35,654 | |
Letters of credit (3) | 886 | | | 197 | | | 25 | | | 27 | | | 1,135 | |
| Legally binding commitments | 130,964 | | | 187,114 | | | 150,668 | | | 47,267 | | | 516,013 | |
Credit card lines (4) | 384,955 | | | 0 | | | 0 | | | 0 | | | 384,955 | |
| Total credit extension commitments | $ | 515,919 | | | $ | 187,114 | | | $ | 150,668 | | | $ | 47,267 | | | $ | 900,968 | |
| | | | | | | | | |
| | December 31, 2019 |
| Notional amount of credit extension commitments | | | | | | | | | |
Loan commitments (1) | $ | 97,454 | | | $ | 148,000 | | | $ | 173,699 | | | $ | 24,487 | | | $ | 443,640 | |
| Home equity lines of credit | 1,137 | | | 1,948 | | | 6,351 | | | 34,134 | | | 43,570 | |
Standby letters of credit and financial guarantees (2) | 21,311 | | | 11,512 | | | 3,712 | | | 408 | | | 36,943 | |
Letters of credit (3) | 1,156 | | | 254 | | | 65 | | | 25 | | | 1,500 | |
| Legally binding commitments | 121,058 | | | 161,714 | | | 183,827 | | | 59,054 | | | 525,653 | |
Credit card lines (4) | 376,067 | | | 0 | | | 0 | | | 0 | | | 376,067 | |
| Total credit extension commitments | $ | 497,125 | | | $ | 161,714 | | | $ | 183,827 | | | $ | 59,054 | | | $ | 901,720 | |
(1) At December 31, 2020 and 2019, $4.8 billion and $5.1 billion of these loan commitments were held in the form of a security.
(2) The notional amounts of SBLCs and financial guarantees classified as investment grade and non-investment grade based on the credit quality of the underlying reference name within the instrument were $25.0 billion and $10.2 billion at December 31, 2020, and $27.9 billion and $8.6 billion at December 31, 2019. Amounts in the table include consumer SBLCs of $500 million and $413 million at December 31, 2020 and 2019.
(3) At December 31, 2020 and 2019, included are letters of credit of $1.8 billion and $1.4 billion related to certain liquidity commitments of VIEs. For more information, see Note 6 – Securitizations and Other Variable Interest Entities.
(4) Includes business card unused lines of credit.
Other Commitments
At December 31, 2020 and 2019, the Corporation had commitments to purchase loans (e.g., residential mortgage and commercial real estate) of $93 million and $86 million, which upon settlement will be included in trading account assets, loans or LHFS, and commitments to purchase commercial loans of $645 million and $1.1 billion, which upon settlement will be included in trading account assets.
At December 31, 2020 and 2019, the Corporation had commitments to purchase commodities, primarily liquefied natural gas, of $582 million and $830 million, which upon settlement will be included in trading account assets.
At December 31, 2020 and 2019, the Corporation had commitments to enter into resale and forward-dated resale and securities borrowing agreements of $66.5 billion and $97.2 billion, and commitments to enter into forward-dated repurchase and securities lending agreements of $32.1 billion and $24.9 billion. These commitments generally expire within the next 12 months.
At December 31, 2020 and 2019, the Corporation had a commitment to originate or purchase up to $3.9 billion and $3.3 billion on a rolling 12-month basis, of auto loans and leases from a strategic partner. This commitment extends through November 2022 and can be terminated with 12 months prior notice.
Other Guarantees
Bank-owned Life Insurance Book Value Protection
The Corporation sells products that offer book value protection to insurance carriers who offer group life insurance policies to corporations, primarily banks. At December 31, 2020 and 2019, the notional amount of these guarantees totaled $7.1 billion and $7.3 billion. At both December 31, 2020 and 2019, the Corporation’s maximum exposure related to these guarantees totaled $1.1 billion, with estimated maturity dates between 2033 and 2039.
Indemnifications
In the ordinary course of business, the Corporation enters into various agreements that contain indemnifications, such as tax indemnifications, whereupon payment may become due if certain external events occur, such as a change in tax law. The indemnification clauses are often standard contractual terms and were entered into in the normal course of business based on an assessment that the risk of loss would be remote. These agreements typically contain an early termination clause that permits the Corporation to exit the agreement upon these events. The maximum potential future payment under indemnification agreements is difficult to assess for several reasons, including the occurrence of an external event, the inability to predict future changes in tax and other laws, the difficulty in determining how such laws would apply to parties in contracts, the absence of exposure limits contained in standard contract language and the timing of any early termination clauses. Historically, any payments made under these guarantees have been de minimis. The Corporation has assessed the probability of making such payments in the future as remote.
Merchant Services
Prior to July 1, 2020, a significant portion of the Corporation's merchant processing activity was performed by a joint venture in which the Corporation held a 49 percent ownership interest. On July 29, 2019, the Corporation gave notice to the joint venture partner of the termination of the joint venture upon the conclusion of its current term on June 30, 2020. Effective July 1, 2020, the Corporation received its share of the joint venture's merchant contracts and began performing merchant processing services for these merchants. While merchants bear responsibility for any credit or debit card charges properly reversed by the cardholder, the Corporation, in its role as merchant acquirer, may be held liable for any reversed charges that cannot be collected from the merchants due to, among other things, merchant fraud or insolvency.
The Corporation, as a card network member bank, also sponsors other merchant acquirers, principally its former joint venture partner with respect to merchant contracts distributed to that partner upon the termination of the joint venture. If charges are properly reversed after a purchase and cannot be collected from either the merchants or merchant acquirers, the Corporation may be held liable for these reversed charges. The ability to reverse a charge is primarily governed by the applicable regulatory and card network rules, which include, but are not limited to, the type of charge, type of payment used and time limits. For the six-months ended December 31, 2020, the Corporation processed an aggregate purchase volume of $339.2 billion. The Corporation’s risk in this area primarily relates to circumstances where a cardholder has purchased goods or services for future delivery. The Corporation mitigates this risk by requiring cash deposits, guarantees, letters of credit or other types of collateral from certain merchants. The Corporation’s reserves for contingent losses and the losses incurred related to the merchant processing activity were not significant. The Corporation continues to monitor its exposure in this area due to the potential economic impacts of COVID-19.
Exchange and Clearing House Member Guarantees
The Corporation is a member of various securities and derivative exchanges and clearinghouses, both in the U.S. and other countries. As a member, the Corporation may be required to pay a pro-rata share of the losses incurred by some of these organizations as a result of another member default and under other loss scenarios. The Corporation’s potential obligations may be limited to its membership interests in such exchanges and clearinghouses, to the amount (or multiple) of the Corporation’s contribution to the guarantee fund or, in limited instances, to the full pro-rata share of the residual losses after applying the guarantee fund. The Corporation’s maximum potential exposure under these membership agreements is difficult to estimate; however, the Corporation has assessed the probability of making any such payments as remote.
Prime Brokerage and Securities Clearing Services
In connection with its prime brokerage and clearing businesses, the Corporation performs securities clearance and settlement services with other brokerage firms and clearinghouses on behalf of its clients. Under these arrangements, the Corporation stands ready to meet the obligations of its clients with respect to securities transactions. The Corporation’s obligations in this respect are secured by the assets in the clients’ accounts and the accounts of their customers as well as by any proceeds received from the transactions cleared and settled by the Corporation on behalf of clients or their customers. The Corporation’s maximum potential exposure under these arrangements is difficult to estimate; however, the potential for the Corporation to incur material losses pursuant to these arrangements is remote.
Fixed Income Clearing Corporation Sponsored Member Repo Program
The Corporation acts as a sponsoring member in a repo program whereby the Corporation clears certain eligible resale and repurchase agreements through the Government Securities Division of the Fixed Income Clearing Corporation on behalf of clients that are sponsored members in accordance with the Fixed Income Clearing Corporation’s rules. As part of this program, the Corporation guarantees the payment and performance of its sponsored members to the Fixed Income Clearing Corporation. The Corporation’s guarantee obligation is
secured by a security interest in cash or high-quality securities collateral placed by clients with the clearinghouse and therefore, the potential for the Corporation to incur significant losses under this arrangement is remote. The Corporation’s maximum potential exposure, without taking into consideration the related collateral, was $22.5 billion and $9.3 billion at December 31, 2020 and 2019.
Other Guarantees
The Corporation has entered into additional guarantee agreements and commitments, including sold risk participation swaps, liquidity facilities, lease-end obligation agreements, partial credit guarantees on certain leases, real estate joint venture guarantees, divested business commitments and sold put options that require gross settlement. The maximum potential future payments under these agreements are approximately $8.8 billion and $8.7 billion at December 31, 2020 and 2019. The estimated maturity dates of these obligations extend up to 2049. The Corporation has made no material payments under these guarantees. For more information on maximum potential future payments under VIE-related liquidity commitments, see Note 6 – Securitizations and Other Variable Interest Entities.
In the normal course of business, the Corporation periodically guarantees the obligations of its affiliates in a variety of transactions including ISDA-related transactions and non-ISDA related transactions such as commodities trading, repurchase agreements, prime brokerage agreements and other transactions.
Guarantees of Certain Long-term Debt
The Corporation, as the parent company, fully and unconditionally guarantees the securities issued by BofA Finance LLC, a consolidated finance subsidiary of the Corporation, and effectively provides for the full and unconditional guarantee of trust securities issued by certain statutory trust companies that are 100 percent owned finance subsidiaries of the Corporation.
Representations and WarrantiesObligations and Corporate Guarantees
The Corporation securitizes first-lien residential mortgage loans generally in the form of RMBS guaranteed by the GSEs or by GNMA in the case of FHA-insured, VA-guaranteed and Rural Housing Service-guaranteed mortgage loans, and sells pools of first-lien residential mortgage loans in the form of whole loans. In addition, in prior years, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations or in the form of whole loans. In connection with these transactions, the Corporation or certain of its subsidiaries or legacy companies make and have made various representations and warranties. Breaches of these representations and warranties have resulted in and may continue to result in the requirement to repurchase mortgage loans or to otherwise make whole or provide indemnification or other remedies to sponsors, investors, securitization trusts, guarantors, insurers or other parties (collectively, repurchases).
Settlement Actions
The Corporation has vigorously contested any request for repurchase where it has concluded that a valid basis for repurchase does not exist and will continue to do so in the future. However, in an effort to resolve legacy mortgage-related issues, the Corporation has reached bulk settlements, certain of which have been for significant amounts, in lieu of a loan-by-loan review process. The Corporation’s liability in connection with the transactions and claims not covered by these settlements could be material to the Corporation’s results of operations or liquidity for any particular reporting period. The Corporation may reach other settlements in the future if opportunities arise on terms it believes to be advantageous. However, there can be no assurance that the Corporation will reach future settlements or, if it does, that the terms of past settlements can be relied upon to predict the terms of future settlements.
Unresolved Repurchase ClaimsIntangible Assets
Unresolved representationsAt December 31, 2020 and warranties repurchase claims represent2019, the notional amountnet carrying value of repurchase claims made by counterparties, typicallyintangible assets was $2.2 billion and $1.7 billion. During 2020, the outstanding principal balance or the unpaid principal balance at the time of default. In the case of first-lien mortgages, the claim amountCorporation recognized a $585 million intangible asset, which is often significantly greater than the expected loss amount duebeing amortized over a 10-year life, related to the benefit of collateral and, in some cases, mortgage insurance or mortgage guarantee payments. Claims received from a counterparty remain outstanding until the underlying loan is repurchased, the claim is rescinded by the counterparty,merchant contracts that were distributed to the Corporation determines that the applicable statute of limitations has expired, or representations and warranties claims with respect to the applicable trust are settled, and fully and finally released. The Corporation does not include duplicate claims in the amounts disclosed.
The table below presents unresolved repurchase claims at December 31, 2017 and 2016. The unresolved repurchase claims include only claims where the Corporation believes that the counterparty has the contractual right to submit claims. The unresolved repurchase claims predominantly relate to subprime and pay option first-lien loans and home equity loans originated primarily between 2004 and 2008.from its merchant servicing joint venture. For more information, see Private-label Securitizations and Whole-loan Sales Experience in this Note and Note 12 – Commitments and Contingencies.
|
| | | | | | | |
| | | | |
| Unresolved Repurchase Claims by Counterparty, Net of Duplicate Claims |
| | | | |
| | December 31 |
| (Dollars in millions) | 2017 | | 2016 |
| By counterparty | |
| | |
|
Private-label securitization trustees, whole-loan investors, including third-party securitization sponsors and other (1) | $ | 16,064 |
| | $ | 16,685 |
|
| Monolines | 1,565 |
| | 1,583 |
|
| GSEs | 5 |
| | 9 |
|
| Total unresolved repurchase claims by counterparty, net of duplicate claims | $ | 17,634 |
| | $ | 18,277 |
|
| |
(1)
| Includes $11.4 billion and $11.9 billion of claims based on individual file reviews and $4.7 billion and $4.8 billion of claims submitted without individual file reviews at December 31, 2017 and 2016.
|
During 2017, the Corporation received $151 million in new repurchase claimsAt both December 31, 2020 and $794 million in claims were resolved, including $640 million related to settlements. Of the remaining unresolved monoline claims,2019, intangible assets included $1.6 billion of intangible assets associated with trade names, substantially all of the claims pertain to second-lien loanswhich had an indefinite life and, accordingly, are currently the subjectnot being amortized. Amortization of litigation with a single monoline insurer. There may be additional claims or file requests in the future.intangibles expense was $95 million, $112 million and $538 million for 2020, 2019 and 2018.
NOTE 8 Leases
The Corporation enters into both lessor and lessee arrangements. For more information on lease accounting, see Note 1 – Summary of Significant Accounting Principles and on lease financing receivables, see Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses.
Lessor Arrangements
The Corporation’s lessor arrangements primarily consist of operating, sales-type and direct financing leases for equipment. Lease agreements may include options to renew and for the lessee to purchase the leased equipment at the end of the lease term.
The following table presents the net investment in sales-type and direct financing leases at December 31, 2020 and 2019.
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| | | | | | | | | |
Net Investment (1) | | | | | | | | | |
| | | | | | | | | |
| | | | | |
| | | | | December 31 | | |
| (Dollars in millions) | | | | | 2020 | | 2019 | | |
| Lease receivables | | | | | $ | 17,627 | | | $ | 19,312 | | | |
| Unguaranteed residuals | | | | | 2,303 | | | 2,550 | | | |
Total net investment in sales-type and direct
financing leases | | | | | $ | 19,930 | | | $ | 21,862 | | | |
(1) In certain cases, the Corporation obtains third-party residual value insurance to reduce its residual asset risk. The carrying value of residual assets with third-party residual value insurance for at least a portion of the asset value was $6.9 billion and $5.8 billion at December 31, 2020 and 2019.
The following table presents lease income at December 31, 2020 and 2019.
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| | | | | | | | | |
| Lease Income | | | | | | | | | |
| | | | | | | | | |
| | | | | |
| | | | | December 31 | | |
| (Dollars in millions) | | | | | 2020 | | 2019 | | |
| Sales-type and direct financing leases | | | | | $ | 707 | | | $ | 797 | | | |
| Operating leases | | | | | 931 | | | 891 | | | |
| Total lease income | | | | | $ | 1,638 | | | $ | 1,688 | | | |
Lessee Arrangements
The Corporation's lessee arrangements predominantly consist of operating leases for premises and equipment; the Corporation's financing leases are not significant.
Lease terms may contain renewal and extension options and early termination features. Generally, these options do not impact the lease term because the Corporation is not reasonably certain that it will exercise the options.
The following table provides information on the right-of-use assets, lease liabilities and weighted-average discount rates and lease terms at December 31, 2020 and 2019.
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| | | |
| Lessee Arrangements |
| | | |
| December 31 |
| (Dollars in millions) | 2020 | | 2019 |
| Right-of-use asset | $ | 10,000 | | | $ | 9,735 | |
| Lease liabilities | 10,474 | | | 10,093 | |
| Weighted-average discount rate used to calculate present value of future minimum lease payments | 3.38 | % | | 3.68 | % |
| Weighted-average lease term (in years) | 8.4 | | 8.2 |
| | | |
| Lease Cost and Supplemental Information: | | | |
| Operating lease cost | $ | 2,149 | | | $ | 2,085 | |
Variable lease cost (1) | 474 | | | 498 | |
Total lease cost (2) | $ | 2,623 | | | $ | 2,583 | |
| | | |
Right-of-use assets obtained in exchange for new operating lease liabilities (3) | $ | 851 | | | $ | 931 | |
Operating cash flows from operating leases (4) | 2,039 | | | 2,009 | |
(1)Primarily consists of payments for common area maintenance and property taxes.
(2)Amounts are recorded in occupancy and equipment expense in the Consolidated Statement of Income.
(3)Represents non-cash activity and, accordingly, is not reflected in the Consolidated Statement of Cash Flows.
(4)Represents cash paid for amounts included in the measurements of lease liabilities.
Maturity Analysis
The maturities of lessor and lessee arrangements outstanding at December 31, 2020 are presented in the table below based on undiscounted cash flows.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Maturities of Lessor and Lessee Arrangements |
| | | | | |
| Lessor | | Lessee (1) |
| Operating
Leases | | Sales-type and Direct Financing Leases (2) | | Operating
Leases |
| (Dollars in millions) | December 31, 2020 |
| 2021 | $ | 843 | | | $ | 5,424 | | | $ | 1,927 | |
| 2022 | 748 | | | 4,934 | | | 1,715 | |
| 2023 | 630 | | | 3,637 | | | 1,454 | |
| 2024 | 479 | | | 2,089 | | | 1,308 | |
| 2025 | 339 | | | 1,143 | | | 1,087 | |
| Thereafter | 886 | | | 1,668 | | | 4,609 | |
Total undiscounted cash flows | $ | 3,925 | | | 18,895 | | | 12,100 | |
Less: Net present value adjustment | | | 1,268 | | | 1,626 | |
Total (3) | | | $ | 17,627 | | | $ | 10,474 | |
(1)Excludes $885 million in commitments under lessee arrangements that have not yet commenced with lease terms that will begin in 2021.
(2)Includes $12.7 billion in commercial lease financing receivables and $4.9 billion in direct/indirect consumer lease financing receivables.
(3)Represents lease receivables for lessor arrangements and lease liabilities for lessee arrangements.
NOTE 9 Deposits
The table below presents information about the Corporation’s time deposits of $100,000 or more at December 31, 2020 and 2019. The Corporation also had aggregate time deposits of $10.7 billion and $15.8 billion in denominations that met or exceeded the Federal Deposit Insurance Corporation (FDIC) insurance limit at December 31, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Time Deposits of $100,000 or More | | | | | | | | |
| | | | | | | | | |
| December 31, 2020 | | December 31
2019 |
| (Dollars in millions) | Three Months
or Less | | Over Three
Months to
Twelve Months | | Thereafter | | Total | | Total |
| U.S. certificates of deposit and other time deposits | $ | 12,485 | | | $ | 10,668 | | | $ | 1,445 | | | $ | 24,598 | | | $ | 39,739 | |
| Non-U.S. certificates of deposit and other time deposits | 8,568 | | | 1,925 | | | 1,432 | | | 11,925 | | | 13,034 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
| | Bank of America 2017144134 |
In addition to the unresolved repurchase claims in the Unresolved Repurchase Claims by Counterparty, Net of Duplicate Claims table, the Corporation has received notifications from a sponsor of third-party securitizations with whom the Corporation engaged in whole-loan transactions indicating that the Corporation may have indemnity obligations with respect to specific loans for which the Corporation has not received a repurchase request. These notifications were received prior to 2015, and totaled $1.3 billion at both December 31, 2017 and 2016. During 2017, the Corporation reached agreements with certain parties requesting indemnity. One such agreement is subject to acceptance by a securitization trustee. The impact of these agreements is included in the provision and reserve for representations and warranties.
The presence of repurchase claims on a given trust, receipt of notices of indemnification obligations and receipt of other communications, as discussed above, are all factors that inform the Corporation’s reservescheduled contractual maturities for representations and warranties and the corresponding estimated range of possible loss.
Private-label Securitizations and Whole-loan Sales Experience
The notional amount of unresolved repurchase claimstotal time deposits at December 31, 20172020 are presented in the table below.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Contractual Maturities of Total Time Deposits | | | | | |
| | | | | |
| (Dollars in millions) | U.S. | | Non-U.S. | | Total |
| | | | | |
| Due in 2021 | $ | 40,052 | | | $ | 10,609 | | | $ | 50,661 | |
| Due in 2022 | 2,604 | | | 167 | | | 2,771 | |
| Due in 2023 | 431 | | | 4 | | | 435 | |
| Due in 2024 | 222 | | | 5 | | | 227 | |
| Due in 2025 | 186 | | | 13 | | | 199 | |
| Thereafter | 276 | | | 1,287 | | | 1,563 | |
| Total time deposits | $ | 43,771 | | | $ | 12,085 | | | $ | 55,856 | |
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NOTE 10 Federal Funds Sold or Purchased, Securities Financing Agreements, Short-term Borrowings and 2016 included $6.9Restricted Cash
The table below presents federal funds sold or purchased, securities financing agreements (which include securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase) and short-term borrowings. The Corporation elects to account for certain securities financing agreements and short-term borrowings under the fair value option. For more information on the fair value option, see Note 21 – Fair Value Option.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | Amount | | Rate | | Amount | | Rate |
| | | |
| (Dollars in millions) | | | | | 2020 | | 2019 |
| Federal funds sold and securities borrowed or purchased under agreements to resell | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Average during year | | | | | | | | | $ | 309,945 | | | 0.29 | % | | $ | 279,610 | | | 1.73 | % |
| Maximum month-end balance during year | | | | | | | | | 451,179 | | | n/a | | 281,684 | | | n/a |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Federal funds purchased and securities loaned or sold under agreements to repurchase | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Average during year | | | | | | | | | $ | 192,479 | | | 0.69 | % | | $ | 201,797 | | | 2.31 | % |
| Maximum month-end balance during year | | | | | | | | | 206,493 | | | n/a | | 203,063 | | | n/a |
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| | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | |
| Short-term borrowings | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Average during year | | | | | | | | | 22,486 | | | 0.54 | | | 24,301 | | | 2.42 | |
| Maximum month-end balance during year | | | | | | | | | 30,118 | | | n/a | | 36,538 | | | n/a |
n/a = not applicable
Bank of America, N.A. maintains a global program to offer up to a maximum of $75.0 billion outstanding at any one time, of bank notes with fixed or floating rates and maturities of at least seven days from the date of issue. Short-term bank notes outstanding under this program totaled $3.9 billion and $5.6$11.7 billion at December 31, 2020 and 2019. These short-term bank notes, along with Federal Home Loan Bank advances, U.S. Treasury tax and loan notes, and term federal funds purchased, are included in short-term borrowings on the Consolidated Balance Sheet.
Offsetting of claims relatedSecurities Financing Agreements
The Corporation enters into securities financing agreements to loans in specific private-label securitization groups or tranches where the Corporation owns substantiallyaccommodate customers (also referred to as “matched-book transactions”), obtain securities to cover short positions and finance inventory positions. Substantially all of the outstandingCorporation’s securities financing activities are transacted under legally enforceable master repurchase agreements or will otherwise realizelegally enforceable master securities lending agreements that give the benefit of any repurchase claims paid.
The overall decreaseCorporation, in the notional amountevent of outstanding unresolved repurchase claims in 2017 was primarily due default by the counterparty, the right
to claims that were resolved as a result of settlements. Outstanding repurchase claims remained unresolved primarily dueliquidate securities held and to (1)offset receivables and payables with the level of detail, support and analysis accompanying such claims, which impact overall claim quality and, therefore, claims resolution, and (2) the lack of an established process to resolve disputes related to these claims.
same counterparty. The Corporation reviews properlyoffsets securities financing transactions with the same counterparty on the Consolidated Balance Sheet where it has such a legally enforceable master netting agreement and the transactions have the same maturity date.
The Securities Financing Agreements table presents securities financing agreements included on the Consolidated Balance Sheet in federal funds sold and securities borrowed or purchased under agreements to resell, and in federal funds purchased and securities loaned or sold under agreements to repurchase at December 31, 2020 and 2019. Balances are presented repurchase claims on a loan-by-loan basis.gross basis, prior to the application of counterparty netting. Gross assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements. For time-barred claims, the counterparty is informed that the claim is deniedmore information on the basisoffsetting of derivatives, see Note 3 – Derivatives.
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| | | | | | | | | |
| Securities Financing Agreements |
| | | | | | | | | |
| Gross Assets/Liabilities (1) | | Amounts Offset | | Net Balance Sheet Amount | | Financial Instruments (2) | | Net Assets/Liabilities |
| (Dollars in millions) | December 31, 2020 |
Securities borrowed or purchased under agreements to resell (3) | $ | 492,387 | | | $ | (188,329) | | | $ | 304,058 | | | $ | (272,351) | | | $ | 31,707 | |
| | | | | | | | | |
| Securities loaned or sold under agreements to repurchase | $ | 358,652 | | | $ | (188,329) | | | $ | 170,323 | | | $ | (158,867) | | | $ | 11,456 | |
Other (4) | 16,210 | | | 0 | | | 16,210 | | | (16,210) | | | 0 | |
| Total | $ | 374,862 | | | $ | (188,329) | | | $ | 186,533 | | | $ | (175,077) | | | $ | 11,456 | |
| | | | | | | | | |
| December 31, 2019 |
Securities borrowed or purchased under agreements to resell (3) | $ | 434,257 | | | $ | (159,660) | | | $ | 274,597 | | | $ | (244,486) | | | $ | 30,111 | |
| | | | | | | | | |
| Securities loaned or sold under agreements to repurchase | $ | 324,769 | | | $ | (159,660) | | | $ | 165,109 | | | $ | (141,482) | | | $ | 23,627 | |
Other (4) | 15,346 | | | 0 | | | 15,346 | | | (15,346) | | | 0 | |
| Total | $ | 340,115 | | | $ | (159,660) | | | $ | 180,455 | | | $ | (156,828) | | | $ | 23,627 | |
(1)Includes activity where uncertainty exists as to the statuteenforceability of limitations and the claim is treated as resolved. For timely claims, if the Corporation, after review, does not believe a claim is valid, it will deny the claim and generally indicate a reason for the denial. If the counterparty agrees with the Corporation’s denial of the claim, the counterparty may rescind the claim. Ifcertain master netting agreements under bankruptcy laws in some countries or industries.
(2)Includes securities collateral received or pledged under repurchase or securities lending agreements where there is a disagreementlegally enforceable master netting agreement. These amounts are not offset on the Consolidated Balance Sheet, but are shown as a reduction to derive a net asset or liability. Securities collateral received or pledged where the resolutionlegal enforceability of the claim, meaningful dialoguemaster netting agreements is uncertain is excluded from the table.
(3)Excludes repurchase activity of $14.7 billion and negotiation between$12.9 billion reported in loans and leases on the parties are generally necessary to reach a resolution on an individual claim. The Corporation has performed an initial review with respect to substantially all outstanding claimsConsolidated Balance Sheet at December 31, 2020 and although the Corporation does not believe a valid basis for repurchase has been established by the claimant, it considers such claims activity in the computation of its liability for representations and warranties.2019.
Reserve and Estimated Range of Possible Loss
The reserve for representations and warranties and corporate guarantees(4)Balance is includedreported in accrued expenses and other liabilities on the Consolidated Balance Sheet and the related provision is included in mortgage banking income in the Consolidated Statement of Income. The reserve for representations and
warranties is established when those obligations are both probable and reasonably estimable.
The Corporation’s representations and warranties reserve and the corresponding estimated range of possible loss at December 31, 2017 consider, among other things, the repurchase experience implied in prior settlements, and uses the experience implied in those prior settlements in the assessment for those trustsrelates to transactions where the Corporation hasacts as the lender in a continuing possibilitysecurities lending agreement and receives securities that can be pledged as collateral or sold. In these transactions, the Corporation recognizes an asset at fair value, representing the securities received, and a liability, representing the obligation to return those securities.
Repurchase Agreements and Securities Loaned Transactions Accounted for as Secured Borrowings
The following tables present securities sold under agreements to repurchase and securities loaned by remaining contractual term to maturity and class of timely claimscollateral pledged. Included in order“Other” are transactions where the Corporation acts as the lender in a securities lending agreement and receives securities that can be pledged as collateral or sold. Certain agreements contain a right to substitute collateral and/or terminate the agreement prior to maturity at the option of the Corporation or the counterparty. Such agreements are included in the table below based on the remaining contractual term to maturity.
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| | | | | | | | | |
| Remaining Contractual Maturity |
| | | | | | | | | |
| |
| Overnight and Continuous | | 30 Days or Less | | After 30 Days Through 90 Days | | Greater than 90 Days (1) | | Total |
| (Dollars in millions) | December 31, 2020 |
| Securities sold under agreements to repurchase | $ | 158,400 | | | $ | 122,448 | | | $ | 32,149 | | | $ | 22,684 | | | $ | 335,681 | |
| Securities loaned | 19,140 | | | 271 | | | 1,029 | | | 2,531 | | | 22,971 | |
| Other | 16,210 | | | 0 | | | 0 | | | 0 | | | 16,210 | |
| Total | $ | 193,750 | | | $ | 122,719 | | | $ | 33,178 | | | $ | 25,215 | | | $ | 374,862 | |
| | | | | | | | | |
| December 31, 2019 |
| Securities sold under agreements to repurchase | $ | 129,455 | | | $ | 122,685 | | | $ | 25,322 | | | $ | 21,922 | | | $ | 299,384 | |
| Securities loaned | 18,766 | | | 3,329 | | | 1,241 | | | 2,049 | | | 25,385 | |
| Other | 15,346 | | | 0 | | | 0 | | | 0 | | | 15,346 | |
| Total | $ | 163,567 | | | $ | 126,014 | | | $ | 26,563 | | | $ | 23,971 | | | $ | 340,115 | |
(1)NaN agreements have maturities greater than three years.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Class of Collateral Pledged |
| | | | | | | |
| |
| Securities Sold Under Agreements to Repurchase | | Securities
Loaned | | Other | | Total |
| (Dollars in millions) | December 31, 2020 |
| U.S. government and agency securities | $ | 195,167 | | | $ | 5 | | | $ | 0 | | | $ | 195,172 | |
| Corporate securities, trading loans and other | 8,633 | | | 1,628 | | | 1,217 | | | 11,478 | |
| Equity securities | 14,752 | | | 21,125 | | | 14,931 | | | 50,808 | |
| Non-U.S. sovereign debt | 113,142 | | | 213 | | | 62 | | | 113,417 | |
| Mortgage trading loans and ABS | 3,987 | | | 0 | | | 0 | | | 3,987 | |
| Total | $ | 335,681 | | | $ | 22,971 | | | $ | 16,210 | | | $ | 374,862 | |
| | | | | | | |
| December 31, 2019 |
| U.S. government and agency securities | $ | 173,533 | | | $ | 1 | | | $ | 0 | | | $ | 173,534 | |
| Corporate securities, trading loans and other | 10,467 | | | 2,014 | | | 258 | | | 12,739 | |
| Equity securities | 14,933 | | | 20,026 | | | 15,024 | | | 49,983 | |
| Non-U.S. sovereign debt | 96,576 | | | 3,344 | | | 64 | | | 99,984 | |
| Mortgage trading loans and ABS | 3,875 | | | 0 | | | 0 | | | 3,875 | |
| Total | $ | 299,384 | | | $ | 25,385 | | | $ | 15,346 | | | $ | 340,115 | |
Under repurchase agreements, the Corporation is required to post collateral with a market value equal to or in excess of the principal amount borrowed. For securities loaned transactions, the Corporation receives collateral in the form of cash, letters of credit or other securities. To determine whether the representations and warranties reservemarket value of the underlying collateral remains sufficient, collateral is generally valued daily, and the corresponding estimatedCorporation may be required to deposit additional collateral or may receive or return collateral pledged when appropriate. Repurchase agreements and securities loaned transactions are generally either overnight, continuous (i.e., no stated term) or short-term. The Corporation manages liquidity risks related to these agreements by sourcing
funding from a diverse group of counterparties, providing a range of possible loss.securities collateral and pursuing longer durations, when appropriate.
Restricted Cash
At December 31, 2020 and 2019, the Corporation held restricted cash included within cash and cash equivalents on the Consolidated Balance Sheet of $7.0 billion and $24.4 billion, predominantly related to cash held on deposit with the Federal Reserve Bank and non-U.S. central banks to meet reserve requirements and cash segregated in compliance with securities regulations.
NOTE 11 Long-term Debt
Long-term debt consists of borrowings having an original maturity of one year or more. The table below presents a rollforwardthe balance of long-term debt at December 31, 2020 and 2019, and the reserve for representationsrelated contractual rates and warranties and corporate guarantees.
|
| | | | | | | |
| | | | |
| Representations and Warranties and Corporate Guarantees |
| | |
| (Dollars in millions) | 2017 | | 2016 |
| Reserve for representations and warranties and corporate guarantees, January 1 | $ | 2,339 |
| | $ | 11,326 |
|
| Additions for new sales | 4 |
| | 4 |
|
Payments (1) | (814 | ) | | (9,097 | ) |
| Provision | 393 |
| | 106 |
|
| Reserve for representations and warranties and corporate guarantees, December 31 | $ | 1,922 |
| | $ | 2,339 |
|
| |
(1)
| In February 2016, the Corporation made an $8.5 billion settlement payment as part of the settlement with BNY Mellon.
|
The representations and warranties reserve represents the Corporation’s best estimate of probable incurred lossesmaturity dates as of December 31, 2017. However, it2020.
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| | | | | | | | | | | |
| Weighted-average Rate | | | | | | | December 31 |
| (Dollars in millions) | | Interest Rates | | Maturity Dates | | 2020 | | 2019 |
Notes issued by Bank of America Corporation (1) | | | | | | | | | | | |
| Senior notes: | | | | | | | | | | | |
| Fixed | 3.05 | | % | | 0.25 - 8.05 | % | | 2021 - 2051 | | $ | 174,385 | | | $ | 140,265 | |
| Floating | 0.74 | | | | 0.09 - 4.96 | | | 2021 - 2044 | | 16,788 | | | 19,552 | |
| Senior structured notes | | | | | | | | | 17,033 | | | 16,941 | |
| Subordinated notes: | | | | | | | | | | | |
| Fixed | 4.89 | | | | 2.94 - 8.57 | | | 2021 - 2045 | | 23,337 | | | 21,632 | |
| Floating | 1.15 | | | | 0.88 - 1.41 | | | 2022 - 2026 | | 799 | | | 782 | |
| Junior subordinated notes: | | | | | | | | | | | |
| Fixed | 6.71 | | | | 6.45 - 8.05 | | | 2027 - 2066 | | 738 | | | 736 | |
| Floating | 1.03 | | | | 1.03 | | | | 2056 | | 1 | | | 1 | |
| Total notes issued by Bank of America Corporation | | | | | | | | | 233,081 | | | 199,909 | |
| Notes issued by Bank of America, N.A. | | | | | | | | | | | |
| Senior notes: | | | | | | | | | | | |
| Fixed | 3.34 | | | | 3.34 | | | | 2023 | | 511 | | | 508 | |
| Floating | 0.33 | | | | 0.28 - 0.49 | | | 2021 - 2041 | | 2,323 | | | 6,519 | |
| Subordinated notes | 6.00 | | | | 6.00 | | | | 2036 | | 1,883 | | | 1,744 | |
| Advances from Federal Home Loan Banks: | | | | | | | | | | | |
| Fixed | 0.99 | | | | 0.01 - 7.72 | | | 2021 - 2034 | | 599 | | | 112 | |
| Floating | | | | | | | | | 0 | | | 2,500 | |
Securitizations and other BANA VIEs (2) | | | | | | | | | 6,296 | | | 8,373 | |
| Other | | | | | | | | | 683 | | | 402 | |
| Total notes issued by Bank of America, N.A. | | | | | | | | | 12,295 | | | 20,158 | |
| Other debt | | | | | | | | | | | |
| Structured liabilities | | | | | | | | | 16,792 | | | 20,442 | |
Nonbank VIEs (2) | | | | | | | | | 757 | | | 347 | |
| Other | | | | | | | | | 9 | | | 0 | |
| Total notes issued by nonbank and other entities | | | | | | | | | 17,558 | | | 20,789 | |
| Total long-term debt | | | | | | | | | $ | 262,934 | | | $ | 240,856 | |
(1)Includes total loss-absorbing capacity compliant debt.
(2)Represents liabilities of consolidated VIEs included in total long-term debt on the Consolidated Balance Sheet.
During 2020, the Corporation issued $56.9 billion of long-term debt consisting of $43.8 billion of notes issued by Bank of America Corporation, $4.8 billion of notes issued by Bank of America, N.A. and $8.3 billion of other debt. During 2019, the Corporation issued $52.5 billion of long-term debt consisting of $29.3 billion of notes issued by Bank of America Corporation, $10.9 billion of notes issued by Bank of America, N.A. and $12.3 billion of other debt.
During 2020, the Corporation had total long-term debt maturities and redemptions in the aggregate of $47.1 billion consisting of $22.6 billion for Bank of America Corporation, $11.5 billion for Bank of America, N.A. and $13.0 billion of other debt. During 2019, the Corporation had total long-term debt maturities and redemptions in the aggregate of $50.6 billion consisting of $21.1 billion for Bank of America Corporation, $19.9 billion for Bank of America, N.A. and $9.6 billion of other debt.
Bank of America Corporation and Bank of America, N.A. maintain various U.S. and non-U.S. debt programs to offer both senior and subordinated notes. The notes may be denominated in U.S. dollars or foreign currencies. At December 31, 2020 and 2019, the amount of foreign currency-denominated debt translated into U.S. dollars included in total long-term debt was $54.6 billion and $49.6 billion. Foreign currency contracts may be used to convert certain foreign currency-denominated debt into U.S. dollars.
At December 31, 2020, long-term debt of consolidated VIEs in the table above included debt from credit card, residential mortgage, home equity and other VIEs of $6.3 billion, $491 million, $178 million and $111 million, respectively. Long-term debt of VIEs is reasonably possible that future representations and warranties losses may occur in excesscollateralized by the assets of the amounts recorded for these exposures.
The Corporation currently estimates that the range of possible loss for representationsVIEs. For more information, see Note 6 – Securitizations and warranties exposures could be up to $1 billion over existing accruals at December 31, 2017. This estimate is lower than the estimate at December 31, 2016 due to recent reductions in risk as we reach settlements with counterparties. The Corporation treats claims that are time-barred as resolved and does not consider such claims in the estimated range of possible loss. The estimated range of possible loss reflects principally exposures related to loans in private-label securitization trusts, including related indemnity claims. It represents a reasonably possible loss, but does not represent a probable loss, and is based on currently available information, significant judgment and a number of assumptions that are subject to change.
The reserve for representations and warranties exposures and the corresponding estimated range of possible loss do not consider certain losses related to servicing, including foreclosure and related costs, fraud, indemnity, or claims (including for RMBS) related to securities law or monoline insurance litigation. Losses with respect to one or more of these matters could be material to the Corporation’s results of operations or liquidity for any particular reporting period.
Future provisions and/or ranges of possible loss for representations and warranties may be significantly impacted if actual experiences are different from the Corporation’s assumptions in predictive models.Other Variable Interest Entities.
The weighted-average effective interest rates for total long-term debt (excluding senior structured notes), total fixed-rate debt and total floating-rate debt were 3.02 percent, 3.29 percent and 0.71 percent, respectively, at December 31, 2020, and 3.26 percent, 3.55 percent and 1.92 percent, respectively, at December 31, 2019. The Corporation’s ALM activities maintain an overall interest rate risk management strategy that incorporates the use of interest rate contracts to manage fluctuations in earnings caused by interest rate volatility. The Corporation’s goal is to manage interest rate sensitivity so that movements in interest rates do not have a significantly adverse effect on earnings and capital. The weighted-average rates are the contractual interest rates on the debt and do not reflect the impacts of derivative transactions.
Debt outstanding of $4.8 billion at December 31, 2020 was issued by BofA Finance LLC, a consolidated finance subsidiary
of Bank of America Corporation, the parent company, and is fully and unconditionally guaranteed by the parent company.
The table below shows the carrying value for aggregate annual contractual maturities of long-term debt as of December 31, 2020. Included in the table are certain structured notes issued by the Corporation that contain provisions whereby the borrowings are redeemable at the option of the holder (put options) at specified dates prior to maturity. Other structured notes have coupon or repayment terms linked to the performance of debt or equity securities, indices, currencies or commodities, and the maturity may be accelerated based on the value of a referenced index or security. In both cases, the Corporation or a subsidiary may be required to settle the obligation for cash or other securities prior to the contractual maturity date. These borrowings are reflected in the table as maturing at their contractual maturity date.
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| | | | | | | | | | | | | | |
| Long-term Debt by Maturity |
| | | | | | | | | | | | | | |
| (Dollars in millions) | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total |
| Bank of America Corporation | | | | | | | | | | | | | |
| Senior notes | $ | 8,888 | | | $ | 15,380 | | | $ | 23,872 | | | $ | 21,407 | | | $ | 15,723 | | | $ | 105,903 | | | $ | 191,173 | |
| Senior structured notes | 469 | | | 2,034 | | | 597 | | | 190 | | | 549 | | | 13,194 | | | 17,033 | |
| Subordinated notes | 371 | | | 393 | | | 0 | | | 3,351 | | | 5,537 | | | 14,484 | | | 24,136 | |
| Junior subordinated notes | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 739 | | | 739 | |
| Total Bank of America Corporation | 9,728 | | | 17,807 | | | 24,469 | | | 24,948 | | | 21,809 | | | 134,320 | | | 233,081 | |
| Bank of America, N.A. | | | | | | | | | | | | | |
| Senior notes | 1,340 | | | 975 | | | 511 | | | 0 | | | 0 | | | 8 | | | 2,834 | |
| Subordinated notes | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,883 | | | 1,883 | |
| Advances from Federal Home Loan Banks | 502 | | | 3 | | | 1 | | | 0 | | | 18 | | | 75 | | | 599 | |
Securitizations and other Bank VIEs (1) | 4,056 | | | 1,241 | | | 977 | | | 0 | | | 0 | | | 22 | | | 6,296 | |
| Other | 112 | | | 16 | | | 189 | | | 0 | | | 279 | | | 87 | | | 683 | |
| Total Bank of America, N.A. | 6,010 | | | 2,235 | | | 1,678 | | | 0 | | | 297 | | | 2,075 | | | 12,295 | |
| Other debt | | | | | | | | | | | | | |
| Structured Liabilities | 4,613 | | | 2,414 | | | 2,221 | | | 655 | | | 859 | | | 6,030 | | | 16,792 | |
Nonbank VIEs (1) | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 756 | | | 757 | |
| Other | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 9 | | | 9 | |
| Total other debt | 4,614 | | | 2,414 | | | 2,221 | | | 655 | | | 859 | | | 6,795 | | | 17,558 | |
| Total long-term debt | $ | 20,352 | | | $ | 22,456 | | | $ | 28,368 | | | $ | 25,603 | | | $ | 22,965 | | | $ | 143,190 | | | $ | 262,934 | |
(1) Represents liabilities of consolidated VIEs included in total long-term debt on the Consolidated Balance Sheet.
NOTE 12 Commitments and Contingencies
In the normal course of business, the Corporation enters into a number of off-balance sheet commitments. These commitments expose the Corporation to varying degrees of credit and market risk and are subject to the same credit and market risk limitation reviews as those instruments recorded on the Consolidated Balance Sheet.
Credit Extension Commitments
The Corporation enters into commitments to extend credit such as loan commitments, SBLCs and commercial letters of credit to meet the financing needs of its customers. The following table includes the notional amount of unfunded legally binding lending commitments net of amounts distributed (i.e., syndicated or participated) to other financial institutions. The distributed amounts were $10.5 billion and $10.6 billion at December 31, 2020 and 2019. The carrying value of these commitments at December 31, 2020 and 2019, excluding commitments accounted for under the fair value option, was
$1.9 billion and $829 million, which primarily related to the reserve for unfunded lending commitments. The carrying value of these commitments is classified in accrued expenses and other liabilities on the Consolidated Balance Sheet.
Legally binding commitments to extend credit generally have specified rates and maturities. Certain of these commitments have adverse change clauses that help to protect the Corporation against deterioration in the borrower’s ability to pay.
The table below includes the notional amount of commitments of $4.0 billion and $4.4 billion at December 31, 2020 and 2019 that are accounted for under the fair value option. However, the table excludes cumulative net fair value of $99 million and $90 million at December 31, 2020 and 2019 on these commitments, which is classified in accrued expenses and other liabilities. For more information regarding the Corporation’s loan commitments accounted for under the fair value option, see Note 21 – Fair Value Option.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Credit Extension Commitments | | | | | | | | | |
| |
| Expire in One
Year or Less | | Expire After One
Year Through
Three Years | | Expire After Three Years Through
Five Years | | Expire After
Five Years | | Total |
| (Dollars in millions) | December 31, 2020 |
| Notional amount of credit extension commitments | | | | | | | | | |
Loan commitments (1) | $ | 109,406 | | | $ | 171,887 | | | $ | 139,508 | | | $ | 16,091 | | | $ | 436,892 | |
| Home equity lines of credit | 710 | | | 2,992 | | | 8,738 | | | 29,892 | | | 42,332 | |
Standby letters of credit and financial guarantees (2) | 19,962 | | | 12,038 | | | 2,397 | | | 1,257 | | | 35,654 | |
Letters of credit (3) | 886 | | | 197 | | | 25 | | | 27 | | | 1,135 | |
| Legally binding commitments | 130,964 | | | 187,114 | | | 150,668 | | | 47,267 | | | 516,013 | |
Credit card lines (4) | 384,955 | | | 0 | | | 0 | | | 0 | | | 384,955 | |
| Total credit extension commitments | $ | 515,919 | | | $ | 187,114 | | | $ | 150,668 | | | $ | 47,267 | | | $ | 900,968 | |
| | | | | | | | | |
| | December 31, 2019 |
| Notional amount of credit extension commitments | | | | | | | | | |
Loan commitments (1) | $ | 97,454 | | | $ | 148,000 | | | $ | 173,699 | | | $ | 24,487 | | | $ | 443,640 | |
| Home equity lines of credit | 1,137 | | | 1,948 | | | 6,351 | | | 34,134 | | | 43,570 | |
Standby letters of credit and financial guarantees (2) | 21,311 | | | 11,512 | | | 3,712 | | | 408 | | | 36,943 | |
Letters of credit (3) | 1,156 | | | 254 | | | 65 | | | 25 | | | 1,500 | |
| Legally binding commitments | 121,058 | | | 161,714 | | | 183,827 | | | 59,054 | | | 525,653 | |
Credit card lines (4) | 376,067 | | | 0 | | | 0 | | | 0 | | | 376,067 | |
| Total credit extension commitments | $ | 497,125 | | | $ | 161,714 | | | $ | 183,827 | | | $ | 59,054 | | | $ | 901,720 | |
(1) At December 31, 2020 and 2019, $4.8 billion and $5.1 billion of these loan commitments were held in the form of a security.
NOTE 8 Goodwill(2) The notional amounts of SBLCs and Intangible Assets
Goodwill
The table below presents goodwill balances by business segmentfinancial guarantees classified as investment grade and All Othernon-investment grade based on the credit quality of the underlying reference name within the instrument were $25.0 billion and $10.2 billion at December 31, 20172020, and 2016. $27.9 billion and $8.6 billion at December 31, 2019. Amounts in the table include consumer SBLCs of $500 million and $413 million at December 31, 2020 and 2019.
(3) At December 31, 2020 and 2019, included are letters of credit of $1.8 billion and $1.4 billion related to certain liquidity commitments of VIEs. For more information, see Note 6 – Securitizations and Other Variable Interest Entities.
(4) Includes business card unused lines of credit.
Other Commitments
At December 31, 2020 and 2019, the Corporation had commitments to purchase loans (e.g., residential mortgage and commercial real estate) of $93 million and $86 million, which upon settlement will be included in trading account assets, loans or LHFS, and commitments to purchase commercial loans of $645 million and $1.1 billion, which upon settlement will be included in trading account assets.
At December 31, 2020 and 2019, the Corporation had commitments to purchase commodities, primarily liquefied natural gas, of $582 million and $830 million, which upon settlement will be included in trading account assets.
At December 31, 2020 and 2019, the Corporation had commitments to enter into resale and forward-dated resale and securities borrowing agreements of $66.5 billion and $97.2 billion, and commitments to enter into forward-dated repurchase and securities lending agreements of $32.1 billion and $24.9 billion. These commitments generally expire within the next 12 months.
At December 31, 2020 and 2019, the Corporation had a commitment to originate or purchase up to $3.9 billion and $3.3 billion on a rolling 12-month basis, of auto loans and leases from a strategic partner. This commitment extends through November 2022 and can be terminated with 12 months prior notice.
Other Guarantees
Bank-owned Life Insurance Book Value Protection
The reporting units utilizedCorporation sells products that offer book value protection to insurance carriers who offer group life insurance policies to corporations, primarily banks. At December 31, 2020 and 2019, the notional amount of these guarantees totaled $7.1 billion and $7.3 billion. At both December 31, 2020 and 2019, the Corporation’s maximum exposure related to these guarantees totaled $1.1 billion, with estimated maturity dates between 2033 and 2039.
Indemnifications
In the ordinary course of business, the Corporation enters into various agreements that contain indemnifications, such as tax indemnifications, whereupon payment may become due if certain external events occur, such as a change in tax law. The indemnification clauses are often standard contractual terms and were entered into in the normal course of business based on an assessment that the risk of loss would be remote. These agreements typically contain an early termination clause that permits the Corporation to exit the agreement upon these events. The maximum potential future payment under indemnification agreements is difficult to assess for goodwill impairment testing areseveral reasons, including the operating segmentsoccurrence of an external event, the inability to predict future changes in tax and other laws, the difficulty in determining how such laws would apply to parties in contracts, the absence of exposure limits contained in standard contract language and the timing of any early termination clauses. Historically, any payments made under these guarantees have been de minimis. The Corporation has assessed the probability of making such payments in the future as remote.
Merchant Services
Prior to July 1, 2020, a significant portion of the Corporation's merchant processing activity was performed by a joint venture in which the Corporation held a 49 percent ownership interest. On July 29, 2019, the Corporation gave notice to the joint venture partner of the termination of the joint venture upon the conclusion of its current term on June 30, 2020. Effective July 1, 2020, the Corporation received its share of the joint venture's merchant contracts and began performing merchant processing services for these merchants. While merchants bear responsibility for any credit or one level below.debit card charges properly reversed by the cardholder, the Corporation, in its role as merchant acquirer, may be held liable for any reversed charges that cannot be collected from the merchants due to, among other things, merchant fraud or insolvency.
|
| | | | | | | |
| | | | |
| Goodwill | | | |
| | | | |
| | December 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Consumer Banking | $ | 30,123 |
| | $ | 30,123 |
|
| Global Wealth & Investment Management | 9,677 |
| | 9,681 |
|
| Global Banking | 23,923 |
| | 23,923 |
|
| Global Markets | 5,182 |
| | 5,197 |
|
| All Other | 46 |
| | 820 |
|
Less: Goodwill of business held for sale (1) | — |
| | (775 | ) |
| Total goodwill | $ | 68,951 |
| | $ | 68,969 |
|
| | | | | | | | |
(1)139 Bank of America
| Reflects the goodwill assigned to the non-U.S. consumer credit card business, which was included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. In 2017, the Corporation sold its non-U.S. consumer credit card business. | |
The Corporation, as a card network member bank, also sponsors other merchant acquirers, principally its former joint venture partner with respect to merchant contracts distributed to that partner upon the termination of the joint venture. If charges are properly reversed after a purchase and cannot be collected from either the merchants or merchant acquirers, the Corporation completedmay be held liable for these reversed charges. The ability to reverse a charge is primarily governed by the applicable regulatory and card network rules, which include, but are not limited to, the type of charge, type of payment used and time limits. For the six-months ended December 31, 2020, the Corporation processed an aggregate purchase volume of $339.2 billion. The Corporation’s risk in this area primarily relates to circumstances where a cardholder has purchased goods or services for future delivery. The Corporation mitigates this risk by requiring cash deposits, guarantees, letters of credit or other types of collateral from certain merchants. The Corporation’s reserves for contingent losses and the losses incurred related to the merchant processing activity were not significant. The Corporation continues to monitor its annual goodwill impairment test asexposure in this area due to the potential economic impacts of June 30, 2017 for all applicable reporting units. Based onCOVID-19.
Exchange and Clearing House Member Guarantees
The Corporation is a member of various securities and derivative exchanges and clearinghouses, both in the resultsU.S. and other countries. As a member, the Corporation may be required to pay a pro-rata share of the annual goodwill impairment test,losses incurred by some of these organizations as a result of another member default and under other loss scenarios. The Corporation’s potential obligations may be limited to its membership interests in such exchanges and clearinghouses, to the amount (or multiple) of the Corporation’s contribution to the guarantee fund or, in limited instances, to the full pro-rata share of the residual losses after applying the guarantee fund. The Corporation’s maximum potential exposure under these membership agreements is difficult to estimate; however, the Corporation determined therehas assessed the probability of making any such payments as remote.
Prime Brokerage and Securities Clearing Services
In connection with its prime brokerage and clearing businesses, the Corporation performs securities clearance and settlement services with other brokerage firms and clearinghouses on behalf of its clients. Under these arrangements, the Corporation stands ready to meet the obligations of its clients with respect to securities transactions. The Corporation’s obligations in this respect are secured by the assets in the clients’ accounts and the accounts of their customers as well as by any proceeds received from the transactions cleared and settled by the Corporation on behalf of clients or their customers. The Corporation’s maximum potential exposure under these arrangements is difficult to estimate; however, the potential for the Corporation to incur material losses pursuant to these arrangements is remote.
Fixed Income Clearing Corporation Sponsored Member Repo Program
The Corporation acts as a sponsoring member in a repo program whereby the Corporation clears certain eligible resale and repurchase agreements through the Government Securities Division of the Fixed Income Clearing Corporation on behalf of clients that are sponsored members in accordance with the Fixed Income Clearing Corporation’s rules. As part of this program, the Corporation guarantees the payment and performance of its sponsored members to the Fixed Income Clearing Corporation. The Corporation’s guarantee obligation is
secured by a security interest in cash or high-quality securities collateral placed by clients with the clearinghouse and therefore, the potential for the Corporation to incur significant losses under this arrangement is remote. The Corporation’s maximum potential exposure, without taking into consideration the related collateral, was $22.5 billion and $9.3 billion at December 31, 2020 and 2019.
Other Guarantees
The Corporation has entered into additional guarantee agreements and commitments, including sold risk participation swaps, liquidity facilities, lease-end obligation agreements, partial credit guarantees on certain leases, real estate joint venture guarantees, divested business commitments and sold put options that require gross settlement. The maximum potential future payments under these agreements are approximately $8.8 billion and $8.7 billion at December 31, 2020 and 2019. The estimated maturity dates of these obligations extend up to 2049. The Corporation has made no impairment.material payments under these guarantees. For more information on maximum potential future payments under VIE-related liquidity commitments, see Note 6 – Securitizations and Other Variable Interest Entities.
In the normal course of business, the Corporation periodically guarantees the obligations of its affiliates in a variety of transactions including ISDA-related transactions and non-ISDA related transactions such as commodities trading, repurchase agreements, prime brokerage agreements and other transactions.
Guarantees of Certain Long-term Debt
The Corporation, as the parent company, fully and unconditionally guarantees the securities issued by BofA Finance LLC, a consolidated finance subsidiary of the Corporation, and effectively provides for the full and unconditional guarantee of trust securities issued by certain statutory trust companies that are 100 percent owned finance subsidiaries of the Corporation.
Representations and Warranties Obligations and Corporate Guarantees
The Corporation securitizes first-lien residential mortgage loans generally in the form of RMBS guaranteed by the GSEs or by GNMA in the case of FHA-insured, VA-guaranteed and Rural Housing Service-guaranteed mortgage loans, and sells pools of first-lien residential mortgage loans in the form of whole loans. In addition, in prior years, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations or in the form of whole loans. In connection with these transactions, the Corporation or certain of its subsidiaries or legacy companies make and have made various representations and warranties. Breaches of these representations and warranties have resulted in and may continue to result in the requirement to repurchase mortgage loans or to otherwise make whole or provide indemnification or other remedies to sponsors, investors, securitization trusts, guarantors, insurers or other parties (collectively, repurchases).
Intangible Assets
The table below presentsAt December 31, 2020 and 2019, the gross and net carrying values and accumulated amortization forvalue of intangible assets atwas $2.2 billion and $1.7 billion. During 2020, the Corporation recognized a $585 million intangible asset, which is being amortized over a 10-year life, related to the merchant contracts that were distributed to the Corporation from its merchant servicing joint venture. For more information, see Note 12 – Commitments and Contingencies.
At both December 31, 20172020 and 2016.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Intangible Assets (1, 2) | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Gross
Carrying Value | | Accumulated
Amortization | | Net
Carrying Value | | Gross
Carrying Value | | Accumulated
Amortization | | Net
Carrying Value |
| (Dollars in millions) | December 31, 2017 | | December 31, 2016 |
| Purchased credit card and affinity relationships | $ | 5,919 |
| | $ | 5,604 |
| | $ | 315 |
| | $ | 6,830 |
| | $ | 6,243 |
| | $ | 587 |
|
Core deposit and other intangibles (3) | 3,835 |
| | 2,140 |
| | 1,695 |
| | 3,836 |
| | 2,046 |
| | 1,790 |
|
| Customer relationships | 3,886 |
| | 3,584 |
| | 302 |
| | 3,887 |
| | 3,275 |
| | 612 |
|
Total intangible assets (4) | $ | 13,640 |
| | $ | 11,328 |
| | $ | 2,312 |
| | $ | 14,553 |
| | $ | 11,564 |
| | $ | 2,989 |
|
| |
(1)
| Excludes fully amortized intangible assets. |
| |
(2)
| At December 31, 2017 and 2016, none of the intangible assets were impaired.
|
| |
(3)
| Includes $1.6 billion at both December 31, 2017 and 2016 of intangible assets associated with trade names that have an indefinite life and, accordingly, are not amortized.
|
| |
(4)
| Includes $67 million at December 31, 2016 of intangible assets assigned to the non-U.S. consumer credit card business, which was included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016.
|
2019, intangible assets included $1.6 billion of intangible assets associated with trade names, substantially all of which had an indefinite life and, accordingly, are not being amortized. Amortization of intangibles expense was $621$95 million, $730$112 million and $834$538 million for 2017, 20162020, 2019 and 2015. The Corporation estimates aggregate amortization expense will be $538 million, $105 million and $53 million for the years through 2020 and none for the years thereafter.2018.
|
| | | | | | | |
| | 133Bank of America 2017146 | | |
NOTE 8 Leases
The Corporation enters into both lessor and lessee arrangements. For more information on lease accounting, see Note 1 – Summary of Significant Accounting Principles and on lease financing receivables, see Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses.
Lessor Arrangements
The Corporation’s lessor arrangements primarily consist of operating, sales-type and direct financing leases for equipment. Lease agreements may include options to renew and for the lessee to purchase the leased equipment at the end of the lease term.
The following table presents the net investment in sales-type and direct financing leases at December 31, 2020 and 2019.
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
Net Investment (1) | | | | | | | | | |
| | | | | | | | | |
| | | | | |
| | | | | December 31 | | |
| (Dollars in millions) | | | | | 2020 | | 2019 | | |
| Lease receivables | | | | | $ | 17,627 | | | $ | 19,312 | | | |
| Unguaranteed residuals | | | | | 2,303 | | | 2,550 | | | |
Total net investment in sales-type and direct
financing leases | | | | | $ | 19,930 | | | $ | 21,862 | | | |
(1) In certain cases, the Corporation obtains third-party residual value insurance to reduce its residual asset risk. The carrying value of residual assets with third-party residual value insurance for at least a portion of the asset value was $6.9 billion and $5.8 billion at December 31, 2020 and 2019.
The following table presents lease income at December 31, 2020 and 2019.
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Lease Income | | | | | | | | | |
| | | | | | | | | |
| | | | | |
| | | | | December 31 | | |
| (Dollars in millions) | | | | | 2020 | | 2019 | | |
| Sales-type and direct financing leases | | | | | $ | 707 | | | $ | 797 | | | |
| Operating leases | | | | | 931 | | | 891 | | | |
| Total lease income | | | | | $ | 1,638 | | | $ | 1,688 | | | |
Lessee Arrangements
The Corporation's lessee arrangements predominantly consist of operating leases for premises and equipment; the Corporation's financing leases are not significant.
Lease terms may contain renewal and extension options and early termination features. Generally, these options do not impact the lease term because the Corporation is not reasonably certain that it will exercise the options.
The following table provides information on the right-of-use assets, lease liabilities and weighted-average discount rates and lease terms at December 31, 2020 and 2019.
| | | | | | | | | | | |
| | | |
| Lessee Arrangements |
| | | |
| December 31 |
| (Dollars in millions) | 2020 | | 2019 |
| Right-of-use asset | $ | 10,000 | | | $ | 9,735 | |
| Lease liabilities | 10,474 | | | 10,093 | |
| Weighted-average discount rate used to calculate present value of future minimum lease payments | 3.38 | % | | 3.68 | % |
| Weighted-average lease term (in years) | 8.4 | | 8.2 |
| | | |
| Lease Cost and Supplemental Information: | | | |
| Operating lease cost | $ | 2,149 | | | $ | 2,085 | |
Variable lease cost (1) | 474 | | | 498 | |
Total lease cost (2) | $ | 2,623 | | | $ | 2,583 | |
| | | |
Right-of-use assets obtained in exchange for new operating lease liabilities (3) | $ | 851 | | | $ | 931 | |
Operating cash flows from operating leases (4) | 2,039 | | | 2,009 | |
(1)Primarily consists of payments for common area maintenance and property taxes.
(2)Amounts are recorded in occupancy and equipment expense in the Consolidated Statement of Income.
(3)Represents non-cash activity and, accordingly, is not reflected in the Consolidated Statement of Cash Flows.
(4)Represents cash paid for amounts included in the measurements of lease liabilities.
Maturity Analysis
The maturities of lessor and lessee arrangements outstanding at December 31, 2020 are presented in the table below based on undiscounted cash flows.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Maturities of Lessor and Lessee Arrangements |
| | | | | |
| Lessor | | Lessee (1) |
| Operating
Leases | | Sales-type and Direct Financing Leases (2) | | Operating
Leases |
| (Dollars in millions) | December 31, 2020 |
| 2021 | $ | 843 | | | $ | 5,424 | | | $ | 1,927 | |
| 2022 | 748 | | | 4,934 | | | 1,715 | |
| 2023 | 630 | | | 3,637 | | | 1,454 | |
| 2024 | 479 | | | 2,089 | | | 1,308 | |
| 2025 | 339 | | | 1,143 | | | 1,087 | |
| Thereafter | 886 | | | 1,668 | | | 4,609 | |
Total undiscounted cash flows | $ | 3,925 | | | 18,895 | | | 12,100 | |
Less: Net present value adjustment | | | 1,268 | | | 1,626 | |
Total (3) | | | $ | 17,627 | | | $ | 10,474 | |
(1)Excludes $885 million in commitments under lessee arrangements that have not yet commenced with lease terms that will begin in 2021.
(2)Includes $12.7 billion in commercial lease financing receivables and $4.9 billion in direct/indirect consumer lease financing receivables.
(3)Represents lease receivables for lessor arrangements and lease liabilities for lessee arrangements.
NOTE 9 Deposits
The table below presents information about the Corporation’s time deposits of $100 thousand$100,000 or more at December 31, 20172020 and 2016.2019. The Corporation also had aggregate time deposits of $17.0$10.7 billion and $18.3$15.8 billion in denominations that met or exceeded the Federal Deposit Insurance Corporation (FDIC) insurance limit at December 31, 20172020 and 2016.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Time Deposits of $100,000 or More | | | | | | | | |
| | | | | | | | | |
| December 31, 2020 | | December 31
2019 |
| (Dollars in millions) | Three Months
or Less | | Over Three
Months to
Twelve Months | | Thereafter | | Total | | Total |
| U.S. certificates of deposit and other time deposits | $ | 12,485 | | | $ | 10,668 | | | $ | 1,445 | | | $ | 24,598 | | | $ | 39,739 | |
| Non-U.S. certificates of deposit and other time deposits | 8,568 | | | 1,925 | | | 1,432 | | | 11,925 | | | 13,034 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Time Deposits of $100 Thousand or More | | | | | | | | | |
| | | | | | | | | | |
| | December 31, 2017 | | December 31
2016 |
| (Dollars in millions) | Three Months or Less | | Over Three
Months to Twelve Months | | Thereafter | | Total | | Total |
| U.S. certificates of deposit and other time deposits | $ | 12,505 |
| | $ | 10,660 |
| | $ | 2,027 |
| | $ | 25,192 |
| | $ | 32,898 |
|
| Non-U.S. certificates of deposit and other time deposits | 10,561 |
| | 3,652 |
| | 1,259 |
| | 15,472 |
| | 14,677 |
|
The scheduled contractual maturities for total time deposits at December 31, 20172020 are presented in the table below.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Contractual Maturities of Total Time Deposits | | | | | |
| | | | | |
| (Dollars in millions) | U.S. | | Non-U.S. | | Total |
| | | | | |
| Due in 2021 | $ | 40,052 | | | $ | 10,609 | | | $ | 50,661 | |
| Due in 2022 | 2,604 | | | 167 | | | 2,771 | |
| Due in 2023 | 431 | | | 4 | | | 435 | |
| Due in 2024 | 222 | | | 5 | | | 227 | |
| Due in 2025 | 186 | | | 13 | | | 199 | |
| Thereafter | 276 | | | 1,287 | | | 1,563 | |
| Total time deposits | $ | 43,771 | | | $ | 12,085 | | | $ | 55,856 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | |
| | | | | | |
| Contractual Maturities of Total Time Deposits | | | | | |
| | | | | | |
| (Dollars in millions) | U.S. | | Non-U.S. | | Total |
| Due in 2018 | $ | 46,774 |
| | $ | 14,264 |
| | $ | 61,038 |
|
| Due in 2019 | 2,623 |
| | 657 |
| | 3,280 |
|
| Due in 2020 | 1,661 |
| | 49 |
| | 1,710 |
|
| Due in 2021 | 514 |
| | 15 |
| | 529 |
|
| Due in 2022 | 452 |
| | 562 |
| | 1,014 |
|
| Thereafter | 264 |
| | 9 |
| | 273 |
|
| Total time deposits | $ | 52,288 |
| | $ | 15,556 |
| | $ | 67,844 |
|
NOTE 10 Federal Funds Sold or Purchased, Securities Financing Agreements, and Short-term Borrowings and Restricted Cash
The table below presents federal funds sold or purchased, securities financing agreements which(which include securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase,repurchase) and short-term borrowings. The Corporation elects to account for certain securities financing agreements and short-term borrowings under the fair value option. For more information on the election of the fair value option, see Note 21 – Fair Value Option.
| | | | | | | | | | | | | Amount | | Rate | | Amount | | Rate |
| | Amount | | Rate | | Amount | | Rate | |
| (Dollars in millions) | 2017 | | 2016 | (Dollars in millions) | | 2020 | | 2019 |
| Federal funds sold and securities borrowed or purchased under agreements to resell | | | | | | | | Federal funds sold and securities borrowed or purchased under agreements to resell | | |
| | Average during year | $ | 222,818 |
| | 1.07 | % | | $ | 216,161 |
| | 0.52 | % | Average during year | | $ | 309,945 | | | 0.29 | % | | $ | 279,610 | | | 1.73 | % |
| Maximum month-end balance during year | 237,064 |
| | n/a |
| | 225,015 |
| | n/a |
| Maximum month-end balance during year | | 451,179 | | | n/a | | 281,684 | | | n/a |
| | Federal funds purchased and securities loaned or sold under agreements to repurchase | | | | | | | | Federal funds purchased and securities loaned or sold under agreements to repurchase | | |
| | Average during year | $ | 199,501 |
| | 1.30 | % | | $ | 183,818 |
| | 0.97 | % | Average during year | | $ | 192,479 | | | 0.69 | % | | $ | 201,797 | | | 2.31 | % |
| Maximum month-end balance during year | 218,017 |
| | n/a |
| | 196,631 |
| | n/a |
| Maximum month-end balance during year | | 206,493 | | | n/a | | 203,063 | | | n/a |
| | Short-term borrowings | | | | | | | | Short-term borrowings | | |
| | Average during year | 37,337 |
| | 2.48 | % | | 29,440 |
| | 1.95 | % | Average during year | | 22,486 | | | 0.54 | | | 24,301 | | | 2.42 | |
| Maximum month-end balance during year | 46,202 |
| | n/a |
| | 33,051 |
| | n/a |
| Maximum month-end balance during year | | 30,118 | | | n/a | | 36,538 | | | n/a |
n/a = not applicable
Bank of America, N.A. maintains a global program to offer up to a maximum of $75$75.0 billion outstanding at any one time, of bank notes with fixed or floating rates and maturities of at least seven days from the date of issue. Short-term bank notes outstanding under this program totaled $14.2$3.9 billion and $9.3$11.7 billion at December 31, 20172020 and 2016.2019. These short-term bank notes, along with FHLBFederal Home Loan Bank advances, U.S. Treasury tax and loan notes, and term federal funds purchased, are included in short-term borrowings on the Consolidated Balance Sheet.
Offsetting of Securities Financing Agreements
The Corporation enters into securities financing agreements to accommodate customers (also referred to as “matched-book transactions”), obtain securities to cover short positions and to finance inventory positions. Substantially all of the Corporation’s securities financing activities are transacted under legally enforceable master repurchase agreements or legally enforceable master securities lending agreements that give the Corporation, in the event of default by the counterparty, the right
to liquidate securities held and to offset receivables and payables with the same counterparty.
The Corporation offsets securities financing transactions with the same counterparty on the Consolidated Balance Sheet where it has such a legally enforceable master netting agreement and the transactions have the same maturity date.The Securities Financing Agreements table presents securities financing agreements included on the Consolidated Balance Sheet in federal funds sold and securities borrowed or purchased under agreements to resell, and in federal funds purchased and securities loaned or sold under agreements to repurchase at December 31, 20172020 and 2016.2019. Balances are presented on a gross basis, prior to the application of counterparty netting. Gross assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements. For more information on the offsetting of derivatives, see Note 23 – Derivatives.
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Securities Financing Agreements | | | | | | | | | |
| | | | | | | | | | |
| | Gross Assets/Liabilities (1) | | Amounts Offset | | Net Balance Sheet Amount | | Financial Instruments (2) | | Net Assets/Liabilities |
| (Dollars in millions) | December 31, 2017 |
Securities borrowed or purchased under agreements to resell (3) | $ | 348,472 |
| | $ | (135,725 | ) | | $ | 212,747 |
| | $ | (165,720 | ) | | $ | 47,027 |
|
| Securities loaned or sold under agreements to repurchase | $ | 312,582 |
| | $ | (135,725 | ) | | $ | 176,857 |
| | $ | (146,205 | ) | | $ | 30,652 |
|
Other (4) | 22,711 |
| | — |
| | 22,711 |
| | (22,711 | ) | | — |
|
| Total | $ | 335,293 |
| | $ | (135,725 | ) | | $ | 199,568 |
| | $ | (168,916 | ) | | $ | 30,652 |
|
| | | | | | | | | | |
| | December 31, 2016 |
Securities borrowed or purchased under agreements to resell (3) | $ | 326,970 |
| | $ | (128,746 | ) | | $ | 198,224 |
| | $ | (154,974 | ) | | $ | 43,250 |
|
| Securities loaned or sold under agreements to repurchase | $ | 299,028 |
| | $ | (128,746 | ) | | $ | 170,282 |
| | $ | (140,774 | ) | | $ | 29,508 |
|
Other (4) | 14,448 |
| | — |
| | 14,448 |
| | (14,448 | ) | | — |
|
| Total | $ | 313,476 |
| | $ | (128,746 | ) | | $ | 184,730 |
| | $ | (155,222 | ) | | $ | 29,508 |
|
| | | | | | | | |
(1)135 Bank of America
| Includes activity where uncertainty exists as to the enforceability of certain master netting agreements under bankruptcy laws in some countries or industries. |
| |
(2)
| Includes securities collateral received or pledged under repurchase or securities lending agreements where there is a legally enforceable master netting agreement. These amounts are not offset on the Consolidated Balance Sheet, but are shown as a reduction to derive a net asset or liability. Securities collateral received or pledged where the legal enforceability of the master netting agreements is uncertain is excluded from the table. |
| |
(3)
| Excludes repurchase activity of $10.2 billion and $10.1 billion reported in loans and leases on the Consolidated Balance Sheet at December 31, 2017 and 2016.
|
| |
(4)
| Balance is reported in accrued expenses and other liabilities on the Consolidated Balance Sheet and relates to transactions where the Corporation acts as the lender in a securities lending agreement and receives securities that can be pledged as collateral or sold. In these transactions, the Corporation recognizes an asset at fair value, representing the securities received, and a liability, representing the obligation to return those securities. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Securities Financing Agreements |
| | | | | | | | | |
| Gross Assets/Liabilities (1) | | Amounts Offset | | Net Balance Sheet Amount | | Financial Instruments (2) | | Net Assets/Liabilities |
| (Dollars in millions) | December 31, 2020 |
Securities borrowed or purchased under agreements to resell (3) | $ | 492,387 | | | $ | (188,329) | | | $ | 304,058 | | | $ | (272,351) | | | $ | 31,707 | |
| | | | | | | | | |
| Securities loaned or sold under agreements to repurchase | $ | 358,652 | | | $ | (188,329) | | | $ | 170,323 | | | $ | (158,867) | | | $ | 11,456 | |
Other (4) | 16,210 | | | 0 | | | 16,210 | | | (16,210) | | | 0 | |
| Total | $ | 374,862 | | | $ | (188,329) | | | $ | 186,533 | | | $ | (175,077) | | | $ | 11,456 | |
| | | | | | | | | |
| December 31, 2019 |
Securities borrowed or purchased under agreements to resell (3) | $ | 434,257 | | | $ | (159,660) | | | $ | 274,597 | | | $ | (244,486) | | | $ | 30,111 | |
| | | | | | | | | |
| Securities loaned or sold under agreements to repurchase | $ | 324,769 | | | $ | (159,660) | | | $ | 165,109 | | | $ | (141,482) | | | $ | 23,627 | |
Other (4) | 15,346 | | | 0 | | | 15,346 | | | (15,346) | | | 0 | |
| Total | $ | 340,115 | | | $ | (159,660) | | | $ | 180,455 | | | $ | (156,828) | | | $ | 23,627 | |
(1)Includes activity where uncertainty exists as to the enforceability of certain master netting agreements under bankruptcy laws in some countries or industries.
(2)Includes securities collateral received or pledged under repurchase or securities lending agreements where there is a legally enforceable master netting agreement. These amounts are not offset on the Consolidated Balance Sheet, but are shown as a reduction to derive a net asset or liability. Securities collateral received or pledged where the legal enforceability of the master netting agreements is uncertain is excluded from the table.
(3)Excludes repurchase activity of $14.7 billion and $12.9 billion reported in loans and leases on the Consolidated Balance Sheet at December 31, 2020 and 2019.
(4)Balance is reported in accrued expenses and other liabilities on the Consolidated Balance Sheet and relates to transactions where the Corporation acts as the lender in a securities lending agreement and receives securities that can be pledged as collateral or sold. In these transactions, the Corporation recognizes an asset at fair value, representing the securities received, and a liability, representing the obligation to return those securities.
Repurchase Agreements and Securities Loaned Transactions Accounted for as Secured Borrowings
The following tables present securities sold under agreements to repurchase and securities loaned by remaining contractual term to maturity and class of collateral pledged. Included in “Other” are transactions where the Corporation acts as the lender in a
securities lending agreement and receives securities that can be pledged as collateral or sold. Certain agreements contain a right to substitute collateral and/or terminate the agreement prior to maturity at the option of the Corporation or the counterparty. Such agreements are included in the table below based on the remaining contractual term to maturity.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Remaining Contractual Maturity |
| | | | | | | | | |
| |
| Overnight and Continuous | | 30 Days or Less | | After 30 Days Through 90 Days | | Greater than 90 Days (1) | | Total |
| (Dollars in millions) | December 31, 2020 |
| Securities sold under agreements to repurchase | $ | 158,400 | | | $ | 122,448 | | | $ | 32,149 | | | $ | 22,684 | | | $ | 335,681 | |
| Securities loaned | 19,140 | | | 271 | | | 1,029 | | | 2,531 | | | 22,971 | |
| Other | 16,210 | | | 0 | | | 0 | | | 0 | | | 16,210 | |
| Total | $ | 193,750 | | | $ | 122,719 | | | $ | 33,178 | | | $ | 25,215 | | | $ | 374,862 | |
| | | | | | | | | |
| December 31, 2019 |
| Securities sold under agreements to repurchase | $ | 129,455 | | | $ | 122,685 | | | $ | 25,322 | | | $ | 21,922 | | | $ | 299,384 | |
| Securities loaned | 18,766 | | | 3,329 | | | 1,241 | | | 2,049 | | | 25,385 | |
| Other | 15,346 | | | 0 | | | 0 | | | 0 | | | 15,346 | |
| Total | $ | 163,567 | | | $ | 126,014 | | | $ | 26,563 | | | $ | 23,971 | | | $ | 340,115 | |
(1)NaN agreements have maturities greater than three years.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Class of Collateral Pledged |
| | | | | | | |
| |
| Securities Sold Under Agreements to Repurchase | | Securities
Loaned | | Other | | Total |
| (Dollars in millions) | December 31, 2020 |
| U.S. government and agency securities | $ | 195,167 | | | $ | 5 | | | $ | 0 | | | $ | 195,172 | |
| Corporate securities, trading loans and other | 8,633 | | | 1,628 | | | 1,217 | | | 11,478 | |
| Equity securities | 14,752 | | | 21,125 | | | 14,931 | | | 50,808 | |
| Non-U.S. sovereign debt | 113,142 | | | 213 | | | 62 | | | 113,417 | |
| Mortgage trading loans and ABS | 3,987 | | | 0 | | | 0 | | | 3,987 | |
| Total | $ | 335,681 | | | $ | 22,971 | | | $ | 16,210 | | | $ | 374,862 | |
| | | | | | | |
| December 31, 2019 |
| U.S. government and agency securities | $ | 173,533 | | | $ | 1 | | | $ | 0 | | | $ | 173,534 | |
| Corporate securities, trading loans and other | 10,467 | | | 2,014 | | | 258 | | | 12,739 | |
| Equity securities | 14,933 | | | 20,026 | | | 15,024 | | | 49,983 | |
| Non-U.S. sovereign debt | 96,576 | | | 3,344 | | | 64 | | | 99,984 | |
| Mortgage trading loans and ABS | 3,875 | | | 0 | | | 0 | | | 3,875 | |
| Total | $ | 299,384 | | | $ | 25,385 | | | $ | 15,346 | | | $ | 340,115 | |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Remaining Contractual Maturity | | | | | | | | | |
| | | | | | | | | | |
| | Overnight and Continuous | | 30 Days or Less | | After 30 Days Through 90 Days | | Greater than 90 Days (1) | | Total |
| (Dollars in millions) | December 31, 2017 |
| Securities sold under agreements to repurchase | $ | 125,956 |
| | $ | 79,913 |
| | $ | 46,091 |
| | $ | 38,935 |
| | $ | 290,895 |
|
| Securities loaned | 9,853 |
| | 5,658 |
| | 2,043 |
| | 4,133 |
| | 21,687 |
|
| Other | 22,711 |
| | — |
| | — |
| | — |
| | 22,711 |
|
| Total | $ | 158,520 |
| | $ | 85,571 |
| | $ | 48,134 |
| | $ | 43,068 |
| | $ | 335,293 |
|
| | | | | | | | | | |
| | December 31, 2016 |
| Securities sold under agreements to repurchase | $ | 129,853 |
| | $ | 77,780 |
| | $ | 31,851 |
| | $ | 40,752 |
| | $ | 280,236 |
|
| Securities loaned | 8,564 |
| | 6,602 |
| | 1,473 |
| | 2,153 |
| | 18,792 |
|
| Other | 14,448 |
| | — |
| | — |
| | — |
| | 14,448 |
|
| Total | $ | 152,865 |
| | $ | 84,382 |
| | $ | 33,324 |
| | $ | 42,905 |
| | $ | 313,476 |
|
| |
(1)
| No agreements have maturities greater than three years.
|
|
| | | | | | | |
| | Bank of America 2017148136 |
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| Class of Collateral Pledged | | | | | | | |
| | | | | | | | |
| | Securities Sold Under Agreements to Repurchase | | Securities Loaned | | Other | | Total |
| (Dollars in millions) | December 31, 2017 |
| U.S. government and agency securities | $ | 158,299 |
| | $ | — |
| | $ | 409 |
| | $ | 158,708 |
|
| Corporate securities, trading loans and other | 12,787 |
| | 2,669 |
| | 624 |
| | 16,080 |
|
| Equity securities | 23,975 |
| | 13,523 |
| | 21,628 |
| | 59,126 |
|
| Non-U.S. sovereign debt | 90,857 |
| | 5,495 |
| | 50 |
| | 96,402 |
|
| Mortgage trading loans and ABS | 4,977 |
| | — |
| | — |
| | 4,977 |
|
| Total | $ | 290,895 |
| | $ | 21,687 |
| | $ | 22,711 |
| | $ | 335,293 |
|
| | | | | | | | |
| | December 31, 2016 |
| U.S. government and agency securities | $ | 153,184 |
| | $ | — |
| | $ | 70 |
| | $ | 153,254 |
|
| Corporate securities, trading loans and other | 11,086 |
| | 1,630 |
| | 127 |
| | 12,843 |
|
| Equity securities | 24,007 |
| | 11,175 |
| | 14,196 |
| | 49,378 |
|
| Non-U.S. sovereign debt | 84,171 |
| | 5,987 |
| | 55 |
| | 90,213 |
|
| Mortgage trading loans and ABS | 7,788 |
| | — |
| | — |
| | 7,788 |
|
| Total | $ | 280,236 |
| | $ | 18,792 |
| | $ | 14,448 |
| | $ | 313,476 |
|
TheUnder repurchase agreements, the Corporation is required to post collateral with a market value equal to or in excess of the principal amount borrowed under repurchase agreements.borrowed. For securities loaned transactions, the Corporation receives collateral in the form of cash, letters of credit or other securities. To determine whether the market value of the underlying collateral remains sufficient, collateral is generally valued daily, and the Corporation may be required to deposit
additional collateral or may receive or return collateral pledged when appropriate. Repurchase agreements and securities loaned transactions are generally either overnight, continuous (i.e., no stated term) or short-term. The Corporation manages liquidity risks related to these agreements by sourcing
funding from a diverse group of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate.
Restricted Cash
At December 31, 2020 and 2019, the Corporation held restricted cash included within cash and cash equivalents on the Consolidated Balance Sheet of $7.0 billion and $24.4 billion, predominantly related to cash held on deposit with the Federal Reserve Bank and non-U.S. central banks to meet reserve requirements and cash segregated in compliance with securities regulations.
NOTE 11 Long-term Debt
Long-term debt consists of borrowings having an original maturity of one year or more. The table below presents the balance of long-term debt at December 31, 20172020 and 2016,2019, and the related contractual rates and maturity dates as of December 31, 2017.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Weighted-average Rate | | | | | | | December 31 |
| (Dollars in millions) | | Interest Rates | | Maturity Dates | | 2020 | | 2019 |
Notes issued by Bank of America Corporation (1) | | | | | | | | | | | |
| Senior notes: | | | | | | | | | | | |
| Fixed | 3.05 | | % | | 0.25 - 8.05 | % | | 2021 - 2051 | | $ | 174,385 | | | $ | 140,265 | |
| Floating | 0.74 | | | | 0.09 - 4.96 | | | 2021 - 2044 | | 16,788 | | | 19,552 | |
| Senior structured notes | | | | | | | | | 17,033 | | | 16,941 | |
| Subordinated notes: | | | | | | | | | | | |
| Fixed | 4.89 | | | | 2.94 - 8.57 | | | 2021 - 2045 | | 23,337 | | | 21,632 | |
| Floating | 1.15 | | | | 0.88 - 1.41 | | | 2022 - 2026 | | 799 | | | 782 | |
| Junior subordinated notes: | | | | | | | | | | | |
| Fixed | 6.71 | | | | 6.45 - 8.05 | | | 2027 - 2066 | | 738 | | | 736 | |
| Floating | 1.03 | | | | 1.03 | | | | 2056 | | 1 | | | 1 | |
| Total notes issued by Bank of America Corporation | | | | | | | | | 233,081 | | | 199,909 | |
| Notes issued by Bank of America, N.A. | | | | | | | | | | | |
| Senior notes: | | | | | | | | | | | |
| Fixed | 3.34 | | | | 3.34 | | | | 2023 | | 511 | | | 508 | |
| Floating | 0.33 | | | | 0.28 - 0.49 | | | 2021 - 2041 | | 2,323 | | | 6,519 | |
| Subordinated notes | 6.00 | | | | 6.00 | | | | 2036 | | 1,883 | | | 1,744 | |
| Advances from Federal Home Loan Banks: | | | | | | | | | | | |
| Fixed | 0.99 | | | | 0.01 - 7.72 | | | 2021 - 2034 | | 599 | | | 112 | |
| Floating | | | | | | | | | 0 | | | 2,500 | |
Securitizations and other BANA VIEs (2) | | | | | | | | | 6,296 | | | 8,373 | |
| Other | | | | | | | | | 683 | | | 402 | |
| Total notes issued by Bank of America, N.A. | | | | | | | | | 12,295 | | | 20,158 | |
| Other debt | | | | | | | | | | | |
| Structured liabilities | | | | | | | | | 16,792 | | | 20,442 | |
Nonbank VIEs (2) | | | | | | | | | 757 | | | 347 | |
| Other | | | | | | | | | 9 | | | 0 | |
| Total notes issued by nonbank and other entities | | | | | | | | | 17,558 | | | 20,789 | |
| Total long-term debt | | | | | | | | | $ | 262,934 | | | $ | 240,856 | |
(1)Includes total loss-absorbing capacity compliant debt.
(2)Represents liabilities of consolidated VIEs included in total long-term debt on the Consolidated Balance Sheet.
During 2020, the Corporation issued $56.9 billion of long-term debt consisting of $43.8 billion of notes issued by Bank of America Corporation, $4.8 billion of notes issued by Bank of America, N.A. and $8.3 billion of other debt. During 2019, the Corporation issued $52.5 billion of long-term debt consisting of $29.3 billion of notes issued by Bank of America Corporation, $10.9 billion of notes issued by Bank of America, N.A. and $12.3 billion of other debt.
During 2020, the Corporation had total long-term debt maturities and redemptions in the aggregate of $47.1 billion consisting of $22.6 billion for Bank of America Corporation, $11.5 billion for Bank of America, N.A. and $13.0 billion of other debt. During 2019, the Corporation had total long-term debt maturities and redemptions in the aggregate of $50.6 billion consisting of $21.1 billion for Bank of America Corporation, $19.9 billion for Bank of America, N.A. and $9.6 billion of other debt.
|
| | | | | | | |
| | | | |
| | December 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Notes issued by Bank of America Corporation | |
| | |
|
| Senior notes: | |
| | |
|
| Fixed, with a weighted-average rate of 3.64%, ranging from 0.39% to 8.40%, due 2018 to 2048 | $ | 119,548 |
| | $ | 108,933 |
|
| Floating, with a weighted-average rate of 1.54%, ranging from 0.04% to 6.13%, due 2018 to 2044 | 21,048 |
| | 13,164 |
|
| Senior structured notes | 15,460 |
| | 17,049 |
|
| Subordinated notes: | | | |
| Fixed, with a weighted-average rate of 4.90%, ranging from 2.94% to 8.57%, due 2018 to 2045 | 22,004 |
| | 26,047 |
|
| Floating, with a weighted-average rate of 1.00%, ranging from 0.20% to 2.56%, due 2018 to 2026 | 4,058 |
| | 4,350 |
|
| Junior subordinated notes (related to trust preferred securities): | | | |
| Fixed, with a weighted-average rate of 6.91%, ranging from 5.25% to 8.05%, due 2027 to 2067 | 3,282 |
| | 3,280 |
|
| Floating, with a weighted-average rate of 2.13%, ranging from 1.91% to 2.60%, due 2027 to 2056 | 553 |
| | 552 |
|
| Total notes issued by Bank of America Corporation | 185,953 |
| | 173,375 |
|
| Notes issued by Bank of America, N.A. | |
| | |
|
| Senior notes: | |
| | |
|
| Fixed, with a weighted-average rate of 1.78%, ranging from 0.02% to 2.05%, due in 2018 | 4,686 |
| | 5,936 |
|
| Floating, with a weighted-average rate of 2.60%, ranging from 1.44% to 2.80%, due 2018 to 2041 | 1,033 |
| | 3,383 |
|
| Subordinated notes: | | | |
| Fixed, with a rate of 6.00%, due in 2036 | 1,679 |
| | 4,424 |
|
| Floating, with a rate of 1.33%, due in 2019 | 1 |
| | 598 |
|
| Advances from Federal Home Loan Banks: | | | |
| Fixed, with a weighted-average rate of 5.22%, ranging from 0.01% to 7.72%, due 2018 to 2034 | 146 |
| | 162 |
|
| Floating, with a weighted-average rate of 1.42%, ranging from 1.35% to 1.60%, due 2018 to 2019 | 5,000 |
| | — |
|
Securitizations and other BANA VIEs (1) | 8,641 |
| | 9,164 |
|
| Other | 432 |
| | 3,084 |
|
| Total notes issued by Bank of America, N.A. | 21,618 |
| | 26,751 |
|
| Other debt | |
| | |
|
| Structured liabilities | 18,574 |
| | 15,171 |
|
Nonbank VIEs (1) | 1,232 |
| | 1,482 |
|
| Other | 25 |
| | 44 |
|
| Total other debt | 19,831 |
| | 16,697 |
|
| Total long-term debt | $ | 227,402 |
| | $ | 216,823 |
|
| |
(1)
| Represents the total long-term debt included in the liabilities of consolidated VIEs on the Consolidated Balance Sheet. |
Bank of America Corporation and Bank of America, N.A. maintain various U.S. and non-U.S. debt programs to offer both senior and subordinated notes. The notes may be denominated in U.S. dollars or foreign currencies. At December 31, 20172020 and 2016,2019, the amount of foreign currency-denominated debt translated into U.S. dollars included in total long-term debt was $51.8$54.6 billion and $44.7$49.6 billion. Foreign currency contracts may be used to convert certain foreign currency-denominated debt into U.S. dollars.
At December 31, 2017,2020, long-term debt of consolidated VIEs in the table above included debt from credit card, residential mortgage, home equity and all other VIEs of $8.6$6.3 billion, $76$491 million, $178 million and $1.2 billion,$111 million, respectively. Long-term debt of VIEs is collateralized by the assets of the VIEs. For more information, see Note 6 – Securitizations and Other Variable Interest Entities.
The weighted-average effective interest rates for total long-term debt (excluding senior structured notes), total fixed-rate debt and total floating-rate debt were 3.443.02 percent, 3.873.29 percent and 1.490.71 percent, respectively, at December 31, 2017,2020, and 3.803.26 percent, 4.363.55 percent and 1.521.92 percent, respectively, at December 31, 2016.2019. The Corporation’s ALM activities maintain an overall interest rate risk management strategy that incorporates the use of interest rate contracts to manage fluctuations in earnings that are caused by interest rate volatility. The Corporation’s goal is to manage interest rate sensitivity so that movements in interest rates do not have a significantly adversely affectadverse effect on earnings and capital.
The weighted-average rates are the contractual interest rates on the debt and do not reflect the impacts of derivative transactions.
Certain senior structured notes and structured liabilities are accounted for under the fair value option. For more information on these notes, see Note 21 – Fair Value Option.Debt outstanding of $2.7$4.8 billion at December 31, 20172020 was issued by BofA Finance LLC, a 100 percent ownedconsolidated finance subsidiary
of Bank of America Corporation, the parent company, and is fully and unconditionally guaranteed by the parent company.
The following table below shows the carrying value for aggregate annual contractual maturities of long-term debt as of December 31, 2017.2020. Included in the table are certain structured notes issued by the Corporation that contain provisions whereby the borrowings are redeemable at the option of the holder (put options) at specified dates prior to maturity. Other structured notes have coupon or repayment terms linked to the performance of debt or equity securities, indices, currencies or commodities, and the maturity may be accelerated based on the value of a referenced index or security. In both cases, the Corporation or a subsidiary may be required to settle the obligation for cash or other securities prior to the contractual maturity date. These borrowings are reflected in the table as maturing at their contractual maturity date.
During 2017, the Corporation had | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Long-term Debt by Maturity |
| | | | | | | | | | | | | | |
| (Dollars in millions) | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total |
| Bank of America Corporation | | | | | | | | | | | | | |
| Senior notes | $ | 8,888 | | | $ | 15,380 | | | $ | 23,872 | | | $ | 21,407 | | | $ | 15,723 | | | $ | 105,903 | | | $ | 191,173 | |
| Senior structured notes | 469 | | | 2,034 | | | 597 | | | 190 | | | 549 | | | 13,194 | | | 17,033 | |
| Subordinated notes | 371 | | | 393 | | | 0 | | | 3,351 | | | 5,537 | | | 14,484 | | | 24,136 | |
| Junior subordinated notes | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 739 | | | 739 | |
| Total Bank of America Corporation | 9,728 | | | 17,807 | | | 24,469 | | | 24,948 | | | 21,809 | | | 134,320 | | | 233,081 | |
| Bank of America, N.A. | | | | | | | | | | | | | |
| Senior notes | 1,340 | | | 975 | | | 511 | | | 0 | | | 0 | | | 8 | | | 2,834 | |
| Subordinated notes | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,883 | | | 1,883 | |
| Advances from Federal Home Loan Banks | 502 | | | 3 | | | 1 | | | 0 | | | 18 | | | 75 | | | 599 | |
Securitizations and other Bank VIEs (1) | 4,056 | | | 1,241 | | | 977 | | | 0 | | | 0 | | | 22 | | | 6,296 | |
| Other | 112 | | | 16 | | | 189 | | | 0 | | | 279 | | | 87 | | | 683 | |
| Total Bank of America, N.A. | 6,010 | | | 2,235 | | | 1,678 | | | 0 | | | 297 | | | 2,075 | | | 12,295 | |
| Other debt | | | | | | | | | | | | | |
| Structured Liabilities | 4,613 | | | 2,414 | | | 2,221 | | | 655 | | | 859 | | | 6,030 | | | 16,792 | |
Nonbank VIEs (1) | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 756 | | | 757 | |
| Other | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 9 | | | 9 | |
| Total other debt | 4,614 | | | 2,414 | | | 2,221 | | | 655 | | | 859 | | | 6,795 | | | 17,558 | |
| Total long-term debt | $ | 20,352 | | | $ | 22,456 | | | $ | 28,368 | | | $ | 25,603 | | | $ | 22,965 | | | $ | 143,190 | | | $ | 262,934 | |
(1) Represents liabilities of consolidated VIEs included in total long-term debt maturities and redemptions inon the aggregate of $48.8 billion consisting of $29.1 billion for Bank of America Corporation, $13.3 billion for Bank of America, N.A. and $6.4 billion of other debt. During 2016, the Corporation had total long-term debt maturities and redemptions in the aggregate of $51.6 billion consisting of
$30.6 billion for Bank of America Corporation, $11.6 billion for Bank of America, N.A. and $9.4 billion of other debt.
In December 2017, pursuant to a private offering, the Corporation exchanged $11.0 billion of outstanding long-term debt for new fixed/floating-rate senior notes, subject to certain terms and conditions. Based on the attributes of the exchange transactions, the newly issued securities are not considered
substantially different,for accounting purposes, from the exchanged securities. Therefore, there was no impact to the Corporation’s results of operations as any amounts paid to debt holders were capitalized, and the premiums or discounts on the outstanding long-term debt were carried over to the new securities and will be amortized over their contractual lives using a revised effective interest rate.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Long-term Debt by Maturity |
| | | | | | | | | | | | | | | |
| (Dollars in millions) | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total |
| Bank of America Corporation | | | | | | | | | | | | | |
| Senior notes | $ | 19,577 |
| | $ | 15,115 |
| | $ | 10,580 |
| | $ | 16,196 |
| | $ | 9,691 |
| | $ | 69,437 |
| | $ | 140,596 |
|
| Senior structured notes | 2,749 |
| | 1,486 |
| | 950 |
| | 437 |
| | 2,017 |
| | 7,821 |
| | 15,460 |
|
| Subordinated notes | 2,973 |
| | 1,552 |
| | — |
| | 375 |
| | 476 |
| | 20,686 |
| | 26,062 |
|
| Junior subordinated notes | — |
| | — |
| | — |
| | — |
| | — |
| | 3,835 |
| | 3,835 |
|
| Total Bank of America Corporation | 25,299 |
| | 18,153 |
| | 11,530 |
| | 17,008 |
| | 12,184 |
| | 101,779 |
| | 185,953 |
|
| Bank of America, N.A. |
|
| | | | | | | | | | | | |
| Senior notes | 5,699 |
| | — |
| | — |
| | — |
| | — |
| | 20 |
| | 5,719 |
|
| Subordinated notes | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1,679 |
| | 1,680 |
|
| Advances from Federal Home Loan Banks | 3,009 |
| | 2,013 |
| | 11 |
| | 2 |
| | 3 |
| | 108 |
| | 5,146 |
|
Securitizations and other Bank VIEs (1) | 2,300 |
| | 3,200 |
| | 3,098 |
| | — |
| | — |
| | 43 |
| | 8,641 |
|
| Other | 51 |
| | 194 |
| | 15 |
| | — |
| | 9 |
| | 163 |
| | 432 |
|
| Total Bank of America, N.A. | 11,059 |
| | 5,408 |
| | 3,124 |
| | 2 |
| | 12 |
| | 2,013 |
| | 21,618 |
|
| Other debt | | | | | | | | | | | | | |
| Structured liabilities | 5,677 |
| | 2,340 |
| | 1,545 |
| | 870 |
| | 803 |
| | 7,339 |
| | 18,574 |
|
Nonbank VIEs (1) | 22 |
| | 45 |
| | — |
| | — |
| | — |
| | 1,165 |
| | 1,232 |
|
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | 25 |
| | 25 |
|
| Total other debt | 5,699 |
| | 2,385 |
| | 1,545 |
| | 870 |
| | 803 |
| | 8,529 |
| | 19,831 |
|
| Total long-term debt | $ | 42,057 |
| | $ | 25,946 |
| | $ | 16,199 |
| | $ | 17,880 |
| | $ | 12,999 |
| | $ | 112,321 |
| | $ | 227,402 |
|
| |
(1)
| Represents the total long-term debt included in the liabilities of consolidated VIEs on the Consolidated Balance Sheet. |
Trust Preferred and Hybrid Securities
Trust preferred securities (Trust Securities) are primarily issued by trust companies (the Trusts) that are not consolidated. These Trust Securities are mandatorily redeemable preferred security obligations of the Trusts. The sole assets of the Trusts generally are junior subordinated deferrable interest notes of the Corporation or its subsidiaries (the Notes). The Trusts generally are 100 percent-owned finance subsidiaries of the Corporation. Obligations associated with the Notes are included in the long-term debt table on page 150.
Certain of the Trust Securities were issued at a discount and may be redeemed prior to maturity at the option of the Corporation. The Trusts generally have invested the proceeds of such Trust Securities in the Notes. Each issue of the Notes has an interest rate equal to the corresponding Trust Securities distribution rate. The Corporation has the right to defer payment of interest on the Notes at any time or from time to time for a period not exceeding five years provided that no extension period may extend beyond the stated maturity of the relevant Notes. During any such
extension period, distributions on the Trust Securities will also be deferred, and the Corporation’s ability to pay dividends on its common and preferred stock will be restricted.
The Trust Securities generally are subject to mandatory redemption upon repayment of the related Notes at their stated maturity dates or their earlier redemption at a redemption price equal to their liquidation amount plus accrued distributions to the date fixed for redemption and the premium, if any, paid by the Corporation upon concurrent repayment of the related Notes.
Periodic cash payments and payments upon liquidation or redemption with respect to Trust Securities are guaranteed by the Corporation or its subsidiaries to the extent of funds held by the Trusts (the Preferred Securities Guarantee). The Preferred Securities Guarantee, when taken together with the Corporation’s other obligations including its obligations under the Notes, generally will constitute a full and unconditional guarantee, on a subordinated basis, by the Corporation of payments due on the Trust Securities.
The Trust Securities Summary table details the outstanding Trust Securities and the related Notes previously issued which remained outstanding at December 31, 2017.
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Trust Securities Summary | | | | | | | | |
(Dollars in millions)
| | | | | | | | | | | |
| | | | | | | | | | | | |
| Issuer | Issuance Date | | Aggregate Principal Amount of Trust Securities | | Aggregate Principal Amount of the Notes | Stated Maturity of the Trust Securities | Per Annum Interest Rate of the Notes | | Interest Payment Dates | | Redemption Period |
| | | | December 31, 2017 | | | | | | |
| Bank of America | | | |
| | |
| | |
| | | | |
| Capital Trust VI | March 2005 | | $ | 27 |
| | $ | 27 |
| March 2035 | 5.63 | % | | Semi-Annual | | Any time |
Capital Trust VII (1) | August 2005 | | 6 |
| | 6 |
| August 2035 | 5.25 |
| | Semi-Annual | | Any time |
| Capital Trust XI | May 2006 | | 658 |
| | 678 |
| May 2036 | 6.63 |
| | Semi-Annual | | Any time |
| Capital Trust XV | May 2007 | | 1 |
| | 1 |
| June 2056 | 3-mo. LIBOR + 80 bps |
| | Quarterly | | On or after 6/01/37 |
| NationsBank | | | |
| | |
| | |
| | | | |
| Capital Trust III | February 1997 | | 131 |
| | 135 |
| January 2027 | 3-mo. LIBOR + 55 bps |
| | Quarterly | | On or after 1/15/07 |
| BankAmerica | | | |
| | | | |
| | | | |
| Capital III | January 1997 | | 103 |
| | 105 |
| January 2027 | 3-mo. LIBOR + 57 bps |
| | Quarterly | | On or after 1/15/02 |
| Fleet | | | |
| | |
| | |
| | | | |
| Capital Trust V | December 1998 | | 79 |
| | 82 |
| December 2028 | 3-mo. LIBOR + 100 bps |
| | Quarterly | | On or after 12/18/03 |
| BankBoston | | | |
| | | | |
| | | | |
| Capital Trust III | June 1997 | | 53 |
| | 55 |
| June 2027 | 3-mo. LIBOR + 75 bps |
| | Quarterly | | On or after 6/15/07 |
| Capital Trust IV | June 1998 | | 102 |
| | 106 |
| June 2028 | 3-mo. LIBOR + 60 bps |
| | Quarterly | | On or after 6/08/03 |
| MBNA | | | |
| | | | |
| | | | |
| Capital Trust B | January 1997 | | 70 |
| | 73 |
| February 2027 | 3-mo. LIBOR + 80 bps |
| | Quarterly | | On or after 2/01/07 |
| Countrywide | | | |
| | | | |
| | | | |
| Capital III | June 1997 | | 200 |
| | 206 |
| June 2027 | 8.05 |
| | Semi-Annual | | Only under special event |
| Capital V | November 2006 | | 1,495 |
| | 1,496 |
| November 2036 | 7.00 |
| | Quarterly | | On or after 11/01/11 |
| Merrill Lynch | | | |
| | | | |
| | | | |
| Capital Trust I | December 2006 | | 1,050 |
| | 1,051 |
| December 2066 | 6.45 |
| | Quarterly | | On or after 12/11 |
| Capital Trust III | August 2007 | | 750 |
| | 751 |
| September 2067 | 7.375 |
| | Quarterly | | On or after 9/12 |
| Total | | | $ | 4,725 |
| | $ | 4,772 |
| | |
| | | | |
| |
(1)
| Notes are denominated in British pound. Presentation currency is U.S. dollar. |
NOTE 12 Commitments and Contingencies
In the normal course of business, the Corporation enters into a number of off-balance sheet commitments. These commitments expose the Corporation to varying degrees of credit and market risk and are subject to the same credit and market risk limitation reviews as those instruments recorded on the Consolidated Balance Sheet.
Credit Extension Commitments
The Corporation enters into commitments to extend credit such as loan commitments, SBLCs and commercial letters of credit to meet the financing needs of its customers. The following table includes the notional amount of unfunded legally binding lending commitments net of amounts distributed (e.g.(i.e., syndicated or participated) to other financial institutions. The distributed amounts were $11.0$10.5 billion and $12.1$10.6 billion at December 31, 20172020 and 2016. At2019. The carrying value of these commitments at December 31, 2017, the carrying value of
these commitments,2020 and 2019, excluding commitments accounted for under the fair value option, was
$793 million, including deferred revenue of $16 million1.9 billion and a$829 million, which primarily related to the reserve for unfunded lending commitments of $777 million. At December 31, 2016, the comparable amounts were $779 million, $17 million and $762 million, respectively.commitments. The carrying value of these commitments is classified in accrued expenses and other liabilities on the Consolidated Balance Sheet.
The following table also includes the notional amount of commitments of $4.8 billion and $7.0 billion at December 31, 2017 and 2016 that are accounted for under the fair value option. However, the following table excludes cumulative net fair value of $120 million and $173 million on these commitments, which is classified in accrued expenses and other liabilities. For more information regarding the Corporation’s loan commitments accounted for under the fair value option, see Note 21 – Fair Value Option.
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Credit Extension Commitments | | | | | | | | | |
| | |
| | Expire in One
Year or Less | | Expire After One
Year Through
Three Years | | Expire After Three Years Through Five Years | | Expire After Five
Years | | Total |
| (Dollars in millions) | December 31, 2017 |
| Notional amount of credit extension commitments | |
| | |
| | |
| | |
| | |
|
| Loan commitments | $ | 85,804 |
| | $ | 140,942 |
| | $ | 147,043 |
| | $ | 21,342 |
| | $ | 395,131 |
|
| Home equity lines of credit | 6,172 |
| | 4,457 |
| | 2,288 |
| | 31,250 |
| | 44,167 |
|
Standby letters of credit and financial guarantees (1) | 19,976 |
| | 11,261 |
| | 3,420 |
| | 1,144 |
| | 35,801 |
|
| Letters of credit | 1,291 |
| | 117 |
| | 129 |
| | 87 |
| | 1,624 |
|
| Legally binding commitments | 113,243 |
| | 156,777 |
| | 152,880 |
| | 53,823 |
| | 476,723 |
|
Credit card lines (2) | 362,030 |
| | — |
| | — |
| | — |
| | 362,030 |
|
| Total credit extension commitments | $ | 475,273 |
| | $ | 156,777 |
| | $ | 152,880 |
| | $ | 53,823 |
| | $ | 838,753 |
|
| | | | | | | | | | |
| | December 31, 2016 |
| Notional amount of credit extension commitments | |
| | |
| | |
| | |
| | |
|
| Loan commitments | $ | 82,609 |
| | $ | 133,063 |
| | $ | 152,854 |
| | $ | 22,129 |
| | $ | 390,655 |
|
| Home equity lines of credit | 8,806 |
| | 10,701 |
| | 2,644 |
| | 25,050 |
| | 47,201 |
|
Standby letters of credit and financial guarantees (1) | 19,165 |
| | 10,754 |
| | 3,225 |
| | 1,027 |
| | 34,171 |
|
| Letters of credit | 1,285 |
| | 103 |
| | 114 |
| | 53 |
| | 1,555 |
|
| Legally binding commitments | 111,865 |
| | 154,621 |
| | 158,837 |
| | 48,259 |
| | 473,582 |
|
Credit card lines (2) | 377,773 |
| | — |
| | — |
| | — |
| | 377,773 |
|
| Total credit extension commitments | $ | 489,638 |
| | $ | 154,621 |
| | $ | 158,837 |
| | $ | 48,259 |
| | $ | 851,355 |
|
| |
(1)
| The notional amounts of SBLCs and financial guarantees classified as investment grade and non-investment grade based on the credit quality of the underlying reference name within the instrument were $27.3 billion and $8.1 billion at December 31, 2017, and $25.5 billion and $8.3 billion at December 31, 2016. Amounts in the table include consumer SBLCs of $421 million and $376 million at December 31, 2017 and 2016.
|
| |
(2)
| Includes business card unused lines of credit. |
Legally binding commitments to extend credit generally have specified rates and maturities. Certain of these commitments have adverse change clauses that help to protect the Corporation against deterioration in the borrower’s ability to pay.
The table below includes the notional amount of commitments of $4.0 billion and $4.4 billion at December 31, 2020 and 2019 that are accounted for under the fair value option. However, the table excludes cumulative net fair value of $99 million and $90 million at December 31, 2020 and 2019 on these commitments, which is classified in accrued expenses and other liabilities. For more information regarding the Corporation’s loan commitments accounted for under the fair value option, see Note 21 – Fair Value Option.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Credit Extension Commitments | | | | | | | | | |
| |
| Expire in One
Year or Less | | Expire After One
Year Through
Three Years | | Expire After Three Years Through
Five Years | | Expire After
Five Years | | Total |
| (Dollars in millions) | December 31, 2020 |
| Notional amount of credit extension commitments | | | | | | | | | |
Loan commitments (1) | $ | 109,406 | | | $ | 171,887 | | | $ | 139,508 | | | $ | 16,091 | | | $ | 436,892 | |
| Home equity lines of credit | 710 | | | 2,992 | | | 8,738 | | | 29,892 | | | 42,332 | |
Standby letters of credit and financial guarantees (2) | 19,962 | | | 12,038 | | | 2,397 | | | 1,257 | | | 35,654 | |
Letters of credit (3) | 886 | | | 197 | | | 25 | | | 27 | | | 1,135 | |
| Legally binding commitments | 130,964 | | | 187,114 | | | 150,668 | | | 47,267 | | | 516,013 | |
Credit card lines (4) | 384,955 | | | 0 | | | 0 | | | 0 | | | 384,955 | |
| Total credit extension commitments | $ | 515,919 | | | $ | 187,114 | | | $ | 150,668 | | | $ | 47,267 | | | $ | 900,968 | |
| | | | | | | | | |
| | December 31, 2019 |
| Notional amount of credit extension commitments | | | | | | | | | |
Loan commitments (1) | $ | 97,454 | | | $ | 148,000 | | | $ | 173,699 | | | $ | 24,487 | | | $ | 443,640 | |
| Home equity lines of credit | 1,137 | | | 1,948 | | | 6,351 | | | 34,134 | | | 43,570 | |
Standby letters of credit and financial guarantees (2) | 21,311 | | | 11,512 | | | 3,712 | | | 408 | | | 36,943 | |
Letters of credit (3) | 1,156 | | | 254 | | | 65 | | | 25 | | | 1,500 | |
| Legally binding commitments | 121,058 | | | 161,714 | | | 183,827 | | | 59,054 | | | 525,653 | |
Credit card lines (4) | 376,067 | | | 0 | | | 0 | | | 0 | | | 376,067 | |
| Total credit extension commitments | $ | 497,125 | | | $ | 161,714 | | | $ | 183,827 | | | $ | 59,054 | | | $ | 901,720 | |
(1) At December 31, 2020 and 2019, $4.8 billion and $5.1 billion of these loan commitments were held in the form of a security.
(2) The notional amounts of SBLCs and financial guarantees classified as investment grade and non-investment grade based on the credit quality of the underlying reference name within the instrument were $25.0 billion and $10.2 billion at December 31, 2020, and $27.9 billion and $8.6 billion at December 31, 2019. Amounts in the table include consumer SBLCs of $500 million and $413 million at December 31, 2020 and 2019.
(3) At December 31, 2020 and 2019, included are letters of credit of $1.8 billion and $1.4 billion related to certain liquidity commitments of VIEs. For more information, see Note 6 – Securitizations and Other Variable Interest Entities.
(4) Includes business card unused lines of credit.
Other Commitments
At December 31, 20172020 and 2016,2019, the Corporation had commitments to purchase loans (e.g., residential mortgage and commercial real estate) of $344$93 million and $767 million, and commitments to purchase commercial loans of $994 million and $636$86 million, which upon settlement will be included in trading account assets, loans or LHFS.LHFS, and commitments to purchase commercial loans of $645 million and $1.1 billion, which upon settlement will be included in trading account assets.
At December 31, 20172020 and 2016,2019, the Corporation had commitments to purchase commodities, primarily liquefied natural gas, of $1.5 billion$582 million and $1.9 billion,$830 million, which upon settlement will be included in trading account assets.
At December 31, 20172020 and 2016,2019, the Corporation had commitments to enter into resale and forward-dated resale and securities borrowing agreements of $56.8$66.5 billion and $48.9$97.2 billion, and commitments to enter into forward-dated repurchase and securities lending agreements of $34.3$32.1 billion and $24.4$24.9 billion. These commitments generally expire primarily within the next 12 months.
The Corporation has entered into agreements to purchase retail automobile loans from certain auto loan originators. These agreements provide for stated purchase amounts and contain cancellation provisions that allow the Corporation to terminate its commitment to purchase at any time, with a minimum notification period. At December 31, 20172020 and 2016, the Corporation’s maximum purchase commitment was $345 million and $475 million. In addition,2019, the Corporation hashad a commitment to originate or purchase up to $3.9 billion and $3.3 billion on a rolling 12-month basis, of auto loans and leases up to $3.0 billion from a strategic partner during 2018.partner. This commitment extends through November 2022 and can be terminated with 12 months prior notice.
The Corporation is a party to operating leases for certain of its premises and equipment. Commitments under these leases are approximately $2.3 billion, $2.1 billion, $1.9 billion, $1.7 billion
and $1.4 billion for 2018 through 2022, respectively, and $5.1 billion in the aggregate for all years thereafter.
Other Guarantees
Bank-owned Life Insurance Book Value Protection
The Corporation sells products that offer book value protection to insurance carriers who offer group life insurance policies to corporations, primarily banks. At December 31, 20172020 and 2016,2019, the notional amount of these guarantees which is recorded as derivatives totaled $10.4$7.1 billion and $13.9$7.3 billion. At both December 31, 20172020 and 2016,2019, the Corporation’s maximum exposure related to these guarantees totaled $1.6 billion and $3.2$1.1 billion, with estimated maturity dates between 2033 and 2039. The net fair value including the fee receivable associated with these guarantees was $3 million and $4 million at December 31, 2017 and 2016, and reflects the probability of surrender as well as the multiple structural protection features in the contracts.
Indemnifications
In the ordinary course of business, the Corporation enters into various agreements that contain indemnifications, such as tax indemnifications, whereupon payment may become due if certain external events occur, such as a change in tax law. The indemnification clauses are often standard contractual terms and were entered into in the normal course of business based on an assessment that the risk of loss would be remote. These agreements typically contain an early termination clause that permits the Corporation to exit the agreement upon these events. The maximum potential future payment under indemnification agreements is difficult to assess for several reasons, including the occurrence of an external event, the inability to predict future changes in tax and other laws, the difficulty in determining how such laws would apply to parties in contracts, the absence of exposure limits contained in standard contract language and the timing of any early termination clauses. Historically, any payments made under these guarantees have been de minimis. The
Corporation has assessed the probability of making such payments in the future as remote.
Merchant Services
In accordance with credit and debit card association rules, the Corporation sponsors merchant processing servicers that process credit and debit card transactions on behalf of various merchants. In connection with these services,Prior to July 1, 2020, a liability may arise in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder’s favor. If the merchant defaults on its obligation to reimburse the cardholder, the cardholder, through its issuing bank, generally has until six months after the date of the transaction to present a chargeback to the merchant processor, which is primarily liable for any losses on covered transactions. However, if the merchant processor fails to meet its obligation to reimburse the cardholder for disputed transactions, then the Corporation, as the sponsor, could be held liable for the disputed amount. In 2017 and 2016, the sponsored entities processed and settled $812.2 billion and $731.4 billion of transactions and recorded losses of $28 million and $33 million. A significant portion of thisthe Corporation's merchant processing activity was processedperformed by a joint venture in which the Corporation holdsheld a 49 percent ownership interest. On July 29, 2019, the Corporation gave notice to the joint venture partner of the termination of the joint venture upon the conclusion of its current term on June 30, 2020. Effective July 1, 2020, the Corporation received its share of the joint venture's merchant contracts and began performing merchant processing services for these merchants. While merchants bear responsibility for any credit or debit card charges properly reversed by the cardholder, the Corporation, in its role as merchant acquirer, may be held liable for any reversed charges that cannot be collected from the merchants due to, among other things, merchant fraud or insolvency.
The Corporation, as a card network member bank, also sponsors other merchant acquirers, principally its former joint venture partner with respect to merchant contracts distributed to that partner upon the termination of the joint venture. If charges are properly reversed after a purchase and cannot be collected from either the merchants or merchant acquirers, the Corporation may be held liable for these reversed charges. The ability to reverse a charge is primarily governed by the applicable regulatory and card network rules, which is recorded in other assets oninclude, but are not limited to, the Consolidated Balance Sheettype of charge, type of payment used and in All Other. At bothtime limits. For the six-months ended December 31, 20172020, the Corporation processed an aggregate purchase volume of $339.2 billion. The Corporation’s risk in this area primarily relates to circumstances where a cardholder has purchased goods or services for future delivery. The Corporation mitigates this risk by requiring cash deposits, guarantees, letters of credit or other types of collateral from certain merchants. The Corporation’s reserves for contingent losses and 2016, the carrying value of the Corporation’s investment inlosses incurred related to the merchant services joint venture was $2.9 billion.
Asprocessing activity were not significant. The Corporation continues to monitor its exposure in this area due to the potential economic impacts of December 31, 2017 and 2016, the maximum potential exposure for sponsored transactions totaled $346.4 billion and $325.7 billion. However, the Corporation believes that the maximum potential exposure is not representative of the actual potential loss exposure and does not expect to make material payments in connection with these guarantees.COVID-19.
Exchange and Clearing House Member Guarantees
The Corporation is a member of various securities and derivative exchanges and clearinghouses, both in the U.S. and other countries. As a member, the Corporation may be required to pay a pro-rata share of the losses incurred by some of these organizations as a result of another member default and under other loss scenarios. The Corporation’s potential obligations may be limited to its membership interests in such exchanges and clearinghouses, to the amount (or multiple) of the Corporation’s contribution to the guarantee fund or, in limited instances, to the full pro-rata share of the residual losses after applying the guarantee fund. The Corporation’s maximum potential exposure under these membership agreements is difficult to estimate; however, the potential forCorporation has assessed the Corporation to be required to make theseprobability of making any such payments isas remote.
Prime Brokerage and Securities Clearing Services
In connection with its prime brokerage and clearing businesses, the Corporation performs securities clearance and settlement services with other brokerage firms and clearinghouses on behalf of its clients. Under these arrangements, the Corporation stands ready to meet the obligations of its clients with respect to securities transactions. The Corporation’s obligations in this respect are secured by the assets in the clients’ accounts and the accounts of their customers as well as by any proceeds received from the transactions cleared and settled by the firmCorporation on behalf of clients or their customers. The Corporation’s maximum potential exposure
under these arrangements is difficult to estimate; however, the potential for the Corporation to incur material losses pursuant to these arrangements is remote.
Fixed Income Clearing Corporation Sponsored Member Repo Program
The Corporation acts as a sponsoring member in a repo program whereby the Corporation clears certain eligible resale and repurchase agreements through the Government Securities Division of the Fixed Income Clearing Corporation on behalf of clients that are sponsored members in accordance with the Fixed Income Clearing Corporation’s rules. As part of this program, the Corporation guarantees the payment and performance of its sponsored members to the Fixed Income Clearing Corporation. The Corporation’s guarantee obligation is
secured by a security interest in cash or high-quality securities collateral placed by clients with the clearinghouse and therefore, the potential for the Corporation to incur significant losses under this arrangement is remote. The Corporation’s maximum potential exposure, without taking into consideration the related collateral, was $22.5 billion and $9.3 billion at December 31, 2020 and 2019.
Other Guarantees
The Corporation has entered into additional guarantee agreements and commitments, including sold risk participation swaps, liquidity facilities, lease-end obligation agreements, partial credit guarantees on certain leases, real estate joint venture guarantees, divested business commitments and sold put options that require gross settlement. The maximum potential future paymentpayments under these agreements wasare approximately $5.9$8.8 billion and $6.7$8.7 billion at December 31, 20172020 and 2016.2019. The estimated maturity dates of these obligations extend up to 2040.2049. The Corporation has made no material payments under these guarantees. For more information on maximum potential future payments under VIE-related liquidity commitments, see Note 6 – Securitizations and Other Variable Interest Entities.
In the normal course of business, the Corporation periodically guarantees the obligations of its affiliates in a variety of transactions including ISDA-related transactions and non-ISDA related transactions such as commodities trading, repurchase agreements, prime brokerage agreements and other transactions.
Payment Protection Insurance Claims MatterGuarantees of Certain Long-term Debt
On June 1, 2017,The Corporation, as the parent company, fully and unconditionally guarantees the securities issued by BofA Finance LLC, a consolidated finance subsidiary of the Corporation, sold its non-U.S. consumer credit card business. Includedand effectively provides for the full and unconditional guarantee of trust securities issued by certain statutory trust companies that are 100 percent owned finance subsidiaries of the Corporation.
Representations and Warranties Obligations and Corporate Guarantees
The Corporation securitizes first-lien residential mortgage loans generally in the calculationform of RMBS guaranteed by the GSEs or by GNMA in the case of FHA-insured, VA-guaranteed and Rural Housing Service-guaranteed mortgage loans, and sells pools of first-lien residential mortgage loans in the form of whole loans. In addition, in prior years, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations or in the form of whole loans. In connection with these transactions, the Corporation or certain of its subsidiaries or legacy companies make and have made various representations and warranties. Breaches of these representations and warranties have resulted in and may continue to result in the requirement to repurchase mortgage loans or to otherwise make whole or provide indemnification or other remedies to sponsors, investors, securitization trusts, guarantors, insurers or other parties (collectively, repurchases).
Unresolved Repurchase Claims
Unresolved representations and warranties repurchase claims represent the notional amount of repurchase claims made by counterparties, typically the outstanding principal balance or the unpaid principal balance at the time of default. In the case of first-lien mortgages, the claim amount is often significantly
greater than the expected loss amount due to the benefit of collateral and, in some cases, mortgage insurance or mortgage guarantee payments.
The notional amount of unresolved repurchase claims at December 31, 2020 and 2019 was $8.5 billion and $10.7 billion. These balances included $2.9 billion and $3.7 billion at December 31, 2020 and 2019 of claims related to loans in specific private-label securitization groups or tranches where the Corporation owns substantially all of the gain on sale,outstanding securities or will otherwise realize the benefit of any repurchase claims paid.
During 2020, the Corporation received $89 million in new repurchase claims that were not time-barred. During 2020, $2.4 billion in claims were resolved, including $168 million of claims that were deemed time-barred.
Reserve and Related Provision
The reserve for representations and warranties obligations and corporate guarantees was $1.3 billion and $1.8 billion at December 31, 2020 and 2019 and is included in accrued expenses and other liabilities on the Consolidated Balance Sheet and the related provision is included in other income in the Consolidated Statement of Income. The representations and warranties reserve represents the Corporation’s best estimate of probable incurred losses, is based on its experience in previous negotiations, and is subject to judgment, a variety of assumptions, and known or unknown uncertainties. Future representations and warranties losses may occur in excess of the amounts recorded an obligationfor these exposures; however, the Corporation does not expect such amounts to indemnifybe material to the purchaserCorporation's financial condition and liquidity. See Litigation and Regulatory Matters below for substantially all PPI exposure above reserves assumed by the purchaser.Corporation's combined range of possible loss in excess of the reserve for representations and warranties and the accrued liability for litigation.
Litigation and Regulatory Matters
In the ordinary course of business, the Corporation and its subsidiaries are routinely defendants in or parties to many pending and threatened legal, regulatory and governmental actions and proceedings.
In view of the inherent difficulty of predicting the outcome of such matters, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, the Corporation generally cannot predict what the eventual outcome of the pending matters, will be, what the timing of the ultimate resolution of these matters, will be, or what the eventual loss, fines or penalties related to each pending matter may be.matter.
In accordance with applicable accounting guidance, the Corporation establishes an accrued liability when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. As a matter develops, the Corporation, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable.estimable, and, for the matters disclosed in this Note, whether a loss in excess of any accrued liability is reasonably possible in future periods. Once the loss contingency is deemed to be both probable and estimable, the Corporation will establish an accrued liability and record a corresponding amount of litigation-related expense. The Corporation continues to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Excluding expenses of internal and external legal service providers, litigation-related expense of $753$823 million and $681 million was recognized for 2017 compared to $1.2 billion for 2016.
For a limited number of the matters disclosed in this Note for which a loss whetherin future periods is reasonably possible and estimable (whether in excess of a relatedan accrued liability or where there is no accrued liability, is reasonably possible in future periods,liability) and for representations and warranties exposures, the Corporation is able to estimate a range of possible loss. In determining whether it is possible to estimate a range of possible loss, the Corporation reviews and evaluates its matters on an ongoing basis, in conjunction with any outside counsel handling the matter, in light of potentially relevant factual and legal developments. In cases in which the Corporation possesses sufficient appropriate information to estimate a range of possible loss, that estimate is aggregated and disclosed below. There may be other disclosed matters for which a loss is probable or reasonably possible but such an estimate of the range of possible loss may not be possible. For those matters where an estimate of the range of possible loss is possible, management currently estimates the aggregateCorporation’s estimated range of possible loss is $0 to $1.3
billion in excess of the accrued liability, (if any) related to those matters. Thisif any, as of December 31, 2020.
The accrued liability and estimated range of possible loss isare based upon currently available information and is subject to significant judgment, and a variety of assumptions and known and unknown uncertainties. The matters underlying the accrued liability and estimated range willof possible loss are unpredictable and may change from time to time, and actual resultslosses may vary significantly from the current estimate. Therefore, thisestimate and accrual. The estimated range of possible loss represents what the Corporation believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Corporation’s maximum loss exposure.
Information is provided below regarding the nature of all of these contingenciesthe litigation and where specified, the amount of the claim associated with these loss contingencies.claimed damages. Based on current knowledge, and taking into account accrued liabilities, management does not believe that loss contingencies arising from pending matters, including the matters described herein, will have a material adverse effect on the consolidated financial positioncondition or liquidity of the Corporation. However, in light of the inherentsignificant judgment, variety of assumptions and uncertainties involved in these matters, some of which are beyond the Corporation’s control, and the very large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to the Corporation’s business or results of operations or liquidity for any particular reporting period.period, or cause significant reputational harm.
Ambac Bond Insurance Litigation
Ambac Assurance Corporation and the Segregated Account of Ambac Assurance Corporation (together, Ambac) have filed fivefour separate lawsuits against the Corporation and its subsidiaries relating to bond insurance policies Ambac provided on certain securitized pools of HELOCs, first-lien subprime home equity loans, fixed-rate second-lien mortgage loans and negative amortization pay option adjustable-rate mortgage loans. Ambac alleges that they have paid or will pay claims as a result of defaults in the underlying loans and assertasserts that the defendants misrepresented the characteristics of the underlying loans and/or breached certain contractual representations and warranties regarding the underwriting and servicing of the loans. In those actions where the Corporation is named as a defendant, Ambac contends the Corporation is liable on various successor and vicarious liability theories. These actions are at various procedural stages with material developments provided below.
Ambac v. Countrywide I
The Corporation, Countrywide and otherseveral Countrywide entities are named as defendants in an action filed on September 29,28, 2010 in New York Supreme Court. Ambac asserts claims for fraudulent inducement as well as breach of contract and seeks damages in excess of $2.2 billion, plus unspecified punitive damages.
On May 16, 2017, the First Department issued its decisiondecisions on the parties’parties' cross-appeals of the trial court’scourt's October 22, 2015 summary judgment rulings. Among other things,Ambac appealed the First Department reversed on the applicability of New York insurance lawDepartment's rulings requiring Ambac to Ambac’s common-law fraud claim, ruling that Ambac must prove all of the elements of its fraudulent inducement claim, including justifiable reliance and loss causation; reversed as to Ambac’srestricting Ambac's sole remedy for its breach of contract claims finding that Ambac’s sole remedy isto the repurchase protocol of cure, repurchasesrepurchase or substitution of any materially defective loan; affirmed the trial court’s ruling that Ambac’s compensatory damages claim was an impermissible request for rescissory damages; reversed the dismissal of Ambac’s claim for reimbursement of claims payments, but affirmed the dismissal of Ambac’sand dismissing Ambac's claim for reimbursements of attorneys’ fees; and reversed as toattorneys' fees. On June 27, 2018, the meaningNew York Court of specific representations and warranties, ruling that disputed issues of fact precluded summary judgment. On July 25, 2017,Appeals affirmed the First Department grantedrulings that Ambac appealed.
On December 4, 2020, the New York Supreme Court dismissed Ambac’s motion for leave to appeal tofraudulent inducement claim. Ambac appealed the Court of Appeals. That appeal is pending. dismissal.
Ambac v. Countrywide II
On December 30, 2014, Ambac filed a complaint in New York Supreme Court against the same defendants, claiming fraudulent inducement against Countrywide, and successor and vicarious liability against the Corporation. Ambac claimsseeks damages in excess of $600 million, plus punitive damages. On December 19, 2016, the Court granted in part and denied in part Countrywide’s motion to dismiss the complaint.
Ambac v. Countrywide III
On December 30, 2014, Ambac filed an action in Wisconsin state court against Countrywide. The complaint seeks damages in excess of $350 million plus punitive damages. Countrywide has challenged the Wisconsin courts’ jurisdiction over it. Following a ruling by the lower court that jurisdiction did not exist, the Wisconsin Court of Appeals reversed. On June 30, 2017, the Wisconsin Supreme Court reversed the decision of the Wisconsin Court of Appeals and held that Countrywide did not consent to the jurisdiction of the Wisconsin courts and remanded the case to the Court of Appeals for further consideration of whether specific jurisdiction exists. On December 14, 2017, the Wisconsin Court of Appeals ruled that specific jurisdiction over Countrywide does not exist for this matter. On January 16, 2018, Ambac asked the Wisconsin Supreme Court to review the decision of the Court of Appeals.
Ambac v. Countrywide IV
On July 21, 2015, Ambac filed an action in New York Supreme Court against Countrywide asserting the same claims for fraudulent inducement that Ambac asserted in the now-dismissed Ambac v. Countrywide III.III. The complaint seeks damages in excess of $350 million, plus punitive damages. On December 8, 2020, the New York Supreme Court dismissed Ambac’s complaint. Ambac simultaneously moved to stayappealed the action pending resolution of its appeal in Ambac v. Countrywide III. Countrywide moved to dismiss the complaint. On September 20, 2016, the Court granted Ambac’s motion to stay the action pending resolution of Ambac v. Countrywide III.dismissal.
Ambac v. First Franklin
On April 16, 2012, Ambac filed an action against BANA, First Franklin and various Merrill Lynch entities, including Merrill Lynch, Pierce, Fenner & Smith Incorporated, (MLPF&S) in New York Supreme Court relating to guaranty insurance Ambac provided on a First Franklin securitization sponsored by Merrill Lynch. The complaint alleges fraudulent inducement and breach of contract, including breach of contract claims against BANA based upon its servicing of the loans in the securitization. The complaint alleges that Ambac has paidseeks as damages hundreds of millions of dollars in claims and has accrued and continues to accrue tens of millions of dollars in additional claims.that Ambac seeks as damages the total claimsalleges it has paid and its projected future claims payment obligations, as well as specific performance of defendants’ contractual repurchase obligations.
ATM Access Fee Litigation
On January 10, 2012, a putative consumer class action was filedor will pay in U.S. District Court for the District of Columbia against Visa, Inc., MasterCard, Inc. and several financial institutions, including the Corporation and BANA alleging that surcharges paid at financial institution ATMs are artificially inflated by Visa and MasterCard rules and regulations. The network rules are alleged to be the product of a conspiracy between Visa, MasterCard and financial institutions in violation of Section 1 of the Sherman Act. Plaintiffs seek compensatory and treble damages and injunctive relief.
On February 13, 2013, the District Court granted defendants’ motion to dismiss. On August 4, 2015, the U.S. Court of Appeals for the District of Columbia Circuit vacated the District Court’s decision and remanded the case to the District Court, where proceedings have resumed.claims.
Deposit Insurance Assessment
On January 9, 2017, the FDIC filed suit against BANA in the U.S. District Court for the District of Columbia alleging failure to pay a December 15, 2016 invoice for additional deposit insurance assessments and interest in the amount of $542 million for the quarters ending
June 30, 2013 through December 31, 2014. On April 7, 2017, the FDIC amended its complaint to add a claim for additional deposit insurance and interest in the amount of $583 million for the quarters ending March 31, 2012 through March 31, 2013. The FDIC asserts these claims based on BANA’s alleged underreporting of counterparty exposures that resulted in underpayment of assessments for those quarters.quarters and its Enforcement Section is also conducting a parallel investigation related to the same alleged reporting error. BANA disagrees with the FDIC’s interpretation of the regulations as they existed during the relevant time period and is defending itself against the FDIC’s claims. Pending final resolution, BANA has pledged security satisfactory to the FDIC related to the disputed additional assessment amounts.
Interchange and Related Litigation
In 2005, a group of merchants filed a series of putative class actions and individual actions directed at interchange fees associated with Visa and MasterCard payment card transactions. These actions, which were consolidated in On March 27, 2018, the U.S. District Court for the Eastern District of New York underColumbia denied BANA’s partial motion to dismiss certain of the caption In re Payment Card Interchange Fee and Merchant Discount Anti-Trust Litigation (Interchange), named Visa, MasterCard and several banks and bank holding companies, including the Corporation, as defendants. Plaintiffs allege that defendants conspired to fix the level of default interchange rates and that certain rules of Visa and MasterCard were unreasonable restraints of trade. Plaintiffs sought compensatory and treble damages and injunctive relief.FDIC’s claims.
On October 19, 2012, defendants reached a proposed settlement that would have provided for, among other things, (i) payments by defendants to the class and individual plaintiffs totaling approximately $6.6 billion, allocated to each defendant based upon various loss-sharing agreements; (ii) distribution to class merchants of an amount equal to 10 basis points (bps) of default interchange across all Visa and MasterCard credit card transactions; and (iii) modifications to certain Visa and MasterCard rules. Although the District Court approved the class settlement agreement, the U.S. Court of Appeals for the Second Circuit reversed the decision on appeal. The Interchange class case was remanded to the District Court, where proceedings have resumed.
In addition to the class actions, a number of merchants filed individual actions against the defendants. The Corporation was named as a defendant in one such individual action. In addition, a number of individual actions were filed that do not name the Corporation as a defendant. As a result of various loss-sharing agreements, however, the Corporation remains liable for any settlement or judgment in these individual suits where it is not named as a defendant.
LIBOR, Other Reference Rates, Foreign Exchange (FX) and Bond Trading Matters
Government authorities in the U.S. and various international jurisdictions continue to conduct investigations of, to make inquiries of, and to pursue proceedings against, a significant number of FX market participants, including the Corporation
and its subsidiaries regarding FX market participants’ conduct and systems and controls. Government authorities also continue to conduct investigations concerning conduct and systems and controls of panel banks in connection with the setting of other reference rates as well as the trading of government, sovereign, supranational and agency bonds.bonds in connection with conduct and systems and controls. The Corporation is responding to and cooperating with these proceedingsinquiries and investigations.investigations, and responding to the proceedings.
In addition, theLIBOR
The Corporation, BANA and certain Merrill Lynch entities have been named as defendants along with most of the other LIBOR panel banks in a number of individual and putative class actions by persons alleging they sustained losses on U.S. dollar LIBOR-based financial instruments as a result of collusion or manipulation by defendants regarding the setting of U.S. dollar LIBOR. Plaintiffs assert a variety of claims, including antitrust, Commodity Exchange Act, (CEA), Racketeer Influenced and Corrupt Organizations (RICO), Securities Exchange Act of 1934, (Exchange Act), common law fraud and breach of contract claims, and seek compensatory, treble and punitive damages, and injunctive relief. All but one of the cases naming the Corporation and its affiliates relating to U.S. dollar LIBOR have been consolidated for pre-trial purposesare pending in the U.S. District Court for the Southern District of New York.
In a series of rulings beginning in March 2013, theThe District Court has dismissed antitrust,all RICO Exchange Actclaims, and certain state law claims, dismissed all manipulation claims against Bank of America entities based on alleged trader conduct as to the Corporation and BANA, andconduct. The District Court has also substantially limited the scope of CEAantitrust, Commodity Exchange Act and various other claims. On May 23, 2016, the U.S. Court of Appeals for the Second Circuit reversed the District Court’s dismissal of the antitrust claims, including by dismissing in their entirety certain individual and remanded for further proceedings in the District Court, and on December 20, 2016, the District Court again dismissed certainputative class plaintiffs’ antitrust claims in their entirety and substantially limited the scopefor lack of the remaining antitrust claims.
Certain antitrust, CEA and state law claims remain pending in the District Court against the Corporation, BANA and certain Merrill Lynch entities, and the Court is continuing to consider motions regarding them.standing and/or personal jurisdiction. Plaintiffs whose antitrust Exchange Act and/or state law claims were previously dismissed by the District Court are pursuing appeals in the Second Circuit.
In addition, Certain individual and putative class actions remain pending against the Corporation, BANA and MLPF&S were named as defendants along with other FX market participants incertain Merrill Lynch entities.
On February 28, 2018, the District Court granted certification of a putative class action filed inof persons that purchased OTC swaps and notes that referenced U.S. dollar LIBOR from one of the U.S. Districtdollar LIBOR panel banks, limited to claims under Section 1 of the Sherman Act. The U.S. Court of Appeals for the Southern DistrictSecond Circuit subsequently denied a petition filed by the defendants for interlocutory appeal of New York, in which plaintiffs allege that they sustained losses as a result of the defendants’ alleged conspiracy to manipulate the prices of over-the-counter FX transactions and FX transactions on an exchange. Plaintiffs assert antitrust claims and claims for violations of the CEA and seek compensatory and treble damages, as well as declaratory and injunctive relief. On October 1, 2015, the Corporation, BANA and MLPF&S executed a final settlement agreement, in which they agreed to pay $187.5 million to settle the litigation. The settlement is subject to final District Court approval.
Mortgage-backed Securities Litigation
The Corporation and its affiliates, Countrywide entities and their affiliates, and Merrill Lynch entities and their affiliates have been named as defendants in cases relating to their various roles in MBS offerings and,in certain instances, have received claims for contractual indemnification related to the MBS securities actions. Plaintiffs in these cases generally sought unspecified compensatory and/or rescissory damages, unspecified costs and legal fees and generally alleged false and misleading statements. The indemnification claims include claims from underwriters of MBS that were issued by these entities, and from underwriters and issuers of MBS backed by loans originated by these entities.
Mortgage Repurchase Litigationruling.
U.S. Bank - Harborview and SURF/OWNIT Repurchase Litigation
On August 29,Beginning in 2011, U.S. Bank, National Association (U.S. Bank), as trustee for the HarborView Mortgage Loan Trust 2005-10 (the Trust), a mortgage pool backed by loans originated byand various SURF/OWNIT RMBS trusts filed complaints against the Corporation, Countrywide Home Loans, Inc. (CHL), filed a complaintentities, Merrill Lynch entities and other affiliates in New York Supreme Court in a case entitled U.S. Bank National Association, as Trustee for HarborView Mortgage Loan Trust, Series 2005-10 v. Countrywide Home Loans, Inc. (dba Bank of America Home Loans), Bank of America Corporation, Countrywide Financial Corporation, Bank of America, N.A. and NB Holdings Corporation, alleging breaches of representations and warranties. This litigation has been stayed since March 23, 2017, pending finalization of the settlement discussed below.
On December 5, 2016, theThe defendants and certain certificate-holders in the Trusttrusts agreed to settle the litigationrespective matters in an amountamounts not material to the Corporation, subject to acceptance by U.S. Bank. U.S. Bank has initiated a trust instruction proceeding in Minnesota state court relating to the proposed settlement, and that proceeding is ongoing.
U.S. Bank - SURF/OWNIT Repurchase Litigation
On August 29, 2014 and September 2, 2014, U.S. Bank, solely in its capacity as Trustee for seven securitization trusts (the Trusts), served seven summonses with notice commencing actions against First Franklin Financial Corporation, Merrill Lynch Mortgage Lending, Inc., Merrill Lynch Mortgage Investors, Inc. (MLMI) and Ownit Mortgage Solutions Inc. in New York Supreme Court. The summonses advance breach of contract claims alleging that defendants breached representations and warranties related to loans securitized in the Trusts. The summonses allege that defendants failed to repurchase breaching mortgage loans from the Trusts, and seek specific performance of defendants’ alleged obligation to repurchase breaching loans, declaratory judgment, compensatory, rescissory and other damages, and indemnity.
On February 25, 2015 and March 11, 2015, U.S. Bank served complaints regarding fourlitigations have been stayed pending finalization of the seven Trusts. On December 7, 2015, the Court granted in part and denied in part defendants’ motion to dismiss the complaints. The Court dismissed claims for breach of representations and warranties against MLMI, dismissed U.S. Bank’s claims for indemnity and attorneys’ fees, and deferred a ruling regarding defendants’ alleged failure to provide notice of alleged representations and warranties breaches, but upheld the complaints in all other respects. On December 28, 2016, U.S. Bank filed a complaint with respect to a fifth Trust.
settlements.
NOTE 13 Shareholders’ Equity
Common Stock
NOTE 13 Shareholders’ Equity
Common Stock
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Declared Quarterly Cash Dividends on Common Stock (1) |
| | | | | | | |
| Declaration Date | | Record Date | | Payment Date | | Dividend Per Share |
| January 31, 2018 | | March 2, 2018 | | March 30, 2018 | | $ | 0.12 |
|
| October 25, 2017 | | December 1, 2017 | | December 29, 2017 | | 0.12 |
|
| July 26, 2017 | | September 1, 2017 | | September 29, 2017 | | 0.12 |
|
| April 26, 2017 | | June 2, 2017 | | June 30, 2017 | | 0.075 |
|
| January 26, 2017 | | March 3, 2017 | | March 31, 2017 | | 0.075 |
|
| |
Declared Quarterly Cash Dividends on Common Stock (1) | In 2017 and through February 22, 2018.
|
| | | | | | |
| Declaration Date | | Record Date | | Payment Date | | Dividend Per Share |
| January 19, 2021 | | March 5, 2021 | | March 26, 2021 | | $ | 0.18 | |
| October 21, 2020 | | December 4, 2020 | | December 24, 2020 | | 0.18 | |
| July 22, 2020 | | September 4, 2020 | | September 25, 2020 | | 0.18 | |
| April 22, 2020 | | June 5, 2020 | | June 26, 2020 | | 0.18 | |
| January 29, 2020 | | March 6, 2020 | | March 27, 2020 | | 0.18 | |
(1)In 2020, and through February 24, 2021.
The cash dividends paid per share of common stock were $0.72 $0.66 and $0.54 for 2020, 2019 and 2018, respectively.
The following table summarizes common stock repurchases during 2017, 20162020, 2019 and 2015.2018.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Common Stock Repurchase Summary |
| | | | | | |
| (in millions) | | 2020 | | 2019 | | 2018 |
| | | | | | |
Total share repurchases, including CCAR
capital plan repurchases | | 227 | | | 956 | | | 676 | |
| | | | | | |
Purchase price of shares repurchased
and retired | | | | | | |
| CCAR capital plan repurchases | | $ | 7,025 | | | $ | 25,644 | | | $ | 16,754 | |
| Other authorized repurchases | | 0 | | | 2,500 | | | 3,340 | |
| Total shares repurchased | | $ | 7,025 | | | $ | 28,144 | | | $ | 20,094 | |
|
| | | | | | | | | |
| | | | |
| Common Stock Repurchase Summary |
| | | | |
| (in millions) | 2017 | 2016 | 2015 |
| Total share repurchases, including CCAR capital plan repurchases | 509 |
| 333 |
| 140 |
|
| | | | |
Purchase price of shares repurchased and retired (1) | | | |
| CCAR capital plan repurchases | $ | 9,347 |
| $ | 4,312 |
| $ | 2,374 |
|
| Other authorized repurchases | 3,467 |
| 800 |
| — |
|
| Total shares repurchased | $ | 12,814 |
| $ | 5,112 |
| $ | 2,374 |
|
| |
(1)
| Represents reductions to shareholders’ equity due to common stock repurchases. |
On June 28, 2017, following the Federal Reserve’s non-objection to the Corporation’s 2017 Comprehensive Capital Analysis and Review (CCAR) capital plan,During 2020, the Board of Directors (Board) authorizedGovernors of the Federal Reserve System (Federal Reserve) announced that due to economic uncertainty resulting from COVID-19, all large banks would be required to suspend share repurchase programs in the third and fourth quarters of $12.0 billion2020, except for repurchases to offset shares awarded under equity-based compensation plans, and to limit dividends to existing rates that do not exceed the average of the last four quarters’ net income.
The Federal Reserve’s directives regarding share repurchases aligned with the Corporation's decision to voluntarily suspend repurchases during the first half of 2020. The suspension of the Corporation's repurchases did not include repurchases to offset shares awarded under its equity-based compensation plans.
During 2020, the Corporation repurchased and retired 227 million shares of common stock, from July 1, 2017 through June 30, 2018, plus repurchases expected to be approximately $900 million to offset the effect of equity-based compensation plans during the same period. The common stock repurchase authorization includes both common stock and warrants. The Corporation’s 2017 capital plan also included a request to increase the quarterly common stock dividend from $0.075 per share to $0.12 per share. On December 5, 2017, following approvalwhich reduced shareholders’ equity by the Federal Reserve, the Board authorized the repurchase of an additional $5.0 billion of common stock through June 30, 2018.$7.0 billion.
In 2017, the Corporation repurchased $12.8 billion of common stockDuring 2020, in connection with the 2017 and 2016 CCAR capitalemployee stock plans, and pursuant to other repurchases approved by the Board and the Federal Reserve. Other authorized repurchases included $1.8 billion of common stock pursuant to the Corporation’s plan announced on January 13, 2017 and $1.7 billion under the authorization announced on December 5, 2017.
At December 31, 2017, the Corporation had warrants outstanding and exercisable to purchase 122issued 66 million shares of its common stock expiring on October 28, 2018, and, warrants outstanding and exercisable to purchase 143 million shares of common stock expiring on January 16, 2019. These warrants were originally issued in connection with preferred stock issuances to the U.S. Department of the Treasury in 2009 and 2008, and are listed on the New York Stock Exchange. The exercise price of the warrants expiring on January 16, 2019 is subject to continued adjustment each time the quarterly cash dividend is in excess of $0.01 per common share to compensate the holders of the warrants for dilution resulting from an increased dividend. The Corporation had cash dividends of $0.12 per share for the third
and fourth quarters of 2017, and cash dividends of $0.075 per share for the first and second quarter of 2017, or $0.39 per share for the year, resulting in an adjustment to the exercise price of these warrants in each quarter. As a result of the Corporation’s 2017 dividends of $0.39 per common share, the exercise price of the warrants expiring on January 16, 2019 was adjusted to $12.757 per share. The warrants expiring on October 28, 2018, which have an exercise price of $30.79 per share, also contain this anti-dilution provision except the adjustment is triggered only when the Corporation declares quarterly dividends at a level greater than $0.32 per common share.
On August 24, 2017, the holders of the Corporation’s Series T 6% Non-cumulative preferred stock (Series T) exercised warrants to acquire 700 million shares of the Corporation’s common stock. The carrying value of the preferred stock was $2.9 billion and, upon conversion, was recorded as additional paid-in capital. For more information, see Note 15 – Earnings Per Common Share.
In connection with employee stock plans, in 2017, the Corporation issued approximately 66 million shares andsatisfy tax withholding obligations, repurchased approximately 2726 million shares of its common stock to satisfy tax withholding obligations.stock.At December 31, 2017,2020, the Corporation had reserved 869513 million unissued shares of common stock for future issuances under employee stock plans, common stock warrants, convertible notes and preferred stock.
Preferred Stock
The cash dividends declared on preferred stock were $1.6$1.4 billion, $1.7$1.4 billion and $1.5 billion for 2017, 20162020, 2019 and 2015,2018, respectively.
On January 24, 2020, the Corporation issued 44,000 shares of Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series MM for $1.1 billion. Dividends are paid semi-annually during the
fixed-rate period, then quarterly during the floating-rate period. The following table presents a summary of perpetualSeries MM preferred stock outstanding at December 31, 2017.has a liquidation preference of $25,000 per share and is subject to certain restrictions in the event the Corporation fails to declare and pay full dividends.
On October 29, 2020, the Corporation issued 44,000 shares of 4.375% Non-Cumulative Preferred Stock, Series NN for $1.1 billion, with quarterly dividend payments commencing in February 2021. The Series NN preferred stock has a liquidation preference of $25,000 per share and is subject to certain restrictions in the event the Corporation fails to declare and pay full dividends.
On January 28, 2021, the Corporation issued 36,000 shares of 4.125% Non-Cumulative Preferred Stock, Series PP for $915 million, with quarterly dividends commencing in May 2021. The Series PP preferred stock has a liquidation preference of $25,000 per share and is subject to certain restrictions in the event the Corporation fails to declare and pay full dividends.
In 2020, the Corporation fully redeemed Series Y preferred stock for $1.1 billion. Additionally, on January 29, 2021, the Corporation fully redeemed Series CC preferred stock for $1.1 billion.
All series of preferred stock in the Preferred Stock Summary table have a par value of $0.01 per share, are not subject to the operation of a sinking fund, have no participation rights, and with the exception of the Series L Preferred Stock, are not convertible.
The holders of the Series B Preferred Stock and Series 1 through
5 Preferred Stock have general voting rights and vote together with the common stock. The holders of the other series included in the
table have no general voting rights. All outstanding series of preferred stock of the Corporation have preference over the Corporation’s common stock with respect to the payment of dividends and distribution of the Corporation’s assets in the event of a liquidation or dissolution. With the exception of the Series B, F, G and T Preferred Stock, if any dividend payable on these series is in arrears for three3 or more semi-annual or six6 or more quarterly dividend periods, as applicable (whether consecutive or not), the holders of these series and any other class or series of preferred stock ranking equally as to payment of dividends and upon which equivalent voting rights have been conferred and are exercisable (voting as a single class) will be entitled to vote for the election of two2 additional directors. These voting rights terminate when the Corporation has paid in full dividends on these series for at least two2 semi-annual or four4 quarterly dividend periods, as applicable, following the dividend arrearage.
The 7.25% Non-Cumulative Perpetual Convertible Preferred Stock, Series L (Series L Preferred Stock) does not have early redemption/call rights. Each share of the Series L Preferred Stock may be converted at any time, at the option of the holder, into 20 shares of the Corporation’s common stock plus cash in lieu of fractional shares. The Corporation may cause some or all of the Series L Preferred Stock, at its option, at any time or from time to time, to be converted into shares of common stock at the then-applicable conversion rate if, for 20 trading days during any period of 30 consecutive trading days, the closing price of common stock exceeds 130 percent of the then-applicable conversion price of
the Series L Preferred Stock. If a conversion of Series L Preferred Stock occurs at the option of the holder, subsequent to a dividend
record date but prior to the dividend payment date, the Corporation will still pay any accrued dividends payable.
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| Preferred Stock Summary | | | | | | | | | | |
| | | | | | | | | | | | | | |
| (Dollars in millions, except as noted) | | | | | | | | | | | | |
| Series | Description | | Initial
Issuance
Date | | Total
Shares
Outstanding | | Liquidation
Preference per Share
(in dollars) | | Carrying
Value (1) | | Per Annum
Dividend Rate | | Redemption Period (2) |
| Series B | 7% Cumulative Redeemable | | June
1997 | | 7,110 |
| | $ | 100 |
| | $ | 1 |
| | 7.00 | % | | n/a |
Series D (3) | 6.204% Non-Cumulative | | September
2006 | | 26,174 |
| | 25,000 |
| | 654 |
| | 6.204 | % | | On or after
September 14, 2011 |
Series E (3) | Floating Rate Non-Cumulative | | November
2006 | | 12,691 |
| | 25,000 |
| | 317 |
| | 3-mo. LIBOR + 35 bps (4) |
| | On or after
November 15, 2011 |
| Series F | Floating Rate Non-Cumulative | | March
2012 | | 1,409 |
| | 100,000 |
| | 141 |
| | 3-mo. LIBOR + 40 bps (4) |
| | On or after
March 15, 2012 |
| Series G | Adjustable Rate Non-Cumulative | | March
2012 | | 4,926 |
| | 100,000 |
| | 493 |
| | 3-mo. LIBOR + 40 bps (4) |
| | On or after
March 15, 2012 |
Series I (3) | 6.625% Non-Cumulative | | September
2007 | | 14,584 |
| | 25,000 |
| | 365 |
| | 6.625 | % | | On or after
October 1, 2017 |
Series K (5) | Fixed-to-Floating Rate Non-Cumulative | | January
2008 | | 61,773 |
| | 25,000 |
| | 1,544 |
| | 8.00% to, but excluding, 1/30/18; 3-mo. LIBOR + 363 bps thereafter |
| | On or after
January 30, 2018 |
| Series L | 7.25% Non-Cumulative Perpetual Convertible | | January
2008 | | 3,080,182 |
| | 1,000 |
| | 3,080 |
| | 7.25 | % | | n/a |
Series M (5) | Fixed-to-Floating Rate Non-Cumulative | | April
2008 | | 52,399 |
| | 25,000 |
| | 1,310 |
| | 8.125% to, but excluding, 5/15/18; 3-mo. LIBOR + 364 bps thereafter |
| | On or after
May 15, 2018 |
Series T (6) | 6% Non-cumulative | | September
2011 | | 354 |
| | 100,000 |
| | 35 |
| | 6.00 | % | | After May 7, 2019 |
Series U (5) | Fixed-to-Floating Rate Non-Cumulative | | May
2013 | | 40,000 |
| | 25,000 |
| | 1,000 |
| | 5.2% to, but excluding, 6/1/23;
3-mo. LIBOR + 313.5 bps thereafter |
| | On or after
June 1, 2023 |
Series V (5) | Fixed-to-Floating Rate Non-Cumulative | | June
2014 | | 60,000 |
| | 25,000 |
| | 1,500 |
| | 5.125% to, but excluding, 6/17/19; 3-mo. LIBOR + 338.7 bps thereafter |
| | On or after
June 17, 2019 |
Series W (3) | 6.625% Non-Cumulative | | September 2014 | | 44,000 |
| | 25,000 |
| | 1,100 |
| | 6.625 | % | | On or after
September 9, 2019 |
Series X (5) | Fixed-to-Floating Rate Non-Cumulative | | September 2014 | | 80,000 |
| | 25,000 |
| | 2,000 |
| | 6.250% to, but excluding, 9/5/24; 3-mo. LIBOR + 370.5 bps thereafter |
| | On or after
September 5, 2024 |
Series Y (3) | 6.500% Non-Cumulative | | January 2015 | | 44,000 |
| | 25,000 |
| | 1,100 |
| | 6.500 | % | | On or after
January 27, 2020 |
Series Z (5) | Fixed-to-Floating Rate Non-Cumulative | | October 2014 | | 56,000 |
| | 25,000 |
| | 1,400 |
| | 6.500% to, but excluding,10/23/24; 3-mo. LIBOR + 417.4 bps thereafter |
| | On or after
October 23, 2024 |
Series AA (5) | Fixed-to-Floating Rate Non-Cumulative | | March 2015 | | 76,000 |
| | 25,000 |
| | 1,900 |
| | 6.100% to, but excluding, 3/17/25; 3-mo. LIBOR + 389.8 bps thereafter |
| | On or after
March 17, 2025 |
Series CC (3) | 6.200% Non-Cumulative | | January 2016 | | 44,000 |
| | 25,000 |
| | 1,100 |
| | 6.200 | % | | On or after
January 29, 2021 |
Series DD (5) | Fixed-to-Floating Rate Non-Cumulative | | March 2016 | | 40,000 |
| | 25,000 |
| | 1,000 |
| | 6.300% to, but excluding, 3/10/26; 3-mo. LIBOR + 455.3 bps thereafter |
| | On or after
March 10, 2026 |
Series EE (3) | 6.000% Non-Cumulative | | April 2016 | | 36,000 |
| | 25,000 |
| | 900 |
| | 6.000 | % | | On or after
April 25, 2021 |
Series 1 (7) | Floating Rate Non-Cumulative | | November
2004 | | 3,275 |
| | 30,000 |
| | 98 |
| | 3-mo. LIBOR + 75 bps (8) |
| | On or after
November 28, 2009 |
Series 2 (7) | Floating Rate Non-Cumulative | | March
2005 | | 9,967 |
| | 30,000 |
| | 299 |
| | 3-mo. LIBOR + 65 bps (8) |
| | On or after
November 28, 2009 |
Series 3 (7) | 6.375% Non-Cumulative | | November
2005 | | 21,773 |
| | 30,000 |
| | 653 |
| | 6.375 | % | | On or after
November 28, 2010 |
Series 4 (7) | Floating Rate Non-Cumulative | | November
2005 | | 7,010 |
| | 30,000 |
| | 210 |
| | 3-mo. LIBOR + 75 bps (4) |
| | On or after
November 28, 2010 |
Series 5 (7) | Floating Rate Non-Cumulative | | March
2007 | | 14,056 |
| | 30,000 |
| | 422 |
| | 3-mo. LIBOR + 50 bps (4) |
| | On or after
May 21, 2012 |
| Total | | | | | 3,837,683 |
| | |
| | $ | 22,622 |
| | |
| | |
| | | | | | | | |
(1)143 Bank of America
| Amounts shown are before third-party issuance costs and certain book value adjustments of $299 million.
|
The table below presents a summary of perpetual preferred stock outstanding at December 31, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Preferred Stock Summary | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| (Dollars in millions, except as noted) | | | | | | | | | | | | | | | | |
| Series | Description | | Initial
Issuance
Date | | Total
Shares
Outstanding | | Liquidation
Preference
per Share
(in dollars) | | Carrying
Value | | Per Annum
Dividend Rate | | Dividend per Share
(in dollars) | | Annual Dividend | | Redemption Period (1) |
| Series B | 7% Cumulative Redeemable | | June
1997 | | 7,110 | | | $ | 100 | | | $ | 1 | | | 7.00 | % | | $ | 7 | | | $ | 0 | | | n/a |
Series E (2) | Floating Rate Non-Cumulative | | November
2006 | | 12,691 | | | 25,000 | | | 317 | | | 3-mo. LIBOR + 35 bps (3) | | 1.02 | | | 13 | | | On or after
November 15, 2011 |
| Series F | Floating Rate Non-Cumulative | | March
2012 | | 1,409 | | | 100,000 | | | 141 | | | 3-mo. LIBOR + 40 bps (3) | | 4,066.67 | | | 6 | | | On or after
March 15, 2012 |
| Series G | Adjustable Rate Non-Cumulative | | March
2012 | | 4,926 | | | 100,000 | | | 493 | | | 3-mo. LIBOR + 40 bps (3) | | 4,066.67 | | | 20 | | | On or after
March 15, 2012 |
| Series L | 7.25% Non-Cumulative Perpetual Convertible | | January
2008 | | 3,080,182 | | | 1,000 | | | 3,080 | | | 7.25 | % | | 72.50 | | | 223 | | | n/a |
| Series T | 6% Non-cumulative | | September
2011 | | 354 | | | 100,000 | | | 35 | | | 6.00 | % | | 6,000.00 | | | 2 | | | After May 7, 2019 |
Series U (4) | Fixed-to-Floating Rate Non-Cumulative | | May
2013 | | 40,000 | | | 25,000 | | | 1,000 | | | 5.2% to, but excluding, 6/1/23; 3-mo. LIBOR + 313.5 bps thereafter | | 52.00 | | | 52 | | | On or after
June 1, 2023 |
Series X (4) | Fixed-to-Floating Rate Non-Cumulative | | September
2014 | | 80,000 | | | 25,000 | | | 2,000 | | | 6.250% to, but excluding, 9/5/24; 3-mo. LIBOR + 370.5 bps thereafter | | 62.50 | | | 125 | | | On or after
September 5, 2024 |
Series Z (4) | Fixed-to-Floating Rate Non-Cumulative | | October
2014 | | 56,000 | | | 25,000 | | | 1,400 | | | 6.500% to, but excluding, 10/23/24; 3-mo. LIBOR + 417.4 bps thereafter | | 65.00 | | | 91 | | | On or after
October 23, 2024 |
Series AA (4) | Fixed-to-Floating Rate Non-Cumulative | | March
2015 | | 76,000 | | | 25,000 | | | 1,900 | | | 6.100% to, but excluding, 3/17/25; 3-mo. LIBOR + 389.8 bps thereafter | | 61.00 | | | 116 | | | On or after
March 17, 2025 |
Series CC (2) | 6.200% Non-Cumulative | | January
2016 | | 44,000 | | | 25,000 | | | 1,100 | | | 6.200 | % | | 1.55 | | | 68 | | | On or after
January 29, 2021 |
Series DD (4) | Fixed-to-Floating Rate Non-Cumulative | | March
2016 | | 40,000 | | | 25,000 | | | 1,000 | | | 6.300% to, but excluding, 3/10/26; 3-mo. LIBOR + 455.3 bps thereafter | | 63.00 | | | 63 | | | On or after
March 10, 2026 |
Series EE (2) | 6.000% Non-Cumulative | | April
2016 | | 36,000 | | | 25,000 | | | 900 | | | 6.000 | % | | 1.50 | | | 54 | | | On or after
April 25, 2021 |
Series FF (4) | Fixed-to-Floating Rate Non-Cumulative | | March
2018 | | 94,000 | | | 25,000 | | | 2,350 | | | 5.875% to, but excluding, 3/15/28; 3-mo. LIBOR + 293.1 bps thereafter | | 58.75 | | | 138 | | | On or after
March 15, 2028 |
Series GG (2) | 6.000% Non-Cumulative | | May
2018 | | 54,000 | | | 25,000 | | | 1,350 | | | 6.000 | % | | 1.50 | | | 81 | | | On or after
May 16, 2023 |
Series HH (2) | 5.875% Non-Cumulative | | July
2018 | | 34,160 | | | 25,000 | | | 854 | | | 5.875 | % | | 1.47 | | | 50 | | | On or after
July 24, 2023 |
Series JJ (4) | Fixed-to-Floating Rate Non-Cumulative | | June
2019 | | 40,000 | | | 25,000 | | | 1,000 | | | 5.125% to, but excluding, 6/20/24; 3-mo. LIBOR + 329.2 bps thereafter | | 51.25 | | | 51 | | | On or after
June 20, 2024 |
Series KK (2) | 5.375% Non-Cumulative | | June
2019 | | 55,900 | | | 25,000 | | | 1,398 | | | 5.375 | % | | 1.34 | | | 75 | | | On or after
June 25, 2024 |
Series LL (2) | 5.000% Non-Cumulative | | September
2019 | | 52,400 | | | 25,000 | | | 1,310 | | | 5.000 | % | | 1.25 | | | 66 | | | On or after
September 17, 2024 |
Series MM (4) | Fixed-to-Floating Rate Non-Cumulative | | January
2020 | | 44,000 | | | 25,000 | | | 1,100 | | | 4.300 | % | | 43.48 | | | 48 | | | On or after
January 28, 2025 |
Series NN (2) | 4.375% Non-Cumulative | | October
2020 | | 44,000 | | | 25,000 | | | 1,100 | | | 4.375 | % | | 0.29 | | | 13 | | | On or after
November 3, 2025 |
Series 1 (5) | Floating Rate Non-Cumulative | | November
2004 | | 3,275 | | | 30,000 | | | 98 | | | 3-mo. LIBOR + 75 bps (6) | | 0.75 | | | 3 | | | On or after
November 28, 2009 |
Series 2 (5) | Floating Rate Non-Cumulative | | March
2005 | | 9,967 | | | 30,000 | | | 299 | | | 3-mo. LIBOR + 65 bps (6) | | 0.76 | | | 10 | | | On or after
November 28, 2009 |
Series 4 (5) | Floating Rate Non-Cumulative | | November
2005 | | 7,010 | | | 30,000 | | | 210 | | | 3-mo. LIBOR + 75 bps (3) | | 1.02 | | | 9 | | | On or after
November 28, 2010 |
Series 5 (5) | Floating Rate Non-Cumulative | | March
2007 | | 14,056 | | | 30,000 | | | 422 | | | 3-mo. LIBOR + 50 bps (3) | | 1.02 | | | 17 | | | On or after
May 21, 2012 |
| Issuance costs and certain adjustments | | | | | | | | (348) | | | | | | | | | |
| Total | | | | | 3,931,440 | | | | | $ | 24,510 | | | | | | | | | |
(1)The Corporation may redeem series of preferred stock on or after the redemption date, in whole or in part, at its option, at the liquidation preference plus declared and unpaid dividends. Series B and Series L Preferred Stock do not have early redemption/call rights.
(2)Ownership is held in the form of depositary shares, each representing a 1/1,000th interest in a share of preferred stock, paying a quarterly cash dividend, if and when declared.
(3)Subject to 4.00% minimum rate per annum.
(4)Ownership is held in the form of depositary shares, each representing a 1/25th interest in a share of preferred stock, paying a semi-annual cash dividend, if and when declared, until the first redemption date at which time, it adjusts to a quarterly cash dividend, if and when declared, thereafter.
(5)Ownership is held in the form of depositary shares, each representing a 1/1,200th interest in a share of preferred stock, paying a quarterly cash dividend, if and when declared.
(6)Subject to 3.00% minimum rate per annum.
The Corporation may redeem series of preferred stock on or after the redemption date, in whole or in part, at its option, at the liquidation preference plus declared and unpaid dividends. Series B and Series L Preferred Stock do not have early redemption/call rights. | | |
(3)
| Ownership is held in the form of depositary shares, each representing a 1/1,000th interest in a share of preferred stock, paying a quarterly cash dividend, if and when declared. |
| |
(4)
| Subject to 4.00% minimum rate per annum.
|
| |
(5)
| Ownership is held in the form of depositary shares, each representing a 1/25th interest in a share of preferred stock, paying a semi-annual cash dividend, if and when declared, until the first redemption date at which time, it adjusts to a quarterly cash dividend, if and when declared, thereafter. |
| |
(6)
| Represents shares that were not surrendered when the holders of Series T preferred stock exercised warrants to acquire 700 million shares of common stock in the third quarter of 2017.
|
| |
(7)
| Ownership is held in the form of depositary shares, each representing a 1/1,200th interest in a share of preferred stock, paying a quarterly cash dividend, if and when declared. |
| |
(8)
| Subject to 3.00% minimum rate per annum.
|
n/a = not applicable
| | | | | | | | |
| | |
159Bank of America 2017144
| | |
NOTE 14Accumulated Other Comprehensive Income (Loss)
The table below presents the changes in accumulated OCI after-tax for 2015, 20162020, 2019 and2017. 2018.
| | | (Dollars in millions) | | (Dollars in millions) | Debt Securities | | Debit Valuation Adjustments | | Derivatives | | Employee
Benefit Plans | | Foreign
Currency | | Total |
| | | | | | | | | | | | | | | | | |
| (Dollars in millions) | Debt Securities | | Available-for-
Sale Marketable Equity Securities | | Debit Valuation Adjustments | | Derivatives | | Employee Benefit Plans | | Foreign Currency (1) | | Total | |
| Balance, December 31, 2014 | $ | 1,641 |
| | $ | 17 |
| | n/a |
| | $ | (1,661 | ) | | $ | (3,350 | ) | | $ | (669 | ) | | $ | (4,022 | ) | |
| Cumulative adjustment for accounting change | — |
| | — |
| | $ | (1,226 | ) | | — |
| | — |
| | — |
| | (1,226 | ) | |
| | Balance, December 31, 2017 | | Balance, December 31, 2017 | $ | (1,206) | | | $ | (1,060) | | | $ | (831) | | | $ | (3,192) | | | $ | (793) | | | $ | (7,082) | |
| Accounting change related to certain tax effects | | Accounting change related to certain tax effects | (393) | | | (220) | | | (189) | | | (707) | | | 239 | | | (1,270) | |
| Cumulative adjustment for hedge accounting change | | Cumulative adjustment for hedge accounting change | 0 | | | 0 | | | 57 | | | 0 | | | 0 | | | 57 | |
| Net change | (1,625 | ) | | 45 |
| | 615 |
| | 584 |
| | 394 |
| | (123 | ) | | (110 | ) | Net change | (3,953) | | | 749 | | | (53) | | | (405) | | | (254) | | | (3,916) | |
| Balance, December 31, 2015 | $ | 16 |
| | $ | 62 |
| | $ | (611 | ) | | $ | (1,077 | ) | | $ | (2,956 | ) | | $ | (792 | ) | | $ | (5,358 | ) | |
| Balance, December 31, 2018 | | Balance, December 31, 2018 | $ | (5,552) | | | $ | (531) | | | $ | (1,016) | | | $ | (4,304) | | | $ | (808) | | | $ | (12,211) | |
| Net change | (1,315 | ) | | (30 | ) | | (156 | ) | | 182 |
| | (524 | ) | | (87 | ) | | (1,930 | ) | Net change | 5,875 | | | (963) | | | 616 | | | 136 | | | (86) | | | 5,578 | |
| Balance, December 31, 2016 | $ | (1,299 | ) | | $ | 32 |
| | $ | (767 | ) | | $ | (895 | ) | | $ | (3,480 | ) | | $ | (879 | ) | | $ | (7,288 | ) | |
| Balance, December 31, 2019 | | Balance, December 31, 2019 | $ | 323 | | | $ | (1,494) | | | $ | (400) | | | $ | (4,168) | | | $ | (894) | | | $ | (6,633) | |
| Net change | 91 |
| | (30 | ) | | (293 | ) | | 64 |
| | 288 |
| | 86 |
| | 206 |
| Net change | 4,799 | | | (498) | | | 826 | | | (98) | | | (52) | | | 4,977 | |
| Balance, December 31, 2017 | $ | (1,208 | ) | | $ | 2 |
| | $ | (1,060 | ) | | $ | (831 | ) | | $ | (3,192 | ) | | $ | (793 | ) | | $ | (7,082 | ) | |
| Balance, December 31, 2020 | | Balance, December 31, 2020 | $ | 5,122 | | | $ | (1,992) | | | $ | 426 | | | $ | (4,266) | | | $ | (946) | | | $ | (1,656) | |
The table below presents the net change in fair value recorded in accumulated OCI, net realized gains and losses reclassified into earnings and other changes for each component of OCI before-pre- and after-tax for 2017, 20162020, 2019 and 2015.2018.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | |
| Pretax | | Tax
effect | | After-
tax | | Pretax | | Tax
effect | | After-
tax | | Pretax | | Tax effect | | After-
tax |
| | | | | | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 |
| Debt securities: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net increase (decrease) in fair value | $ | 6,819 | | | $ | (1,712) | | | $ | 5,107 | | | $ | 8,020 | | | $ | (2,000) | | | $ | 6,020 | | | $ | (5,189) | | | $ | 1,329 | | | $ | (3,860) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net realized (gains) reclassified into earnings (1) | (411) | | | 103 | | | (308) | | | (193) | | | 48 | | | (145) | | | (123) | | | 30 | | | (93) | |
| Net change | 6,408 | | | (1,609) | | | 4,799 | | | 7,827 | | | (1,952) | | | 5,875 | | | (5,312) | | | 1,359 | | | (3,953) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Debit valuation adjustments: | | | | | | | | | | | | | | | | | |
| Net increase (decrease) in fair value | (669) | | | 156 | | | (513) | | | (1,276) | | | 289 | | | (987) | | | 952 | | | (224) | | | 728 | |
Net realized losses reclassified into earnings (1) | 19 | | | (4) | | | 15 | | | 18 | | | 6 | | | 24 | | | 26 | | | (5) | | | 21 | |
| | | | | | | | | | | | | | | | | |
| Net change | (650) | | | 152 | | | (498) | | | (1,258) | | | 295 | | | (963) | | | 978 | | | (229) | | | 749 | |
| Derivatives: | | | | | | | | | | | | | | | | | |
| Net increase (decrease) in fair value | 1,098 | | | (268) | | | 830 | | | 692 | | | (156) | | | 536 | | | (232) | | | 74 | | | (158) | |
| Reclassifications into earnings: | | | | | | | | | | | | | | | | | |
| Net interest income | 6 | | | (1) | | | 5 | | | 104 | | | (26) | | | 78 | | | 165 | | | (40) | | | 125 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Compensation and benefits expense | (12) | | | 3 | | | (9) | | | 2 | | | 0 | | | 2 | | | (27) | | | 7 | | | (20) | |
| Net realized (gains) losses reclassified into earnings | (6) | | | 2 | | | (4) | | | 106 | | | (26) | | | 80 | | | 138 | | | (33) | | | 105 | |
| | | | | | | | | | | | | | | | | |
| Net change | 1,092 | | | (266) | | | 826 | | | 798 | | | (182) | | | 616 | | | (94) | | | 41 | | | (53) | |
| Employee benefit plans: | | | | | | | | | | | | | | | | | |
| Net increase (decrease) in fair value | (381) | | | 80 | | | (301) | | | 41 | | | (21) | | | 20 | | | (703) | | | 164 | | | (539) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net actuarial losses and other reclassified into earnings (2) | 261 | | | (63) | | | 198 | | | 150 | | | (36) | | | 114 | | | 171 | | | (46) | | | 125 | |
| Settlements, curtailments and other | 5 | | | 0 | | | 5 | | | 3 | | | (1) | | | 2 | | | 11 | | | (2) | | | 9 | |
| Net change | (115) | | | 17 | | | (98) | | | 194 | | | (58) | | | 136 | | | (521) | | | 116 | | | (405) | |
| Foreign currency: | | | | | | | | | | | | | | | | | |
| Net (decrease) in fair value | (251) | | | 199 | | | (52) | | | (13) | | | (52) | | | (65) | | | (8) | | | (195) | | | (203) | |
Net realized (gains) reclassified into earnings (1) | (1) | | | 1 | | | 0 | | | (110) | | | 89 | | | (21) | | | (149) | | | 98 | | | (51) | |
| | | | | | | | | | | | | | | | | |
| Net change | (252) | | | 200 | | | (52) | | | (123) | | | 37 | | | (86) | | | (157) | | | (97) | | | (254) | |
| Total other comprehensive income (loss) | $ | 6,483 | | | $ | (1,506) | | | $ | 4,977 | | | $ | 7,438 | | | $ | (1,860) | | | $ | 5,578 | | | $ | (5,106) | | | $ | 1,190 | | | $ | (3,916) | |
(1) Reclassifications of pretax debt securities, DVA and foreign currency (gains) losses are recorded in other income in the Consolidated Statement of Income.
(2) Reclassifications of pretax employee benefit plan costs are recorded in other general operating expense in the Consolidated Statement of Income.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Changes in OCI Components Before- and After-tax | | | | | | | | | | | | | | |
| | | | | | | | |
| | Before-tax | | Tax effect | | After- tax | | Before-tax | | Tax effect | | After- tax | | Before-tax | | Tax effect | | After- tax |
| (Dollars in millions) | 2017 | | 2016 | | 2015 |
| Debt securities: | | | | | | | | | | | | | | | | | |
| Net increase in fair value | $ | 202 |
| | $ | 26 |
| | $ | 228 |
| | $ | (1,645 | ) | | $ | 622 |
| | $ | (1,023 | ) | | $ | (1,564 | ) | | $ | 595 |
| | $ | (969 | ) |
| Reclassifications into earnings: | | | | | | | | | | | | | | | | | |
| Gains on sales of debt securities | (255 | ) | | 97 |
| | (158 | ) | | (490 | ) | | 186 |
| | (304 | ) | | (1,138 | ) | | 432 |
| | (706 | ) |
| Other income | 41 |
| | (20 | ) | | 21 |
| | 19 |
| | (7 | ) | | 12 |
| | 81 |
| | (31 | ) | | 50 |
|
| Net realized gains reclassified into earnings | (214 | ) | | 77 |
| | (137 | ) | | (471 | ) | | 179 |
| | (292 | ) | | (1,057 | ) | | 401 |
| | (656 | ) |
| Net change | (12 | ) | | 103 |
| | 91 |
| | (2,116 | ) | | 801 |
| | (1,315 | ) | | (2,621 | ) | | 996 |
| | (1,625 | ) |
| Available-for-sale marketable equity securities: | | | | | | | | | | | | | | | | | |
| Net increase (decrease) in fair value | 38 |
| | (12 | ) | | 26 |
| | (49 | ) | | 19 |
| | (30 | ) | | 72 |
| | (27 | ) | | 45 |
|
Net realized gains reclassified into earnings (2) | (90 | ) | | 34 |
| | (56 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net change | (52 | ) | | 22 |
| | (30 | ) | | (49 | ) | | 19 |
| | (30 | ) | | 72 |
| | (27 | ) | | 45 |
|
| Debit valuation adjustments: | | | | | | | | | | | | | | | | | |
| Net increase (decrease) in fair value | (490 | ) | | 171 |
| | (319 | ) | | (271 | ) | | 104 |
| | (167 | ) | | 436 |
| | (166 | ) | | 270 |
|
Net realized losses reclassified into earnings (2) | 42 |
| | (16 | ) | | 26 |
| | 17 |
| | (6 | ) | | 11 |
| | 556 |
| | (211 | ) | | 345 |
|
| Net change | (448 | ) | | 155 |
| | (293 | ) | | (254 | ) | | 98 |
| | (156 | ) | | 992 |
| | (377 | ) | | 615 |
|
| Derivatives: | | | | | | | | | | | | | | | | | |
| Net increase (decrease) in fair value | (50 | ) | | 1 |
| | (49 | ) | | (299 | ) | | 113 |
| | (186 | ) | | 55 |
| | (22 | ) | | 33 |
|
| Reclassifications into earnings: | | | | | | | | | | | | | | | | | |
| Net interest income | 327 |
| | (122 | ) | | 205 |
| | 553 |
| | (205 | ) | | 348 |
| | 974 |
| | (367 | ) | | 607 |
|
| Personnel | (148 | ) | | 56 |
| | (92 | ) | | 32 |
| | (12 | ) | | 20 |
| | (91 | ) | | 35 |
| | (56 | ) |
| Net realized losses reclassified into earnings | 179 |
| | (66 | ) | | 113 |
| | 585 |
| | (217 | ) | | 368 |
| | 883 |
| | (332 | ) | | 551 |
|
| Net change | 129 |
| | (65 | ) | | 64 |
| | 286 |
| | (104 | ) | | 182 |
| | 938 |
| | (354 | ) | | 584 |
|
| Employee benefit plans: | | | | | | | | | | | | | | | | | |
| Net increase (decrease) in fair value | 223 |
| | (55 | ) | | 168 |
| | (921 | ) | | 329 |
| | (592 | ) | | 408 |
| | (121 | ) | | 287 |
|
| Reclassifications into earnings: | | | | | | | | | | | | | | | | | |
| Prior service cost | 4 |
| | (1 | ) | | 3 |
| | 5 |
| | (2 | ) | | 3 |
| | 5 |
| | (2 | ) | | 3 |
|
| Net actuarial losses | 175 |
| | (60 | ) | | 115 |
| | 92 |
| | (34 | ) | | 58 |
| | 164 |
| | (60 | ) | | 104 |
|
Net realized losses reclassified into earnings (3) | 179 |
| | (61 | ) | | 118 |
| | 97 |
| | (36 | ) | | 61 |
| | 169 |
| | (62 | ) | | 107 |
|
| Settlements, curtailments and other | 3 |
| | (1 | ) | | 2 |
| | 15 |
| | (8 | ) | | 7 |
| | 1 |
| | (1 | ) | | — |
|
| Net change | 405 |
| | (117 | ) | | 288 |
| | (809 | ) | | 285 |
| | (524 | ) | | 578 |
| | (184 | ) | | 394 |
|
| Foreign currency: | | | | | | | | | | | | | | | | | |
| Net increase (decrease) in fair value | (439 | ) | | 430 |
| | (9 | ) | | 514 |
| | (601 | ) | | (87 | ) | | 600 |
| | (723 | ) | | (123 | ) |
Net realized gains reclassified into earnings (1,2) | (606 | ) | | 701 |
| | 95 |
| | — |
| | — |
| | — |
| | (38 | ) | | 38 |
| | — |
|
| Net change | (1,045 | ) | | 1,131 |
| | 86 |
| | 514 |
| | (601 | ) | | (87 | ) | | 562 |
| | (685 | ) | | (123 | ) |
| Total other comprehensive income (loss) | $ | (1,023 | ) | | $ | 1,229 |
| | $ | 206 |
| | $ | (2,428 | ) | | $ | 498 |
| | $ | (1,930 | ) | | $ | 521 |
| | $ | (631 | ) | | $ | (110 | ) |
| |
(1)
| During 2017, foreign currency included a pre-tax gain on derivatives and related income tax expense associated with the Corporation’s net investment in its non-U.S. consumer credit card business, which was sold in 2017. The derivative gain was partially offset by a loss on the related foreign currency translation adjustment.
|
| |
(2)
| Reclassifications of pre-tax AFS marketable equity securities, DVA and foreign currency are recorded in other income in the Consolidated Statement of Income. |
| |
(3)
| Reclassifications of pre-tax employee benefit plan costs are recorded in personnel expense in the Consolidated Statement of Income. |
n/a = not applicable
NOTE 15 Earnings Per Common Share
The calculation of EPS and diluted EPS for 2017, 20162020, 2019 and 20152018 is presented below. For more information on the calculation of EPS, see Note 1 – Summary of Significant Accounting Principles.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | |
| (In millions, except per share information) | | | | | | | 2020 | | 2019 | | 2018 |
| Earnings per common share | | | | | | | | | | | |
| Net income | | | | | | | $ | 17,894 | | | $ | 27,430 | | | $ | 28,147 | |
| Preferred stock dividends | | | | | | | (1,421) | | | (1,432) | | | (1,451) | |
| Net income applicable to common shareholders | | | | | | | $ | 16,473 | | | $ | 25,998 | | | $ | 26,696 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Average common shares issued and outstanding | | | | | | | 8,753.2 | | | 9,390.5 | | | 10,096.5 | |
| Earnings per common share | | | | | | | $ | 1.88 | | | $ | 2.77 | | | $ | 2.64 | |
| | | | | | | | | | | |
| Diluted earnings per common share | | | | | | | | | | | |
| | | | | | | | | | | |
| Net income applicable to common shareholders | | | | | | | $ | 16,473 | | | $ | 25,998 | | | $ | 26,696 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Average common shares issued and outstanding | | | | | | | 8,753.2 | | | 9,390.5 | | | 10,096.5 | |
Dilutive potential common shares (1) | | | | | | | 43.7 | | | 52.4 | | | 140.4 | |
| Total diluted average common shares issued and outstanding | | | | | | | 8,796.9 | | | 9,442.9 | | | 10,236.9 | |
| Diluted earnings per common share | | | | | | | $ | 1.87 | | | $ | 2.75 | | | $ | 2.61 | |
(1)Includes incremental dilutive shares from RSUs, restricted stock and warrants.
|
| | | | | | | | | | | |
| | | | | | |
| (Dollars in millions, except per share information; shares in thousands) | 2017 | | 2016 | | 2015 |
| Earnings per common share | | | |
| | |
| Net income | $ | 18,232 |
| | $ | 17,822 |
| | $ | 15,910 |
|
| Preferred stock dividends | (1,614 | ) | | (1,682 | ) | | (1,483 | ) |
| Net income applicable to common shareholders | $ | 16,618 |
| | $ | 16,140 |
| | $ | 14,427 |
|
| Average common shares issued and outstanding | 10,195,646 |
| | 10,284,147 |
| | 10,462,282 |
|
| Earnings per common share | $ | 1.63 |
| | $ | 1.57 |
| | $ | 1.38 |
|
| | | | | | |
| Diluted earnings per common share | |
| | |
| | |
| Net income applicable to common shareholders | $ | 16,618 |
| | $ | 16,140 |
| | $ | 14,427 |
|
Add preferred stock dividends due to assumed conversions (1) | 186 |
| | 300 |
| | 300 |
|
| Net income allocated to common shareholders | $ | 16,804 |
| | $ | 16,440 |
| | $ | 14,727 |
|
| Average common shares issued and outstanding | 10,195,646 |
| | 10,284,147 |
| | 10,462,282 |
|
Dilutive potential common shares (2) | 582,782 |
| | 762,659 |
| | 773,948 |
|
| Total diluted average common shares issued and outstanding | 10,778,428 |
| | 11,046,806 |
| | 11,236,230 |
|
| Diluted earnings per common share | $ | 1.56 |
| | $ | 1.49 |
| | $ | 1.31 |
|
| | | | | | | | |
(1)145 Bank of America
| Represents the Series T dividends under the “if-converted” method prior to conversion. |
Includes incremental dilutive shares from RSUs, restricted stock and warrants. | In connection with an investment in the Corporation’s Series T preferred stock in 2011, the Series T holders also received warrants to purchase 700 million shares of the Corporation’s common stock at an exercise price of $7.142857 per share. On August 24, 2017, the Series T holders exercised the warrantsFor 2020, 2019 and acquired the 700 million shares of the Corporation’s common stock using the Series T preferred stock as consideration for the exercise price, which increased common shares outstanding, but had no effect on diluted earnings per share as this conversion had been included in the Corporation’s diluted earnings per share calculation under the applicable accounting guidance. The use of the Series T preferred stock as consideration represents a non-cash financing activity and, accordingly, is not reflected in the Consolidated Statement of Cash Flows. For 2016 and 2015, the 700 million average dilutive potential common shares were included in the diluted share count under the “if-converted” method.
For 2017, 2016 and 2015,2018, 62 million average dilutive potential common shares associated with the Series L preferred stock were not included in the diluted share count because the result would have been antidilutive under the “if-converted” method. For 2017, 2016 and 2015,2018, average options to purchase 21 million, 45 million and 66 million shares of common stock, respectively, were outstanding but not included in the computation of EPS because the result would have been antidilutive under the treasury stock method. For 2017, 2016 and 2015, average warrants to purchase 122 million4000000 shares of common stock were outstanding but not included in the computation of EPS because the result would have been antidilutive under the treasury stock method. For 2017,2019 and 2018, average warrants to purchase 1433000000 and 136 million shares of common stock, respectively, were included in the diluted EPS calculation under the treasury stock method compared to 150 million sharesmethod. Substantially all of common stock in both 2016 and 2015.
these warrants were exercised on or before their expiration date of January 16, 2019.NOTE 16 Regulatory Requirements andRestrictions
The Federal Reserve, Office of the Comptroller of the Currency (OCC) and FDIC (collectively, U.S. banking regulators) jointly establish regulatory capital adequacy guidelinesrules, including Basel 3, for U.S. banking organizations. As a financial holding company, the Corporation is subject to capital adequacy rules issued by
the Federal Reserve. The Corporation’s banking entity affiliates are subject to capital adequacy rules issued by the OCC.
Basel 3 updated the composition of capital and established a Common equity tier 1 capital ratio. Common equity tier 1 capital primarily includes common stock, retained earnings and accumulated OCI. Basel 3 revised minimum capital ratios and buffer requirements, added a supplementary leverage ratio, and addressed the adequately capitalized minimum requirements under the Prompt Corrective Action (PCA) framework. Finally, Basel 3 established two methods of calculating risk-weighted assets, the Standardized approach and the Advanced approaches.
The Corporation and its primary banking entity affiliate, BANA, are Advanced approaches institutions under Basel 3. As Advanced approaches institutions, the Corporation and its banking entity affiliates are required to report regulatory risk-based capital ratios and risk-weighted assets under both the Standardized and Advanced approaches. The approach that yields the lower ratio is used to assess capital adequacy, including under the Prompt Corrective Action (PCA) framework.
The Corporation is required to maintain a minimum supplementary leverage ratio (SLR) of 3.0 percent plus a leverage buffer of 2.0 percent in order to avoid certain restrictions on capital distributions and discretionary bonus payments. The Corporation’s insured depository institution subsidiaries are required to maintain a minimum 6.0 percent SLR to be considered well capitalized under the PCA framework, and was the Advanced approaches method at December 31, 2017 and 2016.framework.
The following table presents capital ratios and related information in accordance with Basel 3 Standardized and Advanced approaches – Transition as measured at December 31, 20172020 and 20162019 for the Corporation and BANA.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
Regulatory Capital under Basel 3 | | | | | | | | |
| |
| Bank of America Corporation | | Bank of America, N.A. |
| Standardized Approach (1, 2) | | Advanced Approaches (1) | | Regulatory Minimum (3) | | Standardized Approach (1, 2) | | Advanced Approaches (1) | | Regulatory Minimum (4) |
| (Dollars in millions, except as noted) | December 31, 2020 |
| Risk-based capital metrics: | | | | | | | | | | | |
| Common equity tier 1 capital | $ | 176,660 | | | $ | 176,660 | | | | | $ | 164,593 | | | $ | 164,593 | | | |
| Tier 1 capital | 200,096 | | | 200,096 | | | | | 164,593 | | | 164,593 | | | |
Total capital (5) | 237,936 | | | 227,685 | | | | | 181,370 | | | 170,922 | | | |
| Risk-weighted assets (in billions) | 1,480 | | | 1,371 | | | | | 1,221 | | | 1,014 | | | |
| Common equity tier 1 capital ratio | 11.9 | % | | 12.9 | % | | 9.5 | % | | 13.5 | % | | 16.2 | % | | 7.0 | % |
| Tier 1 capital ratio | 13.5 | | | 14.6 | | | 11.0 | | | 13.5 | | | 16.2 | | | 8.5 | |
| Total capital ratio | 16.1 | | | 16.6 | | | 13.0 | | | 14.9 | | | 16.9 | | | 10.5 | |
| | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (6) | $ | 2,719 | | | $ | 2,719 | | | | | $ | 2,143 | | | $ | 2,143 | | | |
| Tier 1 leverage ratio | 7.4 | % | | 7.4 | % | | 4.0 | | | 7.7 | % | | 7.7 | % | | 5.0 | |
| | | | | | | | | | | |
Supplementary leverage exposure (in billions) (7) | | | $ | 2,786 | | | | | | | $ | 2,525 | | | |
| Supplementary leverage ratio | | | 7.2 | % | | 5.0 | | | | | 6.5 | % | | 6.0 | |
| | | | | | | | | | | |
| | December 31, 2019 |
| Risk-based capital metrics: | | | | | | | | | | | |
| Common equity tier 1 capital | $ | 166,760 | | | $ | 166,760 | | | | | $ | 154,626 | | | $ | 154,626 | | | |
| Tier 1 capital | 188,492 | | | 188,492 | | | | | 154,626 | | | 154,626 | | | |
Total capital (5) | 221,230 | | | 213,098 | | | | | 166,567 | | | 158,665 | | | |
| Risk-weighted assets (in billions) | 1,493 | | | 1,447 | | | | | 1,241 | | | 991 | | | |
| Common equity tier 1 capital ratio | 11.2 | % | | 11.5 | % | | 9.5 | % | | 12.5 | % | | 15.6 | % | | 7.0 | % |
| Tier 1 capital ratio | 12.6 | | | 13.0 | | | 11.0 | | | 12.5 | | | 15.6 | | | 8.5 | |
| Total capital ratio | 14.8 | | | 14.7 | | | 13.0 | | | 13.4 | | | 16.0 | | | 10.5 | |
| | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (6) | $ | 2,374 | | | $ | 2,374 | | | | | $ | 1,780 | | | $ | 1,780 | | | |
| Tier 1 leverage ratio | 7.9 | % | | 7.9 | % | | 4.0 | | | 8.7 | % | | 8.7 | % | | 5.0 | |
| | | | | | | | | | | |
| Supplementary leverage exposure (in billions) | | | $ | 2,946 | | | | | | | $ | 2,177 | | | |
| Supplementary leverage ratio | | | 6.4 | % | | 5.0 | | | | | 7.1 | % | | 6.0 | |
(1)As of December 31, 2020, capital ratios are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of CECL.
(2)Derivative exposure amounts are calculated using the standardized approach for measuring counterparty credit risk at December 31, 2020 and the current exposure method at December 31, 2019.
(3)The capital conservation buffer and global systemically important bank surcharge were 2.5 percent at both December 31, 2020 and 2019. At December 31, 2020, the Corporation's stress capital buffer of 2.5 percent was applied in place of the capital conservation buffer under the Standardized approach. The countercyclical capital buffer for both periods was 0. The SLR minimum includes a leverage buffer of 2.0 percent.
(4)Risk-based capital regulatory minimums at December 31, 2020 and 2019 are the minimum ratios under Basel 3, including a capital conservation buffer of 2.5 percent. The regulatory minimums for the leverage ratios as of both period ends are the percent required to be considered well capitalized under the PCA framework.
(5)Total capital under the Advanced approaches differs from the Standardized approach due to differences in the amount permitted in Tier 2 capital related to the qualifying allowance for credit losses.
(6)Reflects total average assets adjusted for certain Tier 1 capital deductions.
(7)Supplementary leverage exposure for the Corporation at December 31, 2020 reflects the temporary exclusion of U.S. Treasury securities and deposits at Federal Reserve Banks.
| | | | | | | | |
| | |
161Bank of America 2017146
| | |
|
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| | | | | | | | | | | | |
Regulatory Capital under Basel 3 – Transition (1) | | | | | | | | |
| | |
| | Bank of America Corporation | | Bank of America, N.A. |
| Standardized Approach | | Advanced Approaches | | Regulatory Minimum (2) | | Standardized Approach | | Advanced Approaches | | Regulatory Minimum (3) |
| (Dollars in millions, except as noted) | December 31, 2017 |
| Risk-based capital metrics: | |
| | |
| | | | |
| | |
| | |
| Common equity tier 1 capital | $ | 171,063 |
| | $ | 171,063 |
| | | | $ | 150,552 |
| | $ | 150,552 |
| | |
| Tier 1 capital | 191,496 |
| | 191,496 |
| | | | 150,552 |
| | 150,552 |
| | |
Total capital (4) | 227,427 |
| | 218,529 |
| | | | 163,243 |
| | 154,675 |
| | |
Risk-weighted assets (in billions) (5) | 1,434 |
| | 1,449 |
| | | | 1,201 |
| | 1,007 |
| | |
| Common equity tier 1 capital ratio | 11.9 | % | | 11.8 | % | | 7.25 | % | | 12.5 | % | | 14.9 | % | | 6.5 | % |
| Tier 1 capital ratio | 13.4 |
| | 13.2 |
| | 8.75 |
| | 12.5 |
| | 14.9 |
| | 8.0 |
|
| Total capital ratio | 15.9 |
| | 15.1 |
| | 10.75 |
| | 13.6 |
| | 15.4 |
| | 10.0 |
|
| | | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (6) | $ | 2,224 |
| | $ | 2,224 |
| | | | $ | 1,672 |
| | $ | 1,672 |
| | |
| Tier 1 leverage ratio | 8.6 | % | | 8.6 | % | | 4.0 |
| | 9.0 | % | | 9.0 | % | | 5.0 |
|
| | | | | | | | | | | | |
| | December 31, 2016 |
| Risk-based capital metrics: | |
| | |
| | | | |
| | |
| | |
| Common equity tier 1 capital | $ | 168,866 |
| | $ | 168,866 |
| | | | $ | 149,755 |
| | $ | 149,755 |
| | |
| Tier 1 capital | 190,315 |
| | 190,315 |
| | | | 149,755 |
| | 149,755 |
| | |
Total capital (4) | 228,187 |
| | 218,981 |
| | | | 163,471 |
| | 154,697 |
| | |
| Risk-weighted assets (in billions) | 1,399 |
| | 1,530 |
| | | | 1,176 |
| | 1,045 |
| | |
| Common equity tier 1 capital ratio | 12.1 | % | | 11.0 | % | | 5.875 | % | | 12.7 | % | | 14.3 | % | | 6.5 | % |
| Tier 1 capital ratio | 13.6 |
| | 12.4 |
| | 7.375 |
| | 12.7 |
| | 14.3 |
| | 8.0 |
|
| Total capital ratio | 16.3 |
| | 14.3 |
| | 9.375 |
| | 13.9 |
| | 14.8 |
| | 10.0 |
|
| | | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (6) | $ | 2,131 |
| | $ | 2,131 |
| | | | $ | 1,611 |
| | $ | 1,611 |
| | |
| Tier 1 leverage ratio | 8.9 | % | | 8.9 | % | | 4.0 |
| | 9.3 | % | | 9.3 | % | | 5.0 |
|
| |
(1)
| Under the applicable bank regulatory rules, the Corporation is not required to and, accordingly, will not restate previously-filed regulatory capital metrics and ratios in connection with the change in accounting method as described in Note 1 – Summary of Significant Accounting Principles . Therefore, the December 31, 2016 amounts in the table are as originally reported. The cumulative impact of the change in accounting method resulted in an insignificant pro forma change to the Corporation’s capital metrics and ratios.
|
| |
(2)
| The December 31, 2017 and 2016 amounts include a transition capital conservation buffer of 1.25 percent and 0.625 percent and a transition global systemically important bank surcharge of 1.5 percent and 0.75 percent. The countercyclical capital buffer for both periods is zero.
|
| |
(3)
| Percentage required to meet guidelines to be considered “well capitalized” under the PCA framework. |
| |
(4)
| Total capital under the Advanced approaches differs from the Standardized approach due to differences in the amount permitted in Tier 2 capital related to the qualifying allowance for credit losses. |
| |
(5)
| During the fourth quarter of 2017, the Corporation obtained approval from U.S. banking regulators to use its Internal Models Methodology to calculate counterparty credit risk-weighted assets for derivatives under the Advanced approaches. |
| |
(6)
| Reflects adjusted average total assets for the three months ended December 31, 2017 and 2016.
|
The capital adequacy rules issued by the U.S. banking regulators require institutions to meet the established minimums outlined in the table above. Failure to meet the minimum requirements can lead to certain mandatory and discretionary actions by regulators that could have a material adverse impact on the Corporation’s financial position. At December 31, 20172020 and 2016,2019, the Corporation and its banking entity affiliates were “wellwell capitalized.”
In response to the uncertainty arising from the pandemic, the Federal Reserve required all large banks to suspend share repurchase programs during the second half of 2020, except for repurchases to offset shares awarded under equity-based compensation plans, and to limit common stock dividends to existing rates that did not exceed the average of the last four quarters’ net income. In December 2020, the Federal Reserve announced that beginning in the first quarter of 2021, large banks would be permitted to pay common stock dividends at existing rates and to repurchase shares in an amount that, when combined with dividends paid, does not exceed the average of net income over the last four quarters. For more information, see Note 13 – Shareholders’ Equity.
Other Regulatory Matters
The Federal Reserve requires the Corporation’s bank subsidiaries to maintain reserve requirements based on a percentage of certain deposit liabilities. The average daily reserve balance requirements, in excess of vault cash, maintained by the Corporation with the Federal Reserve Bank were $8.9 billion and $7.7$3.8 billion for 20172020, reflecting the Federal Reserve's reduction of the reserve requirement to zero in the first quarter due to COVID-19, and 2016.$14.6 billion for 2019. At December 31, 20172020 and 2016,2019, the Corporation had cash and cash equivalents in the amount of $4.1$4.9 billion and $4.8$6.3 billion, and securities with a fair value of $17.3$16.8 billion and $14.6$14.7 billion that were segregated in compliance with securities regulations. Cash held on deposit with the Federal Reserve Bank to meet reserve requirements and cash and cash equivalents segregated in compliance with securities regulations are components of restricted cash. For more information, see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements, Short-term Borrowings and Restricted Cash. In addition, at December 31, 20172020 and 2016,2019, the Corporation had
cash deposited with clearing organizations of $11.9$10.9 billion and $10.2$7.6 billion primarily recorded in other assets on the Consolidated Balance Sheet.
Bank Subsidiary Distributions
The primary sources of funds for cash distributions by the Corporation to its shareholders are capital distributions received from its bank subsidiaries, BANA and Bank of America California, N.A. In 2017,2020, the Corporation received dividends of $22.2$10.3 billion from BANA and $275$62 million from Bank of America California, N.A.
The amount of dividends that a subsidiary bank may declare in a calendar year without OCC approval is the subsidiary bank’s net profits for that year combined with its retained net profits for the preceding two years. Retained net profits, as defined by the OCC, consist of net income less dividends declared during the period. In 2018,2021, BANA can declare and pay dividends of approximately $6.0$10.3 billion to the Corporation plus an additional amount equal to its retained net profits for 20182021 up to the date
of any such dividend declaration. Bank of America California, N.A. can pay dividends of $195$198 million in 20182021 plus an additional amount equal to its retained net profits for 20182021 up to the date of any such dividend declaration.
NOTE 17 Employee Benefit Plans
Pension and Postretirement Plans
The Corporation sponsors a qualified noncontributory trusteed pension plan (Qualified Pension Plan), a number of noncontributory nonqualified pension plans, and postretirement health and life plans that cover eligible employees. Non-U.S. pension plans sponsored by the Corporation vary based on the country and local practices.
The Qualified Pension Plan has a balance guarantee feature for account balances with participant-selected investments, applied at the time a benefit payment is made from the plan that effectively provides principal protection for participant balances transferred and certain compensation credits. The Corporation is responsible for funding any shortfall on the guarantee feature.
Benefits earned under the Qualified Pension Plan have been frozen. Thereafter, the cash balance accounts continue to earn investment credits or interest credits in accordance with the terms of the plan document.
The Corporation has an annuity contract that guarantees the payment of benefits vested under a terminated U.S. pension plan (Other Pension Plan). The Corporation, under a supplemental agreement, may be responsible for or benefit from actual experience and investment performance of the annuity assets. The Corporation made no0 contribution under this agreement in 20172020 or 2016.2019. Contributions may be required in the future under this agreement.
The Corporation’s noncontributory, nonqualified pension plans are unfunded and provide supplemental defined pension benefits to certain eligible employees.
In addition to retirement pension benefits, certain benefits-eligible employees may become eligible to continue participation as retirees in health care and/or life insurance plans sponsored by the Corporation. These plans are referred to as the Postretirement Health and Life Plans. During 2017, the Corporation established and funded a Voluntary Employees’ Beneficiary Association trust in the amount of $300 million for the Postretirement Health and Life Plans.
The Pension and Postretirement Plans table summarizes the changes in the fair value of plan assets, changes in the projected benefit obligation (PBO), the funded status of both the accumulated benefit obligation (ABO) and the PBO, and the weighted-average assumptions used to determine benefit obligations for the pension plans and postretirement plans at December 31, 20172020 and 2016.2019. The estimate of the Corporation’s PBO associated with these plans considers various actuarial assumptions, including assumptions for mortality rates and discount rates. The discount rate assumptions are derived from a cash flow matching technique that utilizes rates that are based on Aa-rated corporate bonds with cash flows that match estimated benefit payments of each of the plans. The decreases in the weighted-average discount raterates in 20172020 and 20162019 resulted in increases to the PBO of approximately $1.1$1.9 billion and $1.3$2.2 billionatDecember 31, 20172020 and 2016.2019. Significant gains and losses related to changes in the PBO for 2020 and 2019 primarily resulted from changes in the discount rate.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
Pension and Postretirement Plans (1) | | | | | | | |
| | | | | | | | |
| | Qualified Pension Plan | | Non-U.S. Pension Plans | | Nonqualified and Other Pension Plans | | Postretirement Health and Life Plans |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Change in fair value of plan assets | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Fair value, January 1 | $ | 18,239 |
| | $ | 17,962 |
| | $ | 2,789 |
| | $ | 2,738 |
| | $ | 2,744 |
| | $ | 2,805 |
| | $ | — |
| | $ | — |
|
| Actual return on plan assets | 2,285 |
| | 1,075 |
| | 118 |
| | 541 |
| | 128 |
| | 74 |
| | — |
| | — |
|
| Company contributions | — |
| | — |
| | 23 |
| | 48 |
| | 98 |
| | 104 |
| | 393 |
| | 104 |
|
| Plan participant contributions | — |
| | — |
| | 1 |
| | 1 |
| | — |
| | — |
| | 125 |
| | 125 |
|
| Settlements and curtailments | — |
| | — |
| | (190 | ) | | (20 | ) | | — |
| | (6 | ) | | — |
| | — |
|
| Benefits paid | (816 | ) | | (798 | ) | | (54 | ) | | (118 | ) | | (246 | ) | | (233 | ) | | (230 | ) | | (242 | ) |
| Federal subsidy on benefits paid | n/a |
| | n/a |
| | n/a |
| | n/a |
| | n/a |
| | n/a |
| | 12 |
| | 13 |
|
| Foreign currency exchange rate changes | n/a |
| | n/a |
| | 256 |
| | (401 | ) | | n/a |
| | n/a |
| | n/a |
| | n/a |
|
| Fair value, December 31 | $ | 19,708 |
| | $ | 18,239 |
| | $ | 2,943 |
| | $ | 2,789 |
| | $ | 2,724 |
| | $ | 2,744 |
| | $ | 300 |
| | $ | — |
|
| Change in projected benefit obligation | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Projected benefit obligation, January 1 | $ | 14,982 |
| | $ | 14,461 |
| | $ | 2,763 |
| | $ | 2,580 |
| | $ | 3,047 |
| | $ | 3,053 |
| | $ | 1,125 |
| | $ | 1,152 |
|
| Service cost | — |
| | — |
| | 24 |
| | 25 |
| | 1 |
| | — |
| | 6 |
| | 7 |
|
| Interest cost | 606 |
| | 634 |
| | 72 |
| | 86 |
| | 117 |
| | 127 |
| | 43 |
| | 47 |
|
| Plan participant contributions | — |
| | — |
| | 1 |
| | 1 |
| | — |
| | — |
| | 125 |
| | 125 |
|
| Plan amendments | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (19 | ) | | — |
|
| Settlements and curtailments | — |
| | — |
| | (200 | ) | | (31 | ) | | — |
| | (6 | ) | | — |
| | — |
|
| Actuarial loss (gain) | 934 |
| | 685 |
| | (26 | ) | | 535 |
| | 128 |
| | 106 |
| | (7 | ) | | 25 |
|
| Benefits paid | (816 | ) | | (798 | ) | | (54 | ) | | (118 | ) | | (246 | ) | | (233 | ) | | (230 | ) | | (242 | ) |
| Federal subsidy on benefits paid | n/a |
| | n/a |
| | n/a |
| | n/a |
| | n/a |
| | n/a |
| | 12 |
| | 13 |
|
| Foreign currency exchange rate changes | n/a |
| | n/a |
| | 234 |
| | (315 | ) | | n/a |
| | n/a |
| | 1 |
| | (2 | ) |
| Projected benefit obligation, December 31 | $ | 15,706 |
| | $ | 14,982 |
| | $ | 2,814 |
| | $ | 2,763 |
| | $ | 3,047 |
| | $ | 3,047 |
| | $ | 1,056 |
| | $ | 1,125 |
|
| Amounts recognized on Consolidated Balance Sheet | | | | | | | | | | | | | | | |
| Other assets | $ | 4,002 |
| | $ | 3,257 |
| | $ | 610 |
| | $ | 475 |
| | $ | 730 |
| | $ | 760 |
| | $ | — |
| | $ | — |
|
| Accrued expenses and other liabilities | — |
| | — |
| | (481 | ) | | (449 | ) | | (1,053 | ) | | (1,063 | ) | | (756 | ) | | (1,125 | ) |
| Net amount recognized, December 31 | $ | 4,002 |
| | $ | 3,257 |
| | $ | 129 |
| | $ | 26 |
| | $ | (323 | ) | | $ | (303 | ) | | $ | (756 | ) | | $ | (1,125 | ) |
| Funded status, December 31 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Accumulated benefit obligation | $ | 15,706 |
| | $ | 14,982 |
| | $ | 2,731 |
| | $ | 2,645 |
| | $ | 3,046 |
| | $ | 3,046 |
| | n/a |
| | n/a |
|
| Overfunded (unfunded) status of ABO | 4,002 |
| | 3,257 |
| | 212 |
| | 144 |
| | (322 | ) | | (302 | ) | | n/a |
| | n/a |
|
| Provision for future salaries | — |
| | — |
| | 83 |
| | 118 |
| | 1 |
| | 1 |
| | n/a |
| | n/a |
|
| Projected benefit obligation | 15,706 |
| | 14,982 |
| | 2,814 |
| | 2,763 |
| | 3,047 |
| | 3,047 |
| | $ | 1,056 |
| | $ | 1,125 |
|
| Weighted-average assumptions, December 31 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Discount rate | 3.68 | % | | 4.16 | % | | 2.39 | % | | 2.56 | % | | 3.58 | % | | 4.01 | % | | 3.58 | % | | 3.99 | % |
| Rate of compensation increase | n/a |
| | n/a |
| | 4.31 |
| | 4.51 |
| | 4.00 |
| | 4.00 |
| | n/a |
| | n/a |
|
| |
(1)
| The measurement date for the Qualified Pension Plan, Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans was December 31 of each year reported.
|
n/a = not applicable
|
| | | |
163147Bank of America 2017
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
Pension and Postretirement Plans (1) | | | | | | | |
| | | | | | | |
| Qualified
Pension Plan | | Non-U.S.
Pension Plans | | Nonqualified and Other
Pension Plans | | Postretirement
Health and Life Plans |
| (Dollars in millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| Fair value, January 1 | $ | 20,275 | | | $ | 18,178 | | | $ | 2,696 | | | $ | 2,461 | | | $ | 2,666 | | | $ | 2,584 | | | $ | 199 | | | $ | 252 | |
| Actual return on plan assets | 2,468 | | | 3,187 | | | 379 | | | 273 | | | 285 | | | 228 | | | 1 | | | 5 | |
| Company contributions | 0 | | | 0 | | | 23 | | | 20 | | | 86 | | | 91 | | | 6 | | | 24 | |
| Plan participant contributions | 0 | | | 0 | | | 1 | | | 1 | | | 0 | | | 0 | | | 110 | | | 103 | |
| Settlements and curtailments | 0 | | | 0 | | | (61) | | | (42) | | | 0 | | | 0 | | | 0 | | | 0 | |
| Benefits paid | (967) | | | (1,090) | | | (57) | | | (108) | | | (248) | | | (237) | | | (174) | | | (185) | |
| Federal subsidy on benefits paid | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | 1 | | | 0 | |
| Foreign currency exchange rate changes | n/a | | n/a | | 97 | | | 91 | | | n/a | | n/a | | n/a | | n/a |
| Fair value, December 31 | $ | 21,776 | | | $ | 20,275 | | | $ | 3,078 | | | $ | 2,696 | | | $ | 2,789 | | | $ | 2,666 | | | $ | 143 | | | $ | 199 | |
| Change in projected benefit obligation | | | | | | | | | | | | | | | |
| Projected benefit obligation, January 1 | $ | 15,361 | | | $ | 14,144 | | | $ | 2,887 | | | $ | 2,589 | | | $ | 2,919 | | | $ | 2,779 | | | $ | 989 | | | $ | 928 | |
| Service cost | 0 | | | 0 | | | 20 | | | 17 | | | 1 | | | 1 | | | 5 | | | 5 | |
| Interest cost | 500 | | | 593 | | | 49 | | | 65 | | | 90 | | | 113 | | | 32 | | | 38 | |
| Plan participant contributions | 0 | | | 0 | | | 1 | | | 1 | | | 0 | | | 0 | | | 110 | | | 103 | |
| Plan amendments | 0 | | | 0 | | | 3 | | | 2 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Settlements and curtailments | 0 | | | 0 | | | (61) | | | (42) | | | 0 | | | 0 | | | 0 | | | 0 | |
| Actuarial loss | 1,533 | | | 1,714 | | | 396 | | | 288 | | | 243 | | | 263 | | | 43 | | | 99 | |
| Benefits paid | (967) | | | (1,090) | | | (57) | | | (108) | | | (248) | | | (237) | | | (173) | | | (185) | |
| Federal subsidy on benefits paid | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | 1 | | | 0 | |
| Foreign currency exchange rate changes | n/a | | n/a | | 102 | | | 75 | | | n/a | | n/a | | 0 | | | 1 | |
| | | | | | | | | | | | | | | |
| Projected benefit obligation, December 31 | $ | 16,427 | | | $ | 15,361 | | | $ | 3,340 | | | $ | 2,887 | | | $ | 3,005 | | | $ | 2,919 | | | $ | 1,007 | | | $ | 989 | |
| Amounts recognized on Consolidated Balance Sheet | | | | | | | | | | | | | | | |
| Other assets | $ | 5,349 | | | $ | 4,914 | | | $ | 428 | | | $ | 364 | | | $ | 812 | | | $ | 733 | | | $ | 0 | | | $ | 0 | |
| Accrued expenses and other liabilities | 0 | | | 0 | | | (690) | | | (555) | | | (1,028) | | | (986) | | | (864) | | | (790) | |
| Net amount recognized, December 31 | $ | 5,349 | | | $ | 4,914 | | | $ | (262) | | | $ | (191) | | | $ | (216) | | | $ | (253) | | | $ | (864) | | | $ | (790) | |
| Funded status, December 31 | | | | | | | | | | | | | | | |
| Accumulated benefit obligation | $ | 16,427 | | | $ | 15,361 | | | $ | 3,253 | | | $ | 2,841 | | | $ | 3,005 | | | $ | 2,919 | | | n/a | | n/a |
| Overfunded (unfunded) status of ABO | 5,349 | | | 4,914 | | | (175) | | | (145) | | | (216) | | | (253) | | | n/a | | n/a |
| Provision for future salaries | 0 | | | 0 | | | 87 | | | 46 | | | 0 | | | 0 | | | n/a | | n/a |
| Projected benefit obligation | 16,427 | | | 15,361 | | | 3,340 | | | 2,887 | | | 3,005 | | | 2,919 | | | $ | 1,007 | | | $ | 989 | |
| Weighted-average assumptions, December 31 | | | | | | | | | | | | | | | |
| Discount rate | 2.57 % | | 3.32 | % | | 1.37 % | | 1.81 | % | | 2.33 % | | 3.20 | % | | 2.48 % | | 3.27 | % |
| Rate of compensation increase | n/a | | n/a | | 4.11 | | | 4.10 | | | 4.00 | | | 4.00 | | | n/a | | n/a |
| Interest-crediting rate | 5.02 | % | | 5.06 | % | | 1.58 | | | 1.53 | | | 4.49 | | | 4.52 | | | n/a | | n/a |
(1)The measurement date for all of the above plans was December 31 of each year reported.
n/a = not applicable
The Corporation’s estimate of its contributions to be made to the Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans in 20182021 is $17$29 million, $92$93 million and $19$14 million, respectively. The Corporation does not expect to make a contribution to the Qualified Pension Plan in 2018.2021. It is the policy of the Corporation to fund no less than the
required by the Employee Retirement Income Security Act of 1974 (ERISA).
Pension Plans with ABO and PBO in excess of plan assets as of December 31, 20172020 and 20162019 are presented in the table below. For these plans, funding strategies vary due to legal requirements and local practices.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Plans with ABO and PBO in Excess of Plan Assets | | | | | | | | | | | |
| | | | | | | | | | | |
| | | Non-U.S.
Pension Plans | | Nonqualified
and Other
Pension Plans |
| (Dollars in millions) | | | | | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | | | | | |
| PBO | | | | | $ | 900 | | | $ | 744 | | | $ | 1,028 | | | $ | 988 | |
| ABO | | | | | 841 | | | 720 | | | 1,028 | | | 988 | |
| Fair value of plan assets | | | | | 211 | | | 191 | | | 1 | | | 1 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| Plans with PBO and ABO in Excess of Plan Assets | | | | | | | |
| | | | | | | | |
| | Non-U.S. Pension Plans | | Nonqualified and Other Pension Plans |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| PBO | $ | 671 |
| | $ | 626 |
| | $ | 1,054 |
| | $ | 1,065 |
|
| ABO | 644 |
| | 594 |
| | 1,053 |
| | 1,064 |
|
| Fair value of plan assets | 191 |
| | 179 |
| | 1 |
| | 1 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Components of Net Periodic Benefit Cost | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Qualified Pension Plan | | Non-U.S. Pension Plans |
| (Dollars in millions) | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Components of net periodic benefit cost (income) | | | | | | | | | | | |
| Service cost | $ | — |
| | $ | — |
| | $ | — |
| | $ | 24 |
| | $ | 25 |
| | $ | 27 |
|
| Interest cost | 606 |
| | 634 |
| | 621 |
| | 72 |
| | 86 |
| | 93 |
|
| Expected return on plan assets | (1,068 | ) | | (1,038 | ) | | (1,045 | ) | | (136 | ) | | (123 | ) | | (133 | ) |
| Amortization of net actuarial loss | 154 |
| | 139 |
| | 170 |
| | 8 |
| | 6 |
| | 6 |
|
| Other | — |
| | — |
| | — |
| | (7 | ) | | 2 |
| | 1 |
|
| Net periodic benefit cost (income) | $ | (308 | ) | | $ | (265 | ) | | $ | (254 | ) | | $ | (39 | ) | | $ | (4 | ) | | $ | (6 | ) |
| Weighted-average assumptions used to determine net cost for years ended December 31 | |
| | |
| | |
| | |
| | |
| | |
|
| Discount rate | 4.16 | % | | 4.51 | % | | 4.12 | % | | 2.56 | % | | 3.59 | % | | 3.56 | % |
| Expected return on plan assets | 6.00 |
| | 6.00 |
| | 6.00 |
| | 4.73 |
| | 4.84 |
| | 5.27 |
|
| Rate of compensation increase | n/a |
| | n/a |
| | n/a |
| | 4.51 |
| | 4.67 |
| | 4.70 |
|
| | | | | | | | | | | | |
| | Nonqualified and
Other Pension Plans | | Postretirement Health
and Life Plans |
| (Dollars in millions) | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Components of net periodic benefit cost (income) | | | | | | | | | | | |
| Service cost | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 6 |
| | $ | 7 |
| | $ | 8 |
|
| Interest cost | 117 |
| | 127 |
| | 122 |
| | 43 |
| | 47 |
| | 48 |
|
| Expected return on plan assets | (95 | ) | | (101 | ) | | (92 | ) | | — |
| | — |
| | (1 | ) |
| Amortization of net actuarial loss (gain) | 34 |
| | 25 |
| | 34 |
| | (21 | ) | | (81 | ) | | (46 | ) |
| Other | — |
| | 3 |
| | — |
| | 4 |
| | 4 |
| | 4 |
|
| Net periodic benefit cost (income) | $ | 57 |
| | $ | 54 |
| | $ | 64 |
| | $ | 32 |
| | $ | (23 | ) | | $ | 13 |
|
| Weighted-average assumptions used to determine net cost for years ended December 31 | |
| | |
| | |
| | |
| | |
| | |
|
| Discount rate | 4.01 | % | | 4.34 | % | | 3.80 | % | | 3.99 | % | | 4.32 | % | | 3.75 | % |
| Expected return on plan assets | 3.50 |
| | 3.66 |
| | 3.26 |
| | n/a |
| | n/a |
| | 6.00 |
|
| Rate of compensation increase | 4.00 |
| | 4.00 |
| | 4.00 |
| | n/a |
| | n/a |
| | n/a |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Components of Net Periodic Benefit Cost | | | | | | | | | | | |
| | | | | | | | | | | |
| | Qualified Pension Plan | | Non-U.S. Pension Plans |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| Components of net periodic benefit cost (income) | | | | | | | | | | | |
| Service cost | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 20 | | | $ | 17 | | | $ | 19 | |
| Interest cost | 500 | | | 593 | | | 563 | | | 49 | | | 65 | | | 65 | |
| Expected return on plan assets | (1,154) | | | (1,088) | | | (1,136) | | | (66) | | | (99) | | | (126) | |
| | | | | | | | | | | |
| Amortization of net actuarial loss | 173 | | | 135 | | | 147 | | | 9 | | | 6 | | | 10 | |
| | | | | | | | | | | |
| Other | 0 | | | 0 | | | 0 | | | 8 | | | 4 | | | 12 | |
| Net periodic benefit cost (income) | $ | (481) | | | $ | (360) | | | $ | (426) | | | $ | 20 | | | $ | (7) | | | $ | (20) | |
| Weighted-average assumptions used to determine net cost for years ended December 31 | | | | | | | | | | | |
| Discount rate | 3.32 % | | 4.32 | % | | 3.68 | % | | 1.81 % | | 2.60 | % | | 2.39 | % |
| Expected return on plan assets | 6.00 | | | 6.00 | | | 6.00 | | | 2.57 | | | 4.13 | | | 4.37 | |
| Rate of compensation increase | n/a | | n/a | | n/a | | 4.10 | | | 4.49 | | | 4.31 | |
| | | | | | | | | | | |
| Nonqualified and
Other Pension Plans | | Postretirement Health
and Life Plans |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| Components of net periodic benefit cost (income) | | | | | | | | | | | |
| Service cost | $ | 1 | | | $ | 1 | | | $ | 1 | | | $ | 5 | | | $ | 5 | | | $ | 6 | |
| Interest cost | 90 | | | 113 | | | 105 | | | 32 | | | 38 | | | 36 | |
| Expected return on plan assets | (71) | | | (95) | | | (84) | | | (4) | | | (5) | | | (6) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Amortization of net actuarial loss (gain) | 50 | | | 34 | | | 43 | | | 29 | | | (24) | | | (27) | |
| | | | | | | | | | | |
| Other | 0 | | | 0 | | | 0 | | | (2) | | | (2) | | | (3) | |
| Net periodic benefit cost (income) | $ | 70 | | | $ | 53 | | | $ | 65 | | | $ | 60 | | | $ | 12 | | | $ | 6 | |
| Weighted-average assumptions used to determine net cost for years ended December 31 | | | | | | | | | | | |
| Discount rate | 3.20 % | | 4.26 | % | | 3.58 | % | | 3.27 % | | 4.25 | % | | 3.58 | % |
| Expected return on plan assets | 2.77 | | | 3.73 | | | 3.19 | | | 2.00 | | | 2.00 | | | 2.00 | |
| Rate of compensation increase | 4.00 | | | 4.00 | | | 4.00 | | | n/a | | n/a | | n/a |
n/a = not applicable
The asset valuation method used to calculate the expected return on plan assets component of net periodic benefit cost for the Qualified Pension Plan recognizes 60 percent of the prior year’s market gains or losses at the next measurement date with the remaining 40 percent spread equally over the subsequent four years.
Gains and losses for all benefit plans except postretirement health care are recognized in accordance with the standard amortization provisions of the applicable accounting guidance. Net periodic postretirement health and life expense was determined using the “projected unit credit” actuarial method. For the Postretirement Health and Life Plans, 50 percent of the unrecognized gain or loss at the beginning of the fiscal year (or at
subsequent remeasurement) is recognized on a level basis during the year.
Assumed health care cost trend rates affect the postretirement benefit obligation and benefit cost reported for the Postretirement Health and Life Plans. The assumed health care cost trend rate used to measure the expected cost of benefits covered by the Postretirement Health and Life Plans is 7.006.25 percent for 2018,2021, reducing in steps to 5.00 percent in 20232026 and later years. A one-percentage-point increase in assumed health care cost trend rates would have increased the service and interest costs, and the benefit obligation by $1 million and $26 million in 2017. A one-percentage-point decrease in assumed health care cost trend rates would have lowered the service and interest costs, and the benefit obligation by $1 million and $23 million in 2017.
The Corporation’s net periodic benefit cost (income) recognized for the plans is sensitive to the discount rate and expected return on plan assets. With all other assumptions held constant, a 25 bp decline in the discount rate and expected return on plan assets assumptions would have resulted in an increase in the net periodic benefit cost forFor the Qualified Pension Plan, of approximately $6
million and $45 million in 2017, and approximately $6 million and $47 million to be recognized in 2018. For the Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans, a 25 bp decline in discount rates and expected return on assets would not have had a significant impact on the net periodic benefit cost for 2017 and 2018.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Pretax Amounts included in Accumulated OCI and OCI | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | Qualified
Pension Plan | | Non-U.S.
Pension Plans | | Nonqualified
and Other
Pension Plans | | Postretirement
Health and
Life Plans | | Total |
| (Dollars in millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| Net actuarial loss (gain) | $ | 3,912 | | | $ | 3,865 | | | $ | 628 | | | $ | 559 | | | $ | 987 | | | $ | 1,008 | | | $ | 66 | | | $ | 48 | | | $ | 5,593 | | | $ | 5,480 | |
| Prior service cost (credits) | 0 | | | 0 | | | 18 | | | 18 | | | 0 | | | 0 | | | (4) | | | (6) | | | 14 | | | 12 | |
| Amounts recognized in accumulated OCI | $ | 3,912 | | | $ | 3,865 | | | $ | 646 | | | $ | 577 | | | $ | 987 | | | $ | 1,008 | | | $ | 62 | | | $ | 42 | | | $ | 5,607 | | | $ | 5,492 | |
| | | | | | | | | | | | | | | | | | | |
| Current year actuarial loss (gain) | $ | 219 | | | $ | (385) | | | $ | 79 | | | $ | 110 | | | $ | 29 | | | $ | 130 | | | $ | 47 | | | $ | 99 | | | $ | 374 | | | $ | (46) | |
Amortization of actuarial gain (loss) and prior service cost | (173) | | | (135) | | | (12) | | | (7) | | | (50) | | | (34) | | | (27) | | | 26 | | | (262) | | | (150) | |
| Current year prior service cost (credit) | 0 | | | 0 | | | 3 | | | 2 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3 | | | 2 | |
| | | | | | | | | | | | | | | | | | | |
| Amounts recognized in OCI | $ | 46 | | | $ | (520) | | | $ | 70 | | | $ | 105 | | | $ | (21) | | | $ | 96 | | | $ | 20 | | | $ | 125 | | | $ | 115 | | | $ | (194) | |
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|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Pretax Amounts Included in Accumulated OCI | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Qualified Pension Plan | | Non-U.S. Pension Plans | | Nonqualified and Other Pension Plans | | Postretirement Health and Life Plans | | Total |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Net actuarial loss (gain) | $ | 3,992 |
| | $ | 4,429 |
| | $ | 196 |
| | $ | 216 |
| | $ | 1,014 |
| | $ | 953 |
| | $ | (30 | ) | | $ | (44 | ) | | $ | 5,172 |
| | $ | 5,554 |
|
| Prior service cost (credits) | — |
| | — |
| | 4 |
| | 4 |
| | — |
| | — |
| | (11 | ) | | 12 |
| | (7 | ) | | 16 |
|
| Amounts recognized in accumulated OCI | $ | 3,992 |
| | $ | 4,429 |
| | $ | 200 |
| | $ | 220 |
| | $ | 1,014 |
| | $ | 953 |
| | $ | (41 | ) | | $ | (32 | ) | | $ | 5,165 |
| | $ | 5,570 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Pretax Amounts Recognized in OCI | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Qualified Pension Plan | | Non-U.S. Pension Plans | | Nonqualified
and Other Pension Plans | | Postretirement
Health and Life Plans | | Total (1) |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Current year actuarial loss (gain) | $ | (283 | ) | | $ | 648 |
| | $ | (12 | ) | | $ | 100 |
| | $ | 95 |
| | $ | 133 |
| | $ | (7 | ) | | $ | 25 |
| | $ | (207 | ) | | $ | 906 |
|
| Amortization of actuarial gain (loss) | (154 | ) | | (139 | ) | | (8 | ) | | (6 | ) | | (34 | ) | | (28 | ) | | 21 |
| | 81 |
| | (175 | ) | | (92 | ) |
| Current year prior service cost (credit) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (19 | ) | | — |
| | (19 | ) | | — |
|
| Amortization of prior service cost | — |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
| | (4 | ) | | (4 | ) | | (4 | ) | | (5 | ) |
| Amounts recognized in OCI | $ | (437 | ) | | $ | 509 |
| | $ | (20 | ) | | $ | 93 |
| | $ | 61 |
| | $ | 105 |
| | $ | (9 | ) | | $ | 102 |
| | $ | (405 | ) | | $ | 809 |
|
(1) Pretax amounts to be amortized from accumulated OCI as period cost during 2018 are estimated to be $176 million.Plan Assets
The Qualified Pension Plan has been established as a retirement vehicle for participants, and trusts have been established to secure benefits promised under the Qualified Pension Plan. The Corporation’s policy is to invest the trust assets in a prudent manner for the exclusive purpose of providing benefits to participants and defraying reasonable expenses of administration. The Corporation’s investment strategy is designed to provide a total return that, over the long term, increases the ratio of assets to liabilities. The strategy attempts to maximize the investment return on assets at a level of risk deemed appropriate by the Corporation while complying with ERISA and any applicable regulations and laws. The investment strategy utilizes asset allocation as a principal determinant for establishing the risk/return profile of the assets. Asset allocation ranges are established, periodically reviewed and adjusted as funding levels and liability characteristics change. Active and passive investment managers are employed to help enhance the risk/return profile of the assets. An additional aspect of the investment strategy used to minimize risk (part of the asset allocation plan) includes matching the exposure of participant-selected investment measures. No plan assets are expected to be returned to the Corporation during 2018.
The assets of the Non-U.S. Pension Plans are primarily attributable to a U.K. pension plan. This U.K. pension plan’s assets are invested prudently so that the benefits promised to members are provided with consideration given to the nature and the duration
of the plan’splans' liabilities. The selected asset
allocation strategy is designed to achieve a higher return than the lowest risk strategy.
The expected rate of return on plan assets assumption was developed through analysis of historical market returns, historical asset class volatility and correlations, current market conditions, anticipated future asset allocations, the funds’ past experience and expectations on potential future market returns. The expected return on plan assets assumption is determined using the calculated market-related value for the Qualified Pension Plan and the Other Pension Plan and the fair value for the Non-U.S. Pension Plans and Postretirement Health and Life Plans. The expected return on plan assets assumption represents a long-term average view of the performance of the assets in the Qualified Pension Plan, the Non-U.S. Pension Plans, the Other Pension Plan, and Postretirement Health and Life Plans, a return that may or may not be achieved during any one calendar year. The Other Pension Plan is invested solely in an annuity contract, which is primarily invested in fixed-income securities structured such that asset maturities match the duration of the plan’s obligations.
The target allocations for 20182021 by asset category for the Qualified Pension Plan, Non-U.S. Pension Plans, and Nonqualified and Other Pension Plans are presented in the following table. Equity securities for the Qualified Pension Plan include common stock of the Corporation in the amounts of $261$274 million (1.33(1.26 percent of total plan assets) and $203$315 million (1.11(1.55 percent of total plan assets) at December 31, 20172020 and 2016.2019.
| | | | | |
| | | |
| | | 2021 Target Allocation |
2018 Target Allocation | | | |
| | | Percentage |
| Asset Category | PercentageQualified
Pension Plan | Non-U.S.
Pension Plans | Nonqualified
and Other
Pension Plans |
Asset CategoryEquity securities | Qualified
Pension Plan
15 - 50% | Non-U.S.
Pension Plans
0 - 25% | Nonqualified
and Other
Pension Plans
0 - 5% |
EquityDebt securities | 30-6045 - 80% | 5-3540 - 70% | 0-595 - 100% |
Debt securitiesReal estate | 40-700 - 10% | 40-800 - 15% | 95-1000 - 5% |
Real estateOther | 0-100 - 5% | 0-1510 - 40% | 0-5 |
Other | 0-5 | 0-25 | 0-50 - 5% |
Fair Value Measurements
For more information on fair value measurements, including descriptions of Level 1, 2 and 3 of the fair value hierarchy and the valuation methods employed by the Corporation, see Note 1 – Summary of Significant Accounting Principles and Note 20 – Fair Value Measurements. Combined plan investment assets measured at fair value by level and in total at December 31, 20172020 and 20162019 are summarized in the Fair Value Measurements table.
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| Fair Value Measurements | | | | | | | |
| | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| (Dollars in millions) | December 31, 2017 |
| Cash and short-term investments | |
| | |
| | |
| | |
|
| Money market and interest-bearing cash | $ | 2,190 |
| | $ | — |
| | $ | — |
| | $ | 2,190 |
|
| Cash and cash equivalent commingled/mutual funds | — |
| | 1,004 |
| | — |
| | 1,004 |
|
| Fixed income | |
| | |
| | |
| | |
|
| U.S. government and agency securities | 3,331 |
| | 854 |
| | 9 |
| | 4,194 |
|
| Corporate debt securities | — |
| | 2,417 |
| | — |
| | 2,417 |
|
| Asset-backed securities | — |
| | 1,832 |
| | — |
| | 1,832 |
|
| Non-U.S. debt securities | 693 |
| | 898 |
| | — |
| | 1,591 |
|
| Fixed income commingled/mutual funds | 775 |
| | 1,676 |
| | — |
| | 2,451 |
|
| Equity | |
| | |
| | |
| | |
|
| Common and preferred equity securities | 5,833 |
| | — |
| | — |
| | 5,833 |
|
| Equity commingled/mutual funds | 271 |
| | 1,753 |
| | — |
| | 2,024 |
|
| Public real estate investment trusts | 138 |
| | — |
| | — |
| | 138 |
|
| Real estate | |
| | |
| | |
| | |
|
| Private real estate | — |
| | — |
| | 93 |
| | 93 |
|
| Real estate commingled/mutual funds | — |
| | 13 |
| | 831 |
| | 844 |
|
| Limited partnerships | — |
| | 155 |
| | 85 |
| | 240 |
|
Other investments (1) | 101 |
| | 649 |
| | 74 |
| | 824 |
|
| Total plan investment assets, at fair value | $ | 13,332 |
| | $ | 11,251 |
| | $ | 1,092 |
| | $ | 25,675 |
|
| | | | | | | | |
| | December 31, 2016 |
| Cash and short-term investments | |
| | |
| | |
| | |
|
| Money market and interest-bearing cash | $ | 776 |
| | $ | — |
| | $ | — |
| | $ | 776 |
|
| Cash and cash equivalent commingled/mutual funds | — |
| | 997 |
| | — |
| | 997 |
|
| Fixed income | |
| | |
| | |
| | |
|
| U.S. government and agency securities | 3,125 |
| | 816 |
| | 10 |
| | 3,951 |
|
| Corporate debt securities | — |
| | 1,892 |
| | — |
| | 1,892 |
|
| Asset-backed securities | — |
| | 2,246 |
| | — |
| | 2,246 |
|
| Non-U.S. debt securities | 789 |
| | 705 |
| | — |
| | 1,494 |
|
| Fixed income commingled/mutual funds | 778 |
| | 1,503 |
| | — |
| | 2,281 |
|
| Equity | |
| | |
| | |
| | |
|
| Common and preferred equity securities | 6,120 |
| | — |
| | — |
| | 6,120 |
|
| Equity commingled/mutual funds | 735 |
| | 1,225 |
| | — |
| | 1,960 |
|
| Public real estate investment trusts | 145 |
| | — |
| | — |
| | 145 |
|
| Real estate | |
| | |
| | |
| | |
|
| Private real estate | — |
| | — |
| | 150 |
| | 150 |
|
| Real estate commingled/mutual funds | — |
| | 12 |
| | 748 |
| | 760 |
|
| Limited partnerships | — |
| | 132 |
| | 38 |
| | 170 |
|
Other investments (1) | 15 |
| | 732 |
| | 83 |
| | 830 |
|
| Total plan investment assets, at fair value | $ | 12,483 |
| | $ | 10,260 |
| | $ | 1,029 |
| | $ | 23,772 |
|
| |
(1)
| Other investments include interest rate swaps of $156 million and $257 million, participant loans of $20 million and $36 million, commodity and balanced funds of $451 million and $369 million and other various investments of $197 million and $168 million at December 31, 2017 and 2016.
|
|
| | | | | | | |
| | Bank of America 2017166150 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Fair Value Measurements | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| (Dollars in millions) | December 31, 2020 | | December 31, 2019 |
| Cash and short-term investments | | | | | | | | | | | | | | | |
| Money market and interest-bearing cash | $ | 1,380 | | | $ | 0 | | | $ | 0 | | | $ | 1,380 | | | $ | 1,426 | | | $ | 0 | | | $ | 0 | | | $ | 1,426 | |
| Cash and cash equivalent commingled/mutual funds | 0 | | | 383 | | | 0 | | | 383 | | | 0 | | | 250 | | | 0 | | | 250 | |
| Fixed income | | | | | | | | | | | | | | | |
| U.S. government and agency securities | 4,590 | | | 1,238 | | | 7 | | | 5,835 | | | 4,403 | | | 890 | | | 8 | | | 5,301 | |
| Corporate debt securities | 0 | | | 5,021 | | | 0 | | | 5,021 | | | 0 | | | 3,676 | | | 0 | | | 3,676 | |
| Asset-backed securities | 0 | | | 1,967 | | | 0 | | | 1,967 | | | 0 | | | 2,684 | | | 0 | | | 2,684 | |
| Non-U.S. debt securities | 1,021 | | | 1,122 | | | 0 | | | 2,143 | | | 748 | | | 1,015 | | | 0 | | | 1,763 | |
| Fixed income commingled/mutual funds | 1,224 | | | 1,319 | | | 0 | | | 2,543 | | | 804 | | | 1,439 | | | 0 | | | 2,243 | |
| Equity | | | | | | | | | | | | | | | |
| Common and preferred equity securities | 4,438 | | | 0 | | | 0 | | | 4,438 | | | 4,655 | | | 0 | | | 0 | | | 4,655 | |
| Equity commingled/mutual funds | 134 | | | 1,542 | | | 0 | | | 1,676 | | | 147 | | | 1,355 | | | 0 | | | 1,502 | |
| Public real estate investment trusts | 73 | | | 0 | | | 0 | | | 73 | | | 91 | | | 0 | | | 0 | | | 91 | |
| Real estate | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Real estate commingled/mutual funds | 0 | | | 20 | | | 943 | | | 963 | | | 0 | | | 18 | | | 927 | | | 945 | |
| Limited partnerships | 0 | | | 184 | | | 83 | | | 267 | | | 0 | | | 173 | | | 90 | | | 263 | |
Other investments (1) | 5 | | | 401 | | | 691 | | | 1,097 | | | 11 | | | 390 | | | 636 | | | 1,037 | |
| Total plan investment assets, at fair value | $ | 12,865 | | | $ | 13,197 | | | $ | 1,724 | | | $ | 27,786 | | | $ | 12,285 | | | $ | 11,890 | | | $ | 1,661 | | | $ | 25,836 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
(1)Other investments include commodity and balanced funds of $246 million and $233 million, insurance annuity contracts of $664 million and $614 million and other various investments of $187 million and $190 million at December 31, 2020 and 2019.
The Level 3 Fair Value Measurements table presents a reconciliation of all plan investment assets measured at fair value using significant unobservable inputs (Level 3) during 2017, 20162020, 2019 and 2015.2018.
| | | | | | | | | | | | | |
| Level 3 Fair Value Measurements | Level 3 Fair Value Measurements | | | Level 3 Fair Value Measurements | | | |
| | | | | | | | | | | |
| | Balance January 1 | | Actual Return on
Plan Assets Still
Held at the Reporting Date | | Purchases, Sales and Settlements | | Balance December 31 | | Balance
January 1 | | Actual Return on
Plan Assets Still
Held at the
Reporting Date | | Purchases, Sales and Settlements | | | Balance
December 31 |
| (Dollars in millions) | 2017 | (Dollars in millions) | 2020 |
| Fixed income | |
| | |
| | |
| | |
| Fixed income | | | | | | | | |
| U.S. government and agency securities | $ | 10 |
| | $ | — |
| | $ | (1 | ) | | $ | 9 |
| U.S. government and agency securities | $ | 8 | | | $ | 0 | | | $ | (1) | | | | $ | 7 | |
| | Real estate | | Real estate | | | | | |
| | Real estate commingled/mutual funds | | Real estate commingled/mutual funds | 927 | | | (4) | | | 20 | | | | 943 | |
| Limited partnerships | | Limited partnerships | 90 | | | 2 | | | (9) | | | | 83 | |
| Other investments | | Other investments | 636 | | | 6 | | | 49 | | | | 691 | |
| Total | | Total | $ | 1,661 | | | $ | 4 | | | $ | 59 | | | | $ | 1,724 | |
| | | | | 2019 |
| Fixed income | | Fixed income | | | | | | | | |
| U.S. government and agency securities | | U.S. government and agency securities | $ | 9 | | | $ | 0 | | | $ | (1) | | | | $ | 8 | |
| | Real estate | | | |
| | | |
|
| Real estate | | | | | |
| Private real estate | 150 |
| | 8 |
| | (65 | ) | | 93 |
| Private real estate | 5 | | | 0 | | | (5) | | | | 0 | |
| Real estate commingled/mutual funds | 748 |
| | 63 |
| | 20 |
| | 831 |
| Real estate commingled/mutual funds | 885 | | | 33 | | | 9 | | | | 927 | |
| Limited partnerships | 38 |
| | 14 |
| | 33 |
| | 85 |
| Limited partnerships | 82 | | | 0 | | | 8 | | | | 90 | |
| Other investments | 83 |
| | 5 |
| | (14 | ) | | 74 |
| Other investments | 588 | | | 6 | | | 42 | | | | 636 | |
| Total | $ | 1,029 |
| | $ | 90 |
| | $ | (27 | ) | | $ | 1,092 |
| Total | $ | 1,569 | | | $ | 39 | | | $ | 53 | | | | $ | 1,661 | |
| | | | | | | | | | | |
| | 2016 | | 2018 |
| Fixed income | |
| | |
| | |
| | |
| Fixed income | | | |
| U.S. government and agency securities | $ | 11 |
| | $ | — |
| | $ | (1 | ) | | $ | 10 |
| U.S. government and agency securities | $ | 9 | | | $ | 0 | | | $ | 0 | | | | $ | 9 | |
| | Real estate | |
| | |
| | | | | Real estate | | | | | | |
| Private real estate | 144 |
| | 1 |
| | 5 |
| | 150 |
| Private real estate | 93 | | | (7) | | | (81) | | | | 5 | |
| Real estate commingled/mutual funds | 731 |
| | 21 |
| | (4 | ) | | 748 |
| Real estate commingled/mutual funds | 831 | | | 52 | | | 2 | | | | 885 | |
| Limited partnerships | 49 |
| | (2 | ) | | (9 | ) | | 38 |
| Limited partnerships | 85 | | | (12) | | | 9 | | | | 82 | |
| Other investments | 102 |
| | 4 |
| | (23 | ) | | 83 |
| Other investments | 74 | | | 0 | | | 514 | | | | 588 | |
| Total | $ | 1,037 |
| | $ | 24 |
| | $ | (32 | ) | | $ | 1,029 |
| Total | $ | 1,092 | | | $ | 33 | | | $ | 444 | | | | $ | 1,569 | |
| | | | | | | | | |
| | 2015 | |
| Fixed income | | | | | | | | |
| U.S. government and agency securities | $ | 11 |
| | $ | — |
| | $ | — |
| | $ | 11 |
| |
| Real estate | |
| | |
| | | | | |
| Private real estate | 127 |
| | 14 |
| | 3 |
| | 144 |
| |
| Real estate commingled/mutual funds | 632 |
| | 37 |
| | 62 |
| | 731 |
| |
| Limited partnerships | 65 |
| | (1 | ) | | (15 | ) | | 49 |
| |
| Other investments | 127 |
| | (5 | ) | | (20 | ) | | 102 |
| |
| Total | $ | 962 |
| | $ | 45 |
| | $ | 30 |
| | $ | 1,037 |
| |
Projected Benefit Payments
Benefit payments projected to be made from the Qualified Pension Plan, Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans are presented in the table below.
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| Projected Benefit Payments | | |
| | | | | | | | |
| (Dollars in millions) | Qualified Pension Plan (1) | | Non-U.S. Pension Plans (2) | | Nonqualified and Other Pension Plans (2) | | Postretirement Health and Life Plans (3) |
| 2018 | $ | 927 |
| | $ | 90 |
| | $ | 237 |
| | $ | 92 |
|
| 2019 | 912 |
| | 98 |
| | 239 |
| | 87 |
|
| 2020 | 924 |
| | 104 |
| | 242 |
| | 84 |
|
| 2021 | 912 |
| | 112 |
| | 239 |
| | 81 |
|
| 2022 | 919 |
| | 121 |
| | 232 |
| | 78 |
|
| 2023 - 2027 | 4,455 |
| | 695 |
| | 1,073 |
| | 343 |
|
| | | | | | | | |
(1)151 Bank of America
| Benefit payments expected to be made from the plan’s assets. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Projected Benefit Payments | | |
| | | | | | | |
| (Dollars in millions) | Qualified Pension Plan (1) | | Non-U.S. Pension Plans (2) | | Nonqualified and Other Pension Plans (2) | | Postretirement Health and Life Plans (3) |
| 2021 | $ | 856 | | | $ | 127 | | | $ | 244 | | | $ | 79 | |
| 2022 | 943 | | | 134 | | | 245 | | | 76 | |
| 2023 | 939 | | | 143 | | | 229 | | | 74 | |
| 2024 | 943 | | | 135 | | | 224 | | | 70 | |
| 2025 | 934 | | | 140 | | | 221 | | | 67 | |
| 2026 - 2030 | 4,474 | | | 675 | | | 977 | | | 290 | |
(1)Benefit payments expected to be made from the plan’s assets.
(2)Benefit payments expected to be made from a combination of the plans’ and the Corporation’s assets.
(3)Benefit payments (net of retiree contributions) expected to be made from a combination of the plans’ and the Corporation’s assets.
Benefit payments expected to be made from a combination of the plans’ and the Corporation’s assets. | | |
(3)
| Benefit payments (net of retiree contributions) expected to be made from a combination of the plans’ and the Corporation’s assets. |
Defined Contribution Plans
The Corporation maintains qualified and non-qualified defined contribution retirement plans. The Corporation recorded expense of $1.2 billion, $1.0 billion and $1.0 billion in each of 2017, 20162020, 2019 and 20152018 related to the qualified defined contribution plans. At both December 31, 20172020 and 2016, 218 million and 2242019, 189 million shares of the Corporation’s
common stock were held by these plans. Payments to the plans for dividends on common stock were $86$138 million, $60$133 million and $48$115 million in 2017, 20162020, 2019 and 2015,2018, respectively.
Certain non-U.S. employees are covered under defined contribution pension plans that are separately administered in accordance with local laws.
NOTE 18Stock-based Compensation Plans
The Corporation administers a number of equity compensation plans, with awards being granted predominantly from the Bank of America Key Employee Equity Plan (KEEP). Under this plan, 450600 million shares of the Corporation’s common stock are authorized to be used for grants of awards.
During 20172020 and 2016,2019, the Corporation granted 8586 million and 16394 million RSU awards to certain employees under the KEEP. Generally, one-third of theKEEP. These RSUs vest on each of the first three anniversaries of the grant date provided that the employee remains continuously employed with the Corporation during that time. The RSUs arewere authorized to settle predominantly in shares of common stock of the Corporation, and are expensed ratably over the vesting period, net of estimated forfeitures, for non-retirement eligible employees based on the grant-date fair value of the shares.Corporation. Certain RSUs will be settled in cash or contain settlement provisions that subject these awards to variable accounting whereby compensation expense is adjusted to fair value based on changes in the share price of the Corporation’s common stock up to the settlement date. AwardsOf the RSUs granted in 2020 and 2019, 61 million and 71 million will vest predominantly over three years prior to 2016 were predominantly cash settled.
Effective October 1, 2017,with most vesting occurring in one-third increments on each of the first three anniversaries of the grant date provided that the employee remains continuously employed with the Corporation changed its accounting methodduring that time, and will be expensed ratably over the vesting period, net of estimated forfeitures, for determining when stock-based compensation awardsnon-retirement eligible employees based on the grant-date fair value of the shares. For RSUs granted to retirement-eligible employees who are retirement eligible, the awards are deemed authorized changing from the grant date toas of the beginning of the year preceding the grant date when the incentive award plans are generally approved. As a result, the estimated value of the awards is now expensed ratably over the year preceding the grant date. The compensation cost for all prior periods presented herein has been restated. For more information, see Note 1 – Summary Additionally, 25 million and 23 million of Significant Accounting Principles.the RSUs granted in 2020 and 2019 will vest predominantly over four years with most vesting occurring in one-fourth increments on each of the first four anniversaries of the grant date provided that the employee remains continuously employed with the Corporation during that time, and will be expensed ratably over the vesting period, net of estimated forfeitures, based on the grant-date fair value of the shares.
The compensation cost for the stock-based plans was $2.2$2.1 billion, $2.2$2.1 billion and $2.1$1.8 billion, in 2017, 2016 and 2015 and the related income tax benefit was $829$505 million, $835$511 million and $792$433 million for 2017, 2016
2020, 2019 and 2015,2018, respectively.
Restricted Stock/Units
The table below presents the status at December 31, 2017 of the share-settled restricted stock/units and changes during 2017.
|
| | | | | | |
| | | | |
| Stock-settled Restricted Stock/Units |
| | | | |
| | Shares/Units | | Weighted- average Grant Date Fair Value |
| Outstanding at January 1, 2017 | 156,492,946 |
| | $ | 11.99 |
|
| Granted | 81,555,447 |
| | 24.58 |
|
| Vested | (52,187,746 | ) | | 12.01 |
|
| Canceled | (6,587,404 | ) | | 16.93 |
|
| Outstanding at December 31, 2017 | 179,273,243 |
| | 17.53 |
|
The table below presents the status at December 31, 2017 of the cash-settled RSUs granted under the KEEP and changes during 2017.
|
| | |
| |
Cash-settled Restricted Units | |
| |
| Units |
Outstanding at January 1, 2017 | 121,235,489 |
|
Granted | 3,105,988 |
|
Vested | (79,525,864 | ) |
Canceled | (2,605,987 | ) |
Outstanding at December 31, 2017 | 42,209,626 |
|
At December 31, 2017,2020, there was an estimated $1.1$2.0 billion of total unrecognized compensation cost related to certain share-based compensation awards that is expected to be recognized over a period of up to four years, with a weighted-average period of 1.72.2 years.
Restricted Stock and Restricted Stock Units
The total fair value of restricted stock and restricted stock units vested in 2017, 20162020, 2019 and 20152018 was $1.3$2.3 billion, $358$2.6 billion and $2.3 billion, respectively. The table below presents the status at December 31, 2020 of the share-settled restricted stock and restricted stock units and changes during 2020.
| | | | | | | | | | | |
| | | |
| Stock-settled Restricted Stock and Restricted Stock Units |
| | | |
| Shares/Units | | Weighted-
average Grant Date Fair Value |
| Outstanding at January 1, 2020 | 157,909,315 | | | $ | 27.93 | |
| Granted | 83,604,782 | | | 33.01 | |
| Vested | (68,578,284) | | | 27.38 | |
| Canceled | (4,982,584) | | | 30.88 | |
| Outstanding at December 31, 2020 | 167,953,229 | | | 30.60 | |
Cash-settled Restricted Units
At December 31, 2020, approximately 2 million cash-settled restricted units remain outstanding. In 2020, 2019 and $145 million, respectively. In 2017, 2016 and 2015,2018, the amount of cash paid to settle equity-based awards for all equity compensation plansthe RSUs that vested was $1.9 billion, $1.7 billion$81 million, $84 million and $3.0$1.3 billion, respectively.
Stock Options
The table below presents the status of all option plans at December 31, 2017 and changes during 2017.
|
| | | | | | |
| | | | |
| Stock Options |
| | | | |
| | Options | | Weighted- average Exercise Price |
| Outstanding at January 1, 2017 | 42,357,282 |
| | $ | 50.57 |
|
| Forfeited | (25,769,108 | ) | | 55.15 |
|
| Outstanding at December 31, 2017 | 16,588,174 |
| | 43.44 |
|
All options outstanding as of December 31, 2017were vested and exercisable with a weighted-average remaining contractual term of less than one year and have no aggregate intrinsic value. No options have been granted since 2008.
NOTE 19 Income Taxes
On December 22, 2017, the President signed into law the Tax Act which made significant changes to federal income tax law including, among other things, reducing the statutory corporate income tax rate to 21 percent from 35 percent and changing the taxation of the Corporation’s non-U.S. business activities. The estimated impact on net income was $2.9 billion, driven by $2.3 billion in income tax expense, largely from a lower valuation of certain U.S. deferred tax assets and liabilities. The change in the
statutory tax rate also impacted the Corporation’s tax-advantaged energy investments, resulting in a downward valuation adjustment of $946 million recorded in other income and a related income tax benefit of $347 million, which when netted against the $2.3 billion, resulted in a net impact on income tax expense of $1.9 billion. For more information on the Tax Act, see Note 1 – Summary of Significant Accounting Principles.
The components of income tax expense for 2017, 20162020, 2019 and 20152018 are presented in the table below.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Income Tax Expense | | | | |
| | | | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 |
| Current income tax expense | | | | | |
| U.S. federal | $ | 1,092 | | | $ | 1,136 | | | $ | 816 | |
| U.S. state and local | 1,076 | | | 901 | | | 1,377 | |
| Non-U.S. | 670 | | | 852 | | | 1,203 | |
| Total current expense | 2,838 | | | 2,889 | | | 3,396 | |
| Deferred income tax expense | | | | | |
| U.S. federal | (799) | | | 2,001 | | | 2,579 | |
| U.S. state and local | (233) | | | 223 | | | 240 | |
| Non-U.S. | (705) | | | 211 | | | 222 | |
| Total deferred expense | (1,737) | | | 2,435 | | | 3,041 | |
| Total income tax expense | $ | 1,101 | | | $ | 5,324 | | | $ | 6,437 | |
|
| | | | | | | | | | | |
| | | | | | |
| Income Tax Expense | | | | |
| | | | | | |
| (Dollars in millions) | 2017 | | 2016 | | 2015 |
| Current income tax expense | |
| | |
| | |
|
| U.S. federal | $ | 1,310 |
| | $ | 302 |
| | $ | 2,539 |
|
| U.S. state and local | 557 |
| | 120 |
| | 210 |
|
| Non-U.S. | 939 |
| | 984 |
| | 561 |
|
| Total current expense | 2,806 |
| | 1,406 |
| | 3,310 |
|
| Deferred income tax expense | |
| | |
| | |
|
| U.S. federal | 7,238 |
| | 5,416 |
| | 1,855 |
|
| U.S. state and local | 835 |
| | (279 | ) | | 515 |
|
| Non-U.S. | 102 |
| | 656 |
| | 597 |
|
| Total deferred expense | 8,175 |
| | 5,793 |
| | 2,967 |
|
| Total income tax expense | $ | 10,981 |
| | $ | 7,199 |
| | $ | 6,277 |
|
Total income tax expense does not reflect the tax effects of items that are included in OCI each period. For more
information, see Note 14 – Accumulated Other Comprehensive Income (Loss). Other tax effects included in OCI each period resulted in an expense of $1.5 billion and $1.9 billion in 2020 and 2019 and a benefit of $1.2 billion and $498 million in 2017 and 2016 and an expense of $631 million in 2015. In addition, prior to 2017, total income tax expense does not reflect tax effects associated with the Corporation’s employee stock plans which decreased common
stock and additional paid-in capital $41 million and $44 million in 2016 and 2015.2018.
Income tax expense for 2017, 20162020, 2019 and 20152018 varied from the amount computed by applying the statutory income tax rate to income before income taxes. The Corporation’s federal
statutory tax rate was 21 percent for 2020, 2019 and 2018. A reconciliation of the expected U.S. federal income tax expense, calculated by applying the federal statutory tax rate, of 35 percent, to the Corporation’s actual income tax expense, and the effective tax rates for 2017, 20162020, 2019 and 20152018 are presented in the table below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Reconciliation of Income Tax Expense | | | | | | | | | | |
| | | | | | | | | | | |
| | Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
| (Dollars in millions) | 2020 | | 2019 | | 2018 |
| Expected U.S. federal income tax expense | $ | 3,989 | | | 21.0 | % | | $ | 6,878 | | | 21.0 | % | | $ | 7,263 | | | 21.0 | % |
| Increase (decrease) in taxes resulting from: | | | | | | | | | | | |
| State tax expense, net of federal benefit | 728 | | | 3.8 | | | 1,283 | | | 3.9 | | | 1,367 | | | 4.0 | |
| Affordable housing/energy/other credits | (2,869) | | | (15.1) | | | (2,365) | | | (7.2) | | | (1,888) | | | (5.5) | |
| Tax law changes | (699) | | | (3.7) | | | 0 | | | 0 | | | 0 | | | 0 | |
| Tax-exempt income, including dividends | (346) | | | (1.8) | | | (433) | | | (1.3) | | | (413) | | | (1.2) | |
| Share-based compensation | (129) | | | (0.7) | | | (225) | | | (0.7) | | | (257) | | | (0.7) | |
| Changes in prior-period UTBs, including interest | (41) | | | (0.2) | | | (613) | | | (1.9) | | | 144 | | | 0.4 | |
| Nondeductible expenses | 324 | | | 1.7 | | | 290 | | | 0.9 | | | 302 | | | 0.9 | |
| Rate differential on non-U.S. earnings | 218 | | | 1.1 | | | 504 | | | 1.5 | | | 98 | | | 0.3 | |
| Other | (74) | | | (0.3) | | | 5 | | | 0.1 | | | (179) | | | (0.6) | |
| | | | | | | | | | | |
| Total income tax expense (benefit) | $ | 1,101 | | | 5.8 | % | | $ | 5,324 | | | 16.3 | % | | $ | 6,437 | | | 18.6 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Reconciliation of Income Tax Expense | | | | | | | | | | |
| | | | | | | | | | | | |
| | Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
| (Dollars in millions) | 2017 | | 2016 | | 2015 |
| Expected U.S. federal income tax expense | $ | 10,225 |
| | 35.0 | % | | $ | 8,757 |
| | 35.0 | % | | $ | 7,765 |
| | 35.0 | % |
| Increase (decrease) in taxes resulting from: | | | | | | | | | | | |
| State tax expense, net of federal benefit | 881 |
| | 3.0 |
| | 420 |
| | 1.7 |
| | 438 |
| | 2.0 |
|
Tax law changes (1) | 2,281 |
| | 7.8 |
| | 348 |
| | 1.4 |
| | 289 |
| | 1.3 |
|
| Changes in prior-period UTBs, including interest | 133 |
| | 0.5 |
| | (328 | ) | | (1.3 | ) | | (52 | ) | | (0.2 | ) |
| Nondeductible expenses | 97 |
| | 0.3 |
| | 180 |
| | 0.7 |
| | 40 |
| | 0.1 |
|
| Affordable housing/energy/other credits | (1,406 | ) | | (4.8 | ) | | (1,203 | ) | | (4.8 | ) | | (1,087 | ) | | (4.9 | ) |
| Tax-exempt income, including dividends | (672 | ) | | (2.3 | ) | | (562 | ) | | (2.2 | ) | | (539 | ) | | (2.4 | ) |
| Non-U.S. tax rate differential | (272 | ) | | (0.9 | ) | | (307 | ) | | (1.2 | ) | | (559 | ) | | (2.5 | ) |
| Share-based compensation | (236 | ) | | (0.8 | ) | | — |
| | — |
| | — |
| | — |
|
| Other | (50 | ) | | (0.2 | ) | | (106 | ) | | (0.5 | ) | | (18 | ) | | (0.1 | ) |
| Total income tax expense | $ | 10,981 |
| | 37.6 | % | | $ | 7,199 |
| | 28.8 | % | | $ | 6,277 |
| | 28.3 | % |
| |
(1)
| Amounts for 2016 and 2015 are for Non-U.S. tax law changes.
|
The reconciliation of the beginning unrecognized tax benefits (UTB) balance to the ending balance is presented in the following table.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Reconciliation of the Change in Unrecognized Tax Benefits |
| | | | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 |
| Balance, January 1 | $ | 1,175 | | | $ | 2,197 | | | $ | 1,773 | |
| Increases related to positions taken during the current year | 238 | | | 238 | | | 395 | |
Increases related to positions taken during prior years (1) | 99 | | | 401 | | | 406 | |
Decreases related to positions taken during prior years (1) | (172) | | | (1,102) | | | (371) | |
| Settlements | 0 | | | (541) | | | (6) | |
| Expiration of statute of limitations | 0 | | | (18) | | | 0 | |
| Balance, December 31 | $ | 1,340 | | | $ | 1,175 | | | $ | 2,197 | |
|
| | | | | | | | | | | |
| | | | | | |
| Reconciliation of the Change in Unrecognized Tax Benefits |
| | | | | | |
| (Dollars in millions) | 2017 | | 2016 | | 2015 |
| Balance, January 1 | $ | 875 |
| | $ | 1,095 |
| | $ | 1,068 |
|
| Increases related to positions taken during the current year | 292 |
| | 104 |
| | 36 |
|
Increases related to positions taken during prior years | 750 |
| | 1,318 |
| | 187 |
|
| Decreases related to positions taken during prior years | (122 | ) | | (1,091 | ) | | (177 | ) |
| Settlements | (17 | ) | | (503 | ) | | (1 | ) |
| Expiration of statute of limitations | (5 | ) | | (48 | ) | | (18 | ) |
| Balance, December 31 | $ | 1,773 |
| | $ | 875 |
| | $ | 1,095 |
|
At December 31, 2017, 20162020, 2019 and 2015,2018, the balance of the Corporation’s UTBs which would, if recognized, affect the Corporation’s effective tax rate was $1.2 billion, $0.6 billion$976 million, $814 million and $0.7$1.6 billion, respectively. Included in the UTB balance are some items the recognition of which would not affect the effective tax rate, such as the tax effect of certain temporary differences, the portion of gross state UTBs that would be offset by the tax benefit of the associated federal deduction and the portion of gross non-U.S. UTBs that would be offset by tax reductions in other jurisdictions.
It is reasonably possible that the UTB balance may decrease by as much as $166 million during the next 12 months, since resolved items will be removed from the balance whether their resolution results in payment or recognition.
The Corporation recognized interest expense of $9 million in 2020, an interest benefit of $19 million in 2019 and interest expense of $43 million in 2018. At December 31, 2020 and 2019, the Corporation’s accrual for interest and penalties that related to income taxes, net of taxes and remittances, was $130 million and $147 million.
The Corporation files income tax returns in more than 100 state and non-U.S. jurisdictions each year. The IRS and other tax authorities in countries and states in which the Corporation has significant business operations examine tax returns periodically (continuously in some jurisdictions). The following table summarizes the status of examinations by major jurisdiction for the Corporation and various subsidiaries at December 31, 2017.
| | | | | | | | | | | |
| | | |
| | | |
| Tax Examination Status | | | |
| | | |
| Years under Examination (1) | | Status at December 31 20172020 |
| United States | 2012 – 20132017-2020 | | IRS AppealsField Examination |
United StatesCalifornia | 2014 – 20162012-2017 | | Field examinationExamination |
| New York | 20152016-2018 | | Field examination |
United Kingdom | 2016 | | To begin in 2018 |
| Field Examination |
(1)United Kingdom (2)
| All tax years subsequent to the years shown remain subject to examination.2018 | | Field Examination |
It is reasonably possible that(1) All tax years subsequent to the UTB balance may decrease by as much as $0.4 billion during the next 12 months, since resolved items will be removed from the balance whether their resolution resultsyears shown remain subject to examination.
(2) Field examination for tax year 2019 to begin in payment or recognition.
The Corporation recognized expense of $1 million and $56 million in 2017 and 2016 and a benefit of $82 million in 2015 for interest and penalties, net-of-tax, in income tax expense. At December 31, 2017 and 2016, the Corporation’s accrual for interest and penalties that related to income taxes, net of taxes and remittances, was $185 million and $167 million.2021.
Significant components of the Corporation’s net deferred tax assets and liabilities at December 31, 20172020 and 20162019 are presented in the following table. Amounts at December 31, 2017 reflect appropriate revaluations as a result of the Tax Act’s new 21 percent federal tax rate.
|
| | | | | | | |
| | | | |
| Deferred Tax Assets and Liabilities | | | |
| | | | |
| | December 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Deferred tax assets | |
| | |
|
| Net operating loss carryforwards | $ | 8,506 |
| | $ | 9,199 |
|
| Security, loan and debt valuations | 2,939 |
| | 4,726 |
|
| Allowance for credit losses | 2,598 |
| | 4,362 |
|
| Accrued expenses | 2,021 |
| | 3,016 |
|
| Tax credit carryforwards | 1,793 |
| | 3,125 |
|
| Employee compensation and retirement benefits | 1,705 |
| | 3,042 |
|
| Available-for-sale securities | 510 |
| | 784 |
|
| Other | 1,034 |
| | 1,599 |
|
| Gross deferred tax assets | 21,106 |
| | 29,853 |
|
| Valuation allowance | (1,644 | ) | | (1,117 | ) |
| Total deferred tax assets, net of valuation allowance | 19,462 |
| | 28,736 |
|
| | |
| | |
|
| Deferred tax liabilities | | | |
| Equipment lease financing | 2,492 |
| | 3,489 |
|
| Tax credit partnerships | 734 |
| | 539 |
|
| Intangibles | 670 |
| | 1,171 |
|
| Fee income | 601 |
| | 847 |
|
| Mortgage servicing rights | 349 |
| | 829 |
|
| Long-term borrowings | 227 |
| | 355 |
|
| Other | 1,764 |
| | 1,915 |
|
| Gross deferred tax liabilities | 6,837 |
| | 9,145 |
|
| Net deferred tax assets, net of valuation allowance | $ | 12,625 |
| | $ | 19,591 |
|
| | | | | | | | | | | |
| | | |
| Deferred Tax Assets and Liabilities |
| | | |
| | December 31 |
| (Dollars in millions) | 2020 | | 2019 |
| Deferred tax assets | | | |
| Net operating loss carryforwards | $ | 7,717 | | | $ | 7,417 | |
| Allowance for credit losses | 4,701 | | | 2,354 | |
| Security, loan and debt valuations | 2,571 | | | 1,860 | |
| Lease liability | 2,400 | | | 2,321 | |
| Employee compensation and retirement benefits | 1,582 | | | 1,622 | |
| Accrued expenses | 1,481 | | | 1,719 | |
| Credit carryforwards | 484 | | | 183 | |
| | | |
| Other | 1,412 | | | 1,203 | |
| Gross deferred tax assets | 22,348 | | | 18,679 | |
| Valuation allowance | (2,346) | | | (1,989) | |
Total deferred tax assets, net of valuation
allowance | 20,002 | | | 16,690 | |
| | | |
| Deferred tax liabilities | | | |
| Equipment lease financing | 3,101 | | | 2,933 | |
| Right-to-use asset | 2,296 | | | 2,246 | |
| Fixed assets | 1,957 | | | 1,505 | |
| ESG-related tax credit investments | 1,930 | | | 1,577 | |
Available-for-sale securities
| 1,701 | | | 100 | |
| Other | 1,570 | | | 1,885 | |
| Gross deferred tax liabilities | 12,555 | | | 10,246 | |
| Net deferred tax assets | $ | 7,447 | | | $ | 6,444 | |
On January 1, 2020, the Corporation adopted the CECL accounting standard. The transition adjustment included a tax benefit of $760 million in retained earnings, which increased deferred tax assets by a corresponding amount.
The table below summarizes the deferred tax assets and related valuation allowances recognized for the net operating loss (NOL) and tax credit carryforwards at December 31, 2017.2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Net Operating Loss and Tax Credit Carryforward Deferred Tax Assets |
| | | | | | | |
| (Dollars in millions) | Deferred
Tax Asset | | Valuation
Allowance | | Net
Deferred
Tax Asset | | First Year
Expiring |
| Net operating losses - U.S. | $ | 36 | | | $ | 0 | | | $ | 36 | | | After 2028 |
Net operating losses - U.K. (1) | 5,896 | | | 0 | | | 5,896 | | | None |
| Net operating losses - other non-U.S. | 506 | | | (441) | | | 65 | | | Various |
Net operating losses - U.S. states (2) | 1,279 | | | (579) | | | 700 | | | Various |
| | | | | | | |
| Foreign tax credits | 484 | | | (484) | | | 0 | | | After 2028 |
|
| | | | | | | | | | | | | |
| | | | | | | | |
| Net Operating Loss and Tax Credit Carryforward Deferred Tax Assets |
| | | | | | | | |
| (Dollars in millions) | Deferred Tax Asset | | Valuation Allowance | | Net
Deferred Tax Asset | | First Year Expiring |
| Net operating losses - U.S. | $ | 868 |
| | $ | — |
| | $ | 868 |
| | After 2027 |
Net operating losses - U.K. (1) | 5,347 |
| | — |
| | 5,347 |
| | None |
| Net operating losses - other non-U.S. | 657 |
| | (578 | ) | | 79 |
| | Various |
Net operating losses - U.S. states (2) | 1,634 |
| | (584 | ) | | 1,050 |
| | Various |
| General business credits | 1,721 |
| | — |
| | 1,721 |
| | After 2036 |
| Foreign tax credits | 72 |
| | (72 | ) | | — |
| | n/a |
| |
(1)
| Represents U.K. broker/dealer net operating losses which may be carried forward indefinitely. |
| |
(2)
| The net operating losses and related valuation allowances for U.S. states before considering the benefit of federal deductions were $2.1 billion and $739 million.
|
n/a = not applicable
(2)The net operating losses and related valuation allowances for U.S. states before considering the benefit of federal deductions were $1.6 billion and $733 million.
Management concluded that no0 valuation allowance was necessary to reduce the deferred tax assets related to the U.K. NOL carryforwards and U.S. NOLfederal and general business creditcertain state NOL carryforwards since estimated future taxable income will be sufficient to utilize these assets prior to their expiration. The majority of the Corporation’s U.K. net deferred tax assets, which consist primarily of NOLs, are expected to be realized by certain subsidiaries over an extended number of years. Management’s conclusion is supported by financial results, profit forecasts for the relevant entities and the indefinite period to carry forward NOLs. However, a material change in those estimates could lead management to reassess its U.K.such valuation allowance conclusions.
At December 31, 2017,2020, U.S. federal income taxes had not been provided on approximately $5$5.0 billion of temporary
differences associated with investments in non-U.S. subsidiaries that are essentially permanent in duration. If the Corporation were to record the associated deferred tax liability, the amount would be approximately $1$1.0 billion.
NOTE 20 Fair Value Measurements
Under applicable accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Corporation determines the fair values of its financial instruments under applicable accounting standards that require an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. The Corporation categorizes its financial instruments into three levels based on the established fair value hierarchy. The Corporationhierarchy and conducts a review of its fair value hierarchy classifications on a quarterly basis. Transfers into or out of fair value hierarchy classifications are made if the significant inputs used in the financial models measuring the fair values of the assets and liabilities becamebecome unobservable or observable in the current marketplace. These transfers are considered to be effective as of the beginning of the quarter in which they occur. For more information regarding the fair value hierarchy and how the Corporation measures fair value, see Note 1 – Summary of Significant Accounting Principles. The Corporation accounts for certain financial instruments under the fair value option. For more information, see Note 21 – Fair Value Option.
Valuation Processes and Techniques
The Corporation has various processes and controls in place so that fair value is reasonably estimated. A model validation policy governs the use and control of valuation models used to estimate fair value. This policy requires review and approval of models by personnel who are independent of the front office and periodic reassessments of models so that they are continuing to perform as designed. In addition, detailed reviews of trading gains and
losses are conducted on a daily basis by personnel who are independent of the front office. A price verification group, which is also independent of the front office, utilizes available market information including executed trades, market prices and market-observable valuation model inputs so that fair values are reasonably estimated. The Corporation performs due diligence procedures over third-party pricing service providers in order to support their use infollowing sections outline the valuation process. Where market information is not available to support internal valuations, independent reviews ofmethodologies for the valuations are performedCorporation’s assets and any material exposures are escalated through a management review process.
liabilities. While the Corporation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
During 2017,2020, there were no significant changes to valuation approaches or techniques that had, or are expected to have, a material impact on the Corporation’s consolidated financial position or results of operations.
Trading Account Assets and Liabilities and Debt Securities
The fair values of trading account assets and liabilities are primarily based on actively traded markets where prices are based on either direct market quotes or observed transactions. The fair values of debt securities are generally based on quoted market prices or market prices for similar assets. Liquidity is a significant factor in the determination of the fair values of trading account assets and liabilities and debt securities. Market price quotes may not be readily available for some positions such as positions within a market sector where trading activity has slowed significantly or ceased. Some of these instruments are valued using a discounted cash flow model, which estimates the fair value of the securities using internal credit risk, and interest rate and prepayment risk models that incorporate management’s best estimate of current key assumptions such as default rates, loss severity and prepayment rates. Principal and interest cash flows are discounted using an observable discount rate for similar instruments with adjustments that management believes a market participant would consider in determining fair value for the specific security. Other instruments are valued using a net asset value approach which considers the value of the underlying securities. Underlying assets are valued using external pricing services, where available, or matrix pricing
based on the vintages and ratings. Situations of illiquidity generally are triggered by the market’s perception of credit uncertainty regarding a single company or a specific market sector. In these instances, fair value is determined based on limited available market information and other factors, principally from reviewing the issuer’s financial statements and changes in credit ratings made by one or more rating agencies.
Derivative Assets and Liabilities
The fair values of derivative assets and liabilities traded in the OTC market are determined using quantitative models that utilize multiple market inputs including interest rates, prices and indices to generate continuous yield or pricing curves and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. When third-party pricing services are used, the methods and assumptions are reviewed by the Corporation. Estimation risk is greater for derivative asset and liability positions that are either option-based or have longer maturity dates where observable market inputs are less readily available, or are unobservable, in which case, quantitative-based extrapolations of rate, price or index scenarios are used in determining fair values. The fair values of derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality and other instrument-specific factors, where appropriate. In addition, the Corporation incorporates within its fair value measurements of OTC derivatives a valuation adjustment to reflect the credit risk associated with the net position. Positions are netted by counterparty, and fair value for net long exposures is adjusted for counterparty credit risk while the fair value for net short exposures is adjusted for the Corporation’s own credit risk. The Corporation also incorporates FVA within its fair value measurements to include funding costs on uncollateralized derivatives and derivatives where the Corporation is not permitted to use the collateral it receives. An estimate of severity of loss is also used in the determination of fair value, primarily based on market data.
Loans and Loan Commitments
The fair values of loans and loan commitments are based on market prices, where available, or discounted cash flow analyses using market-based credit spreads of comparable debt instruments or credit derivatives of the specific borrower or comparable borrowers. Results of discounted cash flow analyses may be adjusted, as appropriate, to reflect other market conditions or the perceived credit risk of the borrower.
Mortgage Servicing Rights
The fair values of MSRs are primarily determined using an option-adjusted spread (OAS) valuation approach, which factors in prepayment risk to determine the fair value of MSRs. This approach consists of projecting servicing cash flows under multiple interest rate scenarios and discounting these cash flows using risk-adjusted discount rates.
Loans Held-for-sale
The fair values of LHFS are based on quoted market prices, where available, or are determined by discounting estimated cash flows
using interest rates approximating the Corporation’s current origination rates for similar loans adjusted to reflect the inherent credit risk. The borrower-specific credit risk is embedded within the quoted market prices or is implied by considering loan performance when selecting comparables.
Short-term Borrowings and Long-term Debt
The Corporation issues structured liabilities that have coupons or repayment terms linked to the performance of debt or equity securities, interest rates, indices, currencies or commodities. The fair values of these structured liabilities are estimated using quantitative models for the combined derivative and debt portions of the notes. These models incorporate observable and, in some instances, unobservable inputs including security prices, interest rate yield curves, option volatility, currency, commodity or equity rates and correlations among these inputs. The Corporation also considers the impact of its own credit spread in determining the discount rate used to value these liabilities. The credit spread is determined by reference to observable spreads in the secondary bond market.
Securities Financing Agreements
The fair values of certain reverse repurchase agreements, repurchase agreements and securities borrowed transactions are determined using quantitative models, including discounted cash flow models that require the use of multiple market inputs including interest rates and spreads to generate continuous yield or pricing curves, and volatility factors. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.
Deposits
The fair values of deposits are determined using quantitative models, including discounted cash flow models that require the use of multiple market inputs including interest rates and spreads to generate continuous yield or pricing curves, and volatility factors. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. The Corporation considers the impact of its own credit spread in the valuation of these liabilities. The credit risk is determined by reference to observable credit spreads in the secondary cash market.
Asset-backed Secured Financings
The fair values of asset-backed secured financings are based on external broker bids, where available, or are determined by discounting estimated cash flows using interest rates approximating the Corporation’s current origination rates for similar loans adjusted to reflect the inherent credit risk.
|
| | | | | | | |
| | 155Bank of America 2017172 | | |
Assets and liabilities carried at fair value on a recurring basis at December 31, 20172020 and 2016,2019, including financial instruments whichthat the Corporation accounts for under the fair value option, are summarized in the following tables.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| December 31, 2020 |
| | Fair Value Measurements | | | | |
| (Dollars in millions) | Level 1 | | Level 2 | | Level 3 | | Netting Adjustments (1) | | Assets/Liabilities at Fair Value |
| Assets | | | | | | | | | |
| Time deposits placed and other short-term investments | $ | 1,649 | | | $ | 0 | | | $ | 0 | | | $ | — | | | $ | 1,649 | |
| Federal funds sold and securities borrowed or purchased under agreements to resell | 0 | | | 108,856 | | | 0 | | | — | | | 108,856 | |
| Trading account assets: | | | | | | | | | |
| U.S. Treasury and agency securities | 45,219 | | | 3,051 | | | 0 | | | — | | | 48,270 | |
| Corporate securities, trading loans and other | 0 | | | 22,817 | | | 1,359 | | | — | | | 24,176 | |
| Equity securities | 36,372 | | | 31,372 | | | 227 | | | — | | | 67,971 | |
| Non-U.S. sovereign debt | 5,753 | | | 20,884 | | | 354 | | | — | | | 26,991 | |
| Mortgage trading loans, MBS and ABS: | | | | | | | | | |
U.S. government-sponsored agency guaranteed (2) | 0 | | | 21,566 | | | 75 | | | — | | | 21,641 | |
| Mortgage trading loans, ABS and other MBS | 0 | | | 8,440 | | | 1,365 | | | — | | | 9,805 | |
Total trading account assets (3) | 87,344 | | | 108,130 | | | 3,380 | | | — | | | 198,854 | |
| Derivative assets | 15,624 | | | 416,175 | | | 2,751 | | | (387,371) | | | 47,179 | |
| AFS debt securities: | | | | | | | | | |
| U.S. Treasury and agency securities | 115,266 | | | 1,114 | | | 0 | | | — | | | 116,380 | |
| Mortgage-backed securities: | | | | | | | | | |
| Agency | 0 | | | 61,849 | | | 0 | | | — | | | 61,849 | |
| Agency-collateralized mortgage obligations | 0 | | | 5,260 | | | 0 | | | — | | | 5,260 | |
| Non-agency residential | 0 | | | 631 | | | 378 | | | — | | | 1,009 | |
| Commercial | 0 | | | 16,491 | | | 0 | | | — | | | 16,491 | |
| Non-U.S. securities | 0 | | | 13,999 | | | 18 | | | — | | | 14,017 | |
| | | | | | | | | |
| Other taxable securities | 0 | | | 2,640 | | | 71 | | | — | | | 2,711 | |
| Tax-exempt securities | 0 | | | 16,598 | | | 176 | | | — | | | 16,774 | |
| Total AFS debt securities | 115,266 | | | 118,582 | | | 643 | | | — | | | 234,491 | |
| Other debt securities carried at fair value: | | | | | | | | | |
| U.S. Treasury and agency securities | 93 | | | 0 | | | 0 | | | — | | | 93 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Non-agency residential MBS | 0 | | | 506 | | | 267 | | | — | | | 773 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Non-U.S. and other securities | 2,619 | | | 8,625 | | | 0 | | | — | | | 11,244 | |
| Total other debt securities carried at fair value | 2,712 | | | 9,131 | | | 267 | | | — | | | 12,110 | |
| Loans and leases | 0 | | | 5,964 | | | 717 | | | — | | | 6,681 | |
| Loans held-for-sale | 0 | | | 1,349 | | | 236 | | | — | | | 1,585 | |
| | | | | | | | | |
| | | | | | | | | |
Other assets (4) | 9,898 | | | 3,850 | | | 1,970 | | | — | | | 15,718 | |
| | | | | | | | | |
Total assets (5) | $ | 232,493 | | | $ | 772,037 | | | $ | 9,964 | | | $ | (387,371) | | | $ | 627,123 | |
| | | | | | | | | |
| Liabilities | | | | | | | | | |
| Interest-bearing deposits in U.S. offices | $ | 0 | | | $ | 481 | | | $ | 0 | | | $ | — | | | $ | 481 | |
| Federal funds purchased and securities loaned or sold under agreements to repurchase | 0 | | | 135,391 | | | 0 | | | — | | | 135,391 | |
| Trading account liabilities: | | | | | | | | | |
| U.S. Treasury and agency securities | 9,425 | | | 139 | | | 0 | | | — | | | 9,564 | |
| Equity securities | 38,189 | | | 4,235 | | | 0 | | | — | | | 42,424 | |
| Non-U.S. sovereign debt | 5,853 | | | 8,043 | | | 0 | | | — | | | 13,896 | |
| Corporate securities and other | 0 | | | 5,420 | | | 16 | | | — | | | 5,436 | |
| | | | | | | | | |
| Total trading account liabilities | 53,467 | | | 17,837 | | | 16 | | | — | | | 71,320 | |
| Derivative liabilities | 14,907 | | | 412,881 | | | 6,219 | | | (388,481) | | | 45,526 | |
| Short-term borrowings | 0 | | | 5,874 | | | 0 | | | — | | | 5,874 | |
| Accrued expenses and other liabilities | 12,297 | | | 4,014 | | | 0 | | | — | | | 16,311 | |
| Long-term debt | 0 | | | 31,036 | | | 1,164 | | | — | | | 32,200 | |
Total liabilities (5) | $ | 80,671 | | | $ | 607,514 | | | $ | 7,399 | | | $ | (388,481) | | | $ | 307,103 | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | December 31, 2017 |
| | Fair Value Measurements | | | | |
| (Dollars in millions) | Level 1 | | Level 2 | | Level 3 | | Netting Adjustments (1) | | Assets/Liabilities at Fair Value |
| Assets | |
| | |
| | |
| | |
| | |
|
| Federal funds sold and securities borrowed or purchased under agreements to resell | $ | — |
| | $ | 52,906 |
| | $ | — |
| | $ | — |
| | $ | 52,906 |
|
| Trading account assets: | |
| | |
| | |
| | |
| | |
|
U.S. Treasury and agency securities (2, 3) | 38,720 |
| | 1,922 |
| | — |
| | — |
| | 40,642 |
|
| Corporate securities, trading loans and other | — |
| | 28,714 |
| | 1,864 |
| | — |
| | 30,578 |
|
Equity securities (3) | 60,747 |
| | 23,958 |
| | 235 |
| | — |
| | 84,940 |
|
Non-U.S. sovereign debt (3) | 6,545 |
| | 15,839 |
| | 556 |
| | — |
| | 22,940 |
|
| Mortgage trading loans, MBS and ABS: | | | | | | | | | |
U.S. government-sponsored agency guaranteed (2) | — |
| | 20,586 |
| | — |
| | — |
| | 20,586 |
|
| Mortgage trading loans, ABS and other MBS | — |
| | 8,174 |
| | 1,498 |
| | — |
| | 9,672 |
|
Total trading account assets (4) | 106,012 |
| | 99,193 |
| | 4,153 |
| | — |
| | 209,358 |
|
Derivative assets (3, 5) | 6,305 |
| | 341,178 |
| | 4,067 |
| | (313,788 | ) | | 37,762 |
|
| AFS debt securities: | |
| | |
| | |
| | |
| | |
|
| U.S. Treasury and agency securities | 51,915 |
| | 1,608 |
| | — |
| | — |
| | 53,523 |
|
| Mortgage-backed securities: | |
| | |
| | |
| | |
| | |
|
| Agency | — |
| | 192,929 |
| | — |
| | — |
| | 192,929 |
|
| Agency-collateralized mortgage obligations | — |
| | 6,804 |
| | — |
| | — |
| | 6,804 |
|
| Non-agency residential | — |
| | 2,669 |
| | — |
| | — |
| | 2,669 |
|
| Commercial | — |
| | 13,684 |
| | — |
| | — |
| | 13,684 |
|
| Non-U.S. securities | 772 |
| | 5,880 |
| | 25 |
| | — |
| | 6,677 |
|
| Other taxable securities | — |
| | 5,261 |
| | 509 |
| | — |
| | 5,770 |
|
| Tax-exempt securities | — |
| | 20,106 |
| | 469 |
| | — |
| | 20,575 |
|
| Total AFS debt securities | 52,687 |
| | 248,941 |
| | 1,003 |
| | — |
| | 302,631 |
|
| Other debt securities carried at fair value: | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | |
| Agency-collateralized mortgage obligations | — |
| | 5 |
| | — |
| | — |
| | 5 |
|
| Non-agency residential | — |
| | 2,764 |
| | — |
| | — |
| | 2,764 |
|
| Non-U.S. securities | 8,191 |
| | 1,297 |
| | — |
| | — |
| | 9,488 |
|
| Other taxable securities | — |
| | 229 |
| | — |
| | — |
| | 229 |
|
| Total other debt securities carried at fair value | 8,191 |
| | 4,295 |
| | — |
| | — |
| | 12,486 |
|
| Loans and leases | — |
| | 5,139 |
| | 571 |
| | — |
| | 5,710 |
|
Mortgage servicing rights (6) | — |
| | — |
| | 2,302 |
| | — |
| | 2,302 |
|
| Loans held-for-sale | — |
| | 1,466 |
| | 690 |
| | — |
| | 2,156 |
|
| Other assets | 19,367 |
| | 789 |
| | 123 |
| | — |
| | 20,279 |
|
| Total assets | $ | 192,562 |
| | $ | 753,907 |
| | $ | 12,909 |
| | $ | (313,788 | ) | | $ | 645,590 |
|
| Liabilities | |
| | |
| | |
| | |
| | |
|
| Interest-bearing deposits in U.S. offices | $ | — |
| | $ | 449 |
| | $ | — |
| | $ | — |
| | $ | 449 |
|
| Federal funds purchased and securities loaned or sold under agreements to repurchase | — |
| | 36,182 |
| | — |
| | — |
| | 36,182 |
|
| Trading account liabilities: | |
| | |
| | |
| | |
| | |
| U.S. Treasury and agency securities | 17,266 |
| | 734 |
| | — |
| | — |
| | 18,000 |
|
Equity securities (3) | 33,019 |
| | 3,885 |
| | — |
| | — |
| | 36,904 |
|
Non-U.S. sovereign debt (3) | 11,976 |
| | 7,382 |
| | — |
| | — |
| | 19,358 |
|
| Corporate securities and other | — |
| | 6,901 |
| | 24 |
| | — |
| | 6,925 |
|
| Total trading account liabilities | 62,261 |
| | 18,902 |
| | 24 |
| | — |
| | 81,187 |
|
Derivative liabilities (3, 5) | 6,029 |
| | 334,261 |
| | 5,781 |
| | (311,771 | ) | | 34,300 |
|
| Short-term borrowings | — |
| | 1,494 |
| | — |
| | — |
| | 1,494 |
|
| Accrued expenses and other liabilities | 21,887 |
| | 945 |
| | 8 |
| | — |
| | 22,840 |
|
| Long-term debt | — |
| | 29,923 |
| | 1,863 |
| | — |
| | 31,786 |
|
| Total liabilities | $ | 90,177 |
| | $ | 422,156 |
| | $ | 7,676 |
| | $ | (311,771 | ) | | $ | 208,238 |
|
| |
(1)
| Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties. |
| |
(2)
| Includes $21.3 billion of GSE obligations.
|
| |
(3)
| During 2017, for trading account assets and liabilities, $1.1 billion of U.S. Treasury and agency securities assets, $5.3 billion of equity securities assets, $3.1 billion of equity securities liabilities, $3.3 billion of non-U.S. sovereign debt assets and $1.5 billion of non-U.S. sovereign debt liabilities were transferred from Level 1 to Level 2 based on the liquidity of the positions. In addition, $14.1 billion of equity securities assets and $4.3 billion of equity securities liabilities were transferred from Level 2 to Level 1. Also in 2017, $4.2 billion of derivative assets and $3.0 billion of derivative liabilities were transferred from Level 1 to Level 2 and $758 million of derivative assets and $608 million of derivative liabilities were transferred from Level 2 to Level 1 based on the observability of inputs used to measure fair value. For further disaggregation of derivative assets and liabilities, see Note 2 – Derivatives.
|
| |
(4)
| Includes securities with a fair value of $16.8 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet.
|
| |
(5)
| Derivative assets and liabilities reflect the effects of contractual amendments by two central clearing counterparties to legally re-characterize daily cash variation margin from collateral, which secures an outstanding exposure, to settlement, which discharges an outstanding exposure. One of these central clearing counterparties amended its governing documents, which became effective in January 2017. In addition, the Corporation elected to transfer its existing positions to the settlement platform for the other central clearing counterparty in September 2017.
|
| |
(6)
| MSRs include the $1.7 billion core MSR portfolio held in Consumer Banking, the $135 million non-core MSR portfolio held in All Other and the $510 million non-U.S. MSR portfolio held in Global Markets.
|
(1)Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2)Includes $22.2 billion of GSE obligations.
(3)Includes securities with a fair value of $16.8 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet. Trading account assets also includes precious metal inventories of $576 million that are accounted for at the lower of cost or net realizable value, which is the current selling price less any costs to sell.
(4)Includes MSRs of $1.0 billionwhich are classified as Level 3 assets.
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | December 31, 2016 |
| | Fair Value Measurements | | | | |
| (Dollars in millions) | Level 1 | | Level 2 | | Level 3 | | Netting Adjustments (1) | | Assets/Liabilities at Fair Value |
| Assets | |
| | |
| | |
| | |
| | |
|
| Federal funds sold and securities borrowed or purchased under agreements to resell | $ | — |
| | $ | 49,750 |
| | $ | — |
| | $ | — |
| | $ | 49,750 |
|
| Trading account assets: | |
| | |
| | |
| | |
| | |
|
U.S. Treasury and agency securities (2) | 34,587 |
| | 1,927 |
| | — |
| | — |
| | 36,514 |
|
| Corporate securities, trading loans and other | 171 |
| | 22,861 |
| | 2,777 |
| | — |
| | 25,809 |
|
| Equity securities | 50,169 |
| | 21,601 |
| | 281 |
| | — |
| | 72,051 |
|
| Non-U.S. sovereign debt | 9,578 |
| | 9,940 |
| | 510 |
| | — |
| | 20,028 |
|
| Mortgage trading loans, MBS and ABS: | | | | | | | | | |
U.S. government-sponsored agency guaranteed (2) | — |
| | 15,799 |
| | — |
| | — |
| | 15,799 |
|
| Mortgage trading loans, ABS and other MBS | — |
| | 8,797 |
| | 1,211 |
| | — |
| | 10,008 |
|
Total trading account assets (3) | 94,505 |
| | 80,925 |
| | 4,779 |
| | — |
| | 180,209 |
|
Derivative assets (4) | 7,337 |
| | 619,848 |
| | 3,931 |
| | (588,604 | ) | | 42,512 |
|
| AFS debt securities: | |
| | |
| | |
| | |
| �� | |
|
| U.S. Treasury and agency securities | 46,787 |
| | 1,465 |
| | — |
| | — |
| | 48,252 |
|
| Mortgage-backed securities: | |
| | |
| | |
| | |
| | |
|
| Agency | — |
| | 189,486 |
| | — |
| | — |
| | 189,486 |
|
| Agency-collateralized mortgage obligations | — |
| | 8,330 |
| | — |
| | — |
| | 8,330 |
|
| Non-agency residential | — |
| | 2,013 |
| | — |
| | — |
| | 2,013 |
|
| Commercial | — |
| | 12,322 |
| | — |
| | — |
| | 12,322 |
|
| Non-U.S. securities | 1,934 |
| | 3,600 |
| | 229 |
| | — |
| | 5,763 |
|
| Other taxable securities | — |
| | 10,020 |
| | 594 |
| | — |
| | 10,614 |
|
| Tax-exempt securities | — |
| | 16,618 |
| | 542 |
| | — |
| | 17,160 |
|
| Total AFS debt securities | 48,721 |
| | 243,854 |
| | 1,365 |
| | — |
| | 293,940 |
|
| Other debt securities carried at fair value: | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | |
| Agency-collateralized mortgage obligations | — |
| | 5 |
| | — |
| | — |
| | 5 |
|
| Non-agency residential | — |
| | 3,114 |
| | 25 |
| | — |
| | 3,139 |
|
| Non-U.S. securities | 15,109 |
| | 1,227 |
| | — |
| | — |
| | 16,336 |
|
| Other taxable securities | — |
| | 240 |
| | — |
| | — |
| | 240 |
|
| Total other debt securities carried at fair value | 15,109 |
| | 4,586 |
| | 25 |
| | — |
| | 19,720 |
|
| Loans and leases | — |
| | 6,365 |
| | 720 |
| | — |
| | 7,085 |
|
Mortgage servicing rights (5) | — |
| | — |
| | 2,747 |
| | — |
| | 2,747 |
|
| Loans held-for-sale | — |
| | 3,370 |
| | 656 |
| | — |
| | 4,026 |
|
| Debt securities in assets of business held for sale | 619 |
| | — |
| | — |
| | — |
| | 619 |
|
| Other assets | 11,824 |
| | 1,739 |
| | 239 |
| | — |
| | 13,802 |
|
| Total assets | $ | 178,115 |
| | $ | 1,010,437 |
| | $ | 14,462 |
| | $ | (588,604 | ) | | $ | 614,410 |
|
| Liabilities | |
| | |
| | |
| | |
| | |
|
| Interest-bearing deposits in U.S. offices | $ | — |
| | $ | 731 |
| | $ | — |
| | $ | — |
| | $ | 731 |
|
| Federal funds purchased and securities loaned or sold under agreements to repurchase | — |
| | 35,407 |
| | 359 |
| | — |
| | 35,766 |
|
| Trading account liabilities: | |
| | |
| | |
| | |
| | |
| U.S. Treasury and agency securities | 15,854 |
| | 197 |
| | — |
| | — |
| | 16,051 |
|
| Equity securities | 25,884 |
| | 3,014 |
| | — |
| | — |
| | 28,898 |
|
| Non-U.S. sovereign debt | 9,409 |
| | 2,103 |
| | — |
| | — |
| | 11,512 |
|
| Corporate securities and other | 163 |
| | 6,380 |
| | 27 |
| | — |
| | 6,570 |
|
| Total trading account liabilities | 51,310 |
| | 11,694 |
| | 27 |
| | — |
| | 63,031 |
|
Derivative liabilities (4) | 7,173 |
| | 615,896 |
| | 5,244 |
| | (588,833 | ) | | 39,480 |
|
| Short-term borrowings | — |
| | 2,024 |
| | — |
| | — |
| | 2,024 |
|
| Accrued expenses and other liabilities | 12,978 |
| | 1,643 |
| | 9 |
| | — |
| | 14,630 |
|
| Long-term debt | — |
| | 28,523 |
| | 1,514 |
| | — |
| | 30,037 |
|
| Total liabilities | $ | 71,461 |
| | $ | 695,918 |
| | $ | 7,153 |
| | $ | (588,833 | ) | | $ | 185,699 |
|
| |
(1)
| Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties. |
| |
(2)
| Includes $17.5 billion of GSE obligations.
|
| |
(3)
| Includes securities with a fair value of $14.6 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet.
|
| |
(4)
| During 2016, $2.3 billion of derivative assets and $2.4 billion of derivative liabilities were transferred from Level 1 to Level 2 and $2.0 billion of derivative assets and $1.8 billion of derivative liabilities were transferred from Level 2 to Level 1 based on the observability of inputs used to measure fair value. For further disaggregation of derivative assets and liabilities, see Note 2 – Derivatives.
|
| |
(5)
| MSRs include the $2.1 billion core MSR portfolio held in Consumer Banking, the $212 million non-core MSR portfolio held in All Other and the $469 million non-U.S. MSR portfolio held in Global Markets.
|
(5)Total recurring Level 3 assets were 0.35 percent of total consolidated assets, and total recurring Level 3 liabilities were 0.29 percent of total consolidated liabilities.
|
| | | | | | | |
| | Bank of America 2017174156 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| December 31, 2019 |
| Fair Value Measurements | | | | |
| (Dollars in millions) | Level 1 | | Level 2 | | Level 3 | | Netting Adjustments (1) | | Assets/Liabilities at Fair Value |
| Assets | | | | | | | | | |
| Time deposits placed and other short-term investments | $ | 1,000 | | | $ | 0 | | | $ | 0 | | | $ | — | | | $ | 1,000 | |
| Federal funds sold and securities borrowed or purchased under agreements to resell | 0 | | | 50,364 | | | 0 | | | — | | | 50,364 | |
| Trading account assets: | | | | | | | | | |
| U.S. Treasury and agency securities | 49,517 | | | 4,157 | | | 0 | | | — | | | 53,674 | |
| Corporate securities, trading loans and other | 0 | | | 25,226 | | | 1,507 | | | — | | | 26,733 | |
| Equity securities | 53,597 | | | 32,619 | | | 239 | | | — | | | 86,455 | |
| Non-U.S. sovereign debt | 3,965 | | | 23,854 | | | 482 | | | — | | | 28,301 | |
| Mortgage trading loans, MBS and ABS: | | | | | | | | | |
U.S. government-sponsored agency guaranteed (2) | 0 | | | 24,324 | | | 0 | | | — | | | 24,324 | |
| Mortgage trading loans, ABS and other MBS | 0 | | | 8,786 | | | 1,553 | | | — | | | 10,339 | |
Total trading account assets (3) | 107,079 | | | 118,966 | | | 3,781 | | | — | | | 229,826 | |
| Derivative assets | 14,079 | | | 328,442 | | | 2,226 | | | (304,262) | | | 40,485 | |
| AFS debt securities: | | | | | | | | | |
| U.S. Treasury and agency securities | 67,332 | | | 1,196 | | | 0 | | | — | | | 68,528 | |
| Mortgage-backed securities: | | | | | | | | | |
| Agency | 0 | | | 122,528 | | | 0 | | | — | | | 122,528 | |
| Agency-collateralized mortgage obligations | 0 | | | 4,641 | | | 0 | | | — | | | 4,641 | |
| Non-agency residential | 0 | | | 653 | | | 424 | | | — | | | 1,077 | |
| Commercial | 0 | | | 15,021 | | | 0 | | | — | | | 15,021 | |
| Non-U.S. securities | 0 | | | 11,989 | | | 2 | | | — | | | 11,991 | |
| | | | | | | | | |
| Other taxable securities | 0 | | | 3,876 | | | 65 | | | — | | | 3,941 | |
| Tax-exempt securities | 0 | | | 17,804 | | | 108 | | | — | | | 17,912 | |
| Total AFS debt securities | 67,332 | | | 177,708 | | | 599 | | | — | | | 245,639 | |
| Other debt securities carried at fair value: | | | | | | | | | |
| U.S. Treasury and agency securities | 3 | | | 0 | | | 0 | | | — | | | 3 | |
| | | | | | | | | |
| Agency MBS | 0 | | | 3,003 | | | 0 | | | — | | | 3,003 | |
| Non-agency residential MBS | 0 | | | 1,035 | | | 299 | | | — | | | 1,334 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Non-U.S. and other securities | 400 | | | 6,088 | | | 0 | | | — | | | 6,488 | |
| Total other debt securities carried at fair value | 403 | | | 10,126 | | | 299 | | | — | | | 10,828 | |
| Loans and leases | 0 | | | 7,642 | | | 693 | | | — | | | 8,335 | |
| Loans held-for-sale | 0 | | | 3,334 | | | 375 | | | — | | | 3,709 | |
Other assets (4) | 11,782 | | | 1,376 | | | 2,360 | | | — | | | 15,518 | |
| | | | | | | | | |
Total assets (5) | $ | 201,675 | | | $ | 697,958 | | | $ | 10,333 | | | $ | (304,262) | | | $ | 605,704 | |
| | | | | | | | | |
| Liabilities | | | | | | | | | |
| Interest-bearing deposits in U.S. offices | $ | 0 | | | $ | 508 | | | $ | 0 | | | $ | — | | | $ | 508 | |
| Federal funds purchased and securities loaned or sold under agreements to repurchase | 0 | | | 16,008 | | | 0 | | | — | | | 16,008 | |
| Trading account liabilities: | | | | | | | | | |
| U.S. Treasury and agency securities | 13,140 | | | 282 | | | 0 | | | — | | | 13,422 | |
| Equity securities | 38,148 | | | 4,144 | | | 2 | | | — | | | 42,294 | |
| Non-U.S. sovereign debt | 10,751 | | | 11,310 | | | 0 | | | — | | | 22,061 | |
| Corporate securities and other | 0 | | | 5,478 | | | 15 | | | — | | | 5,493 | |
| Total trading account liabilities | 62,039 | | | 21,214 | | | 17 | | | — | | | 83,270 | |
| Derivative liabilities | 11,904 | | | 320,479 | | | 4,764 | | | (298,918) | | | 38,229 | |
| Short-term borrowings | 0 | | | 3,941 | | | 0 | | | — | | | 3,941 | |
| Accrued expenses and other liabilities | 13,927 | | | 1,507 | | | 0 | | | — | | | 15,434 | |
| Long-term debt | 0 | | | 33,826 | | | 1,149 | | | — | | | 34,975 | |
Total liabilities (5) | $ | 87,870 | | | $ | 397,483 | | | $ | 5,930 | | | $ | (298,918) | | | $ | 192,365 | |
| | | | | | | | | |
(1)Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2)Includes $26.7 billion of GSE obligations.
(3)Includes securities with a fair value of $14.7 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet.
(4)Includes MSRs of $1.5 billion which are classified as Level 3 assets.
(5)Total recurring Level 3 assets were 0.42 percent of total consolidated assets, and total recurring Level 3 liabilities were 0.27 percent of total consolidated liabilities.
The following tables present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2017, 20162020, 2019 and 2015,2018, including net realized and unrealized gains (losses) included in earnings and accumulated OCI.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Level 3 – Fair Value Measurements in 2017 (1) | | | | | | | | |
| | | |
| (Dollars in millions) | Balance January 1 2017 | Total Realized/Unrealized Gains/(Losses) (2) | Gains/
(Losses)
in OCI (3) | Gross | Gross
Transfers
into Level 3 | Gross
Transfers
out of Level 3 | Balance
December 31
2017 | Change in Unrealized Gains/(Losses) Related to Financial Instruments Still Held (2) |
| Purchases | Sales | Issuances | Settlements |
| Trading account assets: | |
| |
| |
| |
| | | | |
| |
| |
| |
| Corporate securities, trading loans and other | $ | 2,777 |
| $ | 229 |
| $ | — |
| $ | 547 |
| $ | (702 | ) | $ | 5 |
| $ | (666 | ) | $ | 728 |
| $ | (1,054 | ) | $ | 1,864 |
| $ | 2 |
|
| Equity securities | 281 |
| 18 |
| — |
| 55 |
| (70 | ) | — |
| (10 | ) | 146 |
| (185 | ) | 235 |
| (1 | ) |
| Non-U.S. sovereign debt | 510 |
| 74 |
| (8 | ) | 53 |
| (59 | ) | — |
| (73 | ) | 72 |
| (13 | ) | 556 |
| 70 |
|
| Mortgage trading loans, ABS and other MBS | 1,211 |
| 165 |
| (2 | ) | 1,210 |
| (990 | ) | — |
| (233 | ) | 218 |
| (81 | ) | 1,498 |
| 72 |
|
| Total trading account assets | 4,779 |
| 486 |
| (10 | ) | 1,865 |
| (1,821 | ) | 5 |
| (982 | ) | 1,164 |
| (1,333 | ) | 4,153 |
| 143 |
|
Net derivative assets (4) | (1,313 | ) | (984 | ) | — |
| 664 |
| (979 | ) | — |
| 949 |
| 48 |
| (99 | ) | (1,714 | ) | (409 | ) |
| AFS debt securities: | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Non-U.S. securities | 229 |
| 2 |
| 16 |
| 49 |
| — |
| — |
| (271 | ) | — |
| — |
| 25 |
| — |
|
| Other taxable securities | 594 |
| 4 |
| 8 |
| 5 |
| — |
| — |
| (42 | ) | 34 |
| (94 | ) | 509 |
| — |
|
| Tax-exempt securities | 542 |
| 1 |
| 3 |
| 14 |
| (70 | ) | — |
| (11 | ) | 35 |
| (45 | ) | 469 |
| — |
|
| Total AFS debt securities | 1,365 |
| 7 |
| 27 |
| 68 |
| (70 | ) | — |
| (324 | ) | 69 |
| (139 | ) | 1,003 |
| — |
|
| Other debt securities carried at fair value – Non-agency residential MBS | 25 |
| (1 | ) | — |
| — |
| (21 | ) | — |
| (3 | ) | — |
| — |
| — |
| — |
|
Loans and leases (5, 6) | 720 |
| 15 |
| — |
| 3 |
| (34 | ) | — |
| (126 | ) | — |
| (7 | ) | 571 |
| 11 |
|
Mortgage servicing rights (6, 7) | 2,747 |
| 70 |
| — |
| — |
| (25 | ) | 258 |
| (748 | ) | — |
| — |
| 2,302 |
| (248 | ) |
Loans held-for-sale (5) | 656 |
| 100 |
| (3 | ) | 3 |
| (189 | ) | — |
| (346 | ) | 501 |
| (32 | ) | 690 |
| 14 |
|
| Other assets | 239 |
| 74 |
| (57 | ) | 2 |
| (189 | ) | — |
| (10 | ) | 64 |
| — |
| 123 |
| 22 |
|
Federal funds purchased and securities loaned or sold under agreements to repurchase (5) | (359 | ) | (5 | ) | — |
| — |
| — |
| (12 | ) | 171 |
| (58 | ) | 263 |
| — |
| — |
|
| Trading account liabilities – Corporate securities and other | (27 | ) | 14 |
| — |
| 8 |
| (17 | ) | (2 | ) | — |
| — |
| — |
| (24 | ) | 2 |
|
Accrued expenses and other liabilities (5) | (9 | ) | — |
| — |
| — |
| — |
| — |
| 1 |
| — |
| — |
| (8 | ) | — |
|
Long-term debt (5) | (1,514 | ) | (135 | ) | (31 | ) | 84 |
| — |
| (288 | ) | 514 |
| (711 | ) | 218 |
| (1,863 | ) | (196 | ) |
| |
(1)
| Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3. |
| |
(2)
| Includes gains/losses reported in earnings in the following income statement line items: Trading account assets/liabilities - primarily trading account profits; Net derivative assets - primarily trading account profits and mortgage banking income; MSRs - primarily mortgage banking income; Long-term debt - primarily trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve, and periodic adjustments to the valuation model to reflect changes in the modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service. |
| |
(3)
| Includes unrealized gains/losses in OCI on AFS securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For more information, see Note 1 – Summary of Significant Accounting Principles.
|
| |
(4)
| Net derivatives include derivative assets of $4.1 billion and derivative liabilities of $5.8 billion.
|
| |
(5)
| Amounts represent instruments that are accounted for under the fair value option. |
| |
(6)
| Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales. |
| |
(7)
| Settlements represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time. |
Significant transfers Transfers into Level 3 occur primarily due to decreased price observability, during 2017 included $1.2 billionand
transfers out of trading account assets, $501 million of LHFS and $711 million of long-term debt.Level 3 occur primarily due to increased price observability. Transfers occur on a regular basis for long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Level 3 – Fair Value Measurements (1) |
| | |
| Balance
January 1 | | Total Realized/Unrealized Gains (Losses) in Net Income (2) | Gains
(Losses)
in OCI (3) | Gross | Gross
Transfers
into
Level 3 | Gross
Transfers
out of
Level 3 | Balance
December 31 | Change in Unrealized Gains (Losses) in Net Income Related to Financial Instruments Still Held (2) |
(Dollars in millions)
| | Purchases | Sales | Issuances | Settlements |
| Year Ended December 31, 2020 | | | | | | | | | | | | |
| Trading account assets: | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Corporate securities, trading loans and other | $ | 1,507 | | | $ | (138) | | $ | (1) | | $ | 430 | | $ | (242) | | $ | 10 | | $ | (282) | | $ | 639 | | $ | (564) | | $ | 1,359 | | $ | (102) | |
| Equity securities | 239 | | | (43) | | 0 | | 78 | | (53) | | 0 | | (3) | | 58 | | (49) | | 227 | | (31) | |
| Non-U.S. sovereign debt | 482 | | | 45 | | (46) | | 76 | | (61) | | 0 | | (39) | | 150 | | (253) | | 354 | | 47 | |
| Mortgage trading loans, ABS and other MBS | 1,553 | | | (120) | | (3) | | 577 | | (746) | | 11 | | (96) | | 757 | | (493) | | 1,440 | | (92) | |
| Total trading account assets | 3,781 | | | (256) | | (50) | | 1,161 | | (1,102) | | 21 | | (420) | | 1,604 | | (1,359) | | 3,380 | | (178) | |
Net derivative assets (liabilities) (4) | (2,538) | | | (235) | | 0 | | 120 | | (646) | | 0 | | (112) | | (235) | | 178 | | (3,468) | | (953) | |
| AFS debt securities: | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Non-agency residential MBS | 424 | | | (2) | | 3 | | 23 | | (54) | | 0 | | (44) | | 158 | | (130) | | 378 | | (2) | |
| | | | | | | | | | | | |
| Non-U.S. securities | 2 | | | 1 | | 0 | | 0 | | (1) | | 0 | | (1) | | 17 | | 0 | | 18 | | 1 | |
| | | | | | | | | | | | |
| Other taxable securities | 65 | | | 0 | | 0 | | 9 | | (4) | | 0 | | 0 | | 1 | | 0 | | 71 | | 0 | |
| Tax-exempt securities | 108 | | | (21) | | 3 | | 0 | | 0 | | 0 | | (169) | | 265 | | (10) | | 176 | | (20) | |
| Total AFS debt securities | 599 | | | (22) | | 6 | | 32 | | (59) | | 0 | | (214) | | 441 | | (140) | | 643 | | (21) | |
| Other debt securities carried at fair value – Non-agency residential MBS | 299 | | | 26 | | 0 | | 0 | | (180) | | 0 | | (24) | | 190 | | (44) | | 267 | | 3 | |
Loans and leases (5,6) | 693 | | | (4) | | 0 | | 145 | | (76) | | 22 | | (161) | | 98 | | 0 | | 717 | | 9 | |
Loans held-for-sale (5,6) | 375 | | | 26 | | (28) | | 0 | | (489) | | 691 | | (119) | | 93 | | (313) | | 236 | | (5) | |
Other assets (6,7) | 2,360 | | | (288) | | 3 | | 178 | | (4) | | 224 | | (506) | | 5 | | (2) | | 1,970 | | (374) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Trading account liabilities – Equity securities | (2) | | | 1 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 1 | | 0 | | 0 | |
Trading account liabilities – Corporate securities and other | (15) | | | 8 | | 0 | | (7) | | (3) | | 0 | | 1 | | 0 | | 0 | | (16) | | 0 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Long-term debt (5) | (1,149) | | | (46) | | 2 | | (104) | | 0 | | (47) | | 218 | | (52) | | 14 | | (1,164) | | (5) | |
| | | | | | | | | | | | |
| Year Ended December 31, 2019 | | | | | | | | | | | | |
| Trading account assets: | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Corporate securities, trading loans and other | $ | 1,558 | | | $ | 105 | | $ | 0 | | $ | 534 | | $ | (390) | | $ | 18 | | $ | (578) | | $ | 699 | | $ | (439) | | $ | 1,507 | | $ | 29 | |
| Equity securities | 276 | | | (12) | | 0 | | 38 | | (87) | | 0 | | (9) | | 79 | | (46) | | 239 | | (18) | |
| Non-U.S. sovereign debt | 465 | | | 46 | | (12) | | 1 | | 0 | | 0 | | (51) | | 39 | | (6) | | 482 | | 47 | |
| Mortgage trading loans, ABS and other MBS | 1,635 | | | 99 | | (2) | | 662 | | (899) | | 0 | | (175) | | 738 | | (505) | | 1,553 | | 26 | |
| Total trading account assets | 3,934 | | | 238 | | (14) | | 1,235 | | (1,376) | | 18 | | (813) | | 1,555 | | (996) | | 3,781 | | 84 | |
Net derivative assets (liabilities) (4,8) | (935) | | | (37) | | 0 | | 298 | | (837) | | 0 | | (97) | | 147 | | (1,077) | | (2,538) | | 228 | |
| AFS debt securities: | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Non-agency residential MBS | 597 | | | 13 | | 64 | | 0 | | (73) | | 0 | | (40) | | 206 | | (343) | | 424 | | 0 | |
| Non-U.S. securities | 2 | | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 2 | | 0 | |
| | | | | | | | | | | | |
| Other taxable securities | 7 | | | 2 | | 0 | | 0 | | 0 | | 0 | | (5) | | 61 | | 0 | | 65 | | 0 | |
| Tax-exempt securities | 0 | | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 108 | | 0 | | 108 | | 0 | |
| Total AFS debt securities | 606 | | | 15 | | 64 | | 0 | | (73) | | 0 | | (45) | | 375 | | (343) | | 599 | | 0 | |
| Other debt securities carried at fair value – Non-agency residential MBS | 172 | | | 36 | | 0 | | 0 | | 0 | | 0 | | (17) | | 155 | | (47) | | 299 | | 38 | |
Loans and leases (5,6) | 338 | | | 0 | | 0 | | 230 | | (35) | | 217 | | (57) | | 0 | | 0 | | 693 | | (1) | |
Loans held-for-sale (5,6) | 542 | | | 48 | | (6) | | 12 | | (71) | | 36 | | (245) | | 59 | | 0 | | 375 | | 22 | |
Other assets (6,7) | 2,932 | | | (81) | | 19 | | 0 | | (10) | | 179 | | (683) | | 5 | | (1) | | 2,360 | | (267) | |
| | | | | | | | | | | | |
| Trading account liabilities – Equity securities | 0 | | | (2) | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | (2) | | (2) | |
Trading account liabilities – Corporate securities and other | (18) | | | 8 | | 0 | | (1) | | (3) | | (1) | | 0 | | 0 | | 0 | | (15) | | 0 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Long-term debt (5,8) | (817) | | | (59) | | (64) | | 0 | | 0 | | (40) | | 180 | | (350) | | 1 | | (1,149) | | (55) | |
Significant transfers out(1)Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2)Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly market making and similar activities; Net derivative assets (liabilities) - market making and similar activities and other income; AFS debt securities - predominantly other income; Other debt securities carried at fair value - other income; Loans and leases - market making and similar activities and other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - market making and similar activities.
(3)Includes unrealized gains (losses) in OCI on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. Amounts include net unrealized gains (losses) of $(41) million and $3 million related to financial instruments still held at December 31, 2020 and 2019.
(4)Net derivative assets (liabilities) include derivative assets of $2.8 billion and $2.2 billion and derivative liabilities of $6.2 billion and $4.8 billion at December 31, 2020 and 2019.
(5)Amounts represent instruments that are accounted for under the fair value option.
(6)Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales.
(7)Settlements primarily represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time.
(8)Transfers into long-term debt include a $1.4 billion transfer in of Level 3 primarily due to increased price observability, during 2017 included $1.3 billion of trading account assets, $139 million of AFS debt securities, $263 million of federal funds purchased and securities loaned or sold under agreements to repurchase and $218 million of long-term debt.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Level 3 – Fair Value Measurements in 2016 (1) | | | | | | | | |
| | | |
| | Balance
January 1 2016 | Total Realized/Unrealized Gains/(Losses) (2) | Gains/
(Losses)
in OCI (3) | Gross | Gross
Transfers
into Level 3 | Gross
Transfers
out of Level 3 | Balance
December 31
2016 | Change in Unrealized Gains/(Losses) Related to Financial Instruments Still Held (2) |
| (Dollars in millions) | Purchases | Sales | Issuances | Settlements |
| Trading account assets: | |
| |
| |
| | | | |
| | |
| |
| |
| Corporate securities, trading loans and other | $ | 2,838 |
| $ | 78 |
| $ | 2 |
| $ | 1,508 |
| $ | (847 | ) | $ | — |
| $ | (725 | ) | $ | 728 |
| $ | (805 | ) | $ | 2,777 |
| $ | (82 | ) |
| Equity securities | 407 |
| 74 |
| — |
| 73 |
| (169 | ) | — |
| (82 | ) | 70 |
| (92 | ) | 281 |
| (59 | ) |
| Non-U.S. sovereign debt | 521 |
| 122 |
| 91 |
| 12 |
| (146 | ) | — |
| (90 | ) | — |
| — |
| 510 |
| 120 |
|
| Mortgage trading loans, ABS and other MBS | 1,868 |
| 188 |
| (2 | ) | 988 |
| (1,491 | ) | — |
| (344 | ) | 158 |
| (154 | ) | 1,211 |
| 64 |
|
| Total trading account assets | 5,634 |
| 462 |
| 91 |
| 2,581 |
| (2,653 | ) | — |
| (1,241 | ) | 956 |
| (1,051 | ) | 4,779 |
| 43 |
|
Net derivative assets (4) | (441 | ) | 285 |
| — |
| 470 |
| (1,155 | ) | — |
| 76 |
| (186 | ) | (362 | ) | (1,313 | ) | (376 | ) |
| AFS debt securities: | |
| |
| |
| | | | |
| |
| |
| |
| |
| Non-agency residential MBS | 106 |
| — |
| — |
| — |
| (106 | ) | — |
| — |
| — |
| — |
| — |
| — |
|
| Non-U.S. securities | — |
| — |
| (6 | ) | 584 |
| (92 | ) | — |
| (263 | ) | 6 |
| — |
| 229 |
| — |
|
| Other taxable securities | 757 |
| 4 |
| (2 | ) | — |
| — |
| — |
| (83 | ) | — |
| (82 | ) | 594 |
| — |
|
| Tax-exempt securities | 569 |
| — |
| (1 | ) | 1 |
| — |
| — |
| (2 | ) | 10 |
| (35 | ) | 542 |
| — |
|
| Total AFS debt securities | 1,432 |
| 4 |
| (9 | ) | 585 |
| (198 | ) | — |
| (348 | ) | 16 |
| (117 | ) | 1,365 |
| — |
|
| Other debt securities carried at fair value – Non-agency residential MBS | 30 |
| (5 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
| 25 |
| — |
|
Loans and leases (5, 6) | 1,620 |
| (44 | ) | — |
| 69 |
| (553 | ) | 50 |
| (194 | ) | 6 |
| (234 | ) | 720 |
| 17 |
|
Mortgage servicing rights (6, 7) | 3,087 |
| 149 |
| — |
| — |
| (80 | ) | 411 |
| (820 | ) | — |
| — |
| 2,747 |
| (107 | ) |
Loans held-for-sale (5) | 787 |
| 79 |
| 50 |
| 22 |
| (256 | ) | — |
| (93 | ) | 173 |
| (106 | ) | 656 |
| 70 |
|
| Other assets | 374 |
| (13 | ) | — |
| 38 |
| (111 | ) | — |
| (52 | ) | 3 |
| — |
| 239 |
| (36 | ) |
Federal funds purchased and securities loaned or sold under agreements to repurchase (5) | (335 | ) | (11 | ) | — |
| — |
| — |
| (22 | ) | 27 |
| (19 | ) | 1 |
| (359 | ) | 4 |
|
| Trading account liabilities – Corporate securities and other | (21 | ) | 5 |
| — |
| — |
| (11 | ) | — |
| — |
| — |
| — |
| (27 | ) | 4 |
|
Short-term borrowings (5) | (30 | ) | 1 |
| — |
| — |
| — |
| — |
| 29 |
| — |
| — |
| — |
| — |
|
Accrued expenses and other liabilities (5) | (9 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (9 | ) | — |
|
Long-term debt (5) | (1,513 | ) | (74 | ) | (20 | ) | 140 |
| — |
| (521 | ) | 948 |
| (939 | ) | 465 |
| (1,514 | ) | (184 | ) |
| |
(1)
| Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3. |
| |
(2)
| Includes gains/losses reported in earnings in the following income statement line items: Trading account assets/liabilities - trading account profits; Net derivative assets - primarily trading account profits and mortgage banking income; MSRs - primarily mortgage banking income; Long-term debt - primarily trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due principally to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve. |
| |
(3)
| Includes unrealized gains/losses in OCI on AFS securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For more information, see Note 1 – Summary of Significant Accounting Principles.
|
| |
(4)
| Net derivatives include derivative assets of $3.9 billion and derivative liabilities of $5.2 billion.
|
| |
(5)
| Amounts represent instruments that are accounted for under the fair value option. |
| |
(6)
| Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales. |
| |
(7)
| Settlements represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time. |
Significant transfers into Level 3, primarily due to decreased price observability, during 2016 included $956 million of trading account assets, $186 million of net derivative assets $173 million of LHFS and $939 million of long-term debt. Transfers occur on a regular basis for long-term debt instruments due to changes inreflect the impact of unobservable inputs on the value of theCorporation's change to present bifurcated embedded derivative in relation to the instrument as a whole.
derivatives with their respective host instruments.Significant transfers out of Level 3, primarily due to increased price observability, during 2016 included $1.1 billion of trading account assets, $362 millionof net derivative assets, $117 million of AFS debt securities, $234 million of loans and leases, $106 million of LHFS and $465 million of long-term debt.
|
| | | | | | | |
| | Bank of America 2017176158 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Level 3 – Fair Value Measurements in 2015 (1) | | | | | | | | |
| | | | | | | | | | | | |
| (Dollars in millions) | Balance
January 1 2015 | Total Realized/Unrealized Gains/(Losses) (2) | Gains/
(Losses)
in OCI (3) | Gross | Gross
Transfers
into Level 3 | Gross
Transfers
out of Level 3 | Balance
December 31 2015 | Change in Unrealized Gains/(Losses) Related to Financial Instruments Still Held (2) |
| Purchases | Sales | Issuances | Settlements |
| Trading account assets: | |
| |
| |
| | | | |
| | |
| |
| |
| Corporate securities, trading loans and other | $ | 3,270 |
| $ | (31 | ) | $ | (11 | ) | $ | 1,540 |
| $ | (1,616 | ) | $ | — |
| $ | (1,122 | ) | $ | 1,570 |
| $ | (762 | ) | $ | 2,838 |
| $ | (123 | ) |
| Equity securities | 352 |
| 9 |
| — |
| 49 |
| (11 | ) | — |
| (11 | ) | 41 |
| (22 | ) | 407 |
| 3 |
|
| Non-U.S. sovereign debt | 574 |
| 114 |
| (179 | ) | 185 |
| (1 | ) | — |
| (145 | ) | — |
| (27 | ) | 521 |
| 74 |
|
| Mortgage trading loans, ABS and other MBS | 2,063 |
| 154 |
| 1 |
| 1,250 |
| (1,117 | ) | — |
| (493 | ) | 50 |
| (40 | ) | 1,868 |
| (93 | ) |
| Total trading account assets | 6,259 |
| 246 |
| (189 | ) | 3,024 |
| (2,745 | ) | — |
| (1,771 | ) | 1,661 |
| (851 | ) | 5,634 |
| (139 | ) |
Net derivative assets (4) | (920 | ) | 1,335 |
| (7 | ) | 273 |
| (863 | ) | — |
| (261 | ) | (40 | ) | 42 |
| (441 | ) | 605 |
|
| AFS debt securities: | |
| |
| |
| | | | |
| |
| |
| |
| |
| Non-agency residential MBS | 279 |
| (12 | ) | — |
| 134 |
| — |
| — |
| (425 | ) | 167 |
| (37 | ) | 106 |
| — |
|
| Non-U.S. securities | 10 |
| — |
| — |
| — |
| — |
| — |
| (10 | ) | — |
| — |
| — |
| — |
|
| Other taxable securities | 1,667 |
| — |
| — |
| 189 |
| — |
| — |
| (160 | ) | — |
| (939 | ) | 757 |
| — |
|
| Tax-exempt securities | 599 |
| — |
| — |
| — |
| — |
| — |
| (30 | ) | — |
| — |
| 569 |
| — |
|
| Total AFS debt securities | 2,555 |
| (12 | ) | — |
| 323 |
| — |
| — |
| (625 | ) | 167 |
| (976 | ) | 1,432 |
| — |
|
| Other debt securities carried at fair value – Non-agency residential MBS | — |
| (3 | ) | — |
| 33 |
| — |
| — |
| — |
| — |
| — |
| 30 |
| — |
|
Loans and leases (5, 6) | 1,983 |
| (23 | ) | — |
| — |
| (4 | ) | 57 |
| (237 | ) | 144 |
| (300 | ) | 1,620 |
| 13 |
|
Mortgage servicing rights (6, 7) | 3,530 |
| 187 |
| — |
| — |
| (393 | ) | 637 |
| (874 | ) | — |
| — |
| 3,087 |
| (85 | ) |
Loans held-for-sale (5) | 173 |
| (51 | ) | (8 | ) | 771 |
| (203 | ) | 61 |
| (61 | ) | 203 |
| (98 | ) | 787 |
| (39 | ) |
| Other assets | 911 |
| (55 | ) | — |
| 11 |
| (130 | ) | — |
| (51 | ) | 10 |
| (322 | ) | 374 |
| (61 | ) |
Federal funds purchased and securities loaned or sold under agreements to repurchase (5) | — |
| (11 | ) | — |
| — |
| — |
| (131 | ) | 217 |
| (411 | ) | 1 |
| (335 | ) | — |
|
| Trading account liabilities – Corporate securities and other | (36 | ) | 19 |
| — |
| 30 |
| (34 | ) | — |
| — |
| — |
| — |
| (21 | ) | (3 | ) |
Short-term borrowings (5) | — |
| 17 |
| — |
| — |
| — |
| (52 | ) | 10 |
| (24 | ) | 19 |
| (30 | ) | 1 |
|
Accrued expenses and other liabilities (5) | (10 | ) | 1 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (9 | ) | 1 |
|
Long-term debt (5) | (2,362 | ) | 287 |
| 19 |
| 616 |
| — |
| (188 | ) | 273 |
| (1,592 | ) | 1,434 |
| (1,513 | ) | 255 |
|
| |
(1)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Level 3 – Fair Value Measurements (1) | | | | | | | | | | | | | | | | | | | | | | (Dollars in millions) | Balance
January 1 | Total Realized/Unrealized Gains (Losses) in Net Income (2) | Gains (Losses) in OCI (3) | Gross | Gross
Transfers
into
Level 3 | Gross
Transfers
out of
Level 3 | Balance
December 31 | Change in Unrealized Gains (Losses) in Net Income Related to Financial Instruments Still Held (2) | | Purchases | Sales | Issuances | Settlements | | Year Ended December 31, 2018 | | | | | | | | | | | | | Trading account assets: | | | | | | | | | | | | | | | | | | | | | | | | | Corporate securities, trading loans and other | $ | 1,864 | | $ | (32) | | $ | (1) | | $ | 436 | | $ | (403) | | $ | 5 | | $ | (568) | | $ | 804 | | $ | (547) | | $ | 1,558 | | $ | (117) | | | Equity securities | 235 | | (17) | | 0 | | 44 | | (11) | | 0 | | (4) | | 78 | | (49) | | 276 | | (22) | | | Non-U.S. sovereign debt | 556 | | 47 | | (44) | | 13 | | (57) | | 0 | | (30) | | 117 | | (137) | | 465 | | 48 | | | Mortgage trading loans, ABS and other MBS | 1,498 | | 148 | | 3 | | 585 | | (910) | | 0 | | (158) | | 705 | | (236) | | 1,635 | | 97 | | | Total trading account assets | 4,153 | | 146 | | (42) | | 1,078 | | (1,381) | | 5 | | (760) | | 1,704 | | (969) | | 3,934 | | 6 | | Net derivative assets (liabilities) (4) | (1,714) | | 106 | | 0 | | 531 | | (1,179) | | 0 | | 778 | | 39 | | 504 | | (935) | | (116) | | | AFS debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-agency residential MBS | 0 | | 27 | | (33) | | 0 | | (71) | | 0 | | (25) | | 774 | | (75) | | 597 | | 0 | | | Non-U.S. securities | 25 | | 0 | | (1) | | 0 | | (10) | | 0 | | (15) | | 3 | | 0 | | 2 | | 0 | | | | | | | | | | | | | | | Other taxable securities | 509 | | 1 | | (3) | | 0 | | (23) | | 0 | | (11) | | 60 | | (526) | | 7 | | 0 | | | Tax-exempt securities | 469 | | 0 | | 0 | | 0 | | 0 | | 0 | | (1) | | 1 | | (469) | | 0 | | 0 | | Total AFS debt securities (5) | 1,003 | | 28 | | (37) | | 0 | | (104) | | 0 | | (52) | | 838 | | (1,070) | | 606 | | 0 | | | Other debt securities carried at fair value - Non-agency residential MBS | 0 | | (18) | | 0 | | 0 | | (8) | | 0 | | (34) | | 365 | | (133) | | 172 | | (18) | | Loans and leases (6,7) | 571 | | (16) | | 0 | | 0 | | (134) | | 0 | | (83) | | 0 | | 0 | | 338 | | (9) | | | | | | | | | | | | | | Loans held-for-sale (6) | 690 | | 44 | | (26) | | 71 | | 0 | | 1 | | (201) | | 23 | | (60) | | 542 | | 31 | | Other assets (5,7,8) | 2,425 | | 414 | | (38) | | 2 | | (69) | | 96 | | (792) | | 929 | | (35) | | 2,932 | | 149 | | | | | | | | | | | | | | | Trading account liabilities – Corporate securities and other | (24) | | 11 | | 0 | | 9 | | (12) | | (2) | | 0 | | 0 | | 0 | | (18) | | (7) | | | | | | | | | | | | | | Accrued expenses and other liabilities (6) | (8) | | 0 | | 0 | | 0 | | 0 | | 0 | | 8 | | 0 | | 0 | | 0 | | 0 | | Long-term debt (6) | (1,863) | | 103 | | 4 | | 9 | | 0 | | (141) | | 486 | | (262) | | 847 | | (817) | | 95 | |
(1)Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3. |
| |
(2)
| Includes gains/losses reported in earnings in the following income statement line items: Trading account assets/liabilities - trading account profits; Net derivative assets - primarily trading account profits and mortgage banking income; MSRs - primarily mortgage banking income; Long-term debt - primarily trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due principally to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve. |
| |
(3)
| Includes unrealized gains/losses in OCI on AFS securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For more information, see Note 1 – Summary of Significant Accounting Principles.
|
| |
(4)
| Net derivatives include derivative assets of $5.1 billion and derivative liabilities of $5.6 billion.
|
| |
(5)
| Amounts represent instruments that are accounted for under the fair value option. |
| |
(6)
| Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales. |
| |
(7)
| Settlements represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time. |
Significant transfers into Level 3 and for liabilities, (increase) decrease to Level 3.
(2)Includes gains/losses reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly market making and similar activities; Net derivative assets (liabilities) - market making and similar activities and other income; Other debt securities carried at fair value - other income; Loans and leases - predominantly other income; Loans held-for-sale - other income; Other assets - primarily dueother income related to decreased price observability, during 2015 included $1.7MSRs; Long-term debt - primarily market making and similar activities.
(3)Includes unrealized gains (losses) in OCI on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. Amounts include net unrealized losses of $105 million related to financial instruments still held at December 31, 2018.
(4)Net derivative assets (liabilities) include derivative assets of $3.5 billion and derivative liabilities of trading account assets, $167 million$4.4 billion.
(5)Transfers out of AFS debt securities $144 millionand into other assets primarily relate to the reclassifcation of loanscertain securities.
(6)Amounts represent instruments that are accounted for under the fair value option.
(7)Issuances represent loan originations and leases, $203 million of LHFS, $411 million of federal funds purchased and securities loanedMSRs recognized following securitizations or sold under agreements to repurchase and $1.6 billion of long-term debt. Transfers occur on a regular basis for these long-term debt instruments due to changeswhole-loan sales.
(8)Settlements primarily represent the net change in the impact of unobservable inputs on thefair value of the embedded derivative in relationMSR asset due to the instrument as a whole.
recognition of modeled cash flows and the passage of time.
Significant transfers out of Level 3, primarily due to increased price observability, unless otherwise noted, during 2015 included $851 million of trading account assets, as a result of increased market liquidity, $976 million of AFS debt securities, $300 million of loans and leases, $322 million of other assets and $1.4 billion of long-term debt.
|
| | | | | | | |
177159Bank of America 2017
| | |
The following tables present information about significant unobservable inputs related to the Corporation’s material categories of Level 3 financial assets and liabilities at December 31, 20172020 and 2016.2019.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Quantitative Information about Level 3 Fair Value Measurements at December 31, 2020 | |
| | | | |
| (Dollars in millions) | | | Inputs |
| Financial Instrument | Fair
Value | Valuation
Technique | Significant Unobservable
Inputs | Ranges of
Inputs | Weighted Average (1) |
Loans and Securities (2) | | | | | |
| Instruments backed by residential real estate assets | $ | 1,543 | | Discounted cash flow, Market comparables | Yield | (3)% to 25% | 6 | % |
| Trading account assets – Mortgage trading loans, ABS and other MBS | 467 | | Prepayment speed | 1% to 56% CPR | 20% CPR |
| Loans and leases | 431 | | Default rate | 0% to 3% CDR | 1% CDR |
| | | | |
| AFS debt securities – Non-agency residential | 378 | | Price | $0 to $168 | $110 |
| | | | |
| Other debt securities carried at fair value – Non-agency residential | 267 | | Loss severity | 0% to 47% | 18 | % |
| Instruments backed by commercial real estate assets | $ | 407 | | Discounted cash
flow | Yield | 0% to 25% | 4 | % |
| Trading account assets – Corporate securities, trading loans and other | 262 | | Price | $0 to $100 | $52 |
| Trading account assets – Mortgage trading loans, ABS and other MBS | 43 | | | | |
| AFS debt securities, primarily other taxable securities | 89 | | | | |
| Loans held-for-sale | 13 | | | | |
| Commercial loans, debt securities and other | $ | 3,066 | | Discounted cash flow, Market comparables | Yield | 0% to 26% | 9 | % |
| Trading account assets – Corporate securities, trading loans and other | 1,097 | | Prepayment speed | 10% to 20% | 14 | % |
| Trading account assets – Non-U.S. sovereign debt | 354 | | Default rate | 3% to 4% | 4 | % |
| Trading account assets – Mortgage trading loans, ABS and other MBS | 930 | | Loss severity | 35% to 40% | 38 | % |
| AFS debt securities – Tax-exempt securities | 176 | | Price | $0 to $142 | $66 |
| Loans and leases | 286 | | Long-dated equity volatilities | 77% | n/a |
| Loans held-for-sale | 223 | | | | |
| | | | | |
| Other assets, primarily auction rate securities | $ | 937 | | Discounted cash flow, Market comparables | Price | $10 to $97 | $91 |
| | Discount rate | 8 | % | n/a |
| | | | |
| | | | |
| MSRs | $ | 1,033 | | Discounted cash
flow | Weighted-average life, fixed rate (5) | 0 to 13 years | 4 years |
| | Weighted-average life, variable rate (5) | 0 to 10 years | 3 years |
| | Option-adjusted spread, fixed rate | 7% to 14% | 9 | % |
| | Option-adjusted spread, variable rate | 9% to 15% | 12 | % |
| Structured liabilities | | | | | |
| Long-term debt | $ | (1,164) | | Discounted cash flow, Market comparables, Industry standard derivative pricing (3) | Yield | 0% to 11% | 9 | % |
| | Equity correlation | 2% to 100% | 64 | % |
| | Long-dated equity volatilities | 7% to 64% | 32 | % |
| | Price | $0 to $124 | $86 |
| | Natural gas forward price | $1/MMBtu to $4/MMBtu | $3 /MMBtu |
| Net derivative assets (liabilities) | | | | | |
| Credit derivatives | $ | (112) | | Discounted cash flow, Stochastic recovery correlation model | Yield | 5% | n/a |
| | | | |
| | Upfront points | 0 to 100 points | 75 points |
| | | | |
| | | | |
| | Prepayment speed | 15% to 100% CPR | 22% CPR |
| | Default rate | 2% CDR | n/a |
| | Credit correlation | 21% to 64% | 57 | % |
| | Price | $0 to $122 | $69 |
| Equity derivatives | $ | (1,904) | | Industry standard derivative pricing (3) | Equity correlation | 2% to 100% | 64 | % |
| | Long-dated equity volatilities | 7% to 64% | 32 | % |
| Commodity derivatives | $ | (1,426) | | Discounted cash flow, Industry standard derivative pricing (3) | Natural gas forward price | $1/MMBtu to $4/MMBtu | $3 /MMBtu |
| | Correlation | 39% to 85% | 73 | % |
| | Volatilities | 23% to 70% | 39 | % |
| Interest rate derivatives | $ | (26) | | Industry standard derivative pricing (4) | Correlation (IR/IR) | 15% to 96% | 34 | % |
| | Correlation (FX/IR) | 0% to 46% | 3 | % |
| | Long-dated inflation rates | (7)% to 84% | 14 | % |
| | Long-dated inflation volatilities | 0% to 1% | 1 | % |
| | Interest rate volatilities | 0% to 2% | 1 | % |
| | | | |
| Total net derivative assets (liabilities) | $ | (3,468) | | | | | |
|
| | | | | | | | | |
| | | | | | |
| Quantitative Information about Level 3 Fair Value Measurements at December 31, 2017 | |
| | | | | |
| (Dollars in millions) | | | Inputs |
| Financial Instrument | Fair Value | Valuation Technique | Significant Unobservable Inputs | Ranges of Inputs | Weighted Average |
Loans and Securities (1) | | | | | |
| Instruments backed by residential real estate assets | $ | 871 |
| Discounted cash flow | Yield | 0% to 25% |
| 6 | % |
| Trading account assets – Mortgage trading loans, ABS and other MBS | 298 |
| Prepayment speed | 0% to 22% CPR |
| 12 | % |
| Loans and leases | 570 |
| Default rate | 0% to 3% CDR |
| 1 | % |
| Loans held-for-sale | 3 |
| Loss severity | 0% to 53% |
| 17 | % |
| Instruments backed by commercial real estate assets | $ | 286 |
| Discounted cash flow | Yield | 0% to 25% |
| 9 | % |
| Trading account assets – Corporate securities, trading loans and other | 244 |
| Price | $0 to $100 |
| $67 |
| Trading account assets – Mortgage trading loans, ABS and other MBS | 42 |
| | | |
| Commercial loans, debt securities and other | $ | 4,023 |
| Discounted cash flow, Market comparables | Yield | 0% to 12% |
| 5 | % |
| Trading account assets – Corporate securities, trading loans and other | 1,613 |
| Prepayment speed | 10% to 20% |
| 16 | % |
| Trading account assets – Non-U.S. sovereign debt | 556 |
| Default rate | 3% to 4% |
| 4 | % |
| Trading account assets – Mortgage trading loans, ABS and other MBS | 1,158 |
| Loss severity | 35% to 40% |
| 37 | % |
| AFS debt securities – Other taxable securities | 8 |
| Price | $0 to $145 |
| $63 |
Loans and leases
| 1 |
| | | |
Loans held-for-sale
| 687 |
| | | |
| Auction rate securities | $ | 977 |
| Discounted cash flow, Market comparables | Price | $10 to $100 |
| $94 |
| Trading account assets – Corporate securities, trading loans and other | 7 |
| | | |
| AFS debt securities – Other taxable securities | 501 |
| | | |
| AFS debt securities – Tax-exempt securities | 469 |
| | | |
| MSRs | $ | 2,302 |
| Discounted cash flow | Weighted-average life, fixed rate (4) | 0 to 14 years |
| 5 years |
|
| | | Weighted-average life, variable rate (4) | 0 to 10 years |
| 3 years |
|
| | | Option Adjusted Spread, fixed rate | 9% to 14% |
| 10 | % |
| | | Option Adjusted Spread, variable rate | 9% to 15% |
| 12 | % |
| Structured liabilities | | | | | |
| Long-term debt | $ | (1,863 | ) | Discounted cash flow, Market comparables, Industry standard derivative pricing (2) | Equity correlation | 15% to 100% |
| 63 | % |
| | | Long-dated equity volatilities | 4% to 84% |
| 22 | % |
| | | Yield | 7.5 | % | n/a |
|
| | | Price | $0 to $100 |
| $66 |
| Net derivative assets | | | | | |
| Credit derivatives | $ | (282 | ) | Discounted cash flow, Stochastic recovery correlation model | Yield | 1% to 5% |
| 3 | % |
| | | Upfront points | 0 points to 100 points |
| 71 points |
|
| | | Credit correlation | 35% to 83% |
| 42 | % |
| | | Prepayment speed | 15% to 20% CPR |
| 16 | % |
| | | Default rate | 1% to 4% CDR |
| 2 | % |
| | | Loss severity | 35 | % | n/a |
|
| | | Price | $0 to $102 |
| $82 |
| Equity derivatives | $ | (2,059 | ) | Industry standard derivative pricing (2) | Equity correlation | 15% to 100% |
| 63 | % |
| | | Long-dated equity volatilities | 4% to 84% |
| 22 | % |
| Commodity derivatives | $ | (3 | ) | Discounted cash flow, Industry standard derivative pricing (2) | Natural gas forward price | $1/MMBtu to $5/MMBtu |
| $3/MMBtu |
|
| | | Correlation | 71% to 87% |
| 81 | % |
| | | Volatilities | 26% to 132% |
| 57 | % |
| Interest rate derivatives | $ | 630 |
| Industry standard derivative pricing (3) | Correlation (IR/IR) | 15% to 92% |
| 50 | % |
| | | Correlation (FX/IR) | 0% to 46% |
| 1 | % |
| | | Long-dated inflation rates | -14% to 38% |
| 4 | % |
| | | Long-dated inflation volatilities | 0% to 1% |
| 1 | % |
| Total net derivative assets | $ | (1,714 | ) | | | | |
| |
(1)(2)The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 156: Trading account assets – Corporate securities, trading loans and other of $1.4 billion, Trading account assets – Non-U.S. sovereign debt of $354 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.4 billion, AFS debt securities of $643 million, Other debt securities carried at fair value - Non-agency residential of $267 million, Other assets, including MSRs, of $2.0 billion, Loans and leases of $717 million and LHFS of $236 million. (3)Includes models such as Monte Carlo simulation and Black-Scholes. (4)Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates. (5)The weighted-average life is a product of changes in market rates of interest, prepayment rates and other model and cash flow assumptions. | The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 173: Trading account assets – Corporate securities, trading loans and other of $1.9 billion, Trading account assets – Non-U.S. sovereign debt of $556 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.5 billion, AFS debt securities – Other taxable securities of $509 million, AFS debt securities – Tax-exempt securities of $469 million, Loans and leases of $571 million and LHFS of $690 million. |
| |
(2)
| Includes models such as Monte Carlo simulation and Black-Scholes. |
| |
(3)
| Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates. |
| |
(4)
| The weighted-average life is a product of changes in market rates of interest, prepayment rates and other model and cash flow assumptions. |
CPR = Constant Prepayment Rate
CDR = Constant Default Rate
MMBtu = Million British thermal units
IR = Interest Rate
FX = Foreign Exchange
n/a = not applicable
|
| | | | | | | |
| | Bank of America 2017178160 |
| | | | | | | |
| Quantitative Information about Level 3 Fair Value Measurements at December 31, 2016 | |
| Quantitative Information about Level 3 Fair Value Measurements at December 31, 2019 | | Quantitative Information about Level 3 Fair Value Measurements at December 31, 2019 |
| | | | | | | | |
| (Dollars in millions) | | | Inputs | (Dollars in millions) | | Inputs |
| Financial Instrument | Fair
Value | Valuation
Technique | Significant Unobservable
Inputs | Ranges of
Inputs | Weighted Average | Financial Instrument | Fair
Value | Valuation
Technique | Significant Unobservable
Inputs | Ranges of
Inputs | Weighted Average (1) |
Loans and Securities (1) | | | | | | |
Loans and Securities (2) | | Loans and Securities (2) | | | | |
| Instruments backed by residential real estate assets | $ | 1,066 |
| Discounted cash flow, Market comparables | Yield | 0% to 50% |
| 7 | % | Instruments backed by residential real estate assets | $ | 1,407 | | Discounted cash flow, Market comparables | Yield | 0% to 25% | 6 | % |
| Trading account assets – Mortgage trading loans, ABS and other MBS | 337 |
| Prepayment speed | 0% to 27% CPR |
| 14 | % | Trading account assets – Mortgage trading loans, ABS and other MBS | 332 | | Prepayment speed | 1% to 27% CPR | 17% CPR |
| Loans and leases | 718 |
| Default rate | 0% to 3% CDR |
| 2 | % | Loans and leases | 281 | | Default rate | 0% to 3% CDR | 1% CDR |
| Loans held-for-sale | 11 |
| Loss severity | 0% to 54% |
| 18 | % | Loans held-for-sale | 4 | | Loss severity | 0% to 47% | 14 | % |
| AFS debt securities, primarily non-agency residential | | AFS debt securities, primarily non-agency residential | 491 | | Price | $0 to td60 | $94 |
| Other debt securities carried at fair value - Non-agency residential | | Other debt securities carried at fair value - Non-agency residential | 299 | | | |
| Instruments backed by commercial real estate assets | $ | 317 |
| Discounted cash flow, Market comparables | Yield | 0% to 39% |
| 11 | % | Instruments backed by commercial real estate assets | $ | 303 | | Discounted cash flow | Yield | 0% to 30% | 14 | % |
| Trading account assets – Corporate securities, trading loans and other | 178 |
| Price | $0 to td00 |
| $65 | Trading account assets – Corporate securities, trading loans and other | 201 | | Price | $0 to td00 | $55 |
| Trading account assets – Mortgage trading loans, ABS and other MBS | 53 |
| | | Trading account assets – Mortgage trading loans, ABS and other MBS | 85 | | | |
| Loans held-for-sale | 86 |
| | | Loans held-for-sale | 17 | | | |
| Commercial loans, debt securities and other | $ | 4,486 |
| Discounted cash flow, Market comparables | Yield | 1% to 37% |
| 14 | % | Commercial loans, debt securities and other | $ | 3,798 | | Discounted cash flow, Market comparables | Yield | 1% to 20% | 6 | % |
| Trading account assets – Corporate securities, trading loans and other | 2,565 |
| Prepayment speed | 5% to 20% |
| 19 | % | Trading account assets – Corporate securities, trading loans and other | 1,306 | | Prepayment speed | 10% to 20% | 13 | % |
| Trading account assets – Non-U.S. sovereign debt | 510 |
| Default rate | 3% to 4% |
| 4 | % | Trading account assets – Non-U.S. sovereign debt | 482 | | Default rate | 3% to 4% | 4 | % |
| Trading account assets – Mortgage trading loans, ABS and other MBS | 821 |
| Loss severity | 0% to 50% |
| 19 | % | Trading account assets – Mortgage trading loans, ABS and other MBS | 1,136 | | Loss severity | 35% to 40% | 38 | % |
| AFS debt securities – Other taxable securities | 29 |
| Price | $0 to td92 |
| $68 | |
| AFS debt securities – Tax-exempt securities | | AFS debt securities – Tax-exempt securities | 108 | | Price | $0 to td42 | $72 |
| Loans and leases | 2 |
| Discounted cash flow, Market comparables | Duration | 0 to 5 years |
| 3 years | Loans and leases | 412 | | Long-dated equity volatilities | 35% | n/a |
| Loans held-for-sale | 559 |
| Enterprise value/EBITDA multiple | 34x |
| n/a | Loans held-for-sale | 354 | | Discounted cash flow, Market comparables | | |
| Auction rate securities | $ | 1,141 |
| Price | td0 to td00 |
| $94 | |
| Trading account assets – Corporate securities, trading loans and other | 34 |
| | |
| AFS debt securities – Other taxable securities | 565 |
| | | |
| AFS debt securities – Tax-exempt securities | 542 |
| | | |
| Other assets, primarily auction rate securities | | Other assets, primarily auction rate securities | $ | 815 | | Price | td0 to td00 | $96 |
| |
| | | |
| | | | Discounted cash flow, Market comparables | | |
| MSRs | $ | 2,747 |
| Discounted cash flow | Weighted-average life, fixed rate (4) | 0 to 15 years |
| 6 years |
| MSRs | $ | 1,545 | | Weighted-average life, fixed rate (5) | 0 to 14 years | 5 years |
| | | Weighted-average life, variable rate (4) | 0 to 14 years |
| 4 years |
| | | Weighted-average life, variable rate (5) | 0 to 9 years | 3 years |
| | | Option Adjusted Spread, fixed rate | 9% to 14% |
| 10 | % | | | Discounted cash flow | Option-adjusted spread, fixed rate | 7% to 14% | 9 | % |
| | | Option Adjusted Spread, variable rate | 9% to 15% |
| 12 | % | | | Option-adjusted spread, variable rate | 9% to 15% | 11 | % |
| Structured liabilities | | | | | | Structured liabilities | | | | |
| Long-term debt | $ | (1,514 | ) | Discounted cash flow, Market comparables, Industry standard derivative pricing (2) | Equity correlation | 13% to 100% |
| 68 | % | Long-term debt | $ | (1,149) | | Yield | 2% to 6% | 5 | % |
| | | Long-dated equity volatilities | 4% to 76% |
| 26 | % | | | Discounted cash flow, Market comparables, Industry standard derivative pricing (3) | Equity correlation | 9% to 100% | 63 | % |
| | | Yield | 6% to 37% |
| 20 | % | | | Long-dated equity volatilities | 4% to 101% | 32 | % |
| | | Price | td2 to $87 |
| $73 | | | Price | $0 to td16 | $74 |
| | | Duration | 0 to 5 years |
| 3 years |
| | | Natural gas forward price | td/MMBtu to $5/MMBtu | $3/MMBtu |
| Net derivative assets | | | | | | |
| Net derivative assets (liabilities) | | Net derivative assets (liabilities) | | | | |
| Credit derivatives | $ | (129 | ) | Discounted cash flow, Stochastic recovery correlation model | Yield | 0% to 24% |
| 13 | % | Credit derivatives | $ | 13 | | Discounted cash flow, Stochastic recovery correlation model | Yield | 5% | n/a |
| | | Upfront points | 0 to 100 points |
| 72 points |
| | | Upfront points | 0 to 100 points | 63 points |
| | | Credit spreads | 17 bps to 814 bps |
| 248 bps |
| |
| | | Credit correlation | 21% to 80% |
| 44 | % | | | Prepayment speed | 15% to 100% CPR | 22% CPR |
| | | Prepayment speed | 10% to 20% CPR |
| 18 | % | | | Default rate | 1% to 4% CDR | 2% CDR |
| | | Default rate | 1% to 4% CDR |
| 3 | % | | | Loss severity | 35% | n/a |
| | | Loss severity | 35 | % | n/a |
| | | Price | $0 to td04 | $73 |
| Equity derivatives | $ | (1,690 | ) | Industry standard derivative pricing (2) | Equity correlation | 13% to 100% |
| 68 | % | Equity derivatives | $ | (1,081) | | Industry standard derivative pricing (3) | Equity correlation | 9% to 100% | 63 | % |
| | | Long-dated equity volatilities | 4% to 76% |
| 26 | % | | | Long-dated equity volatilities | 4% to 101% | 32 | % |
| Commodity derivatives | $ | 6 |
| Discounted cash flow, Industry standard derivative pricing (2) | Natural gas forward price | td/MMBtu to $6/MMBtu |
| $4/MMBtu |
| Commodity derivatives | $ | (1,357) | | Discounted cash flow, Industry standard derivative pricing (3) | Natural gas forward price | td/MMBtu to $5/MMBtu | $3/MMBtu |
| | | Correlation | 66% to 95% |
| 85 | % | | | Correlation | 30% to 69% | 68 | % |
| | | Volatilities | 23% to 96% |
| 36 | % | | | Volatilities | 14% to 54% | 27 | % |
| | | | | |
| Interest rate derivatives | $ | 500 |
| Industry standard derivative pricing (3) | Correlation (IR/IR) | 15% to 99% |
| 56 | % | Interest rate derivatives | $ | (113) | | Industry standard derivative pricing (4) | Correlation (IR/IR) | 15% to 94% | 52 | % |
| | | Correlation (FX/IR) | 0% to 40% |
| 2 | % | | | Correlation (FX/IR) | 0% to 46% | 2 | % |
| | | Illiquid IR and long-dated inflation rates | -12% to 35% |
| 5 | % | | | Long-dated inflation rates | G(23)% to 56% | 16 | % |
| | | Long-dated inflation volatilities | 0% to 2% |
| 1 | % | | | Long-dated inflation volatilities | 0% to 1% | 1 | % |
| Total net derivative assets | $ | (1,313 | ) | | | | | |
| Total net derivative assets (liabilities) | | Total net derivative assets (liabilities) | $ | (2,538) | | | | |
| |
(1)(1)For loans and securities, structured liabilities and net derivative assets (liabilities), the weighted average is calculated based upon the absolute fair value of the instruments. (2)The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 157: Trading account assets – Corporate securities, trading loans and other of $1.5 billion, Trading account assets – Non-U.S. sovereign debt of $482 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.6 billion, AFS debt securities of $599 million, Other debt securities carried at fair value - Non-agency residential of $299 million, Other assets, including MSRs, of $2.4 billion, Loans and leases of $693 million and LHFS of $375 million. (3)Includes models such as Monte Carlo simulation and Black-Scholes. (4)Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates. (5)The weighted-average life is a product of changes in market rates of interest, prepayment rates and other model and cash flow assumptions. | The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 174: Trading account assets – Corporate securities, trading loans and other of $2.8 billion, Trading account assets – Non-U.S. sovereign debt of $510 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.2 billion, AFS debt securities – Other taxable securities of $594 million, AFS debt securities – Tax-exempt securities of $542 million, Loans and leases of $720 million and LHFS of $656 million. |
| |
(2)
| Includes models such as Monte Carlo simulation and Black-Scholes. |
| |
(3)
| Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates. |
| |
(4)
| The weighted-average life is a product of changes in market rates of interest, prepayment rates and other model and cash flow assumptions. |
CPR = Constant Prepayment Rate
CDR = Constant Default Rate
EBITDA = Earnings before interest, taxes, depreciation and amortization
MMBtu = Million British thermal units
IR = Interest Rate
FX = Foreign Exchange
n/a = not applicable
|
| | | | | | | |
179161Bank of America 2017
| | |
In the previous tables, instruments backed by residential and commercial real estate assets include RMBS, commercial MBS, whole loans and mortgage CDOs. Commercial loans, debt securities and other include corporate CLOs and CDOs, commercial loans and bonds, and securities backed by non-real estate assets. Structured liabilities primarily include equity-linked notes that are accounted for under the fair value option.
The Corporation uses multiple market approaches in valuing certain of its Level 3 financial instruments. For example, market comparables and discounted cash flows are used together. For a given product, such as corporate debt securities, market comparables may be used to estimate some of the unobservable inputs and then these inputs are incorporated into a discounted cash flow model. Therefore, the balances disclosed encompass both of these techniques.
The level of aggregation and diversity within the products disclosed in the tables resultsresult in certain ranges of inputs being wide and unevenly distributed across asset and liability categories.
SensitivityUncertainty of Fair Value Measurements to Changes infrom Unobservable Inputs
Loans and Securities
A significant increase in market yields, default rates, loss severities or duration would resulthave resulted in a significantly lower fair value for long positions. Short positions would behave been impacted in a directionally opposite way. The impact of changes in prepayment speeds would have resulted in differing impacts depending on the seniority of the instrument and, in the case of CLOs, whether prepayments can be reinvested. A significant increase in price would resulthave resulted in a significantly higher fair value for long positions, and short positions would behave been impacted in a directionally opposite way.
Mortgage Servicing Rights
The weighted-average lives and fair value of MSRs are sensitive to changes in modeled assumptions. The weighted-average life is a product of changes in market rates of interest, prepayment rates and other model and cash flow assumptions. The weighted-average life represents the average period of time that the MSRs’ cash flows are expected to be received. Absent other changes, an increase (decrease) to the weighted-average life would generally result in an increase (decrease) in the fair value of the MSRs. For example, a 10 percent or 20 percent decrease in prepayment rates, which impacts the weighted-average life, could result in an increase in fair value of $83 million or $172 million, while a 10 percent or 20 percent increase in prepayment rates could result in a decrease in fair value of $76 million or $147 million. A 100 bp or 200 bp decrease in OAS levels could result in an increase in fair value of $69 million or $143 million, while a 100 bp or 200 bp increase in OAS levels could result in a decrease in fair value of $65 million
or $125 million. These sensitivities are hypothetical and actual amounts may vary materially. As the amounts indicate, changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of MSRs that continue to be held by the Corporation is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. In addition, these sensitivities do not reflect any hedge strategies that may be undertaken to mitigate such risk. The Corporation manages the risk in MSRs with derivatives such as options and interest rate swaps, which are not designated as accounting hedges, as well as securities including MBS and U.S. Treasury securities. The securities used to manage the risk in the MSRs are classified in other assets on the Consolidated Balance Sheet.
Structured Liabilities and Derivatives
For credit derivatives, a significant increase in market yield, upfront points (i.e., a single upfront payment made by a
protection buyer at inception), credit spreads, default rates or loss severities would resulthave resulted in a significantly lower fair value for protection sellers and higher fair value for protection buyers. The impact of changes in prepayment speeds would have resulted in differing impacts depending on the seniority of the instrument.
Structured credit derivatives are impacted by credit correlation. Default correlation is a parameter that describes the degree of dependence among credit default rates within a credit portfolio that underlies a credit derivative instrument. The sensitivity of this input on the fair value varies depending on the level of subordination of the tranche. For senior tranches that are net purchases of protection, a significant increase in default correlation would resulthave resulted in a significantly higher fair value. Net short protection positions would behave been impacted in a directionally opposite way.
For equity derivatives, commodity derivatives, interest rate derivatives and structured liabilities, a significant change in long-dated rates and volatilities and correlation inputs (i.e., the degree of correlation between an equity security and an index, between two different commodities, between two different interest rates, or between interest rates and foreign exchange rates) would resulthave resulted in a significant impact to the fair value; however, the magnitude and direction of the impact depend on whether the Corporation is long or short the exposure. For structured liabilities, a significant increase in yield or decrease in price would resulthave resulted in a significantly lower fair value. A significant decrease in duration may result in a significantly higher fair value.
Nonrecurring Fair Value
The Corporation holds certain assets that are measured at fair value but only in certain situations (e.g., impairment)the impairment of an asset), and these measurements are referred to herein as nonrecurring. The amounts below represent assets still held as of the reporting date for which a nonrecurring fair value adjustment was recorded during 2017, 20162020, 2019 and 2015.2018.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Assets Measured at Fair Value on a Nonrecurring Basis |
| |
| |
| December 31, 2020 | | | | | December 31, 2019 |
(Dollars in millions)
| Level 2 | | Level 3 | | | | | Level 2 | | Level 3 |
| Assets | | | | | | | | | | |
| | | | | | | | | | |
| Loans held-for-sale | $ | 1,020 | | | $ | 792 | | | | | | $ | 53 | | | $ | 102 | |
Loans and leases (1) | 0 | | | 301 | | | | | | 0 | | | 257 | |
Foreclosed properties (2, 3) | 0 | | | 17 | | | | | | 0 | | | 17 | |
| | | | | | | | | | |
| Other assets | 323 | | | 576 | | | | | | 178 | | | 646 | |
| | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | Gains (Losses) |
| | | 2020 | | | | | 2019 | | 2018 |
| Assets | | | | | | | | | | |
| | | | | | | | | | |
| Loans held-for-sale | | | $ | (79) | | | | | | $ | (14) | | | $ | (18) | |
Loans and leases (1) | | | (73) | | | | | | (81) | | | (202) | |
| Foreclosed properties | | | (6) | | | | | | (9) | | | (24) | |
| | | | | | | | | | |
| Other assets | | | (98) | | | | | | (2,145) | | | (64) | |
(1)Includes $30 million, $36 million and $83 million of losses on loans that were written down to a collateral value of zero during 2020, 2019 and 2018, respectively.
(2)Amounts are included in other assets on the Consolidated Balance Sheet and represent the carrying value of foreclosed properties that were written down subsequent to their initial classification as foreclosed properties. Losses on foreclosed properties include losses recorded during the first 90 days after transfer of a loan to foreclosed properties.
(3)Excludes $119 million and $260 million of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) at December 31, 2020 and 2019.
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| Assets Measured at Fair Value on a Nonrecurring Basis |
| | |
| | December 31, 2017 | | December 31, 2016 |
(Dollars in millions) | Level 2 | | Level 3 | | Level 2 | | Level 3 |
| Assets | |
| | |
| | | | |
|
| Loans held-for-sale | $ | — |
| | $ | 2 |
| | $ | 193 |
| | $ | 44 |
|
Loans and leases (1) | — |
| | 894 |
| | — |
| | 1,416 |
|
Foreclosed properties (2, 3) | — |
| | 83 |
| | — |
| | 77 |
|
| Other assets | 425 |
| | — |
| | 358 |
| | — |
|
| | | | | | | | |
| | | | Gains (Losses) |
| | | | 2017 | | 2016 | | 2015 |
| Assets | | | |
| | |
| | |
|
| Loans held-for-sale | | | $ | (6 | ) | | $ | (54 | ) | | $ | (8 | ) |
Loans and leases (1) | | | (336 | ) | | (458 | ) | | (993 | ) |
| Foreclosed properties | | | (41 | ) | | (41 | ) | | (57 | ) |
| Other assets | | | (124 | ) | | (74 | ) | | (28 | ) |
| | | | | | | | |
(1)
| | Includes $135 millionBank of losses on loans that were written down to a collateral value of zero during 2017 compared to losses of $150 million and $174 million for 2016 and 2015.America 162
|
| |
(2)
| Amounts are included in other assets on the Consolidated Balance Sheet and represent the carrying value of foreclosed properties that were written down subsequent to their initial classification as foreclosed properties. Losses on foreclosed properties include losses recorded during the first 90 days after transfer of a loan to foreclosed properties. |
| |
(3)
| Excludes $801 million and $1.2 billion of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) at December 31, 2017 and 2016.
|
The table below presents information about significant unobservable inputs related toutilized in the Corporation’sCorporation's nonrecurring Level 3 financial assetsfair value measurements during 2020 and liabilities at December 31, 2017 and 2016. Loans and leases backed by residential real estate assets represent2019.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Quantitative Information about Nonrecurring Level 3 Fair Value Measurements |
| | | | | |
| | | Inputs |
| Financial Instrument | Fair Value | Valuation
Technique | Significant Unobservable
Inputs | Ranges of
Inputs | Weighted Average (1) |
| (Dollars in millions) | 2020 |
| Loans held-for-sale | $ | 792 | | Discounted cash flow | Price | $8 to $99 | $95 |
Loans and leases (2) | 301 | | Market comparables | OREO discount | 13% to 59% | 24 | % |
| | | Costs to sell | 8% to 26% | 9 | % |
Other assets (3) | 576 | | Discounted cash flow | Revenue attrition | 2% to 19% | 7 | % |
| | | Discount rate | 11% to 14% | 12 | % |
| 2019 |
| Loans held-for-sale | $ | 102 | | Discounted cash flow | Price | $85 to $97 | $88 |
Loans and leases (2) | 257 | | Market comparables | OREO discount | 13% to 59% | 24 | % |
| | | Costs to sell | 8% to 26% | 9 | % |
Other assets (4) | 640 | | Discounted cash flow | Customer attrition | 0% to 19% | 5 | % |
| | | Cost to service | 11% to 19% | 15 | % |
(1)The weighted average is calculated based upon the fair value of the loans.
(2)Represents residential mortgages where the loan has been written down to the fair value of the underlying collateral.
|
| | | | | | | | | | | | |
| | | | | | | | | | |
| Quantitative Information about Nonrecurring Level 3 Fair Value Measurements |
| | | | | | | | | | |
| (Dollars in millions) | | | | | Inputs |
| Financial Instrument | Fair Value | | Valuation Technique | | Significant Unobservable Inputs | | Ranges of Inputs | | Weighted Average |
| | December 31, 2017 |
| Loans and leases backed by residential real estate assets | $ | 894 |
| | Market comparables | | OREO discount | | 15% to 58% | | 23 | % |
| | | | | | Costs to sell | | 5% to 49% | | 7 | % |
|
| | | | | | | | | | | | |
| | December 31, 2016 |
| Loans and leases backed by residential real estate assets | $ | 1,416 |
| | Market comparables | | OREO discount | | 8% to 56% | | 21 | % |
| | | | | | Costs to sell | | 7% to 45% | | 9 | % |
NOTE 21 Fair Value Option
Loans and Loan Commitments
The Corporation elects to account for certain consumer and commercial loans and loan commitments that exceed the Corporation’s single-name credit risk concentration guidelines under the fair value option. Lending commitments both funded and unfunded, are actively managed and monitored and, as appropriate, credit risk for these lending relationships may be mitigated through the use of credit derivatives, with the Corporation’s public side credit view and market perspectives determining the size and timing of the hedging activity. These credit derivatives do not meet the requirements for designation as accounting hedges and therefore are carried at fair value with changes in fair value recorded in other income. Electing thevalue. The fair value option allows the Corporation to carry these loans and loan commitments at fair value, which is more consistent with management’s view of the underlying economics and the manner in which they are managed. In addition, election of the fair value option allows the Corporation to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the financial instruments at historical cost and the
credit derivatives at fair value. The Corporation also elected the fair value option for certain loans held in consolidated VIEs.
Loans Held-for-sale
The Corporation elects to account for residential mortgage LHFS, commercial mortgage LHFS and certain other LHFS under the fair value option with interest income on these LHFS recorded in other interest income.option. These loans are actively managed and monitored and, as appropriate, certain market risks of the loans may be mitigated through the use of derivatives. The Corporation has elected not to designate the derivatives as qualifying accounting hedges, and therefore, they are carried at fair value with changes in fair value recorded in other income.value. The changes in fair value of the loans are largely
offset by changes in the fair value of the derivatives. Election of theThe fair value option allows the Corporation to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the financial instruments at the lower of cost or fair value and the derivatives at fair value. The Corporation has not elected to account for certain other LHFS under the fair value option primarily because these loans are floating-rate loans that are not hedged using derivative instruments.
Loans Reported as Trading Account Assets
The Corporation elects to account for certain loans that are held for the purpose of trading and are risk-managed on a fair value basis under the fair value option.
Other Assets
The Corporation elects to account for certain long-term fixed-rate margin loans that are hedged with derivatives under the fair value option. Election of the fair value option allows the Corporation to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the financial instruments at historical cost and the derivatives at fair value.
Securities Financing Agreements
The Corporation elects to account for certain securities financing agreements, including resale and repurchase agreements, under the fair value option based on the tenor of the agreements, which reflects the magnitude of the interest rate risk. The majority of securities financingoption. These elections include certain agreements collateralized by the U.S. government securities are not accounted for under the fair value option as these contractsand its agencies, which are generally short-dated and therefore thehave minimal interest rate risk is not significant.risk.
Long-term Deposits
The Corporation elects to account for certain long-term fixed-rate and rate-linked deposits that are hedged with derivatives that do not qualify for hedge accounting under the fair value option.accounting. Election of the fair value option allows the Corporation to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the financial instruments at
historical cost and the derivatives at fair value. The Corporation has not elected to carry other long-term deposits at fair value because they are not hedged using derivatives.
Short-term Borrowings
The Corporation elects to account for certain short-term borrowings, primarily short-term structured liabilities, under the fair value option because this debt is risk-managed on a fair value basis.
The Corporation elects to account for certain asset-backed secured financings, which are also classified in short-term borrowings, under the fair value option. Election of the fair value option allows the Corporation to reduce the accounting volatility
that would otherwise result from the asymmetry created by accounting for the asset-backed secured financings at historical cost and the corresponding mortgage LHFS securing these financings at fair value.
Long-term Debt
The Corporation elects to account for certain long-term debt, primarily structured liabilities, under the fair value option. This long-term debt is either risk-managed on a fair value basis or the related hedges do not qualify for hedge accounting.
Fair Value Option Elections
The table below providesfollowing tables provide information about the fair value carrying amount and the contractual principal outstanding of assets and liabilities accounted for under the fair value option at December 31, 20172020 and 2016.
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| Fair Value Option Elections | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Fair Value Carrying Amount | | Contractual Principal Outstanding | | Fair Value Carrying Amount Less Unpaid Principal | | Fair Value Carrying Amount | | Contractual Principal Outstanding | | Fair Value Carrying Amount Less Unpaid Principal |
| | December 31, 2017 | | December 31, 2016 |
| (Dollars in millions) | | | | | | | | | | | |
| Federal funds sold and securities borrowed or purchased under agreements to resell | $ | 52,906 |
| | $ | 52,907 |
| | $ | (1 | ) | | $ | 49,750 |
| | $ | 49,615 |
| | $ | 135 |
|
Loans reported as trading account assets (1) | 5,735 |
| | 11,804 |
| | (6,069 | ) | | 6,215 |
| | 11,557 |
| | (5,342 | ) |
| Trading inventory – other | 12,027 |
| | n/a |
| | n/a |
| | 8,206 |
| | n/a |
| | n/a |
|
| Consumer and commercial loans | 5,710 |
| | 5,744 |
| | (34 | ) | | 7,085 |
| | 7,190 |
| | (105 | ) |
| Loans held-for-sale | 2,156 |
| | 3,717 |
| | (1,561 | ) | | 4,026 |
| | 5,595 |
| | (1,569 | ) |
| Customer receivables and other assets | 3 |
| | n/a |
| | n/a |
| | 253 |
| | 250 |
| | 3 |
|
| Long-term deposits | 449 |
| | 421 |
| | 28 |
| | 731 |
| | 672 |
| | 59 |
|
| Federal funds purchased and securities loaned or sold under agreements to repurchase | 36,182 |
| | 36,187 |
| | (5 | ) | | 35,766 |
| | 35,929 |
| | (163 | ) |
| Short-term borrowings | 1,494 |
| | 1,494 |
| | — |
| | 2,024 |
| | 2,024 |
| | — |
|
| Unfunded loan commitments | 120 |
| | n/a |
| | n/a |
| | 173 |
| | n/a |
| | n/a |
|
Long-term debt (2) | 31,786 |
| | 31,512 |
| | 274 |
| | 30,037 |
| | 29,862 |
| | 175 |
|
| |
(1)
| A significant portion of the loans reported as trading account assets are distressed loans that trade2019, and were purchased at a deep discount to par, and the remainder are loans with a fair value near contractual principal outstanding. |
| |
(2)
| Includes structured liabilities with a fair value of $31.4 billion and $29.7 billion, and contractual principal outstanding of $31.1 billion and $29.5 billion at December 31, 2017 and 2016.
|
n/a = not applicable
The following tables provide information about where changes in the fair value of assets and liabilities accounted for under the fair value option are included in the Consolidated Statement of Income for 2017, 20162020, 2019 and 2015.2018.
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| | | | | | | | | | | |
| Fair Value Option Elections |
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| (Dollars in millions) | Fair Value Carrying Amount | | Contractual Principal Outstanding | | Fair Value Carrying Amount Less Unpaid Principal | | Fair Value
Carrying
Amount | | Contractual Principal Outstanding | | Fair Value Carrying
Amount Less Unpaid Principal |
| Federal funds sold and securities borrowed or purchased under agreements to resell | $ | 108,856 | | | $ | 108,811 | | | $ | 45 | | | $ | 50,364 | | | $ | 50,318 | | | $ | 46 | |
Loans reported as trading account assets (1) | 7,967 | | | 17,372 | | | (9,405) | | | 6,989 | | | 14,703 | | | (7,714) | |
| Trading inventory – other | 22,790 | | | n/a | | n/a | | 19,574 | | | n/a | | n/a |
| Consumer and commercial loans | 6,681 | | | 6,778 | | | (97) | | | 8,335 | | | 8,372 | | | (37) | |
Loans held-for-sale (1) | 1,585 | | | 2,521 | | | (936) | | | 3,709 | | | 4,879 | | | (1,170) | |
| | | | | | | | | | | |
| Other assets | 200 | | | n/a | | n/a | | 4 | | | n/a | | n/a |
| Long-term deposits | 481 | | | 448 | | | 33 | | | 508 | | | 496 | | | 12 | |
| Federal funds purchased and securities loaned or sold under agreements to repurchase | 135,391 | | | 135,390 | | | 1 | | | 16,008 | | | 16,029 | | | (21) | |
| Short-term borrowings | 5,874 | | | 5,178 | | | 696 | | | 3,941 | | | 3,930 | | | 11 | |
| Unfunded loan commitments | 99 | | | n/a | | n/a | | 90 | | | n/a | | n/a |
| | | | | | | | | | | |
| Long-term debt | 32,200 | | | 33,470 | | | (1,270) | | | 34,975 | | | 35,730 | | | (755) | |
(1)A significant portion of the loans reported as trading account assets and LHFS are distressed loans that were purchased at a deep discount to par, and the remainder are loans with a fair value near contractual principal outstanding.
n/a = not applicable
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| Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option |
| | | | | | | | |
| | Trading Account Profits | | Mortgage Banking Income | | Other Income | | Total |
| (Dollars in millions) | 2017 |
| Federal funds sold and securities borrowed or purchased under agreements to resell | $ | (57 | ) | | $ | — |
| | $ | — |
| | $ | (57 | ) |
| Loans reported as trading account assets | 318 |
| | — |
| | — |
| | 318 |
|
Trading inventory – other (1) | 3,821 |
| | — |
| | — |
| | 3,821 |
|
| Consumer and commercial loans | (9 | ) | | — |
| | 35 |
| | 26 |
|
Loans held-for-sale (2) | — |
| | 211 |
| | 87 |
| | 298 |
|
| Unfunded loan commitments | — |
| | — |
| | 36 |
| | 36 |
|
Long-term debt (3, 4) | (1,044 | ) | | — |
| | (146 | ) | | (1,190 | ) |
Other (5) | (36 | ) | | — |
| | 13 |
| | (23 | ) |
| Total | $ | 2,993 |
| | $ | 211 |
| | $ | 25 |
| | $ | 3,229 |
|
| | | | | | | | |
| | 2016 |
| Federal funds sold and securities borrowed or purchased under agreements to resell | $ | (64 | ) | | $ | — |
| | $ | 1 |
| | $ | (63 | ) |
| Loans reported as trading account assets | 301 |
| | — |
| | — |
| | 301 |
|
Trading inventory – other (1) | 57 |
| | — |
| | — |
| | 57 |
|
| Consumer and commercial loans | 49 |
| | — |
| | (37 | ) | | 12 |
|
Loans held-for-sale (2) | 11 |
| | 518 |
| | 6 |
| | 535 |
|
| Unfunded loan commitments | — |
| | — |
| | 487 |
| | 487 |
|
Long-term debt (3, 4) | (489 | ) | | — |
| | (97 | ) | | (586 | ) |
Other (5) | (21 | ) | | — |
| | 52 |
| | 31 |
|
| Total | $ | (156 | ) | | $ | 518 |
| | $ | 412 |
| | $ | 774 |
|
| | | | | | | | |
| | 2015 |
| Federal funds sold and securities borrowed or purchased under agreements to resell | $ | (195 | ) | | $ | — |
| | $ | — |
| | $ | (195 | ) |
| Loans reported as trading account assets | (199 | ) | | — |
| | — |
| | (199 | ) |
Trading inventory – other (1) | 1,284 |
| | — |
| | — |
| | 1,284 |
|
| Consumer and commercial loans | 52 |
| | — |
| | (295 | ) | | (243 | ) |
Loans held-for-sale (2) | (36 | ) | | 673 |
| | 63 |
| | 700 |
|
| Unfunded loan commitments | — |
| | — |
| | (210 | ) | | (210 | ) |
Long-term debt (3, 4) | 2,107 |
| | — |
| | (633 | ) | | 1,474 |
|
Other (5) | 37 |
| | — |
| | 23 |
| | 60 |
|
| Total | $ | 3,050 |
| | $ | 673 |
| | $ | (1,052 | ) | | $ | 2,671 |
|
| |
(1)
| The gains in trading account profits are primarily offset by losses on trading liabilities that hedge these assets. |
| |
(2)
| Includes the value of IRLCs on funded loans, including those sold during the period. |
| |
(3)
| The majority of the net gains (losses) in trading account profits relate to the embedded derivative in structured liabilities and are offset by gains (losses) on derivatives and securities that hedge these liabilities. |
| |
(4)
| For the cumulative impact of changes in the Corporation’s own credit spreads and the amount recognized in OCI, see Note 14 – Accumulated Other Comprehensive Income (Loss). For more information on how the Corporation’s own credit spread is determined, see Note 20 – Fair Value Measurements.
|
| |
(5)
| Includes gains (losses) on other assets, long-term deposits, federal funds purchased and securities loaned or sold under agreements to repurchase and short-term borrowings. |
|
| | | | | | | | | | | |
| | | | | | |
| Gains (Losses) Related to Borrower-specific Credit Risk for Assets Accounted for Under the Fair Value Option |
| | | | | | |
| (Dollars in millions) | 2017 | | 2016 | | 2015 |
| Loans reported as trading account assets | $ | 24 |
| | $ | 7 |
| | $ | 37 |
|
| Consumer and commercial loans | 36 |
| | (53 | ) | | (200 | ) |
| Loans held-for-sale | (22 | ) | | (34 | ) | | 37 |
|
|
| | |
183Bank of America 2017164
| | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option |
| | | | | | | | | | | |
| |
| | | |
| Market making and similar activities | | Other
Income | | Total | | | | | | |
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| (Dollars in millions) | 2020 | | |
| | | | | | | | | | | |
| Loans reported as trading account assets | $ | 107 | | | $ | 0 | | | $ | 107 | | | | | | | |
Trading inventory – other (1) | 3,216 | | | 0 | | | 3,216 | | | | | | | |
| Consumer and commercial loans | 22 | | | (3) | | | 19 | | | | | | | |
Loans held-for-sale (2) | 0 | | | 103 | | | 103 | | | | | | | |
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| Short-term borrowings | (170) | | | 0 | | | (170) | | | | | | | |
| Unfunded loan commitments | 0 | | | (65) | | | (65) | | | | | | | |
| | | | | | | | | | | |
Long-term debt (3) | (2,175) | | | (53) | | | (2,228) | | | | | | | |
Other (4) | 35 | | | (22) | | | 13 | | | | | | | |
| Total | $ | 1,035 | | | $ | (40) | | | $ | 995 | | | | | | | |
| | | | | | | | | | | |
| 2019 | | | | | | |
| | | | | | | | | | | |
| Loans reported as trading account assets | $ | 203 | | | $ | 0 | | | $ | 203 | | | | | | | |
Trading inventory – other (1) | 5,795 | | | 0 | | | 5,795 | | | | | | | |
| Consumer and commercial loans | 92 | | | 12 | | | 104 | | | | | | | |
Loans held-for-sale (2) | 0 | | | 98 | | | 98 | | | | | | | |
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| Short-term borrowings | (24) | | | 0 | | | (24) | | | | | | | |
| Unfunded loan commitments | 0 | | | 79 | | | 79 | | | | | | | |
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Long-term debt (3) | (1,098) | | | (78) | | | (1,176) | | | | | | | |
Other (4) | 9 | | | (27) | | | (18) | | | | | | | |
| Total | $ | 4,977 | | | $ | 84 | | | $ | 5,061 | | | | | | | |
| | | | | | | | | | | |
| 2018 | | | | | | |
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| Loans reported as trading account assets | $ | 8 | | | $ | 0 | | | $ | 8 | | | | | | | |
Trading inventory – other (1) | 1,750 | | | 0 | | | 1,750 | | | | | | | |
| Consumer and commercial loans | (422) | | | (53) | | | (475) | | | | | | | |
Loans held-for-sale (2) | 1 | | | 24 | | | 25 | | | | | | | |
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| Short-term borrowings | 2 | | | 0 | | | 2 | | | | | | | |
| Unfunded loan commitments | 0 | | | (49) | | | (49) | | | | | | | |
Long-term debt (3) | 2,157 | | | (93) | | | 2,064 | | | | | | | |
Other (4) | 6 | | | 18 | | | 24 | | | | | | | |
| Total | $ | 3,502 | | | $ | (153) | | | $ | 3,349 | | | | | | | |
(1) The gains in market making and similar activities are primarily offset by losses on trading liabilities that hedge these assets.
(2) Includes the value of IRLCs on funded loans, including those sold during the period.
(3) The net gains (losses) in market making and similar activities relate to the embedded derivatives in structured liabilities and are typically offset by (losses) gains on derivatives and securities that hedge these liabilities. For the cumulative impact of changes in the Corporation’s own credit spreads and the amount recognized in accumulated OCI, see Note 14 – Accumulated Other Comprehensive Income (Loss). For more information on how the Corporation’s own credit spread is determined, see Note 20 – Fair Value Measurements.
(4) Includes gains (losses) on federal funds sold and securities borrowed or purchased under agreements to resell, long-term deposits and federal funds purchased and securities loaned or sold under agreements to repurchase.
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| Gains (Losses) Related to Borrower-specific Credit Risk for Assets and Liabilities Accounted for Under the Fair Value Option |
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| (Dollars in millions) | | | | | 2020 | | 2019 | | 2018 |
| Loans reported as trading account assets | | | | | $ | (172) | | | $ | 43 | | | $ | 6 | |
| Consumer and commercial loans | | | | | (19) | | | 15 | | | (56) | |
| Loans held-for-sale | | | | | (105) | | | 57 | | | (4) | |
| Unfunded loan commitments | | | | | (65) | | | 79 | | | (94) | |
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NOTE 22 Fair Value of Financial Instruments
Financial instruments are classified within the fair value hierarchy using the methodologies described in Note 20 – Fair Value Measurements. Certain loans, deposits, long-term debt, unfunded lending commitments and other financial instruments are accounted for under the fair value option. For more information, see Note 21 – Fair Value Option. The following disclosures include financial instruments that are not carried at fair value or only a portion of the ending balance is carried at fair value on the Consolidated Balance Sheet.
Short-term Financial Instruments
The carrying value of short-term financial instruments, including cash and cash equivalents, certain time deposits placed and other short-term investments, federal funds sold and purchased,
certain resale and repurchase agreements customer and other receivables, customer payables (within accrued expenses and other liabilities on the Consolidated Balance Sheet), and short-term borrowings, approximates the fair value of these instruments. These financial instruments generally expose the Corporation to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market. The Corporation accounts for certain resale and repurchase agreements under the fair value option.
Under the fair value hierarchy, cash and cash equivalents are classified as Level 1. Time deposits placed and other short-term investments, such as U.S. government securities and short-term commercial paper, are classified as Level 1 or Level 2. Federal funds sold and purchased are classified as Level 2. Resale and repurchase agreements are classified as Level 2 because they are generally short-dated and/or variable-rate instruments collateralized by U.S. government or agency securities. Customer and other receivables primarily consist of margin loans, servicing advances and other accounts receivable and are classified as Level 2 or Level 3. Customer payables and short-termShort-term borrowings are classified as Level 2.
Held-to-maturity Debt Securities
HTM debt securities, which consist primarily of U.S. agency debt securities, are classified as Level 2 using the same methodologies as AFS U.S. agency debt securities. For more information on HTM debt securities, see Note 3 – Securities.
Loans
The fair values for commercial and consumer loans are generally determined by discounting both principal and interest cash flows expected to be collected using a discount rate for similar instruments with adjustments that the Corporation believes a market participant would consider in determining fair value. The Corporation estimates the cash flows expected to be collected using internal credit risk, interest rate and prepayment risk models that incorporate the Corporation’s best estimate of current key assumptions, such as default rates, loss severity and prepayment speeds for the life of the loan. The carrying value of loans is presented net of the applicable allowance for loan losses and excludes leases. The Corporation accounts for certain commercial loans and residential mortgage loans under the fair value option.
Deposits
The fair value for certain deposits with stated maturities is determined by discounting contractual cash flows using current market rates for instruments with similar maturities. The carrying value of non-U.S. time deposits approximates fair value. For
deposits with no stated maturities, the carrying value is considered to approximate fair value and does not take into account the significant value of the cost advantage and stability of the Corporation’s long-term relationships with depositors. The Corporation accounts for certain long-term fixed-rate deposits under the fair value option.
Long-term Debt
The Corporation uses quoted market prices, when available, to estimate fair value for its long-term debt. When quoted market prices are not available, fair value is estimated based on current market interest rates and credit spreads for debt with similar terms and maturities. The Corporation accounts for certain structured liabilities under the fair value option.
Fair Value of Financial Instruments
The carrying values and fair values by fair value hierarchy of certain financial instruments where only a portion of the ending balance was carried at fair value at December 31, 20172020 and 20162019 are presented in the following table.
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| Fair Value of Financial Instruments |
| | | |
| | | Fair Value |
| Carrying Value | | Level 2 | | Level 3 | | Total |
| (Dollars in millions) | December 31, 2020 |
| Financial assets | | | | | | | |
| Loans | $ | 887,289 | | | $ | 49,372 | | | $ | 877,682 | | | $ | 927,054 | |
| Loans held-for-sale | 9,243 | | | 7,864 | | | 1,379 | | | 9,243 | |
| Financial liabilities | | | | | | | |
Deposits (1) | 1,795,480 | | | 1,795,545 | | | 0 | | | 1,795,545 | |
| Long-term debt | 262,934 | | | 271,315 | | | 1,164 | | | 272,479 | |
Commercial unfunded lending commitments (2) | 1,977 | | | 99 | | | 5,159 | | | 5,258 | |
| | | | | | | |
| December 31, 2019 |
| Financial assets | | | | | | | |
| Loans | $ | 950,093 | | | $ | 63,633 | | | $ | 914,597 | | | $ | 978,230 | |
| Loans held-for-sale | 9,158 | | | 8,439 | | | 719 | | | 9,158 | |
| Financial liabilities | | | | | | | |
Deposits (1) | 1,434,803 | | | 1,434,809 | | | 0 | | | 1,434,809 | |
| Long-term debt | 240,856 | | | 247,376 | | | 1,149 | | | 248,525 | |
Commercial unfunded lending commitments (2) | 903 | | | 90 | | | 4,777 | | | 4,867 | |
|
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| | | | | | | | |
| Fair Value of Financial Instruments |
| | | | |
| | | | Fair Value |
| | Carrying Value | | Level 2 | | Level 3 | | Total |
| (Dollars in millions) | December 31, 2017 |
| Financial assets | | | | | | | |
| Loans | $ | 904,399 |
| | $ | 68,586 |
| | $ | 849,576 |
| | $ | 918,162 |
|
| Loans held-for-sale | 11,430 |
| | 10,521 |
| | 909 |
| | 11,430 |
|
| Financial liabilities | | | | | | | |
| Deposits | 1,309,545 |
| | 1,309,398 |
| | — |
| | 1,309,398 |
|
| Long-term debt | 227,402 |
| | 235,126 |
| | 1,863 |
| | 236,989 |
|
| | | | | | | | |
| | December 31, 2016 |
| Financial assets | | | | | | | |
| Loans | $ | 873,209 |
| | $ | 71,793 |
| | $ | 815,329 |
| | $ | 887,122 |
|
| Loans held-for-sale | 9,066 |
| | 8,082 |
| | 984 |
| | 9,066 |
|
| Financial liabilities | |
| | | | | | |
|
| Deposits | 1,260,934 |
| | 1,261,086 |
| | — |
| | 1,261,086 |
|
| Long-term debt | 216,823 |
| | 220,071 |
| | 1,514 |
| | 221,585 |
|
Commercial Unfunded Lending Commitments
Fair values are generally determined using a discounted cash flow valuation approach which is applied using market-based CDS or internally developed benchmark credit curves. The Corporation accounts for certain loan commitments under the fair value option. The carrying values(1) Includes demand deposits of $799.0 billion and fair values of the Corporation’s commercial unfunded lending commitments were $897 million and $4.0$545.5 billion with no stated maturities at December 31, 2017,2020 and $937 million and $4.9 billion at December 31, 2016. Substantially all commercial unfunded lending commitments are classified as Level 3.2019.
(2) The carrying value of thesecommercial unfunded lending commitments is included in accrued expenses and other liabilities on the Consolidated Balance Sheet.
The Corporation does not estimate the fair valuesvalue of consumer unfunded lending commitments because, in many instances, the Corporation can reduce or cancel these commitments by providing notice to the borrower. For more information on commitments, see Note 12 – Commitments and Contingencies.
NOTE 23Business Segment Information
The Corporation reports its results of operations through the following four4 business segments: Consumer Banking, GWIMBanking, GWIM, Global Banking and Global Markets, with the remaining operations recorded in All Other.
Consumer Banking
Consumer Banking offers a diversified range of credit, banking and investment products and services to consumers and small businesses. Consumer Banking product offerings include traditional savings accounts, money market savings accounts, CDs and IRAs, checking accounts, and investment accounts and products, as well as credit and debit cards, residential mortgages and home equity loans, and direct and indirect loans to consumers and small businesses in the U.S. ConsumerBanking includes the impact of servicing residential mortgages and home equity loans in the core portfolio.
Global Wealth & Investment Management
GWIM provides a high-touch client experience through a network of financial advisors focused on clients with over $250,000 in total investable assets, including tailored solutions to meet clients’ needs through a full set of investment management, brokerage, banking and retirement products. GWIM also provides comprehensive wealth management solutions targeted to high net worth and ultra high net worth clients, as well as customized solutions to meet clients’ wealth structuring, investment management, trust and banking needs, including specialty asset management services.
Global Banking
Global Banking provides a wide range of lending-related products and services, integrated working capital management and treasury solutions, and underwriting and advisory services through the Corporation’s network of offices and client relationship teams. Global Banking also provides investment banking products to clients. The economics of certain investment banking and underwriting activities are shared primarily between Global Banking andGlobal Markets under an internal revenue-sharing arrangement. Global Banking clients generally include middle-market companies, commercial real estate firms, not-for-profit companies, large global corporations, financial institutions, leasing clients, and mid-sized U.S.-based businesses requiring customized and integrated financial advice and solutions.
Global Markets
Global Markets offers sales and trading services includingand research services to institutional clients across fixed-income, credit, currency, commodity and equity businesses. Global Markets provides market-making, financing, securities clearing, settlement and custody services globally to institutional investor clients in support of their investing and trading activities. Global Markets product coverage includes securities and derivative products in both the primary and secondary markets. Global Markets also works with commercial and corporate clients to provide risk management products. As a result of market-making activities, Global Markets may be required to manage risk in a broad range of financial products. In addition, the economics of certain investment banking and underwriting activities are shared primarily between Global Markets and Global Banking under an internal revenue-sharing arrangement.
All Other
All Other consists of ALM activities, equity investments, non-core mortgage loans and servicing activities, the net impact of periodic revisions to the MSR valuation model for both core and non-core MSRs and the related economic hedge results and ineffectiveness,
liquidating businesses and residual expense allocations.certain expenses not otherwise allocated to business segments. ALM activities encompass certain residential mortgages, debt securities, interest rate and foreign currency risk management activities,activities. Substantially all of the impact of certain allocation methodologies and accounting hedge ineffectiveness. The results of certain ALM activities are allocated to the business segments. Equity investments include the merchant services joint venture as well as a portfolio of equity, real estate and other alternative investments. The initial impact of the Tax Act was recorded in All Other.
Basis of Presentation
The management accounting and reporting process derives segment and business results by utilizing allocation methodologies for revenue and expense. The net income derived for the businesses is dependent upon revenue and cost allocations using an activity-based costing model, funds transfer pricing, and other methodologies and assumptions management believes are appropriate to reflect the results of the business.
Total revenue, net of interest expense, includes net interest income on an FTE basis and noninterest income. The adjustment of net interest income to an FTE basis results in a corresponding increase in income tax expense. The segment results also reflect certain revenue and expense methodologies that are utilized to determine net income. The net interest income of the businesses includes the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. In segments where the total of liabilities and equity exceeds assets, which are generally deposit-taking segments, the Corporation allocates assets to match liabilities. Net interest income of the business segments also includes an allocation of
net interest income generated by certain of the Corporation’s ALM activities.
In addition, the business segments are impacted by the migration of customers and clients and their deposit, loan and brokerage balances between businesses. Subsequent to the date of migration, the associated net interest income, noninterest income and noninterest expense are recorded in the business to which the customers or clients migrated.
The Corporation’s ALM activities include an overall interest rate risk management strategy that incorporates the use of various derivatives and cash instruments to manage fluctuations in earnings and capital that are caused by interest rate volatility. The Corporation’s goal is to manage interest rate sensitivity so that movements in interest rates do not significantly adversely affect earnings and capital. The results of a majoritysubstantially all of the Corporation’s ALM activities are allocated to the business segments and fluctuate based on the performance of the ALM activities. ALM activities include external product pricing decisions including deposit pricing
strategies, the effects of the Corporation’s internal funds transfer pricing process and the net effects of other ALM activities.
Certain expenses not directly attributable to a specific business segment are allocated to the segments. The costs of certain centralized or shared functions are allocated based on methodologies that reflect utilization.
The tables below presentfollowing table presents net income (loss) and the components thereto (with net interest income on an FTE basis)basis for 2017, 2016 the business segments, All Other and 2015,the total Corporation) for 2020, 2019 and 2018, and total assets at December 31, 20172020 and 20162019 for each business segment, as well as All Other, including a reconciliationof the four business segments’ total revenue, net of interest expense, on an FTE basis, and net income to the Consolidated Statement of Income, and total assets to the Consolidated Balance Sheet.Other.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Results of Business Segments and All Other | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| At and for the year ended December 31 | | | Total Corporation (1) | | Consumer Banking |
| (Dollars in millions) | | | | | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | | | | | 2018 |
| Net interest income | | | | | $ | 43,859 | | | $ | 49,486 | | | $ | 48,772 | | | $ | 24,698 | | | $ | 28,158 | | | | | | | $ | 27,025 | |
| Noninterest income | | | | | 42,168 | | | 42,353 | | | 42,858 | | | 8,564 | | | 10,429 | | | | | | | 10,593 | |
| Total revenue, net of interest expense | | | | | 86,027 | | | 91,839 | | | 91,630 | | | 33,262 | | | 38,587 | | | | | | | 37,618 | |
| Provision for credit losses | | | | | 11,320 | | | 3,590 | | | 3,282 | | | 5,765 | | | 3,772 | | | | | | | 3,664 | |
| Noninterest expense | | | | | 55,213 | | | 54,900 | | | 53,154 | | | 18,878 | | | 17,646 | | | | | | | 17,672 | |
| Income before income taxes | | | | | 19,494 | | | 33,349 | | | 35,194 | | | 8,619 | | | 17,169 | | | | | | | 16,282 | |
| Income tax expense | | | | | 1,600 | | | 5,919 | | | 7,047 | | | 2,112 | | | 4,207 | | | | | | | 4,150 | |
| Net income | | | | | $ | 17,894 | | | $ | 27,430 | | | $ | 28,147 | | | $ | 6,507 | | | $ | 12,962 | | | | | | | $ | 12,132 | |
| Period-end total assets | | | | | $ | 2,819,627 | | | $ | 2,434,079 | | | | | $ | 988,580 | | | $ | 804,093 | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | Global Wealth & Investment Management | | Global Banking |
| | | | | | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | | | | | 2018 |
| Net interest income | | | | | $ | 5,468 | | | $ | 6,504 | | | $ | 6,265 | | | $ | 9,013 | | | $ | 10,675 | | | | | | | $ | 10,993 | |
| Noninterest income | | | | | 13,116 | | | 13,034 | | | 13,188 | | | 9,974 | | | 9,808 | | | | | | | 9,008 | |
| Total revenue, net of interest expense | | | | | 18,584 | | | 19,538 | | | 19,453 | | | 18,987 | | | 20,483 | | | | | | | 20,001 | |
| Provision for credit losses | | | | | 357 | | | 82 | | | 86 | | | 4,897 | | | 414 | | | | | | | 8 | |
| Noninterest expense | | | | | 14,154 | | | 13,825 | | | 14,015 | | | 9,337 | | | 9,011 | | | | | | | 8,745 | |
| Income before income taxes | | | | | 4,073 | | | 5,631 | | | 5,352 | | | 4,753 | | | 11,058 | | | | | | | 11,248 | |
| Income tax expense | | | | | 998 | | | 1,380 | | | 1,364 | | | 1,283 | | | 2,985 | | | | | | | 2,923 | |
| Net income | | | | | $ | 3,075 | | | $ | 4,251 | | | $ | 3,988 | | | $ | 3,470 | | | $ | 8,073 | | | | | | | $ | 8,325 | |
| Period-end total assets | | | | | $ | 369,736 | | | $ | 299,770 | | | | | $ | 580,561 | | | $ | 464,032 | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | Global Markets | | All Other |
| | | | | | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | | | | | 2018 |
| Net interest income | | | | | $ | 4,646 | | | $ | 3,915 | | | $ | 3,857 | | | $ | 34 | | | $ | 234 | | | | | | | $ | 632 | |
| Noninterest income | | | | | 14,120 | | | 11,699 | | | 12,326 | | | (3,606) | | | (2,617) | | | | | | | (2,257) | |
| Total revenue, net of interest expense | | | | | 18,766 | | | 15,614 | | | 16,183 | | | (3,572) | | | (2,383) | | | | | | | (1,625) | |
| Provision for credit losses | | | | | 251 | | | (9) | | | 0 | | | 50 | | | (669) | | | | | | | (476) | |
| Noninterest expense | | | | | 11,422 | | | 10,728 | | | 10,835 | | | 1,422 | | | 3,690 | | | | | | | 1,887 | |
| Income (loss) before income taxes | | | | | 7,093 | | | 4,895 | | | 5,348 | | | (5,044) | | | (5,404) | | | | | | | (3,036) | |
| Income tax expense (benefit) | | | | | 1,844 | | | 1,395 | | | 1,390 | | | (4,637) | | | (4,048) | | | | | | | (2,780) | |
| Net income (loss) | | | | | $ | 5,249 | | | $ | 3,500 | | | $ | 3,958 | | | $ | (407) | | | $ | (1,356) | | | | | | | $ | (256) | |
| Period-end total assets | | | | | $ | 616,609 | | | $ | 641,809 | | | | | $ | 264,141 | | | $ | 224,375 | | | | | | | |
(1)There were no material intersegment revenues.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Results of Business Segments and All Other | | | | | | | | | | | |
| | | | | | | | | | | | |
| At and for the year ended December 31 | Total Corporation (1) | | Consumer Banking |
| (Dollars in millions) | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Net interest income (FTE basis) | $ | 45,592 |
| | $ | 41,996 |
| | $ | 39,847 |
| | $ | 24,307 |
| | $ | 21,290 |
| | $ | 20,428 |
|
| Noninterest income | 42,685 |
| | 42,605 |
| | 44,007 |
| | 10,214 |
| | 10,441 |
| | 11,091 |
|
| Total revenue, net of interest expense (FTE basis) | 88,277 |
| | 84,601 |
| | 83,854 |
| | 34,521 |
| | 31,731 |
| | 31,519 |
|
| Provision for credit losses | 3,396 |
| | 3,597 |
| | 3,161 |
| | 3,525 |
| | 2,715 |
| | 2,346 |
|
| Noninterest expense | 54,743 |
| | 55,083 |
| | 57,617 |
| | 17,787 |
| | 17,654 |
| | 18,710 |
|
| Income before income taxes (FTE basis) | 30,138 |
| | 25,921 |
| | 23,076 |
| | 13,209 |
| | 11,362 |
| | 10,463 |
|
| Income tax expense (FTE basis) | 11,906 |
| | 8,099 |
| | 7,166 |
| | 5,002 |
| | 4,190 |
| | 3,814 |
|
| Net income | $ | 18,232 |
| | $ | 17,822 |
| | $ | 15,910 |
| | $ | 8,207 |
| | $ | 7,172 |
| | $ | 6,649 |
|
| Period-end total assets | $ | 2,281,234 |
| | $ | 2,188,067 |
| | |
| | $ | 749,325 |
| | $ | 702,333 |
| | |
|
| | | | | | | | | | | | |
| | Global Wealth &
Investment Management | | Global Banking |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Net interest income (FTE basis) | $ | 6,173 |
| | $ | 5,759 |
| | $ | 5,527 |
| | $ | 10,504 |
| | $ | 9,471 |
| | $ | 9,244 |
|
| Noninterest income | 12,417 |
| | 11,891 |
| | 12,507 |
| | 9,495 |
| | 8,974 |
| | 8,377 |
|
| Total revenue, net of interest expense (FTE basis) | 18,590 |
| | 17,650 |
| | 18,034 |
| | 19,999 |
| | 18,445 |
| | 17,621 |
|
| Provision for credit losses | 56 |
| | 68 |
| | 51 |
| | 212 |
| | 883 |
| | 686 |
|
| Noninterest expense | 13,564 |
| | 13,175 |
| | 13,938 |
| | 8,596 |
| | 8,486 |
| | 8,482 |
|
| Income before income taxes (FTE basis) | 4,970 |
| | 4,407 |
| | 4,045 |
| | 11,191 |
| | 9,076 |
| | 8,453 |
|
| Income tax expense (FTE basis) | 1,882 |
| | 1,632 |
| | 1,475 |
| | 4,238 |
| | 3,347 |
| | 3,114 |
|
| Net income | $ | 3,088 |
| | $ | 2,775 |
| | $ | 2,570 |
| | $ | 6,953 |
| | $ | 5,729 |
| | $ | 5,339 |
|
| Period-end total assets | $ | 284,321 |
| | $ | 298,931 |
| | |
| | $ | 424,533 |
| | $ | 408,330 |
| | |
|
| | | | | | | | | | | | |
| | Global Markets | | All Other |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Net interest income (FTE basis) | $ | 3,744 |
| | $ | 4,558 |
| | $ | 4,191 |
| | $ | 864 |
| | $ | 918 |
| | $ | 457 |
|
| Noninterest income (loss) | 12,207 |
| | 11,532 |
| | 10,822 |
| | (1,648 | ) | | (233 | ) | | 1,210 |
|
| Total revenue, net of interest expense (FTE basis) | 15,951 |
| | 16,090 |
| | 15,013 |
| | (784 | ) | | 685 |
| | 1,667 |
|
| Provision for credit losses | 164 |
| | 31 |
| | 99 |
| | (561 | ) | | (100 | ) | | (21 | ) |
| Noninterest expense | 10,731 |
| | 10,169 |
| | 11,374 |
| | 4,065 |
| | 5,599 |
| | 5,113 |
|
| Income (loss) before income taxes (FTE basis) | 5,056 |
| | 5,890 |
| | 3,540 |
| | (4,288 | ) | | (4,814 | ) | | (3,425 | ) |
| Income tax expense (benefit) (FTE basis) | 1,763 |
| | 2,072 |
| | 1,117 |
| | (979 | ) | | (3,142 | ) | | (2,354 | ) |
| Net income (loss) | $ | 3,293 |
| | $ | 3,818 |
| | $ | 2,423 |
| | $ | (3,309 | ) | | $ | (1,672 | ) | | $ | (1,071 | ) |
| Period-end total assets | $ | 629,007 |
| | $ | 566,060 |
| | | | $ | 194,048 |
| | $ | 212,413 |
| | |
|
|
| | | | | | | | | | | | |
| | | | | | | |
| Business Segment Reconciliations | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Segments’ total revenue, net of interest expense (FTE basis) | | $ | 89,061 |
| | $ | 83,916 |
| | $ | 82,187 |
|
Adjustments (2): | | | | |
| | |
|
| ALM activities | | 312 |
| | (300 | ) | | (208 | ) |
| Liquidating businesses and other | | (1,096 | ) | | 985 |
| | 1,875 |
|
| FTE basis adjustment | | (925 | ) | | (900 | ) | | (889 | ) |
| Consolidated revenue, net of interest expense | | $ | 87,352 |
| | $ | 83,701 |
| | $ | 82,965 |
|
| Segments’ total net income | | 21,541 |
| | 19,494 |
| | 16,981 |
|
Adjustments, net-of-taxes (2): | | | | |
| | |
|
| ALM activities | | (355 | ) | | (651 | ) | | (694 | ) |
| Liquidating businesses and other | | (2,954 | ) | | (1,021 | ) | | (377 | ) |
| Consolidated net income | | $ | 18,232 |
| | $ | 17,822 |
| | $ | 15,910 |
|
| | | | | | | |
| | | | | December 31 |
| | | | | 2017 | | 2016 |
| Segments’ total assets | | | | $ | 2,087,186 |
| | $ | 1,975,654 |
|
Adjustments (2): | | | | |
| | |
|
| ALM activities, including securities portfolio | | | | 625,488 |
| | 612,996 |
|
Liquidating businesses and other (3) | | | | 89,008 |
| | 118,073 |
|
| Elimination of segment asset allocations to match liabilities | | | | (520,448 | ) | | (518,656 | ) |
| Consolidated total assets | | | | $ | 2,281,234 |
| | $ | 2,188,067 |
|
| |
(1)
| There were no material intersegment revenues. |
| |
(2)
| Adjustments include consolidated income, expense and asset amounts not specifically allocated to individual business segments. |
| |
(3)
| At December 31, 2016, includes assets of the non-U.S. consumer credit card business which were included in assets of business held for sale on the Consolidated Balance Sheet.
|
The table below presents noninterest income and the associated components for 2020, 2019 and 2018 for each business segment, All Other and the total Corporation. For more information, see Note 2 – Net Interest Income and Noninterest Income.
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| | | | | | | | | | | | | | | | | |
| Noninterest Income by Business Segment and All Other | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Total Corporation | | Consumer Banking | | Global Wealth &
Investment Management |
| | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| Fees and commissions: | | | | | | | | | | | | | | | | | |
| Card income | | | | | | | | | | | | | | | | | |
| Interchange fees | $ | 3,954 | | | $ | 3,834 | | | $ | 3,866 | | | $ | 3,027 | | | $ | 3,174 | | | $ | 3,196 | | | $ | 36 | | | $ | 59 | | | $ | 81 | |
| Other card income | 1,702 | | | 1,963 | | | 1,958 | | | 1,646 | | | 1,910 | | | 1,907 | | | 42 | | | 42 | | | 46 | |
| Total card income | 5,656 | | | 5,797 | | | 5,824 | | | 4,673 | | | 5,084 | | | 5,103 | | | 78 | | | 101 | | | 127 | |
| Service charges | | | | | | | | | | | | | | | | | |
| Deposit-related fees | 5,991 | | | 6,588 | | | 6,667 | | | 3,417 | | | 4,218 | | | 4,300 | | | 67 | | | 68 | | | 73 | |
| Lending-related fees | 1,150 | | | 1,086 | | | 1,100 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Total service charges | 7,141 | | | 7,674 | | | 7,767 | | | 3,417 | | | 4,218 | | | 4,300 | | | 67 | | | 68 | | | 73 | |
| Investment and brokerage services | | | | | | | | | | | | | | | | | |
| Asset management fees | 10,708 | | | 10,241 | | | 10,189 | | | 146 | | | 144 | | | 147 | | | 10,578 | | | 10,130 | | | 10,042 | |
| Brokerage fees | 3,866 | | | 3,661 | | | 3,971 | | | 127 | | | 149 | | | 172 | | | 1,692 | | | 1,740 | | | 1,917 | |
| Total investment and brokerage services | 14,574 | | | 13,902 | | | 14,160 | | | 273 | | | 293 | | | 319 | | | 12,270 | | | 11,870 | | | 11,959 | |
| Investment banking fees | | | | | | | | | | | | | | | | | |
| Underwriting income | 4,698 | | | 2,998 | | | 2,722 | | | 0 | | | 0 | | | 0 | | | 391 | | | 401 | | | 335 | |
| Syndication fees | 861 | | | 1,184 | | | 1,347 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Financial advisory services | 1,621 | | | 1,460 | | | 1,258 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2 | |
| Total investment banking fees | 7,180 | | | 5,642 | | | 5,327 | | | 0 | | | 0 | | | 0 | | | 391 | | | 401 | | | 337 | |
| Total fees and commissions | 34,551 | | | 33,015 | | | 33,078 | | | 8,363 | | | 9,595 | | | 9,722 | | | 12,806 | | | 12,440 | | | 12,496 | |
| Market making and similar activities | 8,355 | | | 9,034 | | | 9,008 | | | 2 | | | 6 | | | 8 | | | 63 | | | 113 | | | 112 | |
| Other income (loss) | (738) | | | 304 | | | 772 | | | 199 | | | 828 | | | 863 | | | 247 | | | 481 | | | 580 | |
| Total noninterest income | $ | 42,168 | | | $ | 42,353 | | | $ | 42,858 | | | $ | 8,564 | | | $ | 10,429 | | | $ | 10,593 | | | $ | 13,116 | | | $ | 13,034 | | | $ | 13,188 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Global Banking | | Global Markets | | All Other (1) |
| | | |
| 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| Fees and commissions: | | | | | | | | | | | | | | | | | |
| Card income | | | | | | | | | | | | | | | | | |
| Interchange fees | $ | 499 | | | $ | 519 | | | $ | 503 | | | $ | 391 | | | $ | 81 | | | $ | 86 | | | $ | 1 | | | $ | 1 | | | $ | 0 | |
| Other card income | 14 | | | 13 | | | 8 | | | 0 | | | (1) | | | (2) | | | 0 | | | (1) | | | (1) | |
| Total card income | 513 | | | 532 | | | 511 | | | 391 | | | 80 | | | 84 | | | 1 | | | 0 | | | (1) | |
| Service charges | | | | | | | | | | | | | | | | | |
| Deposit-related fees | 2,298 | | | 2,121 | | | 2,111 | | | 177 | | | 156 | | | 161 | | | 32 | | | 25 | | | 22 | |
| Lending-related fees | 940 | | | 894 | | | 916 | | | 210 | | | 192 | | | 184 | | | 0 | | | 0 | | | 0 | |
| Total service charges | 3,238 | | | 3,015 | | | 3,027 | | | 387 | | | 348 | | | 345 | | | 32 | | | 25 | | | 22 | |
| Investment and brokerage services | | | | | | | | | | | | | | | | | |
| Asset management fees | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (16) | | | (33) | | | 0 | |
| Brokerage fees | 74 | | | 34 | | | 94 | | | 1,973 | | | 1,738 | | | 1,780 | | | 0 | | | 0 | | | 8 | |
| Total investment and brokerage services | 74 | | | 34 | | | 94 | | | 1,973 | | | 1,738 | | | 1,780 | | | (16) | | | (33) | | | 8 | |
| Investment banking fees | | | | | | | | | | | | | | | | | |
| Underwriting income | 2,070 | | | 1,227 | | | 1,090 | | | 2,449 | | | 1,555 | | | 1,495 | | | (212) | | | (185) | | | (198) | |
| Syndication fees | 482 | | | 574 | | | 648 | | | 379 | | | 610 | | | 698 | | | 0 | | | 0 | | | 1 | |
| Financial advisory services | 1,458 | | | 1,336 | | | 1,153 | | | 163 | | | 123 | | | 103 | | | 0 | | | 1 | | | 0 | |
| Total investment banking fees | 4,010 | | | 3,137 | | | 2,891 | | | 2,991 | | | 2,288 | | | 2,296 | | | (212) | | | (184) | | | (197) | |
| Total fees and commissions | 7,835 | | | 6,718 | | | 6,523 | | | 5,742 | | | 4,454 | | | 4,505 | | | (195) | | | (192) | | | (168) | |
| Market making and similar activities | 103 | | | 235 | | | 260 | | | 8,471 | | | 7,065 | | | 7,260 | | | (284) | | | 1,615 | | | 1,368 | |
| Other income (loss) | 2,036 | | | 2,855 | | | 2,225 | | | (93) | | | 180 | | | 561 | | | (3,127) | | | (4,040) | | | (3,457) | |
| Total noninterest income | $ | 9,974 | | | $ | 9,808 | | | $ | 9,008 | | | $ | 14,120 | | | $ | 11,699 | | | $ | 12,326 | | | $ | (3,606) | | | $ | (2,617) | | | $ | (2,257) | |
(1)All Other includes eliminations of intercompany transactions.
| | | | | | | | |
| | Bank of America 2017186168 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Business Segment Reconciliations | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | |
| (Dollars in millions) | | | | | | | | | | 2020 | | 2019 | | 2018 |
| Segments’ total revenue, net of interest expense | | | | | | | | | | $ | 89,599 | | | $ | 94,222 | | | $ | 93,255 | |
Adjustments (1): | | | | | | | | | | | | | | |
| ALM activities | | | | | | | | | | 375 | | | 241 | | | (325) | |
| Liquidating businesses, eliminations and other | | | | | | | | | | (3,947) | | | (2,624) | | | (1,300) | |
| FTE basis adjustment | | | | | | | | | | (499) | | | (595) | | | (610) | |
| Consolidated revenue, net of interest expense | | | | | | | | | | $ | 85,528 | | | $ | 91,244 | | | $ | 91,020 | |
| Segments’ total net income | | | | | | | | | | 18,301 | | | 28,786 | | | 28,403 | |
Adjustments, net-of-tax (1): | | | | | | | | | | | | | | |
| ALM activities | | | | | | | | | | 279 | | | 202 | | | (222) | |
| Liquidating businesses, eliminations and other | | | | | | | | | | (686) | | | (1,558) | | | (34) | |
| Consolidated net income | | | | | | | | | | $ | 17,894 | | | $ | 27,430 | | | $ | 28,147 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | December 31 |
| | | | | | | | | | | | 2020 | | 2019 |
| Segments’ total assets | | | | | | | | | | | | $ | 2,555,486 | | | $ | 2,209,704 | |
Adjustments (1): | | | | | | | | | | | | | | |
| ALM activities, including securities portfolio | | | | | | | | | | | | 1,176,071 | | | 721,806 | |
| Elimination of segment asset allocations to match liabilities | | | | | | | | | | | | (977,685) | | | (565,378) | |
| | | | | | | | | | | | | | |
| Other | | | | | | | | | | | | 65,755 | | | 67,947 | |
| Consolidated total assets | | | | | | | | | | | | $ | 2,819,627 | | | $ | 2,434,079 | |
(1)Adjustments include consolidated income, expense and asset amounts not specifically allocated to individual business segments.
NOTE 24 Parent Company Information
The following tables present the Parent Company-only financial information. This financial information is presented in accordance with bank regulatory reporting requirements.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Condensed Statement of Income | | | | | |
| | | | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 |
| Income | | | | | |
| Dividends from subsidiaries: | | | | | |
| Bank holding companies and related subsidiaries | $ | 10,352 | | | $ | 27,820 | | | $ | 28,575 | |
| Nonbank companies and related subsidiaries | 0 | | | 0 | | | 91 | |
| Interest from subsidiaries | 8,825 | | | 9,502 | | | 8,425 | |
| Other income (loss) | (138) | | | 74 | | | (1,025) | |
| Total income | 19,039 | | | 37,396 | | | 36,066 | |
| Expense | | | | | |
| Interest on borrowed funds from related subsidiaries | 136 | | | 451 | | | 235 | |
| Other interest expense | 4,119 | | | 5,899 | | | 6,425 | |
| Noninterest expense | 1,651 | | | 1,641 | | | 1,600 | |
| Total expense | 5,906 | | | 7,991 | | | 8,260 | |
| Income before income taxes and equity in undistributed earnings of subsidiaries | 13,133 | | | 29,405 | | | 27,806 | |
| Income tax expense (benefit) | 649 | | | 341 | | | (281) | |
| Income before equity in undistributed earnings of subsidiaries | 12,484 | | | 29,064 | | | 28,087 | |
| Equity in undistributed earnings (losses) of subsidiaries: | | | | | |
| Bank holding companies and related subsidiaries | 5,372 | | | (1,717) | | | 306 | |
| Nonbank companies and related subsidiaries | 38 | | | 83 | | | (246) | |
| Total equity in undistributed earnings of subsidiaries | 5,410 | | | (1,634) | | | 60 | |
| Net income | $ | 17,894 | | | $ | 27,430 | | | $ | 28,147 | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | |
| | | | | | |
| Condensed Statement of Income | | | | | |
| | | | | | |
| (Dollars in millions) | 2017 | | 2016 | | 2015 |
| Income | |
| | |
| | |
|
| Dividends from subsidiaries: | |
| | |
| | |
|
| Bank holding companies and related subsidiaries | $ | 12,088 |
| | $ | 4,127 |
| | $ | 18,970 |
|
| Nonbank companies and related subsidiaries | 202 |
| | 77 |
| | 53 |
|
| Interest from subsidiaries | 7,043 |
| | 2,996 |
| | 2,004 |
|
| Other income (loss) | 28 |
| | 111 |
| | (623 | ) |
| Total income | 19,361 |
| | 7,311 |
| | 20,404 |
|
| Expense | |
| | |
| | |
|
| Interest on borrowed funds from related subsidiaries | 189 |
| | 969 |
| | 1,169 |
|
| Other interest expense | 5,555 |
| | 5,096 |
| | 5,098 |
|
| Noninterest expense | 1,672 |
| | 2,704 |
| | 4,631 |
|
| Total expense | 7,416 |
| | 8,769 |
| | 10,898 |
|
| Income (loss) before income taxes and equity in undistributed earnings of subsidiaries | 11,945 |
| | (1,458 | ) | | 9,506 |
|
| Income tax expense (benefit) | 950 |
| | (2,311 | ) | | (3,532 | ) |
| Income before equity in undistributed earnings of subsidiaries | 10,995 |
| | 853 |
| | 13,038 |
|
| Equity in undistributed earnings (losses) of subsidiaries: | |
| | |
| | |
|
| Bank holding companies and related subsidiaries | 8,725 |
| | 16,817 |
| | 3,068 |
|
| Nonbank companies and related subsidiaries | (1,488 | ) | | 152 |
| | (196 | ) |
| Total equity in undistributed earnings (losses) of subsidiaries | 7,237 |
| | 16,969 |
| | 2,872 |
|
| Net income | $ | 18,232 |
| | $ | 17,822 |
| | $ | 15,910 |
|
|
| | | | | | | |
| | | | |
| Condensed Balance Sheet | | | |
| | | | |
| | December 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Assets | |
| | |
|
Cash held at bank subsidiaries (1) | $ | 4,747 |
| | $ | 20,248 |
|
| Securities | 596 |
| | 909 |
|
| Receivables from subsidiaries: | | | |
| Bank holding companies and related subsidiaries | 146,566 |
| | 117,072 |
|
| Banks and related subsidiaries | 146 |
| | 171 |
|
| Nonbank companies and related subsidiaries | 4,745 |
| | 26,500 |
|
| Investments in subsidiaries: | | | |
| Bank holding companies and related subsidiaries | 296,506 |
| | 287,416 |
|
| Nonbank companies and related subsidiaries | 5,225 |
| | 6,875 |
|
| Other assets | 14,554 |
| | 11,038 |
|
Total assets (2) | $ | 473,085 |
| | $ | 470,229 |
|
| Liabilities and shareholders’ equity | |
| | |
|
| Accrued expenses and other liabilities | $ | 10,286 |
| | $ | 14,284 |
|
| Payables to subsidiaries: | | | |
| Banks and related subsidiaries | 359 |
| | 352 |
|
| Bank holding companies and related subsidiaries | 1 |
| | 4,013 |
|
| Nonbank companies and related subsidiaries | 9,340 |
| | 12,010 |
|
| Long-term debt | 185,953 |
| | 173,375 |
|
| Total liabilities | 205,939 |
| | 204,034 |
|
| Shareholders’ equity | 267,146 |
| | 266,195 |
|
| Total liabilities and shareholders’ equity | $ | 473,085 |
| | $ | 470,229 |
|
| |
(1)
| Balance includes third-party cash held of $193 million and $342 million at December 31, 2017 and 2016.
|
| |
(2)
| During 2016, the Corporation entered into intercompany arrangements with certain key subsidiaries under which the Corporation transferred certain parent company assets to NB Holdings Corporation.
|
| | | | | | | | | | | |
| | | |
| Condensed Balance Sheet | | | |
| | | |
| | December 31 |
| (Dollars in millions) | 2020 | | 2019 |
| Assets | | | |
Cash held at bank subsidiaries (1) | $ | 5,893 | | | $ | 5,695 | |
| Securities | 701 | | | 656 | |
| Receivables from subsidiaries: | | | |
| Bank holding companies and related subsidiaries | 206,566 | | | 173,301 | |
| Banks and related subsidiaries | 213 | | | 51 | |
| Nonbank companies and related subsidiaries | 410 | | | 391 | |
| Investments in subsidiaries: | | | |
| Bank holding companies and related subsidiaries | 305,818 | | | 297,465 | |
| Nonbank companies and related subsidiaries | 3,715 | | | 3,663 | |
| Other assets | 9,850 | | | 9,438 | |
| Total assets | $ | 533,166 | | | $ | 490,660 | |
| Liabilities and shareholders’ equity | | | |
| | | |
| Accrued expenses and other liabilities | $ | 15,965 | | | $ | 13,381 | |
| Payables to subsidiaries: | | | |
| | | |
| Banks and related subsidiaries | 129 | | | 458 | |
| | | |
| Nonbank companies and related subsidiaries | 11,067 | | | 12,102 | |
| Long-term debt | 233,081 | | | 199,909 | |
| Total liabilities | 260,242 | | | 225,850 | |
| Shareholders’ equity | 272,924 | | | 264,810 | |
| Total liabilities and shareholders’ equity | $ | 533,166 | | | $ | 490,660 | |
(1)Balance includes third-party cash held of $7 million and $4 million at December 31, 2020 and 2019.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Condensed Statement of Cash Flows | | | | | |
| | | | | |
| (Dollars in millions) | 2020 | | 2019 | | 2018 |
| Operating activities | | | | | |
| Net income | $ | 17,894 | | | $ | 27,430 | | | $ | 28,147 | |
| Reconciliation of net income to net cash provided by (used in) operating activities: | | | | | |
| Equity in undistributed (earnings) losses of subsidiaries | (5,410) | | | 1,634 | | | (60) | |
| Other operating activities, net | 14,303 | | | 16,973 | | | (3,706) | |
| Net cash provided by operating activities | 26,787 | | | 46,037 | | | 24,381 | |
| Investing activities | | | | | |
| Net sales (purchases) of securities | (4) | | | (17) | | | 51 | |
| Net payments to subsidiaries | (33,111) | | | (19,121) | | | (2,262) | |
| Other investing activities, net | (7) | | | 7 | | | 48 | |
| Net cash used in investing activities | (33,122) | | | (19,131) | | | (2,163) | |
| Financing activities | | | | | |
| | | | | |
| Net increase (decrease) in other advances | (422) | | | (1,625) | | | 3,867 | |
| Proceeds from issuance of long-term debt | 43,766 | | | 29,315 | | | 30,708 | |
| Retirement of long-term debt | (23,168) | | | (21,039) | | | (29,413) | |
| Proceeds from issuance of preferred stock | 2,181 | | | 3,643 | | | 4,515 | |
| Redemption of preferred stock | (1,072) | | | (2,568) | | | (4,512) | |
| Common stock repurchased | (7,025) | | | (28,144) | | | (20,094) | |
| Cash dividends paid | (7,727) | | | (5,934) | | | (6,895) | |
| | | | | |
| Net cash provided by (used in) financing activities | 6,533 | | | (26,352) | | | (21,824) | |
| Net increase in cash held at bank subsidiaries | 198 | | | 554 | | | 394 | |
| Cash held at bank subsidiaries at January 1 | 5,695 | | | 5,141 | | | 4,747 | |
| Cash held at bank subsidiaries at December 31 | $ | 5,893 | | | $ | 5,695 | | | $ | 5,141 | |
|
| | | | | | | | | | | |
| | | | | | |
| Condensed Statement of Cash Flows | | | | | |
| | | | | | |
| (Dollars in millions) | 2017 | | 2016 | | 2015 |
| Operating activities | |
| | |
| | |
|
| Net income | $ | 18,232 |
| | $ | 17,822 |
| | $ | 15,910 |
|
| Reconciliation of net income to net cash provided by (used in) operating activities: | |
| | |
| | |
|
| Equity in undistributed (earnings) losses of subsidiaries | (7,237 | ) | | (16,969 | ) | | (2,872 | ) |
| Other operating activities, net | (2,593 | ) | | (2,860 | ) | | (2,583 | ) |
| Net cash provided by (used in) operating activities | 8,402 |
| | (2,007 | ) | | 10,455 |
|
| Investing activities | |
| | |
| | |
|
| Net sales of securities | 312 |
| | — |
| | 15 |
|
| Net payments to subsidiaries | (7,087 | ) | | (65,481 | ) | | (7,944 | ) |
| Other investing activities, net | (1 | ) | | (308 | ) | | 70 |
|
| Net cash used in investing activities | (6,776 | ) | | (65,789 | ) | | (7,859 | ) |
| Financing activities | |
| | |
| | |
|
| Net decrease in short-term borrowings | — |
| | (136 | ) | | (221 | ) |
| Net decrease in other advances | (6,672 | ) | | (44 | ) | | (770 | ) |
| Proceeds from issuance of long-term debt | 37,704 |
| | 27,363 |
| | 26,492 |
|
| Retirement of long-term debt | (29,645 | ) | | (30,804 | ) | | (27,393 | ) |
| Proceeds from issuance of preferred stock | — |
| | 2,947 |
| | 2,964 |
|
| Common stock repurchased | (12,814 | ) | | (5,112 | ) | | (2,374 | ) |
| Cash dividends paid | (5,700 | ) | | (4,194 | ) | | (3,574 | ) |
| Net cash used in financing activities | (17,127 | ) | | (9,980 | ) | | (4,876 | ) |
| Net decrease in cash held at bank subsidiaries | (15,501 | ) | | (77,776 | ) | | (2,280 | ) |
| Cash held at bank subsidiaries at January 1 | 20,248 |
| | 98,024 |
| | 100,304 |
|
| Cash held at bank subsidiaries at December 31 | $ | 4,747 |
| | $ | 20,248 |
| | $ | 98,024 |
|
NOTE 25 Performance by Geographical Area
Since theThe Corporation’s operations are highly integrated certain asset, liability, incomewith operations in both U.S. and expense amounts must be allocated to arrive at total assets, total revenue, net of interest expense, income before income taxesnon-U.S. markets. The non-U.S. business activities are largely conducted in Europe, the Middle East and net income by geographic area.Africa and in Asia. The Corporation identifies its geographic performance based on the business unit structure used to manage the capital or expense deployed in the region
as applicable. This requires certain judgments related to the allocation of revenue so that revenue can be appropriately matched with the related capital or expense deployed in the region. Certain asset, liability, income and expense amounts have been allocated to arrive at total assets, total revenue, net of interest expense, income before income taxes and net income by geographic area as presented below.
| | | | | | | | | | | | |
| (Dollars in millions) | | | Total Assets at Year End (1) | | Total Revenue, Net of Interest Expense (2) | | Income Before Income Taxes | | Net Income | (Dollars in millions) | | | Total Assets at Year End (1) | | Total Revenue, Net of Interest Expense (2) | | Income Before Income Taxes | | Net Income |
U.S. (3) | 2017 | | $ | 1,965,490 |
| | $ | 74,830 |
| | $ | 25,108 |
| | $ | 15,550 |
| U.S. (3) | 2020 | | $ | 2,490,247 | | | $ | 75,576 | | | $ | 18,247 | | | $ | 16,692 | |
| | 2016 | | 1,901,043 |
| | 72,418 |
| | 22,282 |
| | 16,183 |
| | 2019 | | 2,122,734 | | | 81,236 | | | 30,699 | | | 25,937 | |
| | 2015 | | |
| | 72,117 |
| | 20,181 |
| | 14,711 |
| | 2018 | | 80,777 | | | 31,904 | | | 26,407 | |
| Asia | 2017 | | 103,255 |
| | 3,405 |
| | 676 |
| | 464 |
| Asia | 2020 | | 99,283 | | | 4,232 | | | 1,051 | | | 788 | |
| | 2016 | | 85,410 |
| | 3,365 |
| | 674 |
| | 488 |
| | 2019 | | 102,440 | | | 3,491 | | | 765 | | | 570 | |
| | 2015 | | |
| | 3,524 |
| | 726 |
| | 457 |
| | 2018 | | 3,507 | | | 865 | | | 520 | |
| Europe, Middle East and Africa | 2017 | | 189,661 |
| | 7,907 |
| | 2,990 |
| | 1,926 |
| Europe, Middle East and Africa | 2020 | | 202,701 | | | 4,491 | | | (596) | | | 264 | |
| | 2016 | | 174,934 |
| | 6,608 |
| | 1,705 |
| | 925 |
| | 2019 | | 178,889 | | | 5,310 | | | 921 | | | 672 | |
| | 2015 | | | | 6,081 |
| | 938 |
| | 516 |
| | 2018 | | 5,632 | | | 1,543 | | | 1,126 | |
| Latin America and the Caribbean | 2017 | | 22,828 |
| | 1,210 |
| | 439 |
| | 292 |
| Latin America and the Caribbean | 2020 | | 27,396 | | | 1,229 | | | 293 | | | 150 | |
| | 2016 | | 26,680 |
| | 1,310 |
| | 360 |
| | 226 |
| | 2019 | | 30,016 | | | 1,207 | | | 369 | | | 251 | |
| | 2015 | | |
| | 1,243 |
| | 342 |
| | 226 |
| | 2018 | | 1,104 | | | 272 | | | 94 | |
| Total Non-U.S. | 2017 | | 315,744 |
| | 12,522 |
| | 4,105 |
| | 2,682 |
| Total Non-U.S. | 2020 | | 329,380 | | | 9,952 | | | 748 | | | 1,202 | |
| | 2016 | | 287,024 |
| | 11,283 |
| | 2,739 |
| | 1,639 |
| | 2019 | | 311,345 | | | 10,008 | | | 2,055 | | | 1,493 | |
| | 2015 | | |
| | 10,848 |
| | 2,006 |
| | 1,199 |
| | 2018 | | 10,243 | | | 2,680 | | | 1,740 | |
| Total Consolidated | 2017 | | $ | 2,281,234 |
| | $ | 87,352 |
| | $ | 29,213 |
| | $ | 18,232 |
| Total Consolidated | 2020 | | $ | 2,819,627 | | | $ | 85,528 | | | $ | 18,995 | | | $ | 17,894 | |
| | 2016 | | 2,188,067 |
| | 83,701 |
| | 25,021 |
| | 17,822 |
| | 2019 | | 2,434,079 | | | 91,244 | | | 32,754 | | | 27,430 | |
| | 2015 | | |
| | 82,965 |
| | 22,187 |
| | 15,910 |
| | 2018 | | 91,020 | | | 34,584 | | | 28,147 | |
| |
(1)
| Total assets include long-lived assets, which are primarily located in the U.S. |
| |
(2)
| There were no material intercompany revenues between geographic regions for any of the periods presented. |
| |
(3)
| Substantially reflects the U.S. |
(1)Total assets include long-lived assets, which are primarily located in the U.S.
(2)There were no material intercompany revenues between geographic regions for any of the periods presented.
(3)Substantially reflects the U.S.
|
| | | | | | | |
| | 171Bank of America 2017188 | | |
Glossary
Alt-A Mortgage –A type of U.S. mortgage that is considered riskier than A-paper, or “prime,” and less risky than “subprime,” the riskiest category. Typically, Alt-A mortgages are characterized by borrowers with less than full documentation, lower credit scores and higher LTVs.
Assets in Custody – Consist largely of custodial and non-discretionary trust assets excluding brokerage assets administered for clients.
Assets Under Management (AUM) – The total market value of assets under the investment advisory and/or discretion of GWIM which generate asset management fees based on a percentage of the assets’ market values. AUM reflects assets that are generally managed for institutional, high net worth and retail clients, and are distributed through various investment products including mutual funds, other commingled vehicles and separate accounts.
Banking Book – All on- and off-balance sheet financial instruments of the Corporation except for those positions that are held for trading purposes.
Client Brokerage and Other Assets– ClientNon-discretionary client assets which are held in brokerage accounts.accounts or held for safekeeping.
Committed Credit Exposure– Any funded portion of a facility plus the unfunded portion of a facility on which the lender is legally bound to advance funds during a specified period under prescribed conditions.
Credit Derivatives – Contractual agreements that provide protection against a specified credit event on one or more referenced obligations.
Credit Valuation Adjustment (CVA) – A portfolio adjustment required to properly reflect the counterparty credit risk exposure as part of the fair value of derivative instruments.
Debit Valuation Adjustment (DVA)– A portfolio adjustment required to properly reflect the Corporation’s own credit risk exposure as part of the fair value of derivative instruments and/or structured liabilities.
Funding Valuation Adjustment (FVA)– A portfolio adjustment required to include funding costs on uncollateralized derivatives and derivatives where the Corporation is not permitted to use the collateral it receives.
Interest Rate Lock Commitment (IRLC)– Commitment with a loan applicant in which the loan terms are guaranteed for a designated period of time subject to credit approval.
Letter of Credit– A document issued on behalf of a customer to a third party promising to pay the third party upon presentation of specified documents. A letter of credit effectively substitutes the issuer’s credit for that of the customer.
Loan-to-value (LTV)– A commonly used credit quality metric. LTV is calculated as the outstanding carrying value of the loan divided by the estimated value of the property securing the loan.
Margin Receivable– An extension of credit secured by eligible securities in certain brokerage accounts.
Matched Book – Repurchase and resale agreements or securities borrowed and loaned transactions where the overall asset and liability position is similar in size and/or maturity. Generally, these are entered into to accommodate customers where the Corporation earns the interest rate spread.
Mortgage Servicing Rights (MSR) – The right to service a mortgage loan when the underlying loan is sold or securitized. Servicing includes collections for principal, interest and escrow payments from borrowers and accounting for and remitting principal and interest payments to investors.
Net Interest Yield– Net interest income divided by average total interest-earning assets.
Nonperforming Loans and Leases– Includes loans and leases that have been placed on nonaccrual status, including nonaccruing loans whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties.
Operating Margin – Income before income taxes divided by total revenue, net of interest expense.
Prompt Corrective Action (PCA)– A framework established by the U.S. banking regulators requiring banks to maintain certain levels of regulatory capital ratios, comprised of five categories of capitalization: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” Insured depository institutions that fail to meet certain of these capital levels are subject to increasingly strict limits on their activities, including their ability to make capital distributions, pay management compensation, grow assets and take other actions.
Subprime Loans – Although a standard industry definition for subprime loans (including subprime mortgage loans) does not exist, the Corporation defines subprime loans as specific product offerings for higher risk borrowers.
Troubled Debt Restructurings (TDRs)– Loans whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. Certain consumer loans for which a binding offer to restructure has been extended are also classified as TDRs.
Value-at-Risk (VaR)– VaR is a model that simulates the value of a portfolio under a range of hypothetical scenarios in order to generate a distribution of potential gains and losses. VaR represents the loss the portfolio is expected to experience with a given confidence level based on historical data. A VaR model is an effective tool in estimating ranges of potential gains and losses on our trading portfolios.
Key Metrics
Active Digital Banking Users –Mobile and/or online users with activity at period end.
Active Mobile Banking Users – Mobile users with activity at period end.
Book Value – Ending common shareholders' equity divided by ending common shares outstanding.
Deposit Spread –Annualized net interest income divided by average deposits.
Efficiency Ratio – Noninterest expense divided by total revenue, net of interest expense.
Financial advisor productivity –Adjusted MLGWM annualized revenue divided by average financial advisors.
Gross Interest Yield – Effective annual percentage rate divided by average loans.
Net Interest Yield– Net interest income divided by average total interest-earning assets.
Operating Margin – Income before income taxes divided by total revenue, net of interest expense.
Risk-adjusted Margin – Difference between total revenue, net of interest expense, and net credit losses divided by average loans.
Return on Average Allocated Capital –Adjusted net income divided by allocated capital.
Return on Average Assets – Net income divided by total average assets.
Return on Average Common Shareholders' Equity– Net income applicable to common shareholders divided by average common shareholders' equity.
Return on Average Shareholders' Equity– Net income divided by average shareholders' equity.
| | | | | | | | |
189173Bank of America 2017
| | |
Acronyms
| | | | | |
| ABS | Asset-backed securities |
| AFS | Available-for-sale |
| AI | Artificial intelligence |
| ALM | Asset and liability management |
| ARR | Alternative reference rates |
| AUM | Assets under management |
| AVM | Automated valuation model |
| |
ABSBANA | Asset-backed securities |
AFS | Available-for-sale |
ALM | Asset and liability management |
AUM | Assets under management |
AVM | Automated valuation model |
BANA | Bank of America, National Association |
| BHC | Bank holding company |
bps | basis points |
CCARBofAS | BofA Securities, Inc. |
| BofASE | BofA Securities Europe SA |
| bps | basis points |
| CAE | Chief Audit Executive |
| CAO | Chief Administrative Officer |
| CCAR | Comprehensive Capital Analysis and Review |
| CDO | Collateralized debt obligation |
| CDS | Credit default swap |
CGACECL | Corporate General AuditorCurrent expected credit losses |
CLOCET1 | Common equity tier 1 |
| CFPB | Consumer Financial Protection Bureau |
| CFTC | Commodity Futures Trading Commission |
| |
| CLO | Collateralized loan obligation |
| CLTV | Combined loan-to-value |
CVACRO | Chief Risk Officer |
| CVA | Credit valuation adjustment |
| DIF | Deposit Insurance Fund |
| DVA | Debit valuation adjustment |
EAD | Exposure at Default |
EPSECL | Expected credit losses |
| EMRC | Enterprise Model Risk Committee |
| EPS | Earnings per common share |
| ERC | Enterprise Risk Committee |
FASBESG | Financial Accounting Standards BoardEnvironmental, social and governance |
FCAEU | European Union |
| |
| FCA | Financial Conduct Authority |
| FDIC | Federal Deposit Insurance Corporation |
| FDICIA | Federal Deposit Insurance Corporation Improvement Act of 1991 |
| FHA | Federal Housing Administration |
FHLB | |
| FHLB | Federal Home Loan Bank |
| FHLMC | Freddie Mac |
| FICC | Fixed-income,Fixed income, currencies and commodities |
| FICO | Fair Isaac Corporation (credit score) |
| FLUs | Front line units |
| FNMA | Fannie Mae |
| FTE | Fully taxable-equivalent |
| FVA | Funding valuation adjustment |
| GAAP | Accounting principles generally accepted in the United States of America |
| GDPR | General Data Protection Regulation |
| GLS | Global Liquidity Sources |
GM&CA | Global Marketing and Corporate Affairs |
| GNMA | Government National Mortgage Association |
GSE | Government-sponsored enterprise |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | | | | |
| |
| |
| |
| |
| |
| G-SIB | Global systemically important bank |
| GSE | Government-sponsored enterprise |
| GWIM | Global Wealth & Investment Management |
| HELOC | Home equity line of credit |
| HQLA | High Quality Liquid Assets |
| HTM | Held-to-maturity |
| IBOR | |
| Interbank Offered Rates |
| |
| ICAAP | Internal Capital Adequacy Assessment Process |
IMM | Internal models methodology |
| IRLC | Interest rate lock commitment |
| IRM | Independent risk managementRisk Management |
| ISDA | International Swaps and Derivatives Association, Inc. |
| LCR | Liquidity Coverage Ratio |
LGD | Loss given default |
| LHFS | Loans held-for-sale |
| LIBOR | London InterBankInterbank Offered Rate |
| LTV | Loan-to-value |
MBS | Mortgage-backed securities |
| MBS | Mortgage-backed securities |
| MD&A | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| |
| MLGWM | Merrill Lynch Global Wealth Management |
| MLI | Merrill Lynch International |
| MLPCC | Merrill Lynch Professional Clearing Corp |
| MLPF&S | Merrill Lynch, Pierce, Fenner & Smith Incorporated |
| MRC | Management Risk Committee |
| MSA | Metropolitan Statistical Area |
| MSR | Mortgage servicing right |
NSFRNOL | Net operating loss |
| NSFR | Net Stable Funding Ratio |
OAS | Option-adjusted spread |
| OCC | Office of the Comptroller of the Currency |
| OCI | Other comprehensive income |
| OREO | Other real estate owned |
| OTC | Over-the-counter |
OTTI | Other-than-temporary impairment |
| PCA | Prompt Corrective Action |
PCI | Purchased credit-impaired |
PPI | Payment protection insurance |
RMBS | |
| PPP | Paycheck Protection Program |
| RMBS | Residential mortgage-backed securities |
| RSU | Restricted stock unit |
SBLCRWA | Risk -weighted assets |
| |
| SBA | Small Business Administration |
| SBLC | Standby letter of credit |
SEC | |
| SCB | Stress capital buffer |
| SCCL | Single-counterparty credit limits |
| SEC | Securities and Exchange Commission |
| SLR | Supplementary leverage ratio |
TDRSOFR | Secured Overnight Financing Rate |
| SONIA | Sterling Overnight Index Average |
| TDR | Troubled debt restructurings |
| TLAC | Total loss-absorbing capacity |
TTF | Time-to-required funding |
| VA | U.S. Department of Veterans Affairs |
| VaR | Value-at-Risk |
| VIE | Variable interest entity |
|
| | | | | | | |
| | Bank of America 2017190174 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report and pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as amended (Exchange Act), Bank of America’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness and design of our disclosure controls and procedures (as that term is defined in Rule 13a-15(e) of the Exchange Act). Based upon that evaluation, Bank of America’s Chief Executive Officer and Chief Financial Officer concluded that
Bank of America’s disclosure controls and procedures were effective, as of the end of the period covered by this report, in recording, processing, summarizing and reporting information required to be disclosed by the Corporation in reports that it files or submits under the Exchange Act, within the time periods specified in the Securities and Exchange Commission’s rules and forms.report.
Report of Management on Internal Control Over Financial Reporting
The Report of Management on Internal Control over Financial Reporting is set forth on page 9694 and incorporated herein by reference. The Report of Independent Registered Public Accounting Firm with respect to the Corporation’s internal control over financial reporting is set forth on page 97pages 95 and 96 and incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended December 31, 2017,2020, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None
Part III
Bank of America Corporation and Subsidiaries
Item 10. Directors, Executive Officers and Corporate Governance
Information about our Executive Officers of The Registrant
The name, age, position and office, and business experience during the last five years of our current executive officers are:
Dean C. Athanasia (51)(54)President, Retail and Preferred & Small Business Banking and since January 2019; Co-Head --- Consumer Banking sincefrom September 2014;2014 to January 2019; and Preferred and Small Business Banking Executive from April 2011 to September 2014.
Catherine P. Bessant (57)(60) Chief Operations and Technology Officer since July 2015; and Global Technology & Operations Executive from JanuaryMarch 2010 to July 2015.
Sheri Bronstein (52) Chief Human Resources Officer since January 2019; Global Human Resources Executive from July
2015 to January 2019; and HR Executive for Global Banking & Markets from March 2010 to July 2015.
Paul M. Donofrio (57)(60) Chief Financial Officer since August 2015; Strategic Finance Executive from April 2015 to August 2015; and Global Head of Global Corporate Credit and Transaction Banking from January 2012 to April 2015.
Geoffrey S. Greener (53)(56) Chief Risk Officersince April 2014; and Head of Enterprise Capital Management from April 2011 to April 2014.
Terrence P. Laughlin (63) Vice Chairman, Global Wealth & Investment Management Kathleen A. Knox (57) President, Private Bank since January 2016; Vice ChairmanNovember 2017; Head of Business Banking from July 2015 to January 2016; President of Strategic Initiatives from AprilOctober 2014 to July 2015;November 2017; and Chief Risk OfficerRetail Banking & Distribution Executive from AugustJune 2011 to AprilOctober 2014.
David G. Leitch (57)(60) Global General Counsel since January 2016; and General Counsel of Ford Motor Company from April 2005 to December 2015.
Thomas K. Montag (61)(64) Chief Operating Officersince September 2014; and Co-Chief Operating OfficerfromSeptember2011to September 2014.
Brian T. Moynihan (58)(61) Chairman of the Boardsince October 2014, and President, and Chief Executive Officer, and member of the Board of Directors since January 2010.
Thong M. Nguyen (59)President, Retail(62)Vice Chairman, Bank of America Corporation since January 2019; Co-Head -- Consumer Banking and Co-Head – Consumer Banking sincefrom September 2014;2014 to January 2019; Retail Banking Executive from April 2014 to September 2014; and Retail Strategy, and Operations & Digital Banking Executive from September 2012 to April 2014.
Andrew M. Sieg (53) President, Merrill Lynch Wealth Management since January 2017; and Head of Global Wealth & Retirement Solutions with Merrill Lynch from October 2011 to January 2017.
Andrea B. Smith (51)(54) Chief Administrative Officer since JulyAugust 2015; and Global Head of Human Resources from January 2010 to JulyAugust 2015.
Information included under the following captions in the Corporation’s proxy statement relating to its 20182021 annual meeting of stockholders scheduled to be held on April 25, 2018 (the 20182021 Proxy Statement), is incorporated herein by reference:
| |
● | “Proposal 1: Electing Directors – Our Director Nominees;” |
| |
● | “Corporate Governance – Additional Information;” |
| |
● | “Corporate Governance – Board Meetings, Committee Membership and Attendance;” and |
| |
● | “Section 16(a) Beneficial Ownership Reporting Compliance.” |
●“Proposal 1: Electing directors – Our director nominees;” ●“Corporate governance – Additional corporate governance information;”
● “Corporate governance – Committees and membership;” and
●“Corporate governance – Board meetings and attendance.”
Item 11. Executive Compensation
Information included under the following captions in the 20182021 Proxy Statement is incorporated herein by reference:
| |
● | “Compensation Discussion and Analysis;” |
| |
● | “Compensation and Benefits Committee Report;” |
| |
● | “Executive Compensation;” |
| |
● | “Corporate Governance;” and |
| |
● | “Director Compensation.” |
●“Compensation discussion and analysis;”
●“Compensation and Human Capital Committee report;”
●“Executive compensation;”
●“Corporate governance;” and
●“Director compensation.”
|
| | | | | | | |
| | 175Bank of America 2017192 | | |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information included under the following caption in the 20182021 Proxy Statement is incorporated herein by reference:
| |
● | “Stock Ownership of Directors, Executive Officers, and Certain Beneficial Owners.” |
●“Stock ownership of directors, executive officers, and certain beneficial owners.”
The table below presents information on equity compensation plans at December 31, 2017:2020:
| | | | | | | | | | | | | | | | | |
| | | | | |
Plan Category (1) | (a) Number of Shares to
be Issued Under
Outstanding Options, Warrants and Rights (2) | | (b) Weighted-average Exercise Price of Outstanding Options, Warrants and Rights (3) | | (c) Number of Shares Remaining for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a)) (4) |
| Plans approved by shareholders | 170,180,053 | | | — | | | 226,282,786 | |
| Plans not approved by shareholders | — | | | — | | | — | |
| Total | 170,180,053 | | | — | | | 226,282,786 | |
(1)This table does not include 692,622 vested restricted stock units and stock option gain deferrals at December 31, 2020 that were assumed by the Corporation in connection with prior acquisitions under whose plans the awards were originally granted.
(2)Consists of outstanding restricted stock units. Includes 2,314,352 vested restricted stock units subject to a required twelve-month holding period.
(3)Restricted stock units do not have an exercise price and are delivered without any payment or consideration.
(4)Amount represents shares of common stock available for future issuance under the Bank of America Corporation Key Employee Equity Plan.
|
| | | | | | | | | |
| | | | | | |
Plan Category (1) | Number of Shares to
be Issued Under
Outstanding Options and Rights | | Weighted-average
Exercise Price of
Outstanding Options (2) | | Number of Shares Remaining for Future Issuance Under Equity Compensation Plans (3) |
Plans approved by shareholders (4) | 190,865,153 |
| | $ | 42.70 |
| | 288,515,217 |
|
| Plans not approved by shareholders | — |
| | — |
| | — |
|
| Total | 190,865,153 |
| | $ | 42.70 |
| | 288,515,217 |
|
| |
(1)
| This table does not include outstanding options to purchase 5,610,830 shares of the Corporation’s common stock that were assumed by the Corporation in connection with prior acquisitions, under whose plans the options were originally granted. The weighted-average exercise price of these assumed options was $44.89 at December 31, 2017. Also, at December 31, 2017, there were 984,443 vested restricted stock units and stock option gain deferrals associated with these plans.
|
| |
(2)
| Does not reflect restricted stock units included in the first column, which do not have an exercise price. |
| |
(3)
| Plans approved by shareholders include 288,394,387 shares of common stock available for future issuance under the Bank of America Corporation Key Employee Equity Plan and 120,830 shares of common stock which are available for future issuance under the Corporations Director Stock Plan. |
| |
(4)
| Includes 179,887,809 outstanding restricted stock units. |
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information included under the following captions in the 20182021 Proxy Statement is incorporated herein by reference:
| |
● | “Related Person and Certain Other Transactions;” and |
| |
● | “Corporate Governance – Director Independence.” |
●“Related person and certain other transactions;” and
●“Corporate governance – Director independence.”
Item 14.Principal Accounting Fees and Services
Information included under the following caption in the 20182021 Proxy Statement is incorporated herein by reference:
● “Proposal 3: Ratifying the appointment of our independent registered public accounting firm for 2021.”
| |
● | “Proposal 3: Ratifying the Appointment of our Independent Registered Public Accounting Firm for 2018.” |
| | | | |
| | |
193Bank of America 2017176
| | |
Part IV
Bank of America Corporation and Subsidiaries
Item 15. Exhibits, Financial Statement Schedules
The following documents are filed as part of this report:
(1) Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Statement of Income for the years ended December 31, 2017, 20162020, 2019 and 20152018
Consolidated Statement of Comprehensive Income for the years ended December 31, 2017, 20162020, 2019 and 20152018
Consolidated Balance Sheet at December 31, 20172020 and 20162019
Consolidated Statement of Changes in Shareholders’ Equity for the years ended December 31, 2017, 20162020, 2019 and 20152018
Consolidated Statement of Cash Flows for the years ended December 31, 2017, 20162020, 2019 and 20152018
Notes to Consolidated Financial Statements
(2) Schedules:
None
(3) Index to Exhibits
With the exception of the information expressly incorporated herein by reference, the 20182021 Proxy Statement shall not be deemed filed as part of this Annual Report on Form 10-K.
| | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
| Exhibit No. | | Description | Notes | Form | Exhibit | Filing Date | File No. |
| 3.1 | | | 1 | | | | |
| 3.2 | | | | 10-Q | 3(b) | 10/30/20 | 1-6523 |
| 4.1 | | | | S-3 | 4.1 | 2/1/95 | 33-57533 |
| 4.2 | | | | 8-K | 4.3 | 11/18/98 | 1-6523 |
| 4.3 | | | | 8-K | 4.4 | 6/14/01 | 1-6523 |
| 4.4 | | | | 8-K | 4.2 | 8/27/04 | 1-6523 |
| 4.5 | | | | S-3 | 4.6 | 5/5/06 | 333-133852 |
| 4.6 | | | | 8-K | 4.1 | 12/5/08 | 1-6523 |
| 4.7 | | | | 10-K | 4(ee) | 2/25/11 | 1-6523 |
| 4.8 | | | | 8-K | 4.1 | 1/13/17 | 1-6523 |
| 4.9 | | | | 10-K | 4(a) | 2/23/17 | 1-6523 |
| 4.10 | | | | S-3 | 4.2 | 6/28/96 | 333-07229 |
| 4.11 | | | | 10-K | 4(aaa) | 2/28/07 | 1-6523 |
| 4.12 | | | | S-3 | 4.12 | 5/1/15 | 333-202354 |
| 4.13 | | | | S-3 | 4.13 | 5/1/15 | 333-202354 |
| 4.14 | | | | S-3 | 4.14 | 5/1/15 | 333-202354 |
| 4.15 | | | | 8-K | 4.2 | 1/13/17 | 1-6523 |
| 4.16 | | | | 8-K | 4.3 | 1/13/17 | 1-6523 |
| 4.17 | | | | S-3 | 4.5 | 2/1/95 | 33-57533 |
| 4.18 | | | | 8-K | 4.8 | 11/18/98 | 1-6523 |
|
| | | | | | | |
| | | Incorporated by Reference |
Exhibit No. | Description | Notes | Form | Exhibit | Filing Date | File No. |
3(a) | | | 10-Q | 3(a) | 5/2/16 | 1-6523 |
(b) | | | 8-K | 3.1 | 3/20/15 | 1-6523 |
4(a) | | | S-3 | 4.1 | 2/1/95 | 33-57533 |
| | | 8-K | 4.3 | 11/18/98 | 1-6523 |
| | | 8-K | 4.4 | 6/14/01 | 1-6523 |
| | | 8-K | 4.2 | 8/27/04 | 1-6523 |
| | | S-3 | 4.6 | 5/5/06 | 333-133852 |
| | | 8-K | 4.1 | 12/5/08 | 1-6523 |
| | | 10-K | 4(ee) | 2/25/11 | 1-6523 |
| | | 8-K | 4.1 | 1/13/17 | 1-6523 |
| | | 10-K | 4(a) | 2/23/17 | 1-6523 |
(b) | | | S-3 | 4.2 | 6/28/96 | 333-07229 |
(c) | | | 10-K | 4(aaa) | 2/28/07 | 1-6523 |
(d) | | | S-3 | 4.12 | 5/1/15 | 333-202354 |
(e) | | | S-3 | 4.13 | 5/1/15 | 333-202354 |
(f) | | | S-3 | 4.14 | 5/1/15 | 333-202354 |
(g) | | | 8-K | 4.2 | 1/13/17 | 1-6523 |
(h) | | | 8-K | 4.3 | 1/13/17 | 1-6523 |
(i) | | | S-3 | 4.5 | 2/1/95 | 33-57533 |
| | | 8-K | 4.8 | 11/18/98 | 1-6523 |
| | | S-4 | 4.3 | 3/1/07 | 333-141361 |
| | | 10-K | 4(ff) | 2/25/11 | 1-6523 |
| | | 10-K | 4(i) | 2/23/17 | 1-6523 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
| Exhibit No. | | Description | Notes | Form | Exhibit | Filing Date | File No. |
| 4.19 | | | | S-4 | 4.3 | 3/16/07 | 333-141361 |
| 4.20 | | | | 10-K | 4(ff) | 2/25/11 | 1-6523 |
| 4.21 | | | | 10-K | 4(i) | 2/23/17 | 1-6523 |
| 4.22 | |
| | S-3 | 4.3 | 6/27/18 | 333-224523 |
| 4.23 | | | | S-3 | 4.4 | 6/27/18 | 333-224523 |
| 4.24 | | | | S-3 | 4.5 | 6/27/18 | 333-224523 |
| 4.25 | | | | S-3 | 4.6 | 6/27/18 | 333-224523 |
| 4.26 | | | | S-3 | 4.7 | 6/27/18 | 333-224523 |
| | Registrant and its subsidiaries have other long-term debt agreements, but these are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. Copies of these agreements will be furnished to the Commission on request | | | | | |
| 4.27 | | | 1 | | | | |
| 10.1 | | | 2 | 10-K | 10(c) | 2/27/09 | 1-6523 |
| 10.2 | |
| 2 | 10-K | 10(c) | 2/26/10 | 1-6523 |
| 10.3 | | | 2 | 10-K | 10(a) | 2/28/13 | 1-6523 |
| 10.4 | | | 2 | 10-K | 10.4 | 2/19/20 | 1-6523 |
| 10.5 | | | 2 | 10-K | 10.5 | 2/19/20 | 1-6523 |
| 10.6 | |
| 2 | 10-K | 10.6 | 2/19/20 | 1-6523 |
| 10.7 | |
| 2 | 10-K | 10.7 | 2/19/20 | 1-6523 |
| 10.8 | | NationsBank Corporation Benefit Security Trust dated as of June 27, 1990 | 2 | 10-K | 10(t) | 3/27/91 | 1-6523 |
| 10.9 | | First Supplement to NationsBank Corporation Benefit Security Trust dated as of
November 30, 1992 | 2 | 10-K | 10(v) | 3/24/93 | 1-6523 |
| 10.10 | | | 2 | 10-K | 10(o) | 3/29/96 | 1-6523 |
| 10.11 | | | 2 | 10-K | 10(c) | 2/25/15 | 1-6523 |
| 10.12 | | | 2 | 10-K | 10(vv) | 2/24/16 | 1-6523 |
| 10.13 | | | 2 | S-8 | 4(c) | 11/19/19 | 333-234780 |
| 10.14 | | | 2 | 10-K | 10.14 | 2/19/20 | 1-6523 |
| 10.15 | | | 1,2 | | | | |
| 10.16 | | | 2 | 10-K | 10(g) | 3/3/03 | 1-6523 |
| 10.17 | | | 2 | 10-K | 10(d) | 2/28/13 | 1-6523 |
| 10.18 | | | 2 | 10-K | 10(g) | 2/28/07 | 1-6523 |
| 10.19 | | | 2 | 10-K | 10(f) | 2/26/19 | 1-6523 |
| 10.20 | | | 2 | 8-K | 10.2 | 5/7/15 | 1-6523 |
| 10.21 | | | 2 | 10-K | 10(mm) | 2/26/19 | 1-6523 |
| 10.22 | | | 2 | 8-K | 10.1 | 4/24/19 | 1-6523 |
| 10.23 | | | 2 | 10-Q | 10(a) | 5/2/16 | 1-6523 |
| 10.24 | | | 2 | 10-Q | 10(c) | 5/2/16 | 1-6523 |
|
| | | | | | | |
| | Bank of America 2017194178 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
| Exhibit No. | | Description | Notes | Form | Exhibit | Filing Date | File No. |
| 10.25 | |
| 2 | 10-Q | 10(a) | 5/2/17 | 1-6523 |
| 10.26 | | | 2 | 10-Q | 10 | 4/30/18 | 1-6523 |
| 10.27 | | | 2 | 10-K | 10(h) | 2/26/19 | 1-6523 |
| 10.28 | |
| 2 | 10-Q | 10(a) | 4/26/19 | 1-6523 |
| 10.29 | | | 2 | 10-Q | 10(b) | 4/26/19 | 1-6523 |
| 10.30 | | | 2 | 10-Q | 10.1 | 5/1/20 | 1-6523 |
| 10.31 | | | 2 | 10-Q | 10.2 | 5/1/20 | 1-6523 |
| 10.32 | | | 2 | 10-Q | 10(c) | 4/26/19 | 1-6523 |
| 10.33 | | | 2 | 10-K | 10(v) | 3/1/04 | 1-6523 |
| 10.34 | | | 2 | 10-K | 10(r) | 3/1/05 | 1-6523 |
| 10.35 | | | 2 | 10-K | 10(u) | 3/1/05 | 1-6523 |
| 10.36 | | | 2 | 10-K | 10(v) | 3/1/05 | 1-6523 |
| 10.37 | | | 2 | 10-K | 10(p) | 2/26/10 | 1-6523 |
| 10.38 | | | 2 | 10-K | 10(I) | 2/28/13 | 1-6523 |
| 10.39 | | | 2 | 10-K | 10(c) | 2/25/11 | 1-6523 |
| 10.40 | | | 2 | 10-K | 10(x) | 3/1/05 | 1-6523 |
| 10.41 | | | 2 | 10-K | 10(y) | 3/1/05 | 1-6523 |
| 10.42 | | | 2 | 10-K | 10(z) | 3/1/05 | 1-6523 |
| 10.43 | | | 2 | 10-K | 10(aa) | 3/1/05 | 1-6523 |
| 10.44 | | | 2 | 10-K | 10(cc) | 3/1/05 | 1-6523 |
| 10.45 | | | 2 | 10-K | 10(hh) | 3/1/05 | 1-6523 |
| 10.46 | | | 2 | 10-K | 10(ii) | 3/1/05 | 1-6523 |
| 10.47 | | | 2 | 10-K | 10(jj) | 3/1/05 | 1-6523 |
| 10.48 | | | 2 | 10-K | 10(ll) | 3/1/05 | 1-6523 |
| 10.49 | | | 2 | 10-K | 10(oo) | 3/1/05 | 1-6523 |
| 10.50 | | | 2 | S-4 | 10(d) | 12/4/03 | 333-110924 |
| 10.51 | | | 2 | 8-K | 10.1 | 10/26/05 | 1-6523 |
| 10.52 | | | 2 | 8-K | 10.2 | 10/26/05 | 1-6523 |
| | | | | | | |
| 10.53 | | | 2 | 10-K | 10(bbb) | 2/26/10 | 1-6523 |
| 10.54 | | | | 8-K | 1.1 | 8/25/11 | 1-6523 |
| | | | | | | |
| 10.55 | | | 2 | 10-K | 10(rr) | 2/23/17 | 1-6523 |
| 10.56 | | | 2 | 10-Q | 10 | 7/30/18 | 1-6523 |
| 10.57 | | | 2 | 10-Q | 10(b) | 6/30/19 | 1-6523 |
| 21 | |
| 1 | | | | |
| 22 | | | 1 | | | | |
| 23 | | | 1 | | | | |
| | | | | | | |
|
| | | | | | |
| | | | Incorporated by Reference |
| Exhibit No. | Description | Notes | Form | Exhibit | Filing Date | File No. |
| | Registrant and its subsidiaries have other long-term debt agreements, but these are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. Copies of these agreements will be furnished to the Commission on request | | | | | |
10(a)
| | 1 | 10-K | 10(c) | 2/27/09 | 1-6523 |
| | | 1 | 10-K | 10(c) | 2/26/10 | 1-6523 |
| | | 1 | 10-K | 10(c) | 2/25/11 | 1-6523 |
| | | 1 | 10-K | 10(a) | 2/28/13 | 1-6523 |
| (b) | NationsBank Corporation Benefit Security Trust dated as of June 27, 1990 | 1 | 10-K | 10(t) | 3/27/91 | 1-6523 |
| | •First Supplement thereto dated as of November 30, 1992 | 1 | 10-K | 10(v) | 3/24/93 | 1-6523 |
| | | 1 | 10-K | 10(o) | 3/29/96 | 1-6523 |
| (c) | | 1 | 10-K | 10(c) | 2/25/15 | 1-6523 |
| (d) | | 1 | 10-K | 10(d) | 2/28/13 | 1-6523 |
| (e) | | 1 | 10-K | 10(g) | 2/28/07 | 1-6523 |
| (f) | | 1 | 8-K | 10.2 | 12/14/05 | 1-6523 |
| | | 1 | 10-K | 10(h) | 3/1/05 | 1-6523 |
| | | 1 | 10-Q | 10(a) | 8/4/11 | 1-6523 |
| (g) | | 1 | 8-K | 10.2 | 5/3/10 | 1-6523 |
| | | 1 | 10-K | 10(i) | 2/28/08 | 1-6523 |
| | | 1 | 10-K | 10(i) | 2/26/10 | 1-6523 |
| | | 1 | 10-K | 10(i) | 2/25/11 | 1-6523 |
| | | 1 | 10-Q | 10(a) | 5/5/13 | 1-6523 |
| | | 1 | 10-Q | 10(a) | 5/1/14 | 1-6523 |
| | | 1 | 8-K | 10.2 | 5/7/15 | 1-6523 |
| | | 1 | 10-Q | 10(a) | 5/2/16 | 1-6523 |
| | | 1 | 10-Q | 10(b) | 5/2/16 | 1-6523 |
| | | 1 | 10-Q | 10(c) | 5/2/16 | 1-6523 |
| |
| 1 | 10-Q | 10(a) | 5/2/17 | 1-6523 |
| |
| 1 | 10-Q | 10(b) | 5/2/17 | 1-6523 |
| (h) | | 1 | 10-K | 10(v) | 3/1/04 | 1-6523 |
| (i) | | 1 | 10-K | 10(r) | 3/1/05 | 1-6523 |
| (j) | | 1 | 10-K | 10(u) | 3/1/05 | 1-6523 |
| (k) | | 1 | 10-K | 10(v) | 3/1/05 | 1-6523 |
| (l) | | 1 | 10-K | 10(p) | 2/26/10 | 1-6523 |
| | | 1 | 10-K | 10(c) | 2/25/11 | 1-6523 |
| | | 1 | 10-K | 10(l) | 2/28/13 | 1-6523 |
| (m) | | 1 | 10-K | 10(x) | 3/1/05 | 1-6523 |
| (n) | | 1 | 10-K | 10(y) | 3/1/05 | 1-6523 |
| (o) | | 1 | 10-K | 10(z) | 3/1/05 | 1-6523 |
| (p) | | 1 | 10-K | 10(aa) | 3/1/05 | 1-6523 |
| (q) | | 1 | 10-K | 10(cc) | 3/1/05 | 1-6523 |
| (r) | | 1 | 10-K | 10(hh) | 3/1/05 | 1-6523 |
| (s) | | 1 | 10-K | 10(ii) | 3/1/05 | 1-6523 |
|
| | | | | | | |
195179Bank of America 2017
| | |
|
| | | | | | |
| | | | Incorporated by Reference |
| Exhibit No. | Description | Notes | Form | Exhibit | Filing Date | File No. |
| (t) | | 1 | 10-K | 10(jj) | 3/1/05 | 1-6523 |
| (u) | | 1 | 10-K | 10(ll) | 3/1/05 | 1-6523 |
| (v) | | 1 | 10-K | 10(oo) | 3/1/05 | 1-6523 |
| (w) | | 1 | S-4 | 10(d) | 12/4/03 | 333-110924 |
| (x) | | 1 | 8-K | 10.1 | 10/26/05 | 1-6523 |
| (y) | | 1 | 8-K | 10.2 | 10/26/05 | 1-6523 |
| (z) | | 1 | 10-K | 10(zz) | 2/26/10 | 1-6523 |
| (aa) | | 1 | 10-K | 10(aaa) | 2/26/10 | 1-6523 |
| (bb) | | 1 | 10-K | 10(bbb) | 2/26/10 | 1-6523 |
| (cc) | | | 8-A | 4.2 | 3/4/10 | 1-6523 |
| (dd) | | | 8-A | 4.2 | 3/4/10 | 1-6523 |
| (ee) | | 1 | 10-K | 10(jjj) | 2/25/11 | 1-6523 |
| (ff) | | | 8-K | 1.1 | 8/25/11 | 1-6523 |
| (gg) | | 1 | 10-Q | 10 | 7/29/15 | 1-6523 |
| (hh) | | 1 | 10-K | 10(vv) | 2/24/16 | 1-6523 |
| (ii) | | 1 | 10-K | 10(uu) | 2/24/16 | 1-6523 |
| (jj) | | 1 | 10-Q | 10 | 8/1/16 | 1-6523 |
| (kk) | | | 10-K | 10(rr) | 2/23/17 | 1-6523 |
| (ll) | | 1 | 10-Q | 10 | 7/31/17 | 1-6523 |
| 12 | | 2 | | | | |
| | | 2 | | | | |
| 18 | | 2 | | | | |
| 21 | | 2 | | | | |
| 23 | | 2 | | | | |
| 24 | | 2 | | | | |
| 31(a) | | 2 | | | | |
| (b) | | 2 | | | | |
| 32(a) | | 2 | | | | |
| (b) | | 2 | | | | |
| 101.INS | XBRL Instance Document | 2 | | | | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | 2 | | | | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | 2 | | | | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | 2 | | | | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | 2 | | | | |
| 101.DEF | XBRL Taxonomy Extension Definitions Linkbase Document | 2 | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
| Exhibit No. | | Description | Notes | Form | Exhibit | Filing Date | File No. |
| 24 | | | 1 | | | | |
| 31.1 | | | 1 | | | | |
| 31.2 | | | 1 | | | | |
| 32.1 | | | 1 | | | | |
| 32.2 | | | 1 | | | | |
| 101.INS | | Inline XBRL Instance Document | 3 | | | | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | 1 | | | | |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | 1 | | | | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | 1 | | | | |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | 1 | | | | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definitions Linkbase Document | 1 | | | | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | |
(1) Filed Herewith.
(2) Exhibit is a management contract or compensatory plan or arrangement.
(2) Filed Herewith.(3) The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
|
| | | | | | | |
| | Bank of America 2017196180 |
Item 16. Form 10-K Summary
Not applicable.
Signatures
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 22, 2018
| | | | | |
| Bank of America Corporation |
| |
Bank of America Corporation |
| |
| By: | /s/ Brian T. Moynihan |
| Brian T. Moynihan |
| Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | | | | |
| /s/ Brian T. Moynihan | | Chief Executive Officer, Chairman and Director
(Principal Executive Officer) | | February 24, 2021 |
| Brian T. Moynihan | | |
| | | | | |
| */s/ Paul M. Donofrio | | Chief Financial Officer
(Principal Financial Officer) | | February 24, 2021 |
| Paul M. Donofrio | | |
| | | | | |
| */s/ Rudolf A. Bless | | Chief Accounting Officer
(Principal Accounting Officer) | | February 24, 2021 |
| Rudolf A. Bless | | |
| | | | | |
| */s/ Sharon L. Allen | | Director | | February 24, 2021 |
| Sharon L. Allen | | |
| | | | | |
| Signature | | Title | | Date |
| | | | | |
| /s/ Brian T. Moynihan
| | Chief Executive Officer, Chairman and Director
(Principal Executive Officer)
| | February 22, 2018 |
| Brian T. Moynihan
| | |
| | | | | |
| */s/ Paul M. Donofrio | | Chief Financial Officer
(Principal Financial Officer)
| | February 22, 2018 |
| Paul M. Donofrio | | |
| | | | | |
| */s/ Rudolf A. Bless | | Chief Accounting Officer
(Principal Accounting Officer)
| | February 22, 2018 |
| Rudolf A. Bless | | |
| | | | | |
| */s/ Sharon L. Allen | | Director | | February 22, 2018 |
| Sharon L. Allen | | |
| | | | | |
| */s/ Susan S. Bies | | Director | | February 22, 2018 |
| Susan S. Bies | | |
| | | | | |
| */s/ Jack O. Bovender, Jr. | | Director | | February 22, 2018 |
| Jack O. Bovender, Jr. | | |
| | | | | |
| */s/ Frank P. Bramble, Sr.
| | Director | | February 22, 2018 |
| Frank P. Bramble, Sr.
| | |
| | | | | |
| */s/ Pierre de Weck | | Director | | February 22, 2018 |
| Pierre de Weck | | |
| | | | | |
| */s/ Arnold W. Donald | | Director | | February 22, 2018 |
| Arnold W. Donald | | |
| | | | | |
| */s/ Linda P. Hudson
| | Director | | February 22, 2018 |
| Linda P. Hudson
| | |
| | | | | |
| */s/ Monica C. Lozano | | Director | | February 22, 2018 |
| Monica C. Lozano | | |
| 24, 2021 |
| Susan S. Bies | |
197Bank of America 2017
| | |
|
| | | | | |
| Signature*/s/ Jack O. Bovender, Jr. | | TitleDirector | | DateFebruary 24, 2021 |
| Jack O. Bovender, Jr. | | | | |
| | | | | |
| */s/ Thomas J. MayFrank P. Bramble, Sr. | | Director | | February 22, 201824, 2021 |
| Thomas J. MayFrank P. Bramble, Sr. | | |
| | | | | |
| */s/ Lionel L. Nowell, IIIPierre de Weck | | Director | | February 22, 201824, 2021 |
| Lionel L. Nowell, IIIPierre de Weck | | |
| | | | | |
| */s/ Michael D. WhiteArnold W. Donald | | Director | | February 22, 201824, 2021 |
| Michael D. WhiteArnold W. Donald | | |
| | | | | |
| */s/ Thomas D. WoodsLinda P. Hudson | | Director | | February 22, 201824, 2021 |
| Thomas D. WoodsLinda P. Hudson | | |
| | | | | |
| */s/ R. David YostMonica C. Lozano | | Director | | February 22, 201824, 2021 |
| R. David YostMonica C. Lozano | | |
| | | | | |
| */s/ Maria T. Zuber
| | Director | | February 22, 2018 |
| Maria T. Zuber
| | |
| | | | | |
*By | /s/ Ross E. Jeffries, Jr. | | | | |
| Ross E. Jeffries, Jr.
Attorney-in-Fact
| | | | |
| | | | | | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | | | | |
| | | | | |
| */s/ Thomas J. May | | Director | | February 24, 2021 |
| Thomas J. May | | |
| | | | | |
| */s/ Lionel L. Nowell, III | | Director | | February 24, 2021 |
| Lionel L. Nowell, III | | |
| | | | | |
| */s/ Denise L. Ramos | | Director | | February 24, 2021 |
| Denise L. Ramos | | |
| | | | | |
| */s/ Clayton S. Rose | | Director | | February 24, 2021 |
| Clayton S. Rose | | |
| | | | | |
| */s/ Michael D. White | | Director | | February 24, 2021 |
| Michael D. White | | |
| | | | | |
| */s/ Thomas D. Woods | | Director | | February 24, 2021 |
| Thomas D. Woods | | |
| | | | | |
| */s/ R. David Yost | | Director | | February 24, 2021 |
| R. David Yost | | |
| | | | | |
| */s/ Maria T. Zuber | | Director | | February 24, 2021 |
| Maria T. Zuber | | |
| | | | | |
| *By | /s/ Ross E. Jeffries, Jr. | | | | |
| Ross E. Jeffries, Jr.
Attorney-in-Fact | | | | |
| | | | | | | | |
| | Bank of America 2017198182 |
