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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 |
| |
| EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2022
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
|
| |
[ ] | 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 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 I
| 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 |
| | | | | | | | |
| 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 6.625% Non-CumulativePreferred Stock, Series W
| 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 6.500% Non-Cumulative Preferred Stock, Series Y
| 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 of 6.200% Non-Cumulative Preferred Stock, Series CC
| BAC PrO | New York Stock Exchange | |
| of 4.375% Non-Cumulative Preferred Stock, Series NN |
| Depositary Shares, each representing a 1/1,000th interest in a share | BAC PrP | New York Stock Exchange |
of 6.000%4.125% Non-Cumulative Preferred Stock, Series EE | | New York Stock Exchange | |
| PP |
| | | | |
| | | | |
| 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 PrQ | New York Stock Exchange |
of Bank of America Corporation Floating Rate4.250% Non-Cumulative Preferred Stock, Series 1 | | New York Stock Exchange | QQ |
| Depositary Shares, each representing a 1/1,200th1,000th interest in a share | BAC PrS | New York Stock Exchange |
of Bank of America Corporation Floating Rate4.750% 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 | SS |
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. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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, 2022, 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).$250,136,457,342. At February 21, 2018,2023, there were 10,243,688,8968,003,839,222 shares of Common Stock outstanding.
Documents incorporated by reference: Portions of the definitive proxy statement relating to the registrant’s 2023 annual meeting of stockholders scheduled to be held on April 25, 2018shareholders 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, “Bank of America,” “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:https://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 our website, including 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, or otherwise in this Annual Report on Form 10-K, 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. Our Code of Conduct constitutes a “code of ethics” and a “code of business conduct and ethics” that applies to the committee names underrequired
individuals associated with the Committee Composition link).Corporation for purposes of the respective rules of the SEC and the New York Stock Exchange. 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.
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 3037 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.companies, including merchant banks and companies providing nonbank financial services. We compete with some of these competitors globally and with others on a regional or productproduct-specific basis. We are increasingly competing with firms offering products solely over the internet and with non-financial companies, including firms utilizing emerging technologies, such as digital assets, rather than, or in addition to, traditional banking products.
Competition is based on a number of factors including, among others, customer service and convenience, the pricing, quality and range of products and services offered, price, reputation, interest rates on loans and deposits, lending limits, the quality and customer convenience.delivery of our technology and our reputation, experience and relationships in relevant markets. Our ability to continue to compete effectively also depends in large part on our ability to attract new employees and develop, retain and motivate our existing employees, while managing compensation and other costs.
Employees
Human 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 help to realize the power of our people. Our Board and its Compensation and Human Capital Committee 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 had2022 and 2021, the Corporation employed approximately 209,000 employees.217,000 and 208,000 employees, of which 79 percent and 80 percent were located in the U.S. None of our domesticU.S. employees are subject to a collective bargaining agreement. Management considersAdditionally, in 2022 and 2021, the Corporation’s compensation and benefits expense was $36.4 billion and $36.1 billion, or 59 percent and 61 percent, of total noninterest expense.
Diversity and Inclusion
The Corporation’s commitment to diversity and inclusion starts at the top with oversight from our Board and CEO. The Corporation’s senior management sets the diversity and inclusion goals, 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 region, is chaired by our CEO and has been in place for over 20 years. The Council sponsors and supports business, operating unit and regional diversity and inclusion councils to align with 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 53 percent and 55 percent racially, ethnically and gender diverse. The following table presents diversity metrics for our global employees who self-identified as women and our U.S.-based employees who self-identified as people of color, including those who self-identified as Asian, Black/African American and Hispanic/Latino. These workforce diversity metrics are reported regularly to the senior management team and to the Board.
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| Diversity Metrics as of December 31, 2022 |
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| Total Employees | | Top Three Management Levels | | Managers at All Levels |
| Global employees | | | | | |
| Women | 50 | % | | 42 | % | | 42 | % |
| U.S.-based employees | | | | | |
| People of color | 50 | | | 26 | | | 42 | |
| Asian | 14 | | | 11 | | | 14 | |
| Black/African American | 14 | | | 8 | | | 10 | |
| Hispanic/Latino | 19 | | | 6 | | | 16 | |
We invest in our talent 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 enterprise-wide learning and conversations about various diversity and inclusion topics and 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 2022, 44 percent of our global campus hires were women and, in the U.S., 59 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 2022, 85 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 85 percent. Our turnover among employees was 13 percent in 2022 and 12 percent in 2021.
Additionally, the Corporation provides a variety of resources to help employees grow in their current roles and build new skills, including resources to help employees find new opportunities, re-skill and seek leadership positions. The learning and development strategy is grounded in the development of horizontal skills delivered throughout the organization. Senior leaders, managers and teammates are onboarded and build horizontal skills, as well as role-specific skills, to help drive high performance. This approach also helps facilitate internal mobility and promotion of talent to build a bench of qualified managers and leaders. In 2022, more than 30,000 employees found new roles within the Corporation, and we delivered more than 11 million hours of training and development to our teammates through Bank of America Academy. Additionally, our Board oversees CEO and senior management succession planning, which is formally reviewed at least annually.
Fair and Equitable Compensation
The Corporation is committed to racial and gender pay equity by striving to compensate all of our employees fairly and equitably. We maintain robust policies and practices that reinforce our commitment, including reviews conducted by a third-party consultant with oversight from our Board and senior management. In 2022, 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. 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. We regularly benchmark against other companies both within and outside our industry to help confirm our pay is competitive. In 2021, the Corporation announced it would increase its minimum hourly wage for U.S. employees to $25 per hour by 2025. In June 2022, as a next step, the Corporation increased its hourly minimum wage for U.S. employees to $22 per hour. In addition, in January 2023, for the sixth year since 2017, we announced that we recognized our teammates with Sharing Success compensation awards for their efforts during 2022. Approximately 96 percent of employees globally will receive an award in the first quarter of 2023.
Health and Wellness – 2022 Focus
The Corporation is also committed to supporting employees’ physical, emotional and financial wellness by offering flexible and competitive benefits, including comprehensive health and insurance benefits and wellness resources. During 2022, we continued efforts to support our employees through the ongoing health crisis resulting from Coronavirus Disease 2019 (COVID-19). We provided no-cost COVID-19 testing and teammates with incentives for getting the vaccine and booster. We also held on-site flu and COVID-19 vaccine and booster clinics.
We continued our efforts around providing affordable access to healthcare, including offering no-cost, 24/7 access to virtual general medical and behavioral health resources to help our enrolled U.S. teammates stay healthy, both physically and emotionally. We kept U.S. health insurance premiums unchanged for teammates earning less than $50,000 for the tenth year in a row, and had nominal premium increases for teammates earning from $50,000 up to $100,000 for the sixth year in a row. We provided in-network generic prescription medications at no cost for teammates enrolled in a U.S. bank medical PPO or Consumer Direct plan, along with continuing preventative care medications at no cost for all U.S. medical plans.
We offer an extensive benefit package and support work-life balance for our teammates, which includes in the U.S., 16 weeks of paid parental leave for both primary and secondary
caregivers and backup dependent care (50 days of child and adult backup care per year). We doubled the number of no-cost confidential counseling sessions from six to 12 for all employees and family members and now offer 12 globally.
For more information about our human capital management, see the Corporation’s website and 2022 Annual Report to shareholders that will be available on the Investor Relations portion of our website in March 2023 (the content of which is not incorporated by reference into this Annual Report on Form 10-K).
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,including potential acquisitions. Additionally, we are subject to certain conditionsa significant number of laws, rules and limitationsregulations that govern our businesses in the U.S. and within the approvalother jurisdictions in which we operate, including permissible activities, minimum levels of the OCC.capital and liquidity, compliance risk management, consumer products and sales practices, anti-money laundering and anti-corruption, government sanctions, privacy, data protection and executive compensation, among others.
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 2008 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 operations andentities, 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.depositor, per insured bank for each account ownership category. 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 designatedstatutory 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 FDICand has adopted regulations that establishestablished a long-term targetgoal of a two percent DIF ratioratio. As of greater than two percent. Thethe date of this report, the DIF ratio is currently below the required targetsstatutory minimum ratio and the FDIC’s long-term goal. In October 2022, the FDIC has adopted a restoration plan that may resultincludes an increase in increased deposit insurance assessments. In 2016,assessments across the industry of two basis points (bps). The FDIC implemented a surchargehas indicated that it intends to accelerate compliance withmaintain such assessment rates for the 1.35 percentage requirement.foreseeable future. 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 12.17.
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 45,49, 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, including dividends and common stock repurchases, 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. For example, based on the results of our 2022 CCAR stress test, the Corporation’s SCB increased to 3.4 percent, and the Corporation’s G-SIB surcharge is expected to increase to 3.0 percent on January 1, 2024. Additionally, the Federal Reserve could 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, in the second half of 2020, the Federal Reserve introduced certain limitations to capital distributions for all large banks, including 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.which were removed effective July 1, 2021.
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 are 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. (BANA),National Association, 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 simplifyingwhich includes continued improvements to our legal entity structure and business operations, and increasing our preparedness capabilities to implement our resolution plan, both from a financial and operational standpoint.
Similarly, inAcross international jurisdictions, resolution planning is the responsibility of national resolution authorities (RA). Among those, the jurisdictions with the greatest impact to the Corporation’s subsidiaries are 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 the Corporation’s banking branches of non-U.K. banks located in the U.K. (including information on intra-group dependencies, legal entity separation and barriersthose jurisdictions that are deemed to resolution) 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, 2017,2022, 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, 2017,2022, 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 regimes and 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; enforcing existing or 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. Mostrequirements. These regulations of derivativesare 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 amendingIn addition, the EU has implemented EU-wide resolution stay requirements. Generally, 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. Resolution regulations may also require contractual recognition by the counterparty that amounts owed may be written down or converted into equity as part of a bail in. 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, theunfair, deceptive, or abusive acts or practices (UDAAP), 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), 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 significantour material risk factors of which we are currently aware, thataware. Any risk factor, either by itself or together with other risk factors, could materially and adversely affect our businesses, results of operations, andcash flows and/or financial condition. Additional factors that could affectReferences to third parties may include their upstream and downstream service providers who may also contribute to our businesses, results of operations and financial condition are discussed in Forward-looking Statements in the MD&A on page 19. However, otherrisks. 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, andcash flows and/or 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 41.46. For more information about the risks contained in the Risk Factors section, see Item 1. Business on page 2, MD&A on page 26 and Notes to Consolidated Financial Statements on page 94.
Any risk factor described in this Annual Report on Form 10-K or in any of our other SEC filings could by itself, or together with other factors, materially adversely affect our liquidity, competitive position, business, reputation, results of operations, capital position or financial condition, including by materially increasing our expenses or decreasing our revenues, which could result in material losses.
MarketMarket
Our business and results of operationsWe 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.conditions.
Financial markets and generalGeneral economic, political, social and socialhealth conditions in the U.S. and abroad includingaffect financial markets and our business. In particular, global markets may be affected by the level and volatility of interest rates, unexpectedavailability and market conditions of financing, changes in market financing conditions, gross domestic product (GDP), economic growth or its sustainability, inflation, supply chain disruptions, consumer spending, employment levels, labor shortages, challenging labor market conditions, wage stagnation, federal government shutdowns, energy prices, home prices, commercial property values, bankruptcies, a default by a significant market participant or class of counterparties, including companies in emerging markets, fluctuations or other significant changes in both debt and equity capital markets and currencies, liquidity, the continued transition from InterBank Offered Rates (IBORs) and other benchmark rates to alternative reference rates (ARRs), the impact of volatility of digital assets on the global financial markets,broader market, the growth of global trade and commerce, trade policies, the availability and cost of capital and credit, disruption of communication, transportation or energy infrastructure, recessionary fears and investor sentimentsentiment. Global markets, including energy and confidence,commodity markets, may be adversely affected by the current or anticipated impact of climate change, acute and/or chronic extreme weather events or natural disasters, the emergence or continuation of widespread health emergencies or pandemics, cyberattacks, military conflict, terrorism, or other geopolitical events. Market fluctuations may impact our margin requirements and affect our liquidity. Any sudden or prolonged market downturn, as a result of the above factors or otherwise, could result in a decline in net interest income and noninterest income and adversely affect our results of operations and financial condition, including capital and liquidity levels. High inflation, elevated interest rate levels, supply chain disruptions, and the sustainability of economic growth all affect our business.Russia/Ukraine conflict, including the related energy impact in Europe, have adversely impacted and may continue to adversely impact financial markets and macroeconomic conditions and could result in additional market volatility and disruptions.
In the U.S. and abroad,Global uncertainties surroundingregarding fiscal and monetary policies present economic challenges. Actions taken by the Federal Reserve or other central banks, including the planned reductionchanges in itstarget rates, balance sheet management and other central bankslending facilities, are beyond our control and difficult to predict, andparticularly in a high inflation environment. This can affect interest rates and the value of financial instruments and other assets, such as debt
securities, and mortgage servicing rights (MSRs),impact our borrowers and potentially increase delinquency rates and may also raise government debt levels, adversely affect businesses and household incomes and increase uncertainty surrounding monetary policy. Monetary policy in response to high inflation has led to a significant increase in market interest rates and a flattening and/or inversion of the yield curve. This has resulted in and may continue to result in volatility of equity and other markets, further volatility of the U.S. dollar, a widening in credit spreads and higher interest rates and recessionary concerns, and could result in elevated unemployment, which could impact investor risk appetite and our borrowers, potentially increasing delinquency rates. It is also possible that high inflation may limit the scope of monetary support, including cuts to the federal funds rate, in the event of an economic downturn, resulting in a more protracted period of a flat and/or inverted yield curve.
ChangesAny future change in monetary policy by the Federal Reserve, in an effort to stimulate the economy or otherwise, resulting in lower interest rates would likely result in lower revenue through lower net interest income, which could adversely affect our results of operations. Additionally, changes to existing U.S. laws and regulatory policies and evolving priorities, including those related to financial regulation, taxation, international trade, fiscal policy, climate change (including efforts to transition to a low-carbon economy) and healthcare, may adversely impact us. For example,U.S. or global economic activity and our customers', our counterparties' and our earnings and operations. Globally, many central banks are simultaneously reducing monetary accommodation through interest rate or balance sheet policy, which has contributed and may continue to contribute to elevated financial and capital market volatility and significant changes to asset values. While higher interest rates have positively impacted our net interest income, higher interest rates have negatively impacted and could continue to negatively impact deposits, loan demand and funding costs. If the U.S. government’s debt ceiling limit is not raised, the ramifications could result in market volatility, ratings downgrades and limit fiscal policy initiatives, may increase uncertainty surroundingresponses to recessionary conditions. This could have a negative and potentially severe impact on the formulationU.S. and direction of U.S. monetary policy,world economy and volatility of interest rates. Higher U.S.financial and capital markets, including higher interest rates, relativehigher volatility, lower asset values, lower liquidity, downgrades to other major economies could increase the likelihood ofU.S. debt, and a more volatile and appreciatingweakened U.S. dollar.
Changes to certaininternational trade and investment policies orby the U.S. could negatively impact financial markets. Escalation of tensions between the U.S. and the People’s Republic of China (China) could lead to further U.S. measures could upsetthat adversely affect 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. Any restrictions on the activities of businesses, could also negatively affect financial markets.
Any of theseThese developments could adversely affect our consumer and commercial businesses, ourcustomers, 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 and challenges discussed above, see Executive Summary – 2017 Economic and Business Environment in the MD&A on page 19.
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, commodity and futures prices, 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 securities, including 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, underwriting and other capital market fees, (viii)which have already been negatively impacted, the general profitability and risk level of the transactions in which we engage and (ix) our competitiveness with respect to deposit pricing. For example, theThe 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 or credit spreads could be affected, which could adversely impact the value of such assets. In addition, the ongoing lowChanges to fiscal policy, including expansion of U.S. federal deficit spending and resultant debt issuance, could also affect market interest rate environmentrates. If interest rates decrease, our results of operations could be negatively impacted, including future revenue and recentearnings growth. The continued flattening and/or inversion of the yield curve could also negatively impact our liquidity, financial condition or results of operations, including future revenue and earnings growth.earnings.
We use variousOur 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 ofSuch changes to the relationship between market movementsparameters may limit the effectiveness of our hedging strategies and cause us to incur significant losses. These changesChanges in correlation can be exacerbated where other market participants are usinguse 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 thatexists. Where we own securities that do not have an established liquid trading market or are otherwise subject to restrictions on sale or hedging, or where the degree of accessible liquidity declines significantly, we may not be able to reduce our positions and therefore reduce our riskrisks associated with such positions. In addition, challenging market conditionsholdings, so we may also adversely affect our investment banking fees.suffer larger than expected losses when adverse price movements take place. This risk can be exacerbated where we hold a position that is large relative to the available liquidity.
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.
WeIf asset values decline, we may incur losses if the value of certain assets declines, including dueand negative impacts to changes in interest ratescapital and prepayment speeds.liquidity requirements.
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 and 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 decreasefurther decreases in residential mortgage loan originations.originations and could impact the origination of corporate debt. In addition,
increases in interest rates or changes in spreads may continue to adversely impact the fair value of debt securities and, accordingly, for debt securities classified as AFS,available for sale, may continue to adversely affect accumulated other comprehensive income and, thus, capital levels. These market moves could also adversely impact our regulatory liquidity requirements. Any decreases in interest rates may increase prepayment speeds of certain assets, and, therefore, could adversely affect net interest income. Changes in interest rates also may impact the value of mortgage service rights retained.
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, continue to maintainhave prolonged net deposits outflows, 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.credit-sensitive. 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 avenuesfunding. Additionally, our liquidity or ability to access certain funding sources;cost of funds 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 attrition driven by customers seeking higher yielding deposits or securities products, customer desire to utilize an alternative financial institution perceived to be safer, changes in customer spending behavior due to inflation, decline in the economy or other drivers resulting in an increased need for cash), increased regulatory liquidity, capital and margin requirements for our U.S. or international banks and their nonbank subsidiaries; significantsubsidiaries, which could result in the inability to transfer liquidity internally and inefficient funding, 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, central banks or custodian; reputational issues; or negative perceptions aboutcentral counterparty clearinghouses (CCPs)). These factors also have the potential to increase our short- or long-term business prospects, including downgrades ofborrowing costs and negatively impact our credit ratings. liquidity.
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 or continuation of widespread health emergencies or pandemics, Federal Reserve policy decisions (including fluctuations in interest rates or Federal Reserve balance sheet composition), negative views or loss of confidence about us or the financial services industry generally or due to a specific news event, changes in the regulatory environment or governmental fiscal or monetary policies, actions by credit rating agencies or an operational problem that affects third parties or us. The impact of these potentially sudden 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 ismay be directly related to investor behavior, debt market disruption, firm specific concerns or prevailing market conditions, including changes in interest and currency exchange rates, significant 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-drivenmarket driven and may be influenced by market perceptions of our creditworthiness.creditworthiness, including changes in our credit ratings or changes in broader financial market and macroeconomic conditions. Changes to interest rates and our credit spreads occur continuously and may be unpredictable and highly volatile. Additionally, concentrationsWe may also experience net interest margin compression as a result of offering higher than expected deposit rates in order to attract and maintain deposits. 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, creditCredit ratings may also be important to investors, customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including OTCover-the-counter (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 financial and non-financial factors, including our ownfranchise, financial strength, performance and prospects, management, governance, risk management practices, capital adequacy, asset quality and operations, among other criteria, as well as factors not under our control, such as regulatory developments, the likelihood ofmacroeconomic and geopolitical environment and changes to the U.S. government providing meaningful supportmethodologies used to usdetermine our ratings, or our subsidiaries in a crisis.ratings generally.
Rating agencies could make adjustments to our credit ratings at any time and there can be no assurance thatas to whether or when any downgrades will notcould 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 potentialexperience 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 theyand depend upon numerous dynamic, complex and inter-related factors and assumptions, including whether any downgrade of a firm’sthe relationship between long-term credit ratings precipitates downgrades to itsand 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 commonpreferred stock and preferredcommon stock and to fund all payments on our other obligations, including debt obligations. Any inability of our subsidiaries to transfer funds, 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 asand 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.
Bank of our resolution under the single point of entry resolution strategy, such resolution could materially adversely affect ourAmerica Corporation’s liquidity and financial condition, and the ability to pay dividends to shareholders and to pay obligations.obligations, could be 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 entry strategy. Thisentry” strategy, provides thatwhereby only the parent holding company fileswould file for resolutionbankruptcy under the U.S. Bankruptcy Code and contemplates providing certainCode. Certain key operating subsidiaries would be provided with sufficient capital and liquidity to operate through severe stress and to enable such subsidiaries to continue operating or be wound down in a solvent
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 Corporationit 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, whichsubsidiary. This could materially and adversely affect our liquidity and financial condition, including the ability to meet our payment obligations.obligations and the ability to return capital to shareholders, including through the payment of dividends and repurchase of the Corporation’s common stock.
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 of assets or restructuring of certain businesses and subsidiaries.
Under the Financial Reform Act, whenWhen 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 FDICand 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,Additionally, 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.
If the Corporation is resolved under the U.S. Bankruptcy Code or the FDIC’s orderly liquidation authority, third-party creditors of the Corporation’s subsidiaries may receive significant or full recoveries on their claims while security holders of Bank of America Corporation could face significant or complete losses.
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 U.S. and U.S.global macroeconomic and market conditions, events and disruptions,
including declines in GDP, consumer spending or property values, asset price corrections, increasing consumer and corporate leverage, increases in corporate bond spreads, government shutdowns, tax changes, rising or elevated unemployment levels, inflation, fluctuations in foreign exchange or interest rates, as well as the emergence or continuation of widespread health emergencies or pandemics, extreme weather events and the impacts of climate change, including acute and/or chronic extreme weather events and efforts to transition to a low-carbon economy. Significant economic conditions may impact our credit portfolios. Economic or market stresses and disruptions would likelytypically have a negative impact on the business environment and financial markets, which could impact the underlying credit quality of our borrowers, counterparties and assets. 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, and could decrease the value of the collateral we hold, which could increase credit losses. Credit risk could also be magnified by lending to leveraged borrowers or declining asset prices, including property or collateral values, unrelated to macroeconomic stress. Simultaneous drawdowns on lines of credit and/or an increase in delinquenciesa borrower’s leverage in a weakening economic environment, or otherwise, could result in deterioration in our credit portfolio, should borrowers be unable to fulfill competing financial obligations. Increased delinquency and default rates could adversely affect our credit portfolios, including consumer credit card, home equity and residential mortgage and purchased credit-impaired portfolios through increased charge-offs and provisionprovisions for credit losses. Additionally,
A recessionary environment and/or a deteriorating economicrise in unemployment could adversely impact the ability of our consumer and/or commercial borrowers or counterparties to meet their financial obligations and negatively impact our credit portfolio. Consumers have been and may continue to be negatively impacted by inflation, resulting in drawdowns of savings or increases in household debt. Higher interest rates, which have increased debt servicing costs for some businesses and households, may adversely impact credit quality, particularly in a recessionary environment. Certain sectors also remain at risk (e.g., commercial real estate office exposure, consumer discretionary industries) as a result of shifts in demand from the pandemic. Globally, conditions of slow growth or recession could further contribute to weaker credit conditions. If the macroeconomic environment worsens, our credit portfolio and allowance for credit losses could alsobe adversely affect our commercial loan portfolios with weakened client and collateral positions.impacted.
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 (ECL) inherent in our lending activities (including unfunded lending commitments), excluding those measured at fair value, through a charge to earnings.relevant financial assets. The process for determining the amount ofto determine the allowance requiresfor credit losses uses models and assumptions that require us to make difficult and complex judgments that are often interrelated, including loss forecasts onforecasting how borrowers will react toor counterparties may perform in changing economic conditions. The ability of our borrowers or counterparties to repay their obligations will likelymay 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 or counterparties, which could impact the accuracy of our loss forecasts and allowance estimates.
We may suffer unexpected losses ifIf the models, estimates 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 current uncertain macroeconomic and geopolitical environment, prove inaccurate in predicting future events.events, we may suffer losses in excess of our ECL. In addition, changes to external factors such as natural disasters, can influencenegatively impact our recognition of credit losses in our portfolios and impact our allowance for credit losses. Although we believe that our
The allowance for credit losses was in compliance with applicable accounting standards at December 31, 2017,is our best estimate of ECL; however, there is no guarantee that it will be sufficient to address credit losses, particularly if the economic conditions deteriorate. In such an event,outlook deteriorates significantly and quickly, or unexpectedly. As circumstances change, we may increase the size of our allowance, which would reduce our earnings. If economic conditions worsen, impacting our consumer and commercial borrowers, counterparties or underlying collateral, and credit losses are worse than expected, we may increase our provision for credit losses, which could adversely affect our results of operations and financial condition.
In the ordinary courseOur concentrations of credit risk could adversely affect our business, we alsocredit losses, results of operations and financial condition.
We 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. Concentrations of credit risk may reside in a particular industry, geographic location,geography, product, asset class, counterparty borrower 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
We execute a high volume of transactions and have significant credit concentrations with counterparties inrespect to the financial services industry, includingpredominantly comprised of broker-dealers, commercial banks, investment banks, insurers,insurance companies, mutual funds, and hedge funds, CCPs and other institutional clients. This has resulted 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, defaultsDefaults 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, defaults and defaults. Many of these transactions expose us torelated disputes and litigation.
Our credit risk and, in some cases, disputes and litigation in the event of default of a counterparty. In addition, our credit risk may also be heightened by market risk when the collateral held by us cannot be liquidated or is liquidated at prices not sufficient to recover the full amount of the loan or derivatives exposure due to us. Further, disputesus, which may occur as a result of events that impact the value of the collateral, such as an asset price correction or fraud. 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 concentrationconcentrations of credit risk with respect to our consumer real estate loans, including home equity lines of credit (HELOCs), auto loans,and consumer credit card, and our commercial real estate and asset managers and funds portfolios, which represent a significant percentage of our overall credit portfolio. OurDeclining home equity portfolio includes HELOCs not yetprice valuations and demand where we have large concentrations could result in their amortization period. HELOCs that have enteredincreased servicing advances and expenses, defaults, delinquencies or credit losses. The impacts of earthquakes, as well as climate change, such as rising average global temperatures and sea levels, and the amortization period are characterized by a higher percentageincreasing frequency and severity of early stage delinquenciesextreme weather events and nonperforming status relativenatural disasters, including droughts, floods, wildfires and hurricanes, could negatively impact collateral, the valuations of home or
commercial real estate or our customers’ ability and/or willingness 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. Economic weaknesses, sustained elevated inflation, adverse business conditions, market disruptions, the collapse of speculative bubbles,adverse economic or market events, rising interest or capitalization rates, declining asset prices, 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. We could also experience continued and long-term negative impacts to our commercial credit exposure and an increase in credit losses within those industries that may be permanently impacted by a change in consumer preferences resulting from COVID-19 (e.g., commercial real estate exposure) or other industry disruptions.
We also enter into transactions with sovereign nations, U.S. states and municipalities. Unfavorable economic or political conditions (such as those arising from the Russia/Ukraine conflict), 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 and liquidity risk.
Liquidity disruptions in the financial markets may result in our inability to sell, syndicate or realize the value of our positions, leading to increasedincreasing concentrations, which could increase RWA and the credit and market risk associated with our positions as well as increase our risk-weighted assets.positions.
For more information about our credit risk and credit risk management policies and procedures, see Credit Risk ManagementWe may be adversely affected by weaknesses 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.
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.market.
While U.S. home prices continued to improve during 2017, declinesdeclined and housing demand slowed in future periods maythe second half of 2022, including in certain markets where we have large concentrations of loans, driven in part by higher mortgage rates, including 30-year fixed-rate mortgages that more than doubled from 2021. This has negatively impactimpacted the demand in some cases and underlying collateral 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. Conditionsmarket, both of which have slowed due to rising interest rates and reduced affordability. A deeper downturn in the condition of the U.S. housing market in prior years have also resultedcould result in both significant write-downs of asset values in several asset classes, notably mortgage-backed securities and exposure to monolines.(MBS). If the U.S. housing market were to further weaken, the value of real estate could decline, which could result in increased credit losses and delinquent servicing expenses, 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 or an unanticipated credit events orevent, including 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 into our or our affiliates’ credit ratings, or that of certain of our subsidiaries, we may be required to provide additional collateral or take other remedies,
remedial actions, and we 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 derivative instrumentsWe are individually negotiatedalso a member of various CCPs, which potentially increases our credit risk exposures to those CCPs. In the event that one or more members of a CCP default on their 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 also, at its discretion, modify the margin we are required to post, which could mean unexpected and non-standardized, which can make exiting, transferring or settling some positions difficult. Many derivatives requireincreased funding costs and exposure to that CCP. As a clearing member, we deliver
are exposed to the counterparty 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, compliance, 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 liquidity and credit risk could be adversely impacted by, and our businesses and revenues derived from non-U.S. jurisdictions are subject to, risk of loss from currency fluctuations, financial, social or judicial instability, economic sanctions, 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 or continuation of widespread health emergencies or pandemics, capital controls, redenominationcurrency re-denomination risk from a country exiting the EU or otherwise, currency fluctuations, foreign exchange controls protectionist trade policies, and other restrictive actions,or movements (caused by devaluation or de-pegging), unfavorable political and diplomatic developments, oil price fluctuationfluctuations and changes in legislation. These risks are especially elevated in emerging markets. A number
Continued tensions between the U.S. and important trading partners, particularly China, may result in sanctions, further tariff increases or other restrictive actions on cross-border trade, investment, and transfer of non-U.S. jurisdictions in which we do business have been negatively impacted by slowinformation technology that weigh on trade volumes, raise costs for producers, and adversely affect our businesses and revenues, as well as our customers and counterparties, including their credit quality.
Slowing growth, rates or recessionary conditions, market volatility and/or political unrest. The politicalor civil unrest, global supply chain disruptions, labor shortages, wage pressures and economic environmentelevated inflation in Europe has improved but remains challengingmany countries pose additional challenges, including in the form of volatility in financial markets. Foreign exchange rates against the U.S. dollar remain an area of uncertainty and potential volatility as the current degree of politicalFederal Reserve 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.
Potential risks of default on sovereign debt in some non-U.S. jurisdictions could expose us to substantial losses. Risks in one nation can limit our opportunities for portfolio growth and negatively affect our operations in other nations, including our U.S. operations. Market and economic disruptions of all types may affect consumer confidence levels and spending, corporate investment and job creation, bankruptcy rates, levels of incurrence and default on consumer and corporate debt, economic growthcentral banks raise interest rates, and asset values, among other factors. Any such unfavorable conditions or developmentsdepreciation could increase our financial risks with clients that deal in non-U.S. currencies but have an adverse impact on our company.U.S. dollar-denominated debt.
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. 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 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.
Elevated government debt levels raise the risk of volatility, significant valuation changes, political tensions among EU members regarding fiscal policy or defaults on or devaluation of sovereign debt, which could expose us to substantial losses. Financial markets have been and may continue to be sensitive to government plans to lower taxes or increase spending.
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 uncertainless predictable, prone to change and uncertainty 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. Significant resources are spent on understanding and monitoring foreign laws, rules and regulations. 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, changes to our organizational structure and adversely affect our businesses, reputation and results of operations in that market but also on our reputation in general.market.
In addition to non-U.S. legislation, our international operationsWe are also subject to complex and extensive U.S. legal requirements. For example, our international operations areand non-U.S. laws, rules and regulations, which subject us to U.S. laws on foreign corrupt practices, the Office of Foreign Assets Control, know-your-customer requirementscosts and risks relating to bribery and corruption, anti-money laundering, regulations. Emerging technologies, such as cryptocurrencies,embargo programs and economic sanctions, which can vary by jurisdiction and require implementation of complex operational capabilities and compliance programs. Non-compliance and/or violations could limit our abilityresult in an increase in operational and compliance costs, and enforcement actions and civil and criminal penalties against us and individual employees. The increasing speed and novel ways in which funds circulate could make it more challenging to track the movement of funds. Our ability to complyfunds and heighten financial crimes risk. Compliance with these laws is dependentevolving regulatory regimes and legal requirements depends on our ability to improve our processes, controls, surveillance, detection and reporting capabilities and reduce variationanalytic capabilities.
In connection with the U.K.’s exit from the EU, we are now subject to different laws and regulations, which are expected to diverge further over time, and are subject to the oversight of additional regulatory authorities. As political and regulatory environments evolve, further changes to the legal and regulatory framework under which our subsidiaries provide products and services in control processesthe U.K. and oversight accountability.in the EU may result in additional compliance costs and have negative tax consequences or an adverse impact on our results of operations.
In the U.S., the government’s debt ceiling and budget deficit concerns have increased the possibility of U.S. government defaults on its debt and/or downgrades to its credit ratings, and prolonged government shutdowns, which could weaken the U.S. dollar, cause market volatility, negatively impact the global economy and banking system and adversely affect our financial condition, including our liquidity. Additionally, changes in fiscal, monetary or regulatory policy, including as a result of labor shortages, wage pressures, supply chain disruptions and higher inflation, could increase our compliance costs and adversely affect our business operations, organizational structure and results of operations. Monetary policy has contributed to a significant depreciation of many foreign currencies over the past
year. Emerging markets are particularly vulnerable to tighter U.S. monetary policy, and many have responded by tightening monetary policy and intervening in foreign exchange markets. Further monetary tightening by the Federal Reserve risks creating additional currency volatility and recessionary conditions in a number of non-U.S. markets.
We are also subject to geopolitical risks, including economic sanctions, acts or threats of international or domestic terrorism, and actions takenincluding responses by the U.S. or other governments in response thereto, increased risk of state-sponsored cyberattacks or campaigns, civil unrest and/or military conflicts, including the escalation of tensions between China and Taiwan, which could adversely affect business, market trade and general economic conditions abroad and in the U.S. The Russia/Ukraine conflict has magnified such risks and resulted in regional instability and adversely impacted commodity and other financial markets, as well as 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 businesseconomic conditions, especially in Europe primarily through our U.K. subsidiaries. For the year ended December 31, 2017, our operationswhere there is significant risk of recession in some countries. The disruption of energy supplies and other goods and sanctions have contributed to inflationary pressures 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,other regions, which has 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,greater monetary tightening by policymakers, and could adversely impact the profitability of businesses and our business,credit risk. Military escalation resulting in the involvement of neighboring countries and/or North Atlantic Treaty Organization member countries or new sanctions could result in additional economic disruptions, financial conditionmarket volatility, and operational model.changes to asset valuations, which could disrupt our operations and adversely affect our results of operations.
Business Operations
A failure in or breach of our operational or security systems or infrastructure, or those of third parties or the financial services industry, could disrupt our businesses, andcause disruptions, adversely impact our results of operations liquidity and financial condition, as well asand cause legal or reputational harm.
The potential for operationalOperational 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.and the financial services industry infrastructure. Our operational and security systems infrastructure, and including our computer systems, emerging technologies, data management and internal processes and controls, as well as those of third parties, are integral to our performance. We rely on our employees
and third parties in our day-to-day and ongoing operations, who may, as a result of human error, misconduct, malfeasance or failure, or breach of systems or infrastructure, expose us to risk. We have taken measures to implement backup systems and other safeguards to support 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 orand other operating or security systems and infrastructure, or those of third parties, with whom we interactmay be ineffective or upon whom we rely may fail to operate properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond our or such third party’s control, which could adversely affect our ability to process transactions or provide services. There could be suddenProlonged disruptions to our critical business operations and customer services are possible due to computer, telecommunications, network, utility, electronic or physical infrastructure outages, including from abuse or failure of our electronic trading and algorithmic platforms, significant unplanned increases in customer transaction volume; electrical, telecommunications or other major physical infrastructure outages;transactions, newly identified vulnerabilities in key hardware and software, failure of aging infrastructure or software;manual processes, retired or redundant software and/or hardware, technology project implementation challenges and supply chain disruptions. Operational disruptions and prolonged operational outages could also result from events arising from natural disasters, including acute and chronic weather events, such as earthquakes,wildfires, tornadoes, hurricanes and floods; disease pandemics;floods, some of which are happening with more frequency and events arising fromseverity, and earthquakes, as well as local or larger scale
political or social matters, including civil unrest, terrorist acts. Inacts and military conflict.
We continue to have greater reliance on remote access tools and technology and employees’ personal systems (and our third parties’ employees’ personal systems) and increased data utilization and are increasingly dependent upon our information technology infrastructure to operate our businesses remotely due to the event thatincreased number of employees who work from home and evolving customer preferences, including increased reliance on digital banking and other digital services provided by our businesses. Effective management of our business continuity increasingly depends on the security, reliability and adequacy of such systems.
We also rely on our employees, representatives and third parties in our day-to-day operations, who may, due to illness, unavailability, human error, misconduct (including errors in judgment, malice, fraudulent or illegal activity), malfeasance or a failure or breach of systems or infrastructure cause disruptions to our organization and expose us to operational losses, regulatory risk and reputational harm. Our and our third parties’ inability to properly introduce, deploy and manage changes to internal financial and governance processes, existing products, services and technology, and new product innovations and technology could also result in additional operational and regulatory risk.
Regardless of the measures we have taken to implement training, procedures, backup systems are utilized, theyand other safeguards to support our operations and bolster our operational resilience, our ability to conduct business may be adversely affected by significant disruptions to us or to third parties 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 internet, cloud services and/or the financial services industry infrastructure (including electronic trading platforms and critical banking activities). 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 our own systems.
Any backup systems 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 on to support our operations and growth and to remain compliant with all applicable laws, rules and regulations globally. This updating entails significant costs and creates risks associated with implementing new systems and integrating them with existing ones, including business interruptions. Operational
A failure or breach of our operational or security systems or infrastructure resulting in disruption to our critical business operations and customer services and/or failure to identify, effectively respond to operational risks in a timely manner, and continue to deliver our services through an operational disruption could expose us to a number of risks, including market abuse, regulatory, market, privacy and liquidity risk, exposures couldand adversely impact our results of operations liquidity and financial condition, as well asand cause legal or reputational harm.
A cyber attack,cyberattack, 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 misuse or disclosure or misuse of confidential or proprietary information, result in additional costs, damage to our reputation, increase our costs to maintainregulatory and update our operationallegal risks and security systems and infrastructure, and adversely impact our results of operations, liquidity andcause financial condition, as well as cause legal or reputational harm.losses.
Our businesses arebusiness is highly dependent on the security, controls and efficacy of our infrastructure, computer and data management systems, as well asand those of our customers, suppliers, counterparties and other third parties, the financial services
industry and financial data aggregators, with whom we interact, or on whom we rely. Our businessesrely or who have access to our customers' personal or account information. We rely on effective access management and the secure collection, processing, transmission, storage and retrieval of confidential, proprietary, personally identifiable and other information in our and our third parties’ computer and data management systems and networks,networks.
Our cybersecurity risk and exposure remains heightened because of, among other things, our prominent size and scale, high-profile brand, geographic footprint and international presence and role in the computerfinancial services industry and the broader economy. The proliferation of third-party financial data management systemsaggregators and networksemerging technologies, including our use of third parties. In addition, to accessautomation, artificial intelligence (AI) and robotics, increase our network, productscybersecurity risks and services, our customers and other third parties may use personal mobile devices or computing devices that are outside of our network environment and are subject to their own cybersecurity risks.exposure.
We, our employees, customers, regulators and other third parties have been subject to, and are likely to continue to beregularly the target of an increasing number of cyber threats and attacks. These cyber attacks includeCyber threats and techniques used in cyberattacks are pervasive, sophisticated and difficult to prevent, including computer viruses, malicious or destructive code (such as ransomware), social engineering (including phishing, attacks,vishing and smishing), denial of service or information or other security breachesbreach tactics that could result in disruptions to our businesses and operations, the loss of our funds and/or our clients’ and the unauthorized disclosure, 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. Cyberattacks may be carried out on a worldwide scale and by a growing number of cyber actors, including organized crime groups, hackers, terrorist organizations, extremist parties, damages to systems, or otherwise material disruption to our or our customers’ orhostile foreign governments, state-sponsored actors, activists, disgruntled employees and other third parties’ network access or business
operations. As cyberCyber threats continue toand the techniques used in cyberattacks change, develop and evolve we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigaterapidly, including from emerging technologies, such as advanced forms of AI and remediate any information security vulnerabilities or incidents.quantum computing. Despite substantial efforts to protect the integrity and resilience of our systems and implement controls, processes, policies, employee training and other protective measures, we may not be able to anticipate all security breaches, nor may we be able to implement guaranteed preventive measures against such security 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 employeesdetect cyberattacks or vendors, activists and other external parties, including those involved in corporate espionage. Even the most advanced internal control environment may be 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, the existence of cyber attacks or security breaches at third parties with access to our data, such as vendors, 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 and/or third parties, there can be no assurance that we will not sufferdevelop or implement effective preventive or defensive measures to address or mitigate such lossesattacks or other consequencesbreaches. Internal access management failures could result in the future. compromise or unauthorized exposure of confidential data. Additionally, the failure of our employees to exercise sound judgment and vigilance when targeted with social engineering cyberattacks may increase our vulnerability.
Our risk and exposure to these matters remain heightened becausecyberattacks and security breaches continue to increase due to the acceptance and use of amongdigital banking products and services, including mobile banking products, and reliance on remote access tools and technology, which have increased our reliance on virtual/digital interactions and 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. Employees working remotely away from the office (whether on personal or our devices) also represent inherently greater risk than employees working in our offices. Greater demand on our information technology infrastructure and security tools and processes will likely continue.
We also face indirect technology, cybersecurity and operational risks relating to the customers, clients and other things, the evolving nature of these threats, our prominent size
third parties with whom we do business and scale, and our role in the financial services industry, and the broader economy,upon whom we rely to facilitate or enable our plans to continue to implement our internet banking and mobile banking channel strategies and develop additional remote connectivity solutions to servebusiness activities or upon whom our customers whenrely. Other indirect risks relate to providers of products and/or services, financial counterparties, financial data aggregators, financial intermediaries, such as clearing agents, exchanges and how they wantclearing houses, regulators, providers of critical infrastructure, such as internet access and electrical power, and retailers for whom we process transactions. We are also at additional risk resulting from critical third-party information security and open-source software vulnerabilities.
We have exposure to be served,cyber threats due to our continuous transmission of sensitive information to, and storage of such information by, third parties, including our vendorsproviders of products and/or services, 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. AsFurther, any such event may not be disclosed to us in a result, cybersecuritytimely manner. Any failure, cyberattack or other information or security breach that significantly degrades, deletes or compromises our systems or data could adversely impact third parties, counterparties 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 the financial services industry.
Due to increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure,
cyber attack cyberattack or other information or security vulnerability, failure or breach that significantly exposes, degrades, deletes or compromises the systems or data of one or more financial entities or third parties could have a materialadversely impact on counterparties or other market participants, including us. This consolidation interconnectivityus and complexity increasesincrease 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
Cyberattacks or security breaches could persist for an extended period of time before being detected and take additional time to determine the scope, extent, amount, and type of information compromised, following which the impact and measures to recover and restore to a business-as-usual state may be difficult to assess. We continue to expend significant additional money and resources to modify or enhance our protective measures, investigate and remediate any information security, software or network vulnerabilities or incidents whether specific to us, a third party, the industry or businesses in general, and develop our capabilities to respond and recover.
While we have experienced cyberattacks and security breaches, and expect to continue to, we have not experienced any material losses or other material consequences relating to technology failure, cyber attackcyberattacks 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, including the remediation of critical information security and software vulnerabilities, will be sufficient and/or timely and that we will not suffer material losses or consequences in the future. Successful penetration or circumvention of system security could result in negative consequences, including loss of customers and business opportunities, the withdrawal of customer deposits, misappropriation or destruction of our intellectual property, proprietary information or confidential information and/or the confidential, proprietary or personally identifiable information of certain parties, such as our employees, customers, providers of products and services, counterparties and other third parties, or damage to their computers or systems. Any future technology failure, cyberattack or breach termination or constraint could among other things, adversely affect our ability to conduct day-to-day business activities, effect transactions, service our clients, manage our exposure to risk or expand our businesses.
businesses, result in fraudulent or unauthorized transactions or cause prolonged computer and network outages resulting in material disruptions to our or our customers’ or other informationthird parties’ network access or security breaches,critical business operations and customer services, in the U.S. and/or globally.
Any cyberattack or breach, whether directed at us or third parties, may result in significant lost revenue, give rise to losses and claims brought by third parties, litigation exposure, regulatory sanctions, enforcement actions, government fines, penalties or intervention and other negative consequences. The actual or perceived success of a material loss or have material consequences. Furthermore, the public perception that a cyber attackcyberattack 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. A successful penetration business and/or circumvention of system security could cause us negative consequences, includingresult in the loss of customersconfidence in our security measures. Additionally, our failure to disclose or communicate cyber incidents appropriately to relevant parties could result in regulatory, privacy, operational and business opportunities, disruption to our operations and business, misappropriationreputational risk. Although we maintain cyber insurance, there can be no assurance that liabilities or destruction of our confidential information and/losses we may incur will be covered under such policies or that the amount of our customers,insurance will be adequate. Cyberattacks or damage to our customers’ and/other information or third parties’ computers or systems, andsecurity breaches could also result in a violation of applicable privacy laws and other laws, 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 businesses, 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 related losses we could incur inadversely impact our capacity as servicer, and foreclosure delays and/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, weWe may also 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 or losses due to potential indemnification obligations, result in litigation or regulatory action or adversely impact our results of operations. Additionally, with respect to foreclosures we may incurresult in costs, litigation 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.
We rely on the GSEs to guarantee or purchase mortgage loans that meet their conforming loan requirements. During 2017,2022, we sold approximately $7.9$4.1 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 its primary regulator, the Federal Housing Finance Agency (FHFA) acting as conservator. We cannot predict whetherIn 2019, the conservatorships will end, any associated changesTreasury Department published a proposal to recapitalize FHLMC and FNMA and remove them from conservatorship and reduce their business structurerole in the marketplace. In January 2021, the Treasury Department further amended the agreement that could result or whether
governs the conservatorships will end in receivership, privatization or other change in business structure. There are several proposed approachesconservatorship of FHLMC and FNMA and delineated the continued objective to reform that, if enacted, could change the structure and the relationship amongremove the GSEs the government and the private markets, including the trading markets for agency conforming mortgage loans and markets for mortgage-related securities in whichfrom 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. Accordingly, uncertaintythe GSEs in the housing market. If the GSEs 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, which could increase our cost of funds related to the origination of new mortgage loans, increase credit risk and/or impact our capacity to originate new mortgage loans. Uncertainty regarding their future and the MBS they guarantee continues to exist including whether they will continue to exist in their current forms or continue to guarantee mortgagesfor the foreseeable future. These developments could adversely affect 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 key types of risk to which we are subject, including strategic, credit, market, liquidity, compliance, operational and reputational risks. Additionally, risks may span across multiple key risk types, including climate risk and legal risk. 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 and measure all risks, including emerging and unknown risks, anticipate the timing and impact of risks, apply effective hedging strategies, make correct assumptions, manage and aggregate data. For instance, we use variousdata correctly and efficiently, identify changes in markets or client behaviors not yet inherent in historical data and develop risk management models and forecasts 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 providers of products and/or services, enable effective risk management and vendors.help confirm that risks are appropriately considered, evaluated and responded to in a timely manner. Uncertain economic and geopolitical 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, representatives and third parties to comply with our policies and Risk Framework and the overall complexity of our operations, among other developments, have resultedin the past and may in the future result in a heightened level of risk for us. Accordingly,risk. For example, we could suffer losseshave experienced increased operational, reputational and compliance risk as a result of ourthe prior need to rapidly deploy and implement multiple and varying pandemic relief programs, including the processing of unemployment benefits for California and certain other states, which have resulted in and will continue to result in losses. Our failure to manage evolving risks or properly anticipate, and manage, risks.control or mitigate risks could result in additional losses.
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 comprehensiveevolving 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 evolving and 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 regulatory 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 clientsour clients. We are also required to file various financial 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 ordernon-financial regulatory reports to comply with these requirements.laws, rules and regulations in the jurisdictions in which we operate.
We continue to make adjustments toadjust our business and operations, legal entity structure, disclosure and policies, processes, procedures and controls, including with regard to capital and liquidity management, policies, proceduresrisk management and controlsdata management, to comply with these laws, rules and regulations, as well as final rulemaking, guidance and interpretation by regulatory authorities.authorities, including the Department of Treasury (including the Internal Revenue Service (IRS)), Federal Reserve, OCC, CFPB, Financial Stability Oversight Council, FDIC, Department of Labor, SEC and CFTC in the U.S., foreign regulators, other government authorities and self-regulatory organizations. Further, we could become subject to regulatory requirementsfuture laws, rules and regulations beyond those currently proposed, adopted or contemplated. Accordingly,contemplated in the U.S. or abroad, including policies and rulemaking related to emerging technologies, cybersecurity and data, and climate risk management and ESG governance and reporting, including emissions and sustainability disclosure. The cumulative effect of all of the current and possible future legislation and regulations on our business,litigation and regulatory exposure, businesses, operations and profitability remains uncertain. This uncertaintyuncertain and necessitates that in our business planning we make certain assumptions with respect to the scope and requirements of theprospective and proposed rules.laws, rules and regulations in our business planning. If these assumptions prove incorrect, we could be subject to increased regulatory, legal and compliance risks and costs
as well as potential reputational harm. In addition,Also, U.S. and international regulatory initiatives abroad may overlap, and non-U.S. regulationsregulation 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. Regulatory focus is not limited to laws, rules and regulations applicable to the financial services industry, specifically, but also extends toincludes other significant laws, rules and regulations such asthat apply across industries and jurisdictions, including those related to anti-money laundering, anti-bribery, anti-corruption and regulatory sanctions.
We are also subject to laws, rules and regulations in the Foreign Corrupt Practices Act and U.S. and international anti-money laundering regulations. abroad, including the GDPR and CCPA as modified by the CPRA, and a number of additional jurisdictions enacting or considering similar laws, regarding privacy and the disclosure, collection, use, sharing and safeguarding of personally identifiable information, including our employees, customers, suppliers, counterparties and other third parties, the violation of which could result in litigation, regulatory fines, enforcement actions and operational loss. The complexity and risk of
compliance has been magnified by the collection of employee health and/or other information in response to the pandemic. Additionally, we will likely be subject to new and evolving data privacy laws in the U.S. and abroad, which could result in additional costs of compliance, litigation, regulatory fines and enforcement actions. There remains complexity and uncertainty, including potential suspension or prohibition, regarding data transfer because of concerns over compliance with laws, rules and regulations 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 judicial and regulatory guidance. To the extent that a new EU-U.S. Data Privacy Framework leads to a relaxation of applicable legislation and regulations, regardless of transfer mechanism, challenges are expected from consumer advocacy groups. Other jurisdictions, including China, Russia and India, have commenced consultation efforts or enacted new legislation or regulations to establish standards for personal data transfers. If cross-border personal data transfers are suspended or restricted or we are required to implement distinct processes for each jurisdiction’s 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 such data management.
As part of their enforcement authority, our regulators and other government authorities have the authority to, among other things, conduct investigations and assess significant civil or criminal monetary fines, penalties fines or restitution, issue cease and desist or removal orders, and initiate injunctive actions.action, apply regulatory sanctions or enter into consent orders. 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 periodproducts. Our response to regulators and other government authorities may be time-consuming, be expensive and divert management attention from our business. The outcome of time.any matter, which may last years, may be difficult to predict or estimate.
Additionally, the terms of settlements, orders and agreements that we have entered into with government entities and regulatory authorities have imposed, or could impose, significant operational and compliance costs on us with respect to enhancements to our procedures and controls, losses with respect to fraudulent transactions perpetrated against our customers, expansion of our risk and control functions within our lines of business, investment in technology and the hiring of significant numbers of additional risk, control and compliance personnel. If we fail to meet the requirements of the regulatory settlements, 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 authorities, we could be required to enter into further settlements, orders or agreements and pay additional fines, penalties or judgments, or accept material regulatory restrictions on our businesses.
Improper actions, behaviors or practices by us, our employees or representatives that are illegal, unethical or contrary to our core values could harm us, our shareholders or customers or damage the integrity of the financial markets, and 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. Responding to inquiries, investigations, lawsuits and proceedings, regardlessActions by other members of the ultimate outcome of the matter, is time-consuming and expensive and can divert the attention of our senior management from our business. The outcome of such proceedings may be difficultfinancial services industry related to predict or estimate until latebusiness activities in the proceedings, which may last a number of years.
We are currently subject to the terms of settlements and consent orders that we have entered into with government agencies and may become subject to additional settlements or orders in the future. Such settlements and consent orders impose significant operational and compliance costs on us as they typically require us to enhance our procedures and controls, expand our risk and control functions within our lines of business, invest in technology and hire significant numbers of additional risk, control and compliance personnel. Moreover, if we fail to meet the requirements of the regulatory settlements and orders to which we are subject,participate may result in investigations by regulators or more generally, to maintain risk and control procedures and processes that meet the heightened standards established by our regulators and other government agencies, we could be required to enter into further settlements and orders, pay additional fines, penalties or judgments, or accept material regulatory restrictions on our businesses.authorities.
While we believe that we have adopted appropriate risk management and compliance programs, compliance risks will continue to exist, particularly as we anticipate and adapt to new and evolving laws, rules and regulations. We also rely upon third parties who may expose us to compliance and legal risk. Future legislative or regulatory actions, and any required changes to our business or operations, or those of third parties upon whom we rely, resulting from such developments and actions could result in a significant loss of revenue, impose additional compliance and other costs or otherwise reduce our profitability, limit the products and services
that we offer or our ability to pursue certain business opportunities, require us to dispose of certain businesses or assets, require us to 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, penalties, equitable relief and changes to our business practices. As a result, we are and will continue to be subject to heightened compliance and operating costs that could adversely affect our results of operations.
We are subject to significant financial and reputational risks from potential liability arising from lawsuits and regulatory and government action.
We face significant legal risks in our business, and thewith a high volume of claims against us and other financial institutions. The amount of damages, penalties and fines claimed in litigation,that litigants and regulatory and government proceedings againstregulators seek from us and other financial institutions remain high. Greater than expected litigation and investigation costs, substantial legal liability or significant regulatory or government action against us could have adverse effects on our financial condition and results of operations or cause significant reputational harmcontinues to us, which in turn could adversely impact our liquidity, financial condition and results of operations. We continue to experience a significant volume of litigationbe significant. This includes disputes with consumers, customers and other disputes, including claims for contractual indemnification with counterparties regarding relative rights and responsibilities. Consumers, clients and other counterparties continue to be litigious. Among other things, 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. In addition, regulatory authorities have hadAs 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 supervisory focus onrequirement that we repurchase the mortgage loans, or make whole or provide other remedies to counterparties.
U.S. regulators and government agencies regularly pursue enforcement claims against financial institutions including in connection withthe Corporation for alleged violations of law and customer harm. For example, regulatorsharm under the Financial Institutions Reform, Recovery, and government agencies have pursued claims against financial institutions under FIRREA,Enforcement Act, the federal securities laws, the False Claims Act, fair lending laws and regulations (including the Equal Credit Opportunity Act and the Fair Housing Act), antitrust laws, and consumer protection laws and regulations related to products and services such as overdraft and sales practices, including prohibitions on unfair, deceptive, and/or abusive acts and practices under the antitrust laws.Consumer Financial Protection Act and the Federal Trade Commission Act. Such claims may carry significant penalties, restitution and, in certain cases, treble damages. damages, and the ultimate resolution of regulatory inquiries, investigations and other proceedings to which we are subject from time-to-time is difficult to predict.
There is also an increased focus on compliance with U.S. and global laws, rules and regulations related to the collection, use, sharing and safeguarding of personally identifiable information and corporate data, as well as the implementation,
use and management of emerging technologies, including AI and machine learning. Additionally, misconduct by our employees and representatives, including unethical, fraudulent, improper or illegal conduct, unfair, deceptive, abusive or discriminatory business practices, or violations of policies, procedures, laws, rules or regulations, including conduct that affects compliance with books and records requirements, can result in litigation and/or government investigations and enforcement actions, and cause significant reputational harm. We are also subject to litigation and regulatory and government actions regarding fraud perpetrated against our customers in connection with the use of our products and services and increased scrutiny of sustainability-related policies, goals, targets and disclosure, which could result in litigation, regulatory investigations and actions and reputational harm.
The ongoingglobal environment of extensive investigations, regulation, regulatory compliance burdens, litigation and regulatory and government enforcement, combined with uncertainty related to the continually evolving regulatory environment, have resulted inaffected and will likely continue to affect operational and compliance costs and risks, which may limitincluding the limitation or cessation of our ability or feasibility to continue providing certain products and services.
For more information on litigation risks, see Note 12 – Commitments Lawsuits and Contingenciesregulatory actions have resulted in and will likely continue to result in judgments, orders, settlements, penalties and fines adverse to us. Further, we entered into orders with government authorities regarding our participation in implementing government relief measures related to the Consolidated Financial Statements.pandemic and other federal and state government assistance programs, including the processing of unemployment benefits for California and certain other states, and continue to be involved in related litigation which may result in judgments and/or settlements. Litigation and investigation costs, substantial legal liability or significant regulatory or government action against us could have material adverse effects on our business, financial condition, including liquidity, and results of operations, and/or cause significant reputational harm.
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 failsfail to maintain itstheir 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 or RWA 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, which, while currently set at zero, may be increasedour returns of capital to shareholders, including common stock dividends and common stock repurchases, could decrease. For example, our G-SIB surcharge is expected to increase by regulators. A significant component of regulatory50 bps to 3.0 percent on January 1, 2024. The Federal Reserve could
also limit or prohibit capital ratios is calculating our risk-weighted assets, including operational risk, and our leverage exposure which may increase. Additionally, in April 2016, the U.S. banking regulators proposed Net Stable Funding Ratio requirements which target longer term liquidity risk and would apply to us and our subsidiary insured depository institutions. The Basel Committee on Banking Supervision has also revised several key methodologies for measuring risk-weighted assets, including a standardized approach for credit risk, standardized approach for operational risk, and constraints on the use of internal modelsactions, such as wellpaying or increasing dividends or repurchasing common stock, 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.result of economic disruptions or events.
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 effectimpact the level of our SCB, requiring us to hold additional capital. For example, based on CCAR 2022 stress test results, our projectedSCB increased 90 bps to 3.4 percent on October 1, 2022.
A significant component of regulatory capital amountsratios is calculating our RWA and our leverage exposure, which may increase. The Basel Committee on Banking Supervision has also revised several key methodologies for measuring RWA that have not yet been implemented in the annual CCAR submission,U.S., including a standardized approach for operational risk, revised market risk requirements and constraints on the CCARuse of internal models, as well as a capital plan affecting our dividends and stock repurchases.
We are also subjectfloor based on the revised standardized approaches. It is expected in 2023 that U.S. banking regulators will propose updates to the Federal Reserve’s rule effective January 1, 2019 requiring U.S. G-SIBscapital framework to maintain minimum amounts of external total loss-absorbing capacity (TLAC) to improveincorporate the resolvabilityBasel Committee revisions. Economic disruptions or events may also cause an increase in our balance sheet, RWA or leverage exposures, increasing required regulatory capital 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.liquidity amounts.
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, reduce the amount of common stock repurchases or dividends, cease or alter certain operations sell company assets,and business activities 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 accountingAccounting 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,erroneously applied, we could be required to correct and restate prior-period financial statements. Accounting standard-setters and those who interpret the accounting standards, including 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 preparethe preparation and reportreporting of our financial statements. In some cases, we could be required to
apply astatements, including the application of new or revised standardstandards retrospectively, resulting in us revisingrevisions to 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.
On December 22, 2017,It is possible that governmental authorities in the President signed into lawU.S. and/or other countries could further change tax laws in a way that would materially adversely affect us, including changes to the Tax Cuts and Jobs Act (the Tax Act) which made significant changes to federal incomeof 2017 and Inflation Reduction Act of 2022. New guidelines issued by the Organization for Economic Cooperation and Development could adversely impact how the global profits of multinational enterprises are taxed. Any change in tax law including, among other things, reducing the statutory corporate incomelaws and regulations or interpretations of current or future tax laws and regulations could materially adversely affect our effective tax rate, to 21 percenttax liabilities and results of operations. U.S. and foreign tax laws are complex and our judgments,
interpretations or applications of such tax laws could differ from 35 percent and changing the taxation of our non-U.S. business activities. We have accounted for the effectsthat of the Tax Act using reasonable estimates based on currently available informationrelevant governmental authority. This could result in additional tax liabilities and our interpretations thereof. This accounting may change dueinterest, penalties, the reduction of certain tax benefits and/or the requirement to among other things, changes in interpretations we have made and the issuance of new tax or accounting guidance.make adjustments to amounts recorded, which could be material.
In addition,Additionally, 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.
It is possible that governmental authorities in the U.S. and/or other countries could further amend tax laws that would adversely affect us.DTA.
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 employeeactual or perceived activities of our officers, directors, employees, contractors, third parties, clients, counterparties and other representatives, such as fraud, misconduct security breaches,and unethical behavior (such as employees’ sales practices), adequacy of our responsiveness to fraud claims perpetrated against our customers, effectiveness of our internal controls, litigation or regulatory matters and their outcomes, compensation practices, thelending practices, suitability or reasonableness of recommending particular trading or investment strategies, including the reliability of our research and models, and prohibiting clients from engaging in certain transactions, sales practices, failingtransactions.
Our reputation may also be harmed by actual or perceived failure to deliver the products and standards of service and quality expected by our customers, clients and the community, including the overstatement or mislabeling of the environmental benefits of our products, services or transactions, failure to recognize and address customer complaints, compliance failures, inadequacy of responsivenessinability to internal controls,implement or manage emerging technologies, including quantum computing, AI, machine learning and technology change, failure to maintain effective data management, security breaches, cyber incidents, prolonged or repeated system outages, unintended disclosure of personal, proprietary or confidential information, perceptionbreach of fiduciary obligations and handling of the emergence or continuation of health emergencies or pandemics. For example, we entered into orders with certain government agencies regarding our environmental, socialprocessing of unemployment benefits for California and governancecertain other states, and continue to be involved in related litigation, which may result in judgments and/or settlements. Our reputation may also be negatively impacted by our ESG practices and disclosures, and the activitiesthose of our clients, customers and counterparties, including vendors. third parties.
Actions by the financial services industry generally or by certain members or individuals in the industry also can adversely affect our reputation. In addition,Also, 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,fair lending activity, UDAAP, electronic funds transfers, know-your-customer requirements, data protection and privacy, including the EU General Data Protection RegulationGDPR, CCPA as modified by the CPRA, cross-border data movement, cybersecurity and other matters, as well as evolving and expansive interpretations of these laws and
(GDPR), cross-border data movement and other matters.regulations. 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 theseThese 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 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, reputationallegal and operational risks, which could have an adverse effect onadversely affect our reputation, 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,actual 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 toresult in 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
The impacts of the pandemic have adversely affected and may in the future adversely affect us.
The COVID-19 pandemic has directly and indirectly negatively impacted the global economy, disrupted global supply chains, adversely affected equity market valuations, created significant volatility and disruption in financial and capital markets, resulted in challenging labor market conditions, and adversely impacted our financial results to varying degrees and in various respects. The future direct and indirect effects of the pandemic on global health and economic conditions and activity remain uncertain, continue to evolve by region, country and state and depend on future developments that cannot be predicted, including impacts from the expiration of the federal COVID-19 Public Health Emergency, surges of COVID-19 cases and the spread of more dangerous variants of COVID-19, the availability, usage and acceptance of effective medical treatments and vaccines, changing client preferences and behavior and future public response and government actions, including travel bans and restrictions, and limitations on business. Such evolving impacts of the pandemic could disrupt the U.S. and global economy, including changes in financial and capital markets, and adversely affect our businesses and operations, liquidity, results of operations and financial condition, including from increased allowance for credit losses and noninterest expenses, which are dependent on the pandemic’s duration and severity.
Reforms to and replacement of IBORs and certain other rates or indices may adversely affect our reputation, business, financial condition and results of operations.
Though significant progress has been made in the global financial markets to replace products and contracts referencing London Interbank Offered Rate (LIBOR) or other IBORs (IBOR Products), the aggregate notional amount of these IBOR
Products remains material to our business. Risks and challenges associated with the transition from IBORs remain and may result in consequences that cannot be fully anticipated, which expose us to various financial, operational, supervisory, conduct and legal risk.
While there has been significant progress in market and client adoption of ARRs, usage of ARRs may vary across or within categories of contracts, products and services, potentially resulting in market fragmentation, decreased trading volumes and liquidity, increased complexity and modeling and operational risks. ARRs have compositions and characteristics that differ from the benchmarks they replace, in some cases they have limited liquidity, and may demonstrate less predictable performance over time than the benchmarks they replace. For example, certain ARRs are calculated on a compounded or weighted-average basis and, unlike IBORs, do not reflect bank credit risk and therefore typically require a spread adjustment. There are important differences between the fallbacks, triggers and calculation methodologies being implemented in cash and derivatives 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 we may experience unanticipated market exposures. Changes resulting from transition to successor or alternative rates 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. There can be no assurance that existing assets and liabilities based on or linked to IBORs that have not already transitioned to ARRs will transition without delay or potential disputes.
Although a significant majority of the aggregate notional amount of our remaining IBOR Products maturing after 2022 include or have been amended to include fallbacks to ARRs, the transitioning of certain IBOR Products that do not include fallback provisions or adequate fallback mechanisms require additional efforts to modify their terms. Some outstanding IBOR Products are particularly challenging to modify due to the requirement that all impacted parties consent to such modification. To address outstanding IBOR Products that are difficult to modify, legislation has been adopted in the U.S. and in other jurisdictions. Litigation, disputes or other action may occur as a result of the interpretation or application of legislation or regulations, including if there is an overlap between laws or regulations in different jurisdictions or from interactions with any FCA-compelled “synthetic” LIBOR settings.
Some of our IBOR Products may contain language giving the calculation agent (which may be us) discretion to determine the successor rate (including the applicable spread adjustment) to the existing benchmark. We may face a risk of litigation, disputes or other actions from clients, counterparties, customers, investors or others based on various claims, for example, that we incorrectly interpreted or enforced IBOR-based contract provisions, failed to appropriately communicate the effect that the transition to ARRs will have on existing and future products, treated affected parties unfairly or made inappropriate product recommendations to or investments on behalf of its clients, or engaged in anti-competitive behavior or unlawfully manipulated markets or benchmarks.
ARR-based products that we develop, launch and/or support, including products using credit sensitive rates, may 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. New financial products linked to ARRs may have additional legal, financial, tax, operational, market, compliance, reputational, competitive or other risks to us, our clients and other market participants. Banking regulators in the U.S. and globally have maintained heightened regulatory scrutiny and intensified supervisory focus on financial institution LIBOR transition plans, preparations and readiness, including our use of credit-sensitive rates like the Bloomberg Short-Term Bank Yield Index and ARR-based term rates, which could result in regulatory action, litigation and/or the need to change the products offered by our businesses. 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 or lead to other consequences.
The ongoing market transition has altered, and additional developments may further alter, some aspects of 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. Further changes may increase costs and expose us to potential risks related to regulatory compliance, requirements or inquiries. Among other risks, various IBOR Products transition to ARRs at different times or in different manners, with the result that we may face unexpected interest rate, pricing or other exposures across business or product lines, and we may face operational risks related to planned processes at certain CCPs to convert outstanding USD LIBOR-cleared derivatives to ARR positions. Continuing reforms to 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 us.
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 asand new entrants in both domestic and foreign markets. Additionally,We compete on the basis of a number of factors, including customer service and convenience, the pricing, quality and range of products and services we offer, lending limits, the quality and delivery of our technology and our reputation, experience and relationships in relevant markets. There is increasing pressure to provide products and services on more attractive terms, including lower fees and higher interest rates on deposits, and lower cost investment strategies, which may impact our ability to effectively compete. The changing regulatory environment may also create competitive disadvantages, for certain financial institutions given geography-driven capital and liquidityincluding from different regulatory 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, 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, technological advances
Emerging technologies 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 traditional banking 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 services, 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.an
alternative to traditional banking products. Increased competition may reduce our net interest margin and revenues from our fee-based products and services and negatively affect our earnings, including by creating pressurepressuring us to lower pricespricing 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 and/or affecting the willingness of our clients to do business with us.
Our inability to adapt our business strategies, products and services to evolving industry standards and consumer preferences could harm our business.
Our business model is basedWe rely on a diversified mix of businesses that providedeliver a broad range of financial products and services delivered through multiple distribution channels. Our success depends on our abilityand our third-party providers’ of products and services abilities to adapt our business strategies, products and services and their respective features in a timely manner, including available payment processing services and technology to rapidly evolving industry standards. There is increasing pressure by competitors to provide productsstandards and consumer preferences.
The widespread adoption and rapid evolution of emerging technologies, including analytic capabilities, self-service digital trading platforms and automated trading markets, internet services, at lower prices and this maydigital assets, such as central bank digital currencies, cryptocurrencies (including stablecoins), tokens and other cryptoassets that utilize distributed ledger technology (DLT), as well as DLT in payment, clearing and settlement processes creates additional risks, could negatively impact our ability to grow revenue and/or effectively compete in part, due to legislative and regulatory developments that affect the competitive landscape. Additionally, the competitive landscape may be impacted by the growth of non-depository institutions that offer products that were traditionally banking products as well as new innovative products. This can reduce our net interest margin and revenues from our fee-based products and services. In addition, the widespread adoption of new technologies, including internet services, cryptocurrencies and payment systems, could require substantial expenditures to the extent we were to modify or adapt our existing products and servicesservices. As such new technologies evolve and mature, our businesses and results of operations could be adversely impacted, including as a result of the introduction of new competitors to the payment ecosystem and increased volatility in deposits and/or significant long-term reduction in deposits (i.e., financial disintermediation). Also, we grow and develop our internet banking 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, managing 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.
Our ability The Corporation’s, or its third-party providers’, inability or resistance to attracttimely innovate or adapt its operations, products and retain qualified employees is criticalservices to the success ofevolving industry standards and consumer preferences could result in service disruptions and harm 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 may be subject to limitations on compensation practices (which may or may not affect our competitors) by the Federal Reserve, the OCC, the FDIC or 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 attractresults of operations and maintain qualified employees. Furthermore, a substantial portion of our annual incentive compensation paid to our senior employees has in recent years taken the form of long-term equity awards. Therefore, the ultimate value of this compensation depends on the price of our common stock when the awards vest. If we are unable to continue to attract and retain qualified individuals, our business prospects and competitive position could be adversely affected.reputation.
We could suffer lossesoperational, 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 and expenses, assess and control our operations and financial condition, assist in capital planning and measure, forecast and assess capital and liquidity requirements for credit, country, market, operational and strategic risksrisks. Under our Enterprise Model Risk Policy, Model Risk Management is required to perform model oversight, including independent validation before initial use, ongoing monitoring reviews through outcomes analysis and to assess and control
our operations. These models require oversightbenchmarking, and periodic re-validation andrevalidation. However, models are subject to inherent limitations due to the use of historical trends andfrom simplifying assumptions, and uncertainty regarding economic and financial outcomes. outcomes, and emerging risks from applications that rely on AI.
Our models may not be sufficiently predictive of future results due to limited historical patterns, extreme or unanticipated market movements or customer behavior and illiquidity,liquidity, especially during severe market downturns or stress events.events (e.g., geopolitical or pandemic events), which could limit
their effectiveness and require timely recalibration. 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.indicators, which may not be representative of the next downturn and would magnify the limitations inherent in using historical data to manage risk. Market conditions in recent years have involved unprecedented dislocations and highlight the limitations inherent in using historical data to manage risk. WeOur models may also be adversely impacted by human error and may not be effective if we fail to properly oversee and review them at regular intervals 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 help confirm effective controls, governance, monitoring and testing, and implement new technology and automated processes, we could suffer lossesoperational, reputational and financial harm, including funding or liquidity shortfalls, if our models and strategies fail to properly anticipate and manage risks.
Failure to properly manage and aggregate data may result in our inability to manage risk and business needs, errors in our operations, critical reporting and strategic decision-making, inaccurate financial, regulatoryreporting and operational reporting.non-compliance with laws, rules and regulations.
We rely on our ability to manage data and our ability to aggregateprocess data in an accurate, timely and timelycomplete manner, for effective risk reportingincluding capturing, transporting, aggregating, using, transmitting data externally, and management which may be limited by the effectiveness of our policies, programs, processesretaining and practices that govern howprotecting data is acquired, validated, stored, protected and processed.appropriately. While we continuouslycontinually update our policies, programs, processes and practices many ofand implement emerging technologies, such as automation, AI and robotics, our data management processes may not be effective and aggregation processes are manual and subject to weaknesses and failures, including human error, data limitations, process delays, system failure or system failure.failed controls. Failure to properly manage data effectively and to aggregate data in an accurate, timely and timelycomplete manner may limitadversely impact its quality and reliability and our ability to manage current and emerging risk, to produce accurate financial and non-financial, regulatory and operational reporting, detect or surveil potential misconduct or non-compliance with laws, rules and regulations, as well as to manage changing business needs.needs, strategic decision-making, resolution strategy and 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, increase regulatory risk and operational losses, and damage our reputation.
Our operations, businesses and customers could be adversely affected by the impacts related to climate change.
Climate change and related environmental sustainability matters present short-term and long-term risks to us. The physical risks include an increase in the frequency and severity of extreme weather events and natural disasters, including floods, wildfires, hurricanes and tornados, as well as chronic longer-term shifts such as rising average global temperatures and sea levels. Such disasters could impact our facilities and employees and disrupt our operations or the operations of customers or third parties, and result in market volatility or negatively impact our customers’ ability to repay outstanding loans, result in rapid deposit outflows or drawdowns of credit facilities, cause supply chain and/or distribution network disruptions, damage collateral or result in the deterioration of the value of collateral or insurance shortfalls.
There is also increasing risk related to the transition to a low-carbon economy. Changes in consumer preferences, market pressures, advancements in technology and additional
Reformslegislation, regulatory and legal requirements could alter the scope of our existing businesses, limit our ability to pursue certain business activities and uncertainty regarding LIBORoffer certain products and certain other indices may adversely affect our business.
The U.K. FCA announcedservices, amplify credit and market risks, negatively impact asset values and increase expenses, including as a result of legal, compliance and public disclosure costs in July 2017 that it will no longer persuade or require banks to submit rates for LIBOR after 2021. This announcement, in conjunctionthe U.S. and globally with financial benchmark reforms more generallypotential jurisdictional divergence, strategic planning, required capital expenditures and changes in technology and markets, including supply chain and insurance availability and cost. We have devoted and expect to continue to devote additional resources as a result of our response to climate change. Our climate change strategies, policies, and disclosures, our ability to achieve our climate-related goals, targets and commitments, and/or the interbank lending markets have resultedenvironmental or climate impacts attributable to our products, transactions or services will likely result in uncertainty about the futureheightened legal and compliance risk and could result in reputational harm as a result of LIBORnegative public sentiment, regulatory scrutiny, litigation and reduced investor and stakeholder confidence. Our ability to meet our climate-related goals, targets and commitments, including our goal to achieve certain other rates or indicesgreenhouse gas (GHG) emissions targets by 2030 and net zero GHG emissions in our financing activities, operations and supply chain before 2050, is subject to risks and uncertainties, many of which are usedoutside of our control, such as interest rate “benchmarks.” These actionstechnology advances, clearly defined roadmaps for industry sectors, public policies and better emissions data reporting, and ongoing engagement with customers, suppliers, investors, government officials and other stakeholders.
There are and will continue to be challenges related to capturing, verifying, analyzing and disclosing climate-related data, which includes nonfinancial data and other information that is subject to measurement uncertainties, may havenot be independently verified, and may result in legal or reputational harm.
Our ability to attract, develop and retain qualified employees is critical to our success, business prospects and competitive position.
Our performance and competitive position is heavily dependent on the effecttalents, development and efforts of triggering future changeshighly skilled individuals. Competition for qualified personnel within the financial services industry and from businesses outside the financial services industry is intense.
Our competitors include global institutions and institutions subject to different compensation and hiring regulations than those imposed on U.S. institutions and financial institutions. Also, our ability to attract, develop and retain employees could be impacted by changing workforce concerns, expectations, practices and preferences (including remote work), and increasing labor shortages and competition for labor, which could increase labor costs.
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 become subject to additional limitations on compensation practices by the Federal Reserve, the OCC, the FDIC and other regulators around the world, which may or may not affect our competitors. Furthermore, because a substantial portion of our annual incentive compensation paid to many of our employees is long-term equity-based awards based on the value of our common stock, declines in the rulesour profitability 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, mayoutlook could adversely affect the value of, return onability to attract and trading market for our financial assetsretain employees. If we are unable to continue to attract, develop 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 toretain qualified individuals, our business segments, particularly Global Bankingprospects and Global Markets, among other adverse consequences, which may also result incompetitive position could be adversely affecting our financial condition or results of operations.affected.
Item 1B. Unresolved Staff Comments
Item 2. Properties
As of December 31, 2017, our2022, 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 | | 562,595502,344 |
| Cheung Kong Center | | Hong Kong | | 62 Story Building | | Global Banking and Global Markets | | Leased | | 149,790 |
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(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. |
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(2)
| The Corporation has a 49.9 percent joint venture interest in this property. |
We own or lease approximately 79.169.5 million square feet in over 20,000 facilityfacilities and ATM locations globally, including approximately 74.163.9 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 5.05.6 million square feet in more than 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, 2018,2023, there were 174,913143,301 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 |
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| | Second | | 15.11 |
| | 12.18 |
| | 0.05 |
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| | Third | | 16.19 |
| | 12.74 |
| | 0.075 |
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| | Fourth | | 23.16 |
| | 15.63 |
| | 0.075 |
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| 2017 | First | | 25.50 |
| | 22.05 |
| | 0.075 |
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| | Second | | 24.32 |
| | 22.23 |
| | 0.075 |
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| | Third | | 25.45 |
| | 22.89 |
| | 0.12 |
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| | Fourth | | 29.88 |
| | 25.45 |
| | 0.12 |
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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 common share repurchase activity for the three months ended December 31, 2017.2022. 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 (2) | | Remaining Buyback Authority Amounts (3) |
| October 1 - 31, 2022 | 2,018 | | | $ | 34.68 | | | 2,018 | | | $ | 16,332 | |
| November 1 - 30, 2022 | 17,085 | | | 37.14 | | | 16,961 | | | 15,949 | |
| December 1 - 31, 2022 | 9,133 | | | 32.67 | | | 9,117 | | | 15,783 | |
| Three months ended December 31, 2022 | 28,236 | | | 35.52 | | | 28,096 | | | |
(1)Includes 140 thousand 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 and for potential re-issuance to certain employees under equity incentive plans.
(2)In October 2021, the Corporation’s Board of Directors (Board) authorized the repurchase of up to $25 billion of common stock over time (October 2021 Authorization). Additionally, the Board authorized repurchases to offset shares awarded under equity-based compensation plans. During the three months ended December 31, 2022, pursuant to the Board’s authorizations, the Corporation repurchased approximately 28 million shares, or $998 million, of its common stock, including repurchases to offset shares awarded under equity-based compensation plans. For more information, see Capital Management - CCAR and Capital Planning in the MD&A on page 49 and Note 13 – Shareholders’ Equity to the Consolidated Financial Statements.
(3)Remaining Buyback Authority Amounts represents the remaining buyback authority of the October 2021 Authorization. Excludes repurchases to offset shares awarded under equity-based compensation plans.
Depositary Share Repurchases
On December 13, 2022, following the expiration of its cash tender offers, BofA Securities, Inc. (BofAS), a wholly owned indirect subsidiary of Bank of America Corporation (Parent), acquired depositary shares representing fractional interests in shares of the Parent’s preferred stock registered under Section 12 of the Securities Exchange Act of 1934, as amended, in the amounts and for the per share total price set forth in the following table. Also on December 13, 2022, the Parent acquired from BofAS such depositary shares that were previously purchased by BofAS for the same per share price.
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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 |
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| November 1 - 30, 2017 | 68,951 |
| | 27.23 |
| | 68,951 |
| | 7,162 |
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| December 1 - 31, 2017 | 72,075 |
| | 29.18 |
| | 72,073 |
| | 10,059 |
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| Three months ended December 31, 2017 | 174,012 |
| | 27.98 |
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(1)23 Bank of America
| 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 shares of the Corporation’s common stock. To purchase the Corporation’s common stock upon exercise of the warrants, the holders submitted as consideration $5 billion of Series T preferred stock. On August 29, 2017, the Corporation issued 700 million shares of common stock to 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
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| | | | Per Depositary Share 1 |
Depositary Shares Representing Fractional Interests in
Series of Bank of America Preferred Stock | | Total Number of Depositary Shares Purchased | | Purchase Price | | Accrued Dividends | | Total Price Paid 2 |
Depositary Shares, each representing a 1/1,000th interest in a share of Floating Rate
Non-Cumulative Preferred Stock, Series E | | 373,745 | | | $ | 19.22 | | | $ | 0.0963694 | | | $ | 19.3163694 | |
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Depositary Shares, each representing a 1/1,000th interest in a share of 5.875%
Non-Cumulative Preferred Stock, Series HH | | 110,762 | | | 24.08 | | 0.1999132 | | 24.2799132 |
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Depositary Shares, each representing a 1/1,000th interest in a share of 5.375%
Non-Cumulative Preferred Stock, Series KK | | 627,514 | | | 22.12 | | n/a | | 22.1200000 |
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Depositary Shares, each representing a 1/1,000th interest in a share of 5.000%
Non-Cumulative Preferred Stock, Series LL | | 355,040 | | | 20.44 | | n/a | | 20.4400000 |
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Depositary Shares, each representing a 1/1,000th interest in a share of 4.375%
Non-Cumulative Preferred Stock, Series NN | | 1,006,802 | | | 18.20 | | 0.1215278 | | 18.3215278 |
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Depositary Shares, each representing a 1/1,000th interest in a share of 4.125%
Non-Cumulative Preferred Stock, Series PP | | 99,685 | | | 17.27 | | 0.1174479 | | 17.3874479 |
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Depositary Shares, each representing a 1/1,000th interest in a share of 4.250%
Non-Cumulative Preferred Stock, Series QQ | | 121,078 | | | 17.30 | | 0.0767361 | | 17.3767361 |
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Depositary Shares, each representing a 1/1,000th interest in a share of 4.750%
Non-Cumulative Preferred Stock, Series SS | | 537,327 | | | 19.90 | | 0.0857639 | | 19.9857639 |
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Depositary Shares, each representing a 1/1,200th interest in a share of Floating Rate
Non-Cumulative Preferred Stock, Series 1 | | 106,361 | | | 18.92 | | 0.0571489 | | 18.9771489 |
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Depositary Shares, each representing a 1/1,200th interest in a share of Floating Rate
Non-Cumulative Preferred Stock, Series 5 | | 870,231 | | | 19.17 | | 0.0790691 | | 19.2490691 |
common stock pursuant(1)The liquidation preference attributable to exercise ofeach depositary share is $25.00.
(2)The total price paid per depositary shares equals the warrants hasapplicable Purchase Price for such depositary shares, plus, if applicable, the Accrued Dividends for such depositary shares.
n/a = 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. applicable
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 7 and 8 in the MD&A beginning on page 25, which are incorporated herein by reference.
[Reserved]
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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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Non-GAAP Reconciliations | | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
Bank of America Corporation (the “Corporation”)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: and in any of the Corporation’s subsequent Securities and Exchange Commission filings: the Corporation’s potential claims, damages,judgments, orders, settlements, penalties, fines and reputational damage resulting from pending or future litigation and regulatory investigations, proceedings and enforcement actions, including inquiries intoas a result of our retail sales practices,participation in and execution of government programs related to the Coronavirus Disease 2019 (COVID-19) pandemic, such as the processing of unemployment benefits for California and certain other states; 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; 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, inflationary and macroeconomic 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;uncertainties, including the impact of supply chain disruptions, inflationary pressures and labor shortages on economic conditions and our business; potential losses related to 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 guidancechanges in or additional information on our estimated impactinterpretations of the Tax Act;income tax laws and regulations; 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;cyber-attacks or campaigns; the risks related to the transition and physical impacts of climate change; our ability to achieve environmental, social and governance goals and commitments or the impact onof any changes in the Corporation’s sustainability strategy or commitments generally; the impact of any future federal government shutdown and uncertainty regarding the federal government’s debt limit or changes in fiscal, monetary or regulatory policy; the emergence or continuation of widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic and its impact on U.S. and/or global financial market conditions and our business, results of operations, financial condition and resultsprospects; the impact of operations fromnatural disasters, extreme weather events, military conflict (including the planned exitRussia/Ukraine conflict, the possible expansion of the United Kingdom from the European Union;such conflict and potential geopolitical consequences), 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, “Bank of America,�� “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, 2017,2022, the Corporation had approximately $2.3$3.1 trillion in assets and a headcount of approximately 209,000217,000 employees. Headcount remained relatively unchanged since December 31, 2016.
As of December 31, 2017,2022, 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 than 35 countries. Our retail banking footprint covers approximately 85 percent ofall major markets in the U.S. population,, and we serve approximately 4767 million consumer and small business relationshipsclients with approximately 4,5003,900 retail financial centers, approximately 16,000 ATMs, and leading digital banking platforms (www.bankofamerica.com) with approximately 3544 million active users, including approximately 2435 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$3.4 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 billionOn February 1, 2023, the Corporation’s Board of Directors (the Board) declared a quarterly common stock pursuantdividend of $0.22 per share, payable on March 31, 2023 to the Board’s repurchase authorizations under our 2017 and 2016 Comprehensive Capital Analysis and Review (CCAR) capital plans, including repurchases to offset equity-based compensation awards, and pursuant to an additional $5 billion share repurchase authorization approved by the Board and the Federal Reserve in December 2017. shareholders of record as of March 3, 2023.
For more information on our capital resources, see Capital Management on page 45.49.
ChangeChanges in U.S. Tax Law
On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which contained a number of tax-related provisions. The tax changes included the extension and expansion of renewable energy tax credit programs, the establishment of a new 15 percent alternative minimum tax (AMT) on adjusted financial statement income for large corporations and a one percent excise tax on stock repurchases. For more information, see Financial Highlights – Income Tax Expense on page 29.
Russia/Ukraine Conflict
Due to the Russia/Ukraine conflict, there has been significant volatility in financial and commodities markets, and multiple jurisdictions have implemented various economic sanctions. At December 22, 2017,31, 2022 and 2021, our direct net country exposure to Russia was $443 million and $733 million, primarily consisting of outstanding loans and leases totaling $391 million and $686 million, and our net country exposure to Ukraine was not significant. While the President signedCorporation’s direct exposure to Russia is limited, the potential duration, course and impact of the Russia/Ukraine conflict remain uncertain and could adversely affect macroeconomic and geopolitical conditions, which could negatively impact the Corporation's businesses, results of operations and financial position. For more
information on the risks related to the Russia/Ukraine conflict, see the Market, Credit and Geopolitical sections in Item 1A. Risk Factors on page 8.
LIBOR and Other Benchmark Rates
After December 31, 2021, ICE Benchmark Administration (IBA) ceased publishing British Pound Sterling (GBP), Euro, Swiss Franc, and Japanese Yen (JPY) London Interbank Offered Rate (LIBOR) settings and one-week and two-month U.S. dollar (USD) LIBOR settings, subject to the continued publication of certain non-representative LIBOR settings based on a modified calculation (i.e., on a “synthetic” basis). The remaining USD LIBOR settings (i.e., overnight, one month, three month, six month and 12 month) will cease or become non-representative immediately after June 30, 2023, although the Financial Conduct Authority (FCA) has issued a consultation seeking views on whether to compel publication of the one-month, three-month and six-month USD LIBOR settings on a “synthetic” basis for a short time after June 30, 2023 (i.e., through September 30, 2024). Separately, the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation (FDIC) issued supervisory guidance encouraging banks to cease entering into lawnew contracts that use USD LIBOR as a reference rate by December 31, 2021, subject to certain regulatory-approved exceptions (USD LIBOR Guidance).
As a result, a major transition has been and continues to be in progress in the Tax Cutsglobal financial markets with respect to the replacement of Interbank Offered Rates (IBORs). This has been and Jobs Act (the Tax Act) which made significant changescontinues 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 taxationbe a complex process impacting a variety of our non-U.S. business activities. Results for 2017 includedbusinesses and operations. IBORs have historically been 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. In response, the Corporation established an estimated reduction in net incomeenterprise-wide IBOR transition program, with active involvement of $2.9 billion duesenior management and regular reports to the Tax Act, driven largely by a lower valuationManagement Risk Committee (MRC) and Enterprise Risk Committee (ERC). The program continues to drive the Corporation's industry and regulatory engagement, client and financial contract changes, internal and external communications, technology and operations modifications, including updates to its operational models, systems and processes, introduction of new products, migration of existing clients, and program strategy and governance.
As of December 31, 2021, the Corporation transitioned or otherwise addressed IBOR-based products and contracts referencing the rates that ceased or became non-representative after December 31, 2021, including LIBOR-linked commercial loans, LIBOR-based adjustable-rate consumer mortgages, LIBOR-linked derivatives and interdealer trading of certain U.S. deferred tax assetsUSD LIBOR and liabilities. We have accounted forother interest rate swaps, and related hedging arrangements. Additionally, in accordance with the effects ofUSD LIBOR Guidance, the Tax Act using reasonable estimates based on currently available informationCorporation has ceased entering into new contracts that use USD LIBOR as a reference rate, subject to limited exceptions, including those consistent with supervisory guidance.
The Corporation launched capabilities and our interpretations thereof. This accounting may change dueservices to among other things, changes in interpretations we have made andsupport the issuance of new tax or accounting guidance.
Long-term Debt Exchange
In December 2017, pursuantand trading in products indexed to a private offering, we exchanged $11.0 billionvarious alternative reference rates (ARRs) and developed employee training programs as well as other internal and external sources 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.the various challenges and opportunities that the replacement of IBORs has presented and continues to present. The Corporation continues to monitor a variety of market scenarios as part of its transition efforts, including risks associated with insufficient preparation by
individual market participants or the overall market ecosystem, ability of market participants to meet regulatory and industry-wide recommended milestones, and access and demand by clients and market participants to liquidity in certain products, including LIBOR products.
SelectedWith respect to the transition of LIBOR products referencing USD LIBOR settings ceasing or becoming non-representative as of June 30, 2023, a significant majority of the Corporation’s notional contractual exposure to such LIBOR settings, of which the significant majority is derivatives contracts, have been remediated (i.e., updated to include fallback provisions to ARRs based on market-driven protocols, regulatory guidance and industry-recommended fallback provisions and related mechanisms), and the Corporation is continuing to remediate the remaining USD LIBOR exposure. For example, during the first half of 2023, certain central counterparties (CCPs) expect to complete processes to convert outstanding USD LIBOR-cleared derivatives to ARR positions. The remaining exposure, a majority of which is made up of derivatives and commercial loans and which represents a small minority of outstanding USD LIBOR notional contractual exposure of the Corporation, requires active dialogue with clients to modify the contracts. For any residual exposures after June 2023 that continue to have no fallback provisions, the Corporation continues to assess and plans to leverage relevant contractual and statutory solutions, including the Adjustable Interest Rate (LIBOR) Act in the U.S. (as implemented by the Federal Reserve) and “synthetic” USD LIBOR (if the FCA compels such publication), to transition such exposure.
While there remain risks to the Corporation associated with the transition from IBORs (as discussed under Item 1A. Risk Factors – Other on page 20), such risks have been monitored and, where applicable, managed through the Corporation’s efforts and dedicated operational resources to date. In the Corporation’s view, the potential likelihood and/or impact of transition-related risks has lessened over time, and the Corporation anticipates it has devoted appropriate resources to remaining transition efforts and will be able to continue to appropriately monitor and manage such risks as the transition process continues. The Corporation expects transition-related risks to further diminish as certain market developments occur prior to June 30, 2023.
The Corporation has implemented regulatory, tax and accounting changes and continues to monitor current and potential impacts of the transition, including Internal Revenue Service tax regulations and guidance and Financial DataAccounting Standards Board guidance. In addition, the Corporation has engaged impacted clients in connection with the transition by providing education on ARRs and the timing of transition events. The Corporation is also working actively with global regulators, industry working groups and trade associations.
Table 1 provides selected consolidated financial data for 2017For more information on the expected replacement of LIBOR and 2016.other benchmark rates, see Item 1A. Risk Factors – Other on page 20.
|
| | | | | | | | |
| | | | | |
| Table 1 | Selected Financial Data | | | |
| | | |
| (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.
|
Financial Highlights
| | | | | | | | | | | | | | | | | | |
| |
| Table 1 | Summary Income Statement and Selected Financial Data |
| | | | |
| (Dollars in millions, except per share information) | | | | | 2022 | | 2021 |
| Income statement | | | | | | | |
| Net interest income | | | | | $ | 52,462 | | | $ | 42,934 | |
| Noninterest income | | | | | 42,488 | | | 46,179 | |
| Total revenue, net of interest expense | | | | | 94,950 | | | 89,113 | |
| Provision for credit losses | | | | | 2,543 | | | (4,594) | |
| Noninterest expense | | | | | 61,438 | | | 59,731 | |
| Income before income taxes | | | | | 30,969 | | | 33,976 | |
| Income tax expense | | | | | 3,441 | | | 1,998 | |
| Net income | | | | | 27,528 | | | 31,978 | |
| Preferred stock dividends and other | | | | | 1,513 | | | 1,421 | |
| Net income applicable to common shareholders | | | | | $ | 26,015 | | | $ | 30,557 | |
| | | | | | | | |
| Per common share information | | | | | | | |
| Earnings | | | | | $ | 3.21 | | | $ | 3.60 | |
| Diluted earnings | | | | | 3.19 | | | 3.57 | |
| Dividends paid | | | | | 0.86 | | | 0.78 | |
| Performance ratios | | | | | | | |
Return on average assets (1) | | | | | 0.88 | % | | 1.05 | % |
Return on average common shareholders’ equity (1) | | | | | 10.75 | | | 12.23 | |
Return on average tangible common shareholders’ equity (2) | | | | | 15.15 | | | 17.02 | |
Efficiency ratio (1) | | | | | 64.71 | | | 67.03 | |
| | | | | | | |
| |
| Balance sheet at year end | | | | | | | |
| Total loans and leases | | | | | $ | 1,045,747 | | | $ | 979,124 | |
| Total assets | | | | | 3,051,375 | | | 3,169,495 | |
| Total deposits | | | | | 1,930,341 | | | 2,064,446 | |
| Total liabilities | | | | | 2,778,178 | | | 2,899,429 | |
| Total common shareholders’ equity | | | | | 244,800 | | | 245,358 | |
| Total shareholders’ equity | | | | | 273,197 | | | 270,066 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(1)For definitions, see Key Metrics on page 167.
(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 (GAAP), see Non-GAAP Reconciliations on page 85.
Net income was $18.2$27.5 billion, or $1.56$3.19 per diluted share in 20172022 compared to $17.8$32.0 billion, or $1.49$3.57 per diluted share in 2016.2021. The results for 2017 include an estimated charge of $2.9 billion relateddecrease in net income was primarily due to the Tax Act. The pre-tax results for 2017 compared to 2016 were driven by higher revenue, largely the result of an increase in net interest income, lower provision for credit losses, lower noninterest income and a declinehigher noninterest expense, partially offset by higher net interest income.
For discussion and analysis of our consolidated and business segment results of operations for 2021 compared to 2020, see Financial Highlights and Business Segment Operations sections in noninterest expense.
Effective October 1, 2017, we changed our accounting method for determining when certain stock-based compensation awards granted to retirement-eligible employees are deemed authorized, changing from the grant date to the beginningMD&A of the year preceding the grant date when the incentive award plans are generally approved. As a result, the estimated value of the awards is now expensed ratably over the year preceding the grant date. All prior periods presented herein have been restated for this change in accounting method. The change affected consolidated financial information and All Other; it did not affect the business segments. Under the applicable bank regulatory rules, we are not required to and, accordingly, did not restate previously-filed capital metrics and ratios. The cumulative impact of the change in accountingCorporation’s 2021 Annual Report on Form 10-K.
method resulted in an insignificant pro forma change to our capital metrics and ratios. For more information, see Note 1 - Summary of Significant Accounting Principles to the Consolidated Financial Statements.
|
| | | | | | | | |
| | | | | |
| Table 2 | Summary Income Statement | | | |
| | | | | |
| (Dollars in millions) | 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 |
|
Net Interest Income
Net interest income increased $3.6$9.5 billion to $44.7$52.5 billion in 20172022 compared to 2016. The net2021. Net interest yield on a fully taxable-equivalent (FTE) basis increased 11 bps30 basis points (bps) to 2.321.96 percent for 2017. These increases were2022. The increase was primarily driven by the benefits from higher interest rates, including lower premium amortization expense, and loan and deposit growth, partially offset by the salea lower amount of the non-U.S. consumer credit card businessaccelerated net capitalized loan fees due to Paycheck Protection Program (PPP) loan forgiveness, which primarily occurred in the second quarter of 2017.2021. For more information regardingon net interest yield and the FTE basis, see Supplemental Financial Data on page 32, and for
more information on interest rate risk management, see Interest Rate Risk Management for the Banking Book on page 81.79.
| | | | | | | | |
| Table 3 | Noninterest Income | | | | |
| Table 2 | | Table 2 | Noninterest Income | | |
| | | | | | |
| (Dollars in millions) | (Dollars in millions) | 2017 | | 2016 | (Dollars in millions) | | 2022 | | 2021 |
| Fees and commissions: | | Fees and commissions: | | |
| Card income | Card income | $ | 5,902 |
| | $ | 5,851 |
| Card income | | $ | 6,083 | | | $ | 6,218 | |
| Service charges | Service charges | 7,818 |
| | 7,638 |
| Service charges | | 6,405 | | | 7,504 | |
| Investment and brokerage services | Investment and brokerage services | 13,281 |
| | 12,745 |
| Investment and brokerage services | | 15,901 | | | 16,690 | |
| 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 | | 4,823 | | | 8,887 | |
| Total fees and commissions | | Total fees and commissions | | 33,212 | | | 39,299 | |
| Market making and similar activities | | Market making and similar activities | | 12,075 | | | 8,691 | |
| | Other income | Other income | 1,917 |
| | 1,885 |
| Other income | | (2,799) | | | (1,811) | |
| | Total noninterest income | Total noninterest income | $ | 42,685 |
| | $ | 42,605 |
| Total noninterest income | | $ | 42,488 | | | $ | 46,179 | |
Noninterest income increased$80 milliondecreased $3.7 billion to $42.7$42.5 billion for 20172022 compared to 2016.2021. The following highlights the significant changes.
| |
● | Service charges increased $180 million primarily driven by the impact of pricing strategies and higher treasury services-related revenue. |
| |
● | Investment and brokerage services income increased$536 million primarily driven by the impact of assets under management (AUM) flows and higher market valuations, partially offset by the impact of changing market dynamics on transactional revenue and AUM pricing.● Service charges decreased $1.1 billion primarily driven by the impact of non-sufficient funds and overdraft policy changes as well as lower treasury service charges. ● Investment and brokerage services decreased $789 million primarily driven by lower market valuations and declines in assets under management (AUM) pricing, partially offset by positive AUM flows. ● Investment banking fees decreased $4.1 billion primarily driven by a decline in demand resulting in lower equity and debt issuance fees and lower advisory fees. ● Market making and similar activities increased $3.4 billion primarily driven by improved performance across macro products in fixed income, currencies and commodities (FICC) and by the impact of higher interest rates on client financing activities in Equities. ● Other income decreased $988 million primarily due to certain valuation adjustments. |
| |
● | Investment banking income increased $770 million primarily due to higher advisory fees and higher debt and equity issuance fees. |
| |
● | Trading account profits increased $375 million primarily due to increased client financing activity in equities, partially offset by weaker performance across most fixed-income products. |
| |
● | Mortgage banking income decreased $1.6 billion primarily driven by lower net servicing income due to lower net mortgage servicing rights (MSR) results, and lower production income primarily due to lower volume. |
| |
● | Gains on sales of debt securities decreased $235 million primarily driven by lower activity. |
| |
● | Other income remained relatively unchanged. Included was a $793 million pre-tax gain recognized in connection with the sale of the non-U.S. consumer credit card business and a downward valuation adjustment of $946 million on tax-advantaged energy investments in connection with the Tax Act. |
Provision for Credit Losses
The provision for credit losses decreased $201 millionincreased $7.1 billion to $3.4$2.5 billion for 20172022 compared to 20162021. The provision for credit losses for 2022 was primarily due to reductions in
energy exposures in the commercial portfoliodriven by loan growth and credit quality improvements in the consumer real estate portfolio. This wasa dampened macroeconomic outlook, partially offset by portfolio seasoning and loan growtha reserve release for reduced COVID-19 pandemic (the pandemic) uncertainties. For the same period in the U.S.prior year, the benefit in the provision for credit card portfolio and a single-name non-U.S. commercial charge-off.losses was due to an improved macroeconomic outlook. For more information on the provision for credit losses, see ProvisionAllowance for Credit Losses on page 72.73.
Noninterest Expense
| | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table 3 | Noninterest Expense | | | | | | | |
| | | | | | | | |
| | | | |
| (Dollars in millions) | | | | | 2022 | | 2021 |
| Compensation and benefits | | | | | $ | 36,447 | | | $ | 36,140 | |
| Occupancy and equipment | | | | | 7,071 | | | 7,138 | |
| Information processing and communications | | | | | 6,279 | | | 5,769 | |
| Product delivery and transaction related | | | | | 3,653 | | | 3,881 | |
| Marketing | | | | | 1,825 | | | 1,939 | |
| Professional fees | | | | | 2,142 | | | 1,775 | |
| Other general operating | | | | | 4,021 | | | 3,089 | |
| Total noninterest expense | | | | | $ | 61,438 | | | $ | 59,731 | |
|
| | | | | | | | |
| | | | | |
| Table 4 | Noninterest Expense | | | |
| | | |
| (Dollars in millions) | 2017 | | 2016 |
| Personnel | $ | 31,642 |
| | $ | 31,748 |
|
| Occupancy | 4,009 |
| | 4,038 |
|
| Equipment | 1,692 |
| | 1,804 |
|
| Marketing | 1,746 |
| | 1,703 |
|
| Professional fees | 1,888 |
| | 1,971 |
|
| Data processing | 3,139 |
| | 3,007 |
|
| Telecommunications | 699 |
| | 746 |
|
| Other general operating | 9,928 |
| | 10,066 |
|
| Total noninterest expense | $ | 54,743 |
| | $ | 55,083 |
|
Noninterest expense decreased $340 millionincreased $1.7 billion to $54.7$61.4 billion for 2017in 2022 compared to 2016.2021. The decreaseincrease was primarily due to lower operating costs, a reduction fromhigher investments in people and technology, expense associated with the salesettlement of the non-U.S. consumer credit card businesslegacy monoline insurance litigation and lower litigation expense related to certain regulatory matters, partially offset by a $316 million impairment chargelower net COVID-19 related to certain data centers in the process of being sold and $145 million for the shared success discretionary year-end bonus awarded to certain employees.costs.
Income Tax Expense
| | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table 4 | Income Tax Expense | | | | | | | |
| | | | | | | | |
| | | | |
| (Dollars in millions) | | | | | 2022 | | 2021 |
| Income before income taxes | | | | | $ | 30,969 | | | $ | 33,976 | |
| Income tax expense | | | | | 3,441 | | | 1,998 | |
| Effective tax rate | | | | | 11.1 | % | | 5.9 | % |
|
| | | | | | | | |
| | | | | |
| Table 5 | Income Tax Expense | | | |
| | | |
| (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 | % |
Tax expenseThe effective tax rates for 20172022 and 2021 were primarily driven by our recurring preference benefits. Also included a charge of $1.9 billion reflecting the impact of the Tax Act discussed below. Included in the tax charge was $2.3 billion related primarily to a lower valuation of certain deferred tax assets and liabilities and a $347 million tax benefit on the pre-tax loss from the lower valuation of our tax-advantaged energy investments. Other than the impact of the Tax Act, the effective tax rate for 20172021 was driven bythe impact of the 2021 U.K. tax law change further discussed in this section. For more information on our recurring tax preference benefits, as well as an expense recognized in connection with the sale of the non-U.S. consumer credit card business, largely offset by benefits related see Note 19 – Income Taxes to the adoption ofConsolidated Financial Statements. Absent environmental, social and governance (ESG) tax credits and discrete tax benefits, the new accounting standard for the tax impact associated with share-based compensation and the restructuring of certain subsidiaries. The effective tax raterates would have been approximately 25 percent.
On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which contained a number of tax-related provisions, including the extension and expansion of renewable energy tax credit programs. In particular, partnerships are no longer solely limited to an Investment Tax Credit, but can now also elect a Production Tax Credit 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.solar energy production facilities placed in service after December 31, 2021.
Other notable tax law changes include the establishment of a new 15 percent AMT on adjusted financial statement income for large corporations and a one percent excise tax on net stock repurchases, both of which were effective for tax years beginning on or after January 1, 2023. The tax law changes for the new AMT permit business credits, including those from ESG investments in renewable energy and affordable housing, to offset potential AMT liability. The Corporation has assessed the potential impacts of these two U.S. tax law changes and does not expect the changes to have a significant effect on its future effective tax rate.
On June 10, 2021, the U.K. enacted the 2021 Finance Act, which increased the U.K. corporation income tax rate to 25 percent from 19 percent. This change is effective April 1, 2023 and unfavorably affects income tax expense on future U.K. earnings. As a result, during the three months ended June 30, 2021, the Corporation recorded a positive income tax adjustment of approximately $2.0 billion with a corresponding write-up of U.K. net deferred tax assets, which reflected a reversal of previously recorded write-downs of net deferred tax assets for prior changes in 2016.the U.K. corporation income tax rate.
On December 22, 2017, the President signed into law the Tax Act which made significant changes to federal income tax law including, among other things, reducing the statutory corporate income tax rate to 21 percent from 35 percent and changing the taxation of our non-U.S. business activities. Results for 2017 included an estimated reduction in net income of $2.9 billion due to the Tax Act, driven largely by a lower valuation of certain U.S. deferred tax assets and liabilities. Additionally, the change in the corporate income tax rate impacted our tax-advantaged energy investments, resulting in a downward valuation adjustment of $946 million recorded in other income that was fully offset by tax benefits arising from lower deferred tax liabilities on these investments. We have accounted for the effects of the Tax Act using reasonable estimates based on currently available
information and our interpretations thereof. This accounting may change due to, among other things, changes in interpretations we have made and the issuance of new tax or accounting guidance.
We expect the effective tax rate for 2018 to be approximately 20 percent, absent unusual items.
Our U.K. deferred tax assets, which consist primarily of net operating losses, are expected to be realized by certain subsidiaries over a number of years. Significant changes to management’s earnings forecasts for those subsidiaries, changes in applicable laws, further changes in tax laws or changes in the ability of our U.K. subsidiaries to conduct business in the EU, could lead management to reassess our ability to realize the U.K. deferred tax assets.
Balance Sheet Overview
| | | | | | | | | | |
| Table 6 | Selected Balance Sheet Data | | | | | | |
| Table 5 | | Table 5 | Selected Balance Sheet Data | | |
| | | | | | | | | |
| | | December 31 | | | | | December 31 | | |
| (Dollars in millions) | (Dollars in millions) | 2017 | | 2016 | | % Change | (Dollars in millions) | 2022 | | 2021 | | $ Change | | % Change | |
| Assets | Assets | |
| | |
| | | Assets | | | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 157,434 |
| | $ | 147,738 |
| | 7 | % | Cash and cash equivalents | $ | 230,203 | | | $ | 348,221 | | | $ | (118,018) | | | (34) | % | |
| 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 | 267,574 | | | 250,720 | | | 16,854 | | | 7 | | |
| Trading account assets | Trading account assets | 209,358 |
| | 180,209 |
| | 16 |
| Trading account assets | 296,108 | | | 247,080 | | | 49,028 | | | 20 | | |
| Debt securities | Debt securities | 440,130 |
| | 430,731 |
| | 2 |
| Debt securities | 862,819 | | | 982,627 | | | (119,808) | | | (12) | | |
| Loans and leases | Loans and leases | 936,749 |
| | 906,683 |
| | 3 |
| Loans and leases | 1,045,747 | | | 979,124 | | | 66,623 | | | 7 | | |
| Allowance for loan and lease losses | Allowance for loan and lease losses | (10,393 | ) | | (11,237 | ) | | (8 | ) | Allowance for loan and lease losses | (12,682) | | | (12,387) | | | (295) | | | 2 | | |
| All other assets | All other assets | 335,209 |
| | 335,719 |
| | — |
| All other assets | 361,606 | | | 374,110 | | | (12,504) | | | (3) | | |
| Total assets | Total assets | $ | 2,281,234 |
| | $ | 2,188,067 |
| | 4 |
| Total assets | $ | 3,051,375 | | | $ | 3,169,495 | | | $ | (118,120) | | | (4) | | |
| Liabilities | Liabilities | | | | | | Liabilities | | | |
| Deposits | Deposits | $ | 1,309,545 |
| | $ | 1,260,934 |
| | 4 |
| Deposits | $ | 1,930,341 | | | $ | 2,064,446 | | | $ | (134,105) | | | (6) | | |
| 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 | 195,635 | | | 192,329 | | | 3,306 | | | 2 | | |
| Trading account liabilities | Trading account liabilities | 81,187 |
| | 63,031 |
| | 29 |
| Trading account liabilities | 80,399 | | | 100,690 | | | (20,291) | | | (20) | | |
| Short-term borrowings | Short-term borrowings | 32,666 |
| | 23,944 |
| | 36 |
| Short-term borrowings | 26,932 | | | 23,753 | | | 3,179 | | | 13 | | |
| Long-term debt | Long-term debt | 227,402 |
| | 216,823 |
| | 5 |
| Long-term debt | 275,982 | | | 280,117 | | | (4,135) | | | (1) | | |
| All other liabilities | All other liabilities | 186,423 |
| | 186,849 |
| | — |
| All other liabilities | 268,889 | | | 238,094 | | | 30,795 | | | 13 | | |
| Total liabilities | Total liabilities | 2,014,088 |
| | 1,921,872 |
| | 5 |
| Total liabilities | 2,778,178 | | | 2,899,429 | | | (121,251) | | | (4) | | |
| Shareholders’ equity | Shareholders’ equity | 267,146 |
| | 266,195 |
| | — |
| Shareholders’ equity | 273,197 | | | 270,066 | | | 3,131 | | | 1 | | |
| Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 2,281,234 |
| | $ | 2,188,067 |
| | 4 |
| Total liabilities and shareholders’ equity | $ | 3,051,375 | | | $ | 3,169,495 | | | $ | (118,120) | | | (4) | | |
Assets
At December 31, 2017,2022, total assets were approximately $2.3$3.1 trillion, up $93.2down $118.1 billion from December 31, 2016.2021. The increasedecrease in assets was primarily due to higherlower debt securities and cash and cash equivalents, partially offset by an increase in loans and leases, driven by client demand for commercial loans, higher trading account assets and federal funds sold and securities borrowed or purchased under agreements to resell due to increased customer activity, and higher cash and cash equivalents and debt securities driven by the deployment of deposit inflows.resell.
Cash and Cash Equivalents
Cash and cash equivalents increased $9.7decreased $118.0 billion primarily driven by deposit growthlower deposits and net debt issuances, partially offset bycontinued 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$16.9 billion primarily due to a higher level of customer financing activity.client activity within Global Markets.
Trading Account Assets
Trading account assets consist primarily of long positions in equity and fixed-income securities including U.S. government and agency securities, corporate securities and non-U.S. sovereign debt. Trading account assets increased $29.1$49.0 billion primarily driven by additional inventory in fixed-income, currencies and commodities (FICC)due to meet expected client demand and increased client financing activities in equitiesactivity 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 ofleverage market conditions that create economically attractive returns on these investments. Debt securities increased $9.4decreased $119.8 billion primarily driven by the deployment of deposit inflows.lower deposits and continued loan growth. For more information on debt securities, see Note 34 – Securities to the Consolidated Financial Statements.
Loans and Leases
Loans and leases increased $30.1$66.6 billion compared to December 31, 2016. The increase was primarily driven by growth in commercial loans, higher credit card spending and higher residential mortgages due to net loan growth driven by strong client demand for commercial loanslower paydowns and increases in
residential mortgage.continued originations. For more information on the loan portfolio, see Credit Risk Management on page 54.59.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses decreased $844increased $295 million primarily due to the impact of improvements in credit quality fromdriven by loan growth and a stronger economy.dampened macroeconomic outlook, partially offset by a reserve release for reduced pandemic uncertainties. For more information, see Allowance for Credit Losses on page 72.73.
All Other Assets
All other assets decreased $12.5 billion primarily driven by a decline in margin loans and loans held-for-sale (LHFS).
Liabilities
At December 31, 2017,2022, total liabilities were approximately $2.0$2.8 trillion, up $92.2down $121.3 billion from December 31, 2016,2021, 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.lower deposits.
Deposits
Deposits increased $48.6decreased $134.1 billion primarily due to an increase in retail deposits.customer spending and a shift to higher yielding accounts.
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$3.3 billion primarily due todriven by an increase in repurchase agreements.agreements to support liquidity.
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.debt and corporate securities. Trading account liabilities increased $18.2decreased $20.3 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 $8.7$3.2 billion primarily due to an increase in short-term bank notesFHLB advances and short-term FHLB Advances.commercial paper to manage liquidity needs. For more information on short-term borrowings, see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements, and Short-term Borrowings, Collateral and Restricted Cash to the Consolidated Financial Statements.
Long-term Debt
Long-term debt increased $10.6decreased $4.1 billion primarily drivendue to maturities, redemptions and valuation adjustments, partially offset by issuances outpacing maturities and redemptions.issuances. For more information on long-term debt, see Note 11 – Long-term Debt to the Consolidated Financial Statements.
All Other Liabilities
All other liabilities increased $30.8 billion primarily driven by Global Markets client activity.
Shareholders’ Equity
Shareholders’ equity increased $1.0$3.1 billion drivenprimarily due to net income and the issuance of preferred stock, partially offset by earnings, largely offset bymarket value decreases on derivatives and debt securities, and returns of capital to shareholders of $18.4 billion through common and preferred stock dividends and sharecommon stock repurchases.
Cash Flows Overview
The Corporation’s operating assets and liabilities support our global markets and lending activities. We believe that cash flows from operations, available cash balances and our ability to generate cash through short- and long-term debt are sufficient to fund our operating liquidity needs. Our investing activities primarily include the debt securities portfolio and loans and leases. Our financing activities reflect cash flows primarily related to customer deposits, securities financing agreements, long-term debt and long-term debt.common and preferred stock. For more information on liquidity, see Liquidity Risk on page 49.54.
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| 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.
|
Bank of America 201726
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 areare:
● Return on average tangible common shareholders’ equity measures our net income applicable to common shareholders as follows: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 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 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 88.85.
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 167.
Our consolidated key performance indicators, which include various equity and credit metrics, are presented in Table 1 on page 28, Table 6 on page 33 and Table 7 on page 34.
For information on key segment performance metrics, see Business Segment Operations on page 37.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| 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 6 | Selected Annual Financial Data | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| (In millions, except per share information) | 2022 | | 2021 | | 2020 | | | | | | | | | | | | | | |
| Income statement | | | | | | | | | | | | | | | | | | | |
| Net interest income | $ | 52,462 | | | $ | 42,934 | | | $ | 43,360 | | | | | | | | | | | | | | | |
| Noninterest income | 42,488 | | | 46,179 | | | 42,168 | | | | | | | | | | | | | | | |
| Total revenue, net of interest expense | 94,950 | | | 89,113 | | | 85,528 | | | | | | | | | | | | | | | |
| Provision for credit losses | 2,543 | | | (4,594) | | | 11,320 | | | | | | | | | | | | | | | |
| Noninterest expense | 61,438 | | | 59,731 | | | 55,213 | | | | | | | | | | | | | | | |
| Income before income taxes | 30,969 | | | 33,976 | | | 18,995 | | | | | | | | | | | | | | | |
| Income tax expense | 3,441 | | | 1,998 | | | 1,101 | | | | | | | | | | | | | | | |
| Net income | 27,528 | | | 31,978 | | | 17,894 | | | | | | | | | | | | | | | |
| Net income applicable to common shareholders | 26,015 | | | 30,557 | | | 16,473 | | | | | | | | | | | | | | | |
| Average common shares issued and outstanding | 8,113.7 | | | 8,493.3 | | | 8,753.2 | | | | | | | | | | | | | | | |
| Average diluted common shares issued and outstanding | 8,167.5 | | | 8,558.4 | | | 8,796.9 | | | | | | | | | | | | | | | |
| Performance ratios | | | | | | | | | | | | | | | | | | | |
Return on average assets (1) | 0.88 | % | | 1.05 | % | | 0.67 | % | | | | | | | | | | | | | | |
Return on average common shareholders’ equity (1) | 10.75 | | | 12.23 | | | 6.76 | | | | | | | | | | | | | | | |
Return on average tangible common shareholders’ equity (1, 2) | 15.15 | | | 17.02 | | | 9.48 | | | | | | | | | | | | | | | |
Return on average shareholders’ equity (1) | 10.18 | | | 11.68 | | | 6.69 | | | | | | | | | | | | | | | |
Return on average tangible shareholders’ equity (1, 2) | 13.76 | | | 15.71 | | | 9.07 | | | | | | | | | | | | | | | |
| Total ending equity to total ending assets | 8.95 | | | 8.52 | | | 9.68 | | | | | | | | | | | | | | | |
Common equity ratio (1) | 8.02 | | | 7.74 | | | 8.81 | | | | | | | | | | | | | | | |
| Total average equity to total average assets | 8.62 | | | 9.02 | | | 9.96 | | | | | | | | | | | | | | | |
Dividend payout (1) | 26.77 | | | 21.51 | | | 38.18 | | | | | | | | | | | | | | | |
| Per common share data | | | | | | | | | | | | | | | | | | | |
| Earnings | $ | 3.21 | | | $ | 3.60 | | | $ | 1.88 | | | | | | | | | | | | | | | |
| Diluted earnings | 3.19 | | | 3.57 | | | 1.87 | | | | | | | | | | | | | | | |
| Dividends paid | 0.86 | | | 0.78 | | | 0.72 | | | | | | | | | | | | | | | |
Book value (1) | 30.61 | | | 30.37 | | | 28.72 | | | | | | | | | | | | | | | |
Tangible book value (2) | 21.83 | | | 21.68 | | | 20.60 | | | | | | | | | | | | | | | |
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| Market capitalization | $ | 264,853 | | | $ | 359,383 | | | $ | 262,206 | | | | | | | | | | | | | | | |
| Average balance sheet | | | | | | | | | | | | | | | | | | | |
| Total loans and leases | $ | 1,016,782 | | | $ | 920,401 | | | $ | 982,467 | | | | | | | | | | | | | | | |
| Total assets | 3,135,894 | | | 3,034,623 | | | 2,683,122 | | | | | | | | | | | | | | | |
| Total deposits | 1,986,158 | | | 1,914,286 | | | 1,632,998 | | | | | | | | | | | | | | | |
| Long-term debt | 246,479 | | | 237,703 | | | 220,440 | | | | | | | | | | | | | | | |
| Common shareholders’ equity | 241,981 | | | 249,787 | | | 243,685 | | | | | | | | | | | | | | | |
| Total shareholders’ equity | 270,299 | | | 273,757 | | | 267,309 | | | | | | | | | | | | | | | |
| Asset quality | | | | | | | | | | | | | | | | | | | |
Allowance for credit losses (3) | $ | 14,222 | | | $ | 13,843 | | | $ | 20,680 | | | | | | | | | | | | | | | |
Nonperforming loans, leases and foreclosed properties (4) | 3,978 | | | 4,697 | | | 5,116 | | | | | | | | | | | | | | | |
Allowance for loan and lease losses as a percentage of total loans and leases outstanding (4) | 1.22 | % | | 1.28 | % | | 2.04 | % | | | | | | | | | | | | | | |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (4) | 333 | | | 271 | | | 380 | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | |
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| Net charge-offs | $ | 2,172 | | | $ | 2,243 | | | $ | 4,121 | | | | | | | | | | | | | | | |
Net charge-offs as a percentage of average loans and leases outstanding (4) | 0.21 | % | | 0.25 | % | | 0.42 | % | | | | | | | | | | | | | | |
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Capital ratios at year end (5) | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Common equity tier 1 capital | 11.2 | % | | 10.6 | % | | 11.9 | % | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Tier 1 capital | 13.0 | | | 12.1 | | | 13.5 | | | | | | | | | | | | | | | |
| Total capital | 14.9 | | | 14.1 | | | 16.1 | | | | | | | | | | | | | | | |
| Tier 1 leverage | 7.0 | | | 6.4 | | | 7.4 | | | | | | | | | | | | | | | |
| Supplementary leverage ratio | 5.9 | | | 5.5 | | | 7.2 | | | | | | | | | | | | | | | |
Tangible equity (2) | 6.8 | | | 6.4 | | | 7.4 | | | | | | | | | | | | | | | |
Tangible common equity (2) | 5.9 | | | 5.7 | | | 6.5 | | | | | | | | | | | | | | | |
(1)For definition, see Key Metrics on page 167.
(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 32 and Non-GAAP Reconciliations on page 85.
(3)Includes the allowance for loan and leases losses and the reserve for unfunded lending commitments.
(4)Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 63 and corresponding Table 27 and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 68 and corresponding Table 34.
(5)For more information, including which approach is used to assess capital adequacy, see Capital Management on page 49.
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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 7 | Selected Quarterly Financial Data | | | | | | | | | | | | | | | | | | | | | | |
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| | 2022 Quarters | | 2021 Quarters | | | | | | |
| (In millions, except per share information) | Fourth | | Third | | Second | | First | | Fourth | | | | | | Third | | Second | | First | | | | | | |
| Income statement | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest income | $ | 14,681 | | | $ | 13,765 | | | $ | 12,444 | | | $ | 11,572 | | | $ | 11,410 | | | | | | | $ | 11,094 | | | $ | 10,233 | | | $ | 10,197 | | | | | | | |
| Noninterest income | 9,851 | | | 10,737 | | | 10,244 | | | 11,656 | | | 10,650 | | | | | | | 11,672 | | | 11,233 | | | 12,624 | | | | | | | |
| Total revenue, net of interest expense | 24,532 | | | 24,502 | | | 22,688 | | | 23,228 | | | 22,060 | | | | | | | 22,766 | | | 21,466 | | | 22,821 | | | | | | | |
| Provision for credit losses | 1,092 | | | 898 | | | 523 | | | 30 | | | (489) | | | | | | | (624) | | | (1,621) | | | (1,860) | | | | | | | |
| Noninterest expense | 15,543 | | | 15,303 | | | 15,273 | | | 15,319 | | | 14,731 | | | | | | | 14,440 | | | 15,045 | | | 15,515 | | | | | | | |
| Income before income taxes | 7,897 | | | 8,301 | | | 6,892 | | | 7,879 | | | 7,818 | | | | | | | 8,950 | | | 8,042 | | | 9,166 | | | | | | | |
| Income tax expense | 765 | | | 1,219 | | | 645 | | | 812 | | | 805 | | | | | | | 1,259 | | | (1,182) | | | 1,116 | | | | | | | |
| Net income | 7,132 | | | 7,082 | | | 6,247 | | | 7,067 | | | 7,013 | | | | | | | 7,691 | | | 9,224 | | | 8,050 | | | | | | | |
| Net income applicable to common shareholders | 6,904 | | | 6,579 | | | 5,932 | | | 6,600 | | | 6,773 | | | | | | | 7,260 | | | 8,964 | | | 7,560 | | | | | | | |
| Average common shares issued and outstanding | 8,088.3 | | | 8,107.7 | | | 8,121.6 | | | 8,136.8 | | | 8,226.5 | | | | | | | 8,430.7 | | | 8,620.8 | | | 8,700.1 | | | | | | | |
| Average diluted common shares issued and outstanding | 8,155.7 | | | 8,160.8 | | | 8,163.1 | | | 8,202.1 | | | 8,304.7 | | | | | | | 8,492.8 | | | 8,735.5 | | | 8,755.6 | | | | | | | |
| Performance ratios | | | | | | | | | | | | | | | | | | | | | | | | | |
Return on average assets (1) | 0.92 | % | | 0.90 | % | | 0.79 | % | | 0.89 | % | | 0.88 | % | | | | | | 0.99 | % | | 1.23 | % | | 1.13 | % | | | | | | |
Four-quarter trailing return on average assets (2) | 0.88 | | | 0.87 | | | 0.89 | | | 0.99 | | | 1.05 | | | | | | | 1.04 | | | 0.97 | | | 0.79 | | | | | | | |
Return on average common shareholders’ equity (1) | 11.24 | | | 10.79 | | | 9.93 | | | 11.02 | | | 10.90 | | | | | | | 11.43 | | | 14.33 | | | 12.28 | | | | | | | |
Return on average tangible common shareholders’ equity (3) | 15.79 | | | 15.21 | | | 14.05 | | | 15.51 | | | 15.25 | | | | | | | 15.85 | | | 19.90 | | | 17.08 | | | | | | | |
Return on average shareholders’ equity (1) | 10.38 | | | 10.37 | | | 9.34 | | | 10.64 | | | 10.27 | | | | | | | 11.08 | | | 13.47 | | | 11.91 | | | | | | | |
Return on average tangible shareholders’ equity (3) | 13.98 | | | 13.99 | | | 12.66 | | | 14.40 | | | 13.87 | | | | | | | 14.87 | | | 18.11 | | | 16.01 | | | | | | | |
| Total ending equity to total ending assets | 8.95 | | | 8.77 | | | 8.65 | | | 8.23 | | | 8.52 | | | | | | | 8.83 | | | 9.15 | | | 9.23 | | | | | | | |
Common equity ratio (1) | 8.02 | | | 7.82 | | | 7.71 | | | 7.40 | | | 7.74 | | | | | | | 8.07 | | | 8.37 | | | 8.41 | | | | | | | |
| Total average equity to total average assets | 8.87 | | | 8.73 | | | 8.49 | | | 8.40 | | | 8.56 | | | | | | | 8.95 | | | 9.11 | | | 9.52 | | | | | | | |
Dividend payout (1) | 25.71 | | | 27.06 | | | 28.68 | | | 25.86 | | | 25.33 | | | | | | | 24.10 | | | 17.25 | | | 20.68 | | | | | | | |
| Per common share data | | | | | | | | | | | | | | | | | | | | | | | | | |
| Earnings | $ | 0.85 | | | $ | 0.81 | | | $ | 0.73 | | | $ | 0.81 | | | $ | 0.82 | | | | | | | $ | 0.86 | | | $ | 1.04 | | | $ | 0.87 | | | | | | | |
| Diluted earnings | 0.85 | | | 0.81 | | | 0.73 | | | 0.80 | | | 0.82 | | | | | | | 0.85 | | | 1.03 | | | 0.86 | | | | | | | |
| Dividends paid | 0.22 | | | 0.22 | | | 0.21 | | | 0.21 | | | 0.21 | | | | | | | 0.21 | | | 0.18 | | | 0.18 | | | | | | | |
Book value (1) | 30.61 | | | 29.96 | | | 29.87 | | | 29.70 | | | 30.37 | | | | | | | 30.22 | | | 29.89 | | | 29.07 | | | | | | | |
Tangible book value (3) | 21.83 | | | 21.21 | | | 21.13 | | | 20.99 | | | 21.68 | | | | | | | 21.69 | | | 21.61 | | | 20.90 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Market capitalization | $ | 264,853 | | | $ | 242,338 | | | $ | 250,136 | | | $ | 332,320 | | | $ | 359,383 | | | | | | | $ | 349,841 | | | $ | 349,925 | | | $ | 332,337 | | | | | | | |
| Average balance sheet | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total loans and leases | $ | 1,039,247 | | | $ | 1,034,334 | | | $ | 1,014,886 | | | $ | 977,793 | | | $ | 945,062 | | | | | | | $ | 920,509 | | | $ | 907,900 | | | $ | 907,723 | | | | | | | |
| Total assets | 3,074,289 | | | 3,105,546 | | | 3,157,885 | | | 3,207,702 | | | 3,164,118 | | | | | | | 3,076,452 | | | 3,015,113 | | | 2,879,221 | | | | | | | |
| Total deposits | 1,925,544 | | | 1,962,775 | | | 2,012,079 | | | 2,045,811 | | | 2,017,223 | | | | | | | 1,942,705 | | | 1,888,834 | | | 1,805,747 | | | | | | | |
| Long-term debt | 243,871 | | | 250,204 | | | 245,781 | | | 246,042 | | | 248,525 | | | | | | | 248,988 | | | 232,034 | | | 220,836 | | | | | | | |
| Common shareholders’ equity | 243,647 | | | 241,882 | | | 239,523 | | | 242,865 | | | 246,519 | | | | | | | 252,043 | | | 250,948 | | | 249,648 | | | | | | | |
| Total shareholders’ equity | 272,629 | | | 271,017 | | | 268,197 | | | 269,309 | | | 270,883 | | | | | | | 275,484 | | | 274,632 | | | 274,047 | | | | | | | |
| Asset quality | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for credit losses (4) | $ | 14,222 | | | $ | 13,817 | | | $ | 13,434 | | | $ | 13,483 | | | $ | 13,843 | | | | | | | $ | 14,693 | | | $ | 15,782 | | | $ | 17,997 | | | | | | | |
Nonperforming loans, leases and foreclosed properties (5) | 3,978 | | | 4,156 | | | 4,326 | | | 4,778 | | | 4,697 | | | | | | | 4,831 | | | 5,031 | | | 5,299 | | | | | | | |
Allowance for loan and lease losses as a percentage of total loans and leases outstanding (5) | 1.22 | % | | 1.20 | % | | 1.17 | % | | 1.23 | % | | 1.28 | % | | | | | | 1.43 | % | | 1.55 | % | | 1.80 | % | | | | | | |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5) | 333 | | | 309 | | | 288 | | | 262 | | | 271 | | | | | | | 279 | | | 287 | | | 313 | | | | | | | |
| Net charge-offs | $ | 689 | | | $ | 520 | | | $ | 571 | | | $ | 392 | | | $ | 362 | | | | | | | $ | 463 | | | $ | 595 | | | $ | 823 | | | | | | | |
Annualized net charge-offs as a percentage of average loans and leases outstanding (5) | 0.26 | % | | 0.20 | % | | 0.23 | % | | 0.16 | % | | 0.15 | % | | | | | | 0.20 | % | | 0.27 | % | | 0.37 | % | | | | | | |
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Capital ratios at period end (6) | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Common equity tier 1 capital | 11.2 | % | | 11.0 | % | | 10.5 | % | | 10.4 | % | | 10.6 | % | | | | | | 11.1 | % | | 11.5 | % | | 11.8 | % | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Tier 1 capital | 13.0 | | | 12.8 | | | 12.3 | | | 12.0 | | | 12.1 | | | | | | | 12.6 | | | 13.0 | | | 13.3 | | | | | | | |
| Total capital | 14.9 | | | 14.7 | | | 14.2 | | | 14.0 | | | 14.1 | | | | | | | 14.7 | | | 15.1 | | | 15.6 | | | | | | | |
| Tier 1 leverage | 7.0 | | | 6.8 | | | 6.5 | | | 6.3 | | | 6.4 | | | | | | | 6.6 | | | 6.9 | | | 7.2 | | | | | | | |
| Supplementary leverage ratio | 5.9 | | | 5.8 | | | 5.5 | | | 5.4 | | | 5.5 | | | | | | | 5.6 | | | 5.9 | | | 7.0 | | | | | | | |
Tangible equity (3) | 6.8 | | | 6.6 | | | 6.5 | | | 6.2 | | | 6.4 | | | | | | | 6.7 | | | 7.0 | | | 7.0 | | | | | | | |
Tangible common equity (3) | 5.9 | | | 5.7 | | | 5.6 | | | 5.3 | | | 5.7 | | | | | | | 5.9 | | | 6.2 | | | 6.2 | | | | | | | |
| Total loss-absorbing capacity and long-term debt metrics | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total loss-absorbing capacity to risk-weighted assets | 29.0 | % | | 28.9 | % | | 27.8 | % | | 27.2 | % | | 26.9 | % | | | | | | 27.7 | % | | 27.7 | % | | 26.8 | % | | | | | | |
| Total loss-absorbing capacity to supplementary leverage exposure | 13.2 | | | 13.0 | | | 12.6 | | | 12.2 | | | 12.1 | | | | | | | 12.4 | | | 12.5 | | | 14.1 | | | | | | | |
| Eligible long-term debt to risk-weighted assets | 15.2 | | | 15.2 | | | 14.7 | | | 14.4 | | | 14.1 | | | | | | | 14.4 | | | 14.1 | | | 13.0 | | | | | | | |
| Eligible long-term debt to supplementary leverage exposure | 6.9 | | | 6.8 | | | 6.6 | | | 6.5 | | | 6.3 | | | | | | | 6.4 | | | 6.3 | | | 6.8 | | | | | | | |
(1)For definitions, see Key Metrics on page 167.
(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 32 and Non-GAAP Reconciliations on page 85.
(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 64 and corresponding Table 27 and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 68 and corresponding Table 34.
(6)For more information, including which approach is used to assess capital adequacy, see Capital Management on page 49.
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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 |
| | | | | | | |
| (Dollars in millions) | 2022 | | 2021 | | 2020 |
| Earning assets | | | | | | | | | | | | | | | | | |
Interest-bearing deposits with the Federal Reserve, non-
U.S. central banks and other banks | $ | 195,564 | | | $ | 2,591 | | | 1.32 | % | | $ | 255,595 | | | $ | 172 | | | 0.07 | % | | $ | 253,227 | | | $ | 359 | | | 0.14 | % |
| Time deposits placed and other short-term investments | 9,209 | | | 132 | | | 1.44 | | | 7,603 | | | 15 | | | 0.19 | | | 8,840 | | | 29 | | | 0.33 | |
Federal funds sold and securities borrowed or purchased under agreements to resell (2) | 292,799 | | | 4,560 | | | 1.56 | | | 267,257 | | | (90) | | | (0.03) | | | 309,945 | | | 903 | | | 0.29 | |
| Trading account assets | 158,102 | | | 5,586 | | | 3.53 | | | 147,891 | | | 3,823 | | | 2.58 | | | 148,076 | | | 4,185 | | | 2.83 | |
| Debt securities | 922,730 | | | 17,207 | | | 1.86 | | | 905,169 | | | 12,433 | | | 1.38 | | | 532,266 | | | 9,868 | | | 1.87 | |
Loans and leases (3) | | | | | | | | | | | | | | | | | |
| Residential mortgage | 227,604 | | | 6,375 | | | 2.80 | | | 216,983 | | | 5,995 | | | 2.76 | | | 236,719 | | | 7,338 | | | 3.10 | |
| Home equity | 27,364 | | | 959 | | | 3.50 | | | 31,014 | | | 1,066 | | | 3.44 | | | 38,251 | | | 1,290 | | | 3.37 | |
| Credit card | 83,539 | | | 8,408 | | | 10.06 | | | 75,385 | | | 7,772 | | | 10.31 | | | 85,017 | | | 8,759 | | | 10.30 | |
| | | | | | | | | | | | | | | | | |
| Direct/Indirect and other consumer | 107,050 | | | 3,317 | | | 3.10 | | | 96,472 | | | 2,276 | | | 2.36 | | | 89,974 | | | 2,545 | | | 2.83 | |
| | | | | | | | | | | | | | | | | |
| Total consumer | 445,557 | | | 19,059 | | | 4.28 | | | 419,854 | | | 17,109 | | | 4.08 | | | 449,961 | | | 19,932 | | | 4.43 | |
| U.S. commercial | 366,748 | | | 12,251 | | | 3.34 | | | 324,795 | | | 8,606 | | | 2.65 | | | 344,095 | | | 9,712 | | | 2.82 | |
| Non-U.S. commercial | 125,222 | | | 3,702 | | | 2.96 | | | 99,584 | | | 1,752 | | | 1.76 | | | 106,487 | | | 2,208 | | | 2.07 | |
Commercial real estate (4) | 65,421 | | | 2,595 | | | 3.97 | | | 60,303 | | | 1,496 | | | 2.48 | | | 63,428 | | | 1,790 | | | 2.82 | |
| Commercial lease financing | 13,834 | | | 473 | | | 3.42 | | | 15,865 | | | 462 | | | 2.91 | | | 18,496 | | | 559 | | | 3.02 | |
| Total commercial | 571,225 | | | 19,021 | | | 3.33 | | | 500,547 | | | 12,316 | | | 2.46 | | | 532,506 | | | 14,269 | | | 2.68 | |
| Total loans and leases | 1,016,782 | | | 38,080 | | | 3.75 | | | 920,401 | | | 29,425 | | | 3.20 | | | 982,467 | | | 34,201 | | | 3.48 | |
| Other earning assets | 105,674 | | | 4,847 | | | 4.59 | | | 112,512 | | | 2,321 | | | 2.06 | | | 83,078 | | | 2,539 | | | 3.06 | |
| Total earning assets | 2,700,860 | | | 73,003 | | | 2.70 | | | 2,616,428 | | | 48,099 | | | 1.84 | | | 2,317,899 | | | 52,084 | | | 2.25 | |
| Cash and due from banks | 28,029 | | | | | | | 31,214 | | | | | | | 31,885 | | | | | |
| Other assets, less allowance for loan and lease losses | 407,005 | | | | | | | 386,981 | | | | | | | 333,338 | | | | | |
| Total assets | $ | 3,135,894 | | | | | | | $ | 3,034,623 | | | | | | | $ | 2,683,122 | | | | | |
| Interest-bearing liabilities | | | | | | | | | | | | | | | | | |
| U.S. interest-bearing deposits | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Demand and money market deposits | $ | 987,247 | | | $ | 3,145 | | | 0.32 | % | | $ | 925,970 | | | $ | 314 | | | 0.03 | % | | $ | 829,719 | | | $ | 977 | | | 0.12 | % |
| | | | | | | | | | | | | | | | | |
| Time and savings deposits | 166,490 | | | 818 | | | 0.49 | | | 161,512 | | | 170 | | | 0.11 | | | 170,750 | | | 734 | | | 0.43 | |
| Total U.S. interest-bearing deposits | 1,153,737 | | | 3,963 | | | 0.34 | | | 1,087,482 | | | 484 | | | 0.04 | | | 1,000,469 | | | 1,711 | | | 0.17 | |
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| Non-U.S. interest-bearing deposits | 80,951 | | | 755 | | | 0.93 | | | 82,769 | | | 53 | | | 0.06 | | | 77,046 | | | 232 | | | 0.30 | |
| Total interest-bearing deposits | 1,234,688 | | | 4,718 | | | 0.38 | | | 1,170,251 | | | 537 | | | 0.05 | | | 1,077,515 | | | 1,943 | | | 0.18 | |
Federal funds purchased and securities loaned or sold
under agreements to repurchase | 214,369 | | | 4,117 | | | 1.92 | | | 210,848 | | | 461 | | | 0.22 | | | 188,511 | | | 1,229 | | | 0.65 | |
Short-term borrowings and other interest-bearing liabilities (2) | 137,277 | | | 2,861 | | | 2.08 | | | 106,975 | | | (819) | | | (0.77) | | | 104,955 | | | (242) | | | (0.23) | |
| Trading account liabilities | 51,208 | | | 1,538 | | | 3.00 | | | 54,107 | | | 1,128 | | | 2.08 | | | 41,386 | | | 974 | | | 2.35 | |
| Long-term debt | 246,479 | | | 6,869 | | | 2.79 | | | 237,703 | | | 3,431 | | | 1.44 | | | 220,440 | | | 4,321 | | | 1.96 | |
| Total interest-bearing liabilities | 1,884,021 | | | 20,103 | | | 1.07 | | | 1,779,884 | | | 4,738 | | | 0.27 | | | 1,632,807 | | | 8,225 | | | 0.50 | |
| Noninterest-bearing sources | | | | | | | | | | | | | | | | | |
| Noninterest-bearing deposits | 751,470 | | | | | | | 744,035 | | | | | | | 555,483 | | | | | |
Other liabilities (5) | 230,104 | | | | | | | 236,947 | | | | | | | 227,523 | | | | | |
| Shareholders’ equity | 270,299 | | | | | | | 273,757 | | | | | | | 267,309 | | | | | |
| Total liabilities and shareholders’ equity | $ | 3,135,894 | | | | | | | $ | 3,034,623 | | | | | | | $ | 2,683,122 | | | | | |
| Net interest spread | | | | | 1.63 | % | | | | | | 1.57 | % | | | | | | 1.75 | % |
| Impact of noninterest-bearing sources | | | | | 0.33 | | | | | | | 0.09 | | | | | | | 0.15 | |
Net interest income/yield on earning assets (6) | | | $ | 52,900 | | | 1.96 | % | | | | $ | 43,361 | | | 1.66 | % | | | | $ | 43,859 | | | 1.90 | % |
(1)Includes the impact of interest rate risk management contracts. For more information, see Interest Rate Risk Management for the Banking Book on page 79.
(2)For more information on negative interest, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
(3)Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis.
(4)Includes U.S. commercial real estate loans of $61.1 billion, $56.5 billion and $59.8 billion, and non-U.S. commercial real estate loans of $4.3 billion, $3.8 billion and $3.6 billion for 2022, 2021 and 2020, respectively.
(5)Includes $30.7 billion, $30.4 billion and $34.3 billion of structured notes and liabilities for 2022, 2021 and 2020, respectively.
(6)Net interest income includes FTE adjustments of $438 million, $427 million and $499 million for 2022, 2021 and 2020, respectively.
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| 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 2021 to 2022 | | From 2020 to 2021 |
| Increase (decrease) in interest income | | | | | | | | | | | |
Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks | $ | (35) | | | $ | 2,454 | | | $ | 2,419 | | | $ | (1) | | | $ | (186) | | | $ | (187) | |
| Time deposits placed and other short-term investments | 2 | | | 115 | | | 117 | | | (4) | | | (10) | | | (14) | |
| Federal funds sold and securities borrowed or purchased under agreements to resell | 2 | | | 4,648 | | | 4,650 | | | (128) | | | (865) | | | (993) | |
| Trading account assets | 256 | | | 1,507 | | | 1,763 | | | — | | | (362) | | | (362) | |
| Debt securities | 301 | | | 4,473 | | | 4,774 | | | 7,059 | | | (4,494) | | | 2,565 | |
| Loans and leases | | | | | | | | | | | |
| Residential mortgage | 287 | | | 93 | | | 380 | | | (612) | | | (731) | | | (1,343) | |
| Home equity | (125) | | | 18 | | | (107) | | | (245) | | | 21 | | | (224) | |
| Credit card | 841 | | | (205) | | | 636 | | | (994) | | | 7 | | | (987) | |
| | | | | | | | | | | |
| Direct/Indirect and other consumer | 250 | | | 791 | | | 1,041 | | | 185 | | | (454) | | | (269) | |
| | | | | | | | | | | |
| Total consumer | | | | | 1,950 | | | | | | | (2,823) | |
| U.S. commercial | 1,113 | | | 2,532 | | | 3,645 | | | (553) | | | (553) | | | (1,106) | |
| Non-U.S. commercial | 452 | | | 1,498 | | | 1,950 | | | (147) | | | (309) | | | (456) | |
| Commercial real estate | 126 | | | 973 | | | 1,099 | | | (89) | | | (205) | | | (294) | |
| Commercial lease financing | (59) | | | 70 | | | 11 | | | (80) | | | (17) | | | (97) | |
| Total commercial | | | | | 6,705 | | | | | | | (1,953) | |
| Total loans and leases | | | | | 8,655 | | | | | | | (4,776) | |
| Other earning assets | (144) | | | 2,670 | | | 2,526 | | | 904 | | | (1,122) | | | (218) | |
| Net increase (decrease) in interest income | | | | | $ | 24,904 | | | | | | | $ | (3,985) | |
| Increase (decrease) in interest expense | | | | | | | | | | | |
| U.S. interest-bearing deposits | | | | | | | | | | | |
| | | | | | | | | | | |
| Demand and money market deposits | $ | (18) | | | $ | 2,849 | | | $ | 2,831 | | | $ | 134 | | | $ | (797) | | | $ | (663) | |
| | | | | | | | | | | |
| Time and savings deposits | 13 | | | 635 | | | 648 | | | (39) | | | (525) | | | (564) | |
| Total U.S. interest-bearing deposits | | | | | 3,479 | | | | | | | (1,227) | |
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| Non-U.S. interest-bearing deposits | (4) | | | 706 | | | 702 | | | 16 | | | (195) | | | (179) | |
| Total interest-bearing deposits | | | | | 4,181 | | | | | | | (1,406) | |
Federal funds purchased and securities loaned or sold under agreements to
repurchase | 11 | | | 3,645 | | | 3,656 | | | 142 | | | (910) | | | (768) | |
| Short-term borrowings and other interest-bearing liabilities | (238) | | | 3,918 | | | 3,680 | | | (4) | | | (573) | | | (577) | |
| Trading account liabilities | (63) | | | 473 | | | 410 | | | 298 | | | (144) | | | 154 | |
| Long-term debt | 118 | | | 3,320 | | | 3,438 | | | 338 | | | (1,228) | | | (890) | |
| Net increase (decrease) in interest expense | | | | | 15,365 | | | | | | | (3,487) | |
Net increase (decrease) in net interest income (2) | | | | | $ | 9,539 | | | | | | | $ | (498) | |
(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)Includes an increase (decrease) in FTE basis adjustments of $11 million from 2021 to 2022 and $(72) million from 2020 to 2021.
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 and All 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 41.46. 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 32, and for business segments and reconciliations to consolidated total revenue, net income and year-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
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| | Deposits | | Consumer Lending | | Total Consumer Banking | | |
| | | |
| (Dollars in millions) | 2022 | 2021 | | 2022 | 2021 | | 2022 | 2021 | | % Change |
| Net interest income | $ | 19,254 | | $ | 14,358 | | | $ | 10,791 | | $ | 10,571 | | | $ | 30,045 | | $ | 24,929 | | | 21 | % |
| Noninterest income: | | | | | | | | | | |
| Card income | (36) | | (28) | | | 5,205 | | 5,200 | | | 5,169 | | 5,172 | | | — | |
| Service charges | 2,703 | | 3,535 | | | 3 | | 3 | | | 2,706 | | 3,538 | | | (24) | |
| All other income | 478 | | 223 | | | 237 | | 143 | | | 715 | | 366 | | | 95 | |
| Total noninterest income | 3,145 | | 3,730 | | | 5,445 | | 5,346 | | | 8,590 | | 9,076 | | | (5) | |
| Total revenue, net of interest expense | 22,399 | | 18,088 | | | 16,236 | | 15,917 | | | 38,635 | | 34,005 | | | 14 | |
| | | | | | | | | | |
| Provision for credit losses | 564 | | 240 | | | 1,416 | | (1,275) | | | 1,980 | | (1,035) | | | n/m |
| Noninterest expense | 12,393 | | 11,650 | | | 7,684 | | 7,640 | | | 20,077 | | 19,290 | | | 4 | |
| Income before income taxes | 9,442 | | 6,198 | | | 7,136 | | 9,552 | | | 16,578 | | 15,750 | | | 5 | |
| Income tax expense | 2,314 | | 1,519 | | | 1,748 | | 2,340 | | | 4,062 | | 3,859 | | | 5 | |
| Net income | $ | 7,128 | | $ | 4,679 | | | $ | 5,388 | | $ | 7,212 | | | $ | 12,516 | | $ | 11,891 | | | 5 | |
| | | | | | | | | | |
Effective tax rate (1) | | | | | | | 24.5 | % | 24.5 | % | | |
| | | | | | | | | | |
| Net interest yield | 1.82 | % | 1.48 | % | | 3.72 | % | 3.77 | % | | 2.73 | % | 2.45 | % | | |
| Return on average allocated capital | 55 | | 39 | | | 20 | | 27 | | | 31 | | 31 | | | |
| Efficiency ratio | 55.33 | | 64.41 | | | 47.32 | | 48.00 | | | 51.96 | | 56.73 | | | |
| | | | | | | | | | | |
| Balance Sheet | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Average | | | | | | | | | | | |
| Total loans and leases | $ | 4,161 | | $ | 4,431 | | | $ | 288,205 | | $ | 279,630 | | | $ | 292,366 | | $ | 284,061 | | | 3 | % |
Total earning assets (2) | 1,057,531 | | 973,018 | | | 289,719 | | 280,080 | | | 1,099,410 | | 1,016,751 | | | 8 | |
Total assets (2) | 1,090,692 | | 1,009,387 | | | 296,499 | | 285,532 | | | 1,139,351 | | 1,058,572 | | | 8 | |
| Total deposits | 1,056,783 | | 976,093 | | | 5,778 | | 6,934 | | | 1,062,561 | | 983,027 | | | 8 | |
| Allocated capital | 13,000 | | 12,000 | | | 27,000 | | 26,500 | | | 40,000 | | 38,500 | | | 4 | |
| | | | | | | | | | | |
| Year End | | | | | | | | | | | |
| | | | | | | | | | | |
| Total loans and leases | $ | 4,148 | | $ | 4,206 | | | $ | 300,613 | | $ | 282,305 | | | $ | 304,761 | | $ | 286,511 | | | 6 | % |
Total earning assets (2) | 1,043,049 | | 1,048,009 | | | 300,787 | | 282,850 | | | 1,085,079 | | 1,090,331 | | | — | |
Total assets (2) | 1,077,203 | | 1,082,449 | | | 308,007 | | 289,220 | | | 1,126,453 | | 1,131,142 | | | — | |
| Total deposits | 1,043,194 | | 1,049,085 | | | 5,605 | | 5,910 | | | 1,048,799 | | 1,054,995 | | | (1) | |
|
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| | 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. n/m = not meaningful | 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 coastcoast-to-coast network including financial centers in 3438 states and the District of Columbia. OurAs of December 31, 2022, our network includes approximately 4,5003,900 financial centers, approximately 16,000 ATMs, nationwide call centers and leading digital banking platforms with approximately 35more than 44 million active users, including approximately 2435 million active mobile active users.
Consumer Banking Results
Net income for Consumer Banking increased $1.0$625 million to $12.5 billion due to $8.2 billion in 2017 compared to 2016 primarily driven by higher net interest income,revenue, partially offset by higheran increase in provision for credit losses and lower mortgage banking income.higher noninterest expense. Net interest income increased $3.0$5.1 billion to $24.3$30.0 billion primarily driven by higher interest rates and the benefits of higher deposit and loan balances, partially offset by a lower amount of accelerated net capitalized loan fees due to the beneficial impact of an increasePPP loan forgiveness, which primarily occurred in investable assets as a result of higher deposits, as well as pricing discipline and loan growth.2021. Noninterest income decreased $227$486 million to $10.2$8.6 billion primarily driven by lower mortgage banking income,the impact of non-sufficient funds and overdraft policy changes, partially offset by highera gain on the sale of an affinity card income and service charges.loan portfolio in the fourth quarter of 2022.
The provision for credit losses increased $810 million$3.0 billion to $3.5$2.0 billion primarily driven by loan growth and a dampened
macroeconomic outlook in 2022, compared to a benefit in 2021 due to portfolio seasoning and loan growth in the U.S. credit
card portfolio.an improved macroeconomic outlook. Noninterest expense increased $133$787 million to $17.8$20.1 billion primarily driven by higher personnel expense,continued investments for business growth, including the shared success discretionary year-end bonus,marketing, technology and increased FDIC
expense,people, as well as investments in digital capabilities and business growth, including increased primary sales professionals, combined with investments in new financial centers and renovations. These increases wereclient activity, partially offset by improved operating efficiencies.an impairment charge for real estate rationalization and the contribution to the Bank of America Foundation in the prior year.
The return on average allocated capital was 2231 percent, upunchanged from 21 percent, as higher net income was partially offset by an increased capital allocation.2021. For more information on capital allocations,allocated to the business segments, see Business Segment Operations on page 30.37.
Deposits
Deposits includes the results of consumer deposit activities whichthat consist of a comprehensive range of products provided to consumers and small businesses. Our deposit products include traditional savingsnoninterest- and interest-bearing checking accounts, money market savings accounts, traditional savings accounts, CDs and IRAs, noninterest- and interest-bearing checking accounts, as well as investment accounts and products. Net interest income is allocated to the deposit products using our funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Deposits generates fees such as account service fees non-sufficient funds fees, overdraft charges and ATM fees, as well as investment and brokerage fees from Consumer Investment accounts. Consumer Investments serves investment client relationships through the 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 providesplatform, providing investment advice and guidance, client brokerage asset services, a self-directed online investing platform and key banking capabilities including access to the
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 $1.2$2.4 billion to $4.6$7.1 billion in 2017 driven bydue to higher revenue, partially offset by higher noninterest expense.expense and an increase in provision for credit losses. Net interest income increased $2.7$4.9 billion to $13.4$19.3 billion primarily due to higher interest rates and the beneficialbenefit of higher deposit balances. Noninterest income decreased $585 million to $3.1 billion primarily driven by the impact of an increase in investable assets as a result of higher deposits,non-sufficient funds and pricing discipline. Noninterest income increased $111 million to $4.7 billion drivenoverdraft policy changes, partially offset by higher other service charges.charges due to increased client activity.
The provision for credit losses increased $27$324 million to $201$564 million primarily driven by increased overdraft losses due to higher payment activity related to checking accounts. The benefit in 2017.the prior year was due to an improved macroeconomic outlook. Noninterest expense increased $703$743 million to $10.4$12.4 billion primarily driven by continued investments in digital capabilities andfor business growth including increased primary sales professionals, combined with investments in new financial centers and renovations, higher personnel expense, including the shared success discretionary year-end bonus, and increased FDIC expense.client activity, partially offset by an impairment charge for real estate rationalization in the prior year.
Average deposits increased $54.5$80.7 billion to $646.9$1.1 trillion primarily due to net inflows of $46.8 billion in 2017checking and $34.9 billion in money market savings largely driven by strong organic growth. Growth
The table below provides key performance indicators for Deposits. Management uses these metrics, and we 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 | | | | | | | |
| | | | | | | |
| | | |
| | | | | 2022 | | 2021 |
Total deposit spreads (excludes noninterest costs) (1) | | | | | 1.86% | | 1.69% |
| | | | | | | |
| Year End | | | | | | | |
Consumer investment assets (in millions) (2) | | | | | $ | 319,648 | | $ | 368,831 |
Active digital banking users (in thousands) (3) | | | | | 44,054 | | 41,365 |
Active mobile banking users (in thousands) (4) | | | | | 35,452 | | 32,980 |
| Financial centers | | | | | 3,913 | | 4,173 |
| ATMs | | | | | 15,528 | | 16,209 |
(1)Includes deposits held in checking, moneyConsumer Lending.
(2)Includes client brokerage assets, deposit sweep balances and AUM in Consumer Banking.
(3)Represents mobile and/or online active users over the past 90 days.
(4)Represents mobile active users over the past 90 days.
Consumer investment assets decreased $49.2 billion to $319.6 billion driven by market savings and traditional savings of $57.9 billion wasperformance, partially offset by a decline in time deposits of $3.5 billion.
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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 brokerage assets increased $32.3 billion driven by strong client flows and market performance. Mobileflows. Active mobile banking active users increased 2.6approximately two million, reflecting continuing changes in our customers’clients’ banking preferences. The numberWe had a net decrease of 260 financial centers
declined 109 driven by changes in customer preferences to self-service options and 681 ATMs as we continue 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 creditdebit and debitcredit 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 creditdebit and debitcredit 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 million$1.8 billion to $3.6$5.4 billion primarily due to an increase 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 $365$220 million to $11.0$10.8 billion primarily due to higher interest rates and loan balances, largely offset by a lower amount of accelerated net capitalized loan fees due to PPP loan forgiveness, which primarily occurred in 2021. Noninterest income increased $99 million to $5.4 billion primarily driven by a gain on the impactsale of an increaseaffinity card loan portfolio in loan balances. Noninterest income decreased $338 million to $5.6 billion driven by lower mortgage banking income, partially offset by higher card income.the fourth quarter of 2022.
The provision for credit losses increased $783 million$2.7 billion to $3.3 billion in 2017 due to portfolio seasoning and loan growth in the U.S. credit card portfolio. Noninterest expense decreased $570 million to $7.4$1.4 billion primarily driven by loan growth and a dampened macroeconomic environment in 2022 compared to a benefit in 2021 due to an improved operating efficiencies.macroeconomic outlook. Noninterest expense increased $44 million to $7.7 billion largely driven by continued investments for business growth and increased client activity, partially offset by the contribution to the Bank of America Foundation in the prior year.
Average loans increased $20.0$8.6 billion to $261.0$288.2 billion in 2017primarily driven by increasesan increase in residential mortgages as well as consumer vehiclecredit card loans and U.S credit cardfirst mortgage loans, partially offset by lower home equitya decline in PPP loans.
The table below 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 |
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| | | |
| (Dollars in millions) | | | | | 2022 | | 2021 |
Total credit card (1) | | | | | | | |
Gross interest yield (2) | | | | | 10.42 | % | | 10.17 | % |
Risk-adjusted margin (3) | | | | | 10.06 | | | 10.17 | |
| New accounts (in thousands) | | | | | 4,397 | | | 3,594 | |
| Purchase volumes | | | | | $ | 356,588 | | | $ | 311,571 | |
| Debit card purchase volumes | | | | | $ | 503,583 | | | $ | 473,770 | |
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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)(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. | In addition to the U.S. credit card portfolio in Consumer Banking, the remaining U.S. credit card portfolio is in GWIM.
|
During 2017,2022, the total U.S. credit card risk-adjusted margin decreased 3711 bps compared to 2016, primarily driven by compressed margins, increasedlower net charge-offsinterest margin and higherlower fee income, partially offset by lower net credit card rewards costs.losses. Total U.S. credit card purchase volumes increased $18.3$45.0 billion to $244.8$356.6 billion and debit card purchase volumes increased $13.0$29.8 billion to $298.6$503.6 billion, reflecting higher levels of consumer spending.
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Key Statistics – Loan Production (1) |
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| | | |
| (Dollars in millions) | | | | | 2022 | | 2021 |
| Consumer Banking: | | | | | | | |
| First mortgage | | | | | $ | 20,981 | | | $ | 45,976 | |
| Home equity | | | | | 7,988 | | | 3,996 | |
Total (2): | | | | | | | |
| First mortgage | | | | | $ | 44,765 | | | $ | 79,692 | |
| Home equity | | | | | 9,591 | | | 4,895 | |
(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 for Consumer Banking and the total Corporation decreased $25.0 billion and $34.9 billion during 2022 primarily driven by changes in demand.
Home equity production in Consumer Banking and the total Corporation increased $4.0 billion and $4.7 billion during 2022 primarily driven by higher demand.
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 |
| | | | | | | | | | | |
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| (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
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | |
| (Dollars in millions) | | | | | | | 2022 | | 2021 | | % Change |
| Net interest income | | | | | | | $ | 7,466 | | | $ | 5,664 | | | 32 | % |
| Noninterest income: | | | | | | | | | | | |
| Investment and brokerage services | | | | | | | 13,561 | | | 14,312 | | | (5) | |
| All other income | | | | | | | 721 | | | 772 | | | (7) | |
| Total noninterest income | | | | | | | 14,282 | | | 15,084 | | | (5) | |
| Total revenue, net of interest expense | | | | | | | 21,748 | | | 20,748 | | | 5 | |
| | | | | | | | | | | |
| Provision for credit losses | | | | | | | 66 | | | (241) | | | (127) | |
| Noninterest expense | | | | | | | 15,490 | | | 15,258 | | | 2 | |
| Income before income taxes | | | | | | | 6,192 | | | 5,731 | | | 8 | |
| Income tax expense | | | | | | | 1,517 | | | 1,404 | | | 8 | |
| Net income | | | | | | | $ | 4,675 | | | $ | 4,327 | | | 8 | |
| | | | | | | | | | | |
| Effective tax rate | | | | | | | 24.5 | % | | 24.5 | % | | |
| | | | | | | | | | | |
| Net interest yield | | | | | | | 1.95 | | | 1.51 | | | |
| Return on average allocated capital | | | | | | | 27 | | | 26 | | | |
| | | | | | | | | | | |
| Efficiency ratio | | | | | | | 71.23 | | | 73.54 | | | |
| | | | | | | | | | | | |
| Balance Sheet | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | | |
| Average | | | | | | | | | | | |
| Total loans and leases | | | | | | | $ | 219,810 | | | $ | 196,899 | | | 12 | % |
| Total earning assets | | | | | | | 383,352 | | | 374,273 | | | 2 | |
| Total assets | | | | | | | 396,167 | | | 386,918 | | | 2 | |
| Total deposits | | | | | | | 351,329 | | | 340,124 | | | 3 | |
| Allocated capital | | | | | | | 17,500 | | | 16,500 | | | 6 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Year end | | | | | | | | | | | |
| Total loans and leases | | | | | | | $ | 223,910 | | | $ | 208,971 | | | 7 | |
| Total earning assets | | | | | | | 355,461 | | | 425,112 | | | (16) | |
| Total assets | | | | | | | 368,893 | | | 438,275 | | | (16) | |
| Total deposits | | | | | | | 323,899 | | | 390,143 | | | (17) | |
GWIM consists of two primary businesses: Merrill Lynch Global Wealth Management (MLGWM) andU.S. Trust, Bank of America Private Bank.
Merrill Wealth Management (U.S. Trust).
MLGWM’sManagement’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. MLGWMMerrill Wealth Management provides tailored solutions to meet our 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’sMerrill Wealth Management’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’ wealth structuring, investment management, trust and banking needs, including specialty asset management services.
Net income for GWIM increased$313 $348 million to $3.1$4.7 billion in 2017 compared to 2016 due todriven by higher revenue, partially offset by an increase inhigher provision for credit losses and noninterest expense. The operating margin was 27remained unchanged at 28 percent compared to 25 percent a year ago.
Net interest income increased $414 million$1.8 billion to $6.2$7.5 billion driven bydue to the impacts of higher short-term interest rates. rates, as well as the benefits of higher loan and deposit balances.
Noninterest income, which primarily includes investment and brokerage services income, increased $526decreased $802 million to $12.4 billion. The increase$14.3 billion primarily due to the impacts of lower market valuations and declines in noninterest income was driven by the impact of AUM flows and higher market valuations,pricing, partially offset by the impact of changing market dynamics on transactional revenuepositive AUM flows.
The provision for credit losses increased $307 million primarily due to a dampened macroeconomic outlook and AUM pricing.loan growth in the current-year period, compared to a benefit in the prior-year period due to an improved macroeconomic outlook. Noninterest expense increased $389$232 million to $13.6$15.5 billion primarily drivendue to continued investments in the business, partially offset by higherlower revenue-related incentive costs.incentives.
ReturnThe return on average allocated capital was 2227 percent, in 2017, up from 2126 percent, a year ago, asdue to higher net income, was partially offset by an increase in allocated capital. For more information on capital allocated to the business segments, see Business Segment Operations on page 37.
Average loans increased capital allocation.$22.9 billion to $219.8 billion primarily due to residential mortgage, securities-based lending and custom lending. Average deposits increased $11.2 billion to $351.3 billion primarily driven by inflows from new and existing accounts.
Revenue from MLGWMMerrill Wealth Management revenue of $15.3$18.1 billion increased sixfour percent in 2017 compared to 2016 due to higher net interest income and asset management feesprimarily driven by AUM flowsthe benefits of higher interest rates, as well as higher deposit and higher market valuations,loan balances, partially offset by lower transactional revenue and AUM pricing. U.S. Trust revenuethe impact of $3.3 billion increased seven percent in 2017 compared to 2016 reflecting higher net interest income and asset management fees driven by higherlower market valuations and declines in AUM flows.pricing.
Bank of America Private Bank revenue of $3.6 billion increased nine percent primarily driven by the benefits of higher interest rates, as well as higher deposit and loan balances, partially offset by the impact of lower market valuations.
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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 |
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| | | | |
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).
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| | | | | | | |
| Key Indicators and Metrics | | | | | | | |
| | | | | | | |
| | | |
| (Dollars in millions) | | | | | 2022 | | 2021 |
| Revenue by Business | | | | | | | |
| Merrill Wealth Management | | | | | $ | 18,135 | | | $ | 17,448 | |
| Bank of America Private Bank | | | | | 3,613 | | | 3,300 | |
| | | | | | | |
| Total revenue, net of interest expense | | | | | $ | 21,748 | | | $ | 20,748 | |
| | | | | | | |
| Client Balances by Business, at year end | | | | | | | |
| Merrill Wealth Management | | | | | $ | 2,822,910 | | | $ | 3,214,881 | |
| Bank of America Private Bank | | | | | 563,931 | | | 625,453 | |
| | | | | | | |
| Total client balances | | | | | $ | 3,386,841 | | | $ | 3,840,334 | |
| | | | | | | |
| Client Balances by Type, at year end | | | | | | | |
| | | | | | | |
| | | | | | | |
| Assets under management | | | | | $ | 1,401,474 | | | $ | 1,638,782 | |
| Brokerage and other assets | | | | | 1,482,025 | | | 1,655,021 | |
| | | | | | | |
| Deposits | | | | | 323,899 | | | 390,143 | |
Loans and leases (1) | | | | | 226,973 | | | 212,251 | |
| Less: Managed deposits in assets under management | | | | | (47,530) | | | (55,863) | |
| Total client balances | | | | | $ | 3,386,841 | | | $ | 3,840,334 | |
| | | | | | | |
| Assets Under Management Rollforward | | | | | | | |
| Assets under management, beginning of year | | | | | $ | 1,638,782 | | | $ | 1,408,465 | |
| | | | | | | |
| | | | | | | |
| Net client flows | | | | | 20,785 | | | 66,250 | |
Market valuation/other | | | | | (258,093) | | | 164,067 | |
| Total assets under management, end of year | | | | | $ | 1,401,474 | | | $ | 1,638,782 | |
| | | | | | | |
| | | | | | | |
Total wealth advisors, at year end (2) | | | | | 19,273 | | | 18,846 | |
| | | | | | | |
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(1)Includes margin receivables which are classified in customer and other receivables on the Consolidated Balance Sheet.
(2)Includes advisors across all wealth management businesses in GWIM and Consumer Banking.
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 $243.3decreased $453.5 billion, or 1012 percent, in 2017 to nearly $2.8$3.4 trillion at December 31, 2017,2022 compared to December 31, 2021. The decrease in client balances was primarily due to AUM which increased $194.6 billion, or 22 percent, due tothe impact of lower market valuations, partially offset by positive net flows and higher market valuations.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.
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| | | | |
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
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| | | | | | | | | | | |
| | | | | | | |
| (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 |
|
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| | | | | | | | | | | | |
| | | | | | | |
| (Dollars in millions) | | | | | | | 2022 | | 2021 | | % Change |
| Net interest income | | | | | | | $ | 12,184 | | | $ | 8,511 | | | 43 | % |
| Noninterest income: | | | | | | | | | | | |
| Service charges | | | | | | | 3,293 | | | 3,523 | | | (7) | |
| Investment banking fees | | | | | | | 3,004 | | | 5,107 | | | (41) | |
| All other income | | | | | | | 3,748 | | | 3,734 | | | — |
| Total noninterest income | | | | | | | 10,045 | | | 12,364 | | | (19) | |
| Total revenue, net of interest expense | | | | | | | 22,229 | | | 20,875 | | | 6 | |
| | | | | | | | | | | |
| Provision for credit losses | | | | | | | 641 | | | (3,201) | | | (120) | |
| Noninterest expense | | | | | | | 10,966 | | | 10,632 | | | 3 | |
| Income before income taxes | | | | | | | 10,622 | | | 13,444 | | | (21) | |
| Income tax expense | | | | | | | 2,815 | | | 3,630 | | | (22) | |
| Net income | | | | | | | $ | 7,807 | | | $ | 9,814 | | | (20) | |
| | | | | | | | | | | |
| Effective tax rate | | | | | | | 26.5 | % | | 27.0 | % | | |
| | | | | | | | | | | |
| Net interest yield | | | | | | | 2.26 | | | 1.55 | | | |
| Return on average allocated capital | | | | | | | 18 | | | 23 | | | |
| Efficiency ratio | | | | | | | 49.34 | | | 50.93 | | | |
| | | | | | | | | | | | |
| Balance Sheet | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | |
| Average | | | | | | | | | | | |
Total loans and leases | | | | | | | $ | 375,271 | | | $ | 329,655 | | | 14 | % |
| Total earning assets | | | | | | | 539,032 | | | 549,749 | | | (2) | |
| Total assets | | | | | | | 603,273 | | | 611,304 | | | (1) | |
| Total deposits | | | | | | | 511,804 | | | 522,790 | | | (2) | |
| Allocated capital | | | | | | | 44,500 | | | 42,500 | | | 5 | |
| | | | | | | | | | | | |
| Year end | | | | | | | | | | | |
| Total loans and leases | | | | | | | $ | 379,107 | | | $ | 352,933 | | | 7 | % |
| Total earning assets | | | | | | | 522,539 | | | 574,583 | | | (9) | |
| Total assets | | | | | | | 588,466 | | | 638,131 | | | (8) | |
| Total deposits | | | | | | | 498,661 | | | 551,752 | | | (10) | |
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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 productsservices 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 $2.0 billion to $7.0$7.8 billion in 2017 compared to 2016 driven by higher revenue and lower provision for credit losses.
Revenue increased $1.6 billion to $20.0 billion in 2017 compared to 2016 drivenlosses and noninterest expense, partially offset by higher net interest income and noninterest income. revenue.
Net interest income increased $1.0$3.7 billion to $10.5$12.2 billion primarily due to the benefits of higher interest rates and loan and deposit-related growth, higher short-
balances.
term rates on an increased deposit base and the impact of the allocation of ALM activities, partially offset by credit spread compression. Noninterest income increased $521 milliondecreased $2.3 billion to $9.5$10.0 billion largely due to higherdriven by lower investment banking fees.fees and valuation adjustments on leveraged loans, as well as lower treasury service charges.
The provision for credit losses decreased$671increased $3.8 billion to $641 million to $212 million in 2017 primarily driven by reductionsa dampened macroeconomic outlook and loan growth, compared to a benefit in energy exposures and continued portfolio improvement, partially offset by Global Banking’s portion of a single-name non-U.S. commercial charge-off. the prior year due to an improved macroeconomic outlook.
Noninterest expense increased $110$334 million to $8.6$11.0 billion, in 2017 primarily driven by higherdue to continued investments in technologythe business, including strategic hiring and higher deposit insurance, partially offset by lower litigation costs.technology.
The return on average allocated capital was 1718 percent, updown from 1523 percent, as higherdue to lower net income was partially offset by an increased capital allocation.and higher allocated capital. For more information on capital allocated to the business segments, see Business Segment Operations on page 30.37.
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 following table below and following discussion present a summary of the results, which exclude certain investment banking and PPP activities in Global Banking.
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| Global Corporate, Global Commercial and Business Banking | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | Global Corporate Banking | | Global Commercial Banking | | Business Banking | | Total |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Revenue | | | | | | | | | | | | | | | |
| Business Lending | $ | 4,387 |
| | $ | 4,285 |
| | $ | 4,280 |
| | $ | 4,139 |
| | $ | 404 |
| | $ | 376 |
| | $ | 9,071 |
| | $ | 8,800 |
|
| Global Transaction Services | 3,322 |
| | 2,996 |
| | 3,017 |
| | 2,718 |
| | 849 |
| | 740 |
| | 7,188 |
| | 6,454 |
|
| Total revenue, net of interest expense | $ | 7,709 |
| | $ | 7,281 |
| | $ | 7,297 |
| | $ | 6,857 |
| | $ | 1,253 |
| | $ | 1,116 |
| | $ | 16,259 |
| | $ | 15,254 |
|
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| Balance Sheet | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Average | | | | | | | | | | | | | | | |
| Total loans and leases | $ | 158,292 |
| | $ | 152,944 |
| | $ | 170,101 |
| | $ | 163,309 |
| | $ | 17,682 |
| | $ | 17,537 |
| | $ | 346,075 |
| | $ | 333,790 |
|
| Total deposits | 148,704 |
| | 143,233 |
| | 127,720 |
| | 126,253 |
| | 36,435 |
| | 35,256 |
| | 312,859 |
| | 304,742 |
|
| | | | | | | | | | | | | | | | |
| Year end | | | | | | | | | | | | | | | |
| Total loans and leases | $ | 163,184 |
| | $ | 152,589 |
| | $ | 169,997 |
| | $ | 168,828 |
| | $ | 17,500 |
| | $ | 17,882 |
| | $ | 350,681 |
| | $ | 339,299 |
|
| Total deposits | 155,614 |
| | 144,016 |
| | 137,538 |
| | 128,210 |
| | 36,120 |
| | 35,409 |
| | 329,272 |
| | 307,635 |
|
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| Global Corporate, Global Commercial and Business Banking | | | | | | | | | | |
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| | Global Corporate Banking | | Global Commercial Banking | | Business Banking | | Total |
| | |
| (Dollars in millions) | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| Revenue | | | | | | | | | | | | | | | |
| Business Lending | $ | 4,325 | | | $ | 3,723 | | | $ | 4,316 | | | $ | 3,675 | | | $ | 251 | | | $ | 224 | | | $ | 8,892 | | | $ | 7,622 | |
Global Transaction Services (1) | 5,002 | | | 3,235 | | | 4,166 | | | 3,341 | | | 1,213 | | | 941 | | | 10,381 | | | 7,517 | |
| Total revenue, net of interest expense | $ | 9,327 | | | $ | 6,958 | | | $ | 8,482 | | | $ | 7,016 | | | $ | 1,464 | | | $ | 1,165 | | | $ | 19,273 | | | $ | 15,139 | |
| | | | | | | | | | | | | | | |
| Balance Sheet | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Average | | | | | | | | | | | | | | | |
Total loans and leases | $ | 174,052 | | | $ | 150,159 | | | $ | 187,597 | | | $ | 161,012 | | | $ | 12,743 | | | $ | 12,763 | | | $ | 374,392 | | | $ | 323,934 | |
Total deposits (1) | 250,648 | | | 252,403 | | | 204,893 | | | 213,999 | | | 56,263 | | | 56,354 | | | 511,804 | | | 522,756 | |
| | | | | | | | | | | | | | | |
| Year end | | | | | | | | | | | | | | | |
| Total loans and leases | $ | 174,905 | | | $ | 163,027 | | | $ | 191,051 | | | $ | 175,228 | | | $ | 12,683 | | | $ | 12,822 | | | $ | 378,639 | | | $ | 351,077 | |
Total deposits (1) | 262,033 | | | 260,826 | | | 186,112 | | | 233,007 | | | 50,516 | | | 57,886 | | | 498,661 | | | 551,719 | |
(1)Prior periods have been revised to conform to current-period presentation.
Business Lending revenue increased $271 million$1.3 billion in 20172022 compared to 2016 driven by2021 primarily due to the impactbenefits of higher interest rates and loan and lease-related growth and the allocation of ALM activities, partially offset by credit spread compression.balances.
Global Transaction Services revenue increased $734 million$2.9 billion in 20172022 compared to 20162021 driven by the impact of higher short-terminterest rates, on an increased deposit base, as well as the allocation of ALM activities.partially offset by lower treasury service charges.
Average loans and leases increased four16 percent in 20172022 compared to 2016 driven by growth in the commercial and industrial, and leasing portfolios.2021 due to higher client demand. Average deposits increased threedecreased two percent due to growth with new and existing clients.declines in domestic balances.
Global Investment Banking
Client teams and product specialists underwrite and distribute debt, equity and loan products, and provide advisory services and tailored risk management solutions. The economics of certain investment banking and underwriting activities are shared primarily between Global Banking and Global Markets under an internal revenue-sharing arrangement. Global Banking originates certain deal-related transactions with our corporate and commercial clients that are executed and distributed by Global Markets. To provide a complete discussion of our
consolidated investment banking fees, the following table
below presents total Corporation investment banking fees and the portion attributable to Global Banking.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Investment Banking Fees | | | | | | |
| | | | | |
| | | | | Global Banking | | Total Corporation |
| | | |
| | | | | | | |
| (Dollars in millions) | | | | | | | | | 2022 | | 2021 | | 2022 | | 2021 |
| Products | | | | | | | | | | | | | | | |
| Advisory | | | | | | | | | $ | 1,643 | | | $ | 2,139 | | | $ | 1,783 | | | $ | 2,311 | |
| Debt issuance | | | | | | | | | 1,099 | | | 1,736 | | | 2,523 | | | 4,015 | |
| Equity issuance | | | | | | | | | 262 | | | 1,232 | | | 709 | | | 2,784 | |
| Gross investment banking fees | | | | | | | | | 3,004 | | | 5,107 | | | 5,015 | | | 9,110 | |
| Self-led deals | | | | | | | | | (78) | | | (93) | | | (192) | | | (223) | |
| Total investment banking fees | | | | | | | | | $ | 2,926 | | | $ | 5,014 | | | $ | 4,823 | | | $ | 8,887 | |
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| 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, excludingwhich exclude self-led deals of $6.0 billion, whichand are primarily included within Global Banking and Global Markets, increased 15decreased 46 percent in 2017 compared to 2016 driven by higher advisory fees and higher debt and$4.8 billion primarily due to lower equity issuance, fees due to an increase in overall client activitydebt issuance and market fee pools.
advisory 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 | ) |
| |
(1)
| Trading-related assets include derivative assets, which are considered non-earning assets. |
n/m = not meaningful
Global Markets
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | |
| (Dollars in millions) | | | | | | | 2022 | | 2021 | | % Change |
| Net interest income | | | | | | | $ | 3,088 | | | $ | 4,011 | | | (23) | % |
| Noninterest income: | | | | | | | | | | | |
| Investment and brokerage services | | | | | | | 2,002 | | | 1,979 | | | 1 | |
| Investment banking fees | | | | | | | 1,820 | | | 3,616 | | | (50) | |
| Market making and similar activities | | | | | | | 11,406 | | | 8,760 | | | 30 | |
| All other income | | | | | | | (178) | | | 889 | | | (120) | |
| Total noninterest income | | | | | | | 15,050 | | | 15,244 | | | (1) | |
| Total revenue, net of interest expense | | | | | | | 18,138 | | | 19,255 | | | (6) | |
| | | | | | | | | | | |
| Provision for credit losses | | | | | | | 28 | | | 65 | | | (57) | |
| Noninterest expense | | | | | | | 12,420 | | | 13,032 | | | (5) | |
| Income before income taxes | | | | | | | 5,690 | | | 6,158 | | | (8) | |
| Income tax expense | | | | | | | 1,508 | | | 1,601 | | | (6) | |
| Net income | | | | | | | $ | 4,182 | | | $ | 4,557 | | | (8) | |
| | | | | | | | | | | |
| Effective tax rate | | | | | | | 26.5 | % | | 26.0 | % | | |
| | | | | | | | | | | |
| Return on average allocated capital | | | | | | | 10 | | | 12 | | | |
| Efficiency ratio | | | | | | | 68.48 | | | 67.68 | | | |
| | | | | | | | | | | | |
| Balance Sheet | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | | |
| Average | | | | | | | | | | | |
| Trading-related assets: | | | | | | | | | | | |
| Trading account securities | | | | | | | $ | 303,587 | | | $ | 291,505 | | | 4 | % |
| Reverse repurchases | | | | | | | 126,324 | | | 113,989 | | | 11 | |
| Securities borrowed | | | | | | | 116,764 | | | 100,292 | | | 16 | |
| Derivative assets | | | | | | | 54,128 | | | 43,582 | | | 24 | |
| Total trading-related assets | | | | | | | 600,803 | | | 549,368 | | | 9 | |
| Total loans and leases | | | | | | | 116,652 | | | 91,339 | | | 28 | |
| Total earning assets | | | | | | | 602,889 | | | 541,391 | | | 11 | |
| Total assets | | | | | | | 857,637 | | | 785,998 | | | 9 | |
| Total deposits | | | | | | | 40,382 | | | 51,833 | | | (22) | |
| Allocated capital | | | | | | | 42,500 | | | 38,000 | | | 12 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Year end | | | | | | | | | | | |
| Total trading-related assets | | | | | | | $ | 564,769 | | | $ | 491,160 | | | 15 | % |
| Total loans and leases | | | | | | | 127,735 | | | 114,846 | | | 11 | |
| Total earning assets | | | | | | | 587,772 | | | 561,135 | | | 5 | |
| Total assets | | | | | | | 812,489 | | | 747,794 | | | 9 | |
| Total deposits | | | | | | | 39,077 | | | 46,374 | | | (16) | |
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 32.
Net income for Global Marketsdecreased $525$375 million to $3.3 billion in 2017 compared to 2016.$4.2 billion. Net DVA lossesgains were $428$20 million compared to losses of $238$54 million in 2016.2021. Excluding net DVA, net income decreased $408$431 million to $3.6$4.2 billion. These decreases were primarily driven by lower revenue, partially offset by lower noninterest expense.
Revenue decreased $1.1 billion to $18.1 billion primarily due to lower investment banking fees, partially offset by higher sales and trading revenue. Sales and trading revenue increased $1.3 billion, and excluding net DVA, sales and trading revenue increased $1.2 billion. These increases were driven by higher revenue in both FICC and Equities.
Noninterest expense decreased $612 million to $12.4 billion primarily driven by higher noninterest expense, lower sales and trading revenuethe realignment of a liquidating business activity from Global Markets to All Other in the fourth quarter of 2021 and an increaseacceleration of expenses from incentive compensation award changes in the provision for credit losses, partially offset by higher investment banking fees.
Sales and trading revenue, excluding net DVA, decreased $423 million primarily due to weaker performance in rates products and emerging markets. The provision for credit losses increased $133 million to $164 million, reflecting Global Markets’ portion of a single-name non-U.S. commercial charge-off. Noninterest expense increased $562 million to $10.7 billion primarily due to higher litigation expense and continued investments in technology.prior year.
Average trading-relatedtotal assets increased $28.9$71.6 billion to $441.8$857.6 billion in 2017 primarily driven by targetedloan growth and commodities activity in client financing activities in the global equities business. Year-endFICC. Period-end total assets increased $64.7 billion to $812.5 billion
trading-related assets increased $38.8 billion to $419.4 billion at December 31, 2017 driven by additional inventoryloan growth, an increase in FICCcommodities activity, and higher derivative balances due to meet expected client demand as well as targeted growth in client financing activities in the global equities business.higher interest rates.
The return on average allocated capital decreased to ninewas 10 percent, down from 12 percent, reflecting lower net income partially offset by a decreaseand an increase in average allocated capital. For more information on capital allocated to the business segments, see Business Segment Operations on page 37.
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 also 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 32.
| | | | | | | | | | | | | | | |
| | | | | | | |
Sales and Trading Revenue (1, 2, 3) |
| | | | | |
| | | |
| (Dollars in millions) | | | | | 2022 | | 2021 |
| Sales and trading revenue | | | | | | | |
| Fixed income, currencies and commodities | | | | | $ | 9,917 | | | $ | 8,761 | |
| Equities | | | | | 6,572 | | | 6,428 | |
| Total sales and trading revenue | | | | | $ | 16,489 | | | $ | 15,189 | |
| | | | | | | |
Sales and trading revenue, excluding net DVA (4) | | | | | | | |
| Fixed income, currencies and commodities | | | | | $ | 9,898 | | | $ | 8,810 | |
| Equities | | | | | 6,571 | | | 6,433 | |
| Total sales and trading revenue, excluding net DVA | | | | | $ | 16,469 | | | $ | 15,243 | |
(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$354 million and $421 million for 2022 and 2021.
(3) Includes Global Banking sales and trading revenue of these businesses$1.0 billion and to allow better comparison of year-over-year operating performance.
$510 million for 2022 and 2021. |
| | | | | | | |
| | | | |
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 gains (losses) were $19 million from 2016 primarily due to lower revenue in rates products and emerging markets as lower volatility led to reduced client flow. The decline in FICC revenue was also impacted by higher funding costs which$(49) million for 2022 and 2021. Equities net DVA gains (losses) were driven by increases in market interest rates. Equities revenue,$1 million and $(5) million for 2022 and 2021.
Including and excluding net DVA, FICC revenue increased $129$1.2 billion and $1.1 billion driven by improved trading performance across interest rate and currency products, partially offset by a weaker trading environment for credit products in the current-year period and a gain in commodities from a weather-related event in the prior year. Including and excluding net DVA, Equities revenue increased $144 million from 2016 due to higher revenue from the growthand $138 million driven by strong performances in derivatives and client financing activities, which was partially offset by lower revenuea weaker performance in cash and derivative trading due to lower levels of volatility and client activity. cash.
All Other
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | |
| (Dollars in millions) | | | | | | | 2022 | | 2021 | | % Change |
| Net interest income | | | | | | | $ | 117 | | | $ | 246 | | | (52) | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Noninterest income (loss) | | | | | | | (5,479) | | | (5,589) | | | (2) | |
| Total revenue, net of interest expense | | | | | | | (5,362) | | | (5,343) | | | — | |
| | | | | | | | | | | |
| Provision for credit losses | | | | | | | (172) | | | (182) | | | (5) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Noninterest expense | | | | | | | 2,485 | | | 1,519 | | | 64 | |
| Loss before income taxes | | | | | | | (7,675) | | | (6,680) | | | 15 | |
| Income tax benefit | | | | | | | (6,023) | | | (8,069) | | | (25) | |
| Net income (loss) | | | | | | | $ | (1,652) | | | $ | 1,389 | | | n/m |
| | | | | | | | | | | | |
| Balance Sheet | | | | | | | | | | | | |
| | | | | | | | |
| | | | | | Year Ended December 31 | | |
| | | | | | | | | | | | |
| Average | | | | | | | 2022 | | 2021 | | % Change |
| Total loans and leases | | | | | | | $ | 12,683 | | | $ | 18,447 | | | (31) | % |
Total assets (1) | | | | | | | 139,466 | | | 191,831 | | | (27) | |
| Total deposits | | | | | | | 20,082 | | | 16,512 | | | 22 | |
| | | | | | | | | | | | |
| Year end | | | | | | | | December 31
2022 | | December 31
2021 | | % Change |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total loans and leases | | | | | | | $ | 10,234 | | | $ | 15,863 | | | (35) | % |
| | | | | | | | | | | |
Total assets (1) | | | | | | | | 155,074 | | | 214,153 | | | (28) | |
| Total deposits | | | | | | | 19,905 | | | 21,182 | | | (6) | |
|
| | | | | | | | | | | |
| | | | | | | |
| (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
All Other primarily consists of ALMasset and liability management (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, interest rate and foreign currency risk management activities for which 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
Net income decreased $3.0 billion to a loss of $1.7 billion primarily due to a lower income tax is generally recordedbenefit and higher noninterest expense.
Noninterest expense increased $966 million primarily driven by the realignment of a liquidating business activity from Global Markets to All Other in the business segments atfourth quarter of 2021, expense associated with the statutory rate;settlement of the initiallegacy monoline insurance litigation and expense related to certain regulatory matters, partially offset by decreases in other expenses.
The income tax benefit was $6.0 billion in 2022 compared to a benefit of $8.1 billion in 2021. The decrease in the tax benefit was primarily driven by the impact of the Tax Act was recordedU.K. tax law change 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, residential mortgage loans held for ALM activities decreased $6.1 billion to $28.5 billion at December 31, 2017 primarily as a result of payoffs and paydowns outpacing new originations. Non-core residential mortgage and home equity loans, which are principally run-off portfolios, including certain loans accounted for under the fair value option and MSRs pertaining to non-core loans serviced for others, are also held in All Other. During 2017, total non-core loans decreased $11.8 billion to $41.3 billion at December 31, 2017 due primarily to payoffs and paydowns, as well as loan sales.
The net loss for All Other increased $1.6 billion to a net loss of $3.3 billion, driven by an estimated charge of $2.9 billion due to enactment of the Tax Act.2021. For more information, see Financial Highlights - Income Tax Expense on page 21. The pre-tax loss for 2017 compared to 2016 decreased $526 million reflecting lower noninterest expense and a larger benefit in the provision for credit losses, partially offset by a decline in revenue.
Revenue declined $1.5 billion primarily due to lower mortgage banking income. Mortgage banking income declined $1.2 billion primarily due to less favorable valuations on MSRs, net of related hedges, and an increase in the provision for representations and warranties. All other noninterest loss decreased marginally and included a pre-tax gain of $793 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.
The benefit in the provision for credit losses increased $461 million to a benefit of $561 million primarily driven by continued runoff of the non-core portfolio, loan sale recoveries and the sale of the non-U.S. consumer credit card business.
Noninterest expense decreased $1.5 billion to $4.1 billion driven by lower litigation expense, lower personnel expense and a decline in non-core mortgage servicing costs, partially offset by a $316 million impairment charge related to certain data centers 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.29. Both periods includeincluded income tax benefit adjustments to eliminate the FTE treatment of certain tax credits recorded in Global Bankingand Global Markets.
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, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans (collectively, the Plans). Obligations to the Plans are based on the current and projected obligations of the Plans, performance of the Plans’ assets, and any participant contributions, if applicable. During 2017 and 2016, we contributed $514 million and $256 million to the Plans, and we expect to make $128 million of contributions during 2018. The Plans are more fully discussed in Note 17 – Employee Benefit Plans to the Consolidated Financial Statements.
We enter into commitments to extend credit such as loan commitments, standby letters of credit (SBLCs) and commercial letters of credit to meet the financing needs of our customers. For a summary of the total unfunded, or off-balance sheet, credit extension commitment amounts by expiration date, see Credit Extension Commitments in Note 12 – Commitments and Contingencies to the Consolidated Financial Statements.
Table 11 includes certain contractual obligations at December 31, 2017 and 2016.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Table 11 | Contractual Obligations | | | | |
| | | | | | | | | | | | | |
| | | December 31, 2017 | | December 31
2016 |
| (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 | $ | 42,057 |
| | $ | 42,145 |
| | $ | 30,879 |
| | $ | 112,321 |
| | $ | 227,402 |
| | $ | 216,823 |
|
| Operating lease obligations | 2,256 |
| | 4,072 |
| | 3,023 |
| | 5,169 |
| | 14,520 |
| | 13,620 |
|
| Purchase obligations | 1,317 |
| | 1,426 |
| | 458 |
| | 1,018 |
| | 4,219 |
| | 5,742 |
|
| Time deposits | 61,038 |
| | 4,990 |
| | 1,543 |
| | 273 |
| | 67,844 |
| | 74,944 |
|
| Other long-term liabilities | 1,681 |
| | 1,234 |
| | 862 |
| | 1,195 |
| | 4,972 |
| | 4,567 |
|
Estimated interest expense on long-term debt and time deposits (1) | 5,590 |
| | 8,796 |
| | 6,909 |
| | 27,828 |
| | 49,123 |
| | 39,447 |
|
| Total contractual obligations | $ | 113,939 |
| | $ | 62,663 |
| | $ | 43,674 |
| | $ | 147,804 |
| | $ | 368,080 |
| | $ | 355,143 |
|
| |
(1)
| Represents forecasted net interest expense on long-term debt and time deposits based on interest rates at December 31, 2017. Forecasts are based on the contractual maturity dates of each liability, and are net of derivative hedges, where applicable.
|
Representations and Warranties
For background information on representations and warranties, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements. Breaches of representations and warranties made in connection with the sale of mortgage loans have resulted in and may continue to result in the requirement to repurchase mortgage loans or to otherwise make whole or provide other remedies to investors, securitization trusts, guarantors, insurers or other parties (collectively, repurchases).
At December 31, 2017 and 2016, we had $17.6 billion and $18.3 billion of unresolved repurchase claims, predominately related to subprime and pay option first-lien loans and home equity loans originated primarily between 2004 and 2008.
In addition to unresolved repurchase claims, we have received notifications indicating that we may have indemnity obligations with respect to specific loans for which we have not received a repurchase request. These notifications were received prior to 2015, and totaled $1.3 billion at both December 31, 2017 and 2016. During 2017, we reached agreements with certain parties requesting indemnity. One such agreement is subject to acceptance by a securitization trustee. The impact of these agreements is included in the provision and reserve for representations and warranties.
The reserve for representations and warranties and corporate guarantees is included in accrued expenses and other liabilities on the Consolidated Balance Sheet and the related provision is included in mortgage banking income. At December 31, 2017 and 2016, the reserve for representations and warranties was $1.9 billion and $2.3 billion. The representations and warranties provision was $393 million for 2017 compared to $106 million for 2016 with the increase resulting from settlements or advanced negotiations with certain counterparties where we believe we will reach settlements on several outstanding legacy matters.
In addition, we currently estimate that the range of possible loss for representations and warranties exposures could be up to $1 billion over existing accruals at December 31, 2017. This estimate is lower than the estimate at December 31, 2016 due
to recent reductions in risk as we reach settlements with counterparties. The estimated range of possible loss represents
a reasonably possible loss, but does not represent a probable loss, and is based on currently available information, significant judgment and a number of assumptions that are subject to change.
Future provisions and/or ranges of possible loss associated with obligations under representations and warranties may be significantly impacted if future experiences are different from historical experience or our understandings, interpretations or assumptions. Adverse developments with respect to one or more of the assumptions underlying the reserve for representations and warranties and the corresponding estimated range of possible loss, such as counterparties successfully challenging or avoiding the application of the relevant statute of limitations, could result in significant increases to future provisions and/or the estimated range of possible loss. For more information on representations and warranties, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements and, for more information related to the sensitivity of the assumptions used to estimate our liability for representations and warranties, see Complex Accounting Estimates – Representations and Warranties Liability on page 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, risksrisk 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.
| |
● | Strategic risk is the risk resulting from incorrect assumptions about external or internal factors, inappropriate business plans, ineffective business strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic or competitive environments in the geographic locations in which we operate. |
| |
● | Credit risk is the risk of loss arising from the inability or failure of a borrower or counterparty to meet its obligations. |
| |
● | Market risk is the risk that changes in market conditions may adversely impact the value of assets or liabilities, or otherwise negatively impact earnings. |
| |
● | Liquidity risk is the inability to meet expected or unexpected cash flow and collateral needs while continuing to support our businesses and customers under a range of economic conditions. |
| |
● | Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to the reputation of the Corporation arising from the failure of the Corporation to comply with the requirements of applicable laws, rules, regulations and related self-regulatory organizations’ standards and codes of conduct. |
| |
● | Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. |
| |
● | Reputational risk is the risk that negative perceptions of the Corporation’s conduct or business practices may adversely impact its profitability or operations. |
● 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 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 internal processes or systems, people or external events.
● Reputational risk is the risk that negative perception of the Corporation may adversely impact profitability or operations.
The following sections address in more detail the specific procedures, measures and analyses of the major categories of risk. This discussion of managing risk focuses on the current Risk Framework that, as part of its annual review process, was approved by the ERC and the Board.
As set forth in our Risk Framework, a culture of managing risk well is fundamental to our values and operating principles.our purpose, and how we drive 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 promotespromote sound risk-taking within our risk appetite. Sustaining a culture of managing risk well throughout the organization is critical to ourthe success of the Corporation 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 accountabilityresponsibilities 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 30.37.
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 comparableframework that includes a set of measures forto assist senior management and the Board to clearly indicate our aggregate level of risk and to monitor whetherin assessing the Corporation’s risk profile remains in alignment withagainst our strategicrisk appetite and capital plans.risk capacity. Our risk appetite is formally articulated in the Risk Appetite Statement, which includes both qualitative componentsstatements 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 at all times, 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. Executiveappetite. Senior management is responsible for tracking and reporting performance measurements as well as any exceptions to guidelines orrisk appetite 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 49 through 82.
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,documents such as committee charters, job descriptions, meeting minutes and resolutions.
The chart below illustrates the inter-relationshipinterrelationship 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 15 directors, all but one of whom are independent. The Board authorizes management to maintain an effective Risk Framework and oversees compliance with safe and sound banking practices. In addition, the Board or its committees conduct inquiries of, and receive reports from senior management on, risk-related matters to assess scope or resource limitations that could impede the ability of independent risk management (IRM)Global Risk Management (GRM) 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 executivesenior 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 senior 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 riskrisks pursuant to the New York Stock Exchange listing standards.
Enterprise Risk Committee
The ERC has primary responsibility for oversight ofoversees the Corporation’s Risk Framework, risk appetite and key risks we face. 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.facing the Corporation. 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 leads
Board recommendsand committee appointments for Board approvalsuccession planning and their formal self-evaluation, and reviews our Environmental, SocialESG activities, shareholder input and Government (ESG) and stockholdershareholder engagement activities.process.
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, including pay equity and diversity and inclusion.
Management Committees
Management committees may receive their authority from the Board, a Board committee, or another management committee or from one or more executive officers.committee. Our primary management-levelmanagement risk committee is the Management Risk Committee (MRC).MRC. Subject to Board oversight, the MRC is responsible for management oversight of key risks facing the Corporation. The MRC provides management oversightCorporation, including an integrated evaluation of our compliancerisk, earnings, capital 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.liquidity.
Lines of Defense
We have clear ownership and accountability for managing risk across three lines of defense: Front Line Units (FLUs), IRMGRM and Corporate Audit. We also have control functions outside of FLUs and IRMGRM (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-level committees, management routines or individuals. Executive officers review our activities for consistency with our Risk Framework, Risk Appetite Statementrisk appetite, and applicable strategic, capital and financial operating plans, as well as applicable policies standards, procedures and processes.standards. 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 Global 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 IRMGRM are first, the Chief Financial Officer (CFO) Group, Global Marketing and Corporate Affairs (GM&CA) andGroup; second, the Chief Administrative Officer (CAO) Group.Group; and third, Global Strategy and Enterprise Platforms.
IndependentGlobal Risk Management
IRMGRM is part of our control functions and includes Global Risk Management and Global Compliance. We have other control functions that are not part of IRM (other control functions may also provide oversight to FLU activities), including Legal, Global Human Resources and certain activities within the CAO Group, CFO Group and GM&CA. IRM,operates as our independent risk management function. GRM, led by the Chief Risk Officer (CRO), is responsible for independently assessing and overseeing risks within FLUs and other control functions. IRMGRM establishes written enterprise policies and procedures that include concentration risk limits, where appropriate. Such policies and procedures outlineoutlining how aggregate risks are identified, measured, monitored and controlled.
The CRO has the stature, authority and independence needed to develop and implement a meaningful risk management framework.framework and practices to guide the Corporation in managing risk. The CRO has unrestricted access to the Board and reports directly to both the ERC and to the CEO. Global Risk ManagementGRM is organized into horizontal risk teams FLUthat cover a specific risk teamsarea and control function riskvertical CRO teams that cover a particular FLU 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, IRMGRM and other control functions by reporting directly to the Audit Committee or the Board.Committee. 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 testsprovides an independent assessment of credit lending decisions and examinesthe effectiveness of credit portfoliosprocesses across the Corporation’s credit platform through examinations and processes.monitoring.
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 ofthereby ensuring risks are appropriately considered, evaluated and responded to in a timely manner.
We employ aan effective 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 definedproactively identified and proactively identified.well understood. 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 incorporatingthat incorporates input from FLUs and control functions,functions. It is designed to be forward lookingforward-looking and to 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 qualitative statements and quantitative and qualitative components.limits. Risk is measured at various levels, including, but not limited to, risk type, FLU and legal entity, and also on an aggregate basis. This risk quantificationmeasurement 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.standards. We also regularly update risk assessments and review risk exposures. Through our monitoring, we can determineknow our level of risk relative to limits and can take action in a timely manner. We also can determineknow when risk limits are breached and have processes to appropriately report and escalate exceptions. This includes timely 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.processes. The limits and controls can be adjusted by senior management or the Board or management when conditions or risk tolerances warrant. These limits may be absolute (e.g., loan amount, trading volume)volume, operational loss) or relative (e.g., percentage of loan book in higher-risk categories). Our lines of businessFLUs are held accountable to performfor performing 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 areon Responsible Growth is also critical to effective risk management. We understand thatare committed to the highest principles of ethical and professional conduct. Conduct risk is the risk of improper actions, behaviors or practices by the Corporation, its employees or representatives that are illegal, unethical and/or contrary to our core values that could result in harm to the Corporation, our shareholders or our customers, damage the integrity of the financial markets, or negatively impact our reputation, andreputation. We have established protocols and structures so that such conduct risk is governed and reported across the Corporation. Specifically,ourCorporation appropriately. All employees are held accountable for adhering to the Code of Conduct, provides a framework for all ofoperating within our employees to conduct themselves with the highest integrity. Additionally, we continue to strengthen the link between the employeerisk appetite and managing risk in their daily business activities. In addition, our performance management process and individual compensation topractices encourage employees to work toward enterprise-wideresponsible risk-taking that is consistent with our Risk Framework and risk goals.appetite.
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 certain subsidiaries 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, orand 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.
An aspect of strategic risk is the risk that the Corporation’s capital levels are not adequate to meet minimum regulatory requirements and support execution of business activities or absorb losses from risks during normal or adverse economic and market conditions. As such, capital risk is managed in parallel to strategic risk.
We manage strategic risk through the Strategic Risk Enterprise Policy and integration into the strategic planning process, among other activities. Our strategic plan is consistent with our risk appetite, capital plan and liquidity requirements, and specifically addresses strategic risks.risks impacting each business.
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, executivesenior 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 30.37.
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 CCARComprehensive Capital Analysis and Review (CCAR) capital plan. Based on the results of our 2022 CCAR stress test, our stress capital buffer (SCB) increased to 3.4 percent from 2.5 percent, effective October 1, 2022 through September 30, 2023.
On June 28, 2017, following the Federal Reserve’s non-objection to our 2017 CCAR capital plan,In October 2021, the Board authorized the repurchase of $12.0Corporation’s $25 billion in common stock from July 1, 2017 through June 30, 2018, plus repurchases expected to be approximately $900 million to offset the effect of equity-based compensation plans during the same period. On December 5, 2017, following approval by the Federal Reserve, the Board authorized the repurchase of an additional $5.0 billion of common stock through June 30, 2018. The common stock repurchase authorizations include both common stock and warrants. During 2017, pursuant toprogram. Additionally, 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 includesBoard authorized common stock repurchases to offset shares awarded under the Corporation’s equity-based compensation awards. At December 31, 2017, our remainingplans. Pursuant to the Board’s authorizations, during 2022, we repurchased $5.1 billion of common stock, repurchase authorization was $10.1 billion.including repurchases to offset shares awarded under equity-based compensation plans.
The timing and amount of common stock repurchases will beare subject to various factors, including the Corporation’s capital position, liquidity, financial performance and alternative uses of capital, stock trading price, regulatory requirements 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 not1934, as amended (Exchange Act).
contemplated in our capital plan, subject to the Federal Reserve’s non-objection.
Regulatory Capital
As a financial services holding company, we are subject to regulatory capital rules, including Basel 3, issued by U.S. banking regulators 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 yieldslower of the lowercapital ratios under Standardized or Advanced approaches compared to their respective regulatory capital ratio isrequirements are used to assess capital adequacy, including under the PCA framework. As of December 31, 2022, the common equity tier 1 (CET1), Tier 1 capital and Total capital ratios under the Standardized approach were the binding ratios.
Minimum Capital Requirements
MinimumIn order to avoid restrictions on capital distributions and discretionary bonus payments, the Corporation must meet risk-based capital ratio requirements and related buffers are being phased in from January 1, 2014 through January 1, 2019. The PCA framework establishes categories of capitalization including “well capitalized,” based on the Basel 3 regulatory ratio requirements. U.S. banking regulators are required to take certain mandatory actions depending on the category of capitalization, with no mandatory actions required for “well-capitalized” banking organizations, which included BANA at December 31, 2017.
We are subject tothat include a capital conservation buffer aof 2.5 percent (under the Advanced approaches only), an SCB (under the Standardized approach only), plus any applicable countercyclical capital buffer and a global systemically important bank (G-SIB) surcharge that are being phased in over a three-year period ending January 1, 2019. Once fully phased in, the Corporation’s risk-based capital ratio requirements will include a capital conservation buffer greater than 2.5 percent, plus any applicable countercyclical capital buffer and a G-SIB surcharge in order to avoid restrictions on capital distributions and discretionary bonus payments.surcharge. The buffers and surcharge must be comprised solely of Common equity tierCET1 capital. For the period from October 1, capital. Under2021 through September 30, 2022, the phase-in provisions, we wereCorporation's minimum CET1 capital ratio requirement was 9.5 percent under both the Standardized and Advanced approaches. Based on the results of our 2022 CCAR stress test, the Corporation’s SCB increased to 3.4 percent, resulting in a minimum CET1 capital ratio requirement of 10.4 percent under the Standardized approach for the period from October 1, 2022 through September 30, 2023. Our minimum CET1 capital ratio requirement under the Advanced approaches
remains unchanged at 9.5 percent.
The Corporation is required to calculate its G-SIB surcharge on an annual basis under two methods and is subject to the higher of the resulting two surcharges. Method 1 is consistent with the approach prescribed by the Basel Committee’s assessment methodology and is calculated using specified indicators of systemic importance. Method 2 modifies the Method 1 approach by, among other factors, including a measure of the Corporation’s reliance on short-term wholesale funding. The Corporation’s G-SIB surcharge, which is higher under Method 2, is expected to increase to 3.0 percent from 2.5 percent on January 1, 2024, which will increase our minimum CET1 capital ratio requirement. At December 31, 2022, the Corporation’s CET1 capital ratio of 11.2 percent under the Standardized approach exceeded its current CET1 capital ratio requirement as well as the minimum requirement expected to be in place as of January 1, 2024 due to an anticipated increase in our G-SIB surcharge.
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 restrictions 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.
Capital Composition and Ratios
Table 1210 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, 20172022 and 2016. Fully phased-in estimates are non-GAAP financial measures that2021. 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 |
|
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(1)
| | As an Advanced approaches institution, we are required to report regulatory capital risk-weighted assets and ratios under both the Standardized and Advanced approaches. The approach that yields the lower ratio is to be used to assess capital adequacy and was the Advanced approaches method at December 31, 2017 and 2016.Bank of America 50
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| |
(2)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Table 10 | Bank of America Corporation Regulatory Capital under Basel 3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Standardized
Approach (1) | | Advanced
Approaches (1) | | Regulatory
Minimum (2) | | | | | | (Dollars in millions, except as noted) | | | | | | | December 31, 2022 | | | | Risk-based capital metrics: | | | | | | | | | | | | | | | | | Common equity tier 1 capital | | | | | | | $ | 180,060 | | | $ | 180,060 | | | | | | | | | Tier 1 capital | | | | | | | 208,446 | | | 208,446 | | | | | | | | Total capital (3) | | | | | | | 238,773 | | | 230,916 | | | | | | | | | Risk-weighted assets (in billions) | | | | | | | 1,605 | | | 1,411 | | | | | | | | | Common equity tier 1 capital ratio | | | | | | | 11.2 | % | | 12.8 | % | | 10.4 | % | | | | | | Tier 1 capital ratio | | | | | | | 13.0 | | | 14.8 | | | 11.9 | | | | | | | Total capital ratio | | | | | | | 14.9 | | | 16.4 | | | 13.9 | | | | | | | | | | | | | | | | | | | | | | | | Leverage-based metrics: | | | | | | | | | | | | | | | | Adjusted quarterly average assets (in billions) (4) | | | | | | | $ | 2,997 | | | $ | 2,997 | | | | | | | | | Tier 1 leverage ratio | | | | | | | 7.0 | % | | 7.0 | % | | 4.0 | | | | | | | | | | | | | | | | | | | | | | | Supplementary leverage exposure (in billions) | | | | | | | | | $ | 3,523 | | | | | | | | | Supplementary leverage ratio | | | | | | | | | 5.9 | % | | 5.0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2021 | | | | Risk-based capital metrics: | | | | | | | | | | | | | | | | | Common equity tier 1 capital | | | | | | | $ | 171,759 | | | $ | 171,759 | | | | | | | | | Tier 1 capital | | | | | | | 196,465 | | | 196,465 | | | | | | | | Total capital (3) | | | | | | | 227,592 | | | 220,616 | | | | | | | | | Risk-weighted assets (in billions) | | | | | | | 1,618 | | | 1,399 | | | | | | | | | Common equity tier 1 capital ratio | | | | | | | 10.6 | % | | 12.3 | % | | 9.5 | % | | | | | | Tier 1 capital ratio | | | | | | | 12.1 | | | 14.0 | | | 11.0 | | | | | | | Total capital ratio | | | | | | | 14.1 | | | 15.8 | | | 13.0 | | | | | | | | | | | | | | | | | | | | | | | | Leverage-based metrics: | | | | | | | | | | | | | | | | Adjusted quarterly average assets (in billions) (4) | | | | | | | $ | 3,087 | | | $ | 3,087 | | | | | | | | | Tier 1 leverage ratio | | | | | | | 6.4 | % | | 6.4 | % | | 4.0 | | | | | | | | | | | | | | | | | | | | | | | | Supplementary leverage exposure (in billions) | | | | | | | | | $ | 3,604 | | | | | | | | | Supplementary leverage ratio | | | | | | | | | 5.5 | % | | 5.0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1)Capital ratios as of December 31, 2022 and 2021 are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of the current expected credit losses (CECL) accounting standard on January 1, 2020. (2)The capital conservation buffer and G-SIB surcharge were 2.5 percent at both December 31, 2022 and 2021. The Corporation's SCB applied in place of the capital conservation buffer under the Standardized approach was 3.4 percent at December 31, 2022 and 2.5 percent at December 31, 2021. The countercyclical capital buffer for both periods was zero. The CET1 capital regulatory minimum is the sum of the CET1 capital ratio minimum of 4.5 percent, our G-SIB surcharge of 2.5 percent and our capital conservation buffer of 2.5 percent or the SCB, as applicable, of 3.4 percent at December 31, 2022 and 2.5 percent at December 31, 2021. The SLR regulatory minimum includes a leverage buffer of 2.0 percent. (3)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. (4)Reflects total average assets adjusted for certain Tier 1 capital deductions.
At December 31, 2022, CET1 capital was $180.1 billion, an increase of $8.3 billion from December 31, 2021, due to earnings, partially offset by dividends, common stock repurchases and higher net unrealized losses on available-for-sale debt securities included in accumulated other comprehensive income (OCI). Tier 1 capital increased $12.0 billion primarily driven by the same factors as CET1 capital as well as non-cumulative perpetual preferred stock issuances. Total capital under the Standardized approach increased $11.2 billion primarily due to the same factors driving the increase in Tier 1 capital and an increase in the adjusted allowance for credit losses included in Tier 2 capital, partially offset by a decrease in subordinated debt. RWA under the Standardized approach, which yielded the lower CET1 capital ratio at December 31, 2022, decreased $13.0 billion during 2022 to $1,605 billion primarily due to lower counterparty exposures in Global Markets and a decrease in debt securities in the Treasury portfolio, partially offset by loan growth. Supplementary leverage exposure at December 31, 2022 decreased $80.3 billion primarily due to lower debt securities, driven by lower deposits, partially offset by loan growth. | 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.
|
Common equity tier 1 capital under Basel 3 Advanced – Transition was $171.1 billion at December 31, 2017, an increase of $2.2 billion compared to December 31, 2016 driven by earnings and the exercise of warrants associated with the Series T preferred stock, partially offset by common stock repurchases, dividends and the phase-in under Basel 3 transition provisions of deductions, primarily related to deferred tax assets. During 2017, total capital decreased $452 million primarily driven by common stock repurchases, dividends, lower eligible credit reserves and tier 2
capital instruments, in addition to the phase-in of Basel 3 transition provisions, partially offset by earnings.
Risk-weighted assets decreased $81 billion during 2017 to $1,449 billion primarily due to the implementation of Internal Models Methodology (IMM) for derivatives, improvements in credit risk capital models, the sale of the non-U.S. consumer credit card business and continued run-off of non-core assets.
Table 1311 shows the capital composition at December 31, 2022 and 2021.
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| | | | |
| Table 11 | Capital Composition under Basel 3 | | | |
| | | | |
| | December 31 |
| | | |
| (Dollars in millions) | 2022 | | 2021 |
| Total common shareholders’ equity | $ | 244,800 | | | $ | 245,358 | |
CECL transitional amount (1) | 1,881 | | | 2,508 | |
| Goodwill, net of related deferred tax liabilities | (68,644) | | | (68,641) | |
| Deferred tax assets arising from net operating loss and tax credit carryforwards | (7,776) | | | (7,743) | |
| Intangibles, other than mortgage servicing rights, net of related deferred tax liabilities | (1,554) | | | (1,605) | |
| Defined benefit pension plan net assets | (867) | | | (1,261) | |
Cumulative unrealized net (gain) loss related to changes in fair value of financial liabilities attributable to own creditworthiness,
net-of-tax | 496 | | | 1,400 | |
Accumulated net (gain) loss on certain cash flow hedges (2) | 11,925 | | | 1,870 | |
| Other | (201) | | | (127) | |
| Common equity tier 1 capital | 180,060 | | | 171,759 | |
| Qualifying preferred stock, net of issuance cost | 28,396 | | | 24,707 | |
| Other | (10) | | | (1) | |
| Tier 1 capital | 208,446 | | | 196,465 | |
| Tier 2 capital instruments | 18,751 | | | 20,750 | |
Qualifying allowance for credit losses (3) | 11,739 | | | 10,534 | |
| Other | (163) | | | (157) | |
| Total capital under the Standardized approach | 238,773 | | | 227,592 | |
Adjustment in qualifying allowance for credit losses under the Advanced approaches (3) | (7,857) | | | (6,976) | |
| Total capital under the Advanced approaches | $ | 230,916 | | | $ | 220,616 | |
(1)Includes the impact of the Corporation's adoption of the CECL accounting standard on January 1, 2020 and 25 percent of the increase in reserves since the initial adoption.
(2)Includes amounts in accumulated other comprehensive income related to the hedging of items that are not recognized at fair value on the Consolidated Balance Sheet.
(3)Includes the impact of transition provisions related to the CECL accounting standard.
Table 12 shows the components of RWA as measured under Basel 3 – Transition at December 31, 20172022 and 2016.
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| Table 12 | Risk-weighted Assets under Basel 3 | | | | | | | |
| | | | | | | | |
| Standardized Approach | | Advanced Approaches | | Standardized Approach | | Advanced Approaches |
| December 31 |
| (Dollars in billions) | 2022 | | 2021 |
| | | |
| Credit risk | $ | 1,538 | | | $ | 939 | | | $ | 1,549 | | | $ | 913 | |
| Market risk | 67 | | | 67 | | | 69 | | | 69 | |
Operational risk (1) | n/a | | 364 | | | n/a | | 378 | |
| Risks related to credit valuation adjustments | n/a | | 41 | | | n/a | | 39 | |
| Total risk-weighted assets | $ | 1,605 | | | $ | 1,411 | | | $ | 1,618 | | | $ | 1,399 | |
|
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| | | | | |
| 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 the components of risk-weighted assets as measured under Basel 3 – Transition at (1)December 31, 2017 and 2016.
|
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| 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.
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| | | | | | | | |
| | | | | |
| 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 |
|
| |
(1)
| See Table 12, footnotes 1, 2 and 4.
|
Bank of America, N.A. Regulatory Capital
Table 1613 presents transition regulatory capital information for BANA in accordance with Basel 3 Standardized and Advanced approaches as measured at December 31, 20172022 and 2016. As of December 31, 2017,2021. BANA met the definition of “well capitalized”well capitalized under the PCA framework for both periods.
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table 13 | Bank of America, N.A. Regulatory Capital under Basel 3 | | |
| | | | | | | | |
| | Standardized
Approach (1) | | | | Advanced
Approaches (1) | | Regulatory
Minimum (2) |
| (Dollars in millions, except as noted) | December 31, 2022 |
| Risk-based capital metrics: | | | | | | | |
| Common equity tier 1 capital | $ | 181,089 | | | | | $ | 181,089 | | | |
| Tier 1 capital | 181,089 | | | | | 181,089 | | | |
Total capital (3) | 194,254 | | | | | 186,648 | | | |
| Risk-weighted assets (in billions) | 1,386 | | | | | 1,087 | | | |
| Common equity tier 1 capital ratio | 13.1 | % | | | | 16.7 | % | | 7.0 | % |
| Tier 1 capital ratio | 13.1 | | | | | 16.7 | | | 8.5 | |
| Total capital ratio | 14.0 | | | | | 17.2 | | | 10.5 | |
| | | | | | | |
| Leverage-based metrics: | | | | | | | |
Adjusted quarterly average assets (in billions) (4) | $ | 2,358 | | | | | $ | 2,358 | | | |
| Tier 1 leverage ratio | 7.7 | % | | | | 7.7 | % | | 5.0 | |
| | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | $ | 2,785 | | | |
| Supplementary leverage ratio | | | | | 6.5 | % | | 6.0 | |
|
| | | | | | | |
|
| December 31, 2021 |
| Risk-based capital metrics: | | | | | | | |
| Common equity tier 1 capital | $ | 182,526 | | | | | $ | 182,526 | | | |
| Tier 1 capital | 182,526 | | | | | 182,526 | | | |
Total capital (3) | 194,773 | | | | | 188,091 | | | |
| Risk-weighted assets (in billions) | 1,352 | | | | | 1,048 | | | |
| Common equity tier 1 capital ratio | 13.5 | % | | | | 17.4 | % | | 7.0 | % |
| Tier 1 capital ratio | 13.5 | | | | | 17.4 | | | 8.5 | |
| Total capital ratio | 14.4 | | | | | 17.9 | | | 10.5 | |
| | | | | | | |
| Leverage-based metrics: | | | | | | | |
Adjusted quarterly average assets (in billions) (4) | $ | 2,414 | | | | | $ | 2,414 | | | |
| Tier 1 leverage ratio | 7.6 | % | | | | 7.6 | % | | 5.0 | |
| | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | $ | 2,824 | | | |
| Supplementary leverage ratio | | | | | 6.5 | % | | 6.0 | |
(1)Capital ratios as of December 31, 2022 and 2021 are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of the CECL accounting standard on January 1,2020 .
(2)Risk-based capital regulatory minimums at both December 31, 2022 and 2021 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.
(3)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.
(4)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 14 presents the Corporation's TLAC and long-term debt ratios and related information as of December 31, 2022 and 2021. | Percent required to meet guidelines to be considered “well capitalized” under the PCA framework. |
Regulatory Developments | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Table 14 | 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, 2022 |
| Total eligible balance | $ | 465,451 | | | | | | | $ | 243,833 | | | |
Percentage of risk-weighted assets (4) | 29.0 | % | | 22.0 | % | | | | 15.2 | % | | 8.5 | % |
| Percentage of supplementary leverage exposure | 13.2 | | | 9.5 | | | | | 6.9 | | | 4.5 | |
| | | | | | | | | |
| December 31, 2021 |
| Total eligible balance | $ | 435,904 | | | | | | | $ | 227,714 | | | |
Percentage of risk-weighted assets (4) | 26.9 | % | | 22.0 | % | | | | 14.1 | % | | 8.5 | % |
| Percentage of supplementary leverage exposure | 12.1 | | | 9.5 | | | | | 6.3 | | | 4.5 | |
Minimum Total Loss-Absorbing Capacity
The Federal Reserve has established a final rule effective January 1, 2019, which includes minimum external total loss-absorbing capacity (TLAC) requirements to improve the resolvability and resiliency of large, interconnected BHCs. We estimate our minimum required external TLAC would be the greater of 22.5 percent of risk-weighted assets or 9.5 percent of SLR leverage exposure. In addition, U.S. G-SIBs must meet a minimum long-term debt requirement. Our minimum required long-term debt is estimated to be the greater of 8.5 percent of risk-weighted assets or 4.5 percent of SLR leverage exposure. (1)As of December 31, 2017,2022 and 2021, 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 exceeded our estimated 2019 minimum requirements.ratios, which was the Standardized approach as of December 31, 2022 and 2021.
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, revisions to the credit valuation adjustment (CVA) risk framework and constraints on the use of internal models. The Basel Committee had also previously finalized a revised standardized model for counterparty credit risk, revisions to the securitization framework and its fundamental review of the trading book, which updates both modeled and standardized approaches for market risk measurement. The revisions also include a capital floor set at 72.5 percent of total risk-weighted assets based on the revised standardized approaches to limit the extent to which banks can reduce risk-weighted asset levels through the use of internal models. U.S. banking regulators may update the U.S. Basel 3 rules to incorporate the Basel Committee revisions.
Revisions to the G-SIB Assessment Framework
On March 30, 2017, the Basel Committee issued a consultative document with proposed revisions to the G-SIB surcharge assessment framework. The proposed revisions would include removing the cap on the substitutability category, expanding the scope of consolidation to include insurance subsidiaries in three
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 Commission (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.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$5.0 billion and net capital in excess of $500 million andthe greater of $1.0 billion or a certain percentage of its reserve requirement in addition to a certain percentage of securities-based swap risk margin. BofAS must also notify the SEC in the event its tentative net capital is less than $5.0$6.0 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&S2022, BofAS had tentative net capital andof $20.9 billion. BofAS also had regulatory net capital in excess of $17.5 billion, which exceeded the minimum requirement of $4.1 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, 2022, MLPCC’s regulatory net capital of $7.5 billion exceeded the minimum requirement of $1.4 billion.
Merrill Lynch International (MLI),MLPF&S provides retail services. At December 31, 2022, MLPF&S' regulatory net capital was $6.0 billion, which exceeded the minimum requirement of $137 million.
Our European broker-dealers are subject to requirements from U.S. and non-U.S. regulators. MLI, a U.K. investment firm, is regulated by the Prudential Regulation Authority and the
Financial Conduct Authority and is subject to certain regulatory capital requirements. At December 31, 2017,2022, MLI’s capital resources were $35.1$33.4 billion, which exceeded the minimum Pillar 1 requirement of $16.5$11.6 billion.
BofASE is an authorized credit institution with its head office located in France. Previously, BofASE had been authorized as an investment firm, but following the European Union’s adoption of the harmonized Investment Firm Directive and Investment Firm Regulation prudential regime, it was required to apply for reauthorization as a credit institution. The application was approved in November 2022 and became effective on December 8, 2022. BofASE is authorized and regulated by the Autorité de Contrôle Prudentiel et de Résolution and the Autorité des Marchés Financiers, and supervised under the Single Supervisory Mechanism by the European Central Bank. At December 31, 2022, BofASE's capital resources were $9.0 billion, which exceeded the minimum Pillar 1 requirement of $3.0 billion. In addition, MLI and BofASE became conditionally registered with the SEC as security-based swap dealers in the fourth quarter of 2021, and maintained net liquid assets at December 31, 2022 that exceeded the applicable minimum requirements under the Exchange Act.
Liquidity Risk
Funding and Liquidity Risk Management
Our primary liquidity risk management objective is to meet expected or unexpected cash flow and collateral needsrequirements, including payments under long-term debt agreements, commitments to extend credit and customer deposit withdrawals, 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 fluctuation from the rising interest rate environment, inflationary pressures and macroeconomic environment.
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 obligationsthey 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
(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 41.46. Under this governance framework, we have developed certain funding and liquidity risk management practices which include: maintaining liquidity at the parent companyBank of America Corporation (Parent) 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 intoThe Parent, which is a separate and distinct legal entity from our bank and nonbank subsidiaries, has an intercompany arrangementsarrangement with certain key subsidiaries under which weour wholly-owned holding company subsidiary, NB Holdings Corporation (NB Holdings). We have transferred, certain of our parent company assets, and agreed to transfer, certain additional parent companyParent assets not neededrequired to satisfy anticipated near-term expenditures to NB Holdings Corporation, a wholly-owned holding company subsidiary (NB Holdings).Holdings. The parent companyParent 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. These arrangements support our preferred single point of entry resolution strategy, under which only the Parent would be resolved under the U.S. Bankruptcy Code.
In consideration for the transfer of assets, NB Holdings issued a subordinated note to the parent companyParent 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 companyParent with a committed line of credit that allows the parent companyParent 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 companyParent 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 companyParent to transfer its remaining financial assets to NB Holdings if our projected liquidity resources deteriorate so severely that resolution of the parent companyParent becomes imminent.
Global Liquidity Sources and Other Unencumbered Assets
We maintain liquidity available to the Corporation, including the parent companyParent 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 companyParent and selected subsidiaries, including holding company, bank and broker-dealer subsidiaries, even duringstressed 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 other investment-grade securities, 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 15 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, 20172022 and 2016. The increase in parent company and2021.
| | | | | | | | | | | | | | |
| | | | |
| Table 15 | Average Global Liquidity Sources |
| | | | |
| | Three Months Ended December 31 |
| | |
| (Dollars in billions) | 2022 | | 2021 |
| | | |
| Bank entities | $ | 694 | | | $ | 1,006 | |
Nonbank and other entities (1) | 174 | | | 152 | |
| Total Average Global Liquidity Sources | $ | 868 | | | $ | 1,158 | |
(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$348 billion and $310$322 billion at December 31, 20172022 and 2016, with the decrease due to FHLB borrowings, which reduced available borrowing capacity, and adjustments to our valuation model.2021. 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 companyParent or nonbank subsidiaries may be subject to prior regulatory approval.
AverageLiquidity is also held in nonbank entities, including the Parent, NB Holdings and other regulated entities. The Parent and NB Holdings liquidity is typically in the form of cash deposited at BANA, which is excluded from the liquidity at bank subsidiaries, and high-quality, liquid, unencumbered securities. 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 companyParent or to any other subsidiary may be subject to prior regulatory approval due to regulatory restrictions and minimum requirements.
Table 1816 presents the composition of average GLS for the three months ended December 31, 20172022 and 2016.December 31, 2021.
|
| | | | | | | | |
| | | | | |
| Table 18 | Average Global Liquidity Sources Composition |
| | | |
| | | Three Months Ended December 31 |
| (Dollars in billions) | 2017 | | 2016 |
| Cash on deposit | $ | 118 |
| | $ | 118 |
|
| U.S. Treasury securities | 62 |
| | 58 |
|
| U.S. agency securities and mortgage-backed securities | 330 |
| | 322 |
|
| Non-U.S. government securities | 12 |
| | 17 |
|
| Total Average Global Liquidity Sources | $ | 522 |
| | $ | 515 |
|
| | | | | | | | | | | | | | |
| | | | |
| Table 16 | Average Global Liquidity Sources Composition |
| | | | |
| | Three Months Ended December 31 |
| |
| (Dollars in billions) | 2022 | | 2021 |
| | | |
| Cash on deposit | $ | 174 | | | $ | 259 | |
| U.S. Treasury securities | 252 | | | 278 | |
U.S. agency securities, mortgage-backed
securities, and other investment-grade securities | 427 | | | 606 | |
| Non-U.S. government securities | 15 | | | 15 | |
| Total Average Global Liquidity Sources | $ | 868 | | | $ | 1,158 | |
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$605 billion and $617 billion for the three months ended December 31, 2022 and 2021. For the same periods, the average consolidated LCR was 125120 percent and 115 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 companyParent 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 companyParent 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 RatioContingency 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, and 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.
An aspect of strategic risk is the risk that the Corporation’s capital levels are not adequate to meet minimum regulatory requirements and support execution of business activities or absorb losses from risks during normal or adverse economic and market conditions. As such, capital risk is managed in parallel to strategic risk.
We manage strategic risk through the Strategic Risk Enterprise Policy and integration into the strategic planning process, among other activities. Our strategic plan is consistent with our risk appetite, capital plan and liquidity requirements, and specifically addresses strategic risks impacting each business.
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, senior 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 37.
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 Comprehensive Capital Analysis and Review (CCAR) capital plan. Based on the results of our 2022 CCAR stress test, our stress capital buffer (SCB) increased to 3.4 percent from 2.5 percent, effective October 1, 2022 through September 30, 2023.
In October 2021, the Board authorized the Corporation’s $25 billion common stock repurchase program. Additionally, the Board authorized common stock repurchases to offset shares awarded under the Corporation’s equity-based compensation plans. Pursuant to the Board’s authorizations, during 2022, we repurchased $5.1 billion of common stock, including repurchases to offset shares awarded under equity-based compensation plans.
The timing and amount of common stock repurchases are subject to various factors, including the Corporation’s capital position, liquidity, financial performance and alternative uses of capital, stock trading price, regulatory requirements 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 issuedregulators. 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 lower of the capital ratios under Standardized or Advanced approaches compared to their respective regulatory capital ratio requirements are used to assess capital adequacy, including under the PCA framework. As of December 31, 2022, the common equity tier 1 (CET1), Tier 1 capital and Total capital ratios under the Standardized approach were the binding ratios.
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 proposalcapital conservation buffer of 2.5 percent (under the Advanced approaches only), an SCB (under the Standardized approach only), plus any applicable countercyclical capital buffer and a global systemically important bank (G-SIB) surcharge. The buffers and surcharge must be comprised solely of CET1 capital. For the period from October 1, 2021 through September 30, 2022, the Corporation's minimum CET1 capital ratio requirement was 9.5 percent under both the Standardized and Advanced approaches. Based on the results of our 2022 CCAR stress test, the Corporation’s SCB increased to 3.4 percent, resulting in a minimum CET1 capital ratio requirement of 10.4 percent under the Standardized approach for a Net Stable Funding Ratio (NSFR)the period from October 1, 2022 through September 30, 2023. Our minimum CET1 capital ratio requirement applicableunder the Advanced approaches
remains unchanged at 9.5 percent.
The Corporation is required to U.S. financial institutions followingcalculate its G-SIB surcharge on an annual basis under two methods and is subject to the higher of the resulting two surcharges. Method 1 is consistent with the approach prescribed by the Basel Committee’s assessment methodology and is calculated using specified indicators of systemic importance. Method 2 modifies the Method 1 approach by, among other factors, including a measure of the Corporation’s reliance on short-term wholesale funding. The Corporation’s G-SIB surcharge, which is higher under Method 2, is expected to increase to 3.0 percent from 2.5 percent on January 1, 2024, which will increase our minimum CET1 capital ratio requirement. At December 31, 2022, the Corporation’s CET1 capital ratio of 11.2 percent under the Standardized approach exceeded its current CET1 capital ratio requirement as well as the minimum requirement expected to be in place as of January 1, 2024 due to an anticipated increase in our G-SIB surcharge.
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.
Capital Composition and Ratios
Table 10 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, 2022 and 2021. For the periods presented herein, the Corporation met the definition of well capitalized under current regulatory requirements.
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| Table 10 | Bank of America Corporation Regulatory Capital under Basel 3 | | | | | | |
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| | | | | | | | | | |
| | | | | | | Standardized
Approach (1) | | Advanced
Approaches (1) | | Regulatory
Minimum (2) | | | | |
| (Dollars in millions, except as noted) | | | | | | | December 31, 2022 | | |
| Risk-based capital metrics: | | | | | | | | | | | | | | | |
| Common equity tier 1 capital | | | | | | | $ | 180,060 | | | $ | 180,060 | | | | | | | |
| Tier 1 capital | | | | | | | 208,446 | | | 208,446 | | | | | | | |
Total capital (3) | | | | | | | 238,773 | | | 230,916 | | | | | | | |
| Risk-weighted assets (in billions) | | | | | | | 1,605 | | | 1,411 | | | | | | | |
| Common equity tier 1 capital ratio | | | | | | | 11.2 | % | | 12.8 | % | | 10.4 | % | | | | |
| Tier 1 capital ratio | | | | | | | 13.0 | | | 14.8 | | | 11.9 | | | | | |
| Total capital ratio | | | | | | | 14.9 | | | 16.4 | | | 13.9 | | | | | |
| | | | | | | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (4) | | | | | | | $ | 2,997 | | | $ | 2,997 | | | | | | | |
| Tier 1 leverage ratio | | | | | | | 7.0 | % | | 7.0 | % | | 4.0 | | | | | |
| | | | | | | | | | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | | | | | $ | 3,523 | | | | | | | |
| Supplementary leverage ratio | | | | | | | | | 5.9 | % | | 5.0 | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | December 31, 2021 | | |
| Risk-based capital metrics: | | | | | | | | | | | | | | | |
| Common equity tier 1 capital | | | | | | | $ | 171,759 | | | $ | 171,759 | | | | | | | |
| Tier 1 capital | | | | | | | 196,465 | | | 196,465 | | | | | | | |
Total capital (3) | | | | | | | 227,592 | | | 220,616 | | | | | | | |
| Risk-weighted assets (in billions) | | | | | | | 1,618 | | | 1,399 | | | | | | | |
| Common equity tier 1 capital ratio | | | | | | | 10.6 | % | | 12.3 | % | | 9.5 | % | | | | |
| Tier 1 capital ratio | | | | | | | 12.1 | | | 14.0 | | | 11.0 | | | | | |
| Total capital ratio | | | | | | | 14.1 | | | 15.8 | | | 13.0 | | | | | |
| | | | | | | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (4) | | | | | | | $ | 3,087 | | | $ | 3,087 | | | | | | | |
| Tier 1 leverage ratio | | | | | | | 6.4 | % | | 6.4 | % | | 4.0 | | | | | |
| | | | | | | | | | | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | | | | | $ | 3,604 | | | | | | | |
| Supplementary leverage ratio | | | | | | | | | 5.5 | % | | 5.0 | | | | | |
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(1)Capital ratios as of December 31, 2022 and 2021 are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of the current expected credit losses (CECL) accounting standard on January 1, 2020.
(2)The capital conservation buffer and G-SIB surcharge were 2.5 percent at both December 31, 2022 and 2021. The Corporation's SCB applied in place of the capital conservation buffer under the Standardized approach was 3.4 percent at December 31, 2022 and 2.5 percent at December 31, 2021. The countercyclical capital buffer for both periods was zero. The CET1 capital regulatory minimum is the sum of the CET1 capital ratio minimum of 4.5 percent, our G-SIB surcharge of 2.5 percent and our capital conservation buffer of 2.5 percent or the SCB, as applicable, of 3.4 percent at December 31, 2022 and 2.5 percent at December 31, 2021. The SLR regulatory minimum includes a leverage buffer of 2.0 percent.
(3)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.
(4)Reflects total average assets adjusted for certain Tier 1 capital deductions.
At December 31, 2022, CET1 capital was $180.1 billion, an increase of $8.3 billion from December 31, 2021, due to earnings, partially offset by dividends, common stock repurchases and higher net unrealized losses on available-for-sale debt securities included in accumulated other comprehensive income (OCI). Tier 1 capital increased $12.0 billion primarily driven by the same factors as CET1 capital as well as non-cumulative perpetual preferred stock issuances. Total capital under the Standardized approach increased $11.2 billion primarily due to the same factors driving the increase in
Tier 1 capital and an increase in the adjusted allowance for credit losses included in Tier 2 capital, partially offset by a decrease in subordinated debt. RWA under the Standardized approach, which yielded the lower CET1 capital ratio at December 31, 2022, decreased $13.0 billion during 2022 to $1,605 billion primarily due to lower counterparty exposures in Global Markets and a decrease in debt securities in the Treasury portfolio, partially offset by loan growth. Supplementary leverage exposure at December 31, 2022 decreased $80.3 billion primarily due to lower debt securities, driven by lower deposits, partially offset by loan growth.
Table 11 shows the capital composition at December 31, 2022 and 2021.
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| Table 11 | Capital Composition under Basel 3 | | | |
| | | | |
| | December 31 |
| | | |
| (Dollars in millions) | 2022 | | 2021 |
| Total common shareholders’ equity | $ | 244,800 | | | $ | 245,358 | |
CECL transitional amount (1) | 1,881 | | | 2,508 | |
| Goodwill, net of related deferred tax liabilities | (68,644) | | | (68,641) | |
| Deferred tax assets arising from net operating loss and tax credit carryforwards | (7,776) | | | (7,743) | |
| Intangibles, other than mortgage servicing rights, net of related deferred tax liabilities | (1,554) | | | (1,605) | |
| Defined benefit pension plan net assets | (867) | | | (1,261) | |
Cumulative unrealized net (gain) loss related to changes in fair value of financial liabilities attributable to own creditworthiness,
net-of-tax | 496 | | | 1,400 | |
Accumulated net (gain) loss on certain cash flow hedges (2) | 11,925 | | | 1,870 | |
| Other | (201) | | | (127) | |
| Common equity tier 1 capital | 180,060 | | | 171,759 | |
| Qualifying preferred stock, net of issuance cost | 28,396 | | | 24,707 | |
| Other | (10) | | | (1) | |
| Tier 1 capital | 208,446 | | | 196,465 | |
| Tier 2 capital instruments | 18,751 | | | 20,750 | |
Qualifying allowance for credit losses (3) | 11,739 | | | 10,534 | |
| Other | (163) | | | (157) | |
| Total capital under the Standardized approach | 238,773 | | | 227,592 | |
Adjustment in qualifying allowance for credit losses under the Advanced approaches (3) | (7,857) | | | (6,976) | |
| Total capital under the Advanced approaches | $ | 230,916 | | | $ | 220,616 | |
(1)Includes the impact of the Corporation's adoption of the CECL accounting standard on January 1, 2020 and 25 percent of the increase in reserves since the initial adoption.
(2)Includes amounts in accumulated other comprehensive income related to the hedging of items that are not recognized at fair value on the Consolidated Balance Sheet.
(3)Includes the impact of transition provisions related to the CECL accounting standard.
Table 12 shows the components of RWA as measured under Basel 3 at December 31, 2022 and 2021.
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| Table 12 | Risk-weighted Assets under Basel 3 | | | | | | | |
| | | | | | | | |
| Standardized Approach | | Advanced Approaches | | Standardized Approach | | Advanced Approaches |
| December 31 |
| (Dollars in billions) | 2022 | | 2021 |
| | | |
| Credit risk | $ | 1,538 | | | $ | 939 | | | $ | 1,549 | | | $ | 913 | |
| Market risk | 67 | | | 67 | | | 69 | | | 69 | |
Operational risk (1) | n/a | | 364 | | | n/a | | 378 | |
| Risks related to credit valuation adjustments | n/a | | 41 | | | n/a | | 39 | |
| Total risk-weighted assets | $ | 1,605 | | | $ | 1,411 | | | $ | 1,618 | | | $ | 1,399 | |
(1)December 31, 2022 includes the effects of an update made to our operational risk RWA model during the fourth quarter of 2022.
n/a = not applicable
Bank of America, N.A. Regulatory Capital
Table 13 presents regulatory capital information for BANA in accordance with Basel 3 Standardized and Advanced approaches as measured at December 31, 2022 and 2021. BANA met the definition of well capitalized under the PCA framework for both periods.
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| Table 13 | Bank of America, N.A. Regulatory Capital under Basel 3 | | |
| | | | | | | | |
| | Standardized
Approach (1) | | | | Advanced
Approaches (1) | | Regulatory
Minimum (2) |
| (Dollars in millions, except as noted) | December 31, 2022 |
| Risk-based capital metrics: | | | | | | | |
| Common equity tier 1 capital | $ | 181,089 | | | | | $ | 181,089 | | | |
| Tier 1 capital | 181,089 | | | | | 181,089 | | | |
Total capital (3) | 194,254 | | | | | 186,648 | | | |
| Risk-weighted assets (in billions) | 1,386 | | | | | 1,087 | | | |
| Common equity tier 1 capital ratio | 13.1 | % | | | | 16.7 | % | | 7.0 | % |
| Tier 1 capital ratio | 13.1 | | | | | 16.7 | | | 8.5 | |
| Total capital ratio | 14.0 | | | | | 17.2 | | | 10.5 | |
| | | | | | | |
| Leverage-based metrics: | | | | | | | |
Adjusted quarterly average assets (in billions) (4) | $ | 2,358 | | | | | $ | 2,358 | | | |
| Tier 1 leverage ratio | 7.7 | % | | | | 7.7 | % | | 5.0 | |
| | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | $ | 2,785 | | | |
| Supplementary leverage ratio | | | | | 6.5 | % | | 6.0 | |
|
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|
| December 31, 2021 |
| Risk-based capital metrics: | | | | | | | |
| Common equity tier 1 capital | $ | 182,526 | | | | | $ | 182,526 | | | |
| Tier 1 capital | 182,526 | | | | | 182,526 | | | |
Total capital (3) | 194,773 | | | | | 188,091 | | | |
| Risk-weighted assets (in billions) | 1,352 | | | | | 1,048 | | | |
| Common equity tier 1 capital ratio | 13.5 | % | | | | 17.4 | % | | 7.0 | % |
| Tier 1 capital ratio | 13.5 | | | | | 17.4 | | | 8.5 | |
| Total capital ratio | 14.4 | | | | | 17.9 | | | 10.5 | |
| | | | | | | |
| Leverage-based metrics: | | | | | | | |
Adjusted quarterly average assets (in billions) (4) | $ | 2,414 | | | | | $ | 2,414 | | | |
| Tier 1 leverage ratio | 7.6 | % | | | | 7.6 | % | | 5.0 | |
| | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | $ | 2,824 | | | |
| Supplementary leverage ratio | | | | | 6.5 | % | | 6.0 | |
(1)Capital ratios as of December 31, 2022 and 2021 are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of the CECL accounting standard on January 1,2020 .
(2)Risk-based capital regulatory minimums at both December 31, 2022 and 2021 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.
(3)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.
(4)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 standard. 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 14 presents the Corporation's TLAC and long-term debt ratios and related information as of December 31, 2022 and 2021.
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| Table 14 | 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, 2022 |
| Total eligible balance | $ | 465,451 | | | | | | | $ | 243,833 | | | |
Percentage of risk-weighted assets (4) | 29.0 | % | | 22.0 | % | | | | 15.2 | % | | 8.5 | % |
| Percentage of supplementary leverage exposure | 13.2 | | | 9.5 | | | | | 6.9 | | | 4.5 | |
| | | | | | | | | |
| December 31, 2021 |
| Total eligible balance | $ | 435,904 | | | | | | | $ | 227,714 | | | |
Percentage of risk-weighted assets (4) | 26.9 | % | | 22.0 | % | | | | 14.1 | % | | 8.5 | % |
| Percentage of supplementary leverage exposure | 12.1 | | | 9.5 | | | | | 6.3 | | | 4.5 | |
(1)As of December 31, 2022 and 2021, TLAC ratios are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of CECL.
(2)The proposedTLAC 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 December 31, 2022 and 2021.
Regulatory Capital and Securities Regulation
The Corporation’s principal U.S. NSFRbroker-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 Commodity Futures Trading Commission (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 $5.0 billion and net capital in excess of the greater of $1.0 billion or a certain percentage of its reserve requirement in addition to a certain percentage of securities-based swap risk margin. BofAS must also notify the SEC in the event its tentative net capital is less than $6.0 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, 2022, BofAS had tentative net capital of $20.9 billion. BofAS also had regulatory net capital of $17.5 billion, which exceeded the minimum requirement of $4.1 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, 2022, MLPCC’s regulatory net capital of $7.5 billion exceeded the minimum requirement of $1.4 billion.
MLPF&S provides retail services. At December 31, 2022, MLPF&S' regulatory net capital was $6.0 billion, which exceeded the minimum requirement of $137 million.
Our European broker-dealers are subject to requirements from U.S. and non-U.S. regulators. MLI, a U.K. investment firm, is regulated by the Prudential Regulation Authority and the
Financial Conduct Authority and is subject to certain regulatory capital requirements. At December 31, 2022, MLI’s capital resources were $33.4 billion, which exceeded the minimum Pillar 1 requirement of $11.6 billion.
BofASE is an authorized credit institution with its head office located in France. Previously, BofASE had been authorized as an investment firm, but following the European Union’s adoption of the harmonized Investment Firm Directive and Investment Firm Regulation prudential regime, it was required to apply for reauthorization as a credit institution. The application was approved in November 2022 and became effective on December 8, 2022. BofASE is authorized and regulated by the Autorité de Contrôle Prudentiel et de Résolution and the Autorité des Marchés Financiers, and supervised under the Single Supervisory Mechanism by the European Central Bank. At December 31, 2022, BofASE's capital resources were $9.0 billion, which exceeded the minimum Pillar 1 requirement of $3.0 billion.
In addition, MLI and BofASE became conditionally registered with the SEC as security-based swap dealers in the fourth quarter of 2021, and maintained net liquid assets at December 31, 2022 that exceeded the applicable minimum requirements under the Exchange Act.
Liquidity Risk
Funding and Liquidity Risk Management
Our primary liquidity risk management objective is to meet expected or unexpected cash flow and collateral requirements, including payments under long-term debt agreements, commitments to extend credit and customer deposit withdrawals, 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 fluctuation from the rising interest rate environment, inflationary pressures and macroeconomic environment.
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 they 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 46. Under this governance framework, we developed certain funding and liquidity risk management practices which include: maintaining liquidity at Bank of America Corporation (Parent) 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
The Parent, which is a separate and distinct legal entity from our bank and nonbank subsidiaries, has an intercompany arrangement with our wholly-owned holding company subsidiary, NB Holdings Corporation (NB Holdings). We have transferred, and agreed to transfer, additional Parent assets not required to satisfy anticipated near-term expenditures to NB Holdings. The Parent 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 applyhave had it not entered into these arrangements and transferred any assets. These arrangements support our preferred single point of entry resolution strategy, under which only the Parent would be resolved under the U.S. Bankruptcy Code.
In consideration for the transfer of assets, NB Holdings issued a subordinated note to the Parent 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 with a committed line of credit that allows the Parent 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 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 to transfer its remaining financial assets to NB Holdings if our projected liquidity resources deteriorate so severely that resolution of the Parent becomes imminent.
Global Liquidity Sources and Other Unencumbered Assets
We maintain liquidity available to the Corporation, including the Parent 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 and selected subsidiaries, including holding company, bank and broker-dealer subsidiaries, even duringstressed market conditions. Our cash is primarily on a consolidated basisdeposit 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 other investment-grade securities, and a select group of non-U.S. government securities. We can obtain cash for these securities, even in stressed conditions, through repurchase agreements or outright sales. We hold our insured depository institutions. WhileGLS in legal entities that allow us to meet the final requirement remains pendingliquidity 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 15 presents average GLS for the three months ended December 31, 2022 and 2021.
| | | | | | | | | | | | | | |
| | | | |
| Table 15 | Average Global Liquidity Sources |
| | | | |
| | Three Months Ended December 31 |
| | |
| (Dollars in billions) | 2022 | | 2021 |
| | | |
| Bank entities | $ | 694 | | | $ | 1,006 | |
Nonbank and other entities (1) | 174 | | | 152 | |
| Total Average Global Liquidity Sources | $ | 868 | | | $ | 1,158 | |
(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 $348 billion and $322 billion at December 31, 2022 and 2021. 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 if finalized as proposed, we expectat their discretion. Due to regulatory restrictions, liquidity generated by the bank subsidiaries can generally be in complianceused only to fund obligations within the bank subsidiaries, and transfers to the Parent or nonbank subsidiaries may be subject to prior regulatory timeline.approval.
Liquidity is also held in nonbank entities, including the Parent, NB Holdings and other regulated entities. The standardParent and NB Holdings liquidity is intended to reduce funding risk over a longer time horizon. The NSFRtypically in the form of cash deposited at BANA, which is designed to provide an appropriate amountexcluded from the liquidity at bank subsidiaries, and high-quality, liquid, unencumbered securities. Liquidity held in other regulated entities, comprised primarily of stable funding, generally capital and liabilities maturing beyond one year, given the mix of assets and off-balance sheet items.
Diversified Funding Sources
We fund our assetsbroker-dealer subsidiaries, is 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 flexibilityavailable to meet the variable funding requirementsobligations of subsidiaries. Where regulations, time zone differencesthat entity, and transfers to the Parent or to any other business considerations make parent company funding impractical, certainsubsidiary may be subject to prior regulatory approval due to regulatory restrictions and minimum requirements. Our other subsidiaries may issue their own debt.regulated entities also hold unencumbered investment-grade securities and equities that we believe could be used to generate additional liquidity.
We fund a substantial portionTable 16 presents the composition of our lending activities through our deposits, which were $1.31 trillion and $1.26 trillion ataverage GLS for the three months ended December 31, 20172022 and 2016. Deposits are primarily generated by our Consumer Banking, GWIM and Global Banking segments. These deposits are diversified by clients, product type and geography, and the majority of our U.S. deposits are insured by the FDIC. We consider a substantial portion of our deposits to be a stable, low-cost and consistent source of funding. We believe this deposit funding is generally less sensitive to interest rate changes, market volatility or changes in our credit ratings than wholesale funding sources. Our lending activities may also be financed through secured borrowings, including credit card securitizations and securitizations with government-sponsored enterprises, the Federal Housing Administration (FHA) and private-label investors, as well as FHLB loans.December 31, 2021.
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| | | | |
| Table 16 | Average Global Liquidity Sources Composition |
| | | | |
| | Three Months Ended December 31 |
| |
| (Dollars in billions) | 2022 | | 2021 |
| | | |
| Cash on deposit | $ | 174 | | | $ | 259 | |
| U.S. Treasury securities | 252 | | | 278 | |
U.S. agency securities, mortgage-backed
securities, and other investment-grade securities | 427 | | | 606 | |
| Non-U.S. government securities | 15 | | | 15 | |
| Total Average Global Liquidity Sources | $ | 868 | | | $ | 1,158 | |
Our trading activitiesGLS are substantially the same in other regulated entities are primarily fundedcomposition 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 $605 billion and repurchase agreements$617 billion for the three months ended December 31, 2022 and these2021. For the same periods, the average consolidated LCR was 120 percent and 115 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 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 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 generally short-termwere downgraded; collateral and often overnight. Disruptions in secured financing markets for financial institutions have occurred in prior market cycles which resulted in adverse changes in terms or significant reductions in the availability of such financing. We manage the liquidity risksmargin requirements arising from secured funding by sourcing funding globally from a diverse group of counterparties, providing a range of securities collateralmarket value changes; and pursuing longer durations, when appropriate. For more information on secured financing agreements, see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreementspotential liquidity required to maintain businesses and Short-term Borrowingsfinance customer activities. Changes in certain market factors, including, but not limited to, credit rating downgrades, could negatively impact potential contractual and contingent outflows and the Consolidated Financial Statements.related financial instruments, and in some cases these impacts could be material to our financial results.
We issue long-term unsecured debt in a varietyconsider all sources of maturities and currencies to achieve cost-efficient funding and to maintain an appropriate maturity profile. While the cost and availability of unsecured funding may be negatively impacted by general market conditions or by matters specific to the financial services industry or the Corporation, we seek to mitigate refinancing risk by actively managing the amount of our borrowingsfunds that we anticipate will mature within any month or quarter.
During 2017, we issued $53.3 billion of long-term debt consisting of $37.7 billion for Bank of America Corporation, substantially all of which was TLAC compliant, $8.2 billion for Bank of America, N.A.could access during each stress scenario and $7.4 billion of other debt.
In December 2017, pursuant to a private offering, we exchanged $11.0 billion of outstanding long-term debt for new fixed/floating-rate senior notes, subject to certain terms and conditions, to extend maturities and improvefocus particularly on matching available sources with corresponding liquidity requirements by legal entity. We also use the structure of this debt for TLAC purposes. Based on the attributes of the exchange transactions, the newly issued securities are not considered substantially different, for accounting purposes, from the exchanged securities. Therefore, there was no impact to ourstress modeling results of operations as any amounts paid to debt holders were capitalized, and the premiums or discounts on the outstanding long-term debt were carried over to the new securities and will be amortized over their contractual lives using a revised effective interest rate.
Table 19 presents our long-term debt by major currency at December 31, 2017 and 2016.
|
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| | | | | |
| 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 rateour asset and currency risks of our borrowings, considering the characteristics of the assets they are funding. For more informationliability profile and establish limits and guidelines on our ALM activities, see Interest Rate Risk Management for the Banking Book on page 81.
We may also issue unsecured debt in the form of structured notes for client purposes, certain of which qualify as TLAC eligible debt. During 2017, we issued $5.4 billion of structured notes, which are debt obligations that pay investors returns linked to other debt or equity securities, indices, currencies or commodities. We typically hedge the returns we are obligated to pay on these liabilities with derivatives and/or investments in the underlying instruments, so that from a funding perspective, the cost is similar to our other unsecured long-term debt. We could be required to settle certain structured note obligations for cash or other securities prior to maturity under certain circumstances, which we consider for liquidity planning purposes. We believe, however, that a portion of such borrowings will remain outstanding beyond the earliest put or redemption date.
Substantially all of our seniorsources and subordinated debt obligations contain no provisions that could trigger a requirement for an early repayment, require additional collateral support, result in changes to terms, accelerate maturity or create additional financial obligations upon an adverse change in our credit ratings, financial ratios, earnings, cash flows or stock price. For more information on long-term debt funding, see Note 11 – Long-term Debt to the Consolidated Financial Statements.businesses.
Contingency Planning
We have developed and maintain contingency plans that are designed to prepare us in advance to respond in the event of
potential adverse economic, financial or market stress. These contingency plans include our Capital Contingency Plan and Financial Contingency and Recovery Plan, which provide monitoring, escalation, actions and routines designed to enable us to increase capital, access funding sources and reduce risk through consideration of potential options that include asset sales, business sales, capital or debt issuances, and 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.
An aspect of strategic risk is the risk that the Corporation’s capital levels are not adequate to meet minimum regulatory requirements and support execution of business activities or absorb losses from risks during normal or adverse economic and market conditions. As such, capital risk is managed in parallel to strategic risk.
We manage strategic risk through the Strategic Risk Enterprise Policy and integration into the strategic planning process, among other activities. Our strategic plan is consistent with our risk appetite, capital plan and liquidity requirements, and specifically addresses strategic risks impacting each business.
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, senior 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 37.
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 Comprehensive Capital Analysis and Review (CCAR) capital plan. Based on the results of our 2022 CCAR stress test, our stress capital buffer (SCB) increased to 3.4 percent from 2.5 percent, effective October 1, 2022 through September 30, 2023.
In October 2021, the Board authorized the Corporation’s $25 billion common stock repurchase program. Additionally, the Board authorized common stock repurchases to offset shares awarded under the Corporation’s equity-based compensation plans. Pursuant to the Board’s authorizations, during 2022, we repurchased $5.1 billion of common stock, including repurchases to offset shares awarded under equity-based compensation plans.
The timing and amount of common stock repurchases are subject to various factors, including the Corporation’s capital position, liquidity, financial performance and alternative uses of capital, stock trading price, regulatory requirements 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 lower of the capital ratios under Standardized or Advanced approaches compared to their respective regulatory capital ratio requirements are used to assess capital adequacy, including under the PCA framework. As of December 31, 2022, the common equity tier 1 (CET1), Tier 1 capital and Total capital ratios under the Standardized approach were the binding ratios.
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 of 2.5 percent (under the Advanced approaches only), an SCB (under the Standardized approach only), plus any applicable countercyclical capital buffer and a global systemically important bank (G-SIB) surcharge. The buffers and surcharge must be comprised solely of CET1 capital. For the period from October 1, 2021 through September 30, 2022, the Corporation's minimum CET1 capital ratio requirement was 9.5 percent under both the Standardized and Advanced approaches. Based on the results of our 2022 CCAR stress test, the Corporation’s SCB increased to 3.4 percent, resulting in a minimum CET1 capital ratio requirement of 10.4 percent under the Standardized approach for the period from October 1, 2022 through September 30, 2023. Our minimum CET1 capital ratio requirement under the Advanced approaches
remains unchanged at 9.5 percent.
The Corporation is required to calculate its G-SIB surcharge on an annual basis under two methods and is subject to the higher of the resulting two surcharges. Method 1 is consistent with the approach prescribed by the Basel Committee’s assessment methodology and is calculated using specified indicators of systemic importance. Method 2 modifies the Method 1 approach by, among other factors, including a measure of the Corporation’s reliance on short-term wholesale funding. The Corporation’s G-SIB surcharge, which is higher under Method 2, is expected to increase to 3.0 percent from 2.5 percent on January 1, 2024, which will increase our minimum CET1 capital ratio requirement. At December 31, 2022, the Corporation’s CET1 capital ratio of 11.2 percent under the Standardized approach exceeded its current CET1 capital ratio requirement as well as the minimum requirement expected to be in place as of January 1, 2024 due to an anticipated increase in our G-SIB surcharge.
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.
Capital Composition and Ratios
Table 10 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, 2022 and 2021. For the periods presented herein, the Corporation met the definition of well capitalized under current regulatory requirements.
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| Table 10 | Bank of America Corporation Regulatory Capital under Basel 3 | | | | | | |
| | | | | | | | |
| | | | | | | | | | |
| | | | | | | Standardized
Approach (1) | | Advanced
Approaches (1) | | Regulatory
Minimum (2) | | | | |
| (Dollars in millions, except as noted) | | | | | | | December 31, 2022 | | |
| Risk-based capital metrics: | | | | | | | | | | | | | | | |
| Common equity tier 1 capital | | | | | | | $ | 180,060 | | | $ | 180,060 | | | | | | | |
| Tier 1 capital | | | | | | | 208,446 | | | 208,446 | | | | | | | |
Total capital (3) | | | | | | | 238,773 | | | 230,916 | | | | | | | |
| Risk-weighted assets (in billions) | | | | | | | 1,605 | | | 1,411 | | | | | | | |
| Common equity tier 1 capital ratio | | | | | | | 11.2 | % | | 12.8 | % | | 10.4 | % | | | | |
| Tier 1 capital ratio | | | | | | | 13.0 | | | 14.8 | | | 11.9 | | | | | |
| Total capital ratio | | | | | | | 14.9 | | | 16.4 | | | 13.9 | | | | | |
| | | | | | | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (4) | | | | | | | $ | 2,997 | | | $ | 2,997 | | | | | | | |
| Tier 1 leverage ratio | | | | | | | 7.0 | % | | 7.0 | % | | 4.0 | | | | | |
| | | | | | | | | | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | | | | | $ | 3,523 | | | | | | | |
| Supplementary leverage ratio | | | | | | | | | 5.9 | % | | 5.0 | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | December 31, 2021 | | |
| Risk-based capital metrics: | | | | | | | | | | | | | | | |
| Common equity tier 1 capital | | | | | | | $ | 171,759 | | | $ | 171,759 | | | | | | | |
| Tier 1 capital | | | | | | | 196,465 | | | 196,465 | | | | | | | |
Total capital (3) | | | | | | | 227,592 | | | 220,616 | | | | | | | |
| Risk-weighted assets (in billions) | | | | | | | 1,618 | | | 1,399 | | | | | | | |
| Common equity tier 1 capital ratio | | | | | | | 10.6 | % | | 12.3 | % | | 9.5 | % | | | | |
| Tier 1 capital ratio | | | | | | | 12.1 | | | 14.0 | | | 11.0 | | | | | |
| Total capital ratio | | | | | | | 14.1 | | | 15.8 | | | 13.0 | | | | | |
| | | | | | | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (4) | | | | | | | $ | 3,087 | | | $ | 3,087 | | | | | | | |
| Tier 1 leverage ratio | | | | | | | 6.4 | % | | 6.4 | % | | 4.0 | | | | | |
| | | | | | | | | | | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | | | | | $ | 3,604 | | | | | | | |
| Supplementary leverage ratio | | | | | | | | | 5.5 | % | | 5.0 | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
(1)Capital ratios as of December 31, 2022 and 2021 are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of the current expected credit losses (CECL) accounting standard on January 1, 2020.
(2)The capital conservation buffer and G-SIB surcharge were 2.5 percent at both December 31, 2022 and 2021. The Corporation's SCB applied in place of the capital conservation buffer under the Standardized approach was 3.4 percent at December 31, 2022 and 2.5 percent at December 31, 2021. The countercyclical capital buffer for both periods was zero. The CET1 capital regulatory minimum is the sum of the CET1 capital ratio minimum of 4.5 percent, our G-SIB surcharge of 2.5 percent and our capital conservation buffer of 2.5 percent or the SCB, as applicable, of 3.4 percent at December 31, 2022 and 2.5 percent at December 31, 2021. The SLR regulatory minimum includes a leverage buffer of 2.0 percent.
(3)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.
(4)Reflects total average assets adjusted for certain Tier 1 capital deductions.
At December 31, 2022, CET1 capital was $180.1 billion, an increase of $8.3 billion from December 31, 2021, due to earnings, partially offset by dividends, common stock repurchases and higher net unrealized losses on available-for-sale debt securities included in accumulated other comprehensive income (OCI). Tier 1 capital increased $12.0 billion primarily driven by the same factors as CET1 capital as well as non-cumulative perpetual preferred stock issuances. Total capital under the Standardized approach increased $11.2 billion primarily due to the same factors driving the increase in
Tier 1 capital and an increase in the adjusted allowance for credit losses included in Tier 2 capital, partially offset by a decrease in subordinated debt. RWA under the Standardized approach, which yielded the lower CET1 capital ratio at December 31, 2022, decreased $13.0 billion during 2022 to $1,605 billion primarily due to lower counterparty exposures in Global Markets and a decrease in debt securities in the Treasury portfolio, partially offset by loan growth. Supplementary leverage exposure at December 31, 2022 decreased $80.3 billion primarily due to lower debt securities, driven by lower deposits, partially offset by loan growth.
Table 11 shows the capital composition at December 31, 2022 and 2021.
| | | | | | | | | | | | | | |
| | | | |
| Table 11 | Capital Composition under Basel 3 | | | |
| | | | |
| | December 31 |
| | | |
| (Dollars in millions) | 2022 | | 2021 |
| Total common shareholders’ equity | $ | 244,800 | | | $ | 245,358 | |
CECL transitional amount (1) | 1,881 | | | 2,508 | |
| Goodwill, net of related deferred tax liabilities | (68,644) | | | (68,641) | |
| Deferred tax assets arising from net operating loss and tax credit carryforwards | (7,776) | | | (7,743) | |
| Intangibles, other than mortgage servicing rights, net of related deferred tax liabilities | (1,554) | | | (1,605) | |
| Defined benefit pension plan net assets | (867) | | | (1,261) | |
Cumulative unrealized net (gain) loss related to changes in fair value of financial liabilities attributable to own creditworthiness,
net-of-tax | 496 | | | 1,400 | |
Accumulated net (gain) loss on certain cash flow hedges (2) | 11,925 | | | 1,870 | |
| Other | (201) | | | (127) | |
| Common equity tier 1 capital | 180,060 | | | 171,759 | |
| Qualifying preferred stock, net of issuance cost | 28,396 | | | 24,707 | |
| Other | (10) | | | (1) | |
| Tier 1 capital | 208,446 | | | 196,465 | |
| Tier 2 capital instruments | 18,751 | | | 20,750 | |
Qualifying allowance for credit losses (3) | 11,739 | | | 10,534 | |
| Other | (163) | | | (157) | |
| Total capital under the Standardized approach | 238,773 | | | 227,592 | |
Adjustment in qualifying allowance for credit losses under the Advanced approaches (3) | (7,857) | | | (6,976) | |
| Total capital under the Advanced approaches | $ | 230,916 | | | $ | 220,616 | |
(1)Includes the impact of the Corporation's adoption of the CECL accounting standard on January 1, 2020 and 25 percent of the increase in reserves since the initial adoption.
(2)Includes amounts in accumulated other comprehensive income related to the hedging of items that are not recognized at fair value on the Consolidated Balance Sheet.
(3)Includes the impact of transition provisions related to the CECL accounting standard.
Table 12 shows the components of RWA as measured under Basel 3 at December 31, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table 12 | Risk-weighted Assets under Basel 3 | | | | | | | |
| | | | | | | | |
| Standardized Approach | | Advanced Approaches | | Standardized Approach | | Advanced Approaches |
| December 31 |
| (Dollars in billions) | 2022 | | 2021 |
| | | |
| Credit risk | $ | 1,538 | | | $ | 939 | | | $ | 1,549 | | | $ | 913 | |
| Market risk | 67 | | | 67 | | | 69 | | | 69 | |
Operational risk (1) | n/a | | 364 | | | n/a | | 378 | |
| Risks related to credit valuation adjustments | n/a | | 41 | | | n/a | | 39 | |
| Total risk-weighted assets | $ | 1,605 | | | $ | 1,411 | | | $ | 1,618 | | | $ | 1,399 | |
(1)December 31, 2022 includes the effects of an update made to our operational risk RWA model during the fourth quarter of 2022.
n/a = not applicable
Bank of America, N.A. Regulatory Capital
Table 13 presents regulatory capital information for BANA in accordance with Basel 3 Standardized and Advanced approaches as measured at December 31, 2022 and 2021. BANA met the definition of well capitalized under the PCA framework for both periods.
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| | | | | | | | |
| Table 13 | Bank of America, N.A. Regulatory Capital under Basel 3 | | |
| | | | | | | | |
| | Standardized
Approach (1) | | | | Advanced
Approaches (1) | | Regulatory
Minimum (2) |
| (Dollars in millions, except as noted) | December 31, 2022 |
| Risk-based capital metrics: | | | | | | | |
| Common equity tier 1 capital | $ | 181,089 | | | | | $ | 181,089 | | | |
| Tier 1 capital | 181,089 | | | | | 181,089 | | | |
Total capital (3) | 194,254 | | | | | 186,648 | | | |
| Risk-weighted assets (in billions) | 1,386 | | | | | 1,087 | | | |
| Common equity tier 1 capital ratio | 13.1 | % | | | | 16.7 | % | | 7.0 | % |
| Tier 1 capital ratio | 13.1 | | | | | 16.7 | | | 8.5 | |
| Total capital ratio | 14.0 | | | | | 17.2 | | | 10.5 | |
| | | | | | | |
| Leverage-based metrics: | | | | | | | |
Adjusted quarterly average assets (in billions) (4) | $ | 2,358 | | | | | $ | 2,358 | | | |
| Tier 1 leverage ratio | 7.7 | % | | | | 7.7 | % | | 5.0 | |
| | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | $ | 2,785 | | | |
| Supplementary leverage ratio | | | | | 6.5 | % | | 6.0 | |
|
| | | | | | | |
|
| December 31, 2021 |
| Risk-based capital metrics: | | | | | | | |
| Common equity tier 1 capital | $ | 182,526 | | | | | $ | 182,526 | | | |
| Tier 1 capital | 182,526 | | | | | 182,526 | | | |
Total capital (3) | 194,773 | | | | | 188,091 | | | |
| Risk-weighted assets (in billions) | 1,352 | | | | | 1,048 | | | |
| Common equity tier 1 capital ratio | 13.5 | % | | | | 17.4 | % | | 7.0 | % |
| Tier 1 capital ratio | 13.5 | | | | | 17.4 | | | 8.5 | |
| Total capital ratio | 14.4 | | | | | 17.9 | | | 10.5 | |
| | | | | | | |
| Leverage-based metrics: | | | | | | | |
Adjusted quarterly average assets (in billions) (4) | $ | 2,414 | | | | | $ | 2,414 | | | |
| Tier 1 leverage ratio | 7.6 | % | | | | 7.6 | % | | 5.0 | |
| | | | | | | |
| Supplementary leverage exposure (in billions) | | | | | $ | 2,824 | | | |
| Supplementary leverage ratio | | | | | 6.5 | % | | 6.0 | |
(1)Capital ratios as of December 31, 2022 and 2021 are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of the CECL accounting standard on January 1,2020 .
(2)Risk-based capital regulatory minimums at both December 31, 2022 and 2021 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.
(3)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.
(4)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 14 presents the Corporation's TLAC and long-term debt ratios and related information as of December 31, 2022 and 2021.
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| | | | | | | | | | |
| Table 14 | 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, 2022 |
| Total eligible balance | $ | 465,451 | | | | | | | $ | 243,833 | | | |
Percentage of risk-weighted assets (4) | 29.0 | % | | 22.0 | % | | | | 15.2 | % | | 8.5 | % |
| Percentage of supplementary leverage exposure | 13.2 | | | 9.5 | | | | | 6.9 | | | 4.5 | |
| | | | | | | | | |
| December 31, 2021 |
| Total eligible balance | $ | 435,904 | | | | | | | $ | 227,714 | | | |
Percentage of risk-weighted assets (4) | 26.9 | % | | 22.0 | % | | | | 14.1 | % | | 8.5 | % |
| Percentage of supplementary leverage exposure | 12.1 | | | 9.5 | | | | | 6.3 | | | 4.5 | |
(1)As of December 31, 2022 and 2021, 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 December 31, 2022 and 2021.
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 Commodity Futures Trading Commission (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 $5.0 billion and net capital in excess of the greater of $1.0 billion or a certain percentage of its reserve requirement in addition to a certain percentage of securities-based swap risk margin. BofAS must also notify the SEC in the event its tentative net capital is less than $6.0 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, 2022, BofAS had tentative net capital of $20.9 billion. BofAS also had regulatory net capital of $17.5 billion, which exceeded the minimum requirement of $4.1 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, 2022, MLPCC’s regulatory net capital of $7.5 billion exceeded the minimum requirement of $1.4 billion.
MLPF&S provides retail services. At December 31, 2022, MLPF&S' regulatory net capital was $6.0 billion, which exceeded the minimum requirement of $137 million.
Our European broker-dealers are subject to requirements from U.S. and non-U.S. regulators. MLI, a U.K. investment firm, is regulated by the Prudential Regulation Authority and the
Financial Conduct Authority and is subject to certain regulatory capital requirements. At December 31, 2022, MLI’s capital resources were $33.4 billion, which exceeded the minimum Pillar 1 requirement of $11.6 billion.
BofASE is an authorized credit institution with its head office located in France. Previously, BofASE had been authorized as an investment firm, but following the European Union’s adoption of the harmonized Investment Firm Directive and Investment Firm Regulation prudential regime, it was required to apply for reauthorization as a credit institution. The application was approved in November 2022 and became effective on December 8, 2022. BofASE is authorized and regulated by the Autorité de Contrôle Prudentiel et de Résolution and the Autorité des Marchés Financiers, and supervised under the Single Supervisory Mechanism by the European Central Bank. At December 31, 2022, BofASE's capital resources were $9.0 billion, which exceeded the minimum Pillar 1 requirement of $3.0 billion.
In addition, MLI and BofASE became conditionally registered with the SEC as security-based swap dealers in the fourth quarter of 2021, and maintained net liquid assets at December 31, 2022 that exceeded the applicable minimum requirements under the Exchange Act.
Liquidity Risk
Funding and Liquidity Risk Management
Our primary liquidity risk management objective is to meet expected or unexpected cash flow and collateral requirements, including payments under long-term debt agreements, commitments to extend credit and customer deposit withdrawals, 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 fluctuation from the rising interest rate environment, inflationary pressures and macroeconomic environment.
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 they 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 46. Under this governance framework, we developed certain funding and liquidity risk management practices which include: maintaining liquidity at Bank of America Corporation (Parent) 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
The Parent, which is a separate and distinct legal entity from our bank and nonbank subsidiaries, has an intercompany arrangement with our wholly-owned holding company subsidiary, NB Holdings Corporation (NB Holdings). We have transferred, and agreed to transfer, additional Parent assets not required to satisfy anticipated near-term expenditures to NB Holdings. The Parent 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 it not entered into these arrangements and transferred any assets. These arrangements support our preferred single point of entry resolution strategy, under which only the Parent would be resolved under the U.S. Bankruptcy Code.
In consideration for the transfer of assets, NB Holdings issued a subordinated note to the Parent 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 with a committed line of credit that allows the Parent 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 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 to transfer its remaining financial assets to NB Holdings if our projected liquidity resources deteriorate so severely that resolution of the Parent becomes imminent.
Global Liquidity Sources and Other Unencumbered Assets
We maintain liquidity available to the Corporation, including the Parent 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 and selected subsidiaries, including holding company, bank and broker-dealer subsidiaries, even duringstressed 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 other investment-grade securities, and a select group of non-U.S. government securities. We can 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 15 presents average GLS for the three months ended December 31, 2022 and 2021.
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| | | | |
| Table 15 | Average Global Liquidity Sources |
| | | | |
| | Three Months Ended December 31 |
| | |
| (Dollars in billions) | 2022 | | 2021 |
| | | |
| Bank entities | $ | 694 | | | $ | 1,006 | |
Nonbank and other entities (1) | 174 | | | 152 | |
| Total Average Global Liquidity Sources | $ | 868 | | | $ | 1,158 | |
(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 $348 billion and $322 billion at December 31, 2022 and 2021. 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 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. The Parent and NB Holdings liquidity is typically in the form of cash deposited at BANA, which is excluded from the liquidity at bank subsidiaries, and high-quality, liquid, unencumbered securities. 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 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 16 presents the composition of average GLS for the three months ended December 31, 2022 and December 31, 2021.
| | | | | | | | | | | | | | |
| | | | |
| Table 16 | Average Global Liquidity Sources Composition |
| | | | |
| | Three Months Ended December 31 |
| |
| (Dollars in billions) | 2022 | | 2021 |
| | | |
| Cash on deposit | $ | 174 | | | $ | 259 | |
| U.S. Treasury securities | 252 | | | 278 | |
U.S. agency securities, mortgage-backed
securities, and other investment-grade securities | 427 | | | 606 | |
| Non-U.S. government securities | 15 | | | 15 | |
| Total Average Global Liquidity Sources | $ | 868 | | | $ | 1,158 | |
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 $605 billion and $617 billion for the three months ended December 31, 2022 and 2021. For the same periods, the average consolidated LCR was 120 percent and 115 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 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 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
The Net Stable Funding Ratio (NSFR) is a liquidity requirement for large banks to maintain a minimum level of stable funding over a one-year period. The requirement 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, which focuses on short-term liquidity risks. The U.S. NSFR applies to the Corporation on a consolidated basis and to our insured depository institutions. At December 31, 2022, the Corporation and its insured depository institutions were in compliance with this requirement.
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 funding impractical, certain other subsidiaries may issue their own debt.
We fund a substantial portion of our lending activities through our deposits, which were $1.93 trillion and $2.1 trillion at December 31, 2022 and 2021. Deposits are primarily generated by our Consumer Banking, GWIM and Global Banking segments. These deposits are diversified by clients, product type and geography, and the majority of our U.S. deposits are insured by the FDIC. We consider a substantial portion of our deposits to be a stable, low-cost and consistent source of funding. We believe this deposit funding is generally less sensitive to interest rate changes, market volatility or changes in our credit ratings than wholesale funding sources. Our lending activities may also be financed through secured borrowings, including credit card securitizations and securitizations with government-sponsored enterprises (GSE), the Federal Housing Administration (FHA) and private-label investors, as well as FHLB loans.
Our trading activities in other regulated entities are primarily funded on a secured basis through securities lending and repurchase agreements, and these amounts will vary based on customer activity and market conditions. We believe funding these activities in the secured financing markets is more cost-efficient and less sensitive to changes in our credit ratings than unsecured financing. Repurchase agreements are generally short-term and often overnight. Disruptions in secured financing markets for financial institutions have occurred in prior market cycles which resulted in adverse changes in terms or significant reductions in the availability of such financing. We manage the liquidity risks arising from secured funding by sourcing funding globally from a diverse group of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate. For more information on secured financing agreements, see Note 10 – Securities Financing Agreements, Short-term Borrowings, Collateral and Restricted Cash to the Consolidated Financial Statements.
Total long-term debt decreased $4.1 billion to $276.0 billion during 2022 primarily due to debt maturities, redemptions and valuation adjustments, partially offset by debt issuances. 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 2022, we issued $66.0 billion of long-term debt consisting of $44.2 billion of notes issued by Bank of America Corporation, substantially all of which were TLAC compliant,
$10.0 billion of notes issued by Bank of America, N.A. and $11.8 billion of other debt. During 2021, we issued $76.7 billion of long-term debt consisting of $56.2 billion of notes issued by Bank of America Corporation, substantially all of which were TLAC compliant, $8 billion of notes issued by Bank of America, N.A. and $12.5 billion of other debt.
During 2022, we had total long-term debt maturities and redemptions in the aggregate of $33.3 billion consisting of $19.8 billion for Bank of America Corporation, $9.9 billion for Bank of America, N.A. and $3.6 billion of other debt. During 2021, we had total long-term debt maturities and redemptions in the aggregate of $46.4 billion consisting of $24.4 billion for Bank of America Corporation, $10.4 billion for Bank of America, N.A. and $11.6 billion of other debt.
At December 31, 2022, Bank of America Corporation's senior notes of $205.9 billion included $179.1 billion of outstanding notes that are both TLAC eligible and callable at least one year before their stated maturities. Of these senior notes, $16.6 billion will be callable and become TLAC ineligible during 2023, and $21.4 billion, $21.3 billion, $16.0 billion and $24.4 billion will do so during each of 2024 through 2027, respectively, and $79.4 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 2022, we issued $12.5 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, 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 79.
Uninsured Deposits
The FDIC insures the Corporation’s U.S. deposits up to $250,000 per depositor, per insured bank for each account ownership category, and various country-specific funds insure non-U.S. deposits up to specified limits. Deposits that exceed
insurance limits are uninsured. At December 31, 2022, the Corporation’s deposits totaled $1.9 trillion, of which total estimated uninsured U.S. and non-U.S. deposits were $617.6 billion and $102.8 billion. At December 31, 2021, the Corporation’s deposits totaled $2.1 trillion, of which total estimated uninsured U.S. and non-U.S. deposits were $701.4 billion and $111.9 billion.
Table 17 presents information about the Corporation’s total estimated uninsured time deposits. For more information on our liquidity sources, see Global Liquidity Sources and Other Unencumbered Assets, and for more information on deposits, see Diversified Funding Sources in this section. For more information on contractual time deposit maturities, see Note 9 – Deposits to the Consolidated Financial Statements.
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| | | | | | | |
| Table 17 | Uninsured Time Deposits (1) |
| | | | | | | |
| | | | | | | |
| | | December 31, 2022 |
| (Dollars in millions) | U.S. | | Non-U.S. | | Total | |
| | | | | | |
| | | | | | | |
| Uninsured time deposits with a maturity of: | | | | | | |
| 3 months or less | $ | 3,721 | | | $ | 7,023 | | | $ | 10,744 | | |
| Over 3 months through 6 months | 2,230 | | | 275 | | | 2,505 | | |
| Over 6 months through 12 months | 2,712 | | | 86 | | | 2,798 | | |
| Over 12 months | 686 | | | 1,566 | | | 2,252 | | |
| Total | $ | 9,349 | | | $ | 8,950 | | | $ | 18,299 | | |
(1)Amounts are estimated based on the regulatory methodologies defined by each local jurisdiction.
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
time, and they provide no assurances that they will maintain our ratings at current levels.levels.
Other factors that influence our credit ratings include changes to the rating agencies’ methodologies for our industry or certain security types; the rating agencies’ assessment of the general operating environment for financial services companies; our relative positions in the markets in which we compete; our various risk exposures and risk management policies and activities; pending litigation and other contingencies or potential tail risks; our reputation; our liquidity position, diversity of funding sources and funding costs; the current and expected level and volatility of our earnings; our capital position and capital management practices; our corporate governance; the sovereign credit ratings of the U.S. government; current or future regulatory and legislative initiatives; and the agencies’ views on whether the U.S. government would provide meaningful support to the Corporation or its subsidiaries in a crisis.
On December 6, 2017, Moody’s Investors Services, Inc. (Moody’s) upgraded the long-term ratings of Bank of America Corporation and certain subsidiaries, including BANA, by one notch, moving their senior debt ratings to A3 and Aa3, respectively. The upgrade was based on the agency’s expectations for continued improvement in the Corporation’s profitability and management’s continued commitment to a conservative risk profile. At the same time, Moody’s affirmed all the short-term ratings for Bank of America Corporation and its rated subsidiaries. Moody’s concurrently moved the outlook on the ratings to stable. This action
concluded the review for upgrade that Moody’s initiated on September 12, 2017.
On November 22, 2017, Standard & Poor’s Global Ratings (S&P) upgraded Bank of America Corporation’s long-term senior debt rating to A- from BBB+ following the agency’s periodic review of our ratings. S&P cited the improvement in the Corporation’s risk profile, while continuing to improve profitability metrics, as the driver for the upgrade, including tightening underwriting standards, reducing exposure to market risk, growing conservatively, and resolving legacy legal issues. S&P concurrently affirmed the ratings of the Corporation’s rated core operating subsidiaries, including BANA, MLPF&S, MLI and Bank of America Merrill Lynch International Limited. Those entities were affirmed rather than upgraded since their ratings had reached an inflection point under S&P’s methodology where the one notch S&P added to its 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, 2017,19, 2022, Fitch Ratings (Fitch) completed its latest review of 12 large, complex securities trading and universal banks, including Bank of America. The agency affirmed the long-term and short-term senior debt ratings of Bankthe Corporation. Fitch also affirmed and withdrew the long-term and short-term ratings on certain subsidiaries, as they are no longer considered relevant to the agency’s coverage.
On January 23, 2023, Moody’s Investors Service (Moody’s) placed the long-term rating of Americathe Corporation andas well as the long-term rating of its rated subsidiaries, including BANA, on review for upgrade. The agency cited the Corporation’s strengthened capital ratios, improved earnings profile and maintainedcontinued commitment to maintaining a restrained risk appetite as drivers of the review. A review for upgrade indicates that those ratings are under consideration for a change in the near term and typically concludes within 90 days. Moody’s concurrently affirmed all Prime-1 short-term ratings of the Corporation and rated subsidiaries.
The current ratings and outlooks for the Corporation and its stable outlook on those ratings.subsidiaries from Standard & Poor’s Global Ratings (S&P) were not the subject of any rating actions during 2022 or through February 22, 2023.
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 | A3A2 | | P-2P-1 | | StableReview for Upgrade | | A- | | A-2 | | StablePositive | | AAA- | | F1F1+ | | Stable |
| Bank of America, N.A. | Aa3Aa2 | | P-1 | | StableReview for Upgrade | | A+ | | A-1 | | StablePositive | | A+AA | | F1F1+ | | Stable |
| Bank of America Europe Designated Activity Company | NR | | NR | | NR | | A+ | | A-1 | | Positive | | AA | | F1+ | | Stable |
| Merrill Lynch, Pierce, Fenner & Smith Incorporated | NR | | NR | | NR | | A+ | | A-1 | | StablePositive | | A+AA | | F1F1+ | | Stable |
| BofA Securities, Inc. | NR | | NR | | NR | | A+ | | A-1 | | Positive | | AA | | F1+ | | Stable |
| Merrill Lynch International | NR | | NR | | NR | | A+ | | A-1 | | StablePositive | | AAA | | F1F1+ | | Stable |
| BofA Securities Europe SA | NR | | NR | | NR | | A+ | | A-1 | | Positive | | 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,Parent, 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 51.56.
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 herein and Item 1A. Risk Factors.
Common Stock Dividends
For a summary of our declared quarterly cash dividends on common stock during 20172022 and through February 22, 2018,2023, 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, BAC Capital Trust XIV and BAC Capital Trust XV, 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) or capital securities (the Capital Securities and, together with the Guaranteed Notes and the Trust Preferred Securities, the Guaranteed Securities), as applicable, that remained outstanding at December 31, 2022. The Corporation guarantees the payment of amounts and distributions with respect to the Trust Preferred Securities and Capital 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 and Capital Securities, effectively constitutes a full and unconditional guarantee of the Trusts’ payment obligations on the Trust Preferred Securities or Capital Securities, as applicable. 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 6 and Part I. Item 1A. Risk Factors – Liquidity on page 9.
Representations and Warranties Obligations
For information on representations and warranties obligations in connection with the sale of mortgage loans, see Note 12 – Commitments and Contingencies to the Consolidated Financial Statements.
Credit Risk Management
Credit risk is the risk of loss arising from the inability or failure of a borrower or counterparty to meet its obligations. Credit risk can also arise from operational failures that result in an erroneous advance, commitment or investment of funds. We define the credit exposure to a borrower or counterparty as the loss potential arising from all product classifications including loans and leases, deposit overdrafts, derivatives, assets held-for-sale and unfunded lending commitments, which include loan commitments, letters of credit and financial guarantees. Derivative positions are recorded at fair value, and assets held-for-sale are recorded at either fair value or the lower of cost or
fair value. Certain loans and unfunded commitments are accounted for under the fair value option. Credit risk for categories of assets carried at fair value is not accounted for as part of the allowance for credit losses but as part of the fair value adjustments recorded in earnings. For derivative positions, our credit risk is measured as the net cost in the event the counterparties with contracts in which we are in a gain position fail to perform under the terms of those contracts. We use the current fair value to represent credit exposure without giving consideration to future mark-to-market changes. The credit risk amounts take into consideration the effects of legally enforceable master netting agreements and cash collateral. Our consumer and commercial credit extension and review procedures encompass funded and unfunded credit exposures. For more information on derivatives and credit extension commitments, see Note 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.
During 2022, asset quality generally improved compared to 2021. Our 2022 net charge-off ratio remained near historic lows, and nonperforming loans and commercial reservable criticized utilized exposure decreased compared to 2021, which was partially offset by an increase in reservable criticized exposure associated with our direct exposure to Russia as a result of the Russia/Ukraine conflict. While uncertainty around the pandemic has diminished, uncertainty remains regarding broader economic impacts as a result of inflationary pressures, rising rates and the current geopolitical situation and could lead to adverse impacts to credit quality metrics in future periods.
For more information on our credit risk management activities, see Consumer Portfolio Credit Risk Management below, Commercial Portfolio Credit Risk Management on page 63, 64, Non-U.S. Portfolio on page 70,, Provision for Credit Losses on page 72, Allowance for Credit Losses on page 72,73, and Note 45 – Outstanding Loans and Leases andNote 5 – Allowance for Credit Lossesto the Consolidated Financial Statements.
During the third quarter of 2017, hurricanes impacted the southern United States and the Caribbean, bringing widespread flooding and wind damage to communities across the region. In the weeks after these storms, we supported our customers and clients in these communities by providing mobile financial centers and ATMs. In addition, we provided support for the recovery efforts including proactive fee refunds in affected areas, as well as home loan and other credit assistance, including payment deferrals, for impacted individuals and businesses. We do not believe that these storms will have a material financial impactStatements. For more information on the Corporation.factors that may expose us to credit risk, see Part I. Item 1A. Risk Factors of this Annual Report on Form 10-K.
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 inDuring 2022, the U.S. unemployment rate continued to decline and home prices continued during 2017 resulting in improved credit quality and lower credit lossesincreased compared to 2021, although they began to decline in the second half of 2022 as inflationary pressures continued to persist. During 2022, net charge-offs were $1.9 billion, relatively unchanged compared to 2021. During 2022, nonperforming loans declined primarily due to
decreases from consumer real estate portfolio,loan sales, partially offset by seasoningincreases from loans whose prior-period deferrals expired and loan growthwere modified in troubled debt restructurings (TDRs) during the U.S. credit card portfolio compared to 2016.first quarter of 2022.
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 in 2017increased $204 million during 2022 to $5.4 billion at December 31, 2017.$7.2 billion. For more information, see Allowance for Credit Losses on page 72.73.
For more information on our accounting policies regarding delinquencies, nonperforming status, charge-offs and troubled debt restructurings (TDRs)TDRs for the consumer portfolio, including those related to bankruptcy and repossession, see Note 1 – Summary of Significant Accounting Principlesand 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 | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Outstandings | | Nonperforming | | Accruing Past Due
90 Days or More |
| December 31 |
| (Dollars in millions) | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | | | | |
Residential mortgage (1) | $ | 229,670 | | | $ | 221,963 | | | $ | 2,167 | | | $ | 2,284 | | | $ | 368 | | | $ | 634 | |
| Home equity | 26,563 | | | 27,935 | | | 510 | | | 630 | | | — | | | — | |
| Credit card | 93,421 | | | 81,438 | | | n/a | | n/a | | 717 | | | 487 | |
Direct/Indirect consumer (2) | 106,236 | | | 103,560 | | | 77 | | | 75 | | | 2 | | | 11 | |
| Other consumer | 156 | | | 190 | | | — | | | — | | | — | | | — | |
| Consumer loans excluding loans accounted for under the fair value option | $ | 456,046 | | | $ | 435,086 | | | $ | 2,754 | | | $ | 2,989 | | | $ | 1,087 | | | $ | 1,132 | |
Loans accounted for under the fair value option (3) | 339 | | | 618 | | | | | | | | | |
| Total consumer loans and leases | $ | 456,385 | | | $ | 435,704 | | | | | | | | | |
Percentage of outstanding consumer loans and leases (4) | n/a | | n/a | | 0.60 | % | | 0.69 | % | | 0.24 | % | | 0.26 | % |
Percentage of outstanding consumer loans and leases, excluding fully-insured loan portfolios (4) | n/a | | n/a | | 0.62 | | | 0.71 | | | 0.16 | | | 0.12 | |
(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, 2022 and 2021, residential mortgage included $260 million and $444 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 $108 million and $190 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, nonperformingincludes auto and specialty lending loans and accruing balances past due 90 days orleases of $51.8 billion and $48.5 billion, U.S. securities-based lending loans of $50.4 billion and $51.1 billion at December 31, 2022 and 2021, and non-U.S. consumer loans of $3.0 billion as of both period ends.
(3)For more do not include the PCI loan portfolio or loans accounted for underinformation on the fair value option, even though the customer may be contractually past due.
For more information on PCI loans, 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 | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | 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, 20172022 and 2016, $262021, $7 million and $48$21 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.
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| Table 20 | Consumer Net Charge-offs and Related Ratios | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | Net Charge-offs | | | | | | Net Charge-off Ratios (1) |
| | | | |
| | | | | | | | |
| (Dollars in millions) | | | | | 2022 | | 2021 | | | | | | 2022 | | 2021 |
| Residential mortgage | | | | | $ | 72 | | | $ | (28) | | | | | | | 0.03 | % | | (0.01) | % |
| Home equity | | | | | (90) | | | (119) | | | | | | | (0.33) | | | (0.39) | |
| Credit card | | | | | 1,334 | | | 1,723 | | | | | | | 1.60 | | | 2.29 | |
| | | | | | | | | | | | | | | |
| Direct/Indirect consumer | | | | | 18 | | | 1 | | | | | | | 0.02 | | | — | |
| Other consumer | | | | | 521 | | | 270 | | | | | | | n/m | | n/m |
| Total | | | | | $ | 1,855 | | | $ | 1,847 | | | | | | | 0.42 | | | 0.44 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | |
| | | | | | | | | |
| 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 including the PCI write-offs were 0.02 percent and 0.15 percent for residential mortgage and 0.47 percent and 0.84 percent for home equity in 2017 and 2016. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 60.
Table 23 presents outstandings, nonperforming balances,are calculated as net charge-offs allowance for loan and lease losses and provision for loan and lease losses for the core and non-core portfolios within the consumer real estate portfolio. We categorize consumer real
estate loans as core and non-core based on loan and customer characteristics such as origination date, product type, LTV, FICO score and delinquency status consistent with our current consumer and mortgage servicing strategy. Generally, loans that were originated after January 1, 2010, qualified under government-sponsored enterprise underwriting guidelines, or otherwise met our underwriting guidelines in place in 2015 are characterized as core loans. All other loans are generally characterized as non-coredivided by average outstanding loans and represent run-off portfolios. Coreleases, excluding loans as reported in Table 23 include loans held inaccounted for under 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.
n/m = not meaningful
As shown in Table 23, outstanding core consumer real estate loans increased $15.0 billion during 2017 driven by an increase of $20.1 billion in residential mortgage, partially offset by a $5.1 billion decrease in home equity.
|
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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)
| 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.
|
| |
(2)
| Net charge-offs exclude write-offs in the PCI loan portfolio. For more information, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 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 4550 percent of consumer loans and leases at December 31, 2017.in 2022. Approximately 3751 percent of the residential mortgage portfolio iswas in Consumer Banking and approximately 3545 percent iswas in GWIM. The remaining portion iswas in All Other and is comprised of originated loans, purchased loans used in our overall ALM activities, delinquent FHA loans repurchased pursuant to our servicing agreements with GNMA as well as loans repurchased related to our representations and warranties..
Outstanding balances in the residential mortgage portfolio excluding loans accounted for under the fair value option, increased $12.0$7.7 billion in 20172022 as retention of new originations waswere partially offset by paydowns and loan sales of $3.9 billion, and run-off.sales.
At December 31, 20172022 and 2016,2021, the residential mortgage portfolio included $23.7$11.7 billion and $28.7$12.7 billion of outstanding fully-insured loans. On this portionloans, of the residential mortgage portfolio, we are protected against principal loss as a resultwhich both had $2.2 billion of either FHA insurance or long-term standby agreements that provide for the transfer of credit risk to FNMA and FHLMC. At December 31, 2017 and 2016, $17.4 billion and $22.3 billion had FHA insurance, with the remainder protected by Fannie Mae long-term standby agreements. At December 31, 2017 and 2016, $5.2 billion and $7.4 billion of the FHA-insured loan population were repurchases of delinquent FHA loans pursuant to our servicing agreements with GNMA.
Table 2421 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Table 21 | Residential Mortgage – Key Credit Statistics | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | Reported Basis (1) | | Excluding Fully-insured Loans (1) |
| | | | | | | | | | December 31 |
| (Dollars in millions) | | | | | | | | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | | | | | | | | |
| Outstandings | | | | | | | | $ | 229,670 | | | $ | 221,963 | | | $ | 217,976 | | | $ | 209,259 | |
| Accruing past due 30 days or more | | | | | | | | 1,471 | | | 1,753 | | | 844 | | | 866 | |
| Accruing past due 90 days or more | | | | | | | | 368 | | | 634 | | | — | | | — | |
Nonperforming loans (2) | | | | | | | | 2,167 | | | 2,284 | | | 2,167 | | | 2,284 | |
| Percent of portfolio | | | | | | | | | | | | | | |
| Refreshed LTV greater than 90 but less than or equal to 100 | | | | 1 | % | | 1 | % | | 1 | % | | 1 | % |
| Refreshed LTV greater than 100 | | | | | | | | — | | | — | | | — | | | — | |
| Refreshed FICO below 620 | | | | | | | | 1 | | | 2 | | | 1 | | | 1 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | |
| | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(1)Outstandings, accruing past due, nonperforming loans and percentages of portfolio andexclude loans accounted for under the fair value option. For more information on the PCI loan portfolio, see page 60.
(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.
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| 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 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 outstanding balances in the residential mortgage loansportfolio decreased $580$117 million in 2017 as outflows, including2022 primarily due to decreases from consumer real estate loan sales in the second quarter of $460 million2022, partially offset by increases from loans whose prior-period deferrals expired and net transfers to held-for-salewere modified in TDRs during the first quarter of $132 million, outpaced new inflows which included the addition of $140 million of nonperforming loans as a result of clarifying regulatory guidance related to bankruptcy loans.2022. Of the nonperforming residential mortgage loans at December 31, 2017, $860 million,2022, $1.4 billion, or 3563 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.$22 million.
Net charge-offs decreased $231of $72 million tofor 2022 increased $100 million of net recoveries in 2017 compared to $131 million of net charge-offs in 2016. This decrease in net charge-offs was2021 primarily driven by net recoveries of $105 million relateddue to loan sales that occurred in 2017, compared to loan sale-related net charge-offsthe second quarter of $26 million in 2016. Additionally, net charge-offs declined due to favorable portfolio trends and decreased write-downs on loans greater than 180 days past due driven by improvement in home prices and the U.S. economy.
Loans with a refreshed LTV greater than 100 percent represented one percent and three percent of the residential mortgage loan portfolio at December 31, 2017 and 2016. Of the loans with a refreshed LTV greater than 100 percent, 98 percent were performing at both December 31, 2017 and 2016. Loans with a refreshed LTV greater than 100 percent reflect loans where the outstanding carrying value of the loan is greater than the most recent valuation of the property securing the loan. The majority of these loans have a refreshed LTV greater than 100 percent primarily due to home price deterioration since 2006, partially offset by subsequent appreciation.2022.
Of the $172.1$218.0 billion in total residential mortgage loans outstanding at December 31, 2017, as shown in Table 25, 33
2022, 28 percent were originated as interest-only loans. The outstanding balance of interest-only residential mortgage loans that havehad entered the amortization period was $10.4$3.4 billion, or 18six percent, at December 31, 2017.2022. Residential mortgage loans that have entered the amortization period generally have experiencedexperience a higher rate of early stage delinquencies and nonperforming status compared to the residential mortgage portfolio as a whole. At December 31, 2017, $2832022, $64 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 billion,$844 million, or less than one percent, for the entire residential mortgage portfolio. In addition, at December 31, 2017, $5092022, $204 million, or fivesix percent, of outstanding interest-only residential mortgage loans that had entered the amortization period were nonperforming, of which $253 million were contractually current, compared to $2.5 billion, or one percent for the entire residential mortgage portfolio, of which $860$79 million were contractually current. Loans that have yet to enter the amortization period in our interest-only residential mortgage portfolio are primarily well-collateralized loans to our wealth management clients and have an interest-only period of three to ten years. More than 80Approximately 96 percent of these loans that have yet to enter the amortization period will not be required to make a fully-amortizing payment until 20202025 or later.
Table 2522 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 1614 percent and 15 percent of outstandings at December 31, 20172022 and 2016.2021. In the New York area, the New York-Northern New Jersey-Long Island MSA made up 13 percent and 1215 percent of outstandings at both December 31, 20172022 and 2016.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Table 22 | Residential Mortgage State Concentrations | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Outstandings (1) | | Nonperforming (1) | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | December 31 | | | | | | Net Charge-offs | | | | |
| (Dollars in millions) | December 31
2022 | | December 31
2021 | | December 31
2022 | | December 31
2021 | | | | | | 2022 | | 2021 | | | | |
| California | $ | 80,878 | | | $ | 77,819 | | | $ | 656 | | | $ | 693 | | | | | | | $ | 37 | | | $ | (14) | | | | | |
| New York | 26,228 | | | 24,975 | | | 328 | | | 358 | | | | | | | 7 | | | 3 | | | | | |
| Florida | 15,225 | | | 13,883 | | | 145 | | | 158 | | | | | | | (2) | | | (8) | | | | | |
| Texas | 9,399 | | | 9,002 | | | 88 | | | 86 | | | | | | | — | | | — | | | | | |
| New Jersey | 8,810 | | | 8,723 | | | 96 | | | 117 | | | | | | | 3 | | | — | | | | | |
| Other | 77,436 | | | 74,857 | | | 854 | | | 872 | | | | | | | 27 | | | (9) | | | | | |
| Residential mortgage loans | $ | 217,976 | | | $ | 209,259 | | | $ | 2,167 | | | $ | 2,284 | | | | | | | $ | 72 | | | $ | (28) | | | | | |
| Fully-insured loan portfolio | 11,694 | | | 12,704 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Total residential mortgage loan portfolio | $ | 229,670 | | | $ | 221,963 | | | | | | | | | | | | | | | | | |
(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, 2017,2022, the home equity portfolio made up 13six 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 692022, 82 percent of the home equity portfolio was in Consumer Banking, 23nine 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$1.4 billion in 20172022 primarily due to paydowns and charge-offs outpacing new
originations and draws on existing lines.lines and new originations. Of the total home equity portfolio at December 31, 20172022 and 2016, $18.72021, $11.1 billion and $19.6$12.2 billion, or 3242 percent and 2944 percent, were in first-lien positions (34 percent and 31 percent excluding the PCI home equity portfolio).positions. At December 31, 2017,2022, outstanding balances in the home equity portfolio that were in a second-lien or more junior-lienjunior-
lien position and where we also held the first-lien loan totaled $9.4$4.5 billion, or 17 percent of our total home equity portfolio excluding the PCI loan portfolio.
Unused HELOCs totaled $44.2$42.4 billion and $47.2$40.5 billion at December 31, 20172022 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.2021. The HELOC utilization rate was 5438 percent and 5539 percent at December 31, 20172022 and 2016.2021.
Table 2623 presents certain home equity portfolio key credit statistics on both a reported basis excludingstatistics.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Table 23 | Home Equity – Key Credit Statistics (1) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | December 31 | | | | |
| (Dollars in millions) | | | | | | | | | 2022 | | 2021 | | | | |
| | | | | | | | | | | | | | | |
| Outstandings | | | | | | | | | $ | 26,563 | | | $ | 27,935 | | | | | |
| Accruing past due 30 days or more | | | | | | 96 | | | 157 | | | | | |
Nonperforming loans (2) | | | | | | | | | 510 | | | 630 | | | | | |
| Percent of portfolio | | | | | | | | | | | | | | | |
| Refreshed CLTV greater than 90 but less than or equal to 100 | | | | — | % | | — | % | | | | |
| Refreshed CLTV greater than 100 | | | | | | — | | | 1 | | | | | |
| Refreshed FICO below 620 | | | | | | | | | 2 | | | 3 | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | |
| | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
(1)Outstandings, accruing past due, nonperforming loans and percentages of the portfolio exclude loans accounted for under the fair value option, and excluding the PCI loan portfolio and loans accounted for under the fair value option. Additionally, in the “Reported Basis” columns in the following table, accruing balances past due 30 days or more and nonperforming loans do not include the PCI loan portfolio, in accordance with our accounting policies, even though the customer may be contractually past due. As such, the following discussion presents the home equity portfolio excluding the PCI loan portfolio and loans accounted for under the fair value option. For more information on the PCI loan portfolio, see page 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 million in 2017 as outflows, including $66 million of net transfers to held-for-sale and $51 million of sales, outpaced new inflows, which included the addition of $135 million of nonperforming loans as a result of clarifying regulatory guidance related to bankruptcy loans. Of the nonperforming home equity portfolio at December 31, 2017, $1.4 billion, or 54 percent, were current on contractual payments. Nonperforming(2)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.
Nonperforming outstanding balances in the home equity portfolio decreased $120 million to $510 million at December 31, 2022, primarily driven by loan sales. Of the nonperforming home equity loans at December 31, 2022, $275 million, or 54 percent, were current on contractual payments. In addition, $693$167 million, or 2633 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$61 million in 2017.2022.
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-offsrecoveries decreased $192$29 million to $213$90 million in 20172022 compared to $405 million in 2016 driven by favorable portfolio trends due in part to improvement in home prices and the U.S. economy, partially offset by $32 million of charge-offs as a result of clarifying regulatory guidance related to bankruptcy loans.
Outstanding balances with a refreshed CLTV greater than 100 percent comprised four percent and seven percent of the home equity portfolio at December 31, 2017 and 2016. Outstanding balances with a refreshed CLTV greater than 100 percent reflect loans where our loan and available line of credit combined with any outstanding senior liens against the property are equal to or greater than the most recent valuation of the property securing the loan. Depending on the value of the property, there may be collateral in excess of the first-lien that is available to reduce the severity of loss on the second-lien. Of those outstanding balances with a refreshed CLTV greater than 100 percent, 95 percent of the customers were current on their home equity loan and 91 percent of second-lien loans with a refreshed CLTV greater than 100 percent were current on both their second-lien and underlying first-lien loans at December 31, 2017.2021.
Of the $55.0$26.6 billion in total home equity portfolio outstandings at December 31, 2017,2022, as shown in Table 27, 3023, 13 percent require interest-only payments. The outstanding balance of HELOCs that havehad reached the end of their draw period and have entered the amortization period was $18.4$5.2 billion at December 31, 2017.2022. 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, $3432022, $53 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,2022, $354 million, or 11seven percent, of outstanding HELOCs that had entered the amortization period were nonperforming, of which $1.1 billion were contractually current. Loans innonperforming.
For our interest-only 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. 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,lines; however, 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 192022, 10 percent of these customers with an outstanding balance did not pay any principal on their HELOCs.
Table 2724 presents outstandings, nonperforming balances and net charge-offsrecoveries 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 12 percent and 13 percent of the outstanding home equity portfolio at both December 31, 20172022 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.2021. The Los Angeles-Long Beach-Santa Ana MSA within California made up 11 percent and 10 percent of the outstanding home equity portfolio at both December 31, 20172022 and 2016. Loans within this MSA contributed net recoveries of $20 million and $2 million within the home equity portfolio in 2017 and 2016.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Table 24 | Home Equity State Concentrations | | | | |
| | | | | | | | | | | | | | | | |
| | Outstandings (1) | | Nonperforming (1) | | | | | | |
| | December 31 | | | | | | Net Charge-offs |
| (Dollars in millions) | 2022 | | 2021 | | 2022 | | 2021 | | | | | | 2022 | | 2021 |
| | | | | | | | | | | | |
| | | | | | | | | | | |
| California | $ | 7,406 | | | $ | 7,600 | | | $ | 119 | | | $ | 140 | | | | | | | $ | (20) | | | $ | (40) | |
| Florida | 2,743 | | | 2,977 | | | 63 | | | 78 | | | | | | | (21) | | | (21) | |
| New Jersey | 2,047 | | | 2,259 | | | 53 | | | 69 | | | | | | | (3) | | | (4) | |
| New York | 1,806 | | | 2,072 | | | 80 | | | 96 | | | | | | | (4) | | | (1) | |
| Massachusetts | 1,347 | | | 1,422 | | | 23 | | | 32 | | | | | | | (2) | | | (3) | |
| Other | 11,214 | | | 11,605 | | | 172 | | | 215 | | | | | | | (40) | | | (50) | |
| Total home equity loan portfolio | $ | 26,563 | | | $ | 27,935 | | | $ | 510 | | | $ | 630 | | | | | | | $ | (90) | | | $ | (119) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| 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 Accounting
fair 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, 2017,2022, 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$12.0 billion during 2022 to $96.3$93.4 billion primarily driven by increased purchase volumes, partially offset by the sale of a $1.6 billion affinity card loan portfolio. Net charge-offs decreased $389
million to $1.3 billion in 20172022 compared to 2021, as retail volumes outpaced payments. Netloss rates remained near historic lows. In addition, the prior year included charge-offs increased $244 million to $2.5 billionassociated with deferrals that expired in 2017 due to portfolio seasoning and loan growth. U.S. credit2020. Credit card loans 30 days or more past due and still accruing interest increased $252$508 million, and loans 90 days or more past due and still accruing interest increased $118 million in 2017, driven by portfolio seasoning and loan growth.
$230 million. Unused lines of credit for U.S. credit card totaled $326.3increased to $370.1 billion and $321.6
at December 31, 2022 from $361.2 billion at December 31, 2017 and 2016. The increase was driven by account growth and lines of credit increases.2021.
Table 2925 presents certain state concentrations for the U.S. credit card portfolio.
| | | | | | | | | | | | | | | | |
| Table 29 | U.S. Credit Card State Concentrations | | | | |
| Table 25 | | Table 25 | Credit Card State Concentrations | | |
| | | | | | | | | | | | | | | | |
| | | Outstandings | | Accruing Past Due
90 Days or More | | Net Charge-offs | | Outstandings | | Accruing Past Due
90 Days or More | | | |
| | | December 31 | | | December 31 | | | Net Charge-offs |
| (Dollars in millions) | (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | (Dollars in millions) | 2022 | | 2021 | | 2022 | | 2021 | | | 2022 | | 2021 |
| | | California | California | $ | 15,254 |
| | $ | 14,251 |
| | $ | 136 |
| | $ | 115 |
| | $ | 412 |
| | $ | 360 |
| California | $ | 15,363 | | | $ | 13,076 | | | $ | 126 | | | $ | 82 | | | | $ | 232 | | | $ | 322 | |
| Florida | Florida | 8,359 |
| | 7,864 |
| | 94 |
| | 85 |
| | 259 |
| | 245 |
| Florida | 9,512 | | | 8,046 | | | 100 | | | 71 | | | | 183 | | | 245 | |
| Texas | Texas | 7,451 |
| | 7,037 |
| | 76 |
| | 65 |
| | 194 |
| | 164 |
| Texas | 8,125 | | | 6,894 | | | 72 | | | 47 | | | | 123 | | | 158 | |
| New York | New York | 5,977 |
| | 5,683 |
| | 91 |
| | 60 |
| | 218 |
| | 161 |
| New York | 5,381 | | | 4,725 | | | 56 | | | 35 | | | | 99 | | | 135 | |
| Washington | Washington | 4,350 |
| | 4,128 |
| | 20 |
| | 18 |
| | 56 |
| | 56 |
| Washington | 4,844 | | | 4,080 | | | 21 | | | 13 | | | | 36 | | | 39 | |
| 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 |
| |
| Other | | Other | 50,196 | | | 44,617 | | | 342 | | | 239 | | | | 661 | | | 824 | |
| Total credit card portfolio | | Total credit card portfolio | $ | 93,421 | | | $ | 81,438 | | | $ | 717 | | | $ | 487 | | | | $ | 1,334 | | | $ | 1,723 | |
Direct/Indirect and Other Consumer
At December 31, 2017, approximately 542022, 49 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 4651 percent was included in GWIM (principally(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 $93.8increased $2.7 billion at December 31, 2017. Net charge-offs increased $77 millionin 2022 to $211 million$106.2 billion driven by growth in 2017 due largely to portfolio seasoning and clarifying regulatory guidance related to bankruptcy and repossession.our auto portfolio.
Table 3026 presents certain state concentrations for the direct/indirect consumer loan portfolio.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Table 26 | Direct/Indirect State Concentrations | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Outstandings | | Accruing Past Due
90 Days or More | | | | | | | | | | |
| | December 31 | | | | Net Charge-offs |
| (Dollars in millions) | 2022 | | 2021 | | 2022 | | 2021 | | | | | | 2022 | | 2021 | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| California | $ | 15,516 | | | $ | 15,061 | | | $ | 1 | | | $ | 2 | | | | | | | $ | 6 | | | $ | 3 | | | | | |
| Florida | 13,783 | | | 13,352 | | | — | | | 1 | | | | | | | 4 | | | 1 | | | | | |
| Texas | 9,837 | | | 9,505 | | | — | | | 2 | | | | | | | 3 | | | 2 | | | | | |
| New York | 7,891 | | | 7,802 | | | — | | | 1 | | | | | | | 2 | | | 3 | | | | | |
| New Jersey | 4,456 | | | 4,228 | | | — | | | — | | | | | | | 1 | | | (3) | | | | | |
| Other | 54,753 | | | 53,612 | | | 1 | | | 5 | | | | | | | 2 | | | (5) | | | | | |
| Total direct/indirect loan portfolio | $ | 106,236 | | | $ | 103,560 | | | $ | 2 | | | $ | 11 | | | | | | | $ | 18 | | | $ | 1 | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| 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 |
|
Other Consumer
Other consumer primarily consists of deposit overdraft balances. Net charge-offs increased $251 million in 2022 to $521 million, primarily driven by overdraft losses due to higher payment activity related to checking accounts.
Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity
Table 3127 presents nonperforming consumer loans, leases and foreclosed properties activity during 20172022 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.2021. During 2017,2022, nonperforming consumer loans declined $838decreased $235 million to $5.2$2.8 billion driven in part byprimarily due to decreases from loan sales, partially offset by increases from loans whose prior-period deferrals expired and were modified in TDRs during the first quarter of $5112022.
At December 31, 2022, $605 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 millionor 22 percent, of nonperforming loans as a result of clarifying regulatory guidance related to bankruptcy loans.
At December 31, 2017, $1.9 billion,were 180 days or 34 percent of nonperforming consumer real estate loansmore 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, $2.32022, $1.7 billion, or 4561 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 $127increased $20 million in 2017 as liquidations outpaced additions. PCI loans are excluded from nonperforming loans as these loans were written down2022 to fair value at the acquisition date; however, once we acquire the underlying real estate upon foreclosure of the delinquent PCI loan, it is included in foreclosed properties. Not included in foreclosed properties at December 31, 2017 was $801 million of real estate that was acquired upon foreclosure of certain delinquent government-guaranteed loans (principally FHA-insured loans). We exclude these amounts from our nonperforming loans and foreclosed properties activity as we expect we will be reimbursed once the property is conveyed to the guarantor for principal and, up to certain limits, costs incurred during the foreclosure process and interest accrued during the holding period.
We classify junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. At December 31, 2017 and 2016, $330 million and $428 million of such junior-lien home equity loans were included in nonperforming loans and leases.
$121 million. Nonperforming loans also include certain loans that have been modified in TDRs where economic concessions have been granted to borrowers experiencing financial difficulties. Nonperforming TDRs, excluding those modified loans in the PCI loan portfolio, are included in Table 31.
|
| | | | | | | | |
| | | | | |
| Table 31 | Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity (1) | | | |
| | | | | |
| (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 27 | Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity | | | | |
| | | | | | | | |
| | | | |
| (Dollars in millions) | | | | | 2022 | | 2021 |
| Nonperforming loans and leases, January 1 | | | | | $ | 2,989 | | | $ | 2,725 | |
| Additions | | | | | 1,453 | | | 2,006 | |
| Reductions: | | | | | | | |
| Paydowns and payoffs | | | | | (535) | | | (625) | |
| Sales | | | | | (402) | | | (4) | |
Returns to performing status (1) | | | | | (661) | | | (1,037) | |
| Charge-offs | | | | | (56) | | | (64) | |
| Transfers to foreclosed properties | | | | | (34) | | | (12) | |
| | | | | | | |
| Total net additions/(reductions) to nonperforming loans and leases | | | | | (235) | | | 264 | |
| Total nonperforming loans and leases, December 31 | | | | | 2,754 | | | 2,989 | |
Foreclosed properties, December 31 (2) | | | | | 121 | | | 101 | |
| Nonperforming consumer loans, leases and foreclosed properties, December 31 | | | | | $ | 2,875 | | | $ | 3,090 | |
Nonperforming consumer loans and leases as a percentage of outstanding consumer loans and leases (3) | | | | | 0.60 | % | | 0.69 | % |
Nonperforming consumer loans, leases and foreclosed properties as a percentage of outstanding consumer loans, leases and foreclosed properties (3) | | | | | 0.63 | | | 0.71 | |
(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 $60 million and $52 million at December 31, 2022 and 2021.
(3)Outstanding consumer loans and leases exclude loans accounted for under the fair value option.
Table 3228 presents TDRs for the consumer real estate portfolio. Performing TDR balances are excluded from nonperforming loans and leases in Table 31.27.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Table 28 | Consumer Real Estate Troubled Debt Restructurings |
| | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
| (Dollars in millions) | Nonperforming | | Performing | | Total | | Nonperforming | | Performing | | Total |
Residential mortgage (1, 2) | $ | 1,726 | | | $ | 1,548 | | | $ | 3,274 | | | $ | 1,498 | | | $ | 2,278 | | | $ | 3,776 | |
Home equity (3) | 324 | | | 544 | | | 868 | | | 254 | | | 652 | | | 906 | |
| Total consumer real estate troubled debt restructurings | $ | 2,050 | | | $ | 2,092 | | | $ | 4,142 | | | $ | 1,752 | | | $ | 2,930 | | | $ | 4,682 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| 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, 2022 and 2021, residential mortgage performing TDRs included $1.1 billion and $1.2 billion of loans that were fully-insured. (3)At December 31, 2022 and 2021, home equity TDRs deemed collateral dependent totaled $411 million and $370 million, and included $293 million and $222 million of loans classified as nonperforming and $118 million and $148 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, 20172022 and 2016,2021, our renegotiatedcredit card and other consumer TDR portfolio was $490$624 million and $610$672 million, of which $426$540 million and $493$599 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.Statements.
Management of Commercial Credit Risk Concentrations
Commercial credit risk is evaluated and managed with the goal that concentrations of credit exposure do not result in undesirable levels of risk.continue to be aligned with our risk appetite. We review, measure and manage concentrations of credit exposure by industry, product, geography, customer relationship and loan size. We also review, measure and manage commercial real estate loans by geographic location and property type. In addition, within our non-U.S. portfolio, we evaluate exposures by region and by country. Tables 37, 40, 4533, 36 and 4639 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 see Table 36
and 2016, see Commercial Portfolio Credit Risk Management – Industry Concentrations on page 67 and Table 40.68.
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 Contingenciesto the Consolidated Financial Statements.
Commercial Credit Portfolio
During 2017,2022, commercial credit quality among large corporate borrowersimproved as charge-offs, nonperforming commercial loans and reservable criticized utilized exposure declined. Due to the ongoing Russia/Ukraine conflict, all direct exposure to Russian counterparties was strong, other thandowngraded and reported as reservable criticized exposure, and expected credit losses (ECL) have been incorporated into our estimate of the allowance for credit losses. Outstanding
commercial loans and leases increased $45.9 billion during 2022 due to growth in commercial and industrial, primarily in Global Banking. This increase was partially offset by lower U.S. small business commercial loans due to repayments of PPP loans by the higher risk energy sub-sectors, where we saw improvement in 2017. Small Business Administration (SBA) under the terms of the program.
Credit quality of commercial real estate borrowers continuedgenerally improved from 2021 as pandemic-impacted sectors are recovering. However, many commercial real estate markets, while improving, are still experiencing disruptions in demand, supply chain challenges, tenant difficulties and challenging capital markets. Demand for office space continues to be stronguncertain as companies evaluate space needs with conservative LTV ratios, stable market rents in most sectorsemployment models that utilize a mix of remote and vacancy rates remaining low.conventional office use.
The commercial allowance for loan and lease losses remained relatively unchanged at $5.4 billion at December 31, 2022, as loan growth and a dampened macroeconomic outlook were offset by asset quality improvement and a reserve release for reduced pandemic uncertainties. For more information, see Allowance for Credit Losses on page 73.
Total commercial utilized credit exposure increased $25.9$51.3 billion during 20172022 to $600.8$704.9 billion at December 31, 2017 primarily driven by increases inhigher loans and leases.leases and derivative assets. The utilization rate for loans and leases, SBLCsstandby letters of credit (SBLCs) and financial guarantees, and
commercial letters of credit, in the aggregate, was 59 percent and 5856 percent at both December 31, 20172022 and 2016.2021.
Table 3329 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 29 | Commercial Credit Exposure by Type |
| | | | | | | | | | | | |
| | | Commercial Utilized (1) | | Commercial Unfunded (2, 3, 4) | | Total Commercial Committed |
| | December 31 |
| | | | | | | | | | | | |
| (Dollars in millions) | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| Loans and leases | $ | 589,362 | | | $ | 543,420 | | | $ | 487,772 | | | $ | 454,256 | | | $ | 1,077,134 | | | $ | 997,676 | |
Derivative assets (5) | 48,642 | | | 35,344 | | | — | | | — | | | 48,642 | | | 35,344 | |
| Standby letters of credit and financial guarantees | 33,376 | | | 34,389 | | | 1,266 | | | 639 | | | 34,642 | | | 35,028 | |
| Debt securities and other investments | 20,195 | | | 19,427 | | | 2,551 | | | 4,638 | | | 22,746 | | | 24,065 | |
| Loans held-for-sale | 6,112 | | | 13,185 | | | 3,729 | | | 16,581 | | | 9,841 | | | 29,766 | |
| Operating leases | 5,509 | | | 5,935 | | | — | | | — | | | 5,509 | | | 5,935 | |
| Commercial letters of credit | 973 | | | 1,176 | | | 28 | | | 247 | | | 1,001 | | | 1,423 | |
| Other | 698 | | | 652 | | | — | | | — | | | 698 | | | 652 | |
| Total | $ | 704,867 | | | $ | 653,528 | | | $ | 495,346 | | | $ | 476,361 | | | $ | 1,200,213 | | | $ | 1,129,889 | |
(1)Commercial utilized exposure includes loans of $5.4 billion and $7.2 billion accounted for under the fair value option at December 31, 2022 and 2021.
(2)Commercial unfunded exposure includes commitments accounted for under the fair value option with a notional amount of $3.0 billion and $4.8 billion at December 31, 2022 and 2021.
(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 $10.4 billion and $10.7 billion at December 31, 2022 and 2021.
(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 $33.8 billion and $30.8 billion at December 31, 2022 and 2021. Not reflected in utilized and committed exposure is additional non-cash derivative collateral held of $51.6 billion and $44.8 billion at December 31, 2022 and 2021, 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)65 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.
|
| |
(2)
| Commercial unfunded exposure includes commitments accounted for under the fair value option with a notional amount of $4.6 billion and $6.7 billion at December 31, 2017 and 2016.
|
| |
(3)
| Excludes unused business card lines, which are not legally binding. |
| |
(4)
| Includes the notional amount of unfunded legally binding lending commitments net of amounts distributed (e.g., syndicated or participated) to other financial institutions. The distributed amounts were $11.0 billion and $12.1 billion at December 31, 2017 and 2016.
|
| |
(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.
|
OutstandingNonperforming commercial loans and leases increased $22.9 billion during 2017 to $481.5 billion at December 31, 2017 primarily due to growth in commercial and industrial loans. During 2017, nonperforming commercial loans and leases decreased $440$524 million to $1.3 billion and reservable criticized balances decreased $2.8 billion to $13.6 billion both driven by
improvements in the energy sector. The allowance for loan and lease losses for the commercial portfolio decreased $248 million during 2017 to $5.0 billion at December 31, 2017. For more information, see Allowance for Credit Losses on page 72.across all product types. Table 3430 presents our commercial loans and leases portfolio and related credit quality information at December 31, 20172022 and 2016.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Table 30 | Commercial Credit Quality |
| | |
| | Outstandings | | Nonperforming | | Accruing Past Due
90 Days or More |
| | December 31 |
| (Dollars in millions) | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| Commercial and industrial: | | | | | | | | | | | |
| U.S. commercial | $ | 358,481 | | | $ | 325,936 | | | $ | 553 | | | $ | 825 | | | $ | 190 | | | $ | 171 | |
| Non-U.S. commercial | 124,479 | | | 113,266 | | | 212 | | | 268 | | | 25 | | | 19 | |
| Total commercial and industrial | 482,960 | | | 439,202 | | | 765 | | | 1,093 | | | 215 | | | 190 | |
| Commercial real estate | 69,766 | | | 63,009 | | | 271 | | | 382 | | | 46 | | | 40 | |
| Commercial lease financing | 13,644 | | | 14,825 | | | 4 | | | 80 | | | 8 | | | 8 | |
| 566,370 | | | 517,036 | | | 1,040 | | | 1,555 | | | 269 | | | 238 | |
U.S. small business commercial (1) | 17,560 | | | 19,183 | | | 14 | | | 23 | | | 355 | | | 87 | |
| Commercial loans excluding loans accounted for under the fair value option | $ | 583,930 | | | $ | 536,219 | | | $ | 1,054 | | | $ | 1,578 | | | $ | 624 | | | $ | 325 | |
Loans accounted for under the fair value option (2) | 5,432 | | | 7,201 | | | | | | | | | |
| Total commercial loans and leases | $ | 589,362 | | | $ | 543,420 | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| 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 includes U.S. commercial of $2.9 billion and $4.6 billion and non-U.S. commercial of $2.5 billion and $2.6 billion at December 31, 2022 and 2021. For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements.
Table 3531 presents net charge-offs and related ratios for our commercial loans and leases for 20172022 and 2016. The increase in2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Table 31 | Commercial Net Charge-offs and Related Ratios |
| | | | | | | | | | | | | | | | |
| | | | | | Net Charge-offs | | | | | | Net Charge-off Ratios (1) |
| | | | |
| | | | | | | | |
| (Dollars in millions) | | | | | 2022 | | 2021 | | | | | | 2022 | | 2021 |
| Commercial and industrial: | | | | | | | | | | | | | | | |
| U.S. commercial | | | | | $ | 71 | | | $ | (23) | | | | | | | 0.02 | % | | (0.01 | %) |
| Non-U.S. commercial | | | | | 21 | | | 35 | | | | | | | 0.02 | | | 0.04 | |
| Total commercial and industrial | | | | | 92 | | | 12 | | | | | | | 0.02 | | | — | |
| Commercial real estate | | | | | 66 | | | 34 | | | | | | | 0.10 | | | 0.06 | |
| Commercial lease financing | | | | | 5 | | | (1) | | | | | | | 0.03 | | | — | |
| | | | | | 163 | | | 45 | | | | | | | 0.03 | | | 0.01 | |
| U.S. small business commercial | | | | | 154 | | | 351 | | | | | | | 0.86 | | | 1.19 | |
| Total commercial | | | | | $ | 317 | | | $ | 396 | | | | | | | 0.06 | | | 0.08 | |
(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 3632 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 $2.8$3.1 billion or 17 percent, during 2017 primarily driven by paydowns2022, which was broad-based across industries. At December 31, 2022 and upgrades in the energy portfolio. Approximately 842021, 88 percent and 7687 percent of commercial utilized reservable criticized utilized exposure was securedsecured.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Table 32 | Commercial Reservable Criticized Utilized Exposure (1, 2) |
| | | | | | | | |
| | |
| | | | | | | | |
| | December 31 |
| (Dollars in millions) | 2022 | | 2021 |
| Commercial and industrial: |
| U.S. commercial | $ | 10,724 | | | 2.78 | % | | $ | 11,327 | | | 3.20 | % |
| Non-U.S. commercial | 2,665 | | | 2.04 | | | 2,582 | | | 2.17 | |
| Total commercial and industrial | 13,389 | | | 2.59 | | | 13,909 | | | 2.94 | |
| Commercial real estate | 5,201 | | | 7.30 | | | 7,572 | | | 11.72 | |
| Commercial lease financing | 240 | | | 1.76 | | | 387 | | | 2.61 | |
| | 18,830 | | | 3.13 | | | 21,868 | | | 3.96 | |
| U.S. small business commercial | 444 | | | 2.53 | | | 513 | | | 2.67 | |
| Total commercial reservable criticized utilized exposure | $ | 19,274 | | | 3.12 | | | $ | 22,381 | | | 3.91 | |
(1)Total commercial reservable criticized utilized exposure includes loans and leases of $18.5 billion and $21.2 billion and commercial letters of credit of $817 million and $1.2 billion at December 31, 20172022 and 2016.2021.
(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 leases of $12.5 billion and $14.9 billion and commercial letters of credit of $1.1 billion and $1.4 billion at December 31, 2017 and 2016.
|
| |
(2)
| Percentages are calculated as commercial utilized reservable criticized exposure divided by total commercial utilized reservable exposure for each exposure category. |
Commercial and Industrial
Commercial and industrial loans include U.S. commercial and non-U.S. commercial portfolios.
U.S. Commercial
At December 31, 2017, 702022, 63 percent of the U.S. commercial loan
portfolio, excluding small business, was managed in Global Banking,17 21 percent in Global Markets, 1115 percent in GWIM (generally business-purpose loans (loans that provide financing for asset purchases, business investments and other liquidity needs for high net worth clients) and the remainder primarily in Consumer Banking. U.S. commercial loans excluding loans accounted for under the fair value option, increased $14.5$32.5 billion, or 10 percent, during
2022 primarily driven by Global Banking. Reservable criticized utilized exposure decreased $603 million, or five percent, during 2017 to $284.8 billion at December 31, 2017 due to growth across most of the commercial businesses. Reservable criticized balances decreased $420 million, or four percent, and nonperforming loans
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.decreases across a broad range of industries.
Non-U.S. Commercial
At December 31, 2017, 792022, 64 percent of the non-U.S. commercial loan portfolio was managed in Global Banking, and 2135 percent in Global Marketsand the remainder in GWIM. OutstandingNon-U.S. commercial loans excluding loans accounted for under the fair value option, increased $8.4$11.2 billion, or 10 percent, during 2022 due to loan growth in 2017.Global Markets. Reservable criticized balances decreased $2.2 billion,utilized exposure increased $83 million, or 56three percent, due primarily to paydowns and upgrades in the energy portfolio. Net charge-offs increased $320 million in 2017downgrades for direct exposure to $440 million due to a single-name non-U.S. commercial charge-off of $292 million in the fourth quarter of 2017.Russian counterparties. For more information on the non-U.S. commercial portfolio, see Non-U.S. Portfolio on page 70. For more information on the Russia/Ukraine conflict, see Recent Developments on page 27.
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 increased $6.8 billion, or 11 percent, during 2022 to $69.8 billion due to new originations outpacing paydowns and increased utilizations under existing
credit facilities. Reservable criticized utilized exposure decreased $2.4 billion, or 31 percent, primarily driven by Hotels due to improving vacancy rates and reduced travel restrictions. The portfolio remains diversified across property types and geographic regions. California represented the largest state concentration at 2319 percent and 21 percent of the commercial real estate loans and leases portfolio at both December 31, 20172022 and 2016.2021. 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 2017,2022, we continued to see low default rates and solid credit qualityvarying degrees of improvement in bothcertain geographic regions and property types of 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 tofor 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 3733 presents outstanding commercial real estate loans by geographic region, based on the geographic location of the collateral, and by property type.
| | | | | | | | | | | | | | | |
| | | | | |
| Table 33 | Outstanding Commercial Real Estate Loans | |
| | | | | |
| | December 31 | |
| (Dollars in millions) | 2022 | | 2021 | |
| By Geographic Region | | | | |
| Northeast | $ | 15,601 | | | $ | 14,318 | | |
| California | 13,360 | | | 13,145 | | |
| Southwest | 8,723 | | | 7,510 | | |
| Southeast | 7,713 | | | 6,758 | | |
| Florida | 5,374 | | | 4,367 | | |
| Midwest | 3,419 | | | 3,221 | | |
| Illinois | 3,327 | | | 2,878 | | |
| Midsouth | 2,716 | | | 2,289 | | |
| Northwest | 1,959 | | | 1,709 | | |
| Non-U.S. | 5,518 | | | 4,760 | | |
| Other | 2,056 | | | 2,054 | | |
| Total outstanding commercial real estate loans | $ | 69,766 | | | $ | 63,009 | | |
| By Property Type | | | | |
| Non-residential | | | | |
| Office | $ | 18,230 | | | $ | 18,309 | | |
| Industrial / Warehouse | 13,775 | | | 10,749 | | |
| Multi-family rental | 10,412 | | | 8,173 | | |
| Shopping centers /Retail | 5,830 | | | 6,502 | | |
| Hotel / Motels | 5,696 | | | 5,932 | | |
| Unsecured | 3,195 | | | 3,178 | | |
| Multi-use | 2,403 | | | 1,835 | | |
| | | | |
| Other | 9,046 | | | 7,238 | | |
| Total non-residential | 68,587 | | | 61,916 | | |
| Residential | 1,179 | | | 1,093 | | |
| Total outstanding commercial real estate loans | $ | 69,766 | | | $ | 63,009 | | |
|
| | | | | | | | |
| | | | | |
| 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 |
|
| |
(1)
| Includes unsecured loans to real estate investment trusts and national home builders whose portfolios of properties span multiple geographic regions and properties in the states of Colorado, Utah, Hawaii, Wyoming and Montana. |
U.S. Small Business Commercial
The U.S. small business commercial loan portfolio is comprised of small business card loans and small business loans primarily managed in Consumer Banking,. Credit and included $1.0 billion and $4.7 billion of PPP loans outstanding at December 31, 2022 and 2021. The decline of $3.7 billion in PPP loans during 2022 was primarily due to repayment of the loans by the SBA under
the terms of the program. Excluding PPP, credit card-related products were 5053 percent and 4850 percent of the U.S. small business commercial portfolio at December 31, 20172022 and 2016. Net2021 and represented all of the net charge-offs of $215 million during 2017 were relatively flatin 2022 compared to $20895 percent in 2021. The increase of $268 million during 2016. Ofin accruing past due 90 days or more in 2022 was driven by PPP loans, which are fully guaranteed by the U.S. small business commercial net charge-offs, 90 percent and 86 percent were credit card-related products in 2017 and 2016.SBA.
Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity
Table 3834 presents the nonperforming commercial loans, leases and foreclosed properties activity during 20172022 and 2016.2021. Nonperforming loans do not include loans accounted for under the fair value option. During 2017,2022, nonperforming commercial loans and leases decreased $399$524 million to $1.3$1.1 billion. ApproximatelyAt
77December 31, 2022, 97 percent of commercial nonperforming loans, leases and foreclosed properties were secured, and approximately 5965 percent were contractually current. Commercial nonperforming loans were carried at approximately 8785 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 34 | Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity (1, 2) |
| | | | | | |
| | | | |
| (Dollars in millions) | | | | | 2022 | | 2021 |
| Nonperforming loans and leases, January 1 | | | | | $ | 1,578 | | | $ | 2,227 | |
| Additions | | | | | 952 | | | 1,622 | |
| | | | | | | |
| | | | | | | |
| Reductions: | | | | | | | |
| Paydowns | | | | | (825) | | | (1,163) | |
| Sales | | | | | (57) | | | (199) | |
Returns to performing status (3) | | | | | (334) | | | (264) | |
| Charge-offs | | | | | (221) | | | (254) | |
| | | | | | | |
| Transfers to loans held-for-sale | | | | | (39) | | | (391) | |
| Total net reductions to nonperforming loans and leases | | | | | (524) | | | (649) | |
| Total nonperforming loans and leases, December 31 | | | | | 1,054 | | | 1,578 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Foreclosed properties, December 31 | | | | | 49 | | | 29 | |
| Nonperforming commercial loans, leases and foreclosed properties, December 31 | | | | | $ | 1,103 | | | $ | 1,607 | |
Nonperforming commercial loans and leases as a percentage of outstanding commercial loans and leases (4) | | | | | 0.18 | % | | 0.29 | % |
Nonperforming commercial loans, leases and foreclosed properties as a percentage of outstanding commercial loans, leases and foreclosed properties (4) | | | | | 0.19 | | | 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 |
|
| |
(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. | Balances do not include nonperforming LHFS of $339 million and $195 million at December 31, 2017 and 2016.
|
| |
(2)
| Includes U.S. small business commercial activity. Small business card loans are excluded as they are not classified as nonperforming. |
| |
(3)
| Commercial loans and leases may be returned to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection. TDRs are generally classified as performing after a sustained period of demonstrated payment performance. |
| |
(4)
| Outstanding commercial loans exclude loans accounted for under the fair value option. |
Table 3935 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 onCommercial TDRs see Note 4 – Outstanding Loans and Leasesincreased $957 million, or 50 percent, during 2022 primarily due to commercial real estate loans that were modified as TDRs during the Consolidated Financial Statements.first half of the year.
| | | | | | | | | | | | | | | | |
| Table 39 | Commercial Troubled Debt Restructurings | |
| Table 35 | | Table 35 | Commercial Troubled Debt Restructurings |
| | | | | |
| | | December 31, 2017 | | December 31, 2016 | | December 31, 2022 | | December 31, 2021 |
| (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 | $ | 305 | | | $ | 985 | | | $ | 1,290 | | | $ | 359 | | | $ | 685 | | | $ | 1,044 | |
| Non-U.S. commercial | Non-U.S. commercial | 11 |
| | 219 |
| | 230 |
| | 25 |
| | 283 |
| | 308 |
| Non-U.S. commercial | 69 | | | 238 | | | 307 | | | 72 | | | 8 | | | 80 | |
| Total commercial and industrial | Total commercial and industrial | 381 |
| | 1,085 |
| | 1,466 |
| | 745 |
| | 1,423 |
| | 2,168 |
| Total commercial and industrial | 374 | | | 1,223 | | | 1,597 | | | 431 | | | 693 | | | 1,124 | |
| Commercial real estate | Commercial real estate | 38 |
| | 9 |
| | 47 |
| | 45 |
| | 95 |
| | 140 |
| Commercial real estate | 59 | | | 1,131 | | | 1,190 | | | 244 | | | 437 | | | 681 | |
| Commercial lease financing | Commercial lease financing | 5 |
| | 13 |
| | 18 |
| | 2 |
| | 2 |
| | 4 |
| Commercial lease financing | 3 | | | 16 | | | 19 | | | 50 | | | 7 | | | 57 | |
| | | 424 |
| | 1,107 |
| | 1,531 |
| | 792 |
| | 1,520 |
| | 2,312 |
| | 436 | | | 2,370 | | | 2,806 | | | 725 | | | 1,137 | | | 1,862 | |
| U.S. small business commercial | U.S. small business commercial | 4 |
| | 15 |
| | 19 |
| | 2 |
| | 13 |
| | 15 |
| U.S. small business commercial | — | | | 51 | | | 51 | | | — | | | 38 | | | 38 | |
| 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 | $ | 436 | | | $ | 2,421 | | | $ | 2,857 | | | $ | 725 | | | $ | 1,175 | | | $ | 1,900 | |
Industry Concentrations
Table 4036 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.industry. Our commercial credit exposure is diversified across a broad range of industries. Total commercial committed exposure increased $30.1$70.3 billion, or threesix percent, in 2017during 2022 to $981.2 billion at December 31, 2017.$1.2 trillion. The increase in commercial committed exposure was concentrated in the Media, Food & Staples Retailing, Capital Goods, Food, BeverageAsset managers and Tobaccofunds, Global commercial banks and the Asset ManagersPharmaceuticals and Funds sectors. Increases were partially offset by reduced exposure to the Healthcare Equipment and
Services, Telecommunications Services and the Technology Hardware and Equipment sectors.biotechnology.
Industry limits are used internally to manage industry concentrations and are based on committed exposure that is allocateddetermined 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$165.1 billion,
increased $5.5$28.2 billion, or six21 percent, in 2017. The increaseduring 2022 primarily reflected an increase in exposure to several counterparties.driven by investment-grade exposures.
Real estate, our second largest industry concentration with committed exposure of $83.8$99.7 billion, increased $115 million,$3.5 billion, or less than onefour percent, in 2017.during 2022. For more information on the commercial real estate and related portfolios, see Commercial Portfolio Credit Risk Management – Commercial Real Estate on page 66.67.
Capital Goods,goods, our third largest industry concentration with committed exposure of $70.4$87.3 billion, increased $6.2$3.0 billion, or nearly 10four percent, in 2017.during 2022. The increase in committed exposure
occurred primarily as a result of increases in large conglomeratesthe Electrical equipment and machinery manufacturers.Trading companies and distributors, partially offset by a decrease in Building products.
Our energy-related committed exposure decreased $2.5While the U.S. and global economies have shown signs of relief from the pandemic, uncertainty remains as a result of
geopolitical and inflationary pressures, and a number of industries will likely continue to be adversely impacted due to these conditions. We continue to monitor all industries,
particularly higher risk industries that are experiencing or could experience a more significant impact to their financial condition.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table 36 | Commercial Credit Exposure by Industry (1) |
| | | | | | | | |
| | Commercial
Utilized | | Total Commercial Committed (2) |
| | December 31 |
| (Dollars in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Asset managers & funds | $ | 106,842 | | | $ | 89,786 | | | $ | 165,087 | | | $ | 136,914 | |
Real estate (3) | 72,180 | | | 69,384 | | | 99,722 | | | 96,202 | |
| Capital goods | 45,580 | | | 42,784 | | | 87,314 | | | 84,293 | |
| Finance companies | 55,248 | | | 59,327 | | | 79,546 | | | 86,009 | |
| Healthcare equipment and services | 33,554 | | | 32,003 | | | 58,761 | | | 58,195 | |
| Materials | 26,304 | | | 25,133 | | | 55,589 | | | 53,652 | |
| Retailing | 24,785 | | | 24,514 | | | 53,714 | | | 50,816 | |
| Government & public education | 34,861 | | | 37,597 | | | 48,134 | | | 50,066 | |
| Food, beverage and tobacco | 23,232 | | | 21,584 | | | 47,486 | | | 45,419 | |
| Consumer services | 26,980 | | | 28,172 | | | 47,372 | | | 48,052 | |
| Individuals and trusts | 34,897 | | | 29,752 | | | 45,572 | | | 39,869 | |
| Commercial services and supplies | 23,628 | | | 22,390 | | | 41,596 | | | 42,451 | |
| Utilities | 20,292 | | | 17,082 | | | 40,164 | | | 36,855 | |
| Energy | 15,132 | | | 14,217 | | | 36,043 | | | 34,136 | |
| Transportation | 22,273 | | | 21,079 | | | 33,858 | | | 32,015 | |
| Technology hardware and equipment | 11,441 | | | 10,159 | | | 29,825 | | | 26,910 | |
| Global commercial banks | 27,217 | | | 20,062 | | | 29,293 | | | 21,390 | |
| Media | 14,781 | | | 12,495 | | | 28,216 | | | 26,318 | |
| Pharmaceuticals and biotechnology | 7,547 | | | 5,608 | | | 26,208 | | | 19,439 | |
| Software and services | 12,961 | | | 10,663 | | | 25,633 | | | 27,643 | |
| Consumer durables and apparel | 10,009 | | | 9,740 | | | 21,389 | | | 21,226 | |
| Vehicle dealers | 12,909 | | | 11,030 | | | 20,638 | | | 15,678 | |
| Insurance | 10,224 | | | 5,743 | | | 19,444 | | | 14,323 | |
| Telecommunication services | 9,679 | | | 10,056 | | | 17,349 | | | 21,270 | |
| Automobiles and components | 8,774 | | | 9,236 | | | 16,911 | | | 17,052 | |
| Food and staples retailing | 7,157 | | | 6,902 | | | 11,908 | | | 12,226 | |
| Financial markets infrastructure (clearinghouses) | 3,913 | | | 3,876 | | | 8,752 | | | 6,076 | |
| Religious and social organizations | 2,467 | | | 3,154 | | | 4,689 | | | 5,394 | |
| | | | | | | |
| Total commercial credit exposure by industry | $ | 704,867 | | | $ | 653,528 | | | $ | 1,200,213 | | | $ | 1,129,889 | |
| | | | | | | |
(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 other financial institutions. The distributed amounts were $10.4 billion or six percent, in 2017 to $36.8and $10.7 billion at December 31, 2017. Energy sector net charge-offs were $156 million in 2017 compared2022 and 2021.
(3)Industries are viewed from a variety of perspectives 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 paydownsbest 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 upgrades in the energy portfolio. The energy allowance for credit losses decreased $365 million to $560 million at December 31, 2017.primary source of repayment as key factors.
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| 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, 20172022 and 2016,2021, 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$9.0 billion and $3.5$2.6 billion. We recorded net losses of $66$37 million in 20172022 compared to net losses of $438$91 million in 2016 on these positions.2021. The gains and losses on these instruments were largely 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 49.43. For more information, see Trading Risk Management on page 77.76.
Tables 4137 and 4238 present the maturity profiles and the credit exposure debt ratings of the net credit default protection portfolio at December 31, 20172022 and 2016.2021.
| | | | | | | | | | | | | | |
| | | | |
| Table 37 | Net Credit Default Protection by Maturity |
| | | | |
| | December 31 |
| | 2022 | | 2021 |
| Less than or equal to one year | 14 | % | | 34 | % |
| Greater than one year and less than or equal to five years | 85 | | | 62 | |
| Greater than five years | 1 | | | 4 | |
| 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 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)69 Bank of America
| 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. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table 38 | 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) | 2022 | | 2021 |
Ratings (2, 3) | | | | | | | |
| AAA | $ | (379) | | | 4.0 | % | | $ | — | | | — | % |
| AA | (867) | | | 10.0 | | | — | | | — | |
| A | (3,257) | | | 36.0 | | | (350) | | | 13.4 | |
| BBB | (2,476) | | | 28.0 | | | (710) | | | 27.1 | |
| BB | (1,049) | | | 12.0 | | | (809) | | | 30.9 | |
| B | (676) | | | 7.0 | | | (659) | | | 25.2 | |
| CCC and below | (93) | | | 1.0 | | | (35) | | | 1.3 | |
NR (4) | (182) | | | 2.0 | | | (55) | | | 2.1 | |
Total net credit default protection | $ | (8,979) | | | 100.0 | % | | $ | (2,618) | | | 100.0 | % |
(1)Represents net credit default protection purchased.
(2)Ratings are refreshed on a quarterly basis.
(3)Ratings of BBB- or higher are considered to meet the definition of investment grade.
(4)NR is comprised of index positions held and any names that have not been rated.
In addition to our net notional credit default protection purchased to cover the funded and unfunded portion of certain credit exposures, credit derivatives are used for market-making activities for clients and establishing positions intended to profit from directional or relative value changes. We execute the majority of our credit derivative trades in the OTC market with large, multinational financial institutions, including broker-dealers and, to a lesser degree, with a variety of other investors. Because these transactions are executed in the OTC market, we are subject to settlement risk. We are also subject to credit risk in the event that these counterparties fail to perform under the terms of these contracts. In order to properly reflect counterparty credit risk, we record counterparty credit risk valuation adjustments on certain 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.
trades. 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 4539 presents our 20 largest non-U.S. country exposures as ofat December 31, 2017.2022. These exposures accounted for 86 percent and 8889 percent of our total non-U.S. exposure at both December 31, 20172022 and 2016.2021. Net country exposure for these 20 countries decreased $6.3increased $24.0 billion in 20172022 primarily driven by reductionsincreases in the U.K.,Germany, Japan, SwitzerlandIreland, India and Brazil,Switzerland, 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 increasesdecreases in China, Belgium, Australia and France. The decrease in the U.K. reflects the sale of the non-U.S. consumer credit card business in 2017. Unfunded commitments increased in the U.K., Germany and Belgium, which was partly offset by a decrease in Switzerland. Securities held decreased, driven by reduced holdings in France, the U.K. and Germany, while counterparty exposure decreased in Japan, Germany and the U.K.Singapore.
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 39 | | Table 39 | 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
2022 | | Hedges and Credit Default Protection | | Net Country Exposure at December 31
2022 | | Increase (Decrease) from December 31
2021 |
| United Kingdom | United Kingdom | $ | 20,089 |
| | $ | 14,906 |
| | $ | 5,278 |
| | $ | 1,962 |
| | $ | 42,235 |
| | $ | (4,640 | ) | | $ | 37,595 |
| | $ | (10,138 | ) | United Kingdom | $ | 29,965 | | | $ | 16,601 | | | $ | 7,243 | | | $ | 2,570 | | | $ | 56,379 | | | $ | (1,034) | | | $ | 55,345 | | | $ | 376 | |
| Germany | Germany | 12,572 |
| | 9,856 |
| | 1,061 |
| | 1,102 |
| | 24,591 |
| | (3,088 | ) | | 21,503 |
| | (875 | ) | Germany | 32,248 | | | 9,431 | | | 2,190 | | | 2,742 | | | 46,611 | | | (885) | | | 45,726 | | | 11,901 | |
| France | | France | 13,888 | | | 8,064 | | | 2,023 | | | 3,604 | | | 27,579 | | | (986) | | | 26,593 | | | 1,686 | |
| Canada | Canada | 7,037 |
| | 7,645 |
| | 2,016 |
| | 2,579 |
| | 19,277 |
| | (554 | ) | | 18,723 |
| | (51 | ) | Canada | 10,992 | | | 10,094 | | | 1,472 | | | 3,383 | | | 25,941 | | | (368) | | | 25,573 | | | (738) | |
| Japan | | Japan | 19,239 | | | 1,806 | | | 1,366 | | | 1,502 | | | 23,913 | | | (826) | | | 23,087 | | | 5,825 | |
| Australia | | Australia | 14,412 | | | 4,013 | | | 568 | | | 1,510 | | | 20,503 | | | (286) | | | 20,217 | | | (1,087) | |
| Brazil | | Brazil | 6,175 | | | 1,413 | | | 741 | | | 4,199 | | | 12,528 | | | (28) | | | 12,500 | | | (250) | |
| China | China | 13,634 |
| | 728 |
| | 746 |
| | 1,058 |
| | 16,166 |
| | (241 | ) | | 15,925 |
| | 5,040 |
| China | 6,489 | | | 294 | | | 1,378 | | | 2,932 | | | 11,093 | | | (285) | | | 10,808 | | | (1,774) | |
| Brazil | 7,688 |
| | 501 |
| | 342 |
| | 2,726 |
| | 11,257 |
| | (541 | ) | | 10,716 |
| | (2,950 | ) | |
| 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 | ) | |
| India | India | 7,229 |
| | 316 |
| | 375 |
| | 3,328 |
| | 11,248 |
| | (751 | ) | | 10,497 |
| | 1,269 |
| India | 6,805 | | | 589 | | | 614 | | | 2,841 | | | 10,849 | | | (80) | | | 10,769 | | | 2,138 | |
| Japan | 7,399 |
| | 631 |
| | 923 |
| | 1,669 |
| | 10,622 |
| | (1,532 | ) | | 9,090 |
| | (5,921 | ) | |
| Hong Kong | 6,925 |
| | 187 |
| | 585 |
| | 1,056 |
| | 8,753 |
| | (75 | ) | | 8,678 |
| | 1,199 |
| |
| Switzerland | | Switzerland | 7,039 | | | 3,063 | | | 469 | | | 438 | | | 11,009 | | | (321) | | | 10,688 | | | 2,113 | |
| Singapore | | Singapore | 4,017 | | | 627 | | | 126 | | | 4,874 | | | 9,644 | | | (37) | | | 9,607 | | | (1,058) | |
| Netherlands | Netherlands | 5,357 |
| | 3,212 |
| | 650 |
| | 930 |
| | 10,149 |
| | (1,682 | ) | | 8,467 |
| | 1,069 |
| Netherlands | 3,169 | | | 4,892 | | | 617 | | | 1,402 | | | 10,080 | | | (797) | | | 9,283 | | | (313) | |
| South Korea | South Korea | 4,934 |
| | 544 |
| | 635 |
| | 2,208 |
| | 8,321 |
| | (420 | ) | | 7,901 |
| | 1,795 |
| South Korea | 6,103 | | | 927 | | | 504 | | | 1,664 | | | 9,198 | | | (72) | | | 9,126 | | | 974 | |
| 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 | ) | |
| Ireland | | Ireland | 7,678 | | | 1,157 | | | 151 | | | 230 | | | 9,216 | | | (126) | | | 9,090 | | | 3,551 | |
| Mexico | Mexico | 2,883 |
| | 2,446 |
| | 226 |
| | 385 |
| | 5,940 |
| | (453 | ) | | 5,487 |
| | 1,003 |
| Mexico | 4,444 | | | 1,753 | | | 514 | | | 743 | | | 7,454 | | | (62) | | | 7,392 | | | 930 | |
| Hong Kong | | Hong Kong | 5,123 | | | 523 | | | 466 | | | 1,181 | | | 7,293 | | | (22) | | | 7,271 | | | (56) | |
| Spain | | Spain | 2,433 | | | 2,170 | | | 398 | | | 1,067 | | | 6,068 | | | (227) | | | 5,841 | | | (79) | |
| Italy | Italy | 2,791 |
| | 1,490 |
| | 512 |
| | 600 |
| | 5,393 |
| | (1,147 | ) | | 4,246 |
| | 159 |
| Italy | 3,883 | | | 1,777 | | | 184 | | | 426 | | | 6,270 | | | (602) | | | 5,668 | | | 464 | |
| Saudi Arabia | | Saudi Arabia | 2,428 | | | 1,465 | | | 219 | | | 15 | | | 4,127 | | | (109) | | | 4,018 | | | 545 | |
| Belgium | Belgium | 2,440 |
| | 1,184 |
| | 82 |
| | 511 |
| | 4,217 |
| | (252 | ) | | 3,965 |
| | 2,039 |
| Belgium | 1,433 | | | 1,489 | | | 184 | | | 910 | | | 4,016 | | | (153) | | | 3,863 | | | (1,168) | |
| United Arab Emirates | 2,843 |
| | 351 |
| | 247 |
| | 43 |
| | 3,484 |
| | (97 | ) | | 3,387 |
| | 644 |
| |
| 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 | $ | 187,963 | | | $ | 72,148 | | | $ | 21,427 | | | $ | 38,233 | | | $ | 319,771 | | | $ | (7,306) | | | $ | 312,465 | | | $ | 23,980 | |
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, 20172022 was the U.K.United Kingdom with net exposure of $37.6$55.3 billion, concentrated
in multinational corporations and sovereign clients. For more information, see Executive Summary – 2017 Economic and Business Environment on page 19.
Table 46 presents countries where total cross-border exposure exceeded one percentwhich represents an increase of our total assets. At$376 million from December 31, 2017, the U.K. and France were the only countries where total cross-border exposure exceeded one percent of our total assets. At December 31, 2017, Germany had total cross-border exposure of $21.6 billion representing 0.95 percent of our total assets. No other countries had total cross-border exposure that exceeded 0.75 percent of our total assets at December 31, 2017.
Cross-border exposure includes the components of Country Risk Exposure as detailed in Table 45 as well as the notional amount of cash loaned under secured financing agreements. Local exposure, defined as exposure booked in local offices of a respective country with clients in the same country, is excluded.
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Table 46 | Total Cross-border Exposure Exceeding One Percent of Total Assets |
| | | | | | | | | | | | | |
| (Dollars in millions) | December 31 | | Public Sector | | Banks | | Private Sector | | Cross-border
Exposure | | Exposure as a
Percent of
Total Assets |
| United Kingdom | 2017 | | $ | 923 |
| | $ | 2,984 |
| | $ | 47,205 |
| | $ | 51,112 |
| | 2.24 | % |
| | 2016 | | 2,975 |
| | 4,557 |
| | 42,105 |
| | 49,637 |
| | 2.27 |
|
| | 2015 | | 3,264 |
| | 5,104 |
| | 38,576 |
| | 46,944 |
| | 2.19 |
|
| France | 2017 | | 2,964 |
| | 1,521 |
| | 27,903 |
| | 32,388 |
| | 1.42 |
|
| | 2016 | | 4,956 |
| | 1,205 |
| | 23,193 |
| | 29,354 |
| | 1.34 |
|
| | | 2015 | | 3,343 |
| | 1,766 |
| | 17,099 |
| | 22,208 |
| | 1.04 |
|
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 2016.2021. 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,net counterparty exposure with financial institutions, partially offset by a single-namereduction in deposits with the central bank. Our second largest non-U.S. commercial charge-off.country exposure was Germany with net exposure of $45.7 billion at December 31, 2022, an increase of $11.9 billion from December 31, 2021. The increase was driven by higher deposits with the central bank and increased exposure with financial institutions and corporates.
Loan and Lease Contractual Maturities
Table 40 disaggregates total outstanding loans and leases by remaining scheduled principal due dates and interest rates. The amounts provided do not reflect prepayment assumptions or hedging activities related to the loan portfolio. For information on the asset sensitivity of our total banking book balance sheet, see Interest Rate Risk Management for the Banking Book on page 79.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Table 40 | Loan and Lease Contractual Maturities (1) | | | | | | | | |
| | | | | | | | | | |
| | | December 31, 2022 |
| (Dollars in millions) | Due in One
Year or Less | | Due After One Year Through Five Years | | Due After Five Years Through 15 Years | | Due After 15 Years | | Total |
| Residential mortgage | $ | 5,660 | | | $ | 32,546 | | | $ | 94,544 | | | $ | 96,991 | | | $ | 229,741 | |
| Home equity | | 251 | | | 1,195 | | | 5,076 | | | 20,309 | | | 26,831 | |
| Credit card | | 93,421 | | | — | | | — | | | — | | | 93,421 | |
| Direct/Indirect consumer | 65,877 | | | 35,066 | | | 4,464 | | | 829 | | | 106,236 | |
| Other consumer | 156 | | | — | | | — | | | — | | | 156 | |
| Total consumer loans | 165,365 | | | 68,807 | | | 104,084 | | | 118,129 | | | 456,385 | |
| U.S. commercial | 97,153 | | | 242,313 | | | 20,343 | | | 1,584 | | | 361,393 | |
| Non-U.S. commercial | 49,662 | | | 52,826 | | | 22,436 | | | 2,075 | | | 126,999 | |
| Commercial real estate | 19,199 | | | 48,051 | | | 1,650 | | | 866 | | | 69,766 | |
| Commercial lease financing | 2,737 | | | 8,214 | | | 1,026 | | | 1,667 | | | 13,644 | |
| U.S. small business commercial | 10,615 | | | 4,474 | | | 2,407 | | | 64 | | | 17,560 | |
| Total commercial loans | 179,366 | | | 355,878 | | | 47,862 | | | 6,256 | | | 589,362 | |
| Total loans and leases | $ | 344,731 | | | $ | 424,685 | | | $ | 151,946 | | | $ | 124,385 | | | $ | 1,045,747 | |
| | | | | | | | | | |
| | Amount due in one year or less at: | | Amount due after one year at: | | |
| (Dollars in millions) | Variable Interest Rates | | Fixed Interest Rates | | Variable Interest Rates | | Fixed Interest Rates | | Total |
| Residential mortgage | $ | 1,007 | | | $ | 4,653 | | | $ | 83,441 | | | $ | 140,640 | | | $ | 229,741 | |
| Home equity | | 203 | | | 48 | | | 22,438 | | | 4,142 | | | 26,831 | |
| Credit card | | 88,113 | | | 5,308 | | | — | | | — | | | 93,421 | |
| Direct/Indirect consumer | 47,240 | | | 18,637 | | | 2,857 | | | 37,502 | | | 106,236 | |
| Other consumer | — | | | 156 | | | — | | | — | | | 156 | |
| Total consumer loans | 136,563 | | | 28,802 | | | 108,736 | | | 182,284 | | | 456,385 | |
| U.S. commercial | 73,593 | | | 23,560 | | | 223,099 | | | 41,141 | | | 361,393 | |
| Non-U.S. commercial | 42,692 | | | 6,970 | | | 75,355 | | | 1,982 | | | 126,999 | |
| Commercial real estate | 18,361 | | | 838 | | | 49,247 | | | 1,320 | | | 69,766 | |
| Commercial lease financing | 229 | | | 2,508 | | | 3,696 | | | 7,211 | | | 13,644 | |
| U.S. small business commercial | 6,363 | | | 4,252 | | | 109 | | | 6,836 | | | 17,560 | |
| Total commercial loans | 141,238 | | | 38,128 | | | 351,506 | | | 58,490 | | | 589,362 | |
| Total loans and leases | $ | 277,801 | | | $ | 66,930 | | | $ | 460,242 | | | $ | 240,774 | | | $ | 1,045,747 | |
(1)Includes loans accounted for under the fair value option.
Allowance for Credit Losses
Allowance for Loan and Lease Losses
The allowance for loan and leasecredit losses is comprised of two components. The first component covers nonperforming commercial loans and TDRs. The second component covers loans and leases on which there are incurred losses that are not yet individually identifiable, as well as incurred losses that may not be represented in the loss forecast models. We evaluate the adequacy of the allowance for loan and lease losses based on the total of these two components, each of which is described in more detail below. The allowance for loan and lease losses excludes LHFS and loans accounted for under the fair value option as the fair value reflects a credit risk component.
The first component of the allowance for loan and lease losses covers both nonperforming commercial loans and all TDRs within the consumer and commercial portfolios. These loans are subject to impairment measurement based on the present value of projected future cash flows discounted at the loan’s original effective interest rate, or in certain circumstances, impairment may also be based upon the collateral value or the loan’s observable market price if available. Impairment measurement for the renegotiated consumer credit card, small business credit card and unsecured consumer TDR portfolios is based on the present value of projected cash flows discounted using the average portfolio contractual interest rate, excluding promotionally priced loans, in effect prior to restructuring. For purposes of computing this specific loss component of the allowance, larger impaired loans are evaluated individually and smaller impaired loans are evaluated as a pool using historical experience for the respective product types and risk ratings of the loans.
The second component of the allowance for loan and lease losses covers the remaining consumer and commercial loans and leases that have incurred losses that are not yet individually identifiable. The allowance for consumer and certain homogeneous commercial loan and lease products is based on aggregated portfolio evaluations, generally by product type. Loss forecast models are utilized that consider a variety of factors
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 ofincreased $379 million from December 31, 2017, the loss forecast process resulted in reductions in the allowance related2021 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 and obligor concentrations within each portfolio and any other pertinent information. The statistical models for commercial loans are generally updated annually and utilize our historical database of actual defaults and other data, including external default data. The loan risk ratings and composition of the commercial portfolios used to calculate the allowance are updated quarterly to incorporate the most recent data reflecting the current economic environment. For risk-rated commercial loans, we estimate the probability of default and the loss given default (LGD) based on our historical experience of defaults and credit losses. Factors considered when assessing the internal risk rating include the value of the underlying collateral, if applicable, the industry in which the obligor operates, the obligor’s liquidity and other financial indicators, and other quantitative and qualitative factors relevant to the obligor’s credit risk. As of December 31, 2017, 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.
During 2017, the factors that impacted the allowance for loan and lease losses included improvements in the credit quality of the consumer real estate portfolios driven by continuing improvements in the U.S. economy and labor markets, proactive credit risk management initiatives and the impact of high credit quality originations. Evidencing the improvements in the U.S. economy and labor markets are downward unemployment trends and increases in home prices. In addition to these improvements, in the consumer portfolio, nonperforming consumer loans decreased $838 million in 2017 as returns to performing status, charge-offs, paydowns and loan sales continued to outpace new nonaccrual loans. During 2017, the allowance for loan and lease losses in the commercial portfolio reflected decreased energy reserves primarily driven by reductions in energy exposures including utilized reservable criticized exposures.
We monitor differences between estimated and actual incurred loan and lease losses. This monitoring process includes periodic assessments by senior management of loan and lease portfolios and the models used to estimate incurred losses in those portfolios.
The allowance for loan and lease losses for the consumer portfolio, as presented in Table 48, was $5.4$14.2 billion at December 31, 2017,2022, which included a decrease of $839$202 million from December 31, 2016. The decrease was primarily inreserve increase related to the consumer real estate portfolio and a $177 million reserve increase related to 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-corecommercial portfolio. The increase in the U.S. credit card portfolioallowance was
primarily driven by portfolio seasoningloan growth and loan growth.a dampened macroeconomic outlook, partially offset by a reserve release for reduced pandemic uncertainties.
TheTable 41 presents an allocation of the allowance for loan and leasecredit losses for the commercial portfolio, as presented in Table 48, was $5.0 billionby product type 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 2022and net upgrades in the energy portfolio. Nonperforming commercial loans decreased to $1.32021.
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| Table 41 | 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) |
| (Dollars in millions) | December 31, 2022 | | | | December 31, 2021 |
| Allowance for loan and lease losses | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 328 | | | 2.59 | % | | 0.14 | % | | | | | | | | $ | 351 | | | 2.83 | % | | 0.16 | % |
| Home equity | 92 | | | 0.73 | | | 0.35 | | | | | | | | | 206 | | | 1.66 | | | 0.74 | |
| Credit card | 6,136 | | | 48.38 | | | 6.57 | | | | | | | | | 5,907 | | | 47.70 | | | 7.25 | |
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| Direct/Indirect consumer | 585 | | | 4.61 | | | 0.55 | | | | | | | | | 523 | | | 4.22 | | | 0.51 | |
| Other consumer | 96 | | | 0.76 | | | n/m | | | | | | | | 46 | | | 0.37 | | | n/m |
| Total consumer | 7,237 | | | 57.07 | | | 1.59 | | | | | | | | | 7,033 | | | 56.78 | | | 1.62 | |
U.S. commercial (2) | 3,007 | | | 23.71 | | | 0.80 | | | | | | | | | 3,019 | | | 24.37 | | | 0.87 | |
| Non-U.S. commercial | 1,194 | | | 9.41 | | | 0.96 | | | | | | | | | 975 | | | 7.87 | | | 0.86 | |
| Commercial real estate | 1,192 | | | 9.40 | | | 1.71 | | | | | | | | | 1,292 | | | 10.43 | | | 2.05 | |
| Commercial lease financing | 52 | | | 0.41 | | | 0.38 | | | | | | | | | 68 | | | 0.55 | | | 0.46 | |
| Total commercial | 5,445 | | | 42.93 | | | 0.93 | | | | | | | | | 5,354 | | | 43.22 | | | 1.00 | |
| Allowance for loan and lease losses | 12,682 | | | 100.00 | % | | 1.22 | | | | | | | | | 12,387 | | | 100.00 | % | | 1.28 | |
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| Reserve for unfunded lending commitments | 1,540 | | | | | | | | | | | | | 1,456 | | | | | |
| Allowance for credit losses | $ | 14,222 | | | | | | | | | | | | | $ | 13,843 | | | | | |
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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(1)Ratios are calculated as allowance for loan and lease losses as a percentage of total loans and leases outstanding was 1.12 percentexcluding loans accounted for under the fair value option.
(2)Includes allowance for loan and lease losses for U.S. small business commercial loans of $844 million and $1.2 billion at December 31, 20172022 and 2021.
n/m = not meaningful
Net charge-offs for both 2022 and 2021 were $2.2 billion as credit card losses, which remained near historic lows, were partially offset by higher overdrafts charged off in other consumer due to payment activity related to checking accounts. The provision for credit losses increased $7.1 billion to an expense of $2.5 billion during 2022 compared to 1.26 percent at December 31, 2016.2021. The decreaseprovision for credit losses in the ratio2022 was primarily due to improveddriven by loan growth and a dampened macroeconomic outlook, partially offset by a reserve release for reduced pandemic uncertainties. The provision for credit quality inlosses for the consumer real estate portfolio, driven by improved economic conditions.including unfunded lending commitments, increased $3.2 billion to an expense of $2.0 billion during 2022 compared to 2021. The December 31, 2017
provision for credit losses for the commercial portfolio, including unfunded lending commitments, increased $3.9 billion to an expense of $495 million for 2022 compared to 2021.
Table 42 presents a rollforward of the allowance for credit losses, including certain loan and 2016allowance ratios above includefor 2022 and 2021. For more information on the PCI loan portfolio. ExcludingCorporation’s credit loss accounting policies and activity related to the PCI loan portfolio,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 42 | Allowance for Credit Losses | | | | | | | |
| | | | | | | | |
| | | | |
| (Dollars in millions) | | | | | 2022 | | 2021 |
| | | | | | | |
| | | | | | | |
| Allowance for loan and lease losses, January 1 | | | | | $ | 12,387 | | | $ | 18,802 | |
| Loans and leases charged off | | | | | | | |
| Residential mortgage | | | | | (161) | | | (34) | |
| Home equity | | | | | (45) | | | (44) | |
| Credit card | | | | | (1,985) | | | (2,411) | |
| Direct/Indirect consumer | | | | | (232) | | | (297) | |
| Other consumer | | | | | (538) | | | (292) | |
| Total consumer charge-offs | | | | | (2,961) | | | (3,078) | |
U.S. commercial (1) | | | | | (354) | | | (626) | |
| Non-U.S. commercial | | | | | (41) | | | (47) | |
| Commercial real estate | | | | | (75) | | | (46) | |
| Commercial lease financing | | | | | (8) | | | — | |
| Total commercial charge-offs | | | | | (478) | | | (719) | |
| Total loans and leases charged off | | | | | (3,439) | | | (3,797) | |
| Recoveries of loans and leases previously charged off | | | | | | | |
| Residential mortgage | | | | | 89 | | | 62 | |
| Home equity | | | | | 135 | | | 163 | |
| Credit card | | | | | 651 | | | 688 | |
| Direct/Indirect consumer | | | | | 214 | | | 296 | |
| Other consumer | | | | | 17 | | | 22 | |
| Total consumer recoveries | | | | | 1,106 | | | 1,231 | |
U.S. commercial (2) | | | | | 129 | | | 298 | |
| Non-U.S. commercial | | | | | 20 | | | 12 | |
| Commercial real estate | | | | | 9 | | | 12 | |
| Commercial lease financing | | | | | 3 | | | 1 | |
| Total commercial recoveries | | | | | 161 | | | 323 | |
| Total recoveries of loans and leases previously charged off | | | | | 1,267 | | | 1,554 | |
| Net charge-offs | | | | | (2,172) | | | (2,243) | |
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| Provision for loan and lease losses | | | | | 2,460 | | | (4,173) | |
| Other | | | | | 7 | | | 1 | |
| Allowance for loan and lease losses, December 31 | | | | | 12,682 | | | 12,387 | |
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| Reserve for unfunded lending commitments, January 1 | | | | | 1,456 | | | 1,878 | |
| Provision for unfunded lending commitments | | | | | 83 | | | (421) | |
| Other | | | | | 1 | | | (1) | |
| Reserve for unfunded lending commitments, December 31 | | | | | 1,540 | | | 1,456 | |
| Allowance for credit losses, December 31 | | | | | $ | 14,222 | | | $ | 13,843 | |
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Loan and allowance ratios (3) : | | | | | | | |
| Loans and leases outstanding at December 31 | | | | | $ | 1,039,976 | | | $ | 971,305 | |
| Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 | | | | | 1.22 | % | | 1.28 | % |
| Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 | | | | | 1.59 | | | 1.62 | |
| Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 | | | | | 0.93 | | | 1.00 | |
| Average loans and leases outstanding | | | | | $ | 1,010,799 | | | $ | 913,354 | |
| Net charge-offs as a percentage of average loans and leases outstanding | | | | | 0.21 | % | | 0.25 | % |
| | | | | | | |
| Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 | | | | | 333 | | | 271 | |
| Ratio of the allowance for loan and lease losses at December 31 to net charge-offs | | | | | 5.84 | | | 5.52 | |
| | | | | | | |
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (4) | | | | | $ | 6,998 | | | $ | 7,027 | |
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 (4) | | | | | 149 | % | | 117 | % |
(1)Includes U.S. small business commercial charge-offs of $203 million in 2022 compared to $425 million in 2021.
(2)Includes U.S. small business commercial recoveries of $49 million in 2022 compared to $74 million in 2021.
(3)Ratios are calculated as allowance for loan and lease losses as a percentage of total loans and leases outstanding was 1.10 percent and 1.24 percent at December 31, 2017 and 2016.
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 commitmentsloans accounted for under the fair value option. Unfunded
(4)Primarily includes amounts related to credit card and unsecured consumer lending commitments are subject to the same assessment as funded loans, including estimates of probability of default and LGD. Due to the nature of unfunded commitments, the estimate of probable losses must also consider utilization. To estimate the portion of these undrawn commitments that is likely to be drawn by a borrower at the time of estimated default, analyses of our historical experience are applied to the unfunded commitments to estimate the funded exposure at default (EAD). The expected loss for unfunded lending commitments is the product of the probability of default, the LGD and the EAD, adjusted for any qualitative factors including economic uncertainty and inherent imprecisionportfolios in models.
The reserve for unfunded lending commitments was $777 million at December 31, 2017 compared to $762 million at December 31, 2016.
Table 47 presents a rollforward of the allowance for credit losses, which includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, for 2017 and 2016.
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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 |
|
| |
(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 and $253 million in 2017 and 2016.
|
| |
(3)
| Includes U.S. small business commercial recoveries of $43 million and $45 million in 2017 and 2016.
|
| |
(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. |
Consumer Banking.
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| Table 47 | Allowance for Credit Losses (continued) | | | |
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| (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.
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| 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 81.79.
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 ManagementGRM 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 frameworkRisk 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, 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 83.80.
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 45.49.
Global Risk ManagementGRM 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 4943 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 4943 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 4943 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 4943 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 4943 presents year-end, average, high and low daily trading VaR for 20172022 and 20162021 using a 99 percent confidence
level. The amounts disclosed in Table 43 and Table 44 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 2022 compared to 2021 driven by heightened market volatility and reduced diversification across asset classes.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 43 | Market Risk VaR for Trading Activities | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| 2022 | | | | 2021 | | |
| (Dollars in millions) | Year
End | | Average | | High (1) | | Low (1) | | | | | | | | | | Year
End | | Average | | High (1) | | Low (1) | | | | |
| Foreign exchange | $ | 38 | | | $ | 21 | | | $ | 39 | | | $ | 12 | | | | | | | | | | | $ | 11 | | | $ | 12 | | | $ | 21 | | | $ | 5 | | | | | |
| Interest rate | 36 | | | 36 | | | 56 | | | 24 | | | | | | | | | | | 54 | | | 40 | | | 80 | | | 16 | | | | | |
| Credit | 76 | | | 71 | | | 106 | | | 52 | | | | | | | | | | | 73 | | | 69 | | | 84 | | | 53 | | | | | |
| Equity | 18 | | | 20 | | | 33 | | | 12 | | | | | | | | | | | 21 | | | 24 | | | 35 | | | 19 | | | | | |
| Commodities | 8 | | | 13 | | | 27 | | | 7 | | | | | | | | | | | 6 | | | 8 | | | 28 | | | 4 | | | | | |
| Portfolio diversification | (81) | | | (91) | | | n/a | | n/a | | | | | | | | | | (114) | | | (100) | | | n/a | | n/a | | | | |
| Total covered positions portfolio | 95 | | | 70 | | | 140 | | | 42 | | | | | | | | | | | 51 | | | 53 | | | 85 | | | 34 | | | | | |
Impact from less liquid exposures (2) | 35 | | | 38 | | | n/a | | n/a | | | | | | | | | | 8 | | | 20 | | | n/a | | n/a | | | | |
| Total covered positions and less liquid trading positions portfolio | 130 | | | 108 | | | 236 | | | 61 | | | | | | | | | | | 59 | | | 73 | | | 125 | | | 46 | | | | | |
| Fair value option loans | 48 | | | 51 | | | 65 | | | 37 | | | | | | | | | | | 51 | | | 50 | | | 65 | | | 31 | | | | | |
| Fair value option hedges | 16 | | | 17 | | | 24 | | | 13 | | | | | | | | | | | 15 | | | 16 | | | 20 | | | 11 | | | | | |
| Fair value option portfolio diversification | (38) | | | (36) | | | n/a | | n/a | | | | | | | | | | (27) | | | (32) | | | n/a | | n/a | | | | |
| Total fair value option portfolio | 26 | | | 32 | | | 44 | | | 23 | | | | | | | | | | | 39 | | | 34 | | | 53 | | | 23 | | | | | |
| Portfolio diversification | 9 | | | (11) | | | n/a | | n/a | | | | | | | | | | (24) | | | (10) | | | n/a | | n/a | | | | |
| Total market-based portfolio | $ | 165 | | | $ | 129 | | | 287 | | | 70 | | | | | | | | | | | $ | 74 | | | $ | 97 | | | 169 | | | 54 | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| 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.
(2)Impact is net of diversification effects between the covered positions and less liquid trading positions portfolios.
n/a = not applicable
The following graph below presents the daily total market-basedcovered positions and less liquid trading positions portfolio VaR for 2017,2022, corresponding to the data in Table 49.43.
Additional VaR statistics produced within our single VaR model are provided in Table 5044 at the same level of detail as in Table 49.43. 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 5044 presents average trading VaR statistics at 99 percent and 95 percent confidence levels for 20172022 and 2016.2021.
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| 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 44 | Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics |
| | | | | | | | | | | | | |
| | | |
| | | |
| | | 2022 | | | | 2021 |
| (Dollars in millions) | | 99 percent | | 95 percent | | | | | | 99 percent | | 95 percent |
| Foreign exchange | | $ | 21 | | | $ | 12 | | | | | | | $ | 12 | | | $ | 8 | |
| Interest rate | | 36 | | | 17 | | | | | | | 40 | | | 20 | |
| Credit | | 71 | | | 28 | | | | | | | 69 | | | 21 | |
| Equity | | 20 | | | 11 | | | | | | | 24 | | | 12 | |
| Commodities | | 13 | | | 7 | | | | | | | 8 | | | 4 | |
| Portfolio diversification | | (91) | | | (46) | | | | | | | (100) | | | (39) | |
| Total covered positions portfolio | | 70 | | | 29 | | | | | | | 53 | | | 26 | |
| Impact from less liquid exposures | | 38 | | | 7 | | | | | | | 20 | | | 2 | |
| Total covered positions and less liquid trading positions portfolio | | 108 | | | 36 | | | | | | | 73 | | | 28 | |
| Fair value option loans | | 51 | | | 14 | | | | | | | 50 | | | 12 | |
| Fair value option hedges | | 17 | | | 10 | | | | | | | 16 | | | 9 | |
| Fair value option portfolio diversification | | (36) | | | (13) | | | | | | | (32) | | | (9) | |
| Total fair value option portfolio | | 32 | | | 11 | | | | | | | 34 | | | 12 | |
| Portfolio diversification | | (11) | | | (7) | | | | | | | (10) | | | (7) | |
| Total market-based portfolio | | $ | 129 | | | $ | 40 | | | | | | | $ | 97 | | | $ | 33 | |
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 whetherhelp confirm 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, there were no days in which2022, there was a backtesting excess forone day where 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 20172022 and 2016.2021. During 2017, positive trading-related revenue was recorded for 100 percent of the trading days, of which 77 percent were daily trading gains of over $25 million. This compares to 2016 where2022, positive trading-related revenue was recorded for 99 percent of the trading days, of which 8490 percent were daily trading gains of over $25 million, and the largest loss was $24$9 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 the future direction of interest rate movements as implied by the market-based forward curve. curves.
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 banking book 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 5145 presents the spot and 12-month forward rates used in developing the forward curve used in our baseline forecasts at December 31, 20172022 and 2016.2021.
| | | | | | | | | | |
| Table 51 | Forward Rates | |
| Table 45 | | Table 45 | Forward Rates |
| | | | | | | | |
| | | December 31, 2017 | | December 31, 2022 |
| | | 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 | 4.50 | % | | 4.77 | % | | 3.84 | % |
| 12-month forward rates | 12-month forward rates | 2.00 |
| | 2.14 |
| | 2.48 |
| 12-month forward rates | 4.75 | | | 4.78 | | | 3.62 | |
| | | | | | | | |
| | | December 31, 2016 | | December 31, 2021 |
| Spot rates | Spot rates | 0.75 | % | | 1.00 | % | | 2.34 | % | Spot rates | 0.25 | % | | 0.21 | % | | 1.58 | % |
| 12-month forward rates | 12-month forward rates | 1.25 |
| | 1.51 |
| | 2.49 |
| 12-month forward rates | 1.00 | | | 1.07 | | | 1.84 | |
Table 5246 shows the pre-tax dollarpretax impact to forecasted net interest income over the next 12 months from December 31, 20172022 and 2016,2021 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 interest rates are floored at zero. Depending on the level of interest rates, Down-rate scenarios may not receive the full impact of the rate shock, particularly in low rate environments.
During 2017, theThe overall decrease in asset sensitivity, of our balance sheetas shown in the following table, to rising ratesUp-rate scenarios was largely unchanged.primarily due to an increase in long-end and short-end rates. 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 negatively impact the fair value of debt securities and, accordingly, forour debt securities classified as available for sale (AFS), mayand 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 iswould be reduced over time by offsetting positive impacts to net interest income.income generated from the banking book activities. For more information on Basel 3, see Capital Management – Regulatory Capital on page 45.50.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table 46 | Estimated Banking Book Net Interest Income Sensitivity to Curve Changes |
| | | | | | | | |
| | Short
Rate (bps) | | Long
Rate (bps) | | | | |
| | | December 31 |
| (Dollars in millions) | | | 2022 | | 2021 |
| | | | | | | |
| Parallel Shifts | | | | | | | |
+100 bps instantaneous shift | +100 | | +100 | | $ | 3,829 | | | $ | 6,542 | |
| | | | | | | |
-100 bps
instantaneous shift | -100 | | -100 | | (4,591) | | | n/m |
| Flatteners | | | | | | | |
Short-end instantaneous change | +100 | | — | | | 3,698 | | | 4,982 | |
| | | | | | | |
Long-end instantaneous change | — | | | -100 | | (157) | | | n/m |
| Steepeners | | | | | | | |
| | | | | | | |
Short-end instantaneous change | -100 | | | — | | | (4,420) | | | n/m |
Long-end instantaneous change | — | | | +100 | | 131 | | | 1,646 | |
n/m = not meaningful
|
| | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 52 | Estimated Banking Book Net Interest Income Sensitivity |
| | | | | | | | | |
| (Dollars in millions) | Short Rate (bps) | | Long Rate (bps) | | December 31 |
| Curve Change | | | 2017 | | 2016 |
| Parallel Shifts | | | | | | | |
+100 bps instantaneous shift | +100 | | +100 | | $ | 3,317 |
| | $ | 3,370 |
|
-50 bps instantaneous shift | -50 |
| | -50 |
| | (2,273 | ) | | (2,900 | ) |
| Flatteners | |
| | |
| | | | |
|
Short-end instantaneous change | +100 | | — |
| | 2,182 |
| | 2,473 |
|
Long-end instantaneous change | — |
| | -50 |
| | (1,246 | ) | | (961 | ) |
| Steepeners | |
| | |
| | | | |
Short-end instantaneous change | -50 |
| | — |
| | (1,021 | ) | | (1,918 | ) |
Long-end instantaneous change | — |
| | +100 | | 1,135 |
| | 928 |
|
The sensitivity analysis in Table 5246 assumes that we take no action in response to these rate shocks and does not assume any change in other macroeconomic variables normally correlated with changes in interest rates. As part of our ALM activities, we use securities, certain residential mortgages, and interest rate and foreign exchange derivatives in managing interest rate sensitivity.
The behavior of our deposit portfolio in the baseline forecast and in alternate interest rate scenarios is a key assumption in our projected estimates of net interest income. The sensitivity analysis in Table 5246 assumes no change in deposit portfolio size or mix from the baseline forecast in alternate rate environments. In higher rate scenarios, any customer activity resulting in the replacement of low-cost or noninterest-bearing deposits with higher-yieldinghigher yielding deposits or market-based funding would reduce our benefit in those scenarios.
Interest Rate and Foreign Exchange Derivative Contracts
InterestWe use 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. Werisks. Specifically, we use those derivatives to hedgemanage both the variability in cash flows orand changes in fair value on our balance sheet due toof various assets and liabilities arising from those risks. Our interest rate and foreign exchange components. For more information on our hedging activities, see Note 2 – Derivativesto the Consolidated Financial Statements.
Our interest ratederivative contracts are generally non-leveraged genericswaps tied to various benchmark interest raterates and foreign exchange basis swaps, options, futures and forwards. In addition, we useforwards, and our foreign exchange contracts includinginclude cross-currency interest rate swaps, foreign currency futures contracts, foreign currency forward contracts and optionsoptions.
The derivatives used in our ALM activities can be split into two broad categories: designated accounting hedges and other risk management derivatives. Designated accounting hedges are primarily used to mitigatemanage our exposure to interest rates as described in the Interest Rate Risk Management for the Banking Book section and are included in the sensitivities presented in Table 46. The Corporation also uses foreign currency derivatives in accounting hedges to manage substantially all of the foreign exchange risk associated withof our foreign operations. By hedging the foreign exchange risk of our foreign operations, the Corporation's market risk exposure in this area is not significant.
Risk management derivatives are predominantly used to hedge foreign exchange risks related to various foreign currency-denominated assets and liabilities.
Changes to the composition of our derivatives portfolio during 2017 reflect actions taken for interest rateliabilities 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 andeliminate substantially all 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 variabilityexposures in the cash flows of our assetsthe Corporation’s non-trading foreign currency-denominated financial instruments. These foreign exchange derivatives are sensitive to other market risk exposures such as cross-currency basis spreads and liabilities and other forecasted transactions (collectively referredinterest rate risk. However, as these features are not a significant component of these foreign exchange derivatives, the market risk related to as cash flow hedges). The net losses on both open and terminated cash flow hedge derivative instruments recorded in accumulated OCI were $1.3 billion and $1.4 billion, on a pre-tax basis, at December 31, 2017 and 2016. These net losses are expected to be reclassified into earnings in the same period as the hedged cash flows affect earnings and will decrease income or increase expense on the respective hedged cash flows. Assuming no change in open cash flow derivative hedge positions and no changes in prices or interest rates beyond whatthis exposure is implied in forward yield curves at December 31, 2017, the pre-tax net losses are expected to be reclassified into earnings as follows: $208 million, or 16 percent, within the next year, 56 percent in years two through five, and 18 percent in years six through 10, with the remaining 10 percent thereafter.not significant. For more information on the accounting for 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.
Mortgage Banking Risk ManagementAllowance for Credit Losses
We originate, fund and service mortgage loans,The allowance for credit losses increased $379 million from December 31, 2021 to $14.2 billion at December 31, 2022, 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 securitizingincluded a portion of the loans we originate.
Interest rate risk and market risk can be substantial in the mortgage business. Changes in interest rates and other market factors impact the volume of mortgage originations. Changes in interest rates also impact the value of IRLCs and the related residential first mortgage LHFS between the date of the IRLC and the date the loans are sold to the secondary market. An$202 million reserve increase in mortgage interest rates typically leads to a decrease in the value of these instruments. Conversely, the value of the MSRs will increase driven by lower prepayment expectations when there is an increase in interest rates. Because the interest rate risks of these two hedged items offset, we combine them into one overall hedged item with one combined economic hedge portfolio consisting of derivative contracts and securities.
During 2017 and 2016, we recorded gains in mortgage banking income of $118 million and $366 million related to the changeconsumer portfolio and a $177 million reserve increase related to the commercial portfolio. The increase in the allowance was
primarily driven by loan growth and a dampened macroeconomic outlook, partially offset by a reserve release for reduced pandemic uncertainties.
Table 41 presents an allocation of the allowance for credit losses by product type at December 31, 2022and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Table 41 | 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, 2022 | | | | December 31, 2021 |
| Allowance for loan and lease losses | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 328 | | | 2.59 | % | | 0.14 | % | | | | | | | | $ | 351 | | | 2.83 | % | | 0.16 | % |
| Home equity | 92 | | | 0.73 | | | 0.35 | | | | | | | | | 206 | | | 1.66 | | | 0.74 | |
| Credit card | 6,136 | | | 48.38 | | | 6.57 | | | | | | | | | 5,907 | | | 47.70 | | | 7.25 | |
| | | | | | | | | | | | | | | | | |
| Direct/Indirect consumer | 585 | | | 4.61 | | | 0.55 | | | | | | | | | 523 | | | 4.22 | | | 0.51 | |
| Other consumer | 96 | | | 0.76 | | | n/m | | | | | | | | 46 | | | 0.37 | | | n/m |
| Total consumer | 7,237 | | | 57.07 | | | 1.59 | | | | | | | | | 7,033 | | | 56.78 | | | 1.62 | |
U.S. commercial (2) | 3,007 | | | 23.71 | | | 0.80 | | | | | | | | | 3,019 | | | 24.37 | | | 0.87 | |
| Non-U.S. commercial | 1,194 | | | 9.41 | | | 0.96 | | | | | | | | | 975 | | | 7.87 | | | 0.86 | |
| Commercial real estate | 1,192 | | | 9.40 | | | 1.71 | | | | | | | | | 1,292 | | | 10.43 | | | 2.05 | |
| Commercial lease financing | 52 | | | 0.41 | | | 0.38 | | | | | | | | | 68 | | | 0.55 | | | 0.46 | |
| Total commercial | 5,445 | | | 42.93 | | | 0.93 | | | | | | | | | 5,354 | | | 43.22 | | | 1.00 | |
| Allowance for loan and lease losses | 12,682 | | | 100.00 | % | | 1.22 | | | | | | | | | 12,387 | | | 100.00 | % | | 1.28 | |
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| Reserve for unfunded lending commitments | 1,540 | | | | | | | | | | | | | 1,456 | | | | | |
| Allowance for credit losses | $ | 14,222 | | | | | | | | | | | | | $ | 13,843 | | | | | |
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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.
(2)Includes allowance for loan and lease losses for U.S. small business commercial loans of $844 million and $1.2 billion at December 31, 2022 and 2021.
n/m = not meaningful
Net charge-offs for both 2022 and 2021 were $2.2 billion as credit card losses, which remained near historic lows, were partially offset by higher overdrafts charged off in other consumer due to payment activity related to checking accounts. The provision for credit losses increased $7.1 billion to an expense of $2.5 billion during 2022 compared to 2021. The provision for credit losses in 2022 was primarily driven by loan growth and a dampened macroeconomic outlook, partially offset by a reserve release for reduced pandemic uncertainties. The provision for credit losses for the consumer portfolio, including unfunded lending commitments, increased $3.2 billion to an expense of $2.0 billion during 2022 compared to 2021. The
provision for credit losses for the commercial portfolio, including unfunded lending commitments, increased $3.9 billion to an expense of $495 million for 2022 compared to 2021.
Table 42 presents a rollforward of the MSRs, IRLCsallowance for credit losses, including certain loan and LHFS, net of gainsallowance ratios for 2022 and losses on the hedge portfolio.2021. 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 42 | Allowance for Credit Losses | | | | | | | |
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| (Dollars in millions) | | | | | 2022 | | 2021 |
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| Allowance for loan and lease losses, January 1 | | | | | $ | 12,387 | | | $ | 18,802 | |
| Loans and leases charged off | | | | | | | |
| Residential mortgage | | | | | (161) | | | (34) | |
| Home equity | | | | | (45) | | | (44) | |
| Credit card | | | | | (1,985) | | | (2,411) | |
| Direct/Indirect consumer | | | | | (232) | | | (297) | |
| Other consumer | | | | | (538) | | | (292) | |
| Total consumer charge-offs | | | | | (2,961) | | | (3,078) | |
U.S. commercial (1) | | | | | (354) | | | (626) | |
| Non-U.S. commercial | | | | | (41) | | | (47) | |
| Commercial real estate | | | | | (75) | | | (46) | |
| Commercial lease financing | | | | | (8) | | | — | |
| Total commercial charge-offs | | | | | (478) | | | (719) | |
| Total loans and leases charged off | | | | | (3,439) | | | (3,797) | |
| Recoveries of loans and leases previously charged off | | | | | | | |
| Residential mortgage | | | | | 89 | | | 62 | |
| Home equity | | | | | 135 | | | 163 | |
| Credit card | | | | | 651 | | | 688 | |
| Direct/Indirect consumer | | | | | 214 | | | 296 | |
| Other consumer | | | | | 17 | | | 22 | |
| Total consumer recoveries | | | | | 1,106 | | | 1,231 | |
U.S. commercial (2) | | | | | 129 | | | 298 | |
| Non-U.S. commercial | | | | | 20 | | | 12 | |
| Commercial real estate | | | | | 9 | | | 12 | |
| Commercial lease financing | | | | | 3 | | | 1 | |
| Total commercial recoveries | | | | | 161 | | | 323 | |
| Total recoveries of loans and leases previously charged off | | | | | 1,267 | | | 1,554 | |
| Net charge-offs | | | | | (2,172) | | | (2,243) | |
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| Provision for loan and lease losses | | | | | 2,460 | | | (4,173) | |
| Other | | | | | 7 | | | 1 | |
| Allowance for loan and lease losses, December 31 | | | | | 12,682 | | | 12,387 | |
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| Reserve for unfunded lending commitments, January 1 | | | | | 1,456 | | | 1,878 | |
| Provision for unfunded lending commitments | | | | | 83 | | | (421) | |
| Other | | | | | 1 | | | (1) | |
| Reserve for unfunded lending commitments, December 31 | | | | | 1,540 | | | 1,456 | |
| Allowance for credit losses, December 31 | | | | | $ | 14,222 | | | $ | 13,843 | |
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Loan and allowance ratios (3) : | | | | | | | |
| Loans and leases outstanding at December 31 | | | | | $ | 1,039,976 | | | $ | 971,305 | |
| Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 | | | | | 1.22 | % | | 1.28 | % |
| Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 | | | | | 1.59 | | | 1.62 | |
| Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 | | | | | 0.93 | | | 1.00 | |
| Average loans and leases outstanding | | | | | $ | 1,010,799 | | | $ | 913,354 | |
| Net charge-offs as a percentage of average loans and leases outstanding | | | | | 0.21 | % | | 0.25 | % |
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| Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 | | | | | 333 | | | 271 | |
| Ratio of the allowance for loan and lease losses at December 31 to net charge-offs | | | | | 5.84 | | | 5.52 | |
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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 (4) | | | | | $ | 6,998 | | | $ | 7,027 | |
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 (4) | | | | | 149 | % | | 117 | % |
(1)Includes U.S. small business commercial charge-offs of $203 million in 2022 compared to $425 million in 2021.
(2)Includes U.S. small business commercial recoveries of $49 million in 2022 compared to $74 million in 2021.
(3)Ratios are essentialcalculated as allowance for loan and lease losses as a percentage of loans and leases outstanding excluding loans accounted for under the fair value option.
(4)Primarily includes amounts related to credit card and unsecured consumer lending portfolios in understandingConsumer Banking.
Market Risk Management
Market risk is the MD&A. Manyrisk 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 79.
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 have procedures and processesseek 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 place to facilitate making these judgments.
The more judgmental estimates are summarizeddetail in the following discussion. We have identifiedTrading Risk Management section.
GRM is responsible for providing senior management with a clear and described the developmentcomprehensive understanding of the variables most importanttrading 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, a subcommittee of the MRC, oversees that model standards are consistent with model risk requirements and monitors the effective challenge in the estimation processesmodel 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 80.
Equity Market Risk
Equity market risk represents exposures to securities that involve mathematical modelsrepresent 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 derivethis exposure include, but are not limited to, the estimates. In manyfollowing: 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 alternative judgmentsassumptions that couldwill 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 49.
GRM 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 43 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 43 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 43 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 43 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 43 presents year-end, average, high and low daily trading VaR for 2022 and 2021 using a 99 percent confidence
level. The amounts disclosed in Table 43 and Table 44 align to the view of covered 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 2022 compared to 2021 driven by heightened market volatility and reduced diversification across asset classes.
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| Table 43 | Market Risk VaR for Trading Activities | | | | | | | | | | | | | | | | |
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| 2022 | | | | 2021 | | |
| (Dollars in millions) | Year
End | | Average | | High (1) | | Low (1) | | | | | | | | | | Year
End | | Average | | High (1) | | Low (1) | | | | |
| Foreign exchange | $ | 38 | | | $ | 21 | | | $ | 39 | | | $ | 12 | | | | | | | | | | | $ | 11 | | | $ | 12 | | | $ | 21 | | | $ | 5 | | | | | |
| Interest rate | 36 | | | 36 | | | 56 | | | 24 | | | | | | | | | | | 54 | | | 40 | | | 80 | | | 16 | | | | | |
| Credit | 76 | | | 71 | | | 106 | | | 52 | | | | | | | | | | | 73 | | | 69 | | | 84 | | | 53 | | | | | |
| Equity | 18 | | | 20 | | | 33 | | | 12 | | | | | | | | | | | 21 | | | 24 | | | 35 | | | 19 | | | | | |
| Commodities | 8 | | | 13 | | | 27 | | | 7 | | | | | | | | | | | 6 | | | 8 | | | 28 | | | 4 | | | | | |
| Portfolio diversification | (81) | | | (91) | | | n/a | | n/a | | | | | | | | | | (114) | | | (100) | | | n/a | | n/a | | | | |
| Total covered positions portfolio | 95 | | | 70 | | | 140 | | | 42 | | | | | | | | | | | 51 | | | 53 | | | 85 | | | 34 | | | | | |
Impact from less liquid exposures (2) | 35 | | | 38 | | | n/a | | n/a | | | | | | | | | | 8 | | | 20 | | | n/a | | n/a | | | | |
| Total covered positions and less liquid trading positions portfolio | 130 | | | 108 | | | 236 | | | 61 | | | | | | | | | | | 59 | | | 73 | | | 125 | | | 46 | | | | | |
| Fair value option loans | 48 | | | 51 | | | 65 | | | 37 | | | | | | | | | | | 51 | | | 50 | | | 65 | | | 31 | | | | | |
| Fair value option hedges | 16 | | | 17 | | | 24 | | | 13 | | | | | | | | | | | 15 | | | 16 | | | 20 | | | 11 | | | | | |
| Fair value option portfolio diversification | (38) | | | (36) | | | n/a | | n/a | | | | | | | | | | (27) | | | (32) | | | n/a | | n/a | | | | |
| Total fair value option portfolio | 26 | | | 32 | | | 44 | | | 23 | | | | | | | | | | | 39 | | | 34 | | | 53 | | | 23 | | | | | |
| Portfolio diversification | 9 | | | (11) | | | n/a | | n/a | | | | | | | | | | (24) | | | (10) | | | n/a | | n/a | | | | |
| Total market-based portfolio | $ | 165 | | | $ | 129 | | | 287 | | | 70 | | | | | | | | | | | $ | 74 | | | $ | 97 | | | 169 | | | 54 | | | | | |
(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.
(2)Impact is net of diversification effects between the covered positions and less liquid trading positions portfolios.
n/a = not applicable
The following graph presents the daily covered positions and less liquid trading positions portfolio VaR for 2022, corresponding to the models. Where alternatives exist,data in Table 43.
Additional VaR statistics produced within our single VaR model are provided in Table 44 at the same level of detail as in Table 43. 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 44 presents average trading VaR statistics at 99 percent and 95 percent confidence levels for 2022 and 2021.
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| Table 44 | Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics |
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| | | 2022 | | | | 2021 |
| (Dollars in millions) | | 99 percent | | 95 percent | | | | | | 99 percent | | 95 percent |
| Foreign exchange | | $ | 21 | | | $ | 12 | | | | | | | $ | 12 | | | $ | 8 | |
| Interest rate | | 36 | | | 17 | | | | | | | 40 | | | 20 | |
| Credit | | 71 | | | 28 | | | | | | | 69 | | | 21 | |
| Equity | | 20 | | | 11 | | | | | | | 24 | | | 12 | |
| Commodities | | 13 | | | 7 | | | | | | | 8 | | | 4 | |
| Portfolio diversification | | (91) | | | (46) | | | | | | | (100) | | | (39) | |
| Total covered positions portfolio | | 70 | | | 29 | | | | | | | 53 | | | 26 | |
| Impact from less liquid exposures | | 38 | | | 7 | | | | | | | 20 | | | 2 | |
| Total covered positions and less liquid trading positions portfolio | | 108 | | | 36 | | | | | | | 73 | | | 28 | |
| Fair value option loans | | 51 | | | 14 | | | | | | | 50 | | | 12 | |
| Fair value option hedges | | 17 | | | 10 | | | | | | | 16 | | | 9 | |
| Fair value option portfolio diversification | | (36) | | | (13) | | | | | | | (32) | | | (9) | |
| Total fair value option portfolio | | 32 | | | 11 | | | | | | | 34 | | | 12 | |
| Portfolio diversification | | (11) | | | (7) | | | | | | | (10) | | | (7) | |
| Total market-based portfolio | | $ | 129 | | | $ | 40 | | | | | | | $ | 97 | | | $ | 33 | |
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 help confirm 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 2022, there was one day 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 2022 and 2021. During 2022, positive trading-related revenue was recorded for 99 percent of the trading days, of which 90 percent were daily trading gains of over $25 million, and the largest loss was $9 million. This compares to 2021 where positive trading-related revenue was recorded for 97 percent of the trading days, of which 80 percent were daily trading gains of over $25 million, and the largest loss was $45 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 46.
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 future direction of interest rate movements as implied by market-based forward curves.
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 banking book 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 45 presents the spot and 12-month forward rates used in developing the forward curve used in our baseline forecasts at December 31, 2022 and 2021.
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| Table 45 | Forward Rates |
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| | December 31, 2022 |
| | Federal
Funds | | Three-month
LIBOR | | 10-Year
Swap |
| Spot rates | 4.50 | % | | 4.77 | % | | 3.84 | % |
| 12-month forward rates | 4.75 | | | 4.78 | | | 3.62 | |
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| | December 31, 2021 |
| Spot rates | 0.25 | % | | 0.21 | % | | 1.58 | % |
| 12-month forward rates | 1.00 | | | 1.07 | | | 1.84 | |
Table 46 shows the pretax impact to forecasted net interest income over the next 12 months from December 31, 2022 and 2021 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 interest rates are floored at zero. Depending on the level of interest rates, Down-rate scenarios may not receive the full impact of the rate shock, particularly in low rate environments.
The overall decrease in asset sensitivity, as shown in the following table, to Up-rate scenarios was primarily due to an increase in long-end and short-end rates. 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 negatively impact the fair value of our debt securities classified as available for sale and 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 would be reduced over time by offsetting positive impacts to net interest income generated from the banking book activities. For more information on Basel 3, see Capital Management – Regulatory Capital on page 50.
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| Table 46 | 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) | | | 2022 | | 2021 |
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| Parallel Shifts | | | | | | | |
+100 bps instantaneous shift | +100 | | +100 | | $ | 3,829 | | | $ | 6,542 | |
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-100 bps
instantaneous shift | -100 | | -100 | | (4,591) | | | n/m |
| Flatteners | | | | | | | |
Short-end instantaneous change | +100 | | — | | | 3,698 | | | 4,982 | |
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Long-end instantaneous change | — | | | -100 | | (157) | | | n/m |
| Steepeners | | | | | | | |
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Short-end instantaneous change | -100 | | | — | | | (4,420) | | | n/m |
Long-end instantaneous change | — | | | +100 | | 131 | | | 1,646 | |
n/m = not meaningful
The sensitivity analysis in Table 46 assumes that we take no action in response to these rate shocks and does not assume any change in other macroeconomic variables normally correlated with changes in interest rates. As part of our ALM activities, we use securities, certain residential mortgages, and interest rate and foreign exchange derivatives in managing interest rate sensitivity.
The behavior of our deposit portfolio in the baseline forecast and in alternate interest rate scenarios is a key assumption in our projected estimates of net interest income. The sensitivity analysis in Table 46 assumes no change in deposit portfolio size or mix from the baseline forecast in alternate rate environments. In higher rate scenarios, any customer activity resulting in the replacement of low-cost or noninterest-bearing deposits with higher yielding deposits or market-based funding would reduce our benefit in those scenarios.
Interest Rate and Foreign Exchange Derivative Contracts
We use interest rate and foreign exchange derivative contracts in our ALM activities to manage our interest rate and foreign exchange risks. Specifically, we use those derivatives to manage both the variability in cash flows and changes in fair value of various assets and liabilities may change subsequentarising from those risks. Our interest rate derivative contracts are generally non-leveraged swaps tied to various benchmark interest rates and foreign exchange basis swaps, options, futures and forwards, and our foreign exchange contracts include cross-currency interest rate swaps, foreign currency futures contracts, foreign currency forward contracts and options.
The derivatives used in our ALM activities can be split into two broad categories: designated accounting hedges and other risk management derivatives. Designated accounting hedges are primarily used to manage our exposure to interest rates as described in the Interest Rate Risk Management for the Banking Book section and are included in the sensitivities presented in Table 46. The Corporation also uses foreign currency derivatives in accounting hedges to manage substantially all of the foreign exchange risk of our foreign operations. By hedging the foreign exchange risk of our foreign operations, the Corporation's market risk exposure in this area is not significant.
Risk management derivatives are predominantly used to hedge foreign exchange risks related to various foreign currency-denominated assets and liabilities and eliminate substantially all foreign currency exposures in the cash flows of the Corporation’s non-trading foreign currency-denominated financial instruments. These foreign exchange derivatives are sensitive to other market risk exposures such as cross-currency basis spreads and interest rate risk. However, as these features are not a significant component of these foreign exchange derivatives, the market risk related to this exposure is not significant. For more information on the accounting for derivatives, see Note 3 – Derivatives 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.
Consolidated Financial Statements.These fluctuations would not be indicative of deficiencies in our models or inputs.
Allowance for Credit Losses
The allowance for credit losses increased $379 million from December 31, 2021 to $14.2 billion at December 31, 2022, which included a $202 million reserve increase related to the consumer portfolio and a $177 million reserve increase related to the commercial portfolio. The increase in the allowance was
primarily driven by loan growth and a dampened macroeconomic outlook, partially offset by a reserve release for reduced pandemic uncertainties.
Table 41 presents an allocation of the allowance for credit losses by product type at December 31, 2022and 2021.
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| Table 41 | 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) |
| (Dollars in millions) | December 31, 2022 | | | | December 31, 2021 |
| Allowance for loan and lease losses | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 328 | | | 2.59 | % | | 0.14 | % | | | | | | | | $ | 351 | | | 2.83 | % | | 0.16 | % |
| Home equity | 92 | | | 0.73 | | | 0.35 | | | | | | | | | 206 | | | 1.66 | | | 0.74 | |
| Credit card | 6,136 | | | 48.38 | | | 6.57 | | | | | | | | | 5,907 | | | 47.70 | | | 7.25 | |
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| Direct/Indirect consumer | 585 | | | 4.61 | | | 0.55 | | | | | | | | | 523 | | | 4.22 | | | 0.51 | |
| Other consumer | 96 | | | 0.76 | | | n/m | | | | | | | | 46 | | | 0.37 | | | n/m |
| Total consumer | 7,237 | | | 57.07 | | | 1.59 | | | | | | | | | 7,033 | | | 56.78 | | | 1.62 | |
U.S. commercial (2) | 3,007 | | | 23.71 | | | 0.80 | | | | | | | | | 3,019 | | | 24.37 | | | 0.87 | |
| Non-U.S. commercial | 1,194 | | | 9.41 | | | 0.96 | | | | | | | | | 975 | | | 7.87 | | | 0.86 | |
| Commercial real estate | 1,192 | | | 9.40 | | | 1.71 | | | | | | | | | 1,292 | | | 10.43 | | | 2.05 | |
| Commercial lease financing | 52 | | | 0.41 | | | 0.38 | | | | | | | | | 68 | | | 0.55 | | | 0.46 | |
| Total commercial | 5,445 | | | 42.93 | | | 0.93 | | | | | | | | | 5,354 | | | 43.22 | | | 1.00 | |
| Allowance for loan and lease losses | 12,682 | | | 100.00 | % | | 1.22 | | | | | | | | | 12,387 | | | 100.00 | % | | 1.28 | |
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| Reserve for unfunded lending commitments | 1,540 | | | | | | | | | | | | | 1,456 | | | | | |
| Allowance for credit losses | $ | 14,222 | | | | | | | | | | | | | $ | 13,843 | | | | | |
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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.
(2)Includes allowance for loan and lease losses for U.S. small business commercial loans of $844 million and $1.2 billion at December 31, 2022 and 2021.
n/m = not meaningful
Net charge-offs for both 2022 and 2021 were $2.2 billion as credit card losses, which remained near historic lows, were partially offset by higher overdrafts charged off in other consumer due to payment activity related to checking accounts. The provision for credit losses increased $7.1 billion to an expense of $2.5 billion during 2022 compared to 2021. The provision for credit losses in 2022 was primarily driven by loan growth and a dampened macroeconomic outlook, partially offset by a reserve release for reduced pandemic uncertainties. The provision for credit losses for the consumer portfolio, including unfunded lending commitments, increased $3.2 billion to an expense of $2.0 billion during 2022 compared to 2021. The
provision for credit losses for the commercial portfolio, including unfunded lending commitments, increased $3.9 billion to an expense of $495 million for 2022 compared to 2021.
Table 42 presents a rollforward of the allowance for credit losses, including certain loan and allowance ratios for 2022 and 2021. 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 42 | Allowance for Credit Losses | | | | | | | |
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| (Dollars in millions) | | | | | 2022 | | 2021 |
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| Allowance for loan and lease losses, January 1 | | | | | $ | 12,387 | | | $ | 18,802 | |
| Loans and leases charged off | | | | | | | |
| Residential mortgage | | | | | (161) | | | (34) | |
| Home equity | | | | | (45) | | | (44) | |
| Credit card | | | | | (1,985) | | | (2,411) | |
| Direct/Indirect consumer | | | | | (232) | | | (297) | |
| Other consumer | | | | | (538) | | | (292) | |
| Total consumer charge-offs | | | | | (2,961) | | | (3,078) | |
U.S. commercial (1) | | | | | (354) | | | (626) | |
| Non-U.S. commercial | | | | | (41) | | | (47) | |
| Commercial real estate | | | | | (75) | | | (46) | |
| Commercial lease financing | | | | | (8) | | | — | |
| Total commercial charge-offs | | | | | (478) | | | (719) | |
| Total loans and leases charged off | | | | | (3,439) | | | (3,797) | |
| Recoveries of loans and leases previously charged off | | | | | | | |
| Residential mortgage | | | | | 89 | | | 62 | |
| Home equity | | | | | 135 | | | 163 | |
| Credit card | | | | | 651 | | | 688 | |
| Direct/Indirect consumer | | | | | 214 | | | 296 | |
| Other consumer | | | | | 17 | | | 22 | |
| Total consumer recoveries | | | | | 1,106 | | | 1,231 | |
U.S. commercial (2) | | | | | 129 | | | 298 | |
| Non-U.S. commercial | | | | | 20 | | | 12 | |
| Commercial real estate | | | | | 9 | | | 12 | |
| Commercial lease financing | | | | | 3 | | | 1 | |
| Total commercial recoveries | | | | | 161 | | | 323 | |
| Total recoveries of loans and leases previously charged off | | | | | 1,267 | | | 1,554 | |
| Net charge-offs | | | | | (2,172) | | | (2,243) | |
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| Provision for loan and lease losses | | | | | 2,460 | | | (4,173) | |
| Other | | | | | 7 | | | 1 | |
| Allowance for loan and lease losses, December 31 | | | | | 12,682 | | | 12,387 | |
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| Reserve for unfunded lending commitments, January 1 | | | | | 1,456 | | | 1,878 | |
| Provision for unfunded lending commitments | | | | | 83 | | | (421) | |
| Other | | | | | 1 | | | (1) | |
| Reserve for unfunded lending commitments, December 31 | | | | | 1,540 | | | 1,456 | |
| Allowance for credit losses, December 31 | | | | | $ | 14,222 | | | $ | 13,843 | |
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Loan and allowance ratios (3) : | | | | | | | |
| Loans and leases outstanding at December 31 | | | | | $ | 1,039,976 | | | $ | 971,305 | |
| Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 | | | | | 1.22 | % | | 1.28 | % |
| Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 | | | | | 1.59 | | | 1.62 | |
| Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 | | | | | 0.93 | | | 1.00 | |
| Average loans and leases outstanding | | | | | $ | 1,010,799 | | | $ | 913,354 | |
| Net charge-offs as a percentage of average loans and leases outstanding | | | | | 0.21 | % | | 0.25 | % |
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| Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 | | | | | 333 | | | 271 | |
| Ratio of the allowance for loan and lease losses at December 31 to net charge-offs | | | | | 5.84 | | | 5.52 | |
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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 (4) | | | | | $ | 6,998 | | | $ | 7,027 | |
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 (4) | | | | | 149 | % | | 117 | % |
(1)Includes U.S. small business commercial charge-offs of $203 million in 2022 compared to $425 million in 2021.
(2)Includes U.S. small business commercial recoveries of $49 million in 2022 compared to $74 million in 2021.
(3)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.
(4)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 79.
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.
GRM 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, 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 80.
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 49.
GRM 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 43 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 43 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 43 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 43 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 43 presents year-end, average, high and low daily trading VaR for 2022 and 2021 using a 99 percent confidence
level. The amounts disclosed in Table 43 and Table 44 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 2022 compared to 2021 driven by heightened market volatility and reduced diversification across asset classes.
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| Table 43 | Market Risk VaR for Trading Activities | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| 2022 | | | | 2021 | | |
| (Dollars in millions) | Year
End | | Average | | High (1) | | Low (1) | | | | | | | | | | Year
End | | Average | | High (1) | | Low (1) | | | | |
| Foreign exchange | $ | 38 | | | $ | 21 | | | $ | 39 | | | $ | 12 | | | | | | | | | | | $ | 11 | | | $ | 12 | | | $ | 21 | | | $ | 5 | | | | | |
| Interest rate | 36 | | | 36 | | | 56 | | | 24 | | | | | | | | | | | 54 | | | 40 | | | 80 | | | 16 | | | | | |
| Credit | 76 | | | 71 | | | 106 | | | 52 | | | | | | | | | | | 73 | | | 69 | | | 84 | | | 53 | | | | | |
| Equity | 18 | | | 20 | | | 33 | | | 12 | | | | | | | | | | | 21 | | | 24 | | | 35 | | | 19 | | | | | |
| Commodities | 8 | | | 13 | | | 27 | | | 7 | | | | | | | | | | | 6 | | | 8 | | | 28 | | | 4 | | | | | |
| Portfolio diversification | (81) | | | (91) | | | n/a | | n/a | | | | | | | | | | (114) | | | (100) | | | n/a | | n/a | | | | |
| Total covered positions portfolio | 95 | | | 70 | | | 140 | | | 42 | | | | | | | | | | | 51 | | | 53 | | | 85 | | | 34 | | | | | |
Impact from less liquid exposures (2) | 35 | | | 38 | | | n/a | | n/a | | | | | | | | | | 8 | | | 20 | | | n/a | | n/a | | | | |
| Total covered positions and less liquid trading positions portfolio | 130 | | | 108 | | | 236 | | | 61 | | | | | | | | | | | 59 | | | 73 | | | 125 | | | 46 | | | | | |
| Fair value option loans | 48 | | | 51 | | | 65 | | | 37 | | | | | | | | | | | 51 | | | 50 | | | 65 | | | 31 | | | | | |
| Fair value option hedges | 16 | | | 17 | | | 24 | | | 13 | | | | | | | | | | | 15 | | | 16 | | | 20 | | | 11 | | | | | |
| Fair value option portfolio diversification | (38) | | | (36) | | | n/a | | n/a | | | | | | | | | | (27) | | | (32) | | | n/a | | n/a | | | | |
| Total fair value option portfolio | 26 | | | 32 | | | 44 | | | 23 | | | | | | | | | | | 39 | | | 34 | | | 53 | | | 23 | | | | | |
| Portfolio diversification | 9 | | | (11) | | | n/a | | n/a | | | | | | | | | | (24) | | | (10) | | | n/a | | n/a | | | | |
| Total market-based portfolio | $ | 165 | | | $ | 129 | | | 287 | | | 70 | | | | | | | | | | | $ | 74 | | | $ | 97 | | | 169 | | | 54 | | | | | |
(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.
(2)Impact is net of diversification effects between the covered positions and less liquid trading positions portfolios.
n/a = not applicable
The following graph presents the daily covered positions and less liquid trading positions portfolio VaR for 2022, corresponding to the data in Table 43.
Additional VaR statistics produced within our single VaR model are provided in Table 44 at the same level of detail as in Table 43. 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 44 presents average trading VaR statistics at 99 percent and 95 percent confidence levels for 2022 and 2021.
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| Table 44 | Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics |
| | | | | | | | | | | | | |
| | | |
| | | |
| | | 2022 | | | | 2021 |
| (Dollars in millions) | | 99 percent | | 95 percent | | | | | | 99 percent | | 95 percent |
| Foreign exchange | | $ | 21 | | | $ | 12 | | | | | | | $ | 12 | | | $ | 8 | |
| Interest rate | | 36 | | | 17 | | | | | | | 40 | | | 20 | |
| Credit | | 71 | | | 28 | | | | | | | 69 | | | 21 | |
| Equity | | 20 | | | 11 | | | | | | | 24 | | | 12 | |
| Commodities | | 13 | | | 7 | | | | | | | 8 | | | 4 | |
| Portfolio diversification | | (91) | | | (46) | | | | | | | (100) | | | (39) | |
| Total covered positions portfolio | | 70 | | | 29 | | | | | | | 53 | | | 26 | |
| Impact from less liquid exposures | | 38 | | | 7 | | | | | | | 20 | | | 2 | |
| Total covered positions and less liquid trading positions portfolio | | 108 | | | 36 | | | | | | | 73 | | | 28 | |
| Fair value option loans | | 51 | | | 14 | | | | | | | 50 | | | 12 | |
| Fair value option hedges | | 17 | | | 10 | | | | | | | 16 | | | 9 | |
| Fair value option portfolio diversification | | (36) | | | (13) | | | | | | | (32) | | | (9) | |
| Total fair value option portfolio | | 32 | | | 11 | | | | | | | 34 | | | 12 | |
| Portfolio diversification | | (11) | | | (7) | | | | | | | (10) | | | (7) | |
| Total market-based portfolio | | $ | 129 | | | $ | 40 | | | | | | | $ | 97 | | | $ | 33 | |
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 help confirm 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 2022, there was one day 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 2022 and 2021. During 2022, positive trading-related revenue was recorded for 99 percent of the trading days, of which 90 percent were daily trading gains of over $25 million, and the largest loss was $9 million. This compares to 2021 where positive trading-related revenue was recorded for 97 percent of the trading days, of which 80 percent were daily trading gains of over $25 million, and the largest loss was $45 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 46.
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 future direction of interest rate movements as implied by market-based forward curves.
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 banking book 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 45 presents the spot and 12-month forward rates used in developing the forward curve used in our baseline forecasts at December 31, 2022 and 2021.
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| Table 45 | Forward Rates |
| | | | | | |
| | December 31, 2022 |
| | Federal
Funds | | Three-month
LIBOR | | 10-Year
Swap |
| Spot rates | 4.50 | % | | 4.77 | % | | 3.84 | % |
| 12-month forward rates | 4.75 | | | 4.78 | | | 3.62 | |
| | | | | | |
| | December 31, 2021 |
| Spot rates | 0.25 | % | | 0.21 | % | | 1.58 | % |
| 12-month forward rates | 1.00 | | | 1.07 | | | 1.84 | |
Table 46 shows the pretax impact to forecasted net interest income over the next 12 months from December 31, 2022 and 2021 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 interest rates are floored at zero. Depending on the level of interest rates, Down-rate scenarios may not receive the full impact of the rate shock, particularly in low rate environments.
The overall decrease in asset sensitivity, as shown in the following table, to Up-rate scenarios was primarily due to an increase in long-end and short-end rates. 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 negatively impact the fair value of our debt securities classified as available for sale and 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 would be reduced over time by offsetting positive impacts to net interest income generated from the banking book activities. For more information on Basel 3, see Capital Management – Regulatory Capital on page 50.
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| Table 46 | Estimated Banking Book Net Interest Income Sensitivity to Curve Changes |
| | | | | | | | |
| | Short
Rate (bps) | | Long
Rate (bps) | | | | |
| | | December 31 |
| (Dollars in millions) | | | 2022 | | 2021 |
| | | | | | | |
| Parallel Shifts | | | | | | | |
+100 bps instantaneous shift | +100 | | +100 | | $ | 3,829 | | | $ | 6,542 | |
| | | | | | | |
-100 bps
instantaneous shift | -100 | | -100 | | (4,591) | | | n/m |
| Flatteners | | | | | | | |
Short-end instantaneous change | +100 | | — | | | 3,698 | | | 4,982 | |
| | | | | | | |
Long-end instantaneous change | — | | | -100 | | (157) | | | n/m |
| Steepeners | | | | | | | |
| | | | | | | |
Short-end instantaneous change | -100 | | | — | | | (4,420) | | | n/m |
Long-end instantaneous change | — | | | +100 | | 131 | | | 1,646 | |
n/m = not meaningful
The sensitivity analysis in Table 46 assumes that we take no action in response to these rate shocks and does not assume any change in other macroeconomic variables normally correlated with changes in interest rates. As part of our ALM activities, we use securities, certain residential mortgages, and interest rate and foreign exchange derivatives in managing interest rate sensitivity.
The behavior of our deposit portfolio in the baseline forecast and in alternate interest rate scenarios is a key assumption in our projected estimates of net interest income. The sensitivity analysis in Table 46 assumes no change in deposit portfolio size or mix from the baseline forecast in alternate rate environments. In higher rate scenarios, any customer activity resulting in the replacement of low-cost or noninterest-bearing deposits with higher yielding deposits or market-based funding would reduce our benefit in those scenarios.
Interest Rate and Foreign Exchange Derivative Contracts
We use interest rate and foreign exchange derivative contracts in our ALM activities to manage our interest rate and foreign exchange risks. Specifically, we use those derivatives to manage both the variability in cash flows and changes in fair value of various assets and liabilities arising from those risks. Our interest rate derivative contracts are generally non-leveraged swaps tied to various benchmark interest rates and foreign exchange basis swaps, options, futures and forwards, and our foreign exchange contracts include cross-currency interest rate swaps, foreign currency futures contracts, foreign currency forward contracts and options.
The derivatives used in our ALM activities can be split into two broad categories: designated accounting hedges and other risk management derivatives. Designated accounting hedges are primarily used to manage our exposure to interest rates as described in the Interest Rate Risk Management for the Banking Book section and are included in the sensitivities presented in Table 46. The Corporation also uses foreign currency derivatives in accounting hedges to manage substantially all of the foreign exchange risk of our foreign operations. By hedging the foreign exchange risk of our foreign operations, the Corporation's market risk exposure in this area is not significant.
Risk management derivatives are predominantly used to hedge foreign exchange risks related to various foreign currency-denominated assets and liabilities and eliminate substantially all foreign currency exposures in the cash flows of the Corporation’s non-trading foreign currency-denominated financial instruments. These foreign exchange derivatives are sensitive to other market risk exposures such as cross-currency basis spreads and interest rate risk. However, as these features are not a significant component of these foreign exchange derivatives, the market risk related to this exposure is not significant. For more information on the accounting for derivatives, see Note 3 – Derivatives to the Consolidated Financial Statements.
Mortgage Banking Risk Management
We originate, fund and service mortgage loans, which subject us to credit, liquidity and interest rate risks, among others. We determine whether loans will be held for investment or held for sale at the time of commitment and manage credit and liquidity risks by selling or securitizing a portion of the loans we originate.
Interest rate risk and market risk can be substantial in the mortgage business. Changes in interest rates and other market factors impact the volume of mortgage originations. Changes in
interest rates also impact the value of interest rate lock commitments (IRLCs) and the related residential first mortgage LHFS between the date of the IRLC and the date the loans are sold to the secondary market. An increase in mortgage interest rates typically leads to a decrease in the value of these instruments. Conversely, when there is an increase in interest rates, the value of the MSRs will increase driven by lower prepayment expectations. Because the interest rate risks of these hedged items offset, we combine them into one overall hedged item with one combined economic hedge portfolio consisting of derivative contracts and securities.
During 2022, 2021 and 2020, we recorded gains of $78 million, $39 million and $321 million. 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). We are subject to comprehensive regulation under federal and state laws, rules and regulations in the U.S. and the laws of the various jurisdictions in which we operate, including those related to financial crimes and anti-money laundering, market conduct, trading activities, fair lending, privacy, data protection and unfair, deceptive or abusive acts or practices.
Operational risk is the risk of loss resulting from inadequate or failed processes or systems, people or external events, and includes legal risk. Operational risk may occur anywhere in the Corporation, including third-party business processes, and is not limited to operations functions. The Corporation faces a number of key operational risks including third-party risk, model risk, conduct risk, technology risk, information security risk and data risk. Operational risk can result in financial losses and reputational impacts and 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 49.
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 and 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. Collectively, these efforts are important to strengthen their compliance and operational resiliency, which is the ability to deliver critical operations through disruption.
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, and reporting
on the state of the control environment. Corporate Audit provides an 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 and reflect Global Compliance and Operational Risk’s responsibilities for conducting independent oversight of the Corporation’s compliance and operational risk management activities. The Board provides oversight of compliance risk through its Audit Committee and the ERC, and operational risk through its ERC.
A key operational risk facing the Corporation is information security, which includes cybersecurity. Cybersecurity risk includes exposure to failures or interruptions of service or security breaches resulting from malicious technological attacks that impact the confidentiality, integrity or availability of our or third parties' operations, systems or data. The Corporation seeks to mitigate information security risk and associated reputational and compliance risk by employing a multi-layered and intelligence-led Global Information Security Program focused on preparing for, preventing, detecting, mitigating, responding to and recovering from cyber threats and incidents and effectively operating the Corporation’s processes. Additionally, our business continuity policy, standards and procedures are designed to maintain the availability of business functions and enable impacted units within the Corporation and third parties to achieve strategic objectives in the event of a cybersecurity incident.
The Global Information Security Program is supported by three lines of defense. The Global Information Security Team within the first line of defense is responsible for the day-to-day management of the Global Information Security Program, which includes defining policies and procedures to safeguard the Corporation’s information systems and data, conducting vulnerability and third-party information security assessments, information security event management (e.g., responding to ransomware and distributed denial of service attacks), evaluation of external cyber intelligence, supporting industry cybersecurity efforts and working with governmental agencies, and developing employee training to support adherence to the Corporation’s policies and procedures. As the second line of defense, Global Compliance and Operational Risk independently assesses, monitors and tests information security risk across the Corporation, as well as the effectiveness of the Global Information Security Program. Corporate Audit serves as the third line of defense, conducting additional independent review and validation of the first-line processes and functions. As part of our Global Information Security Program, we leverage both internal and external assessments and partnerships with industry leaders to help approach information security holistically. Additionally the Corporation maintains a comprehensive enterprise-wide program that defines standards for the planning, sourcing, management, and oversight of third-party relationships and third-party access to its system, facilities, and/or confidential or proprietary data for a business purpose or supervisory function.
Through established governance structures, we have processes to help facilitate appropriate and effective oversight of information security risk. These routines enable our three lines of defense and management to debate information security risks and monitor control performance to allow for further escalation to executive management, management and
Board-level committees or to the Board, as appropriate. The Board is actively engaged in the oversight of Bank of America’s Global Information Security Program and devotes significant time and attention to the oversight of cybersecurity and information security risk. The Board regularly discusses cybersecurity and information security risks with the Chief Technology and Information Officer and the Chief Information Security Officer. Additionally, the ERC receives regular reporting, and reviews and approves the Information Security Program and Policy on an annual basis.
Reputational Risk Management
Reputational risk is the risk that negative perception of the Corporation may adversely impact 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 embedded throughout its business and risk management processes. We proactively monitor and identify potential reputational risk events and have processes established to mitigate reputational risks in a timely manner. 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. Reputational risk reporting is provided regularly and directly to senior management and the ERC, which provides primary oversight of reputational risk. In addition, each FLU has a committee, which includes representatives from Legal and Risk, that is responsible for the oversight of reputational risk, including 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 physical impacts of climate change, driven by extreme weather events such as hurricanes and floods, as well as chronic longer-term shifts such as rising average global temperatures and sea levels, and (2) risks related to the transition to a low-carbon economy, which may entail extensive policy, legal, technology and market changes. These changes and events may have broad impacts on operations, supply chains, distribution networks, customers and markets and are otherwise referred to, respectively, as physical risk and transition risk. These risks may impact both financial and nonfinancial risk types. Physical risk may lead to increased credit risk by diminishing borrowers’ repayment capacity or impacting the value of collateral. Physical risk may also increase operational risk by impacting the Corporation’s facilities, employees, customers or vendors. Transition risks may amplify credit risk through the financial impacts of changes in policy, technology or the market on the Corporation or its counterparties. Unanticipated market changes can lead to sudden price adjustments and give rise to heightened market risk. In addition, reputational risk may arise, including from our climate-related practices and disclosures and if we do not meet our climate-related commitments.
Effective management of climate risk requires coordinated governance, clearly defined roles and responsibilities and well-
developed processes to identify, measure, monitor and control risks. As climate risk spans 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. Our Environmental and Social Risk Policy Framework aligns with our Risk Framework and provides additional clarity and transparency regarding our approach to environmental and social risks, inclusive of climate risk.
Our governance framework establishes oversight of climate risk practices and strategies by the Board, supported by its ERC, as well as the MRC and the Responsible Growth Committee, both of which are management-level committees comprised of senior leaders across every major FLU and control function. The Responsible Growth Committee is supported by the ESG Disclosure sub-committee, which is responsible for reviewing and providing oversight of the Corporation’s climate and ESG-related public disclosures.
Our climate risk management efforts are overseen by an executive officer who reports to the CRO. The Climate Risk Council, which consists of leaders across risk, FLU and control functions, meets routinely to discuss our approach to managing climate-related risks in line with our Risk Framework.
In 2021, we publicly announced our commitment to achieve net zero emissions in our financing activities, operations, and supply chain before 2050 (Net Zero Goal) and set 2030 emissions targets for our operations and supply chain. In connection with our Net Zero Goal, in 2022, we announced a target to reduce emissions by 2030 associated with our financing activities related to auto manufacturing, energy and power generation (2030 Targets). In our September 2022 Task Force on Climate-related Financial Disclosures Report, we disclosed our 2019 and 2020 financed emissions and emissions intensity metrics for these sectors, with 2019 serving as the baseline for our 2030 Targets.
We plan to disclose the financed emissions for additional portions of our business loan portfolio in 2023, and we plan to set financing activity emission reduction targets for other key sectors by April 2024.
Achieving our climate--related goals and targets, including our Net Zero Goal and 2030 Targets, may require technological advances, clearly defined roadmaps for industry sectors, new standards and public policies, including those that improve the cost of capital for the transition to a low-carbon economy and better emissions data reporting, as well as ongoing, strong and active engagement with customers, suppliers, investors, government officials and other stakeholders.
Given the extended period of these and other climate-related goals we have established, our initiatives have not resulted in a significant effect on our results of operations or financial position in the relevant periods presented herein.
For more information about climate-related matters, including how the Corporation manages climate risk, and the Corporation’s climate-related goals and commitments, including our plans to achieve our Net Zero Goal and 2030 Targets and progress on our sustainable finance goals, see the Corporation’s website, including our 2022 Task Force on Climate-related Financial Disclosures Report and the 2022
Annual Report to shareholders available on the Investor Relations portion of our website in March 2023. The contents of the Corporation’s website and 2022 Annual Report to shareholders are not incorporated by reference into this Annual Report on Form 10-K. For more information on climate-related risks, see Item 1A. Risk Factors on page 8.
The foregoing discussion and our discussion in the 2022 Annual Report to shareholders regarding our goals and commitments with respect to climate risk management, including environmental transition considerations, include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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.
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
The allowance for credit losses includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, represents management’s estimate of probable losses inherent in the Corporation’s loan portfolio excluding those loans accounted for under the fair value option.commitments. Our process for determining the allowance for credit losses is discussed in Note 1 – Summary of Significant Accounting Principlesand Note 5 – Outstanding Loans and Leases and Allowance for Credit Lossesto the Consolidated Financial Statements.
Our estimate for the allowance for loan and lease losses is sensitive to the loss rates and expected cash flows from our Consumer Real Estate and Credit Card and Other Consumer portfolio segments, as well as our U.S. small business commercial card portfolio within the Commercial portfolio segment. For each one-percent increase in the loss rates on loans collectively evaluated for impairment in our Consumer Real Estate portfolio segment, excluding PCI loans, coupled with a one-percent decrease in the discounted cash flows on those loans individually evaluated for impairment within this portfolio segment, the allowance for loan and lease losses at December 31, 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.Statements.
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 leveldetermination 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.based on numerous estimates and assumptions, which require
a high degree of judgment and are often interrelated. A critical judgment in the process is the weighting of our forward-looking macroeconomic scenarios that are incorporated into our quantitative models. As any one economic outlook is inherently uncertain, the Corporation uses multiple macroeconomic scenarios in its ECL calculation, which have included a baseline scenario derived from consensus estimates, an adverse scenario reflecting an extended moderate recession, a downside scenario reflecting persistent inflation and interest rates above the baseline scenario, a tail risk scenario similar to the severely adverse scenario used in stress testing and an upside scenario that considers the potential for improvement above the baseline scenario. The overall economic outlook is weighted 95 percent towards a recessionary environment in 2023, with continued inflationary pressures leading to lower gross domestic product (GDP) and higher unemployment rate expectations as compared to the prior year. Generally, as the consensus estimates improve or deteriorate, the allowance for credit losses will change in a similar direction. There are multiple variables that drive the macroeconomic scenarios with the key variables including, but not limited to, U.S. GDP and unemployment rates. As of December 31, 2021, the weighted macroeconomic outlook for the U.S. average unemployment rate was forecasted at 5.2 percent, 4.7 percent and 4.3 percent in the fourth quarters of 2022, 2023 and 2024, respectively, and the weighted macroeconomic outlook for U.S. GDP was forecasted to grow at 2.1 percent, 1.9 percent and 1.9 percent year-over-year in the fourth quarters of 2022, 2023 and 2024, respectively. As of December 31, 2022, the latest consensus estimates for the U.S. average unemployment rate for the fourth quarter of 2022 was 3.7 percent and U.S. GDP was forecasted to grow 0.4 percent year-over-year in the fourth quarter of 2022, reflecting a tighter labor market and depressed growth expectations compared to our macroeconomic outlook as of December 31, 2021, and were factored into our allowance for credit losses estimate as of December 31, 2022. In addition, as of December 31, 2022, the weighted macroeconomic outlook for the U.S. average unemployment rate was forecasted at 5.6 percent and 5.0 percent in the fourth quarters of 2023 and 2024, and the weighted macroeconomic outlook for U.S. GDP was forecasted to contract 0.4 percent and grow 1.2 percent year-over-year in the fourth quarters of 2023 and 2024.
In addition to the above judgments and estimates, the allowance for credit losses can also be impacted by unanticipated changes in asset quality of the portfolio, such as increases or decreases in credit and/or internal risk ratings in our commercial portfolio, improvement or deterioration in borrower delinquencies or credit scores in our credit card portfolio and increases or decreases in home prices, which is a primary driver of LTVs, in our consumer real estate portfolio, all of which have some degree of uncertainty. The allowance for credit losses increased to $14.2 billion from $13.8 billion at December 31, 2021, primarily due to loan growth and a dampened macroeconomic outlook in 2022.
To provide an illustration of the sensitivity of the macroeconomic scenarios and other assumptions on the estimate of our allowance for credit losses, the Corporation compared the December 31, 2022 modeled ECL from the baseline scenario and our adverse scenario. Relative to the baseline scenario, the adverse scenario assumed a peak U.S. unemployment rate of nearly three percentage points higher than the baseline scenario, a decline in U.S. GDP followed by a prolonged recovery and a lower home price outlook with a difference of approximately eight percent at the trough. This
sensitivity analysis resulted in a hypothetical increase in the allowance for credit losses of approximately $4 billion.
While the sensitivity analysis may be useful to understand how changes in macroeconomic assumptions could impact our modeled ECLs, it is not meant to forecast how our allowance for credit losses is expected to change in a different macroeconomic outlook. Importantly, the analysis does not incorporate a variety of factors, including qualitative reserves and the weighting of alternate scenarios, which could have offsetting effects on the estimate. Considering the variety of factors contemplated when developing and weighting macroeconomic outlooks such as recent economic events, leading economic indicators, views of internal and third-party economists and industry trends, in addition to other qualitative factors, the Corporation believes the allowance for credit losses at December 31, 2022 is appropriate.
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 Optionto 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 20172022, 2021 and 2016,2020, see Note 20 – Fair Value Measurementsto 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 17 under 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. 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 determine fair value, we utilized a combination of valuation techniques, consistent with the market approach and the income approach, and also utilized independent valuation specialists.
Under the market approach we estimated the fair value of the individual reporting units utilizing various market multiples from comparable publicly-traded companies in industries similar to the reporting unit, including the application of 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.
2022. Based on the results of the test,our assessment, we determinedhave concluded that the fair value exceeded the carrying value for all reporting units that had goodwill indicating there was no impairment.not impaired.
Representations and Warranties LiabilityCertain Contingent Liabilities
The methodology used to estimate the liability for obligations under representations and warranties related to transfers of residential mortgage loans considers, among other things, the repurchase experience implied in prior settlements, 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 million in the representations and warranties liability as of December 31, 2017. These sensitivities are hypothetical and are intended to provide an indication of the impact of a significant change in these key assumptions on the representations and warranties liability. In reality, changes in one assumption may result in changes in other assumptions, which may or may not counteract the sensitivity.
For more information on representations and warranties exposure and the corresponding estimated range of possible loss,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 5447 and 5548 provide reconciliations of certain non-GAAP financial measures to GAAP financial measures.
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| Table 47 | Annual Reconciliations to GAAP Financial Measures (1) | | |
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| Reconciliation of average shareholders’ equity to average tangible shareholders’ equity and average tangible common shareholders’ equity | | | | | | | | | |
| Shareholders’ equity | $ | 270,299 | | | $ | 273,757 | | | $ | 267,309 | | | | | |
| Goodwill | (69,022) | | | (69,005) | | | (68,951) | | | | | |
| Intangible assets (excluding MSRs) | (2,117) | | | (2,177) | | | (1,862) | | | | | |
| Related deferred tax liabilities | 922 | | | 916 | | | 821 | | | | | |
| Tangible shareholders’ equity | $ | 200,082 | | | $ | 203,491 | | | $ | 197,317 | | | | | |
| Preferred stock | (28,318) | | | (23,970) | | | (23,624) | | | | | |
| Tangible common shareholders’ equity | $ | 171,764 | | | $ | 179,521 | | | $ | 173,693 | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Reconciliation of year-end shareholders’ equity to year-end tangible shareholders’ equity and year-end tangible common shareholders’ equity | | | | | | | | | |
| Shareholders’ equity | $ | 273,197 | | | $ | 270,066 | | | $ | 272,924 | | | | | |
| Goodwill | (69,022) | | | (69,022) | | | (68,951) | | | | | |
| Intangible assets (excluding MSRs) | (2,075) | | | (2,153) | | | (2,151) | | | | | |
| Related deferred tax liabilities | 899 | | | 929 | | | 920 | | | | | |
| Tangible shareholders’ equity | $ | 202,999 | | | $ | 199,820 | | | $ | 202,742 | | | | | |
| Preferred stock | (28,397) | | | (24,708) | | | (24,510) | | | | | |
| Tangible common shareholders’ equity | $ | 174,602 | | | $ | 175,112 | | | $ | 178,232 | | | | | |
| Reconciliation of year-end assets to year-end tangible assets | | | | | | | | | |
| Assets | $ | 3,051,375 | | | $ | 3,169,495 | | | $ | 2,819,627 | | | | | |
| Goodwill | (69,022) | | | (69,022) | | | (68,951) | | | | | |
| Intangible assets (excluding MSRs) | (2,075) | | | (2,153) | | | (2,151) | | | | | |
| Related deferred tax liabilities | 899 | | | 929 | | | 920 | | | | | |
| Tangible assets | $ | 2,981,177 | | | $ | 3,099,249 | | | $ | 2,749,445 | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| 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.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Table 48 | Quarterly Reconciliations to GAAP Financial Measures (1) |
| | | | | | | | | | | | | | | | |
| | 2022 Quarters | | 2021 Quarters |
| (Dollars in millions) | Fourth | | Third | | Second | | First | | Fourth | | Third | | Second | | First |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Reconciliation of average shareholders’ equity to average tangible shareholders’ equity and average tangible common shareholders’ equity | | | | | | | | | | | | | | | |
| Shareholders’ equity | $ | 272,629 | | | $ | 271,017 | | | $ | 268,197 | | | $ | 269,309 | | | $ | 270,883 | | | $ | 275,484 | | | $ | 274,632 | | | $ | 274,047 | |
| Goodwill | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,023) | | | (69,023) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,088) | | | (2,107) | | | (2,127) | | | (2,146) | | | (2,166) | | | (2,185) | | | (2,212) | | | (2,146) | |
| Related deferred tax liabilities | 914 | | | 920 | | | 926 | | | 929 | | | 913 | | | 915 | | | 915 | | | 920 | |
| Tangible shareholders’ equity | $ | 202,433 | | | $ | 200,808 | | | $ | 197,974 | | | $ | 199,070 | | | $ | 200,608 | | | $ | 205,191 | | | $ | 204,312 | | | $ | 203,870 | |
| Preferred stock | (28,982) | | | (29,134) | | | (28,674) | | | (26,444) | | | (24,364) | | | (23,441) | | | (23,684) | | | (24,399) | |
| Tangible common shareholders’ equity | $ | 173,451 | | | $ | 171,674 | | | $ | 169,300 | | | $ | 172,626 | | | $ | 176,244 | | | $ | 181,750 | | | $ | 180,628 | | | $ | 179,471 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Reconciliation of period-end shareholders’ equity to period-end tangible shareholders’ equity and period-end tangible common shareholders’ equity | | | | | | | | | | | | | | | |
| Shareholders’ equity | $ | 273,197 | | | $ | 269,524 | | | $ | 269,118 | | | $ | 266,617 | | | $ | 270,066 | | | $ | 272,464 | | | $ | 277,119 | | | $ | 274,000 | |
| Goodwill | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,023) | | | (69,023) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,075) | | | (2,094) | | | (2,114) | | | (2,133) | | | (2,153) | | | (2,172) | | | (2,192) | | | (2,134) | |
| Related deferred tax liabilities | 899 | | | 915 | | | 920 | | | 926 | | | 929 | | | 913 | | | 915 | | | 915 | |
| Tangible shareholders’ equity | $ | 202,999 | | | $ | 199,323 | | | $ | 198,902 | | | $ | 196,388 | | | $ | 199,820 | | | $ | 202,182 | | | $ | 206,819 | | | $ | 203,830 | |
| Preferred stock | (28,397) | | | (29,134) | | | (29,134) | | | (27,137) | | | (24,708) | | | (23,441) | | | (23,441) | | | (24,319) | |
| Tangible common shareholders’ equity | $ | 174,602 | | | $ | 170,189 | | | $ | 169,768 | | | $ | 169,251 | | | $ | 175,112 | | | $ | 178,741 | | | $ | 183,378 | | | $ | 179,511 | |
| Reconciliation of period-end assets to period-end tangible assets | | | | | | | | | | | | | | | |
| Assets | $ | 3,051,375 | | | $ | 3,072,953 | | | $ | 3,111,606 | | | $ | 3,238,223 | | | $ | 3,169,495 | | | $ | 3,085,446 | | | $ | 3,029,894 | | | $ | 2,969,992 | |
| Goodwill | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,023) | | | (69,023) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,075) | | | (2,094) | | | (2,114) | | | (2,133) | | | (2,153) | | | (2,172) | | | (2,192) | | | (2,134) | |
| Related deferred tax liabilities | 899 | | | 915 | | | 920 | | | 926 | | | 929 | | | 913 | | | 915 | | | 915 | |
| Tangible assets | $ | 2,981,177 | | | $ | 3,002,752 | | | $ | 3,041,390 | | | $ | 3,167,994 | | | $ | 3,099,249 | | | $ | 3,015,164 | | | $ | 2,959,594 | | | $ | 2,899,822 | |
(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 32.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| 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)
| 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
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
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 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. |
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
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. |
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
See Market Risk Management on page 7675 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, 20172022 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, 2017,2022, the Corporation’s internal control over financial reporting is effective.
The Corporation’s internal control over financial reporting as of December 31, 20172022 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, 2017.2022.
Brian T. Moynihan
Chairman,Chair, Chief Executive Officer and President
PaulAlastair M. DonofrioBorthwick
Chief Financial Officer
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Bank of America Corporation: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, 20172022 and December 31, 2016,2021, 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, 2017,2022, 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, 2017,2022, 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, 20172022 and December 31, 2016,2021, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172022 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, 2017,2022, 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, 2022, the allowance for loan and lease losses was $12.7 billion on total loans and leases of $1,040.0 billion, which excludes loans accounted for under the fair value option. For commercial and consumer card loans, the expected credit loss is typically 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 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 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. 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.
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 and lease 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 lifetime economic forecast scenarios used in the loss forecast models, (iv) testing the completeness and accuracy of data used in the estimate, and (v) evaluating the reasonableness of certain qualitative reserves made to the model output results to determine the overall allowance for loan
and lease 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 $10.7 billion of assets and $7.1 billion of liabilities classified as Level 3 fair value measurements that are valued on a recurring basis and $3.4 billion of assets classified as Level 3 fair value measurements that are valued 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 implied yield, may be determined using quantitative-based extrapolations, pricing models 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, subjectivity and effort in performing procedures and in evaluating audit evidence obtained, including the involvement of professionals with specialized skill and knowledge.
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 significant unobservable inputs.
Charlotte, North Carolina
February 22, 20182023
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) | | | | | 2022 | | 2021 | | 2020 |
| Net interest income | | | | | | | | | |
| Interest income | | | | | $ | 72,565 | | | $ | 47,672 | | | $ | 51,585 | |
| Interest expense | | | | | 20,103 | | | 4,738 | | | 8,225 | |
| Net interest income | | | | | 52,462 | | | 42,934 | | | 43,360 | |
| | | | | | | | | |
| Noninterest income | | | | | | | | | |
| Fees and commissions | | | | | 33,212 | | | 39,299 | | | 34,551 | |
| Market making and similar activities | | | | | 12,075 | | | 8,691 | | | 8,355 | |
| Other income | | | | | (2,799) | | | (1,811) | | | (738) | |
| Total noninterest income | | | | | 42,488 | | | 46,179 | | | 42,168 | |
| Total revenue, net of interest expense | | | | | 94,950 | | | 89,113 | | | 85,528 | |
| | | | | | | | | |
| Provision for credit losses | | | | | 2,543 | | | (4,594) | | | 11,320 | |
| | | | | | | | | |
| Noninterest expense | | | | | | | | | |
| Compensation and benefits | | | | | 36,447 | | | 36,140 | | | 32,725 | |
| Occupancy and equipment | | | | | 7,071 | | | 7,138 | | | 7,141 | |
| Information processing and communications | | | | | 6,279 | | | 5,769 | | | 5,222 | |
| Product delivery and transaction related | | | | | 3,653 | | | 3,881 | | | 3,433 | |
| Professional fees | | | | | 2,142 | | | 1,775 | | | 1,694 | |
| Marketing | | | | | 1,825 | | | 1,939 | | | 1,701 | |
| Other general operating | | | | | 4,021 | | | 3,089 | | | 3,297 | |
| | | | | | | | | |
| | | | | | | | | |
| Total noninterest expense | | | | | 61,438 | | | 59,731 | | | 55,213 | |
| Income before income taxes | | | | | 30,969 | | | 33,976 | | | 18,995 | |
| Income tax expense | | | | | 3,441 | | | 1,998 | | | 1,101 | |
| Net income | | | | | $ | 27,528 | | | $ | 31,978 | | | $ | 17,894 | |
| Preferred stock dividends and other | | | | | 1,513 | | | 1,421 | | | 1,421 | |
| Net income applicable to common shareholders | | | | | $ | 26,015 | | | $ | 30,557 | | | $ | 16,473 | |
| | | | | | | | | |
| Per common share information | | | | | | | | | |
| Earnings | | | | | $ | 3.21 | | | $ | 3.60 | | | $ | 1.88 | |
| Diluted earnings | | | | | 3.19 | | | 3.57 | | | 1.87 | |
| | | | | | | | | |
| Average common shares issued and outstanding | | | | | 8,113.7 | | | 8,493.3 | | | 8,753.2 | |
| Average diluted common shares issued and outstanding | | | | | 8,167.5 | | | 8,558.4 | | | 8,796.9 | |
|
| | | | | | | | | | | |
| | | | | | |
| 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) | | | | | 2022 | | 2021 | | 2020 |
| Net income | | | | | $ | 27,528 | | | $ | 31,978 | | | $ | 17,894 | |
| Other comprehensive income (loss), net-of-tax: | | | | | | | | | |
| Net change in debt securities | | | | | (6,028) | | | (2,077) | | | 4,799 | |
| Net change in debit valuation adjustments | | | | | 755 | | | 356 | | | (498) | |
| Net change in derivatives | | | | | (10,055) | | | (2,306) | | | 826 | |
| Employee benefit plan adjustments | | | | | (667) | | | 624 | | | (98) | |
| Net change in foreign currency translation adjustments | | | | | (57) | | | (45) | | | (52) | |
| Other comprehensive income (loss) | | | | | (16,052) | | | (3,448) | | | 4,977 | |
| Comprehensive income (loss) | | | | | $ | 11,476 | | | $ | 28,530 | | | $ | 22,871 | |
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) | 2022 | | 2021 |
| | | |
| Assets | | | |
| Cash and due from banks | $ | 30,334 | | | $ | 29,222 | |
| Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks | 199,869 | | | 318,999 | |
| Cash and cash equivalents | 230,203 | | | 348,221 | |
| Time deposits placed and other short-term investments | 7,259 | | | 7,144 | |
Federal funds sold and securities borrowed or purchased under agreements to resell (includes $146,999 and $150,665 measured at fair value) | 267,574 | | | 250,720 | |
Trading account assets (includes $115,505 and $103,434 pledged as collateral) | 296,108 | | | 247,080 | |
| Derivative assets | 48,642 | | | 35,344 | |
| Debt securities: | | | |
| Carried at fair value | 229,994 | | | 308,073 | |
Held-to-maturity, at cost (fair value – $524,267 and $665,890) | 632,825 | | | 674,554 | |
| Total debt securities | 862,819 | | | 982,627 | |
Loans and leases (includes $5,771 and $7,819 measured at fair value) | 1,045,747 | | | 979,124 | |
| Allowance for loan and lease losses | (12,682) | | | (12,387) | |
| Loans and leases, net of allowance | 1,033,065 | | | 966,737 | |
| Premises and equipment, net | 11,510 | | | 10,833 | |
| Goodwill | 69,022 | | | 69,022 | |
Loans held-for-sale (includes $1,115 and $4,455 measured at fair value) | 6,871 | | | 15,635 | |
| Customer and other receivables | 67,543 | | | 72,263 | |
Other assets (includes $9,594 and $12,144 measured at fair value) | 150,759 | | | 163,869 | |
| Total assets | $ | 3,051,375 | | | $ | 3,169,495 | |
| | | | |
| Liabilities | | | |
| Deposits in U.S. offices: | | | |
| Noninterest-bearing | $ | 640,745 | | | $ | 784,189 | |
Interest-bearing (includes $311 and $408 measured at fair value) | 1,182,590 | | | 1,165,914 | |
| Deposits in non-U.S. offices: | | | |
| Noninterest-bearing | 20,480 | | | 27,457 | |
| Interest-bearing | 86,526 | | | 86,886 | |
| Total deposits | 1,930,341 | | | 2,064,446 | |
Federal funds purchased and securities loaned or sold under agreements to repurchase (includes $151,708 and $139,641 measured at fair value) | 195,635 | | | 192,329 | |
| Trading account liabilities | 80,399 | | | 100,690 | |
| Derivative liabilities | 44,816 | | | 37,675 | |
Short-term borrowings (includes $832 and $4,279 measured at fair value) | 26,932 | | | 23,753 | |
Accrued expenses and other liabilities (includes $9,752 and $11,489 measured at fair value and $1,540 and $1,456 of reserve for unfunded lending commitments) | 224,073 | | | 200,419 | |
Long-term debt (includes $33,070 and $29,708 measured at fair value) | 275,982 | | | 280,117 | |
| Total liabilities | 2,778,178 | | | 2,899,429 | |
Commitments and contingencies (Note 6 – Securitizations and Other Variable Interest Entities and Note 12 – Commitments and Contingencies) | | | |
| Shareholders’ equity | | | |
Preferred stock, $0.01 par value; authorized – 100,000,000 shares; issued and outstanding – 4,088,101 and 3,939,686 shares | 28,397 | | | 24,708 | |
Common stock and additional paid-in capital, $0.01 par value; authorized – 12,800,000,000 shares; issued and outstanding – 7,996,777,943 and 8,077,831,463 shares | 58,953 | | | 62,398 | |
| Retained earnings | 207,003 | | | 188,064 | |
| Accumulated other comprehensive income (loss) | (21,156) | | | (5,104) | |
| | | |
| Total shareholders’ equity | 273,197 | | | 270,066 | |
| Total liabilities and shareholders’ equity | $ | 3,051,375 | | | $ | 3,169,495 | |
| | | | |
| Assets of consolidated variable interest entities included in total assets above (isolated to settle the liabilities of the variable interest entities) | | | |
| Trading account assets | $ | 2,816 | | | $ | 5,004 | |
| | | | |
| | | | |
| Loans and leases | 16,738 | | | 17,135 | |
| Allowance for loan and lease losses | (797) | | | (958) | |
| Loans and leases, net of allowance | 15,941 | | | 16,177 | |
| | | | |
| All other assets | 116 | | | 189 | |
| Total assets of consolidated variable interest entities | $ | 18,873 | | | $ | 21,370 | |
| Liabilities of consolidated variable interest entities included in total liabilities above | | | |
| Short-term borrowings (includes $42 and $51 of non-recourse short-term borrowings) | $ | 42 | | | $ | 247 | |
| Long-term debt (includes $4,581 and $3,587 of non-recourse debt) | 4,581 | | | 3,587 | |
| All other liabilities (includes $13 and $7 of non-recourse liabilities) | 13 | | | 7 | |
| Total liabilities of consolidated variable interest entities | $ | 4,636 | | | $ | 3,841 | |
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 | | | | |
| | | | | | | | | | | | | |
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| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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| | | | | | | | | | | | | |
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| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| 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 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net income | | | | | | | 31,978 | | | | | | | 31,978 | |
| Net change in debt securities | | | | | | | | | (2,077) | | | | | (2,077) | |
| Net change in debit valuation adjustments | | | | | | | | | 356 | | | | | 356 | |
| Net change in derivatives | | | | | | | | | (2,306) | | | | | (2,306) | |
| Employee benefit plan adjustments | | | | | | | | | 624 | | | | | 624 | |
| Net change in foreign currency translation adjustments | | | | | | | | | (45) | | | | | (45) | |
| Dividends declared: | | | | | | | | | | | | | |
| Common | | | | | | | (6,575) | | | | | | | (6,575) | |
| Preferred | | | | | | | (1,421) | | | | | | | (1,421) | |
| Issuance of preferred stock | 2,169 | | | | | | | | | | | | | 2,169 | |
| Redemption of preferred stock | (1,971) | | | | | | | | | | | | | (1,971) | |
| Common stock issued under employee plans, net, and other | | | 42.3 | | | 1,542 | | | (6) | | | | | | | 1,536 | |
| Common stock repurchased | | | (615.3) | | | (25,126) | | | | | | | | | (25,126) | |
| Balance, December 31, 2021 | $ | 24,708 | | | 8,077.8 | | | $ | 62,398 | | | $ | 188,064 | | | $ | (5,104) | | | | | $ | 270,066 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net income | | | | | | | 27,528 | | | | | | | 27,528 | |
| Net change in debt securities | | | | | | | | | (6,028) | | | | | (6,028) | |
| Net change in debit valuation adjustments | | | | | | | | | 755 | | | | | 755 | |
| Net change in derivatives | | | | | | | | | (10,055) | | | | | (10,055) | |
| Employee benefit plan adjustments | | | | | | | | | (667) | | | | | (667) | |
| Net change in foreign currency translation adjustments | | | | | | | | | (57) | | | | | (57) | |
| Dividends declared: | | | | | | | | | | | | | |
| Common | | | | | | | (6,963) | | | | | | | (6,963) | |
| Preferred | | | | | | | (1,596) | | | | | | | (1,596) | |
| Issuance of preferred stock | 4,426 | | | | | | | | | | | | | 4,426 | |
| Redemption of preferred stock | (737) | | | | | 83 | | | | | | | | | (654) | |
| | | | | | | | | | | | | |
| Common stock issued under employee plans, net, and other | | | 44.9 | | | 1,545 | | | (30) | | | | | | | 1,515 | |
| Common stock repurchased | | | (125.9) | | | (5,073) | | | | | | | | | (5,073) | |
| Balance, December 31, 2022 | $ | 28,397 | | | 7,996.8 | | | $ | 58,953 | | | $ | 207,003 | | | $ | (21,156) | | | | | $ | 273,197 | |
|
| | | | | | | |
| | | | |
| 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 |
|
See accompanying Notes to Consolidated Financial Statements.
|
| | | | | | | |
| | Bank of America 201710092 |
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 |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Consolidated Statement of Cash Flows | | | | |
| | | | | | | | | |
| | | | | | | |
| | | | | | | | | |
| (Dollars in millions) | 2022 | | 2021 | | 2020 | | | | |
| Operating activities | | | | | | | | | |
| Net income | $ | 27,528 | | | $ | 31,978 | | | $ | 17,894 | | | | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | |
| Provision for credit losses | 2,543 | | | (4,594) | | | 11,320 | | | | | |
| Gains on sales of debt securities | (32) | | | (22) | | | (411) | | | | | |
| Depreciation and amortization | 1,978 | | | 1,898 | | | 1,843 | | | | | |
| Net amortization of premium/discount on debt securities | 2,072 | | | 5,837 | | | 4,101 | | | | | |
| Deferred income taxes | 739 | | | (838) | | | (1,737) | | | | | |
| Stock-based compensation | 2,862 | | | 2,768 | | | 2,031 | | | | | |
| | | | | | | | | |
| Loans held-for-sale: | | | | | | | | | |
| Originations and purchases | (24,862) | | | (43,635) | | | (19,657) | | | | | |
Proceeds from sales and paydowns of loans originally classified as held for sale and instruments from related securitization activities | 31,567 | | | 34,684 | | | 19,049 | | | | | |
| Net change in: | | | | | | | | | |
| Trading and derivative assets/liabilities | (95,772) | | | (22,104) | | | 16,942 | | | | | |
| Other assets | 20,799 | | | (34,455) | | | (12,883) | | | | | |
| Accrued expenses and other liabilities | 23,029 | | | 16,639 | | | (4,385) | | | | | |
| Other operating activities, net | 1,222 | | | 4,651 | | | 3,886 | | | | | |
| Net cash provided by (used in) operating activities | (6,327) | | | (7,193) | | | 37,993 | | | | | |
| Investing activities | | | | | | | | | |
| Net change in: | | | | | | | | | |
| Time deposits placed and other short-term investments | (115) | | | (598) | | | 561 | | | | | |
| Federal funds sold and securities borrowed or purchased under agreements to resell | (16,854) | | | 53,338 | | | (29,461) | | | | | |
| Debt securities carried at fair value: | | | | | | | | | |
| Proceeds from sales | 69,114 | | | 6,893 | | | 77,524 | | | | | |
| Proceeds from paydowns and maturities | 110,195 | | | 159,616 | | | 91,084 | | | | | |
| Purchases | (134,962) | | | (238,398) | | | (194,877) | | | | | |
| Held-to-maturity debt securities: | | | | | | | | | |
| Proceeds from paydowns and maturities | 63,852 | | | 124,880 | | | 93,835 | | | | | |
| Purchases | (24,096) | | | (362,736) | | | (257,535) | | | | | |
| Loans and leases: | | | | | | | | | |
Proceeds from sales of loans originally classified as held for investment and instruments from related securitization activities | 26,757 | | | 10,396 | | | 13,351 | | | | | |
| Purchases | (5,798) | | | (5,164) | | | (5,229) | | | | | |
| Other changes in loans and leases, net | (86,010) | | | (58,039) | | | 36,571 | | | | | |
| Other investing activities, net | (4,612) | | | (3,479) | | | (3,489) | | | | | |
| Net cash used in investing activities | (2,529) | | | (313,291) | | | (177,665) | | | | | |
| Financing activities | | | | | | | | | |
| Net change in: | | | | | | | | | |
| Deposits | (134,190) | | | 268,966 | | | 360,677 | | | | | |
| Federal funds purchased and securities loaned or sold under agreements to repurchase | 3,306 | | | 22,006 | | | 5,214 | | | | | |
| Short-term borrowings | 3,179 | | | 4,432 | | | (4,893) | | | | | |
| Long-term debt: | | | | | | | | | |
| Proceeds from issuance | 65,910 | | | 76,675 | | | 57,013 | | | | | |
| Retirement | (34,055) | | | (46,826) | | | (47,948) | | | | | |
| Preferred stock: | | | | | | | | | |
| Proceeds from issuance | 4,426 | | | 2,169 | | | 2,181 | | | | | |
| Redemption | (654) | | | (1,971) | | | (1,072) | | | | | |
| Common stock repurchased | (5,073) | | | (25,126) | | | (7,025) | | | | | |
| Cash dividends paid | (8,576) | | | (8,055) | | | (7,727) | | | | | |
| Other financing activities, net | (312) | | | (620) | | | (601) | | | | | |
| Net cash provided by (used in) financing activities | (106,039) | | | 291,650 | | | 355,819 | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | (3,123) | | | (3,408) | | | 2,756 | | | | | |
| Net increase (decrease) in cash and cash equivalents | (118,018) | | | (32,242) | | | 218,903 | | | | | |
| Cash and cash equivalents at January 1 | 348,221 | | | 380,463 | | | 161,560 | | | | | |
| Cash and cash equivalents at December 31 | $ | 230,203 | | | $ | 348,221 | | | $ | 380,463 | | | | | |
| Supplemental cash flow disclosures | | | | | | | | | |
| Interest paid | $ | 18,526 | | | $ | 4,506 | | | $ | 8,662 | | | | | |
| Income taxes paid, net | 2,288 | | | 2,760 | | | 2,894 | | | | | |
| | | | | | | | | |
See accompanying Notes to Consolidated Financial Statements.
|
| | | | | | | |
10193Bank of America 2017
| | |
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 2017102
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, which include the Corporation’s interests in affordable housing and renewable energy partnerships, are includedrecorded 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 Pronouncements
Accounting for Share-based Compensation
Effective January 1, 2017, the Corporation adopted the new accounting standard that simplifies certain aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Under this new accounting standard, all excess tax benefits and tax deficiencies on the delivery of share-based awards are recognized as discrete items in income tax expense or benefit in the Consolidated Statement of Income. Previously such amounts were recorded in shareholders’ equity. The adoption of this new accounting standard resulted in $236 million of tax benefits upon the delivery of share-settled awards in 2017.
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.Standards
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)FASB issued a new accounting standard that makes targeted improvements to the application of the fair value hedge accounting guidance for closed portfolios of financial assets. The targeted improvements were effective January 1, 2023 on a prospective basis.
Financial Instruments – Credit Losses
The FASB amended the accounting and disclosure requirements for expected credit losses (ECL) by removing the recognition and measurement guidance on troubled debt restructurings (TDRs) and adding disclosures on the financial effect and subsequent performance of certain types of modifications made to borrowers experiencing 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.difficulties. The Corporation adopted the remaining provisions on January 1, 2018, which will not have a material impacteffects of these changes 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
Statements are not significant. The FASB issued a new accounting standardamendments were 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 in2023, 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, orCorporation adopted 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.approach.
Accounting for Financial Instruments -- Credit Losses
The FASB issued a new accounting standard effective on January 1, 2020, with early adoption permitted on January 1, 2019, that will require the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use. The standard also requires expanded credit quality disclosures, including credit quality indicators disaggregated by vintage. The Corporation is in the process of identifying and implementing required changes to loan loss estimation models and processes and evaluating the impact of this new accounting standard, which at the date of adoption is expected to increase the allowance for credit losses with a resulting negative adjustment to retained earnings.
Significant Accounting PrinciplesAllowance for Credit Losses
CashThe allowance for credit losses increased $379 million from December 31, 2021 to $14.2 billion at December 31, 2022, which included a $202 million reserve increase related to the consumer portfolio and Cash Equivalents
Cash and cash equivalents include cash on hand, cash itemsa $177 million reserve increase related to the commercial portfolio. The increase in the processallowance was
primarily driven by loan growth and a dampened macroeconomic outlook, partially offset by a reserve release for reduced pandemic uncertainties.
Table 41 presents an allocation of collection, cash segregated under federal the allowance for credit losses by product type at December 31, 2022and other brokerage regulations,2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Table 41 | 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, 2022 | | | | December 31, 2021 |
| Allowance for loan and lease losses | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 328 | | | 2.59 | % | | 0.14 | % | | | | | | | | $ | 351 | | | 2.83 | % | | 0.16 | % |
| Home equity | 92 | | | 0.73 | | | 0.35 | | | | | | | | | 206 | | | 1.66 | | | 0.74 | |
| Credit card | 6,136 | | | 48.38 | | | 6.57 | | | | | | | | | 5,907 | | | 47.70 | | | 7.25 | |
| | | | | | | | | | | | | | | | | |
| Direct/Indirect consumer | 585 | | | 4.61 | | | 0.55 | | | | | | | | | 523 | | | 4.22 | | | 0.51 | |
| Other consumer | 96 | | | 0.76 | | | n/m | | | | | | | | 46 | | | 0.37 | | | n/m |
| Total consumer | 7,237 | | | 57.07 | | | 1.59 | | | | | | | | | 7,033 | | | 56.78 | | | 1.62 | |
U.S. commercial (2) | 3,007 | | | 23.71 | | | 0.80 | | | | | | | | | 3,019 | | | 24.37 | | | 0.87 | |
| Non-U.S. commercial | 1,194 | | | 9.41 | | | 0.96 | | | | | | | | | 975 | | | 7.87 | | | 0.86 | |
| Commercial real estate | 1,192 | | | 9.40 | | | 1.71 | | | | | | | | | 1,292 | | | 10.43 | | | 2.05 | |
| Commercial lease financing | 52 | | | 0.41 | | | 0.38 | | | | | | | | | 68 | | | 0.55 | | | 0.46 | |
| Total commercial | 5,445 | | | 42.93 | | | 0.93 | | | | | | | | | 5,354 | | | 43.22 | | | 1.00 | |
| Allowance for loan and lease losses | 12,682 | | | 100.00 | % | | 1.22 | | | | | | | | | 12,387 | | | 100.00 | % | | 1.28 | |
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| Reserve for unfunded lending commitments | 1,540 | | | | | | | | | | | | | 1,456 | | | | | |
| Allowance for credit losses | $ | 14,222 | | | | | | | | | | | | | $ | 13,843 | | | | | |
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(1)Ratios are calculated as allowance for loan and amounts due from correspondent banks, the Federal Reserve Banklease losses as a percentage of loans 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 beleases outstanding excluding loans accounted for as individual sale and purchase transactions. Generally, these agreements are recorded at acquisition or sale price plus accrued interest, except for certain securities financing agreements that the Corporation accounts for under the fair value option. Changes
(2)Includes allowance for loan and lease losses for U.S. small business commercial loans of $844 million and $1.2 billion at December 31, 2022 and 2021.
n/m = not meaningful
Net charge-offs for both 2022 and 2021 were $2.2 billion as credit card losses, which remained near historic lows, were partially offset by higher overdrafts charged off in other consumer due to payment activity related to checking accounts. The provision for credit losses increased $7.1 billion to an expense of $2.5 billion during 2022 compared to 2021. The provision for credit losses in 2022 was primarily driven by loan growth and a dampened macroeconomic outlook, partially offset by a reserve release for reduced pandemic uncertainties. The provision for credit losses for the fair valueconsumer portfolio, including unfunded lending commitments, increased $3.2 billion to an expense of securities financing agreements that$2.0 billion during 2022 compared to 2021. The
provision for credit losses for the commercial portfolio, including unfunded lending commitments, increased $3.9 billion to an expense of $495 million for 2022 compared to 2021.
Table 42 presents a rollforward of the allowance for credit losses, including certain loan and allowance ratios for 2022 and 2021. 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 42 | Allowance for Credit Losses | | | | | | | |
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| Allowance for loan and lease losses, January 1 | | | | | $ | 12,387 | | | $ | 18,802 | |
| Loans and leases charged off | | | | | | | |
| Residential mortgage | | | | | (161) | | | (34) | |
| Home equity | | | | | (45) | | | (44) | |
| Credit card | | | | | (1,985) | | | (2,411) | |
| Direct/Indirect consumer | | | | | (232) | | | (297) | |
| Other consumer | | | | | (538) | | | (292) | |
| Total consumer charge-offs | | | | | (2,961) | | | (3,078) | |
U.S. commercial (1) | | | | | (354) | | | (626) | |
| Non-U.S. commercial | | | | | (41) | | | (47) | |
| Commercial real estate | | | | | (75) | | | (46) | |
| Commercial lease financing | | | | | (8) | | | — | |
| Total commercial charge-offs | | | | | (478) | | | (719) | |
| Total loans and leases charged off | | | | | (3,439) | | | (3,797) | |
| Recoveries of loans and leases previously charged off | | | | | | | |
| Residential mortgage | | | | | 89 | | | 62 | |
| Home equity | | | | | 135 | | | 163 | |
| Credit card | | | | | 651 | | | 688 | |
| Direct/Indirect consumer | | | | | 214 | | | 296 | |
| Other consumer | | | | | 17 | | | 22 | |
| Total consumer recoveries | | | | | 1,106 | | | 1,231 | |
U.S. commercial (2) | | | | | 129 | | | 298 | |
| Non-U.S. commercial | | | | | 20 | | | 12 | |
| Commercial real estate | | | | | 9 | | | 12 | |
| Commercial lease financing | | | | | 3 | | | 1 | |
| Total commercial recoveries | | | | | 161 | | | 323 | |
| Total recoveries of loans and leases previously charged off | | | | | 1,267 | | | 1,554 | |
| Net charge-offs | | | | | (2,172) | | | (2,243) | |
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| Provision for loan and lease losses | | | | | 2,460 | | | (4,173) | |
| Other | | | | | 7 | | | 1 | |
| Allowance for loan and lease losses, December 31 | | | | | 12,682 | | | 12,387 | |
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| Reserve for unfunded lending commitments, January 1 | | | | | 1,456 | | | 1,878 | |
| Provision for unfunded lending commitments | | | | | 83 | | | (421) | |
| Other | | | | | 1 | | | (1) | |
| Reserve for unfunded lending commitments, December 31 | | | | | 1,540 | | | 1,456 | |
| Allowance for credit losses, December 31 | | | | | $ | 14,222 | | | $ | 13,843 | |
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Loan and allowance ratios (3) : | | | | | | | |
| Loans and leases outstanding at December 31 | | | | | $ | 1,039,976 | | | $ | 971,305 | |
| Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 | | | | | 1.22 | % | | 1.28 | % |
| Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 | | | | | 1.59 | | | 1.62 | |
| Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 | | | | | 0.93 | | | 1.00 | |
| Average loans and leases outstanding | | | | | $ | 1,010,799 | | | $ | 913,354 | |
| Net charge-offs as a percentage of average loans and leases outstanding | | | | | 0.21 | % | | 0.25 | % |
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| Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 | | | | | 333 | | | 271 | |
| Ratio of the allowance for loan and lease losses at December 31 to net charge-offs | | | | | 5.84 | | | 5.52 | |
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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 (4) | | | | | $ | 6,998 | | | $ | 7,027 | |
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 (4) | | | | | 149 | % | | 117 | % |
(1)Includes U.S. small business commercial charge-offs of $203 million in 2022 compared to $425 million in 2021.
(2)Includes U.S. small business commercial recoveries of $49 million in 2022 compared to $74 million in 2021.
(3)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 are recordedoption.
(4)Primarily includes amounts related to credit card and unsecured consumer lending portfolios in trading account profitsConsumer 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 Consolidated Statementfinancial instruments associated with our operations, primarily within our Global Markets segment. We are also exposed to these risks in other areas of Income.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 79.
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.
GRM 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, 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 80.
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 49.
GRM 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 43 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 43 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 43 differs from VaR used for regulatory capital calculations due to the holding period being
used. The Corporation’s policyholding 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 43 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 43 presents year-end, average, high and low daily trading VaR for 2022 and 2021 using a 99 percent confidence
level. The amounts disclosed in Table 43 and Table 44 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 2022 compared to 2021 driven by heightened market volatility and reduced diversification across asset classes.
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| Table 43 | Market Risk VaR for Trading Activities | | | | | | | | | | | | | | | | |
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| 2022 | | | | 2021 | | |
| (Dollars in millions) | Year
End | | Average | | High (1) | | Low (1) | | | | | | | | | | Year
End | | Average | | High (1) | | Low (1) | | | | |
| Foreign exchange | $ | 38 | | | $ | 21 | | | $ | 39 | | | $ | 12 | | | | | | | | | | | $ | 11 | | | $ | 12 | | | $ | 21 | | | $ | 5 | | | | | |
| Interest rate | 36 | | | 36 | | | 56 | | | 24 | | | | | | | | | | | 54 | | | 40 | | | 80 | | | 16 | | | | | |
| Credit | 76 | | | 71 | | | 106 | | | 52 | | | | | | | | | | | 73 | | | 69 | | | 84 | | | 53 | | | | | |
| Equity | 18 | | | 20 | | | 33 | | | 12 | | | | | | | | | | | 21 | | | 24 | | | 35 | | | 19 | | | | | |
| Commodities | 8 | | | 13 | | | 27 | | | 7 | | | | | | | | | | | 6 | | | 8 | | | 28 | | | 4 | | | | | |
| Portfolio diversification | (81) | | | (91) | | | n/a | | n/a | | | | | | | | | | (114) | | | (100) | | | n/a | | n/a | | | | |
| Total covered positions portfolio | 95 | | | 70 | | | 140 | | | 42 | | | | | | | | | | | 51 | | | 53 | | | 85 | | | 34 | | | | | |
Impact from less liquid exposures (2) | 35 | | | 38 | | | n/a | | n/a | | | | | | | | | | 8 | | | 20 | | | n/a | | n/a | | | | |
| Total covered positions and less liquid trading positions portfolio | 130 | | | 108 | | | 236 | | | 61 | | | | | | | | | | | 59 | | | 73 | | | 125 | | | 46 | | | | | |
| Fair value option loans | 48 | | | 51 | | | 65 | | | 37 | | | | | | | | | | | 51 | | | 50 | | | 65 | | | 31 | | | | | |
| Fair value option hedges | 16 | | | 17 | | | 24 | | | 13 | | | | | | | | | | | 15 | | | 16 | | | 20 | | | 11 | | | | | |
| Fair value option portfolio diversification | (38) | | | (36) | | | n/a | | n/a | | | | | | | | | | (27) | | | (32) | | | n/a | | n/a | | | | |
| Total fair value option portfolio | 26 | | | 32 | | | 44 | | | 23 | | | | | | | | | | | 39 | | | 34 | | | 53 | | | 23 | | | | | |
| Portfolio diversification | 9 | | | (11) | | | n/a | | n/a | | | | | | | | | | (24) | | | (10) | | | n/a | | n/a | | | | |
| Total market-based portfolio | $ | 165 | | | $ | 129 | | | 287 | | | 70 | | | | | | | | | | | $ | 74 | | | $ | 97 | | | 169 | | | 54 | | | | | |
(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.
(2)Impact is net of diversification effects between the covered positions and less liquid trading positions portfolios.
n/a = not applicable
The following graph presents the daily covered positions and less liquid trading positions portfolio VaR for 2022, corresponding to the data in Table 43.
Additional VaR statistics produced within our single VaR model are provided in Table 44 at the same level of detail as in Table 43. 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 44 presents average trading VaR statistics at 99 percent and 95 percent confidence levels for 2022 and 2021.
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| Table 44 | Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics |
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| | | 2022 | | | | 2021 |
| (Dollars in millions) | | 99 percent | | 95 percent | | | | | | 99 percent | | 95 percent |
| Foreign exchange | | $ | 21 | | | $ | 12 | | | | | | | $ | 12 | | | $ | 8 | |
| Interest rate | | 36 | | | 17 | | | | | | | 40 | | | 20 | |
| Credit | | 71 | | | 28 | | | | | | | 69 | | | 21 | |
| Equity | | 20 | | | 11 | | | | | | | 24 | | | 12 | |
| Commodities | | 13 | | | 7 | | | | | | | 8 | | | 4 | |
| Portfolio diversification | | (91) | | | (46) | | | | | | | (100) | | | (39) | |
| Total covered positions portfolio | | 70 | | | 29 | | | | | | | 53 | | | 26 | |
| Impact from less liquid exposures | | 38 | | | 7 | | | | | | | 20 | | | 2 | |
| Total covered positions and less liquid trading positions portfolio | | 108 | | | 36 | | | | | | | 73 | | | 28 | |
| Fair value option loans | | 51 | | | 14 | | | | | | | 50 | | | 12 | |
| Fair value option hedges | | 17 | | | 10 | | | | | | | 16 | | | 9 | |
| Fair value option portfolio diversification | | (36) | | | (13) | | | | | | | (32) | | | (9) | |
| Total fair value option portfolio | | 32 | | | 11 | | | | | | | 34 | | | 12 | |
| Portfolio diversification | | (11) | | | (7) | | | | | | | (10) | | | (7) | |
| Total market-based portfolio | | $ | 129 | | | $ | 40 | | | | | | | $ | 97 | | | $ | 33 | |
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 help confirm 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 2022, there was one day 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 2022 and 2021. During 2022, positive trading-related revenue was recorded for 99 percent of the trading days, of which 90 percent were daily trading gains of over $25 million, and the largest loss was $9 million. This compares to 2021 where positive trading-related revenue was recorded for 97 percent of the trading days, of which 80 percent were daily trading gains of over $25 million, and the largest loss was $45 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 46.
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 future direction of interest rate movements as implied by market-based forward curves.
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 banking book 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 45 presents the market valuespot and 12-month forward rates used in developing the forward curve used in our baseline forecasts at December 31, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Table 45 | Forward Rates |
| | | | | | |
| | December 31, 2022 |
| | Federal
Funds | | Three-month
LIBOR | | 10-Year
Swap |
| Spot rates | 4.50 | % | | 4.77 | % | | 3.84 | % |
| 12-month forward rates | 4.75 | | | 4.78 | | | 3.62 | |
| | | | | | |
| | December 31, 2021 |
| Spot rates | 0.25 | % | | 0.21 | % | | 1.58 | % |
| 12-month forward rates | 1.00 | | | 1.07 | | | 1.84 | |
Table 46 shows the pretax impact to forecasted net interest income over the next 12 months from December 31, 2022 and 2021 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 agreements and obtain collateral from or return collateral pledgedcurrent rate environment. The interest rate scenarios also assume U.S. dollar interest rates are floored at zero. Depending on the level of interest rates, Down-rate scenarios may not receive the full impact of the rate shock, particularly in low rate environments.
The overall decrease in asset sensitivity, as shown in the following table, to counterparties when appropriate. Securities financing agreements do not create
material credit riskUp-rate scenarios was primarily due to these collateral provisions; therefore, an allowance for loan losses is unnecessary.
In transactions whereincrease in long-end and short-end rates. 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 negatively impact the fair value of this collateral was $561.9 billionour debt securities classified as available for sale and $452.1 billion,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 would be reduced over time by offsetting positive impacts to net interest income generated from the banking book activities. For more information on Basel 3, see Capital Management – Regulatory Capital on page 50.
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| | | | | | | | |
| Table 46 | Estimated Banking Book Net Interest Income Sensitivity to Curve Changes |
| | | | | | | | |
| | Short
Rate (bps) | | Long
Rate (bps) | | | | |
| | | December 31 |
| (Dollars in millions) | | | 2022 | | 2021 |
| | | | | | | |
| Parallel Shifts | | | | | | | |
+100 bps instantaneous shift | +100 | | +100 | | $ | 3,829 | | | $ | 6,542 | |
| | | | | | | |
-100 bps
instantaneous shift | -100 | | -100 | | (4,591) | | | n/m |
| Flatteners | | | | | | | |
Short-end instantaneous change | +100 | | — | | | 3,698 | | | 4,982 | |
| | | | | | | |
Long-end instantaneous change | — | | | -100 | | (157) | | | n/m |
| Steepeners | | | | | | | |
| | | | | | | |
Short-end instantaneous change | -100 | | | — | | | (4,420) | | | n/m |
Long-end instantaneous change | — | | | +100 | | 131 | | | 1,646 | |
n/m = not meaningful
The sensitivity analysis in Table 46 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 which $476.1 billionour ALM activities, we use securities, certain residential mortgages, and $372.0 billion was sold or repledged. The primary source of this collateral is securities borrowed or purchased under agreements to resell.
The Corporation also pledges company-owned securities and loans as collateral in transactions that include repurchase agreements, securities loaned, public and trust deposits, U.S. Treasury tax and loan notes, and short-term borrowings. This collateral, which in some cases can be sold or repledged by the counterparties to the transactions, is parenthetically disclosed on the Consolidated Balance Sheet.
In certain cases, the Corporation has transferred assets to consolidated VIEs where those restricted assets serve as collateral for the interests issued by the VIEs. These assets are included on the Consolidated Balance Sheet in Assets of Consolidated VIEs.
In addition, the Corporation obtains collateral in connection with its derivative contracts. Required collateral levels vary depending on the credit risk rating and the type of counterparty. Generally, the Corporation accepts collateral in the form of cash, U.S. Treasury securities and other marketable securities. Based on provisions contained in master netting agreements, the Corporation nets cash collateral received against derivative assets. The Corporation also pledges collateral on its own derivative positions which can be applied against derivative liabilities.
Trading Instruments
Financial instruments utilized in trading activities are carried at fair value. Fair value is generally based on quoted market prices or quoted market prices for similar assets and liabilities. If these market prices are not available, fair values are estimated based on dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques where the determination of fair value may require significant management judgment or estimation. Realized gains and losses are recorded on a trade-date basis. Realized and unrealized gains and losses are recognized in trading account profits.
Derivatives and Hedging Activities
Derivatives are entered into on behalf of customers, for trading or to support risk management activities. Derivatives used in risk management activities 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 exchange derivatives in managing interest rate sensitivity.
The behavior of our deposit portfolio in the baseline forecast and in alternate interest rate scenarios is a key assumption in our projected estimates of net interest income. The sensitivity analysis in Table 46 assumes no change in deposit portfolio size or mix from the baseline forecast in alternate rate environments. In higher rate scenarios, any customer activity resulting in the replacement of low-cost or noninterest-bearing deposits with higher yielding deposits or market-based funding would reduce our benefit in those scenarios.
Interest Rate and Foreign Exchange Derivative Contracts
We use interest rate and foreign exchange derivative contracts in our ALM activities to manage our interest rate and foreign exchange risks. Specifically, we use those derivatives to manage both the variability in cash flows and changes in fair value of various assets and liabilities arising from those risks. Our interest rate derivative contracts are generally non-leveraged swaps tied to various benchmark interest rates and foreign exchange basis swaps, options, futures and forwards, and our foreign exchange contracts include cross-currency interest rate swaps, foreign currency futures contracts, foreign currency forward contracts and options.
The derivatives used in our ALM activities can be split into two broad categories: designated accounting hedges and other risk management derivatives. Designated accounting hedges are primarily used to manage our exposure to interest rates as described in the Interest Rate Risk Management for the Banking Book section and are included in the sensitivities presented in Table 46. The Corporation also uses foreign currency derivatives in accounting hedges to manage substantially all of the foreign exchange risk of our foreign operations. By hedging the foreign exchange risk of our foreign operations, the Corporation's market risk exposure in this area is not significant.
Risk management derivatives are predominantly used to hedge foreign exchange risks related to various foreign currency-denominated assets and liabilities and eliminate substantially all foreign currency exposures in the cash flows of the Corporation’s non-trading foreign currency-denominated financial instruments. These foreign exchange derivatives are sensitive to other market risk exposures such as cross-currency basis spreads and interest rate risk. However, as these features are not a significant component of these foreign exchange derivatives, the market risk related to this exposure is not significant. For more information on the accounting for derivatives, see Note 3 – Derivatives to the Consolidated Financial Statements.
Mortgage Banking Risk Management
We originate, fund and service mortgage loans, which subject us to credit, liquidity and interest rate risks, among others. We determine whether loans will be held for investment or held for sale at the time of commitment and manage credit and liquidity risks by selling or securitizing a portion of the loans we originate.
Interest rate risk and market risk can be substantial in the mortgage business. Changes in interest rates and other market factors impact the volume of mortgage originations. Changes in
interest rates also impact the value of interest rate lock commitments (IRLCs) and the related residential first mortgage LHFS between the date of the IRLC and the date the loans are sold to the secondary market. An increase in mortgage interest rates typically leads to a decrease in the value of these instruments. Conversely, when there is an increase in interest rates, the value of the MSRs will increase driven by lower prepayment expectations. Because the interest rate risks of these hedged items offset, we combine them into one overall hedged item with one combined economic hedge portfolio consisting of derivative contracts and securities.
During 2022, 2021 and 2020, we recorded gains of $78 million, $39 million and $321 million. 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). We are subject to comprehensive regulation under federal and state laws, rules and regulations in the U.S. and the laws of the various jurisdictions in which we operate, including those related to financial crimes and anti-money laundering, market conduct, trading activities, fair lending, privacy, data protection and unfair, deceptive or abusive acts or practices.
Operational risk is the risk of loss resulting from inadequate or failed processes or systems, people or external events, and includes legal risk. Operational risk may occur anywhere in the Corporation, including third-party business processes, and is not limited to operations functions. The Corporation faces a number of key operational risks including third-party risk, model risk, conduct risk, technology risk, information security risk and data risk. Operational risk can result in financial losses and reputational impacts and 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 49.
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 and 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. Collectively, these efforts are important to strengthen their compliance and operational resiliency, which is the ability to deliver critical operations through disruption.
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, and reporting
on the state of the control environment. Corporate Audit provides an 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 and reflect Global Compliance and Operational Risk’s responsibilities for conducting independent oversight of the Corporation’s compliance and operational risk management activities. The Board provides oversight of compliance risk through its Audit Committee and the ERC, and operational risk through its ERC.
A key operational risk facing the Corporation is information security, which includes cybersecurity. Cybersecurity risk includes exposure to failures or interruptions of service or security breaches resulting from malicious technological attacks that impact the confidentiality, integrity or availability of our or third parties' operations, systems or data. The Corporation seeks to mitigate information security risk and associated reputational and compliance risk by employing a multi-layered and intelligence-led Global Information Security Program focused on preparing for, preventing, detecting, mitigating, responding to and recovering from cyber threats and incidents and effectively operating the Corporation’s processes. Additionally, our business continuity policy, standards and procedures are designed to maintain the availability of business functions and enable impacted units within the Corporation and third parties to achieve strategic objectives in the event of a cybersecurity incident.
The Global Information Security Program is supported by three lines of defense. The Global Information Security Team within the first line of defense is responsible for the day-to-day management of the Global Information Security Program, which includes defining policies and procedures to safeguard the Corporation’s information systems and data, conducting vulnerability and third-party information security assessments, information security event management (e.g., responding to ransomware and distributed denial of service attacks), evaluation of external cyber intelligence, supporting industry cybersecurity efforts and working with governmental agencies, and developing employee training to support adherence to the Corporation’s policies and procedures. As the second line of defense, Global Compliance and Operational Risk independently assesses, monitors and tests information security risk across the Corporation, as well as the effectiveness of the Global Information Security Program. Corporate Audit serves as the third line of defense, conducting additional independent review and validation of the first-line processes and functions. As part of our Global Information Security Program, we leverage both internal and external assessments and partnerships with industry leaders to help approach information security holistically. Additionally the Corporation maintains a comprehensive enterprise-wide program that defines standards for the planning, sourcing, management, and oversight of third-party relationships and third-party access to its system, facilities, and/or confidential or proprietary data for a business purpose or supervisory function.
Through established governance structures, we have processes to help facilitate appropriate and effective oversight of information security risk. These routines enable our three lines of defense and management to debate information security risks and monitor control performance to allow for further escalation to executive management, management and
Board-level committees or to the Board, as appropriate. The Board is actively engaged in the oversight of Bank of America’s Global Information Security Program and devotes significant time and attention to the oversight of cybersecurity and information security risk. The Board regularly discusses cybersecurity and information security risks with the Chief Technology and Information Officer and the Chief Information Security Officer. Additionally, the ERC receives regular reporting, and reviews and approves the Information Security Program and Policy on an annual basis.
Reputational Risk Management
Reputational risk is the risk that negative perception of the Corporation may adversely impact 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 embedded throughout its business and risk management processes. We proactively monitor and identify potential reputational risk events and have processes established to mitigate reputational risks in a timely manner. 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. Reputational risk reporting is provided regularly and directly to senior management and the ERC, which provides primary oversight of reputational risk. In addition, each FLU has a committee, which includes representatives from Legal and Risk, that is responsible for the oversight of reputational risk, including 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 physical impacts of climate change, driven by extreme weather events such as hurricanes and floods, as well as chronic longer-term shifts such as rising average global temperatures and sea levels, and (2) risks related to the transition to a low-carbon economy, which may entail extensive policy, legal, technology and market changes. These changes and events may have broad impacts on operations, supply chains, distribution networks, customers and markets and are otherwise referred to, respectively, as physical risk and transition risk. These risks may impact both financial and nonfinancial risk types. Physical risk may lead to increased credit risk by diminishing borrowers’ repayment capacity or impacting the value of collateral. Physical risk may also increase operational risk by impacting the Corporation’s facilities, employees, customers or vendors. Transition risks may amplify credit risk through the financial impacts of changes in policy, technology or the market on the Corporation or its counterparties. Unanticipated market changes can lead to sudden price adjustments and give rise to heightened market risk. In addition, reputational risk may arise, including from our climate-related practices and disclosures and if we do not meet our climate-related commitments.
Effective management of climate risk requires coordinated governance, clearly defined roles and responsibilities and well-
developed processes to identify, measure, monitor and control risks. As climate risk spans 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. Our Environmental and Social Risk Policy Framework aligns with our Risk Framework and provides additional clarity and transparency regarding our approach to environmental and social risks, inclusive of climate risk.
Our governance framework establishes oversight of climate risk practices and strategies by the Board, supported by its ERC, as well as the MRC and the Responsible Growth Committee, both of which are management-level committees comprised of senior leaders across every major FLU and control function. The Responsible Growth Committee is supported by the ESG Disclosure sub-committee, which is responsible for reviewing and providing oversight of the Corporation’s climate and ESG-related public disclosures.
Our climate risk management efforts are overseen by an executive officer who reports to the CRO. The Climate Risk Council, which consists of leaders across risk, FLU and control functions, meets routinely to discuss our approach to managing climate-related risks in line with our Risk Framework.
In 2021, we publicly announced our commitment to achieve net zero emissions in our financing activities, operations, and supply chain before 2050 (Net Zero Goal) and set 2030 emissions targets for our operations and supply chain. In connection with our Net Zero Goal, in 2022, we announced a target to reduce emissions by 2030 associated with our financing activities related to auto manufacturing, energy and power generation (2030 Targets). In our September 2022 Task Force on Climate-related Financial Disclosures Report, we disclosed our 2019 and 2020 financed emissions and emissions intensity metrics for these sectors, with 2019 serving as the baseline for our 2030 Targets.
We plan to disclose the financed emissions for additional portions of our business loan portfolio in 2023, and we plan to set financing activity emission reduction targets for other key sectors by April 2024.
Achieving our climate--related goals and targets, including our Net Zero Goal and 2030 Targets, may require technological advances, clearly defined roadmaps for industry sectors, new standards and public policies, including those that improve the cost of capital for the transition to a low-carbon economy and better emissions data reporting, as well as ongoing, strong and active engagement with customers, suppliers, investors, government officials and other stakeholders.
Given the extended period of these and other climate-related goals we have established, our initiatives have not resulted in a significant effect on our results of operations or financial position in the relevant periods presented herein.
For more information about climate-related matters, including how the Corporation manages climate risk, and the Corporation’s climate-related goals and commitments, including our plans to achieve our Net Zero Goal and 2030 Targets and progress on our sustainable finance goals, see the Corporation’s website, including our 2022 Task Force on Climate-related Financial Disclosures Report and the 2022
Annual Report to shareholders available on the Investor Relations portion of our website in March 2023. The contents of the Corporation’s website and 2022 Annual Report to shareholders are not incorporated by reference into this Annual Report on Form 10-K. For more information on climate-related risks, see Item 1A. Risk Factors on page 8.
The foregoing discussion and our discussion in the 2022 Annual Report to shareholders regarding our goals and commitments with respect to climate risk management, including environmental transition considerations, include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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.
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
The allowance for credit losses includes the allowance for loan and lease losses and the reserve for unfunded lending commitments. Our process for determining the allowance for credit losses is discussed in Note 1 – Summary of Significant Accounting Principlesand Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements.
The determination of the allowance for credit losses is based on numerous estimates and assumptions, which require
a high degree of judgment and are often interrelated. A critical judgment in the process is the weighting of our forward-looking macroeconomic scenarios that are incorporated into our quantitative models. As any one economic outlook is inherently uncertain, the Corporation uses multiple macroeconomic scenarios in its ECL calculation, which have included a baseline scenario derived from consensus estimates, an adverse scenario reflecting an extended moderate recession, a downside scenario reflecting persistent inflation and interest rates above the baseline scenario, a tail risk scenario similar to the severely adverse scenario used in stress testing and an upside scenario that considers the potential for improvement above the baseline scenario. The overall economic outlook is weighted 95 percent towards a recessionary environment in 2023, with continued inflationary pressures leading to lower gross domestic product (GDP) and higher unemployment rate expectations as compared to the prior year. Generally, as the consensus estimates improve or deteriorate, the allowance for credit losses will change in a similar direction. There are multiple variables that drive the macroeconomic scenarios with the key variables including, but not limited to, U.S. GDP and unemployment rates. As of December 31, 2021, the weighted macroeconomic outlook for the U.S. average unemployment rate was forecasted at 5.2 percent, 4.7 percent and 4.3 percent in the fourth quarters of 2022, 2023 and 2024, respectively, and the weighted macroeconomic outlook for U.S. GDP was forecasted to grow at 2.1 percent, 1.9 percent and 1.9 percent year-over-year in the fourth quarters of 2022, 2023 and 2024, respectively. As of December 31, 2022, the latest consensus estimates for the U.S. average unemployment rate for the fourth quarter of 2022 was 3.7 percent and U.S. GDP was forecasted to grow 0.4 percent year-over-year in the fourth quarter of 2022, reflecting a tighter labor market and depressed growth expectations compared to our macroeconomic outlook as of December 31, 2021, and were factored into our allowance for credit losses estimate as of December 31, 2022. In addition, as of December 31, 2022, the weighted macroeconomic outlook for the U.S. average unemployment rate was forecasted at 5.6 percent and 5.0 percent in the fourth quarters of 2023 and 2024, and the weighted macroeconomic outlook for U.S. GDP was forecasted to contract 0.4 percent and grow 1.2 percent year-over-year in the fourth quarters of 2023 and 2024.
In addition to the above judgments and estimates, the allowance for credit losses can also be impacted by unanticipated changes in asset quality of the portfolio, such as increases or decreases in credit and/or internal risk ratings in our commercial portfolio, improvement or deterioration in borrower delinquencies or credit scores in our credit card portfolio and increases or decreases in home prices, which is a primary driver of LTVs, in our consumer real estate portfolio, all of which have some degree of uncertainty. The allowance for credit losses increased to $14.2 billion from $13.8 billion at December 31, 2021, primarily due to loan growth and a dampened macroeconomic outlook in 2022.
To provide an illustration of the sensitivity predominantly throughof the macroeconomic scenarios and other assumptions on the estimate of our allowance for credit losses, the Corporation compared the December 31, 2022 modeled ECL from the baseline scenario and our adverse scenario. Relative to the baseline scenario, the adverse scenario assumed a peak U.S. unemployment rate of nearly three percentage points higher than the baseline scenario, a decline in U.S. GDP followed by a prolonged recovery and a lower home price outlook with a difference of approximately eight percent at the trough. This
sensitivity analysis resulted in a hypothetical increase in the allowance for credit losses of approximately $4 billion.
While the sensitivity analysis may be useful to understand how changes in macroeconomic assumptions could impact our modeled ECLs, it is not meant to forecast how our allowance for credit losses is expected to change in a different macroeconomic outlook. Importantly, the analysis does not incorporate a variety of factors, including qualitative reserves and the weighting of alternate scenarios, which could have offsetting effects on the estimate. Considering the variety of factors contemplated when developing and weighting macroeconomic outlooks such as recent economic events, leading economic indicators, views of internal and third-party economists and industry trends, in addition to other qualitative factors, the Corporation believes the allowance for credit losses at December 31, 2022 is appropriate.
Fair Value of Financial Instruments
Under applicable accounting standards, we are required to maximize the use of derivatives. Derivatives utilized byobservable inputs and minimize the Corporation include swaps, futuresuse of unobservable inputs in measuring fair value. We classify fair value measurements of financial instruments and forward settlement contracts, and option contracts.
All derivatives are recordedMSRs based on the Consolidated Balance Sheet atthree-level fair value taking into considerationhierarchy in the effectsaccounting 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.
ValuationsLevel 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 derivativethe 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 reflectbecame unobservable or observable, respectively, in the valuecurrent marketplace. For more information on transfers into and out of Level 3 during 2022, 2021 and 2020, see Note 20 – Fair Value Measurements to the instrument including counterparty credit risk. These values also take into account the Corporation’s own credit standing.Consolidated Financial Statements.
Trading 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, with changesrepresent the net amount of current income taxes we expect to pay to or receive from various taxing jurisdictions attributable to our operations to date. We currently file income tax returns in fair value includedmore than 100 jurisdictions and consider many factors, including statutory, judicial and regulatory guidance, in trading account profits.estimating the appropriate accrued income taxes for each jurisdiction.
Derivatives used forNet deferred tax assets, reported as a component of other risk management activities are included in derivative assets or derivative liabilities. Derivatives used in other risk management activities have not been designated in qualifying accounting hedge relationships because they did not qualify or the risk that is being mitigated pertains to an item that is reported at fair value through earnings so that the effect of measuring the derivative instrument and the asset or liability to which the risk exposure pertains will offset inon the Consolidated Statement of Income toBalance Sheet, represent the extent effective. The changesnet decrease in the fair value of derivatives that serve to mitigate certain risks associated with mortgage servicing rights (MSRs), interest rate lock commitments (IRLCs) and first mortgage loans held-for-sale (LHFS) that are originated by the Corporation are recorded in mortgage banking income. Changes in the fair value of derivatives that serve to mitigate interest rate risk and foreign currency risk are included in other income. Credit derivatives are also used by the Corporation to mitigate the risk associated with various credit exposures. The changes in the fair value of these derivatives are included in other income.
Derivatives Used For Hedge Accounting Purposes (Accounting Hedges)
For accounting hedges, the Corporation formally documents at inception all relationships between hedging instruments and hedged items, as well as the risk management objectives and strategies for undertaking various accounting hedges. Additionally, the Corporation primarily uses regression analysis at the inception of a hedge and for each reporting period thereafter to assess whether the derivative used in an accounting hedge transaction istaxes expected to be paid in the future because of net operating loss (NOL) and has been highly effectivetax credit carryforwards and
because of future reversals of temporary differences in offsettingthe bases of assets and liabilities as measured by tax laws and their bases as reported in the financial statements. NOL and tax credit carryforwards result in reductions to future tax liabilities, and many of these attributes can expire if not utilized within certain periods. We consider the need for valuation allowances to reduce net deferred tax assets to the amounts that we estimate are more likely than not to be realized.
Consistent with the applicable accounting guidance, we monitor relevant tax authorities and change our estimates of accrued income taxes and/or net deferred tax assets due to changes in income tax laws and their interpretation by the fair value or cash flowscourts 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 hedged item or forecasted transaction. table of significant tax attributes and additional information. For more information, see page 17 under Item 1A. Risk Factors – Regulatory, Compliance and Legal.
Goodwill and Intangible Assets
The Corporation discontinues hedgenature of and accounting when it is determinedfor 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, 2022. Based on our assessment, we have concluded that a derivative isgoodwill was not expectedimpaired.
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 47 and 48 provide reconciliations of certain non-GAAP financial measures to GAAP financial measures.
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| Table 47 | Annual Reconciliations to GAAP Financial Measures (1) | | |
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| (Dollars in millions, shares in thousands) | 2022 | | 2021 | | 2020 | | | | |
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| Reconciliation of average shareholders’ equity to average tangible shareholders’ equity and average tangible common shareholders’ equity | | | | | | | | | |
| Shareholders’ equity | $ | 270,299 | | | $ | 273,757 | | | $ | 267,309 | | | | | |
| Goodwill | (69,022) | | | (69,005) | | | (68,951) | | | | | |
| Intangible assets (excluding MSRs) | (2,117) | | | (2,177) | | | (1,862) | | | | | |
| Related deferred tax liabilities | 922 | | | 916 | | | 821 | | | | | |
| Tangible shareholders’ equity | $ | 200,082 | | | $ | 203,491 | | | $ | 197,317 | | | | | |
| Preferred stock | (28,318) | | | (23,970) | | | (23,624) | | | | | |
| Tangible common shareholders’ equity | $ | 171,764 | | | $ | 179,521 | | | $ | 173,693 | | | | | |
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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 | $ | 273,197 | | | $ | 270,066 | | | $ | 272,924 | | | | | |
| Goodwill | (69,022) | | | (69,022) | | | (68,951) | | | | | |
| Intangible assets (excluding MSRs) | (2,075) | | | (2,153) | | | (2,151) | | | | | |
| Related deferred tax liabilities | 899 | | | 929 | | | 920 | | | | | |
| Tangible shareholders’ equity | $ | 202,999 | | | $ | 199,820 | | | $ | 202,742 | | | | | |
| Preferred stock | (28,397) | | | (24,708) | | | (24,510) | | | | | |
| Tangible common shareholders’ equity | $ | 174,602 | | | $ | 175,112 | | | $ | 178,232 | | | | | |
| Reconciliation of year-end assets to year-end tangible assets | | | | | | | | | |
| Assets | $ | 3,051,375 | | | $ | 3,169,495 | | | $ | 2,819,627 | | | | | |
| Goodwill | (69,022) | | | (69,022) | | | (68,951) | | | | | |
| Intangible assets (excluding MSRs) | (2,075) | | | (2,153) | | | (2,151) | | | | | |
| Related deferred tax liabilities | 899 | | | 929 | | | 920 | | | | | |
| Tangible assets | $ | 2,981,177 | | | $ | 3,099,249 | | | $ | 2,749,445 | | | | | |
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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 32.
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| Table 48 | Quarterly Reconciliations to GAAP Financial Measures (1) |
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| | 2022 Quarters | | 2021 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 | $ | 272,629 | | | $ | 271,017 | | | $ | 268,197 | | | $ | 269,309 | | | $ | 270,883 | | | $ | 275,484 | | | $ | 274,632 | | | $ | 274,047 | |
| Goodwill | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,023) | | | (69,023) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,088) | | | (2,107) | | | (2,127) | | | (2,146) | | | (2,166) | | | (2,185) | | | (2,212) | | | (2,146) | |
| Related deferred tax liabilities | 914 | | | 920 | | | 926 | | | 929 | | | 913 | | | 915 | | | 915 | | | 920 | |
| Tangible shareholders’ equity | $ | 202,433 | | | $ | 200,808 | | | $ | 197,974 | | | $ | 199,070 | | | $ | 200,608 | | | $ | 205,191 | | | $ | 204,312 | | | $ | 203,870 | |
| Preferred stock | (28,982) | | | (29,134) | | | (28,674) | | | (26,444) | | | (24,364) | | | (23,441) | | | (23,684) | | | (24,399) | |
| Tangible common shareholders’ equity | $ | 173,451 | | | $ | 171,674 | | | $ | 169,300 | | | $ | 172,626 | | | $ | 176,244 | | | $ | 181,750 | | | $ | 180,628 | | | $ | 179,471 | |
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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 | $ | 273,197 | | | $ | 269,524 | | | $ | 269,118 | | | $ | 266,617 | | | $ | 270,066 | | | $ | 272,464 | | | $ | 277,119 | | | $ | 274,000 | |
| Goodwill | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,023) | | | (69,023) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,075) | | | (2,094) | | | (2,114) | | | (2,133) | | | (2,153) | | | (2,172) | | | (2,192) | | | (2,134) | |
| Related deferred tax liabilities | 899 | | | 915 | | | 920 | | | 926 | | | 929 | | | 913 | | | 915 | | | 915 | |
| Tangible shareholders’ equity | $ | 202,999 | | | $ | 199,323 | | | $ | 198,902 | | | $ | 196,388 | | | $ | 199,820 | | | $ | 202,182 | | | $ | 206,819 | | | $ | 203,830 | |
| Preferred stock | (28,397) | | | (29,134) | | | (29,134) | | | (27,137) | | | (24,708) | | | (23,441) | | | (23,441) | | | (24,319) | |
| Tangible common shareholders’ equity | $ | 174,602 | | | $ | 170,189 | | | $ | 169,768 | | | $ | 169,251 | | | $ | 175,112 | | | $ | 178,741 | | | $ | 183,378 | | | $ | 179,511 | |
| Reconciliation of period-end assets to period-end tangible assets | | | | | | | | | | | | | | | |
| Assets | $ | 3,051,375 | | | $ | 3,072,953 | | | $ | 3,111,606 | | | $ | 3,238,223 | | | $ | 3,169,495 | | | $ | 3,085,446 | | | $ | 3,029,894 | | | $ | 2,969,992 | |
| Goodwill | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,023) | | | (69,023) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,075) | | | (2,094) | | | (2,114) | | | (2,133) | | | (2,153) | | | (2,172) | | | (2,192) | | | (2,134) | |
| Related deferred tax liabilities | 899 | | | 915 | | | 920 | | | 926 | | | 929 | | | 913 | | | 915 | | | 915 | |
| Tangible assets | $ | 2,981,177 | | | $ | 3,002,752 | | | $ | 3,041,390 | | | $ | 3,167,994 | | | $ | 3,099,249 | | | $ | 3,015,164 | | | $ | 2,959,594 | | | $ | 2,899,822 | |
(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 32.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
See Market Risk Management on page 75 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 |
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| | Bank of America 201710686 |
Report of Management on Internal Control Over Financial Reporting
Fair value hedges are usedThe 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 protect against changesprovide 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 fair valueUnited 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, 2022 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, 2022, the Corporation’s internal control over financial reporting is effective.
The Corporation’s internal control over financial reporting as of December 31, 2022 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, 2022.
Brian T. Moynihan
Chair, Chief Executive Officer and liabilities that are attributable to interest rate or foreign exchange volatility. ChangesPresident
Alastair M. Borthwick
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, 2022 and 2021, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the fair valueperiod ended December 31, 2022, 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 derivatives designatedDecember 31, 2022, 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 fair value hedges are recorded in earnings, togetherof December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the same income statement line itemperiod ended December 31, 2022 in conformity with changesaccounting principles generally accepted in the fair valueUnited States of America. Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, 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 related hedged item. Ifeffectiveness 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 derivative instrument in a fair value hedge is terminated orpublic accounting firm registered with the hedge designation removed, the previous adjustmentsPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the carrying valueCorporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the hedged assetSecurities 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 liability are subsequently accounted forfraud, 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 same mannerconsolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as other componentswell as evaluating the overall presentation of the carrying valueconsolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that asset or liability. For interest-earning assetsa material weakness exists, and interest-bearing liabilities,testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such adjustments are amortizedother 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 earningsprovide 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 remaining lifemaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the respective asset or liability.
Cash flow hedges are used primarily to minimizeassets of the variability in cash flows of assets and liabilities, or forecastedcompany; (ii) provide reasonable assurance that 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 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 component of accumulated OCI.
Securities
Debt securities are reportedmaterial effect on the Consolidated Balance Sheet at their trade date. Their classification is dependentfinancial 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 purposeconsolidated 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 whichLoan and Lease Losses - Commercial and Consumer Card Loans
As described in Notes 1 and 5 to the assets were acquired. Debt securities purchasedconsolidated financial statements, the allowance for useloan and lease losses represents management’s estimate of the expected credit losses in the Corporation’s trading activities are reported in trading account assets at fair value with unrealized gainsloan and losses included in trading account profits. Substantially all other debt securities purchased are used in the Corporation’s assetlease portfolio, excluding loans and liability management (ALM) activities and are reported on the Consolidated Balance Sheet as either debt securities carried at fair value or as debt securities held-to-maturity (HTM). Debt securities carried at fair value are either available-for-sale (AFS) securities with unrealized gains and losses net-of-tax included in accumulated OCI or carried at fair value with unrealized gains and losses reported in other income. Debt securities HTM, which are certain debt securities that management has the intent and ability to hold to maturity, are reported at amortized cost.
The Corporation regularly evaluates each AFS and HTM debt security where the value has declined below amortized cost to assess whether the decline in fair value is other than temporary. In determining whether an impairment is other than temporary, the Corporation considers the severity and duration of the decline in fair value, the length of time expected for recovery, the financial condition of the issuer, and other qualitative factors, as well as whether the Corporation either plans to sell the security or it is more-likely-than-not that it will be required to sell the security before recovery of the amortized cost. For AFS debt securities the Corporation intends to hold, an analysis is performed to determine how much of the decline in fair value is related to the issuer’s credit and how much is related to market factors (e.g., interest rates). If any of the decline in fair value is due to credit, an other-than-temporary impairment (OTTI) loss is recognized in the Consolidated Statement of Income for that amount. If any of the decline in fair value is related to market factors, that amount is recognized in accumulated OCI. In certain instances, the credit
loss may exceed the total decline in fair value, in which case, the difference is due to market factors and is recognized as an unrealized gain in accumulated OCI. If the Corporation intends to sell or believes it is more-likely-than-not that it will be required to sell the debt security, it is written down to fair value as an OTTI loss.
Interest on debt securities, including amortization of premiums and accretion of discounts, is included in interest income. Premiums and discounts are amortized or accreted to interest income at a constant effective yield over the contractual lives of the securities. Realized gains and losses from the sales of debt securities are determined using the specific identification method.
Marketable equity securities are classified based on management’s intention on the date of purchase and recorded on the Consolidated Balance Sheet as of the trade date. Marketable equity securities that are bought and held principally for the purpose of resale in the near term are classified as trading and are carried at fair value with unrealized gains and losses included in trading account profits. Other marketable equity securities areunfunded lending commitments accounted for as AFSunder the fair
value option. As of December 31, 2022, the allowance for loan and classified in other assets. All AFS marketable equity securities are carried at fair value with net unrealized gainslease losses was $12.7 billion on total loans and losses included in accumulated OCI, net-of-tax. If there is an other-than-temporary decline in the fair valueleases 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,$1,040.0 billion, which are recorded in other income, are determined using the specific identification method.
Loans and Leases
Loans, with the exception ofexcludes loans accounted for under the fair value option,option. For commercial and consumer card loans, the expected credit loss is typically 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 measured at historical costnot limited to, unemployment rates, real estate prices, gross domestic product levels and reported at their outstanding principal balances netcorporate bond spreads. The scenarios that are chosen and the weighting given to each scenario depend on a variety of any unearned income, charge-offs, unamortized deferred feesfactors including recent economic events, leading economic indicators, views of internal as well as third-party economists and costs on originatedindustry trends. Also included in the allowance 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. 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 purchased loans, net of any unamortized premiums or discounts. Loan origination feesour 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 direct origination costs are deferredqualitative reserves, which in turn led to a high degree of auditor judgment, subjectivity and recognized as adjustmentseffort in performing procedures and in evaluating audit evidence obtained, and (ii) the audit effort involved professionals with specialized skill and knowledge.
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 interest incomethe allowance for loan and lease losses, including controls over the livesevaluation 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 and lease 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 lifetime economic forecast scenarios used in the loss forecast models, (iv) testing the completeness and accuracy of data used in the estimate, and (v) evaluating the reasonableness of certain qualitative reserves made to the model output results to determine the overall allowance for loan
and lease 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 loans. Unearned income, discountsweightings and premiumsthe 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 $10.7 billion of assets and $7.1 billion of liabilities classified as Level 3 fair value measurements that are amortized to interest income usingvalued on a level yield methodology.recurring basis and $3.4 billion of assets classified as Level 3 fair value measurements that are valued on a nonrecurring basis, for which the determination of fair value requires significant management judgment or estimation. The Corporation elects to account for certain consumer and commercial loans underdetermines the fair value option with changes inof 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 reported inmeasurement. Unobservable inputs, such as volatility or implied yield, may be determined using quantitative-based extrapolations, pricing models or other income.internal methodologies which incorporate management estimates and available market information.
Under applicable accounting guidance,The principal considerations for reporting purposes,our determination that performing procedures relating to the loanvaluation of certain Level 3 financial instruments is a critical audit matter are the significant judgment and lease portfolio is categorizedestimation used 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 methodologymanagement to determine the allowancefair value of these financial instruments, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence obtained, including the involvement of professionals with specialized skill and knowledge.
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 credit losses,a sample of these certain financial instruments and a classcomparison of financing receivables is definedmanagement’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 significant unobservable inputs.
Charlotte, North Carolina
February 22, 2023
We have served as the level of disaggregation of portfolio segments based on the initial measurement attribute, risk characteristics and methods for assessing risk. The Corporation’s three portfolio segments are Consumer Real Estate, Credit Card and Other Consumer, and Commercial. The classes within the Consumer Real Estate portfolio segment are residential mortgage and home equity. The classes within the Credit Card and Other Consumer portfolio segment are U.S. credit card, non-U.S. credit card (sold in 2017), direct/indirect consumer and other consumer. The classes within the Commercial portfolio segment are U.S. commercial, non-U.S. commercial, commercial real estate, commercial lease financing and U.S. small business commercial.auditor since 1958.
Bank of America Corporation and Subsidiaries
| | | | | | | | | | | | | | | | | | | | | |
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| Consolidated Statement of Income |
| | | | | |
| | | | | |
| (In millions, except per share information) | | | | | 2022 | | 2021 | | 2020 |
| Net interest income | | | | | | | | | |
| Interest income | | | | | $ | 72,565 | | | $ | 47,672 | | | $ | 51,585 | |
| Interest expense | | | | | 20,103 | | | 4,738 | | | 8,225 | |
| Net interest income | | | | | 52,462 | | | 42,934 | | | 43,360 | |
| | | | | | | | | |
| Noninterest income | | | | | | | | | |
| Fees and commissions | | | | | 33,212 | | | 39,299 | | | 34,551 | |
| Market making and similar activities | | | | | 12,075 | | | 8,691 | | | 8,355 | |
| Other income | | | | | (2,799) | | | (1,811) | | | (738) | |
| Total noninterest income | | | | | 42,488 | | | 46,179 | | | 42,168 | |
| Total revenue, net of interest expense | | | | | 94,950 | | | 89,113 | | | 85,528 | |
| | | | | | | | | |
| Provision for credit losses | | | | | 2,543 | | | (4,594) | | | 11,320 | |
| | | | | | | | | |
| Noninterest expense | | | | | | | | | |
| Compensation and benefits | | | | | 36,447 | | | 36,140 | | | 32,725 | |
| Occupancy and equipment | | | | | 7,071 | | | 7,138 | | | 7,141 | |
| Information processing and communications | | | | | 6,279 | | | 5,769 | | | 5,222 | |
| Product delivery and transaction related | | | | | 3,653 | | | 3,881 | | | 3,433 | |
| Professional fees | | | | | 2,142 | | | 1,775 | | | 1,694 | |
| Marketing | | | | | 1,825 | | | 1,939 | | | 1,701 | |
| Other general operating | | | | | 4,021 | | | 3,089 | | | 3,297 | |
| | | | | | | | | |
| | | | | | | | | |
| Total noninterest expense | | | | | 61,438 | | | 59,731 | | | 55,213 | |
| Income before income taxes | | | | | 30,969 | | | 33,976 | | | 18,995 | |
| Income tax expense | | | | | 3,441 | | | 1,998 | | | 1,101 | |
| Net income | | | | | $ | 27,528 | | | $ | 31,978 | | | $ | 17,894 | |
| Preferred stock dividends and other | | | | | 1,513 | | | 1,421 | | | 1,421 | |
| Net income applicable to common shareholders | | | | | $ | 26,015 | | | $ | 30,557 | | | $ | 16,473 | |
| | | | | | | | | |
| Per common share information | | | | | | | | | |
| Earnings | | | | | $ | 3.21 | | | $ | 3.60 | | | $ | 1.88 | |
| Diluted earnings | | | | | 3.19 | | | 3.57 | | | 1.87 | |
| | | | | | | | | |
| Average common shares issued and outstanding | | | | | 8,113.7 | | | 8,493.3 | | | 8,753.2 | |
| Average diluted common shares issued and outstanding | | | | | 8,167.5 | | | 8,558.4 | | | 8,796.9 | |
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| Consolidated Statement of Comprehensive Income | | |
| | | | | | | | | |
| | | | | |
| (Dollars in millions) | | | | | 2022 | | 2021 | | 2020 |
| Net income | | | | | $ | 27,528 | | | $ | 31,978 | | | $ | 17,894 | |
| Other comprehensive income (loss), net-of-tax: | | | | | | | | | |
| Net change in debt securities | | | | | (6,028) | | | (2,077) | | | 4,799 | |
| Net change in debit valuation adjustments | | | | | 755 | | | 356 | | | (498) | |
| Net change in derivatives | | | | | (10,055) | | | (2,306) | | | 826 | |
| Employee benefit plan adjustments | | | | | (667) | | | 624 | | | (98) | |
| Net change in foreign currency translation adjustments | | | | | (57) | | | (45) | | | (52) | |
| Other comprehensive income (loss) | | | | | (16,052) | | | (3,448) | | | 4,977 | |
| Comprehensive income (loss) | | | | | $ | 11,476 | | | $ | 28,530 | | | $ | 22,871 | |
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
| | | | | | | | | | | | | | |
| | | | |
| Consolidated Balance Sheet |
| | December 31 |
| (Dollars in millions) | 2022 | | 2021 |
| | | |
| Assets | | | |
| Cash and due from banks | $ | 30,334 | | | $ | 29,222 | |
| Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks | 199,869 | | | 318,999 | |
| Cash and cash equivalents | 230,203 | | | 348,221 | |
| Time deposits placed and other short-term investments | 7,259 | | | 7,144 | |
Federal funds sold and securities borrowed or purchased under agreements to resell (includes $146,999 and $150,665 measured at fair value) | 267,574 | | | 250,720 | |
Trading account assets (includes $115,505 and $103,434 pledged as collateral) | 296,108 | | | 247,080 | |
| Derivative assets | 48,642 | | | 35,344 | |
| Debt securities: | | | |
| Carried at fair value | 229,994 | | | 308,073 | |
Held-to-maturity, at cost (fair value – $524,267 and $665,890) | 632,825 | | | 674,554 | |
| Total debt securities | 862,819 | | | 982,627 | |
Loans and leases (includes $5,771 and $7,819 measured at fair value) | 1,045,747 | | | 979,124 | |
| Allowance for loan and lease losses | (12,682) | | | (12,387) | |
| Loans and leases, net of allowance | 1,033,065 | | | 966,737 | |
| Premises and equipment, net | 11,510 | | | 10,833 | |
| Goodwill | 69,022 | | | 69,022 | |
Loans held-for-sale (includes $1,115 and $4,455 measured at fair value) | 6,871 | | | 15,635 | |
| Customer and other receivables | 67,543 | | | 72,263 | |
Other assets (includes $9,594 and $12,144 measured at fair value) | 150,759 | | | 163,869 | |
| Total assets | $ | 3,051,375 | | | $ | 3,169,495 | |
| | | | |
| Liabilities | | | |
| Deposits in U.S. offices: | | | |
| Noninterest-bearing | $ | 640,745 | | | $ | 784,189 | |
Interest-bearing (includes $311 and $408 measured at fair value) | 1,182,590 | | | 1,165,914 | |
| Deposits in non-U.S. offices: | | | |
| Noninterest-bearing | 20,480 | | | 27,457 | |
| Interest-bearing | 86,526 | | | 86,886 | |
| Total deposits | 1,930,341 | | | 2,064,446 | |
Federal funds purchased and securities loaned or sold under agreements to repurchase (includes $151,708 and $139,641 measured at fair value) | 195,635 | | | 192,329 | |
| Trading account liabilities | 80,399 | | | 100,690 | |
| Derivative liabilities | 44,816 | | | 37,675 | |
Short-term borrowings (includes $832 and $4,279 measured at fair value) | 26,932 | | | 23,753 | |
Accrued expenses and other liabilities (includes $9,752 and $11,489 measured at fair value and $1,540 and $1,456 of reserve for unfunded lending commitments) | 224,073 | | | 200,419 | |
Long-term debt (includes $33,070 and $29,708 measured at fair value) | 275,982 | | | 280,117 | |
| Total liabilities | 2,778,178 | | | 2,899,429 | |
Commitments and contingencies (Note 6 – Securitizations and Other Variable Interest Entities and Note 12 – Commitments and Contingencies) | | | |
| Shareholders’ equity | | | |
Preferred stock, $0.01 par value; authorized – 100,000,000 shares; issued and outstanding – 4,088,101 and 3,939,686 shares | 28,397 | | | 24,708 | |
Common stock and additional paid-in capital, $0.01 par value; authorized – 12,800,000,000 shares; issued and outstanding – 7,996,777,943 and 8,077,831,463 shares | 58,953 | | | 62,398 | |
| Retained earnings | 207,003 | | | 188,064 | |
| Accumulated other comprehensive income (loss) | (21,156) | | | (5,104) | |
| | | |
| Total shareholders’ equity | 273,197 | | | 270,066 | |
| Total liabilities and shareholders’ equity | $ | 3,051,375 | | | $ | 3,169,495 | |
| | | | |
| Assets of consolidated variable interest entities included in total assets above (isolated to settle the liabilities of the variable interest entities) | | | |
| Trading account assets | $ | 2,816 | | | $ | 5,004 | |
| | | | |
| | | | |
| Loans and leases | 16,738 | | | 17,135 | |
| Allowance for loan and lease losses | (797) | | | (958) | |
| Loans and leases, net of allowance | 15,941 | | | 16,177 | |
| | | | |
| All other assets | 116 | | | 189 | |
| Total assets of consolidated variable interest entities | $ | 18,873 | | | $ | 21,370 | |
| Liabilities of consolidated variable interest entities included in total liabilities above | | | |
| Short-term borrowings (includes $42 and $51 of non-recourse short-term borrowings) | $ | 42 | | | $ | 247 | |
| Long-term debt (includes $4,581 and $3,587 of non-recourse debt) | 4,581 | | | 3,587 | |
| All other liabilities (includes $13 and $7 of non-recourse liabilities) | 13 | | | 7 | |
| Total liabilities of consolidated variable interest entities | $ | 4,636 | | | $ | 3,841 | |
See accompanying Notes to Consolidated Financial Statements.
Purchased Credit-impaired Loans
Purchased loans with evidence
Bank of credit quality deteriorationAmerica Corporation and Subsidiaries
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| 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 | | | | |
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| 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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| Net income | | | | | | | 31,978 | | | | | | | 31,978 | |
| Net change in debt securities | | | | | | | | | (2,077) | | | | | (2,077) | |
| Net change in debit valuation adjustments | | | | | | | | | 356 | | | | | 356 | |
| Net change in derivatives | | | | | | | | | (2,306) | | | | | (2,306) | |
| Employee benefit plan adjustments | | | | | | | | | 624 | | | | | 624 | |
| Net change in foreign currency translation adjustments | | | | | | | | | (45) | | | | | (45) | |
| Dividends declared: | | | | | | | | | | | | | |
| Common | | | | | | | (6,575) | | | | | | | (6,575) | |
| Preferred | | | | | | | (1,421) | | | | | | | (1,421) | |
| Issuance of preferred stock | 2,169 | | | | | | | | | | | | | 2,169 | |
| Redemption of preferred stock | (1,971) | | | | | | | | | | | | | (1,971) | |
| Common stock issued under employee plans, net, and other | | | 42.3 | | | 1,542 | | | (6) | | | | | | | 1,536 | |
| Common stock repurchased | | | (615.3) | | | (25,126) | | | | | | | | | (25,126) | |
| Balance, December 31, 2021 | $ | 24,708 | | | 8,077.8 | | | $ | 62,398 | | | $ | 188,064 | | | $ | (5,104) | | | | | $ | 270,066 | |
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| Net income | | | | | | | 27,528 | | | | | | | 27,528 | |
| Net change in debt securities | | | | | | | | | (6,028) | | | | | (6,028) | |
| Net change in debit valuation adjustments | | | | | | | | | 755 | | | | | 755 | |
| Net change in derivatives | | | | | | | | | (10,055) | | | | | (10,055) | |
| Employee benefit plan adjustments | | | | | | | | | (667) | | | | | (667) | |
| Net change in foreign currency translation adjustments | | | | | | | | | (57) | | | | | (57) | |
| Dividends declared: | | | | | | | | | | | | | |
| Common | | | | | | | (6,963) | | | | | | | (6,963) | |
| Preferred | | | | | | | (1,596) | | | | | | | (1,596) | |
| Issuance of preferred stock | 4,426 | | | | | | | | | | | | | 4,426 | |
| Redemption of preferred stock | (737) | | | | | 83 | | | | | | | | | (654) | |
| | | | | | | | | | | | | |
| Common stock issued under employee plans, net, and other | | | 44.9 | | | 1,545 | | | (30) | | | | | | | 1,515 | |
| Common stock repurchased | | | (125.9) | | | (5,073) | | | | | | | | | (5,073) | |
| Balance, December 31, 2022 | $ | 28,397 | | | 7,996.8 | | | $ | 58,953 | | | $ | 207,003 | | | $ | (21,156) | | | | | $ | 273,197 | |
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
| | | | | | | | | | | | | | | | | | | | | |
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| Consolidated Statement of Cash Flows | | | | |
| | | | | | | | | |
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| (Dollars in millions) | 2022 | | 2021 | | 2020 | | | | |
| Operating activities | | | | | | | | | |
| Net income | $ | 27,528 | | | $ | 31,978 | | | $ | 17,894 | | | | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | |
| Provision for credit losses | 2,543 | | | (4,594) | | | 11,320 | | | | | |
| Gains on sales of debt securities | (32) | | | (22) | | | (411) | | | | | |
| Depreciation and amortization | 1,978 | | | 1,898 | | | 1,843 | | | | | |
| Net amortization of premium/discount on debt securities | 2,072 | | | 5,837 | | | 4,101 | | | | | |
| Deferred income taxes | 739 | | | (838) | | | (1,737) | | | | | |
| Stock-based compensation | 2,862 | | | 2,768 | | | 2,031 | | | | | |
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| Loans held-for-sale: | | | | | | | | | |
| Originations and purchases | (24,862) | | | (43,635) | | | (19,657) | | | | | |
Proceeds from sales and paydowns of loans originally classified as held for sale and instruments from related securitization activities | 31,567 | | | 34,684 | | | 19,049 | | | | | |
| Net change in: | | | | | | | | | |
| Trading and derivative assets/liabilities | (95,772) | | | (22,104) | | | 16,942 | | | | | |
| Other assets | 20,799 | | | (34,455) | | | (12,883) | | | | | |
| Accrued expenses and other liabilities | 23,029 | | | 16,639 | | | (4,385) | | | | | |
| Other operating activities, net | 1,222 | | | 4,651 | | | 3,886 | | | | | |
| Net cash provided by (used in) operating activities | (6,327) | | | (7,193) | | | 37,993 | | | | | |
| Investing activities | | | | | | | | | |
| Net change in: | | | | | | | | | |
| Time deposits placed and other short-term investments | (115) | | | (598) | | | 561 | | | | | |
| Federal funds sold and securities borrowed or purchased under agreements to resell | (16,854) | | | 53,338 | | | (29,461) | | | | | |
| Debt securities carried at fair value: | | | | | | | | | |
| Proceeds from sales | 69,114 | | | 6,893 | | | 77,524 | | | | | |
| Proceeds from paydowns and maturities | 110,195 | | | 159,616 | | | 91,084 | | | | | |
| Purchases | (134,962) | | | (238,398) | | | (194,877) | | | | | |
| Held-to-maturity debt securities: | | | | | | | | | |
| Proceeds from paydowns and maturities | 63,852 | | | 124,880 | | | 93,835 | | | | | |
| Purchases | (24,096) | | | (362,736) | | | (257,535) | | | | | |
| Loans and leases: | | | | | | | | | |
Proceeds from sales of loans originally classified as held for investment and instruments from related securitization activities | 26,757 | | | 10,396 | | | 13,351 | | | | | |
| Purchases | (5,798) | | | (5,164) | | | (5,229) | | | | | |
| Other changes in loans and leases, net | (86,010) | | | (58,039) | | | 36,571 | | | | | |
| Other investing activities, net | (4,612) | | | (3,479) | | | (3,489) | | | | | |
| Net cash used in investing activities | (2,529) | | | (313,291) | | | (177,665) | | | | | |
| Financing activities | | | | | | | | | |
| Net change in: | | | | | | | | | |
| Deposits | (134,190) | | | 268,966 | | | 360,677 | | | | | |
| Federal funds purchased and securities loaned or sold under agreements to repurchase | 3,306 | | | 22,006 | | | 5,214 | | | | | |
| Short-term borrowings | 3,179 | | | 4,432 | | | (4,893) | | | | | |
| Long-term debt: | | | | | | | | | |
| Proceeds from issuance | 65,910 | | | 76,675 | | | 57,013 | | | | | |
| Retirement | (34,055) | | | (46,826) | | | (47,948) | | | | | |
| Preferred stock: | | | | | | | | | |
| Proceeds from issuance | 4,426 | | | 2,169 | | | 2,181 | | | | | |
| Redemption | (654) | | | (1,971) | | | (1,072) | | | | | |
| Common stock repurchased | (5,073) | | | (25,126) | | | (7,025) | | | | | |
| Cash dividends paid | (8,576) | | | (8,055) | | | (7,727) | | | | | |
| Other financing activities, net | (312) | | | (620) | | | (601) | | | | | |
| Net cash provided by (used in) financing activities | (106,039) | | | 291,650 | | | 355,819 | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | (3,123) | | | (3,408) | | | 2,756 | | | | | |
| Net increase (decrease) in cash and cash equivalents | (118,018) | | | (32,242) | | | 218,903 | | | | | |
| Cash and cash equivalents at January 1 | 348,221 | | | 380,463 | | | 161,560 | | | | | |
| Cash and cash equivalents at December 31 | $ | 230,203 | | | $ | 348,221 | | | $ | 380,463 | | | | | |
| Supplemental cash flow disclosures | | | | | | | | | |
| Interest paid | $ | 18,526 | | | $ | 4,506 | | | $ | 8,662 | | | | | |
| Income taxes paid, net | 2,288 | | | 2,760 | | | 2,894 | | | | | |
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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 purchase dateCorporation 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, which include the Corporation’s interests in affordable housing and renewable energy partnerships, are recorded in other assets. Equity method investments are subject to impairment testing, and the Corporation’s proportionate share of income or loss is probableincluded 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
Hedge Accounting
The FASB issued a new accounting standard that makes targeted improvements to the application of the fair value hedge accounting guidance for closed portfolios of financial assets. The targeted improvements were effective January 1, 2023 on a prospective basis.
Financial Instruments – Credit Losses
The FASB amended the accounting and disclosure requirements for expected credit losses (ECL) by removing the recognition and measurement guidance on troubled debt restructurings (TDRs) and adding disclosures on the financial effect and subsequent performance of certain types of modifications made to borrowers experiencing financial difficulties. The effects of these changes on the Corporation’s consolidated financial position, results of operations or disclosures in the Notes to the Consolidated Financial Statements are not significant. The amendments were effective on January 1, 2023, which the Corporation will not receive all contractually required payments receivable are accounted for as purchased credit-impaired (PCI) loans. Evidence of credit quality deterioration since origination may include past due status, refreshed credit scores and refreshed loan-to-value (LTV) ratios. At acquisition, PCI loans are recorded at fair value with no allowance for credit losses, and accounted for individually or aggregated in pools based on similar risk characteristics such as credit risk, collateral type and interest rate risk. The Corporation estimates the amount and timing of expected cash flows for each loan or pool of loans. The expected cash flows in excess of the amount paid for the loans is referred to as the accretable yield and is recorded as interest income over the remaining estimated life of the loan or pool of loans. The excess of the PCI loans’ contractual principal and interest over the expected cash flows is referred to as the nonaccretable difference. Over the life of the PCI loans, the expected cash flows continue to be estimatedadopted using models that incorporate management’s estimate of current assumptions such as default rates, loss severity and prepayment speeds. If, upon subsequent valuation, the Corporation determines it is probable that the present value of the expected cash flows has decreased, a charge to the provision for credit losses is recorded with a corresponding increase in the allowance for credit losses. If it is probable that there is a significant increase in the present value of expected cash flows, the allowance for credit losses is reduced or, if there is no remaining allowance for credit losses related to these PCI loans, the accretable yield is increased through a reclassification from nonaccretable difference, resulting in a prospective increase in interest income. Reclassifications to or from nonaccretable difference can also occur for changes in the PCI loans’ estimated lives. If a loan within a PCI pool is sold, foreclosed, forgiven or the expectation of any future proceeds is remote, the loan is removed from the pool at its proportional carrying value. If the loan’s recovery value is less than the loan’s carrying value, the difference is first applied against the PCI pool’s nonaccretable difference and then against the allowance for credit losses.modified retrospective approach.
Leases
The Corporation provides equipment financing to its customers through a variety of lease arrangements. Direct financing leases are carried at the aggregate of lease payments receivable plus estimated residual value of the leased property less unearned income. Leveraged leases, which are a form of financing leases, are reported net of non-recourse debt. Unearned income on leveraged and direct financing leases is accreted to interest income over the lease terms using methods that approximate the interest method.
Allowance for Credit Losses
The allowance for credit losses increased $379 million from December 31, 2021 to $14.2 billion at December 31, 2022, which included a $202 million reserve increase related to the consumer portfolio and a $177 million reserve increase related to the commercial portfolio. The increase in the allowance was
primarily driven by loan growth and a dampened macroeconomic outlook, partially offset by a reserve release for reduced pandemic uncertainties.
Table 41 presents an allocation of the allowance for credit losses by product type at December 31, 2022and 2021.
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| Table 41 | 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) |
| (Dollars in millions) | December 31, 2022 | | | | December 31, 2021 |
| Allowance for loan and lease losses | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 328 | | | 2.59 | % | | 0.14 | % | | | | | | | | $ | 351 | | | 2.83 | % | | 0.16 | % |
| Home equity | 92 | | | 0.73 | | | 0.35 | | | | | | | | | 206 | | | 1.66 | | | 0.74 | |
| Credit card | 6,136 | | | 48.38 | | | 6.57 | | | | | | | | | 5,907 | | | 47.70 | | | 7.25 | |
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| Direct/Indirect consumer | 585 | | | 4.61 | | | 0.55 | | | | | | | | | 523 | | | 4.22 | | | 0.51 | |
| Other consumer | 96 | | | 0.76 | | | n/m | | | | | | | | 46 | | | 0.37 | | | n/m |
| Total consumer | 7,237 | | | 57.07 | | | 1.59 | | | | | | | | | 7,033 | | | 56.78 | | | 1.62 | |
U.S. commercial (2) | 3,007 | | | 23.71 | | | 0.80 | | | | | | | | | 3,019 | | | 24.37 | | | 0.87 | |
| Non-U.S. commercial | 1,194 | | | 9.41 | | | 0.96 | | | | | | | | | 975 | | | 7.87 | | | 0.86 | |
| Commercial real estate | 1,192 | | | 9.40 | | | 1.71 | | | | | | | | | 1,292 | | | 10.43 | | | 2.05 | |
| Commercial lease financing | 52 | | | 0.41 | | | 0.38 | | | | | | | | | 68 | | | 0.55 | | | 0.46 | |
| Total commercial | 5,445 | | | 42.93 | | | 0.93 | | | | | | | | | 5,354 | | | 43.22 | | | 1.00 | |
| Allowance for loan and lease losses | 12,682 | | | 100.00 | % | | 1.22 | | | | | | | | | 12,387 | | | 100.00 | % | | 1.28 | |
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| Reserve for unfunded lending commitments | 1,540 | | | | | | | | | | | | | 1,456 | | | | | |
| Allowance for credit losses | $ | 14,222 | | | | | | | | | | | | | $ | 13,843 | | | | | |
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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.
(2)Includes allowance for loan and lease losses for U.S. small business commercial loans of $844 million and $1.2 billion at December 31, 2022 and 2021.
n/m = not meaningful
Net charge-offs for both 2022 and 2021 were $2.2 billion as credit card losses, which remained near historic lows, were partially offset by higher overdrafts charged off in other consumer due to payment activity related to checking accounts. The provision for credit losses increased $7.1 billion to an expense of $2.5 billion during 2022 compared to 2021. The provision for credit losses in 2022 was primarily driven by loan growth and a dampened macroeconomic outlook, partially offset by a reserve release for reduced pandemic uncertainties. The provision for credit losses for the consumer portfolio, including unfunded lending commitments, increased $3.2 billion to an expense of $2.0 billion during 2022 compared to 2021. The
provision for credit losses for the commercial portfolio, including unfunded lending commitments, increased $3.9 billion to an expense of $495 million for 2022 compared to 2021.
Table 42 presents a rollforward of the allowance for credit losses, including certain loan and allowance ratios for 2022 and 2021. 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 42 | Allowance for Credit Losses | | | | | | | |
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| (Dollars in millions) | | | | | 2022 | | 2021 |
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| Allowance for loan and lease losses, January 1 | | | | | $ | 12,387 | | | $ | 18,802 | |
| Loans and leases charged off | | | | | | | |
| Residential mortgage | | | | | (161) | | | (34) | |
| Home equity | | | | | (45) | | | (44) | |
| Credit card | | | | | (1,985) | | | (2,411) | |
| Direct/Indirect consumer | | | | | (232) | | | (297) | |
| Other consumer | | | | | (538) | | | (292) | |
| Total consumer charge-offs | | | | | (2,961) | | | (3,078) | |
U.S. commercial (1) | | | | | (354) | | | (626) | |
| Non-U.S. commercial | | | | | (41) | | | (47) | |
| Commercial real estate | | | | | (75) | | | (46) | |
| Commercial lease financing | | | | | (8) | | | — | |
| Total commercial charge-offs | | | | | (478) | | | (719) | |
| Total loans and leases charged off | | | | | (3,439) | | | (3,797) | |
| Recoveries of loans and leases previously charged off | | | | | | | |
| Residential mortgage | | | | | 89 | | | 62 | |
| Home equity | | | | | 135 | | | 163 | |
| Credit card | | | | | 651 | | | 688 | |
| Direct/Indirect consumer | | | | | 214 | | | 296 | |
| Other consumer | | | | | 17 | | | 22 | |
| Total consumer recoveries | | | | | 1,106 | | | 1,231 | |
U.S. commercial (2) | | | | | 129 | | | 298 | |
| Non-U.S. commercial | | | | | 20 | | | 12 | |
| Commercial real estate | | | | | 9 | | | 12 | |
| Commercial lease financing | | | | | 3 | | | 1 | |
| Total commercial recoveries | | | | | 161 | | | 323 | |
| Total recoveries of loans and leases previously charged off | | | | | 1,267 | | | 1,554 | |
| Net charge-offs | | | | | (2,172) | | | (2,243) | |
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| Provision for loan and lease losses | | | | | 2,460 | | | (4,173) | |
| Other | | | | | 7 | | | 1 | |
| Allowance for loan and lease losses, December 31 | | | | | 12,682 | | | 12,387 | |
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| Reserve for unfunded lending commitments, January 1 | | | | | 1,456 | | | 1,878 | |
| Provision for unfunded lending commitments | | | | | 83 | | | (421) | |
| Other | | | | | 1 | | | (1) | |
| Reserve for unfunded lending commitments, December 31 | | | | | 1,540 | | | 1,456 | |
| Allowance for credit losses, December 31 | | | | | $ | 14,222 | | | $ | 13,843 | |
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Loan and allowance ratios (3) : | | | | | | | |
| Loans and leases outstanding at December 31 | | | | | $ | 1,039,976 | | | $ | 971,305 | |
| Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 | | | | | 1.22 | % | | 1.28 | % |
| Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 | | | | | 1.59 | | | 1.62 | |
| Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 | | | | | 0.93 | | | 1.00 | |
| Average loans and leases outstanding | | | | | $ | 1,010,799 | | | $ | 913,354 | |
| Net charge-offs as a percentage of average loans and leases outstanding | | | | | 0.21 | % | | 0.25 | % |
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| Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 | | | | | 333 | | | 271 | |
| Ratio of the allowance for loan and lease losses at December 31 to net charge-offs | | | | | 5.84 | | | 5.52 | |
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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 (4) | | | | | $ | 6,998 | | | $ | 7,027 | |
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 (4) | | | | | 149 | % | | 117 | % |
(1)Includes U.S. small business commercial charge-offs of $203 million in 2022 compared to $425 million in 2021.
(2)Includes U.S. small business commercial recoveries of $49 million in 2022 compared to $74 million in 2021.
(3)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.
(4)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 79.
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.
GRM 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, 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 80.
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 49.
GRM 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 43 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 43 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 43 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 43 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 43 presents year-end, average, high and low daily trading VaR for 2022 and 2021 using a 99 percent confidence
level. The amounts disclosed in Table 43 and Table 44 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 2022 compared to 2021 driven by heightened market volatility and reduced diversification across asset classes.
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| Table 43 | Market Risk VaR for Trading Activities | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| 2022 | | | | 2021 | | |
| (Dollars in millions) | Year
End | | Average | | High (1) | | Low (1) | | | | | | | | | | Year
End | | Average | | High (1) | | Low (1) | | | | |
| Foreign exchange | $ | 38 | | | $ | 21 | | | $ | 39 | | | $ | 12 | | | | | | | | | | | $ | 11 | | | $ | 12 | | | $ | 21 | | | $ | 5 | | | | | |
| Interest rate | 36 | | | 36 | | | 56 | | | 24 | | | | | | | | | | | 54 | | | 40 | | | 80 | | | 16 | | | | | |
| Credit | 76 | | | 71 | | | 106 | | | 52 | | | | | | | | | | | 73 | | | 69 | | | 84 | | | 53 | | | | | |
| Equity | 18 | | | 20 | | | 33 | | | 12 | | | | | | | | | | | 21 | | | 24 | | | 35 | | | 19 | | | | | |
| Commodities | 8 | | | 13 | | | 27 | | | 7 | | | | | | | | | | | 6 | | | 8 | | | 28 | | | 4 | | | | | |
| Portfolio diversification | (81) | | | (91) | | | n/a | | n/a | | | | | | | | | | (114) | | | (100) | | | n/a | | n/a | | | | |
| Total covered positions portfolio | 95 | | | 70 | | | 140 | | | 42 | | | | | | | | | | | 51 | | | 53 | | | 85 | | | 34 | | | | | |
Impact from less liquid exposures (2) | 35 | | | 38 | | | n/a | | n/a | | | | | | | | | | 8 | | | 20 | | | n/a | | n/a | | | | |
| Total covered positions and less liquid trading positions portfolio | 130 | | | 108 | | | 236 | | | 61 | | | | | | | | | | | 59 | | | 73 | | | 125 | | | 46 | | | | | |
| Fair value option loans | 48 | | | 51 | | | 65 | | | 37 | | | | | | | | | | | 51 | | | 50 | | | 65 | | | 31 | | | | | |
| Fair value option hedges | 16 | | | 17 | | | 24 | | | 13 | | | | | | | | | | | 15 | | | 16 | | | 20 | | | 11 | | | | | |
| Fair value option portfolio diversification | (38) | | | (36) | | | n/a | | n/a | | | | | | | | | | (27) | | | (32) | | | n/a | | n/a | | | | |
| Total fair value option portfolio | 26 | | | 32 | | | 44 | | | 23 | | | | | | | | | | | 39 | | | 34 | | | 53 | | | 23 | | | | | |
| Portfolio diversification | 9 | | | (11) | | | n/a | | n/a | | | | | | | | | | (24) | | | (10) | | | n/a | | n/a | | | | |
| Total market-based portfolio | $ | 165 | | | $ | 129 | | | 287 | | | 70 | | | | | | | | | | | $ | 74 | | | $ | 97 | | | 169 | | | 54 | | | | | |
(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.
(2)Impact is net of diversification effects between the covered positions and less liquid trading positions portfolios.
n/a = not applicable
The following graph presents the daily covered positions and less liquid trading positions portfolio VaR for 2022, corresponding to the data in Table 43.
Additional VaR statistics produced within our single VaR model are provided in Table 44 at the same level of detail as in Table 43. 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 44 presents average trading VaR statistics at 99 percent and 95 percent confidence levels for 2022 and 2021.
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| Table 44 | Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics |
| | | | | | | | | | | | | |
| | | |
| | | |
| | | 2022 | | | | 2021 |
| (Dollars in millions) | | 99 percent | | 95 percent | | | | | | 99 percent | | 95 percent |
| Foreign exchange | | $ | 21 | | | $ | 12 | | | | | | | $ | 12 | | | $ | 8 | |
| Interest rate | | 36 | | | 17 | | | | | | | 40 | | | 20 | |
| Credit | | 71 | | | 28 | | | | | | | 69 | | | 21 | |
| Equity | | 20 | | | 11 | | | | | | | 24 | | | 12 | |
| Commodities | | 13 | | | 7 | | | | | | | 8 | | | 4 | |
| Portfolio diversification | | (91) | | | (46) | | | | | | | (100) | | | (39) | |
| Total covered positions portfolio | | 70 | | | 29 | | | | | | | 53 | | | 26 | |
| Impact from less liquid exposures | | 38 | | | 7 | | | | | | | 20 | | | 2 | |
| Total covered positions and less liquid trading positions portfolio | | 108 | | | 36 | | | | | | | 73 | | | 28 | |
| Fair value option loans | | 51 | | | 14 | | | | | | | 50 | | | 12 | |
| Fair value option hedges | | 17 | | | 10 | | | | | | | 16 | | | 9 | |
| Fair value option portfolio diversification | | (36) | | | (13) | | | | | | | (32) | | | (9) | |
| Total fair value option portfolio | | 32 | | | 11 | | | | | | | 34 | | | 12 | |
| Portfolio diversification | | (11) | | | (7) | | | | | | | (10) | | | (7) | |
| Total market-based portfolio | | $ | 129 | | | $ | 40 | | | | | | | $ | 97 | | | $ | 33 | |
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 help confirm 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 2022, there was one day 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 2022 and 2021. During 2022, positive trading-related revenue was recorded for 99 percent of the trading days, of which 90 percent were daily trading gains of over $25 million, and the largest loss was $9 million. This compares to 2021 where positive trading-related revenue was recorded for 97 percent of the trading days, of which 80 percent were daily trading gains of over $25 million, and the largest loss was $45 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 46.
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 future direction of interest rate movements as implied by market-based forward curves.
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 banking book 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 45 presents the spot and 12-month forward rates used in developing the forward curve used in our baseline forecasts at December 31, 2022 and 2021.
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| | | | | | |
| Table 45 | Forward Rates |
| | | | | | |
| | December 31, 2022 |
| | Federal
Funds | | Three-month
LIBOR | | 10-Year
Swap |
| Spot rates | 4.50 | % | | 4.77 | % | | 3.84 | % |
| 12-month forward rates | 4.75 | | | 4.78 | | | 3.62 | |
| | | | | | |
| | December 31, 2021 |
| Spot rates | 0.25 | % | | 0.21 | % | | 1.58 | % |
| 12-month forward rates | 1.00 | | | 1.07 | | | 1.84 | |
Table 46 shows the pretax impact to forecasted net interest income over the next 12 months from December 31, 2022 and 2021 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 interest rates are floored at zero. Depending on the level of interest rates, Down-rate scenarios may not receive the full impact of the rate shock, particularly in low rate environments.
The overall decrease in asset sensitivity, as shown in the following table, to Up-rate scenarios was primarily due to an increase in long-end and short-end rates. 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 negatively impact the fair value of our debt securities classified as available for sale and 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 would be reduced over time by offsetting positive impacts to net interest income generated from the banking book activities. For more information on Basel 3, see Capital Management – Regulatory Capital on page 50.
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| Table 46 | Estimated Banking Book Net Interest Income Sensitivity to Curve Changes |
| | | | | | | | |
| | Short
Rate (bps) | | Long
Rate (bps) | | | | |
| | | December 31 |
| (Dollars in millions) | | | 2022 | | 2021 |
| | | | | | | |
| Parallel Shifts | | | | | | | |
+100 bps instantaneous shift | +100 | | +100 | | $ | 3,829 | | | $ | 6,542 | |
| | | | | | | |
-100 bps
instantaneous shift | -100 | | -100 | | (4,591) | | | n/m |
| Flatteners | | | | | | | |
Short-end instantaneous change | +100 | | — | | | 3,698 | | | 4,982 | |
| | | | | | | |
Long-end instantaneous change | — | | | -100 | | (157) | | | n/m |
| Steepeners | | | | | | | |
| | | | | | | |
Short-end instantaneous change | -100 | | | — | | | (4,420) | | | n/m |
Long-end instantaneous change | — | | | +100 | | 131 | | | 1,646 | |
n/m = not meaningful
The sensitivity analysis in Table 46 assumes that we take no action in response to these rate shocks and does not assume any change in other macroeconomic variables normally correlated with changes in interest rates. As part of our ALM activities, we use securities, certain residential mortgages, and interest rate and foreign exchange derivatives in managing interest rate sensitivity.
The behavior of our deposit portfolio in the baseline forecast and in alternate interest rate scenarios is a key assumption in our projected estimates of net interest income. The sensitivity analysis in Table 46 assumes no change in deposit portfolio size or mix from the baseline forecast in alternate rate environments. In higher rate scenarios, any customer activity resulting in the replacement of low-cost or noninterest-bearing deposits with higher yielding deposits or market-based funding would reduce our benefit in those scenarios.
Interest Rate and Foreign Exchange Derivative Contracts
We use interest rate and foreign exchange derivative contracts in our ALM activities to manage our interest rate and foreign exchange risks. Specifically, we use those derivatives to manage both the variability in cash flows and changes in fair value of various assets and liabilities arising from those risks. Our interest rate derivative contracts are generally non-leveraged swaps tied to various benchmark interest rates and foreign exchange basis swaps, options, futures and forwards, and our foreign exchange contracts include cross-currency interest rate swaps, foreign currency futures contracts, foreign currency forward contracts and options.
The derivatives used in our ALM activities can be split into two broad categories: designated accounting hedges and other risk management derivatives. Designated accounting hedges are primarily used to manage our exposure to interest rates as described in the Interest Rate Risk Management for the Banking Book section and are included in the sensitivities presented in Table 46. The Corporation also uses foreign currency derivatives in accounting hedges to manage substantially all of the foreign exchange risk of our foreign operations. By hedging the foreign exchange risk of our foreign operations, the Corporation's market risk exposure in this area is not significant.
Risk management derivatives are predominantly used to hedge foreign exchange risks related to various foreign currency-denominated assets and liabilities and eliminate substantially all foreign currency exposures in the cash flows of the Corporation’s non-trading foreign currency-denominated financial instruments. These foreign exchange derivatives are sensitive to other market risk exposures such as cross-currency basis spreads and interest rate risk. However, as these features are not a significant component of these foreign exchange derivatives, the market risk related to this exposure is not significant. For more information on the accounting for derivatives, see Note 3 – Derivatives to the Consolidated Financial Statements.
Mortgage Banking Risk Management
We originate, fund and service mortgage loans, which subject us to credit, liquidity and interest rate risks, among others. We determine whether loans will be held for investment or held for sale at the time of commitment and manage credit and liquidity risks by selling or securitizing a portion of the loans we originate.
Interest rate risk and market risk can be substantial in the mortgage business. Changes in interest rates and other market factors impact the volume of mortgage originations. Changes in
interest rates also impact the value of interest rate lock commitments (IRLCs) and the related residential first mortgage LHFS between the date of the IRLC and the date the loans are sold to the secondary market. An increase in mortgage interest rates typically leads to a decrease in the value of these instruments. Conversely, when there is an increase in interest rates, the value of the MSRs will increase driven by lower prepayment expectations. Because the interest rate risks of these hedged items offset, we combine them into one overall hedged item with one combined economic hedge portfolio consisting of derivative contracts and securities.
During 2022, 2021 and 2020, we recorded gains of $78 million, $39 million and $321 million. 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). We are subject to comprehensive regulation under federal and state laws, rules and regulations in the U.S. and the laws of the various jurisdictions in which we operate, including those related to financial crimes and anti-money laundering, market conduct, trading activities, fair lending, privacy, data protection and unfair, deceptive or abusive acts or practices.
Operational risk is the risk of loss resulting from inadequate or failed processes or systems, people or external events, and includes legal risk. Operational risk may occur anywhere in the Corporation, including third-party business processes, and is not limited to operations functions. The Corporation faces a number of key operational risks including third-party risk, model risk, conduct risk, technology risk, information security risk and data risk. Operational risk can result in financial losses and reputational impacts and 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 49.
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 and 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. Collectively, these efforts are important to strengthen their compliance and operational resiliency, which is the ability to deliver critical operations through disruption.
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, and reporting
on the state of the control environment. Corporate Audit provides an 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 and reflect Global Compliance and Operational Risk’s responsibilities for conducting independent oversight of the Corporation’s compliance and operational risk management activities. The Board provides oversight of compliance risk through its Audit Committee and the ERC, and operational risk through its ERC.
A key operational risk facing the Corporation is information security, which includes cybersecurity. Cybersecurity risk includes exposure to failures or interruptions of service or security breaches resulting from malicious technological attacks that impact the confidentiality, integrity or availability of our or third parties' operations, systems or data. The Corporation seeks to mitigate information security risk and associated reputational and compliance risk by employing a multi-layered and intelligence-led Global Information Security Program focused on preparing for, preventing, detecting, mitigating, responding to and recovering from cyber threats and incidents and effectively operating the Corporation’s processes. Additionally, our business continuity policy, standards and procedures are designed to maintain the availability of business functions and enable impacted units within the Corporation and third parties to achieve strategic objectives in the event of a cybersecurity incident.
The Global Information Security Program is supported by three lines of defense. The Global Information Security Team within the first line of defense is responsible for the day-to-day management of the Global Information Security Program, which includes defining policies and procedures to safeguard the Corporation’s information systems and data, conducting vulnerability and third-party information security assessments, information security event management (e.g., responding to ransomware and distributed denial of service attacks), evaluation of external cyber intelligence, supporting industry cybersecurity efforts and working with governmental agencies, and developing employee training to support adherence to the Corporation’s policies and procedures. As the second line of defense, Global Compliance and Operational Risk independently assesses, monitors and tests information security risk across the Corporation, as well as the effectiveness of the Global Information Security Program. Corporate Audit serves as the third line of defense, conducting additional independent review and validation of the first-line processes and functions. As part of our Global Information Security Program, we leverage both internal and external assessments and partnerships with industry leaders to help approach information security holistically. Additionally the Corporation maintains a comprehensive enterprise-wide program that defines standards for the planning, sourcing, management, and oversight of third-party relationships and third-party access to its system, facilities, and/or confidential or proprietary data for a business purpose or supervisory function.
Through established governance structures, we have processes to help facilitate appropriate and effective oversight of information security risk. These routines enable our three lines of defense and management to debate information security risks and monitor control performance to allow for further escalation to executive management, management and
Board-level committees or to the Board, as appropriate. The Board is actively engaged in the oversight of Bank of America’s Global Information Security Program and devotes significant time and attention to the oversight of cybersecurity and information security risk. The Board regularly discusses cybersecurity and information security risks with the Chief Technology and Information Officer and the Chief Information Security Officer. Additionally, the ERC receives regular reporting, and reviews and approves the Information Security Program and Policy on an annual basis.
Reputational Risk Management
Reputational risk is the risk that negative perception of the Corporation may adversely impact 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 embedded throughout its business and risk management processes. We proactively monitor and identify potential reputational risk events and have processes established to mitigate reputational risks in a timely manner. 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. Reputational risk reporting is provided regularly and directly to senior management and the ERC, which provides primary oversight of reputational risk. In addition, each FLU has a committee, which includes representatives from Legal and Risk, that is responsible for the oversight of reputational risk, including 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 physical impacts of climate change, driven by extreme weather events such as hurricanes and floods, as well as chronic longer-term shifts such as rising average global temperatures and sea levels, and (2) risks related to the transition to a low-carbon economy, which may entail extensive policy, legal, technology and market changes. These changes and events may have broad impacts on operations, supply chains, distribution networks, customers and markets and are otherwise referred to, respectively, as physical risk and transition risk. These risks may impact both financial and nonfinancial risk types. Physical risk may lead to increased credit risk by diminishing borrowers’ repayment capacity or impacting the value of collateral. Physical risk may also increase operational risk by impacting the Corporation’s facilities, employees, customers or vendors. Transition risks may amplify credit risk through the financial impacts of changes in policy, technology or the market on the Corporation or its counterparties. Unanticipated market changes can lead to sudden price adjustments and give rise to heightened market risk. In addition, reputational risk may arise, including from our climate-related practices and disclosures and if we do not meet our climate-related commitments.
Effective management of climate risk requires coordinated governance, clearly defined roles and responsibilities and well-
developed processes to identify, measure, monitor and control risks. As climate risk spans 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. Our Environmental and Social Risk Policy Framework aligns with our Risk Framework and provides additional clarity and transparency regarding our approach to environmental and social risks, inclusive of climate risk.
Our governance framework establishes oversight of climate risk practices and strategies by the Board, supported by its ERC, as well as the MRC and the Responsible Growth Committee, both of which are management-level committees comprised of senior leaders across every major FLU and control function. The Responsible Growth Committee is supported by the ESG Disclosure sub-committee, which is responsible for reviewing and providing oversight of the Corporation’s climate and ESG-related public disclosures.
Our climate risk management efforts are overseen by an executive officer who reports to the CRO. The Climate Risk Council, which consists of leaders across risk, FLU and control functions, meets routinely to discuss our approach to managing climate-related risks in line with our Risk Framework.
In 2021, we publicly announced our commitment to achieve net zero emissions in our financing activities, operations, and supply chain before 2050 (Net Zero Goal) and set 2030 emissions targets for our operations and supply chain. In connection with our Net Zero Goal, in 2022, we announced a target to reduce emissions by 2030 associated with our financing activities related to auto manufacturing, energy and power generation (2030 Targets). In our September 2022 Task Force on Climate-related Financial Disclosures Report, we disclosed our 2019 and 2020 financed emissions and emissions intensity metrics for these sectors, with 2019 serving as the baseline for our 2030 Targets.
We plan to disclose the financed emissions for additional portions of our business loan portfolio in 2023, and we plan to set financing activity emission reduction targets for other key sectors by April 2024.
Achieving our climate--related goals and targets, including our Net Zero Goal and 2030 Targets, may require technological advances, clearly defined roadmaps for industry sectors, new standards and public policies, including those that improve the cost of capital for the transition to a low-carbon economy and better emissions data reporting, as well as ongoing, strong and active engagement with customers, suppliers, investors, government officials and other stakeholders.
Given the extended period of these and other climate-related goals we have established, our initiatives have not resulted in a significant effect on our results of operations or financial position in the relevant periods presented herein.
For more information about climate-related matters, including how the Corporation manages climate risk, and the Corporation’s climate-related goals and commitments, including our plans to achieve our Net Zero Goal and 2030 Targets and progress on our sustainable finance goals, see the Corporation’s website, including our 2022 Task Force on Climate-related Financial Disclosures Report and the 2022
Annual Report to shareholders available on the Investor Relations portion of our website in March 2023. The contents of the Corporation’s website and 2022 Annual Report to shareholders are not incorporated by reference into this Annual Report on Form 10-K. For more information on climate-related risks, see Item 1A. Risk Factors on page 8.
The foregoing discussion and our discussion in the 2022 Annual Report to shareholders regarding our goals and commitments with respect to climate risk management, including environmental transition considerations, include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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.
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
The allowance for credit losses includes the allowance for loan and lease losses and the reserve for unfunded lending commitments,commitments. Our process for determining the allowance for credit losses is discussed in Note 1 – Summary of Significant Accounting Principlesand Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements.
The determination of the allowance for credit losses is based on numerous estimates and assumptions, which require
a high degree of judgment and are often interrelated. A critical judgment in the process is the weighting of our forward-looking macroeconomic scenarios that are incorporated into our quantitative models. As any one economic outlook is inherently uncertain, the Corporation uses multiple macroeconomic scenarios in its ECL calculation, which have included a baseline scenario derived from consensus estimates, an adverse scenario reflecting an extended moderate recession, a downside scenario reflecting persistent inflation and interest rates above the baseline scenario, a tail risk scenario similar to the severely adverse scenario used in stress testing and an upside scenario that considers the potential for improvement above the baseline scenario. The overall economic outlook is weighted 95 percent towards a recessionary environment in 2023, with continued inflationary pressures leading to lower gross domestic product (GDP) and higher unemployment rate expectations as compared to the prior year. Generally, as the consensus estimates improve or deteriorate, the allowance for credit losses will change in a similar direction. There are multiple variables that drive the macroeconomic scenarios with the key variables including, but not limited to, U.S. GDP and unemployment rates. As of December 31, 2021, the weighted macroeconomic outlook for the U.S. average unemployment rate was forecasted at 5.2 percent, 4.7 percent and 4.3 percent in the fourth quarters of 2022, 2023 and 2024, respectively, and the weighted macroeconomic outlook for U.S. GDP was forecasted to grow at 2.1 percent, 1.9 percent and 1.9 percent year-over-year in the fourth quarters of 2022, 2023 and 2024, respectively. As of December 31, 2022, the latest consensus estimates for the U.S. average unemployment rate for the fourth quarter of 2022 was 3.7 percent and U.S. GDP was forecasted to grow 0.4 percent year-over-year in the fourth quarter of 2022, reflecting a tighter labor market and depressed growth expectations compared to our macroeconomic outlook as of December 31, 2021, and were factored into our allowance for credit losses estimate as of December 31, 2022. In addition, as of December 31, 2022, the weighted macroeconomic outlook for the U.S. average unemployment rate was forecasted at 5.6 percent and 5.0 percent in the fourth quarters of 2023 and 2024, and the weighted macroeconomic outlook for U.S. GDP was forecasted to contract 0.4 percent and grow 1.2 percent year-over-year in the fourth quarters of 2023 and 2024.
In addition to the above judgments and estimates, the allowance for credit losses can also be impacted by unanticipated changes in asset quality of the portfolio, such as increases or decreases in credit and/or internal risk ratings in our commercial portfolio, improvement or deterioration in borrower delinquencies or credit scores in our credit card portfolio and increases or decreases in home prices, which is a primary driver of LTVs, in our consumer real estate portfolio, all of which have some degree of uncertainty. The allowance for credit losses increased to $14.2 billion from $13.8 billion at December 31, 2021, primarily due to loan growth and a dampened macroeconomic outlook in 2022.
To provide an illustration of the sensitivity of the macroeconomic scenarios and other assumptions on the estimate of our allowance for credit losses, the Corporation compared the December 31, 2022 modeled ECL from the baseline scenario and our adverse scenario. Relative to the baseline scenario, the adverse scenario assumed a peak U.S. unemployment rate of nearly three percentage points higher than the baseline scenario, a decline in U.S. GDP followed by a prolonged recovery and a lower home price outlook with a difference of approximately eight percent at the trough. This
sensitivity analysis resulted in a hypothetical increase in the allowance for credit losses of approximately $4 billion.
While the sensitivity analysis may be useful to understand how changes in macroeconomic assumptions could impact our modeled ECLs, it is not meant to forecast how our allowance for credit losses is expected to change in a different macroeconomic outlook. Importantly, the analysis does not incorporate a variety of factors, including qualitative reserves and the weighting of alternate scenarios, which could have offsetting effects on the estimate. Considering the variety of factors contemplated when developing and weighting macroeconomic outlooks such as recent economic events, leading economic indicators, views of internal and third-party economists and industry trends, in addition to other qualitative factors, the Corporation believes the allowance for credit losses at December 31, 2022 is appropriate.
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 2022, 2021 and 2020, 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 17 under 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, 2022. Based on our assessment, we have concluded that goodwill was not impaired.
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 47 and 48 provide reconciliations of certain non-GAAP financial measures to GAAP financial measures.
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| Table 47 | Annual Reconciliations to GAAP Financial Measures (1) | | |
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| (Dollars in millions, shares in thousands) | 2022 | | 2021 | | 2020 | | | | |
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| Reconciliation of average shareholders’ equity to average tangible shareholders’ equity and average tangible common shareholders’ equity | | | | | | | | | |
| Shareholders’ equity | $ | 270,299 | | | $ | 273,757 | | | $ | 267,309 | | | | | |
| Goodwill | (69,022) | | | (69,005) | | | (68,951) | | | | | |
| Intangible assets (excluding MSRs) | (2,117) | | | (2,177) | | | (1,862) | | | | | |
| Related deferred tax liabilities | 922 | | | 916 | | | 821 | | | | | |
| Tangible shareholders’ equity | $ | 200,082 | | | $ | 203,491 | | | $ | 197,317 | | | | | |
| Preferred stock | (28,318) | | | (23,970) | | | (23,624) | | | | | |
| Tangible common shareholders’ equity | $ | 171,764 | | | $ | 179,521 | | | $ | 173,693 | | | | | |
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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 | $ | 273,197 | | | $ | 270,066 | | | $ | 272,924 | | | | | |
| Goodwill | (69,022) | | | (69,022) | | | (68,951) | | | | | |
| Intangible assets (excluding MSRs) | (2,075) | | | (2,153) | | | (2,151) | | | | | |
| Related deferred tax liabilities | 899 | | | 929 | | | 920 | | | | | |
| Tangible shareholders’ equity | $ | 202,999 | | | $ | 199,820 | | | $ | 202,742 | | | | | |
| Preferred stock | (28,397) | | | (24,708) | | | (24,510) | | | | | |
| Tangible common shareholders’ equity | $ | 174,602 | | | $ | 175,112 | | | $ | 178,232 | | | | | |
| Reconciliation of year-end assets to year-end tangible assets | | | | | | | | | |
| Assets | $ | 3,051,375 | | | $ | 3,169,495 | | | $ | 2,819,627 | | | | | |
| Goodwill | (69,022) | | | (69,022) | | | (68,951) | | | | | |
| Intangible assets (excluding MSRs) | (2,075) | | | (2,153) | | | (2,151) | | | | | |
| Related deferred tax liabilities | 899 | | | 929 | | | 920 | | | | | |
| Tangible assets | $ | 2,981,177 | | | $ | 3,099,249 | | | $ | 2,749,445 | | | | | |
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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 32.
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| Table 48 | Quarterly Reconciliations to GAAP Financial Measures (1) |
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| | 2022 Quarters | | 2021 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 | $ | 272,629 | | | $ | 271,017 | | | $ | 268,197 | | | $ | 269,309 | | | $ | 270,883 | | | $ | 275,484 | | | $ | 274,632 | | | $ | 274,047 | |
| Goodwill | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,023) | | | (69,023) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,088) | | | (2,107) | | | (2,127) | | | (2,146) | | | (2,166) | | | (2,185) | | | (2,212) | | | (2,146) | |
| Related deferred tax liabilities | 914 | | | 920 | | | 926 | | | 929 | | | 913 | | | 915 | | | 915 | | | 920 | |
| Tangible shareholders’ equity | $ | 202,433 | | | $ | 200,808 | | | $ | 197,974 | | | $ | 199,070 | | | $ | 200,608 | | | $ | 205,191 | | | $ | 204,312 | | | $ | 203,870 | |
| Preferred stock | (28,982) | | | (29,134) | | | (28,674) | | | (26,444) | | | (24,364) | | | (23,441) | | | (23,684) | | | (24,399) | |
| Tangible common shareholders’ equity | $ | 173,451 | | | $ | 171,674 | | | $ | 169,300 | | | $ | 172,626 | | | $ | 176,244 | | | $ | 181,750 | | | $ | 180,628 | | | $ | 179,471 | |
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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 | $ | 273,197 | | | $ | 269,524 | | | $ | 269,118 | | | $ | 266,617 | | | $ | 270,066 | | | $ | 272,464 | | | $ | 277,119 | | | $ | 274,000 | |
| Goodwill | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,023) | | | (69,023) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,075) | | | (2,094) | | | (2,114) | | | (2,133) | | | (2,153) | | | (2,172) | | | (2,192) | | | (2,134) | |
| Related deferred tax liabilities | 899 | | | 915 | | | 920 | | | 926 | | | 929 | | | 913 | | | 915 | | | 915 | |
| Tangible shareholders’ equity | $ | 202,999 | | | $ | 199,323 | | | $ | 198,902 | | | $ | 196,388 | | | $ | 199,820 | | | $ | 202,182 | | | $ | 206,819 | | | $ | 203,830 | |
| Preferred stock | (28,397) | | | (29,134) | | | (29,134) | | | (27,137) | | | (24,708) | | | (23,441) | | | (23,441) | | | (24,319) | |
| Tangible common shareholders’ equity | $ | 174,602 | | | $ | 170,189 | | | $ | 169,768 | | | $ | 169,251 | | | $ | 175,112 | | | $ | 178,741 | | | $ | 183,378 | | | $ | 179,511 | |
| Reconciliation of period-end assets to period-end tangible assets | | | | | | | | | | | | | | | |
| Assets | $ | 3,051,375 | | | $ | 3,072,953 | | | $ | 3,111,606 | | | $ | 3,238,223 | | | $ | 3,169,495 | | | $ | 3,085,446 | | | $ | 3,029,894 | | | $ | 2,969,992 | |
| Goodwill | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,022) | | | (69,023) | | | (69,023) | | | (68,951) | |
| Intangible assets (excluding MSRs) | (2,075) | | | (2,094) | | | (2,114) | | | (2,133) | | | (2,153) | | | (2,172) | | | (2,192) | | | (2,134) | |
| Related deferred tax liabilities | 899 | | | 915 | | | 920 | | | 926 | | | 929 | | | 913 | | | 915 | | | 915 | |
| Tangible assets | $ | 2,981,177 | | | $ | 3,002,752 | | | $ | 3,041,390 | | | $ | 3,167,994 | | | $ | 3,099,249 | | | $ | 3,015,164 | | | $ | 2,959,594 | | | $ | 2,899,822 | |
(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 32.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
See Market Risk Management on page 75 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, 2022 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, 2022, the Corporation’s internal control over financial reporting is effective.
The Corporation’s internal control over financial reporting as of December 31, 2022 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, 2022.
Brian T. Moynihan
Chair, Chief Executive Officer and President
Alastair M. Borthwick
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, 2022 and 2021, 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, 2022, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 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, 2022, 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 inherent 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, 2022, the allowance for loan and lease losses was $12.7 billion on total loans and leases of $1,040.0 billion, which excludes loans accounted for under the fair value option. For commercial and consumer card loans, the expected credit loss is typically 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 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 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. 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.
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 and lease 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 lifetime economic forecast scenarios used in the loss forecast models, (iv) testing the completeness and accuracy of data used in the estimate, and (v) evaluating the reasonableness of certain qualitative reserves made to the model output results to determine the overall allowance for loan
and lease 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 $10.7 billion of assets and $7.1 billion of liabilities classified as Level 3 fair value measurements that are valued on a recurring basis and $3.4 billion of assets classified as Level 3 fair value measurements that are valued 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 implied yield, may be determined using quantitative-based extrapolations, pricing models 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, subjectivity and effort in performing procedures and in evaluating audit evidence obtained, including the involvement of professionals with specialized skill and knowledge.
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 significant unobservable inputs.
Charlotte, North Carolina
February 22, 2023
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) | | | | | 2022 | | 2021 | | 2020 |
| Net interest income | | | | | | | | | |
| Interest income | | | | | $ | 72,565 | | | $ | 47,672 | | | $ | 51,585 | |
| Interest expense | | | | | 20,103 | | | 4,738 | | | 8,225 | |
| Net interest income | | | | | 52,462 | | | 42,934 | | | 43,360 | |
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| Noninterest income | | | | | | | | | |
| Fees and commissions | | | | | 33,212 | | | 39,299 | | | 34,551 | |
| Market making and similar activities | | | | | 12,075 | | | 8,691 | | | 8,355 | |
| Other income | | | | | (2,799) | | | (1,811) | | | (738) | |
| Total noninterest income | | | | | 42,488 | | | 46,179 | | | 42,168 | |
| Total revenue, net of interest expense | | | | | 94,950 | | | 89,113 | | | 85,528 | |
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| Provision for credit losses | | | | | 2,543 | | | (4,594) | | | 11,320 | |
| | | | | | | | | |
| Noninterest expense | | | | | | | | | |
| Compensation and benefits | | | | | 36,447 | | | 36,140 | | | 32,725 | |
| Occupancy and equipment | | | | | 7,071 | | | 7,138 | | | 7,141 | |
| Information processing and communications | | | | | 6,279 | | | 5,769 | | | 5,222 | |
| Product delivery and transaction related | | | | | 3,653 | | | 3,881 | | | 3,433 | |
| Professional fees | | | | | 2,142 | | | 1,775 | | | 1,694 | |
| Marketing | | | | | 1,825 | | | 1,939 | | | 1,701 | |
| Other general operating | | | | | 4,021 | | | 3,089 | | | 3,297 | |
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| Total noninterest expense | | | | | 61,438 | | | 59,731 | | | 55,213 | |
| Income before income taxes | | | | | 30,969 | | | 33,976 | | | 18,995 | |
| Income tax expense | | | | | 3,441 | | | 1,998 | | | 1,101 | |
| Net income | | | | | $ | 27,528 | | | $ | 31,978 | | | $ | 17,894 | |
| Preferred stock dividends and other | | | | | 1,513 | | | 1,421 | | | 1,421 | |
| Net income applicable to common shareholders | | | | | $ | 26,015 | | | $ | 30,557 | | | $ | 16,473 | |
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| Per common share information | | | | | | | | | |
| Earnings | | | | | $ | 3.21 | | | $ | 3.60 | | | $ | 1.88 | |
| Diluted earnings | | | | | 3.19 | | | 3.57 | | | 1.87 | |
| | | | | | | | | |
| Average common shares issued and outstanding | | | | | 8,113.7 | | | 8,493.3 | | | 8,753.2 | |
| Average diluted common shares issued and outstanding | | | | | 8,167.5 | | | 8,558.4 | | | 8,796.9 | |
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| Consolidated Statement of Comprehensive Income | | |
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| (Dollars in millions) | | | | | 2022 | | 2021 | | 2020 |
| Net income | | | | | $ | 27,528 | | | $ | 31,978 | | | $ | 17,894 | |
| Other comprehensive income (loss), net-of-tax: | | | | | | | | | |
| Net change in debt securities | | | | | (6,028) | | | (2,077) | | | 4,799 | |
| Net change in debit valuation adjustments | | | | | 755 | | | 356 | | | (498) | |
| Net change in derivatives | | | | | (10,055) | | | (2,306) | | | 826 | |
| Employee benefit plan adjustments | | | | | (667) | | | 624 | | | (98) | |
| Net change in foreign currency translation adjustments | | | | | (57) | | | (45) | | | (52) | |
| Other comprehensive income (loss) | | | | | (16,052) | | | (3,448) | | | 4,977 | |
| Comprehensive income (loss) | | | | | $ | 11,476 | | | $ | 28,530 | | | $ | 22,871 | |
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
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| Consolidated Balance Sheet |
| | December 31 |
| (Dollars in millions) | 2022 | | 2021 |
| | | |
| Assets | | | |
| Cash and due from banks | $ | 30,334 | | | $ | 29,222 | |
| Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks | 199,869 | | | 318,999 | |
| Cash and cash equivalents | 230,203 | | | 348,221 | |
| Time deposits placed and other short-term investments | 7,259 | | | 7,144 | |
Federal funds sold and securities borrowed or purchased under agreements to resell (includes $146,999 and $150,665 measured at fair value) | 267,574 | | | 250,720 | |
Trading account assets (includes $115,505 and $103,434 pledged as collateral) | 296,108 | | | 247,080 | |
| Derivative assets | 48,642 | | | 35,344 | |
| Debt securities: | | | |
| Carried at fair value | 229,994 | | | 308,073 | |
Held-to-maturity, at cost (fair value – $524,267 and $665,890) | 632,825 | | | 674,554 | |
| Total debt securities | 862,819 | | | 982,627 | |
Loans and leases (includes $5,771 and $7,819 measured at fair value) | 1,045,747 | | | 979,124 | |
| Allowance for loan and lease losses | (12,682) | | | (12,387) | |
| Loans and leases, net of allowance | 1,033,065 | | | 966,737 | |
| Premises and equipment, net | 11,510 | | | 10,833 | |
| Goodwill | 69,022 | | | 69,022 | |
Loans held-for-sale (includes $1,115 and $4,455 measured at fair value) | 6,871 | | | 15,635 | |
| Customer and other receivables | 67,543 | | | 72,263 | |
Other assets (includes $9,594 and $12,144 measured at fair value) | 150,759 | | | 163,869 | |
| Total assets | $ | 3,051,375 | | | $ | 3,169,495 | |
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| Liabilities | | | |
| Deposits in U.S. offices: | | | |
| Noninterest-bearing | $ | 640,745 | | | $ | 784,189 | |
Interest-bearing (includes $311 and $408 measured at fair value) | 1,182,590 | | | 1,165,914 | |
| Deposits in non-U.S. offices: | | | |
| Noninterest-bearing | 20,480 | | | 27,457 | |
| Interest-bearing | 86,526 | | | 86,886 | |
| Total deposits | 1,930,341 | | | 2,064,446 | |
Federal funds purchased and securities loaned or sold under agreements to repurchase (includes $151,708 and $139,641 measured at fair value) | 195,635 | | | 192,329 | |
| Trading account liabilities | 80,399 | | | 100,690 | |
| Derivative liabilities | 44,816 | | | 37,675 | |
Short-term borrowings (includes $832 and $4,279 measured at fair value) | 26,932 | | | 23,753 | |
Accrued expenses and other liabilities (includes $9,752 and $11,489 measured at fair value and $1,540 and $1,456 of reserve for unfunded lending commitments) | 224,073 | | | 200,419 | |
Long-term debt (includes $33,070 and $29,708 measured at fair value) | 275,982 | | | 280,117 | |
| Total liabilities | 2,778,178 | | | 2,899,429 | |
Commitments and contingencies (Note 6 – Securitizations and Other Variable Interest Entities and Note 12 – Commitments and Contingencies) | | | |
| Shareholders’ equity | | | |
Preferred stock, $0.01 par value; authorized – 100,000,000 shares; issued and outstanding – 4,088,101 and 3,939,686 shares | 28,397 | | | 24,708 | |
Common stock and additional paid-in capital, $0.01 par value; authorized – 12,800,000,000 shares; issued and outstanding – 7,996,777,943 and 8,077,831,463 shares | 58,953 | | | 62,398 | |
| Retained earnings | 207,003 | | | 188,064 | |
| Accumulated other comprehensive income (loss) | (21,156) | | | (5,104) | |
| | | |
| Total shareholders’ equity | 273,197 | | | 270,066 | |
| Total liabilities and shareholders’ equity | $ | 3,051,375 | | | $ | 3,169,495 | |
| | | | |
| Assets of consolidated variable interest entities included in total assets above (isolated to settle the liabilities of the variable interest entities) | | | |
| Trading account assets | $ | 2,816 | | | $ | 5,004 | |
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| Loans and leases | 16,738 | | | 17,135 | |
| Allowance for loan and lease losses | (797) | | | (958) | |
| Loans and leases, net of allowance | 15,941 | | | 16,177 | |
| | | | |
| All other assets | 116 | | | 189 | |
| Total assets of consolidated variable interest entities | $ | 18,873 | | | $ | 21,370 | |
| Liabilities of consolidated variable interest entities included in total liabilities above | | | |
| Short-term borrowings (includes $42 and $51 of non-recourse short-term borrowings) | $ | 42 | | | $ | 247 | |
| Long-term debt (includes $4,581 and $3,587 of non-recourse debt) | 4,581 | | | 3,587 | |
| All other liabilities (includes $13 and $7 of non-recourse liabilities) | 13 | | | 7 | |
| Total liabilities of consolidated variable interest entities | $ | 4,636 | | | $ | 3,841 | |
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 | | | | |
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| 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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| Net income | | | | | | | 31,978 | | | | | | | 31,978 | |
| Net change in debt securities | | | | | | | | | (2,077) | | | | | (2,077) | |
| Net change in debit valuation adjustments | | | | | | | | | 356 | | | | | 356 | |
| Net change in derivatives | | | | | | | | | (2,306) | | | | | (2,306) | |
| Employee benefit plan adjustments | | | | | | | | | 624 | | | | | 624 | |
| Net change in foreign currency translation adjustments | | | | | | | | | (45) | | | | | (45) | |
| Dividends declared: | | | | | | | | | | | | | |
| Common | | | | | | | (6,575) | | | | | | | (6,575) | |
| Preferred | | | | | | | (1,421) | | | | | | | (1,421) | |
| Issuance of preferred stock | 2,169 | | | | | | | | | | | | | 2,169 | |
| Redemption of preferred stock | (1,971) | | | | | | | | | | | | | (1,971) | |
| Common stock issued under employee plans, net, and other | | | 42.3 | | | 1,542 | | | (6) | | | | | | | 1,536 | |
| Common stock repurchased | | | (615.3) | | | (25,126) | | | | | | | | | (25,126) | |
| Balance, December 31, 2021 | $ | 24,708 | | | 8,077.8 | | | $ | 62,398 | | | $ | 188,064 | | | $ | (5,104) | | | | | $ | 270,066 | |
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| Net income | | | | | | | 27,528 | | | | | | | 27,528 | |
| Net change in debt securities | | | | | | | | | (6,028) | | | | | (6,028) | |
| Net change in debit valuation adjustments | | | | | | | | | 755 | | | | | 755 | |
| Net change in derivatives | | | | | | | | | (10,055) | | | | | (10,055) | |
| Employee benefit plan adjustments | | | | | | | | | (667) | | | | | (667) | |
| Net change in foreign currency translation adjustments | | | | | | | | | (57) | | | | | (57) | |
| Dividends declared: | | | | | | | | | | | | | |
| Common | | | | | | | (6,963) | | | | | | | (6,963) | |
| Preferred | | | | | | | (1,596) | | | | | | | (1,596) | |
| Issuance of preferred stock | 4,426 | | | | | | | | | | | | | 4,426 | |
| Redemption of preferred stock | (737) | | | | | 83 | | | | | | | | | (654) | |
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| Common stock issued under employee plans, net, and other | | | 44.9 | | | 1,545 | | | (30) | | | | | | | 1,515 | |
| Common stock repurchased | | | (125.9) | | | (5,073) | | | | | | | | | (5,073) | |
| Balance, December 31, 2022 | $ | 28,397 | | | 7,996.8 | | | $ | 58,953 | | | $ | 207,003 | | | $ | (21,156) | | | | | $ | 273,197 | |
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
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| Consolidated Statement of Cash Flows | | | | |
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| (Dollars in millions) | 2022 | | 2021 | | 2020 | | | | |
| Operating activities | | | | | | | | | |
| Net income | $ | 27,528 | | | $ | 31,978 | | | $ | 17,894 | | | | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | |
| Provision for credit losses | 2,543 | | | (4,594) | | | 11,320 | | | | | |
| Gains on sales of debt securities | (32) | | | (22) | | | (411) | | | | | |
| Depreciation and amortization | 1,978 | | | 1,898 | | | 1,843 | | | | | |
| Net amortization of premium/discount on debt securities | 2,072 | | | 5,837 | | | 4,101 | | | | | |
| Deferred income taxes | 739 | | | (838) | | | (1,737) | | | | | |
| Stock-based compensation | 2,862 | | | 2,768 | | | 2,031 | | | | | |
| | | | | | | | | |
| Loans held-for-sale: | | | | | | | | | |
| Originations and purchases | (24,862) | | | (43,635) | | | (19,657) | | | | | |
Proceeds from sales and paydowns of loans originally classified as held for sale and instruments from related securitization activities | 31,567 | | | 34,684 | | | 19,049 | | | | | |
| Net change in: | | | | | | | | | |
| Trading and derivative assets/liabilities | (95,772) | | | (22,104) | | | 16,942 | | | | | |
| Other assets | 20,799 | | | (34,455) | | | (12,883) | | | | | |
| Accrued expenses and other liabilities | 23,029 | | | 16,639 | | | (4,385) | | | | | |
| Other operating activities, net | 1,222 | | | 4,651 | | | 3,886 | | | | | |
| Net cash provided by (used in) operating activities | (6,327) | | | (7,193) | | | 37,993 | | | | | |
| Investing activities | | | | | | | | | |
| Net change in: | | | | | | | | | |
| Time deposits placed and other short-term investments | (115) | | | (598) | | | 561 | | | | | |
| Federal funds sold and securities borrowed or purchased under agreements to resell | (16,854) | | | 53,338 | | | (29,461) | | | | | |
| Debt securities carried at fair value: | | | | | | | | | |
| Proceeds from sales | 69,114 | | | 6,893 | | | 77,524 | | | | | |
| Proceeds from paydowns and maturities | 110,195 | | | 159,616 | | | 91,084 | | | | | |
| Purchases | (134,962) | | | (238,398) | | | (194,877) | | | | | |
| Held-to-maturity debt securities: | | | | | | | | | |
| Proceeds from paydowns and maturities | 63,852 | | | 124,880 | | | 93,835 | | | | | |
| Purchases | (24,096) | | | (362,736) | | | (257,535) | | | | | |
| Loans and leases: | | | | | | | | | |
Proceeds from sales of loans originally classified as held for investment and instruments from related securitization activities | 26,757 | | | 10,396 | | | 13,351 | | | | | |
| Purchases | (5,798) | | | (5,164) | | | (5,229) | | | | | |
| Other changes in loans and leases, net | (86,010) | | | (58,039) | | | 36,571 | | | | | |
| Other investing activities, net | (4,612) | | | (3,479) | | | (3,489) | | | | | |
| Net cash used in investing activities | (2,529) | | | (313,291) | | | (177,665) | | | | | |
| Financing activities | | | | | | | | | |
| Net change in: | | | | | | | | | |
| Deposits | (134,190) | | | 268,966 | | | 360,677 | | | | | |
| Federal funds purchased and securities loaned or sold under agreements to repurchase | 3,306 | | | 22,006 | | | 5,214 | | | | | |
| Short-term borrowings | 3,179 | | | 4,432 | | | (4,893) | | | | | |
| Long-term debt: | | | | | | | | | |
| Proceeds from issuance | 65,910 | | | 76,675 | | | 57,013 | | | | | |
| Retirement | (34,055) | | | (46,826) | | | (47,948) | | | | | |
| Preferred stock: | | | | | | | | | |
| Proceeds from issuance | 4,426 | | | 2,169 | | | 2,181 | | | | | |
| Redemption | (654) | | | (1,971) | | | (1,072) | | | | | |
| Common stock repurchased | (5,073) | | | (25,126) | | | (7,025) | | | | | |
| Cash dividends paid | (8,576) | | | (8,055) | | | (7,727) | | | | | |
| Other financing activities, net | (312) | | | (620) | | | (601) | | | | | |
| Net cash provided by (used in) financing activities | (106,039) | | | 291,650 | | | 355,819 | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | (3,123) | | | (3,408) | | | 2,756 | | | | | |
| Net increase (decrease) in cash and cash equivalents | (118,018) | | | (32,242) | | | 218,903 | | | | | |
| Cash and cash equivalents at January 1 | 348,221 | | | 380,463 | | | 161,560 | | | | | |
| Cash and cash equivalents at December 31 | $ | 230,203 | | | $ | 348,221 | | | $ | 380,463 | | | | | |
| Supplemental cash flow disclosures | | | | | | | | | |
| Interest paid | $ | 18,526 | | | $ | 4,506 | | | $ | 8,662 | | | | | |
| Income taxes paid, net | 2,288 | | | 2,760 | | | 2,894 | | | | | |
| | | | | | | | | |
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, which include the Corporation’s interests in affordable housing and renewable energy partnerships, are recorded 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
Hedge Accounting
The FASB issued a new accounting standard that makes targeted improvements to the application of the fair value hedge accounting guidance for closed portfolios of financial assets. The targeted improvements were effective January 1, 2023 on a prospective basis.
Financial Instruments – Credit Losses
The FASB amended the accounting and disclosure requirements for expected credit losses (ECL) by removing the recognition and measurement guidance on troubled debt restructurings (TDRs) and adding disclosures on the financial effect and subsequent performance of certain types of modifications made to borrowers experiencing financial difficulties. The effects of these changes on the Corporation’s consolidated financial position, results of operations or disclosures in the Notes to the Consolidated Financial Statements are not significant. The amendments were effective on January 1, 2023, which the Corporation adopted using a modified retrospective approach.
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. In instances where the interest is negative, the Corporation’s policy is to present negative interest on financial assets as interest income and negative interest on financial liabilities as interest expense. For securities financing agreements that are accounted for under the fair value option, the changes in the fair value of these securities financing agreements 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.
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 inassessing 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 ECL. 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 expected 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 receivable. 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 receivable 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 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
On January 1, 2020, the Corporation adopted the new accounting standard that requires the measurement of the allowance for credit losses, which includes both the allowance for loan and lease losses and the reserve for unfunded lending commitments, to be based on management’s best 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. TheUpon adoption, a $3.3 billion, or 32 percent, increase in the allowance for credit losses was recorded on January 1, 2020, which was comprised of a net increase of $2.9 billion in the allowance for loan and lease losses representsand a $310 million increase in the estimated probable credit lossesreserve for unfunded lending commitments. The ECL 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 lending commitments is reported in the Consolidated Statement of Income at the amount necessary to adjust the allowance for credit instruments based on utilization assumptions. Lending-related credit exposures deemedlosses to be uncollectible, excludingthe current estimate of ECL.
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 TDRs 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 three 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. When a nonaccrual loan is deemed uncollectible, it is charged off against the allowance for credit losses. If the charged-off amount is later recovered, the amount is reversed through the allowance for credit losses at the recovery date. Charge-offs are reported net of recoveries (net charge-offs). If recoveries for the period are greater than charge-offs, net charge-offs are reported as a negative amount.
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, creditCredit 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 chargedcharged off to collateral value no later thanwhen 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 accountloan becomes 180 days past due, or within 60 days after receipt of notification of death or bankruptcy or upon confirmation of fraud. These loans continue to accrue interest until they are charged off and, therefore, are not reported as nonperforming loans. Consumer vehicle loans are placed on nonaccrual status when they become 90 days past due, within 60 days after receipt of notification of bankruptcy or death or upon confirmation of fraud. These loans are charged off to their collateral values when the loans become 120 days past due, upon repossession of the collateral, within 60 days after receipt of notification of bankruptcy or death or upon confirmation of fraud. If repossession of the collateral is not expected, the loans are fully charged off.
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.
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.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 zero. 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.recognized for the amount by
This step involves calculating an implied fair value of goodwill
which is the excess of the fair value of the reporting unit, as determined in the first step, over the 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.
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
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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. | Bank of America 100 |
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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. |
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, 2022, 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 Agreements
The Corporation contracts with other organizations to obtain their endorsement of the Corporation’s loan and deposit products. This endorsement may provide to the Corporation exclusive rights to market to the organization’s members or to customers on behalf of the Corporation. These organizations endorse the Corporation’s loan and deposit products and provide the Corporation with their mailing lists and marketing activities. These agreements generally have terms that range five or more years. The Corporation typically pays royalties in exchange for the endorsement. Compensation costs related to the credit card agreements are recorded as contra-revenue in card income.
Cardholder Reward Agreements
The Corporation offers reward programs that allow its cardholders to earn points that can be redeemed for a broad range of rewards including cash, travel and gift cards. The Corporation establishes a rewards liability based upon the points earned that are expected to be redeemed and the average cost per point redeemed. The points to be redeemed are estimated based on past redemption behavior, card product type, account transaction activity and other historical card performance. The liability is reduced as the points are redeemed. The estimated cost of the rewards programs is recorded as contra-revenue in card income.
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NOTE 2Net Interest Income and Noninterest Income
The table below presents the Corporation’s net interest income and noninterest income disaggregated by revenue source for 2022, 2021 and 2020. 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) | 2022 | | 2021 | | 2020 | | | | | | | | | | | |
| Net interest income | | | | | | | | | | | | | | | | |
| Interest income | | | | | | | | | | | | | | | | |
| Loans and leases | $ | 37,919 | | | $ | 29,282 | | | $ | 34,029 | | | | | | | | | | | | |
| Debt securities | 17,127 | | | 12,376 | | | 9,790 | | | | | | | | | | | | |
Federal funds sold and securities borrowed or purchased under agreements to resell (1) | 4,560 | | | (90) | | | 903 | | | | | | | | | | | | |
| Trading account assets | 5,521 | | | 3,770 | | | 4,128 | | | | | | | | | | | | |
| Other interest income | 7,438 | | | 2,334 | | | 2,735 | | | | | | | | | | | | |
| Total interest income | 72,565 | | | 47,672 | | | 51,585 | | | | | | | | | | | | |
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| Interest expense | | | | | | | | | | | | | | | | |
| Deposits | 4,718 | | | 537 | | | 1,943 | | | | | | | | | | | | |
Short-term borrowings (1) | 6,978 | | | (358) | | | 987 | | | | | | | | | | | | |
| Trading account liabilities | 1,538 | | | 1,128 | | | 974 | | | | | | | | | | | | |
| Long-term debt | 6,869 | | | 3,431 | | | 4,321 | | | | | | | | | | | | |
| Total interest expense | 20,103 | | | 4,738 | | | 8,225 | | | | | | | | | | | | |
| Net interest income | $ | 52,462 | | | $ | 42,934 | | | $ | 43,360 | | | | | | | | | | | | |
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| Noninterest income | | | | | | | | | | | | | | | | |
| Fees and commissions | | | | | | | | | | | | | | | | |
| Card income | | | | | | | | | | | | | | | | |
Interchange fees (2) | $ | 4,096 | | | $ | 4,560 | | | $ | 3,954 | | | | | | | | | | | | |
| Other card income | 1,987 | | | 1,658 | | | 1,702 | | | | | | | | | | | | |
| Total card income | 6,083 | | | 6,218 | | | 5,656 | | | | | | | | | | | | |
| Service charges | | | | | | | | | | | | | | | | |
| Deposit-related fees | 5,190 | | | 6,271 | | | 5,991 | | | | | | | | | | | | |
| Lending-related fees | 1,215 | | | 1,233 | | | 1,150 | | | | | | | | | | | | |
| Total service charges | 6,405 | | | 7,504 | | | 7,141 | | | | | | | | | | | | |
| Investment and brokerage services | | | | | | | | | | | | | | | | |
| Asset management fees | 12,152 | | | 12,729 | | | 10,708 | | | | | | | | | | | | |
| Brokerage fees | 3,749 | | | 3,961 | | | 3,866 | | | | | | | | | | | | |
| Total investment and brokerage services | 15,901 | | | 16,690 | | | 14,574 | | | | | | | | | | | | |
| Investment banking fees | | | | | | | | | | | | | | | | |
| Underwriting income | 1,970 | | | 5,077 | | | 4,698 | | | | | | | | | | | | |
| Syndication fees | 1,070 | | | 1,499 | | | 861 | | | | | | | | | | | | |
| Financial advisory services | 1,783 | | | 2,311 | | | 1,621 | | | | | | | | | | | | |
| Total investment banking fees | 4,823 | | | 8,887 | | | 7,180 | | | | | | | | | | | | |
| Total fees and commissions | 33,212 | | | 39,299 | | | 34,551 | | | | | | | | | | | | |
| Market making and similar activities | 12,075 | | | 8,691 | | | 8,355 | | | | | | | | | | | | |
| Other income (loss) | (2,799) | | | (1,811) | | | (738) | | | | | | | | | | | | |
| Total noninterest income | $ | 42,488 | | | $ | 46,179 | | | $ | 42,168 | | | | | | | | | | | | |
(1)For more information on negative interest, see Note 1 – Summary of Significant Accounting Principles.
(2)Gross interchange fees and merchant income were $12.9 billion, $11.5 billion and $9.2 billion for 2022, 2021, and 2020, respectively, and are presented net of $8.8 billion, $6.9 billion and $5.5 billion of expenses for rewards and partner payments as well as certain other card costs for the same periods.
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. The following tables present derivative instruments included on the Consolidated Balance Sheet in derivative assets and liabilities at December 31, 20172022 and 2016.2021. 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, 2022 |
| | | 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 | $ | 18,285.9 | | | $ | 138.2 | | | $ | 20.7 | | | $ | 158.9 | | | $ | 120.3 | | | $ | 36.7 | | | $ | 157.0 | |
| Futures and forwards | 2,796.3 | | | 8.6 | | | — | | | 8.6 | | | 7.8 | | | — | | | 7.8 | |
Written options (2) | 1,657.9 | | | — | | | — | | | — | | | 41.4 | | | — | | | 41.4 | |
Purchased options (3) | 1,594.7 | | | 42.4 | | | — | | | 42.4 | | | — | | | — | | | — | |
| Foreign exchange contracts | | | | | | | | | | | | | |
| Swaps | 1,509.0 | | | 44.0 | | | 0.3 | | | 44.3 | | | 43.3 | | | 0.4 | | | 43.7 | |
| Spot, futures and forwards | 4,159.3 | | | 59.9 | | | 0.1 | | | 60.0 | | | 62.1 | | | 0.6 | | | 62.7 | |
Written options (2) | 392.2 | | | — | | | — | | | — | | | 8.1 | | | — | | | 8.1 | |
Purchased options (3) | 362.6 | | | 8.3 | | | — | | | 8.3 | | | — | | | — | | | — | |
| Equity contracts | | | | | | | | | | | | | |
| Swaps | 394.0 | | | 10.8 | | | — | | | 10.8 | | | 12.2 | | | — | | | 12.2 | |
| Futures and forwards | 114.6 | | | 3.3 | | | — | | | 3.3 | | | 1.0 | | | — | | | 1.0 | |
Written options (2) | 746.8 | | | — | | | — | | | — | | | 45.0 | | | — | | | 45.0 | |
Purchased options (3) | 671.6 | | | 40.9 | | | — | | | 40.9 | | | — | | | — | | | — | |
| Commodity contracts | | | | | | | | | | | | | |
| Swaps | 56.0 | | | 5.1 | | | — | | | 5.1 | | | 5.3 | | | — | | | 5.3 | |
| Futures and forwards | 157.3 | | | 3.0 | | | — | | | 3.0 | | | 2.3 | | | 0.8 | | | 3.1 | |
Written options (2) | 59.5 | | | — | | | — | | | — | | | 3.3 | | | — | | | 3.3 | |
Purchased options (3) | 61.8 | | | 3.6 | | | — | | | 3.6 | | | — | | | — | | | — | |
Credit derivatives (4) | | | | | | | | | | | | | |
| Purchased credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 319.9 | | | 2.8 | | | — | | | 2.8 | | | 1.6 | | | — | | | 1.6 | |
| Total return swaps/options | 71.5 | | | 0.7 | | | — | | | 0.7 | | | 3.0 | | | — | | | 3.0 | |
| Written credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 295.2 | | | 1.2 | | | — | | | 1.2 | | | 2.4 | | | — | | | 2.4 | |
| Total return swaps/options | 85.3 | | | 4.4 | | | — | | | 4.4 | | | 0.9 | | | — | | | 0.9 | |
| Gross derivative assets/liabilities | | | $ | 377.2 | | | $ | 21.1 | | | $ | 398.3 | | | $ | 360.0 | | | $ | 38.5 | | | $ | 398.5 | |
| Less: Legally enforceable master netting agreements | | | | | | | (315.9) | | | | | | | (315.9) | |
| Less: Cash collateral received/paid | | | | | | | (33.8) | | | | | | | (37.8) | |
| Total derivative assets/liabilities | | | | | | | $ | 48.6 | | | | | | | $ | 44.8 | |
(1)Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2)Includes certain out-of-the-money purchased options that have a liability amount primarily due to the deferral of the option premiums to the end of the contract.
(3)Includes certain out-of-the-money written options that have an asset amount primarily due to the deferral of the option premiums to the end of the contract.
(4)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 $(1.2) billion and $276.9 billion at December 31, 2022.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | 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.
|
|
| | |
113Bank of America 2017104
| | |
| | | | | | | | | | | | | | | | | |
| | | | December 31, 2016 | | December 31, 2021 |
| | | | Gross Derivative Assets | | Gross Derivative Liabilities | | 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 | (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 | |
| | |
| | |
| | |
| | |
| | |
| | |
| Interest rate contracts | | | | | | | | | | | | | |
| Swaps | $ | 16,977.7 |
| | $ | 385.0 |
| | $ | 5.9 |
| | $ | 390.9 |
| | $ | 386.9 |
| | $ | 2.0 |
| | $ | 388.9 |
| Swaps | $ | 18,068.1 | | | $ | 150.5 | | | $ | 8.9 | | | $ | 159.4 | | | $ | 156.4 | | | $ | 4.4 | | | $ | 160.8 | |
| Futures and forwards | 5,609.5 |
| | 2.2 |
| | — |
| | 2.2 |
| | 2.1 |
| | — |
| | 2.1 |
| Futures and forwards | 2,243.2 | | | 1.1 | | | — | | | 1.1 | | | 1.0 | | | — | | | 1.0 | |
| Written options | 1,146.2 |
| | — |
| | — |
| | — |
| | 52.2 |
| | — |
| | 52.2 |
| |
| Purchased options | 1,178.7 |
| | 53.3 |
| | — |
| | 53.3 |
| | — |
| | — |
| | — |
| |
Written options (2) | | Written options (2) | 1,616.1 | | | — | | | — | | | — | | | 28.8 | | | — | | | 28.8 | |
Purchased options (3) | | Purchased options (3) | 1,673.6 | | | 33.1 | | | — | | | 33.1 | | | — | | | — | | | — | |
| Foreign exchange contracts | | | |
| | |
| | |
| | |
| | |
| | |
| Foreign exchange contracts | | | | | | | | | | | | |
| Swaps | 1,828.6 |
| | 54.6 |
| | 4.2 |
| | 58.8 |
| | 58.8 |
| | 6.2 |
| | 65.0 |
| Swaps | 1,420.9 | | | 28.6 | | | 0.2 | | | 28.8 | | | 30.5 | | | 0.2 | | | 30.7 | |
| Spot, futures and forwards | 3,410.7 |
| | 58.8 |
| | 1.7 |
| | 60.5 |
| | 56.6 |
| | 0.8 |
| | 57.4 |
| Spot, futures and forwards | 4,087.2 | | | 37.1 | | | 0.3 | | | 37.4 | | | 37.7 | | | 0.2 | | | 37.9 | |
| Written options | 356.6 |
| | — |
| | — |
| | — |
| | 9.4 |
| | — |
| | 9.4 |
| |
| Purchased options | 342.4 |
| | 8.9 |
| | — |
| | 8.9 |
| | — |
| | — |
| | — |
| |
Written options (2) | | Written options (2) | 287.2 | | | — | | | — | | | — | | | 4.1 | | | — | | | 4.1 | |
Purchased options (3) | | Purchased options (3) | 267.6 | | | 4.1 | | | — | | | 4.1 | | | — | | | — | | | — | |
| Equity contracts | |
| | |
| | |
| | |
| | |
| | |
| | |
| Equity contracts | | | | | | | | | | | | | |
| Swaps | 189.7 |
| | 3.4 |
| | — |
| | 3.4 |
| | 4.0 |
| | — |
| | 4.0 |
| Swaps | 443.8 | | | 12.3 | | | — | | | 12.3 | | | 14.5 | | | — | | | 14.5 | |
| Futures and forwards | 68.7 |
| | 0.9 |
| | — |
| | 0.9 |
| | 0.9 |
| | — |
| | 0.9 |
| Futures and forwards | 113.3 | | | 0.5 | | | — | | | 0.5 | | | 1.7 | | | — | | | 1.7 | |
| Written options | 431.5 |
| | — |
| | — |
| | — |
| | 21.4 |
| | — |
| | 21.4 |
| |
| Purchased options | 385.5 |
| | 23.9 |
| | — |
| | 23.9 |
| | — |
| | — |
| | — |
| |
Written options (2) | | Written options (2) | 737.7 | | | — | | | — | | | — | | | 58.5 | | | — | | | 58.5 | |
Purchased options (3) | | Purchased options (3) | 657.0 | | | 55.9 | | | — | | | 55.9 | | | — | | | — | | | — | |
| Commodity contracts | |
| | |
| | |
| | |
| | |
| | |
| | |
| Commodity contracts | | | | | | | | | | | | | |
| Swaps | 48.2 |
| | 2.5 |
| | — |
| | 2.5 |
| | 5.1 |
| | — |
| | 5.1 |
| Swaps | 47.7 | | | 3.1 | | | — | | | 3.1 | | | 6.0 | | | — | | | 6.0 | |
| Futures and forwards | 49.1 |
| | 3.6 |
| | — |
| | 3.6 |
| | 0.5 |
| | — |
| | 0.5 |
| Futures and forwards | 101.5 | | | 2.3 | | | — | | | 2.3 | | | 0.3 | | | 1.1 | | | 1.4 | |
| Written options | 29.3 |
| | — |
| | — |
| | — |
| | 1.9 |
| | — |
| | 1.9 |
| |
| Purchased options | 28.9 |
| | 2.0 |
| | — |
| | 2.0 |
| | — |
| | — |
| | — |
| |
Credit derivatives (2) | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Written options (2) | | Written options (2) | 44.4 | | | — | | | — | | | — | | | 2.6 | | | — | | | 2.6 | |
Purchased options (3) | | Purchased options (3) | 38.3 | | | 3.2 | | | — | | | 3.2 | | | — | | | — | | | — | |
Credit derivatives (4) | | Credit derivatives (4) | | | | | | | | | | | | | |
| Purchased credit derivatives: | |
| | |
| | |
| | |
| | |
| | |
| | |
| Purchased credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 604.0 |
| | 8.1 |
| | — |
| | 8.1 |
| | 10.3 |
| | — |
| | 10.3 |
| Credit default swaps | 297.0 | | | 1.9 | | | — | | | 1.9 | | | 4.3 | | | — | | | 4.3 | |
| Total return swaps/options | 21.2 |
| | 0.4 |
| | — |
| | 0.4 |
| | 1.5 |
| | — |
| | 1.5 |
| Total return swaps/options | 85.3 | | | 0.2 | | | — | | | 0.2 | | | 1.1 | | | — | | | 1.1 | |
| Written credit derivatives: | |
| | |
| | |
| | |
| | | | |
| | |
| Written credit derivatives: | | | | | | | | | | | |
| Credit default swaps | 614.4 |
| | 10.7 |
| | — |
| | 10.7 |
| | 7.5 |
| | — |
| | 7.5 |
| Credit default swaps | 279.8 | | | 4.2 | | | — | | | 4.2 | | | 1.6 | | | — | | | 1.6 | |
| Total return swaps/options | 25.4 |
| | 1.0 |
| | — |
| | 1.0 |
| | 0.2 |
| | — |
| | 0.2 |
| Total return swaps/options | 85.3 | | | 0.9 | | | — | | | 0.9 | | | 0.5 | | | — | | | 0.5 | |
| Gross derivative assets/liabilities | |
| | $ | 619.3 |
| | $ | 11.8 |
| | $ | 631.1 |
| | $ | 619.3 |
| | $ | 9.0 |
| | $ | 628.3 |
| Gross derivative assets/liabilities | | | $ | 339.0 | | | $ | 9.4 | | | $ | 348.4 | | | $ | 349.6 | | | $ | 5.9 | | | $ | 355.5 | |
| Less: Legally enforceable master netting agreements | |
| | |
| | |
| | (545.3 | ) | | |
| | |
| | (545.3 | ) | Less: Legally enforceable master netting agreements | | | | | | | (282.3) | | | | | | | (282.3) | |
| Less: Cash collateral received/paid | |
| | |
| | |
| | (43.3 | ) | | |
| | |
| | (43.5 | ) | Less: Cash collateral received/paid | | | | | | | (30.8) | | | | | | | (35.5) | |
| Total derivative assets/liabilities | |
| | |
| | |
| | $ | 42.5 |
| | |
| | |
| | $ | 39.5 |
| Total derivative assets/liabilities | | | | | | | $ | 35.3 | | | | | | | $ | 37.7 | |
| |
(1)(1)Represents the total contract/notional amount of derivative assets and liabilities outstanding. (2)Includes certain out-of-the-money purchased options that have a liability amount primarily due to the deferral of the option premiums to the end of the contract. (3)Includes certain out-of-the-money written options that have an asset amount primarily due to the deferral of the option premiums to the end of the contract. (4)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 $2.3 billion and $258.4 billion at December 31, 2021. | 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, 20172022 and 20162021 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, Collateral and Restricted Cash.
|
| | | | | | | |
| | 105Bank of America 2017114 | | |
| | | | | | | | | | | |
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, 2022 | | December 31, 2021 |
| Interest rate contracts | |
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| | |
| | |
| Interest rate contracts | | | | | | | |
| Over-the-counter | $ | 211.7 |
| | $ | 206.0 |
| | $ | 267.3 |
| | $ | 258.2 |
| Over-the-counter | $ | 138.4 | | | $ | 132.3 | | | $ | 171.3 | | | $ | 166.3 | |
Over-the-counter cleared (2) | 1.9 |
| | 1.8 |
| | 177.2 |
| | 182.8 |
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| Exchange-traded | | Exchange-traded | 0.4 | | | 0.1 | | | 0.2 | | | — | |
| Over-the-counter cleared | | Over-the-counter cleared | 71.4 | | | 71.1 | | | 22.6 | | | 22.5 | |
| Foreign exchange contracts | | | | | | | | Foreign exchange contracts | |
| Over-the-counter | 78.7 |
| | 80.8 |
| | 124.3 |
| | 126.7 |
| Over-the-counter | 109.7 | | | 110.6 | | | 67.9 | | | 70.5 | |
| Over-the-counter cleared | 0.9 |
| | 0.7 |
| | 0.3 |
| | 0.3 |
| Over-the-counter cleared | 1.3 | | | 1.2 | | | 1.1 | | | 1.1 | |
| Equity contracts | | | | | | | | Equity contracts | |
| Over-the-counter | 18.3 |
| | 16.2 |
| | 15.6 |
| | 13.7 |
| Over-the-counter | 21.5 | | | 22.6 | | | 29.2 | | | 32.9 | |
| Exchange-traded | 9.1 |
| | 8.5 |
| | 11.4 |
| | 10.8 |
| Exchange-traded | 33.0 | | | 33.8 | | | 38.3 | | | 38.4 | |
| Commodity contracts | | | | | | | | Commodity contracts | |
| Over-the-counter | 2.9 |
| | 4.4 |
| | 3.7 |
| | 4.9 |
| Over-the-counter | 8.3 | | | 9.3 | | | 6.1 | | | 7.6 | |
| Exchange-traded | 0.7 |
| | 0.8 |
| | 1.1 |
| | 1.0 |
| Exchange-traded | 2.4 | | | 1.9 | | | 1.4 | | | 1.3 | |
| Over-the-counter cleared | | Over-the-counter cleared | 0.3 | | | 0.3 | | | 0.1 | | | 0.1 | |
| Credit derivatives | | | | | | | | Credit derivatives | |
| Over-the-counter | 9.1 |
| | 9.6 |
| | 15.3 |
| | 14.7 |
| Over-the-counter | 8.9 | | | 7.5 | | | 5.2 | | | 5.3 | |
Over-the-counter cleared (2) | 6.1 |
| | 6.0 |
| | 4.3 |
| | 4.3 |
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| Over-the-counter cleared | | Over-the-counter cleared | — | | | — | | | 1.8 | | | 1.8 | |
| 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 | 286.8 | | | 282.3 | | | 279.7 | | | 282.6 | |
| Exchange-traded | 9.8 |
| | 9.3 |
| | 12.5 |
| | 11.8 |
| Exchange-traded | 35.8 | | | 35.8 | | | 39.9 | | | 39.7 | |
Over-the-counter cleared (2) | 8.9 |
| | 8.5 |
| | 181.8 |
| | 187.4 |
| |
| Over-the-counter cleared | | Over-the-counter cleared | 73.0 | | | 72.6 | | | 25.6 | | | 25.5 | |
| 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 | (243.8) | | | (248.2) | | | (250.3) | | | (254.6) | |
| Exchange-traded | (8.6 | ) | | (8.6 | ) | | (8.9 | ) | | (8.9 | ) | Exchange-traded | (33.5) | | | (33.5) | | | (37.8) | | | (37.8) | |
Over-the-counter cleared (2) | (8.3 | ) | | (8.5 | ) | | (181.5 | ) | | (187.3 | ) | |
| Over-the-counter cleared | | Over-the-counter cleared | (72.4) | | | (72.0) | | | (25.0) | | | (25.4) | |
| Derivative assets/liabilities, after netting | 25.6 |
| | 23.1 |
| | 31.9 |
| | 28.6 |
| Derivative assets/liabilities, after netting | 45.9 | | | 37.0 | | | 32.1 | | | 30.0 | |
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) | 2.7 | | | 7.8 | | | 3.2 | | | 7.7 | |
| Total derivative assets/liabilities | 37.8 |
| | 34.3 |
| | 42.5 |
| | 39.5 |
| Total derivative assets/liabilities | 48.6 | | | 44.8 | | | 35.3 | | | 37.7 | |
Less: Financial instruments collateral (4) | (11.2 | ) | | (10.4 | ) | | (13.5 | ) | | (10.5 | ) | |
Less: Financial instruments collateral (3) | | Less: Financial instruments collateral (3) | (18.5) | | | (7.4) | | | (11.8) | | | (10.6) | |
| Total net derivative assets/liabilities | $ | 26.6 |
| | $ | 23.9 |
| | $ | 29.0 |
| | $ | 29.0 |
| Total net derivative assets/liabilities | $ | 30.1 | | | $ | 37.4 | | | $ | 23.5 | | | $ | 27.1 | |
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(1)(1)Over-the-counter derivatives include bilateral transactions between the Corporation and a particular counterparty. Over-the-counter 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. |
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(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.
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(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. |
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(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 foreign 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-denominatedcurrency-
denominated debt (net investment hedges).
Fair Value Hedges
The following table below summarizes information related to fair value hedges for 2017, 20162022, 2021 and 2015, including hedges2020.
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| Gains and Losses on Derivatives Designated as Fair Value Hedges | | | | | | |
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| | | | | Derivative | | Hedged Item |
| (Dollars in millions) | | | | | | | | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
Interest rate risk on long-term debt (1) | | | | | | | | | $ | (26,654) | | | $ | (7,018) | | | $ | 7,091 | | | $ | 26,825 | | | $ | 6,838 | | | $ | (7,220) | |
Interest rate and foreign currency risk on long-term debt (2) | | | | | | | | | (120) | | | (90) | | | 783 | | | 119 | | | 79 | | | (783) | |
Interest rate risk on available-for-sale securities (3) | | | | | | | | | 21,991 | | | 5,203 | | | (44) | | | (22,280) | | | (5,167) | | | 49 | |
Price risk on commodity inventory (4) | | | | | | | | | 674 | | | — | | | — | | | (674) | | | — | | | — | |
| Total | | | | | | | | | $ | (4,109) | | | $ | (1,905) | | | $ | 7,830 | | | $ | 3,990 | | | $ | 1,750 | | | $ | (7,954) | |
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(1)Amounts are recorded in interest expense in the Consolidated Statement of Income.
(2)For 2022, 2021 and 2020, the derivative amount includes gains (losses) of $(37) million, $(73) million and $701 million in interest rate riskexpense, $(81) million, $0 and $73 million in market making and similar activities, and $(2) million, $(17) million and $9 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.
(4)Amounts are recorded in market making and similar activities 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 and Liabilities | |
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| December 31, 2022 | | December 31, 2021 | | | | | |
| (Dollars in millions) | Carrying Value | | Cumulative Fair Value Adjustments (1) | | Carrying Value | | Cumulative Fair Value Adjustments (1) | | | | | |
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Long-term debt (2) | $ | 187,402 | | | $ | (21,372) | | | $ | 181,745 | | | $ | 3,987 | | | | | | |
Available-for-sale debt securities (2, 3, 4) | 167,518 | | | (18,190) | | | 209,038 | | | (2,294) | | | | | | |
Trading account assets (5) | 16,119 | | | 146 | | | 2,067 | | | 32 | | | | | | |
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(1)Increase (decrease) to carrying value.
(2)At December 31, 2022 and 2021, the cumulative fair value adjustments remaining on long-term debt that were acquired as partand available-for-sale debt securities from discontinued hedging relationships resulted in an increase of $137 million and $1.5 billion in the related liability and a business combinationdecrease in the related asset of $4.9 billion and redesignated at that time. At redesignation,$1.0 billion, which are being amortized over the fair valueremaining contractual life of the derivativesde-designated hedged items.
(3)These amounts include the amortized cost 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, 2022 and 2021, 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$21.4 billion and the fair value changes$21.1 billion, of which $9.2 billion and $6.9 billion was designated in the derivativeslast-of-layer hedging relationship. At December 31, 2022 and 2021, the long-term debt being hedged may be directionally the same incumulative adjustment associated with these hedging relationships was a decrease of $451 million and $172 million.
(4)Carrying value represents amortized cost.
(5)Represents hedging activities related to certain scenarios. Based on a regression analysis, the derivatives continue to be highly effective at offsetting changes in the fair value of the long-term debt attributable to interest rate risk.commodities inventory.
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| Derivatives Designated as Fair Value Hedges | | | | | | | | | | | | | | |
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| 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 | ) |
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(1)
| Amounts are recorded in interest expense on long-term debt and in other income. |
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(2)
| Amounts are recorded in interest income on debt securities. |
Cash Flow and Net Investment Hedges
The table below summarizes certain information related to cash flow hedges and net investment hedges for 2017, 2016,2022, 2021 and 2015.2020. Of the $831 million$11.9 billion after-tax net loss ($1.315.9 billion pre-tax)pretax) on derivatives in accumulated OCI at December 31, 2017, $130 million2022, losses of $4.4 billion after-tax ($208 million pre-tax) is5.9 billion pretax) related to both open and terminated cash flow hedges are expected to be reclassified into earnings in the next 12 months. These net losses reclassified into earnings are expected
to primarily reducedecrease net interest income
related to the respective hedged items. Amounts related to price risk on restricted stock awards reclassified from accumulated OCIFor open cash flow hedges, the maximum length of time over which forecasted transactions are recorded in personnel expense.hedged is approximately seven years. For terminated cash flow hedges, the time period over which the majority of the forecasted transactions are hedgedwill be recognized in interest income is approximately sevenfive years, with a maximum length ofthe aggregated amount beyond this time for certain forecasted transactions of 19 years.period being insignificant.
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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) | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | | | |
| Cash flow hedges | | | | | | | | | | | | | | | | | | | |
Interest rate risk on variable-rate portfolios (1) | $ | (13,492) | | | $ | (2,686) | | | $ | 763 | | | $ | (338) | | | $ | 148 | | | $ | (7) | | | | | | | | | |
Price risk on forecasted MBS purchases (1) | (129) | | | (249) | | | 241 | | | 11 | | | 26 | | | 9 | | | | | | | | | |
Price risk on certain compensation plans (2) | (88) | | | 93 | | | 85 | | | 29 | | | 55 | | | 12 | | | | | | | | | |
| Total | $ | (13,709) | | | $ | (2,842) | | | $ | 1,089 | | | $ | (298) | | | $ | 229 | | | $ | 14 | | | | | | | | | |
| Net investment hedges | | | | | | | | | | | | | | | | | | | |
Foreign exchange risk (3) | $ | 1,710 | | | $ | 1,451 | | | $ | (834) | | | $ | 3 | | | $ | 23 | | | $ | 4 | | | | | | | | | |
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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 losses of $38 million, $123 million and $11 million in 2022, 2021 and 2020, respectively.
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| 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 pre-tax) | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Cash flow hedges | | | | | | | | | | | |
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| 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 |
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Total (2) | $ | (50 | ) | | $ | (299 | ) | | $ | 55 |
| | $ | (179 | ) | | $ | (585 | ) | | $ | (883 | ) |
| Net investment hedges | |
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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. |
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(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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| | 107Bank of America 2017116 | | |
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 table below presents gains (losses) on these derivatives for 2017, 20162022, 2021 and 2015.2020. 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 |
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| (Dollars in millions) | | | | | 2022 | | 2021 | | 2020 |
Interest rate risk on mortgage activities (1, 2) | | | | | $ | (326) | | | $ | (18) | | | $ | 611 | |
Credit risk on loans (2) | | | | | (37) | | | (25) | | | (68) | |
Interest rate and foreign currency risk on asset and liability management activities (3) | | | | | 4,713 | | | 1,757 | | | (2,971) | |
Price risk on certain compensation plans (4) | | | | | (1,073) | | | 917 | | | 700 | |
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| Other Risk Management Derivatives |
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| Gains (Losses) | | | | | |
| (Dollars in millions) | 2017 | | 2016 | | 2015 |
Interest rate risk on mortgage banking income (1) | $ | 8 |
| | $ | 461 |
| | $ | 254 |
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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 | ) |
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(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. |
| |
(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, 20172022 and 2016,2021, the Corporation had transferred $6.0 billion and $6.6$4.8 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$4.9 billion and $6.6$4.8 billion at the transfer dates. At December 31, 20172022 and 2016,2021, the fair value of the transferred securities was $6.1$4.7 billion and $6.3$5.0 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 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, 20162022, 2021 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.2020. 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Sales and Trading Revenue |
| | | | | | | | | | | | | | | |
| | | | | | | | | Market making and similar activities | | Net Interest
Income | | Other (1) | | Total |
| (Dollars in millions) | | | 2022 |
| Interest rate risk | | | | | | | | | $ | 1,919 | | | $ | 1,619 | | | $ | 392 | | | $ | 3,930 | |
| Foreign exchange risk | | | | | | | | | 1,981 | | | 46 | | | (44) | | | 1,983 | |
| Equity risk | | | | | | | | | 6,077 | | | (1,288) | | | 1,757 | | | 6,546 | |
| Credit risk | | | | | | | | | 592 | | | 2,228 | | | 177 | | | 2,997 | |
Other risk (2) | | | | | | | | | 835 | | | (171) | | | 15 | | | 679 | |
| Total sales and trading revenue | | | | | | | | | $ | 11,404 | | | $ | 2,434 | | | $ | 2,297 | | | $ | 16,135 | |
| | | | | | | | | | | | | | | |
| | | 2021 |
| Interest rate risk | | | | | | | | | $ | 523 | | | $ | 1,794 | | | $ | 217 | | | $ | 2,534 | |
| Foreign exchange risk | | | | | | | | | 1,505 | | | (80) | | | 14 | | | 1,439 | |
| Equity risk | | | | | | | | | 4,581 | | | (5) | | | 1,834 | | | 6,410 | |
| Credit risk | | | | | | | | | 1,390 | | | 1,684 | | | 556 | | | 3,630 | |
Other risk (2) | | | | | | | | | 759 | | | (128) | | | 124 | | | 755 | |
| Total sales and trading revenue | | | | | | | | | $ | 8,758 | | | $ | 3,265 | | | $ | 2,745 | | | $ | 14,768 | |
| | | | | | | | | | | | | | | |
| | | 2020 |
| Interest rate risk | | | | | | | | | $ | 2,236 | | | $ | 2,279 | | | $ | 229 | | | $ | 4,744 | |
| Foreign exchange risk | | | | | | | | | 1,486 | | | (19) | | | 2 | | | 1,469 | |
| Equity risk | | | | | | | | | 3,656 | | | (77) | | | 1,801 | | | 5,380 | |
| Credit risk | | | | | | | | | 783 | | | 1,758 | | | 331 | | | 2,872 | |
Other risk (2) | | | | | | | | | 308 | | | 4 | | | 44 | | | 356 | |
| Total sales and trading revenue | | | | | | | | | $ | 8,469 | | | $ | 3,945 | | | $ | 2,407 | | | $ | 14,821 | |
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| 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)(2)Includes commodity risk. | 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.
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| 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, 2022 and 2021 are summarized in the table below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Credit Derivative Instruments | | | | | | | | | |
| | | | | | | | | |
| Less than
One Year | | One to
Three Years | | Three to
Five Years | | Over Five
Years | | Total |
| December 31, 2022 |
| (Dollars in millions) | Carrying Value |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 2 | | | $ | 25 | | | $ | 133 | | | $ | 34 | | | $ | 194 | |
| Non-investment grade | 120 | | | 516 | | | 870 | | | 697 | | | 2,203 | |
| Total | 122 | | | 541 | | | 1,003 | | | 731 | | | 2,397 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 55 | | | 336 | | | — | | | — | | | 391 | |
| Non-investment grade | 332 | | | 9 | | | 132 | | | 10 | | | 483 | |
| Total | 387 | | | 345 | | | 132 | | | 10 | | | 874 | |
| Total credit derivatives | $ | 509 | | | $ | 886 | | | $ | 1,135 | | | $ | 741 | | | $ | 3,271 | |
| Credit-related notes: | | | | | | | | | |
| Investment grade | $ | — | | | $ | — | | | $ | 19 | | | $ | 1,017 | | | $ | 1,036 | |
| Non-investment grade | — | | | 7 | | | 6 | | | 1,035 | | | 1,048 | |
| Total credit-related notes | $ | — | | | $ | 7 | | | $ | 25 | | | $ | 2,052 | | | $ | 2,084 | |
| | Maximum Payout/Notional |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 34,670 | | | $ | 66,170 | | | $ | 93,237 | | | $ | 18,677 | | | $ | 212,754 | |
| Non-investment grade | 15,229 | | | 29,629 | | | 30,891 | | | 6,662 | | | 82,411 | |
| Total | 49,899 | | | 95,799 | | | 124,128 | | | 25,339 | | | 295,165 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 38,722 | | | 10,407 | | | — | | | — | | | 49,129 | |
| Non-investment grade | 32,764 | | | 500 | | | 2,054 | | | 897 | | | 36,215 | |
| Total | 71,486 | | | 10,907 | | | 2,054 | | | 897 | | | 85,344 | |
| Total credit derivatives | $ | 121,385 | | | $ | 106,706 | | | $ | 126,182 | | | $ | 26,236 | | | $ | 380,509 | |
| | | | | | | | | |
| December 31, 2021 |
| Carrying Value |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | — | | | $ | 5 | | | $ | 79 | | | $ | 49 | | | $ | 133 | |
| Non-investment grade | 34 | | | 250 | | | 453 | | | 769 | | | 1,506 | |
| Total | 34 | | | 255 | | | 532 | | | 818 | | | 1,639 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 35 | | | 388 | | | — | | | — | | | 423 | |
| Non-investment grade | 105 | | | — | | | 16 | | | — | | | 121 | |
| Total | 140 | | | 388 | | | 16 | | | — | | | 544 | |
| Total credit derivatives | $ | 174 | | | $ | 643 | | | $ | 548 | | | $ | 818 | | | $ | 2,183 | |
| Credit-related notes: | | | | | | | | | |
| Investment grade | $ | — | | | $ | — | | | $ | 36 | | | $ | 412 | | | $ | 448 | |
| Non-investment grade | 5 | | | — | | | 9 | | | 1,334 | | | 1,348 | |
| Total credit-related notes | $ | 5 | | | $ | — | | | $ | 45 | | | $ | 1,746 | | | $ | 1,796 | |
| | Maximum Payout/Notional |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 34,503 | | | $ | 66,334 | | | $ | 73,444 | | | $ | 17,844 | | | $ | 192,125 | |
| Non-investment grade | 16,119 | | | 29,233 | | | 34,356 | | | 7,961 | | | 87,669 | |
| Total | 50,622 | | | 95,567 | | | 107,800 | | | 25,805 | | | 279,794 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 49,626 | | | 11,494 | | | 78 | | | — | | | 61,198 | |
| Non-investment grade | 22,621 | | | 717 | | | 642 | | | 73 | | | 24,053 | |
| Total | 72,247 | | | 12,211 | | | 720 | | | 73 | | | 85,251 | |
| Total credit derivatives | $ | 122,869 | | | $ | 107,778 | | | $ | 108,520 | | | $ | 25,878 | | | $ | 365,045 | |
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 preceding 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 114,105, 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, 20172022 and 2016,2021, the Corporation held cash and securities collateral of $77.2$101.3 billion and $85.5$91.4 billion and posted cash and securities collateral of $59.2$81.2 billion and $71.1$79.3 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, 2017,2022, 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$3.2 billion,, including $2.1$1.6 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, 20172022 and 2016,2021, 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, 20172022 if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by one incremental notch and by an additional second incremental notch.
|
| | | | | | |
| | | |
| Additional Collateral Required to be Posted Upon Downgrade at December 31, 2017 |
| | | |
| (Dollars in millions) | 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 table belowalso presents the derivative liabilities that would be subject to unilateral termination by counterparties andupon downgrade of the amounts of collateral that would have been contractually required at December 31, 2017 if theCorporation's or certain subsidiaries' long-term senior debt ratings for theratings.
| | | | | | | | | | | |
| | | |
Additional Collateral Required to be Posted and Derivative Liabilities Subject to Unilateral Termination Upon Downgrade
at December 31, 2022 |
| | | |
| (Dollars in millions) | One
Incremental
Notch | | Second
Incremental
Notch |
| Additional collateral required to be posted upon downgrade | | | |
| Bank of America Corporation | $ | 230 | | | $ | 913 | |
Bank of America, N.A. and subsidiaries (1) | 66 | | | 668 | |
| | | |
| Derivative liabilities subject to unilateral termination upon downgrade | | | |
| Derivative liabilities | $ | 92 | | | $ | 1,073 | |
| Collateral posted | 77 | | | 300 | |
(1)Included in Bank of America Corporation or certain subsidiaries had been lower by one incremental notch and by an additional second incremental notch.collateral requirements in this table.
|
| | | | | | |
| | | |
| Derivative Liabilities Subject to Unilateral Termination Upon Downgrade at December 31, 2017 |
| | | |
| (Dollars in millions) | One incremental notch | Second incremental notch |
| Derivative liabilities | $ | 428 |
| $ | 1,163 |
|
| Collateral posted | 339 |
| 800 |
|
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, 20162022, 2021 and 2015.2020. 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.
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Valuation Adjustments Gains (Losses) on Derivatives (1) |
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| (Dollars in millions) | 2022 | | 2021 | | 2020 |
| Derivative assets (CVA) | $ | (80) | | | $ | 208 | | | $ | (118) | |
| Derivative assets/liabilities (FVA) | 125 | | | (2) | | | (24) | |
| Derivative liabilities (DVA) | 194 | | | 3 | | | 24 | |
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(1)At December 31, 2022, 2021 and 2020, cumulative CVA reduced the derivative assets balance by $518 million, $438 million and $646 million, cumulative FVA reduced the net derivative balance by $54 million, $179 million and $177 million, and cumulative DVA reduced the derivative liabilities balance by $506 million, $312 million and $309 million, respectively.
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Valuation Adjustments on Derivatives (1) | | | |
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| Gains (Losses) | Gross | Net | | Gross | Net | | Gross | Net |
| (Dollars in millions) | 2017 | | 2016 | | 2015 |
| Derivative assets (CVA) | $ | 330 |
| $ | 98 |
| | $ | 374 |
| $ | 214 |
| | $ | 255 |
| $ | 227 |
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| Derivative assets/liabilities (FVA) | 160 |
| 178 |
| | 186 |
| 102 |
| | 16 |
| 16 |
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| Derivative liabilities (DVA) | (324 | ) | (281 | ) | | 24 |
| (141 | ) | | (18 | ) | (153 | ) |
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(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.
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121Bank of America 2017110
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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, 20172022 and 2016.2021.
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| Debt Securities | | | | | | | | | | | | |
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| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| (Dollars in millions) | December 31, 2022 | | December 31, 2021 |
| Available-for-sale debt securities | | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | |
| Agency | $ | 25,204 | | | $ | 5 | | | $ | (1,767) | | | $ | 23,442 | | | $ | 45,268 | | | $ | 1,257 | | | $ | (186) | | | $ | 46,339 | |
| Agency-collateralized mortgage obligations | 2,452 | | | — | | | (231) | | | 2,221 | | | 3,331 | | | 74 | | | (25) | | | 3,380 | |
| Commercial | 6,894 | | | 28 | | | (515) | | | 6,407 | | | 19,036 | | | 647 | | | (79) | | | 19,604 | |
Non-agency residential (1) | 461 | | | 15 | | | (90) | | | 386 | | | 591 | | | 25 | | | (33) | | | 583 | |
| Total mortgage-backed securities | 35,011 | | | 48 | | | (2,603) | | | 32,456 | | | 68,226 | | | 2,003 | | | (323) | | | 69,906 | |
| U.S. Treasury and government agencies | 160,773 | | | 18 | | | (1,769) | | | 159,022 | | | 197,853 | | | 1,610 | | | (318) | | | 199,145 | |
| Non-U.S. securities | 13,455 | | | 4 | | | (52) | | | 13,407 | | | 11,933 | | | — | | | — | | | 11,933 | |
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| Other taxable securities | 4,728 | | | 1 | | | (84) | | | 4,645 | | | 2,725 | | | 39 | | | (3) | | | 2,761 | |
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| Tax-exempt securities | 11,518 | | | 19 | | | (279) | | | 11,258 | | | 15,155 | | | 317 | | | (39) | | | 15,433 | |
| Total available-for-sale debt securities | 225,485 | | | 90 | | | (4,787) | | | 220,788 | | | 295,892 | | | 3,969 | | | (683) | | | 299,178 | |
Other debt securities carried at fair value (2) | 8,986 | | | 376 | | | (156) | | | 9,206 | | | 8,873 | | | 105 | | | (83) | | | 8,895 | |
| Total debt securities carried at fair value | 234,471 | | | 466 | | | (4,943) | | | 229,994 | | | 304,765 | | | 4,074 | | | (766) | | | 308,073 | |
| Held-to-maturity debt securities | | | | | | | | | | | | | | | |
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| Agency mortgage-backed securities | 503,233 | | | — | | | (87,319) | | | 415,914 | | | 553,721 | | | 3,855 | | | (10,366) | | | 547,210 | |
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| U.S. Treasury and government agencies | 121,597 | | | — | | | (20,259) | | | 101,338 | | | 111,859 | | | 254 | | | (2,395) | | | 109,718 | |
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| Other taxable securities | 8,033 | | | — | | | (1,018) | | | 7,015 | | | 9,011 | | | 147 | | | (196) | | | 8,962 | |
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| Total held-to-maturity debt securities | 632,863 | | | — | | | (108,596) | | | 524,267 | | | 674,591 | | | 4,256 | | | (12,957) | | | 665,890 | |
Total debt securities (3,4) | $ | 867,334 | | | $ | 466 | | | $ | (113,539) | | | $ | 754,261 | | | $ | 979,356 | | | $ | 8,330 | | | $ | (13,723) | | | $ | 973,963 | |
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| Debt Securities and Available-for-Sale Marketable Equity Securities | | | | |
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| | Amortized Cost | | Gross
Unrealized Gains | | Gross
Unrealized Losses | | Fair Value |
| (Dollars in millions) | December 31, 2017 |
| Available-for-sale debt securities | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
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| Agency | $ | 194,119 |
| | $ | 506 |
| | $ | (1,696 | ) | | $ | 192,929 |
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| Agency-collateralized mortgage obligations | 6,846 |
| | 39 |
| | (81 | ) | | 6,804 |
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| Commercial | 13,864 |
| | 28 |
| | (208 | ) | | 13,684 |
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Non-agency residential (1) | 2,410 |
| | 267 |
| | (8 | ) | | 2,669 |
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| Total mortgage-backed securities | 217,239 |
| | 840 |
| | (1,993 | ) | | 216,086 |
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| U.S. Treasury and agency securities | 54,523 |
| | 18 |
| | (1,018 | ) | | 53,523 |
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| Non-U.S. securities | 6,669 |
| | 9 |
| | (1 | ) | | 6,677 |
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| Other taxable securities, substantially all asset-backed securities | 5,699 |
| | 73 |
| | (2 | ) | | 5,770 |
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| Total taxable securities | 284,130 |
| | 940 |
| | (3,014 | ) | | 282,056 |
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| Tax-exempt securities | 20,541 |
| | 138 |
| | (104 | ) | | 20,575 |
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| Total available-for-sale debt securities | 304,671 |
| | 1,078 |
| | (3,118 | ) | | 302,631 |
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| Other debt securities carried at fair value | 12,273 |
| | 252 |
| | (39 | ) | | 12,486 |
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| Total debt securities carried at fair value | 316,944 |
| | 1,330 |
| | (3,157 | ) | | 315,117 |
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| Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities | 125,013 |
| | 111 |
| | (1,825 | ) | | 123,299 |
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Total debt securities (2) | $ | 441,957 |
| | $ | 1,441 |
| | $ | (4,982 | ) | | $ | 438,416 |
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Available-for-sale marketable equity securities (3) | $ | 27 |
| | $ | — |
| | $ | (2 | ) | | $ | 25 |
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| | December 31, 2016 |
| Available-for-sale debt securities | | | | | | | |
| Mortgage-backed securities: | |
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| Agency | $ | 190,809 |
| | $ | 640 |
| | $ | (1,963 | ) | | $ | 189,486 |
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| Agency-collateralized mortgage obligations | 8,296 |
| | 85 |
| | (51 | ) | | 8,330 |
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| Commercial | 12,594 |
| | 21 |
| | (293 | ) | | 12,322 |
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Non-agency residential (1) | 1,863 |
| | 181 |
| | (31 | ) | | 2,013 |
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| Total mortgage-backed securities | 213,562 |
| | 927 |
| | (2,338 | ) | | 212,151 |
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| U.S. Treasury and agency securities | 48,800 |
| | 204 |
| | (752 | ) | | 48,252 |
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| Non-U.S. securities | 6,372 |
| | 13 |
| | (3 | ) | | 6,382 |
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| Other taxable securities, substantially all asset-backed securities | 10,573 |
| | 64 |
| | (23 | ) | | 10,614 |
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| Total taxable securities | 279,307 |
| | 1,208 |
| | (3,116 | ) | | 277,399 |
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| Tax-exempt securities | 17,272 |
| | 72 |
| | (184 | ) | | 17,160 |
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| Total available-for-sale debt securities | 296,579 |
| | 1,280 |
| | (3,300 | ) | | 294,559 |
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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 |
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| Total debt securities carried at fair value | 315,708 |
| | 1,401 |
| | (3,449 | ) | | 313,660 |
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| Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities | 117,071 |
| | 248 |
| | (2,034 | ) | | 115,285 |
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Total debt securities (2) | $ | 432,779 |
| | $ | 1,649 |
| | $ | (5,483 | ) | | $ | 428,945 |
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Available-for-sale marketable equity securities (3) | $ | 325 |
| | $ | 51 |
| | $ | (1 | ) | | $ | 375 |
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(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 $104.5 billion and $111.9 billion at December 31, 2022 and 2021. (4)The Corporation held debt securities from FNMA and FHLMC that each exceeded 10 percent of shareholders’ equity, with an amortized cost of $290.5 billion and $176.7 billion, and a fair value of $239.6 billion and $144.6 billion at December 31, 2022, and an amortized cost of $345.3 billion and $205.3 billion, and a fair value of $342.5 billion and $202.4 billion at December 31, 2021. | 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.
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(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.
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(3)
| Classified in other assets on the Consolidated Balance Sheet. |
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(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, 2017,2022, the accumulated net unrealized loss on AFS debt securities, excluding the amount related to debt securities previously transferred to held to maturity, included in accumulated OCI was $1.2$3.5 billion, net of the related income tax benefit of $872 million.$1.2 billion. At December 31, 20172022 and 2016, the Corporation had2021, nonperforming AFS debt securities held by the Corporation were not significant.
At December 31, 2022 and 2021, the Corporation had $191.1 billion and $268.5 billion in AFS debt securities, which were primarily U.S. agency and U.S. Treasury securities that have a zero credit loss assumption. For more information on the zero credit loss assumption, see Note 1 – Summary of $99Significant Accounting Principles. For the remaining $29.7 billion and $30.7 billion in AFS debt securities at December 31, 2022 and 2021, the amount of ECL was not significant. At December 31, 2022 and 2021, the Corporation had $524.3 billion and $665.9 billion in HTM debt securities, which were substantially all U.S agency and U.S. Treasury securities that have a zero credit loss assumption.
At December 31, 2022 and 2021, the Corporation held equity securities at an aggregate fair value of $581 million
and $513 million and $121 million.
The following table presentsother equity securities, as valued under the componentsmeasurement alternative, at a carrying value of $340 million and $266 million, both of which are included in other debt securities carriedassets. At December 31, 2022 and 2021, the Corporation also held money market investments at a fair value where the changes in fair value are reported in other income. In 2017, the Corporation recorded unrealized mark-to-market net gains of $243$868 million and realized net losses of $49$707 million, compared to unrealized mark-to-market net gains of $51 millionwhich are included in time deposits placed and realized net losses of $128 million in 2016. These amounts exclude hedge results.other short-term investments.
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| Other Debt Securities Carried at Fair Value |
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| (Dollars in millions) | 2017 | | 2016 |
| Mortgage-backed securities: | | | |
| Agency-collateralized mortgage obligations | $ | 5 |
| | $ | 5 |
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| Non-agency residential | 2,764 |
| | 3,139 |
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| Total mortgage-backed securities | 2,769 |
| | 3,144 |
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Non-U.S. securities (1) | 9,488 |
| | 16,336 |
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| Other taxable securities, substantially all asset-backed securities | 229 |
| | 240 |
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| Total | $ | 12,486 |
| | $ | 19,720 |
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(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, 20162022, 2021 and 20152020 are presented in the table below.
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| Gains and Losses on Sales of AFS Debt Securities | Gains and Losses on Sales of AFS Debt Securities | Gains and Losses on Sales of AFS Debt Securities |
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| (Dollars in millions) | 2017 | | 2016 | | 2015 | (Dollars in millions) | | 2022 | | 2021 | | 2020 |
| Gross gains | $ | 352 |
| | $ | 520 |
| | $ | 1,174 |
| Gross gains | | $ | 1,251 | | | $ | 49 | | | $ | 423 | |
| Gross losses | (97 | ) | | (30 | ) | | (36 | ) | Gross losses | | (1,219) | | | (27) | | | (12) | |
| Net gains on sales of AFS debt securities | $ | 255 |
| | $ | 490 |
| | $ | 1,138 |
| Net gains on sales of AFS debt securities | | $ | 32 | | | $ | 22 | | | $ | 411 | |
| Income tax expense attributable to realized net gains on sales of AFS debt securities | $ | 97 |
| | $ | 186 |
| | $ | 432 |
| Income tax expense attributable to realized net gains on sales of AFS debt securities | | $ | 8 | | | $ | 5 | | | $ | 103 | |
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, 20172022 and 2016.2021.
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| Total AFS Debt Securities in a Continuous Unrealized Loss Position | | | | | | |
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| 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, 2022 |
| Continuously unrealized loss-positioned AFS debt securities | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | |
| Agency | $ | 18,759 | | | $ | (1,118) | | | $ | 4,437 | | | $ | (649) | | | $ | 23,196 | | | $ | (1,767) | |
| Agency-collateralized mortgage obligations | 1,165 | | | (96) | | | 1,022 | | | (135) | | | 2,187 | | | (231) | |
| Commercial | 3,273 | | | (150) | | | 2,258 | | | (365) | | | 5,531 | | | (515) | |
| Non-agency residential | 264 | | | (65) | | | 97 | | | (25) | | | 361 | | | (90) | |
| Total mortgage-backed securities | 23,461 | | | (1,429) | | | 7,814 | | | (1,174) | | | 31,275 | | | (2,603) | |
| U.S. Treasury and government agencies | 36,730 | | | (308) | | | 118,636 | | | (1,461) | | | 155,366 | | | (1,769) | |
| Non-U.S. securities | 9,399 | | | (34) | | | 756 | | | (18) | | | 10,155 | | | (52) | |
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| Other taxable securities | 2,036 | | | (16) | | | 1,580 | | | (68) | | | 3,616 | | | (84) | |
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| Tax-exempt securities | 607 | | | (28) | | | 2,849 | | | (251) | | | 3,456 | | | (279) | |
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Total AFS debt securities in a continuous
unrealized loss position | $ | 72,233 | | | $ | (1,815) | | | $ | 131,635 | | | $ | (2,972) | | | $ | 203,868 | | | $ | (4,787) | |
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| December 31, 2021 |
| Continuously unrealized loss-positioned AFS debt securities | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | |
| Agency | $ | 11,733 | | | $ | (166) | | | $ | 815 | | | $ | (20) | | | $ | 12,548 | | | $ | (186) | |
| Agency-collateralized mortgage obligations | 1,427 | | | (22) | | | 122 | | | (3) | | | 1,549 | | | (25) | |
| Commercial | 3,451 | | | (41) | | | 776 | | | (38) | | | 4,227 | | | (79) | |
| Non-agency residential | 241 | | | (13) | | | 174 | | | (20) | | | 415 | | | (33) | |
| Total mortgage-backed securities | 16,852 | | | (242) | | | 1,887 | | | (81) | | | 18,739 | | | (323) | |
| U.S. Treasury and government agencies | 103,307 | | | (272) | | | 4,850 | | | (46) | | | 108,157 | | | (318) | |
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| Other taxable securities | — | | | — | | | 82 | | | (3) | | | 82 | | | (3) | |
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| Tax-exempt securities | 502 | | | (16) | | | 109 | | | (23) | | | 611 | | | (39) | |
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Total AFS debt securities in a continuous
unrealized loss position | $ | 120,661 | | | $ | (530) | | | $ | 6,928 | | | $ | (153) | | | $ | 127,589 | | | $ | (683) | |
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| Temporarily Impaired and Other-than-temporarily Impaired AFS Debt Securities | | | | | | |
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| | 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. |
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.
|
| | | | | | | |
| | Bank of America 2017124112 |
The remaining contractual maturity distribution and yields of the Corporation’s debt securities carried at fair value and HTM debt securities at December 31, 20172022 are summarized in the table below. Actual duration and yields may differ as prepayments on the loans underlying the mortgagesMBS 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 | $ | — | | | — | % | | $ | 3 | | | 5.67 | % | | $ | 56 | | | 4.39 | % | | $ | 25,145 | | | 3.37 | % | | $ | 25,204 | | | 3.37 | % |
| Agency-collateralized mortgage obligations | — | | | — | | | 10 | | | 2.60 | | | — | | | — | | | 2,442 | | | 2.89 | | | 2,452 | | | 2.89 | |
| Commercial | 22 | | | 2.09 | | | 670 | | | 3.07 | | | 4,591 | | | 2.03 | | | 1,624 | | | 2.31 | | | 6,907 | | | 2.20 | |
| Non-agency residential | — | | | — | | | — | | | — | | | — | | | — | | | 825 | | | 9.54 | | | 825 | | | 9.54 | |
| Total mortgage-backed securities | 22 | | | 2.09 | | | 683 | | | 3.08 | | | 4,647 | | | 2.06 | | | 30,036 | | | 3.44 | | | 35,388 | | | 3.25 | |
| U.S. Treasury and government agencies | 3,306 | | | 1.59 | | | 79,618 | | | 1.68 | | | 78,378 | | | 1.64 | | | 32 | | | 3.38 | | | 161,334 | | | 1.66 | |
| Non-U.S. securities | 17,499 | | | 2.41 | | | 3,002 | | | 4.58 | | | 723 | | | 3.93 | | | 279 | | | 6.87 | | | 21,503 | | | 2.82 | |
| | | | | | | | | | | | | | | | | | | |
| Other taxable securities | 2,034 | | | 4.77 | | | 2,102 | | | 4.85 | | | 455 | | | 3.46 | | | 137 | | | 3.35 | | | 4,728 | | | 4.64 | |
| | | | | | | | | | | | | | | | | | | |
| Tax-exempt securities | 890 | | | 3.36 | | | 4,765 | | | 3.55 | | | 2,022 | | | 3.73 | | | 3,841 | | | 3.88 | | | 11,518 | | | 3.68 | |
| Total amortized cost of debt securities carried at fair value | $ | 23,751 | | | 2.53 | | | $ | 90,170 | | | 1.96 | | | $ | 86,225 | | | 1.74 | | | $ | 34,325 | | | 3.52 | | | $ | 234,471 | | | 2.16 | |
| Amortized cost of HTM debt securities | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Agency mortgage-backed securities | $ | — | | | — | % | | $ | — | | | — | % | | $ | 14 | | | 2.64 | % | | $ | 503,219 | | | 2.13 | % | | $ | 503,233 | | | 2.13 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| U.S. Treasury and government agencies | — | | | — | | | 4,544 | | | 1.80 | | | 117,053 | | | 1.37 | | | — | | | — | | | 121,597 | | | 1.39 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Other taxable securities | 38 | | | 9.06 | | | 1,251 | | | 2.23 | | | 313 | | | 3.00 | | | 6,431 | | | 2.45 | | | 8,033 | | | 2.47 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Total amortized cost of HTM debt securities | $ | 38 | | | 9.06 | | | $ | 5,795 | | | 1.89 | | | $ | 117,380 | | | 1.37 | | | $ | 509,650 | | | 2.13 | | | $ | 632,863 | | | 1.99 | |
| | | | | | | | | | | | | | | | | | | |
| Debt securities carried at fair value | | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | |
| Agency | $ | — | | | | | $ | 3 | | | | | $ | 56 | | | | | $ | 23,383 | | | | | $ | 23,442 | | | |
| Agency-collateralized mortgage obligations | — | | | | | 10 | | | | | — | | | | | 2,211 | | | | | 2,221 | | | |
| Commercial | 22 | | | | | 650 | | | | | 4,342 | | | | | 1,404 | | | | | 6,418 | | | |
| Non-agency residential | — | | | | | 2 | | | | | — | | | | | 751 | | | | | 753 | | | |
| Total mortgage-backed securities | 22 | | | | | 665 | | | | | 4,398 | | | | | 27,749 | | | | | 32,834 | | | |
| U.S. Treasury and government agencies | 3,312 | | | | | 79,013 | | | | | 77,228 | | | | | 30 | | | | | 159,583 | | | |
| Non-U.S. securities | 17,709 | | | | | 2,960 | | | | | 723 | | | | | 279 | | | | | 21,671 | | | |
| | | | | | | | | | | | | | | | | | | |
| Other taxable securities | 2,028 | | | | | 2,085 | | | | | 413 | | | | | 122 | | | | | 4,648 | | | |
| | | | | | | | | | | | | | | | | | | |
| Tax-exempt securities | 887 | | | | | 4,729 | | | | | 1,997 | | | | | 3,645 | | | | | 11,258 | | | |
| Total debt securities carried at fair value | $ | 23,958 | | | | | $ | 89,452 | | | | | $ | 84,759 | | | | | $ | 31,825 | | | | | $ | 229,994 | | | |
| Fair value of HTM debt securities | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Agency mortgage-backed securities | $ | — | | | | | $ | — | | | | | $ | 13 | | | | | $ | 415,901 | | | | | $ | 415,914 | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| U.S. Treasury and government agencies | — | | | | | 4,164 | | | | | 97,174 | | | | | — | | | | | 101,338 | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Other taxable securities | 38 | | | | | 1,170 | | | | | 295 | | | | | 5,512 | | | | | 7,015 | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Total fair value of HTM debt securities | $ | 38 | | | | | $ | 5,334 | | | | | $ | 97,482 | | | | | $ | 421,413 | | | | | $ | 524,267 | | | |
(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.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| 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. |
|
| | |
125113Bank of America 2017
| | |
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, 20172022 and 2016.2021.
In 2017, the Corporation sold its | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| 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, 2022 |
| Consumer real estate | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Residential mortgage | $ | 1,077 | | | $ | 245 | | | $ | 945 | | | $ | 2,267 | | | $ | 227,403 | | | | | | | $ | 229,670 | |
| Home equity | 88 | | | 32 | | | 211 | | | 331 | | | 26,232 | | | | | | | 26,563 | |
| Credit card and other consumer | | | | | | | | | | | | | | | |
| Credit card | 466 | | | 322 | | | 717 | | | 1,505 | | | 91,916 | | | | | | | 93,421 | |
| | | | | | | | | | | | | | | |
Direct/Indirect consumer (2) | 204 | | | 59 | | | 45 | | | 308 | | | 105,928 | | | | | | | 106,236 | |
| Other consumer | — | | | — | | | — | | | — | | | 156 | | | | | | | 156 | |
| Total consumer | 1,835 | | | 658 | | | 1,918 | | | 4,411 | | | 451,635 | | | | | | | 456,046 | |
Consumer loans accounted for under the fair value option (3) | | | | | | | | | | | | | $ | 339 | | | 339 | |
| Total consumer loans and leases | 1,835 | | | 658 | | | 1,918 | | | 4,411 | | | 451,635 | | | | | 339 | | | 456,385 | |
| Commercial | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| U.S. commercial | 827 | | | 288 | | | 330 | | | 1,445 | | | 357,036 | | | | | | | 358,481 | |
| Non-U.S. commercial | 317 | | | 59 | | | 144 | | | 520 | | | 123,959 | | | | | | | 124,479 | |
Commercial real estate (4) | 409 | | | 81 | | | 77 | | | 567 | | | 69,199 | | | | | | | 69,766 | |
| Commercial lease financing | 49 | | | 9 | | | 11 | | | 69 | | | 13,575 | | | | | | | 13,644 | |
U.S. small business commercial (5) | 107 | | | 63 | | | 356 | | | 526 | | | 17,034 | | | | | | | 17,560 | |
| Total commercial | 1,709 | | | 500 | | | 918 | | | 3,127 | | | 580,803 | | | | | | | 583,930 | |
Commercial loans accounted for under the fair value option (3) | | | | | | | | | | | | | 5,432 | | | 5,432 | |
| Total commercial loans and leases | 1,709 | | | 500 | | | 918 | | | 3,127 | | | 580,803 | | | | | 5,432 | | | 589,362 | |
Total loans and leases (6) | $ | 3,544 | | | $ | 1,158 | | | $ | 2,836 | | | $ | 7,538 | | | $ | 1,032,438 | | | | | $ | 5,771 | | | $ | 1,045,747 | |
| Percentage of outstandings | 0.34 | % | | 0.11 | % | | 0.27 | % | | 0.72 | % | | 98.73 | % | | | | 0.55 | % | | 100.00 | % |
(1)Consumer real estate loans 30-59 days past due includes fully-insured loans of $184 million and nonperforming loans of $155 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $75 million and nonperforming loans of $88 million. Consumer real estate loans 90 days or more past due includes fully-insured loans of $368 million and nonperforming loans of $788 million. Consumer real estate loans current or less than 30 days past due includes $1.6 billion, and direct/indirect consumer includes $27 million of nonperforming loans.
(2)Total outstandings primarily includes auto and specialty lending loans and leases of $51.8 billion, U.S. securities-based lending loans of $50.4 billion and non-U.S. consumer credit card business. This business, which at December 31, 2016 included
loans of $3.0 billion.$9.2(3)Consumer loans accounted for under the fair value option includes residential mortgage loans of $71 million and home equity loans of $268 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 non-U.S. credit card loans and the related allowance for loan and lease losses of $243 million, was presented in assets of business held for sale on the Consolidated Balance Sheet. In this Note, all applicable amounts for December 31, 2016 include these balances, unless otherwise noted.$2.5 billion. For more information, see Note 120 – SummaryFair Value Measurements and Note 21 – Fair Value Option.
(4)Total outstandings includes U.S. commercial real estate loans of Significant Accounting Principles.
(5)Includes Paycheck Protection Program loans. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | 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.
|
(6)Total outstandings includes loans and leases pledged as collateral of $18.5 billion. The Corporation also pledged $163.6 billion of loans with no related outstanding borrowings to secure potential borrowing capacity with the Federal Reserve Bank and Federal Home Loan Bank.
|
| | | | | | | |
| | Bank of America 2017126114 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | 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, 2016 |
| Consumer real estate | |
| | | | |
| | |
| | |
| | |
| | |
| | |
|
| Core portfolio | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 1,340 |
| | $ | 425 |
| | $ | 1,213 |
| | $ | 2,978 |
| | $ | 153,519 |
| |
|
| | |
| | $ | 156,497 |
|
| Home equity | 239 |
| | 105 |
| | 451 |
| | 795 |
| | 48,578 |
| |
|
| | |
| | 49,373 |
|
| Non-core portfolio | | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Residential mortgage (5) | 1,338 |
| | 674 |
| | 5,343 |
| | 7,355 |
| | 17,818 |
| | $ | 10,127 |
| | |
| | 35,300 |
|
| Home equity | 260 |
| | 136 |
| | 832 |
| | 1,228 |
| | 12,231 |
| | 3,611 |
| | |
| | 17,070 |
|
| 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 |
|
| Total consumer | 3,984 |
| | 1,795 |
| | 8,727 |
| | 14,506 |
| | 428,076 |
| | 13,738 |
| | |
| 456,320 |
|
Consumer loans accounted for under the fair value option (8) | | | | | | | | | | | | | $ | 1,051 |
|
| 1,051 |
|
| Total consumer loans and leases | 3,984 |
| | 1,795 |
| | 8,727 |
| | 14,506 |
| | 428,076 |
| | 13,738 |
| | 1,051 |
| | 457,371 |
|
| Commercial | | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| U.S. commercial | 952 |
| | 263 |
| | 400 |
| | 1,615 |
| | 268,757 |
| | | | |
| | 270,372 |
|
| Non-U.S. commercial | 348 |
| | 4 |
| | 5 |
| | 357 |
| | 89,040 |
| | | | |
| | 89,397 |
|
Commercial real estate (9) | 20 |
| | 10 |
| | 56 |
| | 86 |
| | 57,269 |
| | | | |
| | 57,355 |
|
| Commercial lease financing | 167 |
| | 21 |
| | 27 |
| | 215 |
| | 22,160 |
| | | | |
| | 22,375 |
|
| U.S. small business commercial | 96 |
| | 49 |
| | 84 |
| | 229 |
| | 12,764 |
| | | | |
| | 12,993 |
|
| Total commercial | 1,583 |
| | 347 |
| | 572 |
| | 2,502 |
| | 449,990 |
| | | | |
| | 452,492 |
|
Commercial loans accounted for under the fair value option (8) | | | | | | | | | | | | | 6,034 |
| | 6,034 |
|
| Total commercial loans and leases | 1,583 |
| | 347 |
| | 572 |
| | 2,502 |
| | 449,990 |
| | | | 6,034 |
| | 458,526 |
|
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 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| 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, 2021 |
| Consumer real estate | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Residential mortgage | $ | 1,005 | | | $ | 297 | | | $ | 1,571 | | | $ | 2,873 | | | $ | 219,090 | | | | | | | $ | 221,963 | |
| Home equity | 123 | | | 69 | | | 369 | | | 561 | | | 27,374 | | | | | | | 27,935 | |
| Credit card and other consumer | | | | | | | | | | | | | | | |
| Credit card | 298 | | | 212 | | | 487 | | | 997 | | | 80,441 | | | | | | | 81,438 | |
| | | | | | | | | | | | | | | |
Direct/Indirect consumer (2) | 147 | | | 52 | | | 18 | | | 217 | | | 103,343 | | | | | | | 103,560 | |
| Other consumer | — | | | — | | | — | | | — | | | 190 | | | | | | | 190 | |
| Total consumer | 1,573 | | | 630 | | | 2,445 | | | 4,648 | | | 430,438 | | | | | | | 435,086 | |
Consumer loans accounted for under the fair value option (3) | | | | | | | | | | | | | $ | 618 | | | 618 | |
| Total consumer loans and leases | 1,573 | | | 630 | | | 2,445 | | | 4,648 | | | 430,438 | | | | | 618 | | | 435,704 | |
| Commercial | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| U.S. commercial | 815 | | | 308 | | | 396 | | | 1,519 | | | 324,417 | | | | | | | 325,936 | |
| Non-U.S. commercial | 148 | | | 20 | | | 83 | | | 251 | | | 113,015 | | | | | | | 113,266 | |
Commercial real estate (4) | 115 | | | 34 | | | 285 | | | 434 | | | 62,575 | | | | | | | 63,009 | |
| Commercial lease financing | 104 | | | 28 | | | 13 | | | 145 | | | 14,680 | | | | | | | 14,825 | |
U.S. small business commercial (5) | 129 | | | 259 | | | 89 | | | 477 | | | 18,706 | | | | | | | 19,183 | |
| Total commercial | 1,311 | | | 649 | | | 866 | | | 2,826 | | | 533,393 | | | | | | | 536,219 | |
Commercial loans accounted for under the fair value option (3) | | | | | | | | | | | | | 7,201 | | | 7,201 | |
| Total commercial loans and leases | 1,311 | | | 649 | | | 866 | | | 2,826 | | | 533,393 | | | | | 7,201 | | | 543,420 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total loans and leases (6) | $ | 2,884 | | | $ | 1,279 | | | $ | 3,311 | | | $ | 7,474 | | | $ | 963,831 | | | | | $ | 7,819 | | | $ | 979,124 | |
| Percentage of outstandings | 0.29 | % | | 0.13 | % | | 0.34 | % | | 0.76 | % | | 98.44 | % | | | | 0.80 | % | | 100.00 | % |
| |
(1)
| (1)Consumer real estate loans 30-59 days past due includes fully-insured loans of $1.1 billion and nonperforming loans of $266 million. Consumer real estate loans 60-89 days past due includes fully-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 core30-59 days past due includes fully-insured loans of $164 million and non-core based on loannonperforming loans of $118 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $89 million and customer characteristics such as origination date, product type, LTV, FICO scorenonperforming loans of $100 million. Consumer real estate loans 90 days or more past due includes fully-insured loans of $633 million and delinquency status consistent with itsnonperforming loans of $1.3 billion. Consumer real estate loans current or less than 30 days past due includes $1.4 billion, and direct/indirect consumer includes $55 million of nonperforming loans.
(2)Total outstandings primarily includes auto and mortgage servicing strategy. Generally, loans that were originated after January 1, 2010, qualified under government-sponsored enterprise underwriting guidelines, or otherwise met the Corporation’s underwriting guidelines in place in 2015 are characterized as core loans. All other loans are generally characterized as non-corespecialty lending loans and represent run-off portfolios.leases of $48.5 billion, U.S. securities-based lending loans of $51.1 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 $279 million and home equity loans of $339 million. Commercial loans accounted for under the fair value option includes U.S. commercial loans of $4.6 billion and non-U.S. commercial loans of $2.6 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 $58.2 billion and non-U.S. commercial real estate loans of $4.8 billion.
(5)Includes Paycheck Protection Program loans.
(6)Total outstandings includes loans and leases pledged as collateral of $13.0 billion. The Corporation also pledged $146.6 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 has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling $6.3$9.5 billion and $6.4$10.5 billion at December 31, 20172022 and 2016,2021, 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 equityCommercial nonperforming loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. Atdecreased to $1.1 billion at December 31, 20172022 from $1.6 billion at December 31, 2021, as paydowns and 2016, $330 million and $428 million of such junior-lien home equityreturns to performing status more than offset new downgrades to nonaccrual status. Consumer nonperforming loans were included in nonperforming loans.decreased to $2.8 billion at December 31, 2022 from
The Corporation classifies
$3.0 billion at December 31, 2021 primarily due to decreases from consumer real estate loan sales, partially offset by increases from loans that have been dischargedwhose prior-period deferrals expired and were modified in Chapter 7 bankruptcy and not reaffirmed byTDRs during the borrower as TDRs, irrespectivefirst quarter of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified. 2022.
The Corporation continues to have a lien on the underlying collateral. At December 31, 2017, nonperforming loans discharged in Chapter 7 bankruptcy with no change in repayment terms were $358 million of which $209 million were current on their contractual payments, while $124 million were 90 days or more past due. Of the contractually current nonperforming loans, 66 percent were discharged in Chapter 7
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, compared to $2.2 billion, including $549 million of PCI loans, in 2016. The Corporation recorded net recoveries of $105 million related to these sales during 2017 and net charge-offs of $30 million during 2016. Gains related to these sales of $57 million and $75 million were recorded in other income in the Consolidated Statement of Income during 2017 and 2016. In 2017 and 2016, the Corporation
transferred consumer nonperforming loans with a net carrying value of $198 million and $55 million to held-for-sale.
Thefollowing 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, 20172022 and 2016.2021. Nonperforming LHFS are excluded from nonperforming loans and leases as they are recorded at either fair value or the lower of cost or fair value. For more information on the criteria for classification as nonperforming, see Note 1 – Summary of Significant Accounting Principles.
Principles.
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| 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)115 Bank of America
| 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.
| |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Credit Quality | | |
| | | | | | | |
| |
| Nonperforming Loans
and Leases | | Accruing Past Due
90 Days or More |
| December 31 |
| (Dollars in millions) | 2022 | | 2021 | | 2022 | | 2021 |
Residential mortgage (1) | $ | 2,167 | | | $ | 2,284 | | | $ | 368 | | | $ | 634 | |
With no related allowance (2) | 1,973 | | | 1,950 | | | — | | | — | |
Home equity (1) | 510 | | | 630 | | | — | | | — | |
With no related allowance (2) | 393 | | | 414 | | | — | | | — | |
| Credit Card | n/a | | n/a | | 717 | | | 487 | |
| Direct/indirect consumer | 77 | | | 75 | | | 2 | | | 11 | |
| | | | | | | |
| Total consumer | 2,754 | | | 2,989 | | | 1,087 | | | 1,132 | |
| U.S. commercial | 553 | | | 825 | | | 190 | | | 171 | |
| Non-U.S. commercial | 212 | | | 268 | | | 25 | | | 19 | |
| Commercial real estate | 271 | | | 382 | | | 46 | | | 40 | |
| Commercial lease financing | 4 | | | 80 | | | 8 | | | 8 | |
| U.S. small business commercial | 14 | | | 23 | | | 355 | | | 87 | |
| Total commercial | 1,054 | | | 1,578 | | | 624 | | | 325 | |
| Total nonperforming loans | $ | 3,808 | | | $ | 4,567 | | | $ | 1,711 | | | $ | 1,457 | |
| Percentage of outstanding loans and leases | 0.37 | % | | 0.47 | % | | 0.16 | % | | 0.15 | % |
(1)Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At December 31, 2022 and 2021 residential mortgage included $260 million and $444 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 $108 million and $190 million of loans on which interest was still accruing.
(2)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
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. When a nonaccrual loan is deemed uncollectible, it is charged off against the allowance for credit losses. If the charged-off amount is later recovered, the amount is reversed through the allowance for credit losses at the recovery date. Charge-offs are reported net of recoveries (net charge-offs). If recoveries for the period are greater than charge-offs, net charge-offs are reported as a negative amount.
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.
Credit card and other unsecured consumer loans are charged off when the loan becomes 180 days past due, within 60 days after receipt of notification of death or bankruptcy or upon confirmation of fraud. These loans continue to accrue interest until they are charged off and, therefore, are not reported as nonperforming loans. Consumer vehicle loans are placed on nonaccrual status when they become 90 days past due, within 60 days after receipt of notification of bankruptcy or death or upon confirmation of fraud. These loans are charged off to their collateral values when the loans become 120 days past due, upon repossession of the collateral, within 60 days after receipt of notification of bankruptcy or death or upon confirmation of fraud. If repossession of the collateral is not expected, the loans are fully charged off.
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.
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 zero. 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, 2022, as its contracts with customers generally have a fixed term that is less than one year, an open term with a cancellation period that is less than one year, or provisions that allow the Corporation to recognize revenue at the amount it has the right to invoice.
Earnings Per Common Share
Earnings per common share (EPS) is computed by dividing net income allocated to common shareholders by the weighted-average common shares outstanding, excluding unvested
common shares subject to repurchase or cancellation. Net income allocated to common shareholders is net income adjusted for preferred stock dividends including dividends declared, accretion of discounts on preferred stock including accelerated accretion when preferred stock is repaid early, and cumulative dividends related to the current dividend period that have not been declared as of period end, less income allocated to participating securities. Diluted EPS is computed by dividing income allocated to common shareholders plus dividends on dilutive convertible preferred stock and preferred stock that can be tendered to exercise warrants, by the weighted-average common shares outstanding plus amounts representing the dilutive effect of stock options outstanding, restricted stock, restricted stock units (RSUs), outstanding warrants and the dilution resulting from the conversion of convertible preferred stock, if applicable.
Foreign Currency Translation
Assets, liabilities and operations of foreign branches and subsidiaries are recorded based on the functional currency of each entity. When the functional currency of a foreign operation is the local currency, the assets, liabilities and operations are translated, for consolidation purposes, from the local currency to the U.S. dollar reporting currency at period-end rates for assets and liabilities and generally at average rates for results of operations. The resulting unrealized gains and losses are reported as a component of accumulated OCI, net-of-tax. When the foreign entity’s functional currency is the U.S. dollar, the resulting remeasurement gains or losses on foreign currency-denominated assets or liabilities are included in earnings.
NOTE 2Net Interest Income and Noninterest Income
The table below presents the Corporation’s net interest income and noninterest income disaggregated by revenue source for 2022, 2021 and 2020. 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) | 2022 | | 2021 | | 2020 | | | | | | | | | | | |
| Net interest income | | | | | | | | | | | | | | | | |
| Interest income | | | | | | | | | | | | | | | | |
| Loans and leases | $ | 37,919 | | | $ | 29,282 | | | $ | 34,029 | | | | | | | | | | | | |
| Debt securities | 17,127 | | | 12,376 | | | 9,790 | | | | | | | | | | | | |
Federal funds sold and securities borrowed or purchased under agreements to resell (1) | 4,560 | | | (90) | | | 903 | | | | | | | | | | | | |
| Trading account assets | 5,521 | | | 3,770 | | | 4,128 | | | | | | | | | | | | |
| Other interest income | 7,438 | | | 2,334 | | | 2,735 | | | | | | | | | | | | |
| Total interest income | 72,565 | | | 47,672 | | | 51,585 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Interest expense | | | | | | | | | | | | | | | | |
| Deposits | 4,718 | | | 537 | | | 1,943 | | | | | | | | | | | | |
Short-term borrowings (1) | 6,978 | | | (358) | | | 987 | | | | | | | | | | | | |
| Trading account liabilities | 1,538 | | | 1,128 | | | 974 | | | | | | | | | | | | |
| Long-term debt | 6,869 | | | 3,431 | | | 4,321 | | | | | | | | | | | | |
| Total interest expense | 20,103 | | | 4,738 | | | 8,225 | | | | | | | | | | | | |
| Net interest income | $ | 52,462 | | | $ | 42,934 | | | $ | 43,360 | | | | | | | | | | | | |
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| Noninterest income | | | | | | | | | | | | | | | | |
| Fees and commissions | | | | | | | | | | | | | | | | |
| Card income | | | | | | | | | | | | | | | | |
Interchange fees (2) | $ | 4,096 | | | $ | 4,560 | | | $ | 3,954 | | | | | | | | | | | | |
| Other card income | 1,987 | | | 1,658 | | | 1,702 | | | | | | | | | | | | |
| Total card income | 6,083 | | | 6,218 | | | 5,656 | | | | | | | | | | | | |
| Service charges | | | | | | | | | | | | | | | | |
| Deposit-related fees | 5,190 | | | 6,271 | | | 5,991 | | | | | | | | | | | | |
| Lending-related fees | 1,215 | | | 1,233 | | | 1,150 | | | | | | | | | | | | |
| Total service charges | 6,405 | | | 7,504 | | | 7,141 | | | | | | | | | | | | |
| Investment and brokerage services | | | | | | | | | | | | | | | | |
| Asset management fees | 12,152 | | | 12,729 | | | 10,708 | | | | | | | | | | | | |
| Brokerage fees | 3,749 | | | 3,961 | | | 3,866 | | | | | | | | | | | | |
| Total investment and brokerage services | 15,901 | | | 16,690 | | | 14,574 | | | | | | | | | | | | |
| Investment banking fees | | | | | | | | | | | | | | | | |
| Underwriting income | 1,970 | | | 5,077 | | | 4,698 | | | | | | | | | | | | |
| Syndication fees | 1,070 | | | 1,499 | | | 861 | | | | | | | | | | | | |
| Financial advisory services | 1,783 | | | 2,311 | | | 1,621 | | | | | | | | | | | | |
| Total investment banking fees | 4,823 | | | 8,887 | | | 7,180 | | | | | | | | | | | | |
| Total fees and commissions | 33,212 | | | 39,299 | | | 34,551 | | | | | | | | | | | | |
| Market making and similar activities | 12,075 | | | 8,691 | | | 8,355 | | | | | | | | | | | | |
| Other income (loss) | (2,799) | | | (1,811) | | | (738) | | | | | | | | | | | | |
| Total noninterest income | $ | 42,488 | | | $ | 46,179 | | | $ | 42,168 | | | | | | | | | | | | |
(1)For more information on negative interest, see Note 1 – Summary of Significant Accounting Principles.
(2)Gross interchange fees and merchant income were $12.9 billion, $11.5 billion and $9.2 billion for 2022, 2021, and 2020, respectively, and are presented net of $8.8 billion, $6.9 billion and $5.5 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 portfolio segments,
Corporation’s derivatives and hedging activities, see Note 1 – Summary of Significant Accounting Principles. WithinThe following tables present derivative instruments included on the Consumer Real Estate portfolio segment,Consolidated Balance Sheet in derivative assets and liabilities at December 31, 2022 and 2021. Balances are presented on a gross basis, prior to the primary credit quality indicatorsapplication of counterparty and cash collateral netting. Total derivative assets and liabilities are refreshed LTVadjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and refreshed FICO score. Refreshed LTV measureshave been reduced by cash collateral received or paid.
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| | | December 31, 2022 |
| | | 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 | $ | 18,285.9 | | | $ | 138.2 | | | $ | 20.7 | | | $ | 158.9 | | | $ | 120.3 | | | $ | 36.7 | | | $ | 157.0 | |
| Futures and forwards | 2,796.3 | | | 8.6 | | | — | | | 8.6 | | | 7.8 | | | — | | | 7.8 | |
Written options (2) | 1,657.9 | | | — | | | — | | | — | | | 41.4 | | | — | | | 41.4 | |
Purchased options (3) | 1,594.7 | | | 42.4 | | | — | | | 42.4 | | | — | | | — | | | — | |
| Foreign exchange contracts | | | | | | | | | | | | | |
| Swaps | 1,509.0 | | | 44.0 | | | 0.3 | | | 44.3 | | | 43.3 | | | 0.4 | | | 43.7 | |
| Spot, futures and forwards | 4,159.3 | | | 59.9 | | | 0.1 | | | 60.0 | | | 62.1 | | | 0.6 | | | 62.7 | |
Written options (2) | 392.2 | | | — | | | — | | | — | | | 8.1 | | | — | | | 8.1 | |
Purchased options (3) | 362.6 | | | 8.3 | | | — | | | 8.3 | | | — | | | — | | | — | |
| Equity contracts | | | | | | | | | | | | | |
| Swaps | 394.0 | | | 10.8 | | | — | | | 10.8 | | | 12.2 | | | — | | | 12.2 | |
| Futures and forwards | 114.6 | | | 3.3 | | | — | | | 3.3 | | | 1.0 | | | — | | | 1.0 | |
Written options (2) | 746.8 | | | — | | | — | | | — | | | 45.0 | | | — | | | 45.0 | |
Purchased options (3) | 671.6 | | | 40.9 | | | — | | | 40.9 | | | — | | | — | | | — | |
| Commodity contracts | | | | | | | | | | | | | |
| Swaps | 56.0 | | | 5.1 | | | — | | | 5.1 | | | 5.3 | | | — | | | 5.3 | |
| Futures and forwards | 157.3 | | | 3.0 | | | — | | | 3.0 | | | 2.3 | | | 0.8 | | | 3.1 | |
Written options (2) | 59.5 | | | — | | | — | | | — | | | 3.3 | | | — | | | 3.3 | |
Purchased options (3) | 61.8 | | | 3.6 | | | — | | | 3.6 | | | — | | | — | | | — | |
Credit derivatives (4) | | | | | | | | | | | | | |
| Purchased credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 319.9 | | | 2.8 | | | — | | | 2.8 | | | 1.6 | | | — | | | 1.6 | |
| Total return swaps/options | 71.5 | | | 0.7 | | | — | | | 0.7 | | | 3.0 | | | — | | | 3.0 | |
| Written credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 295.2 | | | 1.2 | | | — | | | 1.2 | | | 2.4 | | | — | | | 2.4 | |
| Total return swaps/options | 85.3 | | | 4.4 | | | — | | | 4.4 | | | 0.9 | | | — | | | 0.9 | |
| Gross derivative assets/liabilities | | | $ | 377.2 | | | $ | 21.1 | | | $ | 398.3 | | | $ | 360.0 | | | $ | 38.5 | | | $ | 398.5 | |
| Less: Legally enforceable master netting agreements | | | | | | | (315.9) | | | | | | | (315.9) | |
| Less: Cash collateral received/paid | | | | | | | (33.8) | | | | | | | (37.8) | |
| Total derivative assets/liabilities | | | | | | | $ | 48.6 | | | | | | | $ | 44.8 | |
(1)Represents the carrying valuetotal contract/notional amount of derivative assets and liabilities outstanding.
(2)Includes certain out-of-the-money purchased options that have a liability amount primarily due to the deferral of the loan as a percentageoption premiums to the end of the valuecontract.
(3)Includes certain out-of-the-money written options that have an asset amount primarily due to the deferral of the property securingoption premiums to the loan, refreshed quarterly. Home equity loans are evaluated using CLTV which measures the carrying valueend of the Corporation’s loancontract.
(4)The net derivative asset (liability) and available linenotional amount of written 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 indicatorderivatives 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 bywhich the Corporation as Special Mention, Substandard or Doubtful, which are asset quality categories defined by regulatory authorities. These assets have an elevated level of riskheld purchased credit derivatives with identical underlying referenced names were $(1.2) billion 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.
$276.9 billion at December 31, 2022.
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| | Bank of America 2017128104 |
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| | | December 31, 2021 |
| | | 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 | $ | 18,068.1 | | | $ | 150.5 | | | $ | 8.9 | | | $ | 159.4 | | | $ | 156.4 | | | $ | 4.4 | | | $ | 160.8 | |
| Futures and forwards | 2,243.2 | | | 1.1 | | | — | | | 1.1 | | | 1.0 | | | — | | | 1.0 | |
Written options (2) | 1,616.1 | | | — | | | — | | | — | | | 28.8 | | | — | | | 28.8 | |
Purchased options (3) | 1,673.6 | | | 33.1 | | | — | | | 33.1 | | | — | | | — | | | — | |
| Foreign exchange contracts | | | | | | | | | | | | | |
| Swaps | 1,420.9 | | | 28.6 | | | 0.2 | | | 28.8 | | | 30.5 | | | 0.2 | | | 30.7 | |
| Spot, futures and forwards | 4,087.2 | | | 37.1 | | | 0.3 | | | 37.4 | | | 37.7 | | | 0.2 | | | 37.9 | |
Written options (2) | 287.2 | | | — | | | — | | | — | | | 4.1 | | | — | | | 4.1 | |
Purchased options (3) | 267.6 | | | 4.1 | | | — | | | 4.1 | | | — | | | — | | | — | |
| Equity contracts | | | | | | | | | | | | | |
| Swaps | 443.8 | | | 12.3 | | | — | | | 12.3 | | | 14.5 | | | — | | | 14.5 | |
| Futures and forwards | 113.3 | | | 0.5 | | | — | | | 0.5 | | | 1.7 | | | — | | | 1.7 | |
Written options (2) | 737.7 | | | — | | | — | | | — | | | 58.5 | | | — | | | 58.5 | |
Purchased options (3) | 657.0 | | | 55.9 | | | — | | | 55.9 | | | — | | | — | | | — | |
| Commodity contracts | | | | | | | | | | | | | |
| Swaps | 47.7 | | | 3.1 | | | — | | | 3.1 | | | 6.0 | | | — | | | 6.0 | |
| Futures and forwards | 101.5 | | | 2.3 | | | — | | | 2.3 | | | 0.3 | | | 1.1 | | | 1.4 | |
Written options (2) | 44.4 | | | — | | | — | | | — | | | 2.6 | | | — | | | 2.6 | |
Purchased options (3) | 38.3 | | | 3.2 | | | — | | | 3.2 | | | — | | | — | | | — | |
Credit derivatives (4) | | | | | | | | | | | | | |
| Purchased credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 297.0 | | | 1.9 | | | — | | | 1.9 | | | 4.3 | | | — | | | 4.3 | |
| Total return swaps/options | 85.3 | | | 0.2 | | | — | | | 0.2 | | | 1.1 | | | — | | | 1.1 | |
| Written credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 279.8 | | | 4.2 | | | — | | | 4.2 | | | 1.6 | | | — | | | 1.6 | |
| Total return swaps/options | 85.3 | | | 0.9 | | | — | | | 0.9 | | | 0.5 | | | — | | | 0.5 | |
| Gross derivative assets/liabilities | | | $ | 339.0 | | | $ | 9.4 | | | $ | 348.4 | | | $ | 349.6 | | | $ | 5.9 | | | $ | 355.5 | |
| Less: Legally enforceable master netting agreements | | | | | | | (282.3) | | | | | | | (282.3) | |
| Less: Cash collateral received/paid | | | | | | | (30.8) | | | | | | | (35.5) | |
| Total derivative assets/liabilities | | | | | | | $ | 35.3 | | | | | | | $ | 37.7 | |
(1)Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2)Includes certain out-of-the-money purchased options that have a liability amount primarily due to the deferral of the option premiums to the end of the contract.
(3)Includes certain out-of-the-money written options that have an asset amount primarily due to the deferral of the option premiums to the end of the contract.
(4)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 $2.3 billion and $258.4 billion at December 31, 2021.
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, 2022 and 2021 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 – Securities Financing Agreements, Short-term Borrowings, Collateral 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, 2022 | | December 31, 2021 |
| Interest rate contracts | | | | | | | |
| Over-the-counter | $ | 138.4 | | | $ | 132.3 | | | $ | 171.3 | | | $ | 166.3 | |
| Exchange-traded | 0.4 | | | 0.1 | | | 0.2 | | | — | |
| Over-the-counter cleared | 71.4 | | | 71.1 | | | 22.6 | | | 22.5 | |
| Foreign exchange contracts | | | | | | | |
| Over-the-counter | 109.7 | | | 110.6 | | | 67.9 | | | 70.5 | |
| Over-the-counter cleared | 1.3 | | | 1.2 | | | 1.1 | | | 1.1 | |
| Equity contracts | | | | | | | |
| Over-the-counter | 21.5 | | | 22.6 | | | 29.2 | | | 32.9 | |
| Exchange-traded | 33.0 | | | 33.8 | | | 38.3 | | | 38.4 | |
| Commodity contracts | | | | | | | |
| Over-the-counter | 8.3 | | | 9.3 | | | 6.1 | | | 7.6 | |
| Exchange-traded | 2.4 | | | 1.9 | | | 1.4 | | | 1.3 | |
| Over-the-counter cleared | 0.3 | | | 0.3 | | | 0.1 | | | 0.1 | |
| Credit derivatives | | | | | | | |
| Over-the-counter | 8.9 | | | 7.5 | | | 5.2 | | | 5.3 | |
| Over-the-counter cleared | — | | | — | | | 1.8 | | | 1.8 | |
| Total gross derivative assets/liabilities, before netting | | | | | | | |
| Over-the-counter | 286.8 | | | 282.3 | | | 279.7 | | | 282.6 | |
| Exchange-traded | 35.8 | | | 35.8 | | | 39.9 | | | 39.7 | |
| Over-the-counter cleared | 73.0 | | | 72.6 | | | 25.6 | | | 25.5 | |
| Less: Legally enforceable master netting agreements and cash collateral received/paid | | | | | | | |
| Over-the-counter | (243.8) | | | (248.2) | | | (250.3) | | | (254.6) | |
| Exchange-traded | (33.5) | | | (33.5) | | | (37.8) | | | (37.8) | |
| Over-the-counter cleared | (72.4) | | | (72.0) | | | (25.0) | | | (25.4) | |
| Derivative assets/liabilities, after netting | 45.9 | | | 37.0 | | | 32.1 | | | 30.0 | |
Other gross derivative assets/liabilities (2) | 2.7 | | | 7.8 | | | 3.2 | | | 7.7 | |
| Total derivative assets/liabilities | 48.6 | | | 44.8 | | | 35.3 | | | 37.7 | |
Less: Financial instruments collateral (3) | (18.5) | | | (7.4) | | | (11.8) | | | (10.6) | |
| Total net derivative assets/liabilities | $ | 30.1 | | | $ | 37.4 | | | $ | 23.5 | | | $ | 27.1 | |
(1)Over-the-counter derivatives include bilateral transactions between the Corporation and a particular counterparty. Over-the-counter 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 foreign exchange rates (fair value hedges). The Corporation also uses these types of contracts to protect against changes in the cash flows of its assets and liabilities,
and other forecasted transactions (cash flow hedges). The Corporation hedges its net investment in consolidated non-U.S. operations determined to have functional currencies other than the U.S. dollar using forward exchange contracts and cross-currency basis swaps, and by issuing foreign currency-
denominated debt (net investment hedges).
Fair Value Hedges
The table below summarizes information related to fair value hedges for 2022, 2021 and 2020.
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| Gains and Losses on Derivatives Designated as Fair Value Hedges | | | | | | |
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| | | | | Derivative | | Hedged Item |
| (Dollars in millions) | | | | | | | | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
Interest rate risk on long-term debt (1) | | | | | | | | | $ | (26,654) | | | $ | (7,018) | | | $ | 7,091 | | | $ | 26,825 | | | $ | 6,838 | | | $ | (7,220) | |
Interest rate and foreign currency risk on long-term debt (2) | | | | | | | | | (120) | | | (90) | | | 783 | | | 119 | | | 79 | | | (783) | |
Interest rate risk on available-for-sale securities (3) | | | | | | | | | 21,991 | | | 5,203 | | | (44) | | | (22,280) | | | (5,167) | | | 49 | |
Price risk on commodity inventory (4) | | | | | | | | | 674 | | | — | | | — | | | (674) | | | — | | | — | |
| Total | | | | | | | | | $ | (4,109) | | | $ | (1,905) | | | $ | 7,830 | | | $ | 3,990 | | | $ | 1,750 | | | $ | (7,954) | |
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(1)Amounts are recorded in interest expense in the Consolidated Statement of Income.
(2)For 2022, 2021 and 2020, the derivative amount includes gains (losses) of $(37) million, $(73) million and $701 million in interest expense, $(81) million, $0 and $73 million in market making and similar activities, and $(2) million, $(17) million and $9 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.
(4)Amounts are recorded in market making and similar activities 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 and Liabilities | |
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| December 31, 2022 | | December 31, 2021 | | | | | |
| (Dollars in millions) | Carrying Value | | Cumulative Fair Value Adjustments (1) | | Carrying Value | | Cumulative Fair Value Adjustments (1) | | | | | |
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Long-term debt (2) | $ | 187,402 | | | $ | (21,372) | | | $ | 181,745 | | | $ | 3,987 | | | | | | |
Available-for-sale debt securities (2, 3, 4) | 167,518 | | | (18,190) | | | 209,038 | | | (2,294) | | | | | | |
Trading account assets (5) | 16,119 | | | 146 | | | 2,067 | | | 32 | | | | | | |
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(1)Increase (decrease) to carrying value.
(2)At December 31, 2022 and 2021, the cumulative fair value adjustments remaining on long-term debt and available-for-sale debt securities from discontinued hedging relationships resulted in an increase of $137 million and $1.5 billion in the related liability and a decrease in the related asset of $4.9 billion and $1.0 billion, which are being amortized over the remaining contractual life of the de-designated hedged items.
(3)These amounts include the amortized cost 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, 2022 and 2021, the amortized cost of the closed portfolios used in these hedging relationships was $21.4 billion and $21.1 billion, of which $9.2 billion and $6.9 billion was designated in the last-of-layer hedging relationship. At December 31, 2022 and 2021, the cumulative adjustment associated with these hedging relationships was a decrease of $451 million and $172 million.
(4)Carrying value represents amortized cost.
(5)Represents hedging activities related to certain commodities inventory.
Cash Flow and Net Investment Hedges
The table below summarizes certain information related to cash flow hedges and net investment hedges for 2022, 2021 and 2020. Of the $11.9 billion after-tax net loss ($15.9 billion pretax) on derivatives in accumulated OCI at December 31, 2022, losses of $4.4 billion after-tax ($5.9 billion pretax) related to both open and terminated cash flow hedges are expected to be reclassified into earnings in the next 12 months. These net losses reclassified into earnings are expected
to primarily decrease net interest income related to the respective hedged items. For open cash flow hedges, the maximum length of time over which forecasted transactions are hedged is approximately seven years. For terminated cash flow hedges, the time period over which the forecasted transactions will be recognized in interest income is approximately five years, with the aggregated amount beyond this time period being insignificant.
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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) | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | | | |
| Cash flow hedges | | | | | | | | | | | | | | | | | | | |
Interest rate risk on variable-rate portfolios (1) | $ | (13,492) | | | $ | (2,686) | | | $ | 763 | | | $ | (338) | | | $ | 148 | | | $ | (7) | | | | | | | | | |
Price risk on forecasted MBS purchases (1) | (129) | | | (249) | | | 241 | | | 11 | | | 26 | | | 9 | | | | | | | | | |
Price risk on certain compensation plans (2) | (88) | | | 93 | | | 85 | | | 29 | | | 55 | | | 12 | | | | | | | | | |
| Total | $ | (13,709) | | | $ | (2,842) | | | $ | 1,089 | | | $ | (298) | | | $ | 229 | | | $ | 14 | | | | | | | | | |
| Net investment hedges | | | | | | | | | | | | | | | | | | | |
Foreign exchange risk (3) | $ | 1,710 | | | $ | 1,451 | | | $ | (834) | | | $ | 3 | | | $ | 23 | | | $ | 4 | | | | | | | | | |
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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 losses of $38 million, $123 million and $11 million in 2022, 2021 and 2020, 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 table below presents gains (losses) on these derivatives for 2022, 2021 and 2020. 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) | | | | | 2022 | | 2021 | | 2020 |
Interest rate risk on mortgage activities (1, 2) | | | | | $ | (326) | | | $ | (18) | | | $ | 611 | |
Credit risk on loans (2) | | | | | (37) | | | (25) | | | (68) | |
Interest rate and foreign currency risk on asset and liability management activities (3) | | | | | 4,713 | | | 1,757 | | | (2,971) | |
Price risk on certain compensation plans (4) | | | | | (1,073) | | | 917 | | | 700 | |
(1)Includes hedges of interest rate risk on MSRs and IRLCs to originate mortgage loans that will be held for sale.
(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, 2022 and 2021, the Corporation had transferred $4.8 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 $4.9 billion and $4.8 billion at the transfer dates. At December 31, 2022 and 2021, the fair value of the transferred securities was $4.7 billion and $5.0 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 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 2022, 2021 and 2020. 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) | | | 2022 |
| Interest rate risk | | | | | | | | | $ | 1,919 | | | $ | 1,619 | | | $ | 392 | | | $ | 3,930 | |
| Foreign exchange risk | | | | | | | | | 1,981 | | | 46 | | | (44) | | | 1,983 | |
| Equity risk | | | | | | | | | 6,077 | | | (1,288) | | | 1,757 | | | 6,546 | |
| Credit risk | | | | | | | | | 592 | | | 2,228 | | | 177 | | | 2,997 | |
Other risk (2) | | | | | | | | | 835 | | | (171) | | | 15 | | | 679 | |
| Total sales and trading revenue | | | | | | | | | $ | 11,404 | | | $ | 2,434 | | | $ | 2,297 | | | $ | 16,135 | |
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| | | 2021 |
| Interest rate risk | | | | | | | | | $ | 523 | | | $ | 1,794 | | | $ | 217 | | | $ | 2,534 | |
| Foreign exchange risk | | | | | | | | | 1,505 | | | (80) | | | 14 | | | 1,439 | |
| Equity risk | | | | | | | | | 4,581 | | | (5) | | | 1,834 | | | 6,410 | |
| Credit risk | | | | | | | | | 1,390 | | | 1,684 | | | 556 | | | 3,630 | |
Other risk (2) | | | | | | | | | 759 | | | (128) | | | 124 | | | 755 | |
| Total sales and trading revenue | | | | | | | | | $ | 8,758 | | | $ | 3,265 | | | $ | 2,745 | | | $ | 14,768 | |
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| | | 2020 |
| Interest rate risk | | | | | | | | | $ | 2,236 | | | $ | 2,279 | | | $ | 229 | | | $ | 4,744 | |
| Foreign exchange risk | | | | | | | | | 1,486 | | | (19) | | | 2 | | | 1,469 | |
| Equity risk | | | | | | | | | 3,656 | | | (77) | | | 1,801 | | | 5,380 | |
| Credit risk | | | | | | | | | 783 | | | 1,758 | | | 331 | | | 2,872 | |
Other risk (2) | | | | | | | | | 308 | | | 4 | | | 44 | | | 356 | |
| Total sales and trading revenue | | | | | | | | | $ | 8,469 | | | $ | 3,945 | | | $ | 2,407 | | | $ | 14,821 | |
(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, $1.9 billion and $1.9 billion in 2022, 2021 and 2020, respectively.
(2)Includes commodity risk.
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, 2022 and 2021 are summarized in the table below.
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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, 2022 |
| (Dollars in millions) | Carrying Value |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 2 | | | $ | 25 | | | $ | 133 | | | $ | 34 | | | $ | 194 | |
| Non-investment grade | 120 | | | 516 | | | 870 | | | 697 | | | 2,203 | |
| Total | 122 | | | 541 | | | 1,003 | | | 731 | | | 2,397 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 55 | | | 336 | | | — | | | — | | | 391 | |
| Non-investment grade | 332 | | | 9 | | | 132 | | | 10 | | | 483 | |
| Total | 387 | | | 345 | | | 132 | | | 10 | | | 874 | |
| Total credit derivatives | $ | 509 | | | $ | 886 | | | $ | 1,135 | | | $ | 741 | | | $ | 3,271 | |
| Credit-related notes: | | | | | | | | | |
| Investment grade | $ | — | | | $ | — | | | $ | 19 | | | $ | 1,017 | | | $ | 1,036 | |
| Non-investment grade | — | | | 7 | | | 6 | | | 1,035 | | | 1,048 | |
| Total credit-related notes | $ | — | | | $ | 7 | | | $ | 25 | | | $ | 2,052 | | | $ | 2,084 | |
| | Maximum Payout/Notional |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 34,670 | | | $ | 66,170 | | | $ | 93,237 | | | $ | 18,677 | | | $ | 212,754 | |
| Non-investment grade | 15,229 | | | 29,629 | | | 30,891 | | | 6,662 | | | 82,411 | |
| Total | 49,899 | | | 95,799 | | | 124,128 | | | 25,339 | | | 295,165 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 38,722 | | | 10,407 | | | — | | | — | | | 49,129 | |
| Non-investment grade | 32,764 | | | 500 | | | 2,054 | | | 897 | | | 36,215 | |
| Total | 71,486 | | | 10,907 | | | 2,054 | | | 897 | | | 85,344 | |
| Total credit derivatives | $ | 121,385 | | | $ | 106,706 | | | $ | 126,182 | | | $ | 26,236 | | | $ | 380,509 | |
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| December 31, 2021 |
| Carrying Value |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | — | | | $ | 5 | | | $ | 79 | | | $ | 49 | | | $ | 133 | |
| Non-investment grade | 34 | | | 250 | | | 453 | | | 769 | | | 1,506 | |
| Total | 34 | | | 255 | | | 532 | | | 818 | | | 1,639 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 35 | | | 388 | | | — | | | — | | | 423 | |
| Non-investment grade | 105 | | | — | | | 16 | | | — | | | 121 | |
| Total | 140 | | | 388 | | | 16 | | | — | | | 544 | |
| Total credit derivatives | $ | 174 | | | $ | 643 | | | $ | 548 | | | $ | 818 | | | $ | 2,183 | |
| Credit-related notes: | | | | | | | | | |
| Investment grade | $ | — | | | $ | — | | | $ | 36 | | | $ | 412 | | | $ | 448 | |
| Non-investment grade | 5 | | | — | | | 9 | | | 1,334 | | | 1,348 | |
| Total credit-related notes | $ | 5 | | | $ | — | | | $ | 45 | | | $ | 1,746 | | | $ | 1,796 | |
| | Maximum Payout/Notional |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 34,503 | | | $ | 66,334 | | | $ | 73,444 | | | $ | 17,844 | | | $ | 192,125 | |
| Non-investment grade | 16,119 | | | 29,233 | | | 34,356 | | | 7,961 | | | 87,669 | |
| Total | 50,622 | | | 95,567 | | | 107,800 | | | 25,805 | | | 279,794 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 49,626 | | | 11,494 | | | 78 | | | — | | | 61,198 | |
| Non-investment grade | 22,621 | | | 717 | | | 642 | | | 73 | | | 24,053 | |
| Total | 72,247 | | | 12,211 | | | 720 | | | 73 | | | 85,251 | |
| Total credit derivatives | $ | 122,869 | | | $ | 107,778 | | | $ | 108,520 | | | $ | 25,878 | | | $ | 365,045 | |
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 preceding table 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 105, 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, 2022 and 2021, the Corporation held cash and securities collateral of $101.3 billion and $91.4 billion and posted cash and securities collateral of $81.2 billion and $79.3 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, 2022, 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 $3.2 billion, including $1.6 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, 2022 and 2021, 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, 2022 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. The table also presents derivative liabilities that would be subject to unilateral termination by counterparties upon downgrade of the Corporation's or certain subsidiaries' long-term senior debt ratings.
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Additional Collateral Required to be Posted and Derivative Liabilities Subject to Unilateral Termination Upon Downgrade
at December 31, 2022 |
| | | |
| (Dollars in millions) | One
Incremental
Notch | | Second
Incremental
Notch |
| Additional collateral required to be posted upon downgrade | | | |
| Bank of America Corporation | $ | 230 | | | $ | 913 | |
Bank of America, N.A. and subsidiaries (1) | 66 | | | 668 | |
| | | |
| Derivative liabilities subject to unilateral termination upon downgrade | | | |
| Derivative liabilities | $ | 92 | | | $ | 1,073 | |
| Collateral posted | 77 | | | 300 | |
(1)Included in Bank of America Corporation collateral requirements in this table.
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 2022, 2021 and 2020. 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.
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Valuation Adjustments Gains (Losses) on Derivatives (1) |
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| (Dollars in millions) | 2022 | | 2021 | | 2020 |
| Derivative assets (CVA) | $ | (80) | | | $ | 208 | | | $ | (118) | |
| Derivative assets/liabilities (FVA) | 125 | | | (2) | | | (24) | |
| Derivative liabilities (DVA) | 194 | | | 3 | | | 24 | |
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(1)At December 31, 2022, 2021 and 2020, cumulative CVA reduced the derivative assets balance by $518 million, $438 million and $646 million, cumulative FVA reduced the net derivative balance by $54 million, $179 million and $177 million, and cumulative DVA reduced the derivative liabilities balance by $506 million, $312 million and $309 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, 2022 and 2021.
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| Debt Securities | | | | | | | | | | | | |
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| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| (Dollars in millions) | December 31, 2022 | | December 31, 2021 |
| Available-for-sale debt securities | | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | |
| Agency | $ | 25,204 | | | $ | 5 | | | $ | (1,767) | | | $ | 23,442 | | | $ | 45,268 | | | $ | 1,257 | | | $ | (186) | | | $ | 46,339 | |
| Agency-collateralized mortgage obligations | 2,452 | | | — | | | (231) | | | 2,221 | | | 3,331 | | | 74 | | | (25) | | | 3,380 | |
| Commercial | 6,894 | | | 28 | | | (515) | | | 6,407 | | | 19,036 | | | 647 | | | (79) | | | 19,604 | |
Non-agency residential (1) | 461 | | | 15 | | | (90) | | | 386 | | | 591 | | | 25 | | | (33) | | | 583 | |
| Total mortgage-backed securities | 35,011 | | | 48 | | | (2,603) | | | 32,456 | | | 68,226 | | | 2,003 | | | (323) | | | 69,906 | |
| U.S. Treasury and government agencies | 160,773 | | | 18 | | | (1,769) | | | 159,022 | | | 197,853 | | | 1,610 | | | (318) | | | 199,145 | |
| Non-U.S. securities | 13,455 | | | 4 | | | (52) | | | 13,407 | | | 11,933 | | | — | | | — | | | 11,933 | |
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| Other taxable securities | 4,728 | | | 1 | | | (84) | | | 4,645 | | | 2,725 | | | 39 | | | (3) | | | 2,761 | |
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| Tax-exempt securities | 11,518 | | | 19 | | | (279) | | | 11,258 | | | 15,155 | | | 317 | | | (39) | | | 15,433 | |
| Total available-for-sale debt securities | 225,485 | | | 90 | | | (4,787) | | | 220,788 | | | 295,892 | | | 3,969 | | | (683) | | | 299,178 | |
Other debt securities carried at fair value (2) | 8,986 | | | 376 | | | (156) | | | 9,206 | | | 8,873 | | | 105 | | | (83) | | | 8,895 | |
| Total debt securities carried at fair value | 234,471 | | | 466 | | | (4,943) | | | 229,994 | | | 304,765 | | | 4,074 | | | (766) | | | 308,073 | |
| Held-to-maturity debt securities | | | | | | | | | | | | | | | |
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| Agency mortgage-backed securities | 503,233 | | | — | | | (87,319) | | | 415,914 | | | 553,721 | | | 3,855 | | | (10,366) | | | 547,210 | |
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| U.S. Treasury and government agencies | 121,597 | | | — | | | (20,259) | | | 101,338 | | | 111,859 | | | 254 | | | (2,395) | | | 109,718 | |
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| Other taxable securities | 8,033 | | | — | | | (1,018) | | | 7,015 | | | 9,011 | | | 147 | | | (196) | | | 8,962 | |
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| Total held-to-maturity debt securities | 632,863 | | | — | | | (108,596) | | | 524,267 | | | 674,591 | | | 4,256 | | | (12,957) | | | 665,890 | |
Total debt securities (3,4) | $ | 867,334 | | | $ | 466 | | | $ | (113,539) | | | $ | 754,261 | | | $ | 979,356 | | | $ | 8,330 | | | $ | (13,723) | | | $ | 973,963 | |
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(1)At December 31, 2022 and 2021, the underlying collateral type included approximately 17 percent and 21 percent prime and 83 percent and 79 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 $104.5 billion and $111.9 billion at December 31, 2022 and 2021.
(4)The Corporation held debt securities from FNMA and FHLMC that each exceeded 10 percent of shareholders’ equity, with an amortized cost of $290.5 billion and $176.7 billion, and a fair value of $239.6 billion and $144.6 billion at December 31, 2022, and an amortized cost of $345.3 billion and $205.3 billion, and a fair value of $342.5 billion and $202.4 billion at December 31, 2021.
At December 31, 2022, the accumulated net unrealized loss on AFS debt securities, excluding the amount related to debt securities previously transferred to held to maturity, included in accumulated OCI was $3.5 billion, net of the related income tax benefit of $1.2 billion. At December 31, 2022 and 2021, nonperforming AFS debt securities held by the Corporation were not significant.
At December 31, 2022 and 2021, the Corporation had $191.1 billion and $268.5 billion in AFS debt securities, which were primarily U.S. agency and U.S. Treasury securities that have a zero credit loss assumption. For more information on the zero credit loss assumption, see Note 1 – Summary of Significant Accounting Principles. For the remaining $29.7 billion and $30.7 billion in AFS debt securities at December 31, 2022 and 2021, the amount of ECL was not significant. At December 31, 2022 and 2021, the Corporation had $524.3 billion and $665.9 billion in HTM debt securities, which were substantially all U.S agency and U.S. Treasury securities that have a zero credit loss assumption.
At December 31, 2022 and 2021, the Corporation held equity securities at an aggregate fair value of $581 million
and $513 million and other equity securities, as valued under the measurement alternative, at a carrying value of $340 million and $266 million, both of which are included in other assets. At December 31, 2022 and 2021, the Corporation also held money market investments at a fair value of $868 million and $707 million, 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 2022, 2021 and 2020 are presented in the table below.
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| Gains and Losses on Sales of AFS Debt Securities |
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| (Dollars in millions) | | | | | | | | 2022 | | 2021 | | 2020 |
| Gross gains | | | | | | | | $ | 1,251 | | | $ | 49 | | | $ | 423 | |
| Gross losses | | | | | | | | (1,219) | | | (27) | | | (12) | |
| Net gains on sales of AFS debt securities | | | | | | | | $ | 32 | | | $ | 22 | | | $ | 411 | |
| Income tax expense attributable to realized net gains on sales of AFS debt securities | | | | | | | | $ | 8 | | | $ | 5 | | | $ | 103 | |
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, 2022 and 2021.
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| Total AFS Debt Securities in a Continuous Unrealized Loss Position | | | | | | |
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| 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, 2022 |
| Continuously unrealized loss-positioned AFS debt securities | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | |
| Agency | $ | 18,759 | | | $ | (1,118) | | | $ | 4,437 | | | $ | (649) | | | $ | 23,196 | | | $ | (1,767) | |
| Agency-collateralized mortgage obligations | 1,165 | | | (96) | | | 1,022 | | | (135) | | | 2,187 | | | (231) | |
| Commercial | 3,273 | | | (150) | | | 2,258 | | | (365) | | | 5,531 | | | (515) | |
| Non-agency residential | 264 | | | (65) | | | 97 | | | (25) | | | 361 | | | (90) | |
| Total mortgage-backed securities | 23,461 | | | (1,429) | | | 7,814 | | | (1,174) | | | 31,275 | | | (2,603) | |
| U.S. Treasury and government agencies | 36,730 | | | (308) | | | 118,636 | | | (1,461) | | | 155,366 | | | (1,769) | |
| Non-U.S. securities | 9,399 | | | (34) | | | 756 | | | (18) | | | 10,155 | | | (52) | |
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| Other taxable securities | 2,036 | | | (16) | | | 1,580 | | | (68) | | | 3,616 | | | (84) | |
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| Tax-exempt securities | 607 | | | (28) | | | 2,849 | | | (251) | | | 3,456 | | | (279) | |
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Total AFS debt securities in a continuous
unrealized loss position | $ | 72,233 | | | $ | (1,815) | | | $ | 131,635 | | | $ | (2,972) | | | $ | 203,868 | | | $ | (4,787) | |
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| December 31, 2021 |
| Continuously unrealized loss-positioned AFS debt securities | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | |
| Agency | $ | 11,733 | | | $ | (166) | | | $ | 815 | | | $ | (20) | | | $ | 12,548 | | | $ | (186) | |
| Agency-collateralized mortgage obligations | 1,427 | | | (22) | | | 122 | | | (3) | | | 1,549 | | | (25) | |
| Commercial | 3,451 | | | (41) | | | 776 | | | (38) | | | 4,227 | | | (79) | |
| Non-agency residential | 241 | | | (13) | | | 174 | | | (20) | | | 415 | | | (33) | |
| Total mortgage-backed securities | 16,852 | | | (242) | | | 1,887 | | | (81) | | | 18,739 | | | (323) | |
| U.S. Treasury and government agencies | 103,307 | | | (272) | | | 4,850 | | | (46) | | | 108,157 | | | (318) | |
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| Other taxable securities | — | | | — | | | 82 | | | (3) | | | 82 | | | (3) | |
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| Tax-exempt securities | 502 | | | (16) | | | 109 | | | (23) | | | 611 | | | (39) | |
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Total AFS debt securities in a continuous
unrealized loss position | $ | 120,661 | | | $ | (530) | | | $ | 6,928 | | | $ | (153) | | | $ | 127,589 | | | $ | (683) | |
The remaining contractual maturity distribution and yields of the Corporation’s debt securities carried at fair value and HTM debt securities at December 31, 2022 are summarized in the table below. Actual duration and yields may differ as prepayments on the loans underlying the MBS 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 |
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| 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 | $ | — | | | — | % | | $ | 3 | | | 5.67 | % | | $ | 56 | | | 4.39 | % | | $ | 25,145 | | | 3.37 | % | | $ | 25,204 | | | 3.37 | % |
| Agency-collateralized mortgage obligations | — | | | — | | | 10 | | | 2.60 | | | — | | | — | | | 2,442 | | | 2.89 | | | 2,452 | | | 2.89 | |
| Commercial | 22 | | | 2.09 | | | 670 | | | 3.07 | | | 4,591 | | | 2.03 | | | 1,624 | | | 2.31 | | | 6,907 | | | 2.20 | |
| Non-agency residential | — | | | — | | | — | | | — | | | — | | | — | | | 825 | | | 9.54 | | | 825 | | | 9.54 | |
| Total mortgage-backed securities | 22 | | | 2.09 | | | 683 | | | 3.08 | | | 4,647 | | | 2.06 | | | 30,036 | | | 3.44 | | | 35,388 | | | 3.25 | |
| U.S. Treasury and government agencies | 3,306 | | | 1.59 | | | 79,618 | | | 1.68 | | | 78,378 | | | 1.64 | | | 32 | | | 3.38 | | | 161,334 | | | 1.66 | |
| Non-U.S. securities | 17,499 | | | 2.41 | | | 3,002 | | | 4.58 | | | 723 | | | 3.93 | | | 279 | | | 6.87 | | | 21,503 | | | 2.82 | |
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| Other taxable securities | 2,034 | | | 4.77 | | | 2,102 | | | 4.85 | | | 455 | | | 3.46 | | | 137 | | | 3.35 | | | 4,728 | | | 4.64 | |
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| Tax-exempt securities | 890 | | | 3.36 | | | 4,765 | | | 3.55 | | | 2,022 | | | 3.73 | | | 3,841 | | | 3.88 | | | 11,518 | | | 3.68 | |
| Total amortized cost of debt securities carried at fair value | $ | 23,751 | | | 2.53 | | | $ | 90,170 | | | 1.96 | | | $ | 86,225 | | | 1.74 | | | $ | 34,325 | | | 3.52 | | | $ | 234,471 | | | 2.16 | |
| Amortized cost of HTM debt securities | | | | | | | | | | | | | | | | | | | |
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| Agency mortgage-backed securities | $ | — | | | — | % | | $ | — | | | — | % | | $ | 14 | | | 2.64 | % | | $ | 503,219 | | | 2.13 | % | | $ | 503,233 | | | 2.13 | % |
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| U.S. Treasury and government agencies | — | | | — | | | 4,544 | | | 1.80 | | | 117,053 | | | 1.37 | | | — | | | — | | | 121,597 | | | 1.39 | |
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| Other taxable securities | 38 | | | 9.06 | | | 1,251 | | | 2.23 | | | 313 | | | 3.00 | | | 6,431 | | | 2.45 | | | 8,033 | | | 2.47 | |
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| Total amortized cost of HTM debt securities | $ | 38 | | | 9.06 | | | $ | 5,795 | | | 1.89 | | | $ | 117,380 | | | 1.37 | | | $ | 509,650 | | | 2.13 | | | $ | 632,863 | | | 1.99 | |
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| Debt securities carried at fair value | | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | |
| Agency | $ | — | | | | | $ | 3 | | | | | $ | 56 | | | | | $ | 23,383 | | | | | $ | 23,442 | | | |
| Agency-collateralized mortgage obligations | — | | | | | 10 | | | | | — | | | | | 2,211 | | | | | 2,221 | | | |
| Commercial | 22 | | | | | 650 | | | | | 4,342 | | | | | 1,404 | | | | | 6,418 | | | |
| Non-agency residential | — | | | | | 2 | | | | | — | | | | | 751 | | | | | 753 | | | |
| Total mortgage-backed securities | 22 | | | | | 665 | | | | | 4,398 | | | | | 27,749 | | | | | 32,834 | | | |
| U.S. Treasury and government agencies | 3,312 | | | | | 79,013 | | | | | 77,228 | | | | | 30 | | | | | 159,583 | | | |
| Non-U.S. securities | 17,709 | | | | | 2,960 | | | | | 723 | | | | | 279 | | | | | 21,671 | | | |
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| Other taxable securities | 2,028 | | | | | 2,085 | | | | | 413 | | | | | 122 | | | | | 4,648 | | | |
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| Tax-exempt securities | 887 | | | | | 4,729 | | | | | 1,997 | | | | | 3,645 | | | | | 11,258 | | | |
| Total debt securities carried at fair value | $ | 23,958 | | | | | $ | 89,452 | | | | | $ | 84,759 | | | | | $ | 31,825 | | | | | $ | 229,994 | | | |
| Fair value of HTM debt securities | | | | | | | | | | | | | | | | | | | |
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| Agency mortgage-backed securities | $ | — | | | | | $ | — | | | | | $ | 13 | | | | | $ | 415,901 | | | | | $ | 415,914 | | | |
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| U.S. Treasury and government agencies | — | | | | | 4,164 | | | | | 97,174 | | | | | — | | | | | 101,338 | | | |
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| Other taxable securities | 38 | | | | | 1,170 | | | | | 295 | | | | | 5,512 | | | | | 7,015 | | | |
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| Total fair value of HTM debt securities | $ | 38 | | | | | $ | 5,334 | | | | | $ | 97,482 | | | | | $ | 421,413 | | | | | $ | 524,267 | | | |
(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.
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, 20172022 and 2016.2021.
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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, 2022 |
| Consumer real estate | | | | | | | | | | | | | | | |
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| Residential mortgage | $ | 1,077 | | | $ | 245 | | | $ | 945 | | | $ | 2,267 | | | $ | 227,403 | | | | | | | $ | 229,670 | |
| Home equity | 88 | | | 32 | | | 211 | | | 331 | | | 26,232 | | | | | | | 26,563 | |
| Credit card and other consumer | | | | | | | | | | | | | | | |
| Credit card | 466 | | | 322 | | | 717 | | | 1,505 | | | 91,916 | | | | | | | 93,421 | |
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Direct/Indirect consumer (2) | 204 | | | 59 | | | 45 | | | 308 | | | 105,928 | | | | | | | 106,236 | |
| Other consumer | — | | | — | | | — | | | — | | | 156 | | | | | | | 156 | |
| Total consumer | 1,835 | | | 658 | | | 1,918 | | | 4,411 | | | 451,635 | | | | | | | 456,046 | |
Consumer loans accounted for under the fair value option (3) | | | | | | | | | | | | | $ | 339 | | | 339 | |
| Total consumer loans and leases | 1,835 | | | 658 | | | 1,918 | | | 4,411 | | | 451,635 | | | | | 339 | | | 456,385 | |
| Commercial | | | | | | | | | | | | | | | |
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| U.S. commercial | 827 | | | 288 | | | 330 | | | 1,445 | | | 357,036 | | | | | | | 358,481 | |
| Non-U.S. commercial | 317 | | | 59 | | | 144 | | | 520 | | | 123,959 | | | | | | | 124,479 | |
Commercial real estate (4) | 409 | | | 81 | | | 77 | | | 567 | | | 69,199 | | | | | | | 69,766 | |
| Commercial lease financing | 49 | | | 9 | | | 11 | | | 69 | | | 13,575 | | | | | | | 13,644 | |
U.S. small business commercial (5) | 107 | | | 63 | | | 356 | | | 526 | | | 17,034 | | | | | | | 17,560 | |
| Total commercial | 1,709 | | | 500 | | | 918 | | | 3,127 | | | 580,803 | | | | | | | 583,930 | |
Commercial loans accounted for under the fair value option (3) | | | | | | | | | | | | | 5,432 | | | 5,432 | |
| Total commercial loans and leases | 1,709 | | | 500 | | | 918 | | | 3,127 | | | 580,803 | | | | | 5,432 | | | 589,362 | |
Total loans and leases (6) | $ | 3,544 | | | $ | 1,158 | | | $ | 2,836 | | | $ | 7,538 | | | $ | 1,032,438 | | | | | $ | 5,771 | | | $ | 1,045,747 | |
| Percentage of outstandings | 0.34 | % | | 0.11 | % | | 0.27 | % | | 0.72 | % | | 98.73 | % | | | | 0.55 | % | | 100.00 | % |
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Consumer Real Estate – Credit Quality Indicators (1) |
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| | 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) | |
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| 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 $184 million and nonperforming loans of $155 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $75 million and nonperforming loans of $88 million. Consumer real estate loans 90 days or more past due includes fully-insured loans of $368 million and nonperforming loans of $788 million. Consumer real estate loans current or less than 30 days past due includes $1.6 billion, and direct/indirect consumer includes $27 million of nonperforming loans. |
| | | | | | | | | | | |
| | | | | | |
| 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 $51.8 billion, U.S. securities-based lending loans of $50.4 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 $71 million and reported separately on page 137.home equity loans of $268 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 $2.5 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 $64.9 billion and non-U.S. commercial real estate loans of $4.8 billion.
(5)Includes Paycheck Protection Program loans.
(6)Total outstandings includes loans and leases pledged as collateral of $18.5 billion. The Corporation also pledged $163.6 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, 2021 |
| Consumer real estate | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Residential mortgage | $ | 1,005 | | | $ | 297 | | | $ | 1,571 | | | $ | 2,873 | | | $ | 219,090 | | | | | | | $ | 221,963 | |
| Home equity | 123 | | | 69 | | | 369 | | | 561 | | | 27,374 | | | | | | | 27,935 | |
| Credit card and other consumer | | | | | | | | | | | | | | | |
| Credit card | 298 | | | 212 | | | 487 | | | 997 | | | 80,441 | | | | | | | 81,438 | |
| | | | | | | | | | | | | | | |
Direct/Indirect consumer (2) | 147 | | | 52 | | | 18 | | | 217 | | | 103,343 | | | | | | | 103,560 | |
| Other consumer | — | | | — | | | — | | | — | | | 190 | | | | | | | 190 | |
| Total consumer | 1,573 | | | 630 | | | 2,445 | | | 4,648 | | | 430,438 | | | | | | | 435,086 | |
Consumer loans accounted for under the fair value option (3) | | | | | | | | | | | | | $ | 618 | | | 618 | |
| Total consumer loans and leases | 1,573 | | | 630 | | | 2,445 | | | 4,648 | | | 430,438 | | | | | 618 | | | 435,704 | |
| Commercial | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| U.S. commercial | 815 | | | 308 | | | 396 | | | 1,519 | | | 324,417 | | | | | | | 325,936 | |
| Non-U.S. commercial | 148 | | | 20 | | | 83 | | | 251 | | | 113,015 | | | | | | | 113,266 | |
Commercial real estate (4) | 115 | | | 34 | | | 285 | | | 434 | | | 62,575 | | | | | | | 63,009 | |
| Commercial lease financing | 104 | | | 28 | | | 13 | | | 145 | | | 14,680 | | | | | | | 14,825 | |
U.S. small business commercial (5) | 129 | | | 259 | | | 89 | | | 477 | | | 18,706 | | | | | | | 19,183 | |
| Total commercial | 1,311 | | | 649 | | | 866 | | | 2,826 | | | 533,393 | | | | | | | 536,219 | |
Commercial loans accounted for under the fair value option (3) | | | | | | | | | | | | | 7,201 | | | 7,201 | |
| Total commercial loans and leases | 1,311 | | | 649 | | | 866 | | | 2,826 | | | 533,393 | | | | | 7,201 | | | 543,420 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total loans and leases (6) | $ | 2,884 | | | $ | 1,279 | | | $ | 3,311 | | | $ | 7,474 | | | $ | 963,831 | | | | | $ | 7,819 | | | $ | 979,124 | |
| Percentage of outstandings | 0.29 | % | | 0.13 | % | | 0.34 | % | | 0.76 | % | | 98.44 | % | | | | 0.80 | % | | 100.00 | % |
(1)Consumer real estate loans 30-59 days past due includes fully-insured loans of $164 million and nonperforming loans of $118 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $89 million and nonperforming loans of $100 million. Consumer real estate loans 90 days or more past due includes fully-insured loans of $633 million and nonperforming loans of $1.3 billion. Consumer real estate loans current or less than 30 days past due includes $1.4 billion, and direct/indirect consumer includes $55 million of nonperforming loans.
(2)Total outstandings primarily includes auto and specialty lending loans and leases of $48.5 billion, U.S. securities-based lending loans of $51.1 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 $279 million and home equity loans of $339 million. Commercial loans accounted for under the fair value option includes U.S. commercial loans of $4.6 billion and non-U.S. commercial loans of $2.6 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 $58.2 billion and non-U.S. commercial real estate loans of $4.8 billion.
(5)Includes Paycheck Protection Program loans.
(6)Total outstandings includes loans and leases pledged as collateral of $13.0 billion. The Corporation also pledged $146.6 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 has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling $9.5 billion and $10.5 billion at December 31, 2022 and 2021, 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 decreased to $1.1 billion at December 31, 2022 from $1.6 billion at December 31, 2021, as paydowns and returns to performing status more than offset new downgrades to nonaccrual status. Consumer nonperforming loans decreased to $2.8 billion at December 31, 2022 from
$3.0 billion at December 31, 2021 primarily due to decreases from consumer real estate loan sales, partially offset by increases from loans whose prior-period deferrals expired and were modified in TDRs during the first quarter of 2022.
The following table presents the Corporation’s nonperforming loans and leases, including nonperforming TDRs, and loans accruing past due 90 days or more at December 31, 2022 and 2021. Nonperforming LHFS are excluded from nonperforming loans and leases as they are recorded at either fair value or the lower of cost or fair value. For more information on the criteria for classification as nonperforming, see Note 1 – Summary of Significant Accounting Principles.Principles.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Credit Quality | | |
| | | | | | | |
| |
| Nonperforming Loans
and Leases | | Accruing Past Due
90 Days or More |
| December 31 |
| (Dollars in millions) | 2022 | | 2021 | | 2022 | | 2021 |
Residential mortgage (1) | $ | 2,167 | | | $ | 2,284 | | | $ | 368 | | | $ | 634 | |
With no related allowance (2) | 1,973 | | | 1,950 | | | — | | | — | |
Home equity (1) | 510 | | | 630 | | | — | | | — | |
With no related allowance (2) | 393 | | | 414 | | | — | | | — | |
| Credit Card | n/a | | n/a | | 717 | | | 487 | |
| Direct/indirect consumer | 77 | | | 75 | | | 2 | | | 11 | |
| | | | | | | |
| Total consumer | 2,754 | | | 2,989 | | | 1,087 | | | 1,132 | |
| U.S. commercial | 553 | | | 825 | | | 190 | | | 171 | |
| Non-U.S. commercial | 212 | | | 268 | | | 25 | | | 19 | |
| Commercial real estate | 271 | | | 382 | | | 46 | | | 40 | |
| Commercial lease financing | 4 | | | 80 | | | 8 | | | 8 | |
| U.S. small business commercial | 14 | | | 23 | | | 355 | | | 87 | |
| Total commercial | 1,054 | | | 1,578 | | | 624 | | | 325 | |
| Total nonperforming loans | $ | 3,808 | | | $ | 4,567 | | | $ | 1,711 | | | $ | 1,457 | |
| Percentage of outstanding loans and leases | 0.37 | % | | 0.47 | % | | 0.16 | % | | 0.15 | % |
(1)Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At December 31, 2022 and 2021 residential mortgage included $260 million and $444 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 $108 million and $190 million of loans on which interest was still accruing.
(2)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
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. When a nonaccrual loan is deemed uncollectible, it is charged off against the allowance for credit losses. If the charged-off amount is later recovered, the amount is reversed through the allowance for credit losses at the recovery date. Charge-offs are reported net of recoveries (net charge-offs). If recoveries for the period are greater than charge-offs, net charge-offs are reported as a negative amount.
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.
Credit card and other unsecured consumer loans are charged off when the loan becomes 180 days past due, within 60 days after receipt of notification of death or bankruptcy or upon confirmation of fraud. These loans continue to accrue interest until they are charged off and, therefore, are not reported as nonperforming loans. Consumer vehicle loans are placed on nonaccrual status when they become 90 days past due, within 60 days after receipt of notification of bankruptcy or death or upon confirmation of fraud. These loans are charged off to their collateral values when the loans become 120 days past due, upon repossession of the collateral, within 60 days after receipt of notification of bankruptcy or death or upon confirmation of fraud. If repossession of the collateral is not expected, the loans are fully charged off.
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.
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 zero. 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, 2022, as its contracts with customers generally have a fixed term that is less than one year, an open term with a cancellation period that is less than one year, or provisions that allow the Corporation to recognize revenue at the amount it has the right to invoice.
Earnings Per Common Share
Earnings per common share (EPS) is computed by dividing net income allocated to common shareholders by the weighted-average common shares outstanding, excluding unvested
common shares subject to repurchase or cancellation. Net income allocated to common shareholders is net income adjusted for preferred stock dividends including dividends declared, accretion of discounts on preferred stock including accelerated accretion when preferred stock is repaid early, and cumulative dividends related to the current dividend period that have not been declared as of period end, less income allocated to participating securities. Diluted EPS is computed by dividing income allocated to common shareholders plus dividends on dilutive convertible preferred stock and preferred stock that can be tendered to exercise warrants, by the weighted-average common shares outstanding plus amounts representing the dilutive effect of stock options outstanding, restricted stock, restricted stock units (RSUs), outstanding warrants and the dilution resulting from the conversion of convertible preferred stock, if applicable.
Foreign Currency Translation
Assets, liabilities and operations of foreign branches and subsidiaries are recorded based on the functional currency of each entity. When the functional currency of a foreign operation is the local currency, the assets, liabilities and operations are translated, for consolidation purposes, from the local currency to the U.S. dollar reporting currency at period-end rates for assets and liabilities and generally at average rates for results of operations. The resulting unrealized gains and losses are reported as a component of accumulated OCI, net-of-tax. When the foreign entity’s functional currency is the U.S. dollar, the resulting remeasurement gains or losses on foreign currency-denominated assets or liabilities are included in earnings.
NOTE 2Net Interest Income and Noninterest Income
The table below presents the Corporation’s net interest income and noninterest income disaggregated by revenue source for 2022, 2021 and 2020. 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) | 2022 | | 2021 | | 2020 | | | | | | | | | | | |
| Net interest income | | | | | | | | | | | | | | | | |
| Interest income | | | | | | | | | | | | | | | | |
| Loans and leases | $ | 37,919 | | | $ | 29,282 | | | $ | 34,029 | | | | | | | | | | | | |
| Debt securities | 17,127 | | | 12,376 | | | 9,790 | | | | | | | | | | | | |
Federal funds sold and securities borrowed or purchased under agreements to resell (1) | 4,560 | | | (90) | | | 903 | | | | | | | | | | | | |
| Trading account assets | 5,521 | | | 3,770 | | | 4,128 | | | | | | | | | | | | |
| Other interest income | 7,438 | | | 2,334 | | | 2,735 | | | | | | | | | | | | |
| Total interest income | 72,565 | | | 47,672 | | | 51,585 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Interest expense | | | | | | | | | | | | | | | | |
| Deposits | 4,718 | | | 537 | | | 1,943 | | | | | | | | | | | | |
Short-term borrowings (1) | 6,978 | | | (358) | | | 987 | | | | | | | | | | | | |
| Trading account liabilities | 1,538 | | | 1,128 | | | 974 | | | | | | | | | | | | |
| Long-term debt | 6,869 | | | 3,431 | | | 4,321 | | | | | | | | | | | | |
| Total interest expense | 20,103 | | | 4,738 | | | 8,225 | | | | | | | | | | | | |
| Net interest income | $ | 52,462 | | | $ | 42,934 | | | $ | 43,360 | | | | | | | | | | | | |
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| Noninterest income | | | | | | | | | | | | | | | | |
| Fees and commissions | | | | | | | | | | | | | | | | |
| Card income | | | | | | | | | | | | | | | | |
Interchange fees (2) | $ | 4,096 | | | $ | 4,560 | | | $ | 3,954 | | | | | | | | | | | | |
| Other card income | 1,987 | | | 1,658 | | | 1,702 | | | | | | | | | | | | |
| Total card income | 6,083 | | | 6,218 | | | 5,656 | | | | | | | | | | | | |
| Service charges | | | | | | | | | | | | | | | | |
| Deposit-related fees | 5,190 | | | 6,271 | | | 5,991 | | | | | | | | | | | | |
| Lending-related fees | 1,215 | | | 1,233 | | | 1,150 | | | | | | | | | | | | |
| Total service charges | 6,405 | | | 7,504 | | | 7,141 | | | | | | | | | | | | |
| Investment and brokerage services | | | | | | | | | | | | | | | | |
| Asset management fees | 12,152 | | | 12,729 | | | 10,708 | | | | | | | | | | | | |
| Brokerage fees | 3,749 | | | 3,961 | | | 3,866 | | | | | | | | | | | | |
| Total investment and brokerage services | 15,901 | | | 16,690 | | | 14,574 | | | | | | | | | | | | |
| Investment banking fees | | | | | | | | | | | | | | | | |
| Underwriting income | 1,970 | | | 5,077 | | | 4,698 | | | | | | | | | | | | |
| Syndication fees | 1,070 | | | 1,499 | | | 861 | | | | | | | | | | | | |
| Financial advisory services | 1,783 | | | 2,311 | | | 1,621 | | | | | | | | | | | | |
| Total investment banking fees | 4,823 | | | 8,887 | | | 7,180 | | | | | | | | | | | | |
| Total fees and commissions | 33,212 | | | 39,299 | | | 34,551 | | | | | | | | | | | | |
| Market making and similar activities | 12,075 | | | 8,691 | | | 8,355 | | | | | | | | | | | | |
| Other income (loss) | (2,799) | | | (1,811) | | | (738) | | | | | | | | | | | | |
| Total noninterest income | $ | 42,488 | | | $ | 46,179 | | | $ | 42,168 | | | | | | | | | | | | |
(1)For more information on negative interest, see Note 1 – Summary of Significant Accounting Principles.
(2)Gross interchange fees and merchant income were $12.9 billion, $11.5 billion and $9.2 billion for 2022, 2021, and 2020, respectively, and are presented net of $8.8 billion, $6.9 billion and $5.5 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, 2022 and 2021. 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, 2022 |
| | | 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 | $ | 18,285.9 | | | $ | 138.2 | | | $ | 20.7 | | | $ | 158.9 | | | $ | 120.3 | | | $ | 36.7 | | | $ | 157.0 | |
| Futures and forwards | 2,796.3 | | | 8.6 | | | — | | | 8.6 | | | 7.8 | | | — | | | 7.8 | |
Written options (2) | 1,657.9 | | | — | | | — | | | — | | | 41.4 | | | — | | | 41.4 | |
Purchased options (3) | 1,594.7 | | | 42.4 | | | — | | | 42.4 | | | — | | | — | | | — | |
| Foreign exchange contracts | | | | | | | | | | | | | |
| Swaps | 1,509.0 | | | 44.0 | | | 0.3 | | | 44.3 | | | 43.3 | | | 0.4 | | | 43.7 | |
| Spot, futures and forwards | 4,159.3 | | | 59.9 | | | 0.1 | | | 60.0 | | | 62.1 | | | 0.6 | | | 62.7 | |
Written options (2) | 392.2 | | | — | | | — | | | — | | | 8.1 | | | — | | | 8.1 | |
Purchased options (3) | 362.6 | | | 8.3 | | | — | | | 8.3 | | | — | | | — | | | — | |
| Equity contracts | | | | | | | | | | | | | |
| Swaps | 394.0 | | | 10.8 | | | — | | | 10.8 | | | 12.2 | | | — | | | 12.2 | |
| Futures and forwards | 114.6 | | | 3.3 | | | — | | | 3.3 | | | 1.0 | | | — | | | 1.0 | |
Written options (2) | 746.8 | | | — | | | — | | | — | | | 45.0 | | | — | | | 45.0 | |
Purchased options (3) | 671.6 | | | 40.9 | | | — | | | 40.9 | | | — | | | — | | | — | |
| Commodity contracts | | | | | | | | | | | | | |
| Swaps | 56.0 | | | 5.1 | | | — | | | 5.1 | | | 5.3 | | | — | | | 5.3 | |
| Futures and forwards | 157.3 | | | 3.0 | | | — | | | 3.0 | | | 2.3 | | | 0.8 | | | 3.1 | |
Written options (2) | 59.5 | | | — | | | — | | | — | | | 3.3 | | | — | | | 3.3 | |
Purchased options (3) | 61.8 | | | 3.6 | | | — | | | 3.6 | | | — | | | — | | | — | |
Credit derivatives (4) | | | | | | | | | | | | | |
| Purchased credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 319.9 | | | 2.8 | | | — | | | 2.8 | | | 1.6 | | | — | | | 1.6 | |
| Total return swaps/options | 71.5 | | | 0.7 | | | — | | | 0.7 | | | 3.0 | | | — | | | 3.0 | |
| Written credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 295.2 | | | 1.2 | | | — | | | 1.2 | | | 2.4 | | | — | | | 2.4 | |
| Total return swaps/options | 85.3 | | | 4.4 | | | — | | | 4.4 | | | 0.9 | | | — | | | 0.9 | |
| Gross derivative assets/liabilities | | | $ | 377.2 | | | $ | 21.1 | | | $ | 398.3 | | | $ | 360.0 | | | $ | 38.5 | | | $ | 398.5 | |
| Less: Legally enforceable master netting agreements | | | | | | | (315.9) | | | | | | | (315.9) | |
| Less: Cash collateral received/paid | | | | | | | (33.8) | | | | | | | (37.8) | |
| Total derivative assets/liabilities | | | | | | | $ | 48.6 | | | | | | | $ | 44.8 | |
(1)Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2)Includes certain out-of-the-money purchased options that have a liability amount primarily due to the deferral of the option premiums to the end of the contract.
(3)Includes certain out-of-the-money written options that have an asset amount primarily due to the deferral of the option premiums to the end of the contract.
(4)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 $(1.2) billion and $276.9 billion at December 31, 2022.
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| | | December 31, 2021 |
| | | 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 | $ | 18,068.1 | | | $ | 150.5 | | | $ | 8.9 | | | $ | 159.4 | | | $ | 156.4 | | | $ | 4.4 | | | $ | 160.8 | |
| Futures and forwards | 2,243.2 | | | 1.1 | | | — | | | 1.1 | | | 1.0 | | | — | | | 1.0 | |
Written options (2) | 1,616.1 | | | — | | | — | | | — | | | 28.8 | | | — | | | 28.8 | |
Purchased options (3) | 1,673.6 | | | 33.1 | | | — | | | 33.1 | | | — | | | — | | | — | |
| Foreign exchange contracts | | | | | | | | | | | | | |
| Swaps | 1,420.9 | | | 28.6 | | | 0.2 | | | 28.8 | | | 30.5 | | | 0.2 | | | 30.7 | |
| Spot, futures and forwards | 4,087.2 | | | 37.1 | | | 0.3 | | | 37.4 | | | 37.7 | | | 0.2 | | | 37.9 | |
Written options (2) | 287.2 | | | — | | | — | | | — | | | 4.1 | | | — | | | 4.1 | |
Purchased options (3) | 267.6 | | | 4.1 | | | — | | | 4.1 | | | — | | | — | | | — | |
| Equity contracts | | | | | | | | | | | | | |
| Swaps | 443.8 | | | 12.3 | | | — | | | 12.3 | | | 14.5 | | | — | | | 14.5 | |
| Futures and forwards | 113.3 | | | 0.5 | | | — | | | 0.5 | | | 1.7 | | | — | | | 1.7 | |
Written options (2) | 737.7 | | | — | | | — | | | — | | | 58.5 | | | — | | | 58.5 | |
Purchased options (3) | 657.0 | | | 55.9 | | | — | | | 55.9 | | | — | | | — | | | — | |
| Commodity contracts | | | | | | | | | | | | | |
| Swaps | 47.7 | | | 3.1 | | | — | | | 3.1 | | | 6.0 | | | — | | | 6.0 | |
| Futures and forwards | 101.5 | | | 2.3 | | | — | | | 2.3 | | | 0.3 | | | 1.1 | | | 1.4 | |
Written options (2) | 44.4 | | | — | | | — | | | — | | | 2.6 | | | — | | | 2.6 | |
Purchased options (3) | 38.3 | | | 3.2 | | | — | | | 3.2 | | | — | | | — | | | — | |
Credit derivatives (4) | | | | | | | | | | | | | |
| Purchased credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 297.0 | | | 1.9 | | | — | | | 1.9 | | | 4.3 | | | — | | | 4.3 | |
| Total return swaps/options | 85.3 | | | 0.2 | | | — | | | 0.2 | | | 1.1 | | | — | | | 1.1 | |
| Written credit derivatives: | | | | | | | | | | | | | |
| Credit default swaps | 279.8 | | | 4.2 | | | — | | | 4.2 | | | 1.6 | | | — | | | 1.6 | |
| Total return swaps/options | 85.3 | | | 0.9 | | | — | | | 0.9 | | | 0.5 | | | — | | | 0.5 | |
| Gross derivative assets/liabilities | | | $ | 339.0 | | | $ | 9.4 | | | $ | 348.4 | | | $ | 349.6 | | | $ | 5.9 | | | $ | 355.5 | |
| Less: Legally enforceable master netting agreements | | | | | | | (282.3) | | | | | | | (282.3) | |
| Less: Cash collateral received/paid | | | | | | | (30.8) | | | | | | | (35.5) | |
| Total derivative assets/liabilities | | | | | | | $ | 35.3 | | | | | | | $ | 37.7 | |
(1)Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2)Includes certain out-of-the-money purchased options that have a liability amount primarily due to the deferral of the option premiums to the end of the contract.
(3)Includes certain out-of-the-money written options that have an asset amount primarily due to the deferral of the option premiums to the end of the contract.
(4)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 $2.3 billion and $258.4 billion at December 31, 2021.
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, 2022 and 2021 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 – Securities Financing Agreements, Short-term Borrowings, Collateral 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, 2022 | | December 31, 2021 |
| Interest rate contracts | | | | | | | |
| Over-the-counter | $ | 138.4 | | | $ | 132.3 | | | $ | 171.3 | | | $ | 166.3 | |
| Exchange-traded | 0.4 | | | 0.1 | | | 0.2 | | | — | |
| Over-the-counter cleared | 71.4 | | | 71.1 | | | 22.6 | | | 22.5 | |
| Foreign exchange contracts | | | | | | | |
| Over-the-counter | 109.7 | | | 110.6 | | | 67.9 | | | 70.5 | |
| Over-the-counter cleared | 1.3 | | | 1.2 | | | 1.1 | | | 1.1 | |
| Equity contracts | | | | | | | |
| Over-the-counter | 21.5 | | | 22.6 | | | 29.2 | | | 32.9 | |
| Exchange-traded | 33.0 | | | 33.8 | | | 38.3 | | | 38.4 | |
| Commodity contracts | | | | | | | |
| Over-the-counter | 8.3 | | | 9.3 | | | 6.1 | | | 7.6 | |
| Exchange-traded | 2.4 | | | 1.9 | | | 1.4 | | | 1.3 | |
| Over-the-counter cleared | 0.3 | | | 0.3 | | | 0.1 | | | 0.1 | |
| Credit derivatives | | | | | | | |
| Over-the-counter | 8.9 | | | 7.5 | | | 5.2 | | | 5.3 | |
| Over-the-counter cleared | — | | | — | | | 1.8 | | | 1.8 | |
| Total gross derivative assets/liabilities, before netting | | | | | | | |
| Over-the-counter | 286.8 | | | 282.3 | | | 279.7 | | | 282.6 | |
| Exchange-traded | 35.8 | | | 35.8 | | | 39.9 | | | 39.7 | |
| Over-the-counter cleared | 73.0 | | | 72.6 | | | 25.6 | | | 25.5 | |
| Less: Legally enforceable master netting agreements and cash collateral received/paid | | | | | | | |
| Over-the-counter | (243.8) | | | (248.2) | | | (250.3) | | | (254.6) | |
| Exchange-traded | (33.5) | | | (33.5) | | | (37.8) | | | (37.8) | |
| Over-the-counter cleared | (72.4) | | | (72.0) | | | (25.0) | | | (25.4) | |
| Derivative assets/liabilities, after netting | 45.9 | | | 37.0 | | | 32.1 | | | 30.0 | |
Other gross derivative assets/liabilities (2) | 2.7 | | | 7.8 | | | 3.2 | | | 7.7 | |
| Total derivative assets/liabilities | 48.6 | | | 44.8 | | | 35.3 | | | 37.7 | |
Less: Financial instruments collateral (3) | (18.5) | | | (7.4) | | | (11.8) | | | (10.6) | |
| Total net derivative assets/liabilities | $ | 30.1 | | | $ | 37.4 | | | $ | 23.5 | | | $ | 27.1 | |
(1)Over-the-counter derivatives include bilateral transactions between the Corporation and a particular counterparty. Over-the-counter 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 foreign exchange rates (fair value hedges). The Corporation also uses these types of contracts to protect against changes in the cash flows of its assets and liabilities,
and other forecasted transactions (cash flow hedges). The Corporation hedges its net investment in consolidated non-U.S. operations determined to have functional currencies other than the U.S. dollar using forward exchange contracts and cross-currency basis swaps, and by issuing foreign currency-
denominated debt (net investment hedges).
Fair Value Hedges
The table below summarizes information related to fair value hedges for 2022, 2021 and 2020.
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| Gains and Losses on Derivatives Designated as Fair Value Hedges | | | | | | |
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| | | | | Derivative | | Hedged Item |
| (Dollars in millions) | | | | | | | | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
Interest rate risk on long-term debt (1) | | | | | | | | | $ | (26,654) | | | $ | (7,018) | | | $ | 7,091 | | | $ | 26,825 | | | $ | 6,838 | | | $ | (7,220) | |
Interest rate and foreign currency risk on long-term debt (2) | | | | | | | | | (120) | | | (90) | | | 783 | | | 119 | | | 79 | | | (783) | |
Interest rate risk on available-for-sale securities (3) | | | | | | | | | 21,991 | | | 5,203 | | | (44) | | | (22,280) | | | (5,167) | | | 49 | |
Price risk on commodity inventory (4) | | | | | | | | | 674 | | | — | | | — | | | (674) | | | — | | | — | |
| Total | | | | | | | | | $ | (4,109) | | | $ | (1,905) | | | $ | 7,830 | | | $ | 3,990 | | | $ | 1,750 | | | $ | (7,954) | |
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(1)Amounts are recorded in interest expense in the Consolidated Statement of Income.
(2)For 2022, 2021 and 2020, the derivative amount includes gains (losses) of $(37) million, $(73) million and $701 million in interest expense, $(81) million, $0 and $73 million in market making and similar activities, and $(2) million, $(17) million and $9 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.
(4)Amounts are recorded in market making and similar activities 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 and Liabilities | |
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| December 31, 2022 | | December 31, 2021 | | | | | |
| (Dollars in millions) | Carrying Value | | Cumulative Fair Value Adjustments (1) | | Carrying Value | | Cumulative Fair Value Adjustments (1) | | | | | |
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Long-term debt (2) | $ | 187,402 | | | $ | (21,372) | | | $ | 181,745 | | | $ | 3,987 | | | | | | |
Available-for-sale debt securities (2, 3, 4) | 167,518 | | | (18,190) | | | 209,038 | | | (2,294) | | | | | | |
Trading account assets (5) | 16,119 | | | 146 | | | 2,067 | | | 32 | | | | | | |
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(1)Increase (decrease) to carrying value.
(2)At December 31, 2022 and 2021, the cumulative fair value adjustments remaining on long-term debt and available-for-sale debt securities from discontinued hedging relationships resulted in an increase of $137 million and $1.5 billion in the related liability and a decrease in the related asset of $4.9 billion and $1.0 billion, which are being amortized over the remaining contractual life of the de-designated hedged items.
(3)These amounts include the amortized cost 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, 2022 and 2021, the amortized cost of the closed portfolios used in these hedging relationships was $21.4 billion and $21.1 billion, of which $9.2 billion and $6.9 billion was designated in the last-of-layer hedging relationship. At December 31, 2022 and 2021, the cumulative adjustment associated with these hedging relationships was a decrease of $451 million and $172 million.
(4)Carrying value represents amortized cost.
(5)Represents hedging activities related to certain commodities inventory.
Cash Flow and Net Investment Hedges
The table below summarizes certain information related to cash flow hedges and net investment hedges for 2022, 2021 and 2020. Of the $11.9 billion after-tax net loss ($15.9 billion pretax) on derivatives in accumulated OCI at December 31, 2022, losses of $4.4 billion after-tax ($5.9 billion pretax) related to both open and terminated cash flow hedges are expected to be reclassified into earnings in the next 12 months. These net losses reclassified into earnings are expected
to primarily decrease net interest income related to the respective hedged items. For open cash flow hedges, the maximum length of time over which forecasted transactions are hedged is approximately seven years. For terminated cash flow hedges, the time period over which the forecasted transactions will be recognized in interest income is approximately five years, with the aggregated amount beyond this time period being insignificant.
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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) | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | | | |
| Cash flow hedges | | | | | | | | | | | | | | | | | | | |
Interest rate risk on variable-rate portfolios (1) | $ | (13,492) | | | $ | (2,686) | | | $ | 763 | | | $ | (338) | | | $ | 148 | | | $ | (7) | | | | | | | | | |
Price risk on forecasted MBS purchases (1) | (129) | | | (249) | | | 241 | | | 11 | | | 26 | | | 9 | | | | | | | | | |
Price risk on certain compensation plans (2) | (88) | | | 93 | | | 85 | | | 29 | | | 55 | | | 12 | | | | | | | | | |
| Total | $ | (13,709) | | | $ | (2,842) | | | $ | 1,089 | | | $ | (298) | | | $ | 229 | | | $ | 14 | | | | | | | | | |
| Net investment hedges | | | | | | | | | | | | | | | | | | | |
Foreign exchange risk (3) | $ | 1,710 | | | $ | 1,451 | | | $ | (834) | | | $ | 3 | | | $ | 23 | | | $ | 4 | | | | | | | | | |
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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 losses of $38 million, $123 million and $11 million in 2022, 2021 and 2020, 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 table below presents gains (losses) on these derivatives for 2022, 2021 and 2020. 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) | | | | | 2022 | | 2021 | | 2020 |
Interest rate risk on mortgage activities (1, 2) | | | | | $ | (326) | | | $ | (18) | | | $ | 611 | |
Credit risk on loans (2) | | | | | (37) | | | (25) | | | (68) | |
Interest rate and foreign currency risk on asset and liability management activities (3) | | | | | 4,713 | | | 1,757 | | | (2,971) | |
Price risk on certain compensation plans (4) | | | | | (1,073) | | | 917 | | | 700 | |
(1)Includes hedges of interest rate risk on MSRs and IRLCs to originate mortgage loans that will be held for sale.
(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, 2022 and 2021, the Corporation had transferred $4.8 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 $4.9 billion and $4.8 billion at the transfer dates. At December 31, 2022 and 2021, the fair value of the transferred securities was $4.7 billion and $5.0 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 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 2022, 2021 and 2020. 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) | | | 2022 |
| Interest rate risk | | | | | | | | | $ | 1,919 | | | $ | 1,619 | | | $ | 392 | | | $ | 3,930 | |
| Foreign exchange risk | | | | | | | | | 1,981 | | | 46 | | | (44) | | | 1,983 | |
| Equity risk | | | | | | | | | 6,077 | | | (1,288) | | | 1,757 | | | 6,546 | |
| Credit risk | | | | | | | | | 592 | | | 2,228 | | | 177 | | | 2,997 | |
Other risk (2) | | | | | | | | | 835 | | | (171) | | | 15 | | | 679 | |
| Total sales and trading revenue | | | | | | | | | $ | 11,404 | | | $ | 2,434 | | | $ | 2,297 | | | $ | 16,135 | |
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| | | 2021 |
| Interest rate risk | | | | | | | | | $ | 523 | | | $ | 1,794 | | | $ | 217 | | | $ | 2,534 | |
| Foreign exchange risk | | | | | | | | | 1,505 | | | (80) | | | 14 | | | 1,439 | |
| Equity risk | | | | | | | | | 4,581 | | | (5) | | | 1,834 | | | 6,410 | |
| Credit risk | | | | | | | | | 1,390 | | | 1,684 | | | 556 | | | 3,630 | |
Other risk (2) | | | | | | | | | 759 | | | (128) | | | 124 | | | 755 | |
| Total sales and trading revenue | | | | | | | | | $ | 8,758 | | | $ | 3,265 | | | $ | 2,745 | | | $ | 14,768 | |
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| | | 2020 |
| Interest rate risk | | | | | | | | | $ | 2,236 | | | $ | 2,279 | | | $ | 229 | | | $ | 4,744 | |
| Foreign exchange risk | | | | | | | | | 1,486 | | | (19) | | | 2 | | | 1,469 | |
| Equity risk | | | | | | | | | 3,656 | | | (77) | | | 1,801 | | | 5,380 | |
| Credit risk | | | | | | | | | 783 | | | 1,758 | | | 331 | | | 2,872 | |
Other risk (2) | | | | | | | | | 308 | | | 4 | | | 44 | | | 356 | |
| Total sales and trading revenue | | | | | | | | | $ | 8,469 | | | $ | 3,945 | | | $ | 2,407 | | | $ | 14,821 | |
(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, $1.9 billion and $1.9 billion in 2022, 2021 and 2020, respectively.
(2)Includes commodity risk.
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, 2022 and 2021 are summarized in the table below.
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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, 2022 |
| (Dollars in millions) | Carrying Value |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 2 | | | $ | 25 | | | $ | 133 | | | $ | 34 | | | $ | 194 | |
| Non-investment grade | 120 | | | 516 | | | 870 | | | 697 | | | 2,203 | |
| Total | 122 | | | 541 | | | 1,003 | | | 731 | | | 2,397 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 55 | | | 336 | | | — | | | — | | | 391 | |
| Non-investment grade | 332 | | | 9 | | | 132 | | | 10 | | | 483 | |
| Total | 387 | | | 345 | | | 132 | | | 10 | | | 874 | |
| Total credit derivatives | $ | 509 | | | $ | 886 | | | $ | 1,135 | | | $ | 741 | | | $ | 3,271 | |
| Credit-related notes: | | | | | | | | | |
| Investment grade | $ | — | | | $ | — | | | $ | 19 | | | $ | 1,017 | | | $ | 1,036 | |
| Non-investment grade | — | | | 7 | | | 6 | | | 1,035 | | | 1,048 | |
| Total credit-related notes | $ | — | | | $ | 7 | | | $ | 25 | | | $ | 2,052 | | | $ | 2,084 | |
| | Maximum Payout/Notional |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 34,670 | | | $ | 66,170 | | | $ | 93,237 | | | $ | 18,677 | | | $ | 212,754 | |
| Non-investment grade | 15,229 | | | 29,629 | | | 30,891 | | | 6,662 | | | 82,411 | |
| Total | 49,899 | | | 95,799 | | | 124,128 | | | 25,339 | | | 295,165 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 38,722 | | | 10,407 | | | — | | | — | | | 49,129 | |
| Non-investment grade | 32,764 | | | 500 | | | 2,054 | | | 897 | | | 36,215 | |
| Total | 71,486 | | | 10,907 | | | 2,054 | | | 897 | | | 85,344 | |
| Total credit derivatives | $ | 121,385 | | | $ | 106,706 | | | $ | 126,182 | | | $ | 26,236 | | | $ | 380,509 | |
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| December 31, 2021 |
| Carrying Value |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | — | | | $ | 5 | | | $ | 79 | | | $ | 49 | | | $ | 133 | |
| Non-investment grade | 34 | | | 250 | | | 453 | | | 769 | | | 1,506 | |
| Total | 34 | | | 255 | | | 532 | | | 818 | | | 1,639 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 35 | | | 388 | | | — | | | — | | | 423 | |
| Non-investment grade | 105 | | | — | | | 16 | | | — | | | 121 | |
| Total | 140 | | | 388 | | | 16 | | | — | | | 544 | |
| Total credit derivatives | $ | 174 | | | $ | 643 | | | $ | 548 | | | $ | 818 | | | $ | 2,183 | |
| Credit-related notes: | | | | | | | | | |
| Investment grade | $ | — | | | $ | — | | | $ | 36 | | | $ | 412 | | | $ | 448 | |
| Non-investment grade | 5 | | | — | | | 9 | | | 1,334 | | | 1,348 | |
| Total credit-related notes | $ | 5 | | | $ | — | | | $ | 45 | | | $ | 1,746 | | | $ | 1,796 | |
| | Maximum Payout/Notional |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 34,503 | | | $ | 66,334 | | | $ | 73,444 | | | $ | 17,844 | | | $ | 192,125 | |
| Non-investment grade | 16,119 | | | 29,233 | | | 34,356 | | | 7,961 | | | 87,669 | |
| Total | 50,622 | | | 95,567 | | | 107,800 | | | 25,805 | | | 279,794 | |
| Total return swaps/options: | | | | | | | | | |
| Investment grade | 49,626 | | | 11,494 | | | 78 | | | — | | | 61,198 | |
| Non-investment grade | 22,621 | | | 717 | | | 642 | | | 73 | | | 24,053 | |
| Total | 72,247 | | | 12,211 | | | 720 | | | 73 | | | 85,251 | |
| Total credit derivatives | $ | 122,869 | | | $ | 107,778 | | | $ | 108,520 | | | $ | 25,878 | | | $ | 365,045 | |
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 preceding table 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 105, 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, 2022 and 2021, the Corporation held cash and securities collateral of $101.3 billion and $91.4 billion and posted cash and securities collateral of $81.2 billion and $79.3 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, 2022, 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 $3.2 billion, including $1.6 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, 2022 and 2021, 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, 2022 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. The table also presents derivative liabilities that would be subject to unilateral termination by counterparties upon downgrade of the Corporation's or certain subsidiaries' long-term senior debt ratings.
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Additional Collateral Required to be Posted and Derivative Liabilities Subject to Unilateral Termination Upon Downgrade
at December 31, 2022 |
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| (Dollars in millions) | One
Incremental
Notch | | Second
Incremental
Notch |
| Additional collateral required to be posted upon downgrade | | | |
| Bank of America Corporation | $ | 230 | | | $ | 913 | |
Bank of America, N.A. and subsidiaries (1) | 66 | | | 668 | |
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| Derivative liabilities subject to unilateral termination upon downgrade | | | |
| Derivative liabilities | $ | 92 | | | $ | 1,073 | |
| Collateral posted | 77 | | | 300 | |
(1)Included in Bank of America Corporation collateral requirements in this table.
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 2022, 2021 and 2020. 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.
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Valuation Adjustments Gains (Losses) on Derivatives (1) |
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| (Dollars in millions) | 2022 | | 2021 | | 2020 |
| Derivative assets (CVA) | $ | (80) | | | $ | 208 | | | $ | (118) | |
| Derivative assets/liabilities (FVA) | 125 | | | (2) | | | (24) | |
| Derivative liabilities (DVA) | 194 | | | 3 | | | 24 | |
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(1)At December 31, 2022, 2021 and 2020, cumulative CVA reduced the derivative assets balance by $518 million, $438 million and $646 million, cumulative FVA reduced the net derivative balance by $54 million, $179 million and $177 million, and cumulative DVA reduced the derivative liabilities balance by $506 million, $312 million and $309 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, 2022 and 2021.
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| Debt Securities | | | | | | | | | | | | |
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| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| (Dollars in millions) | December 31, 2022 | | December 31, 2021 |
| Available-for-sale debt securities | | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | |
| Agency | $ | 25,204 | | | $ | 5 | | | $ | (1,767) | | | $ | 23,442 | | | $ | 45,268 | | | $ | 1,257 | | | $ | (186) | | | $ | 46,339 | |
| Agency-collateralized mortgage obligations | 2,452 | | | — | | | (231) | | | 2,221 | | | 3,331 | | | 74 | | | (25) | | | 3,380 | |
| Commercial | 6,894 | | | 28 | | | (515) | | | 6,407 | | | 19,036 | | | 647 | | | (79) | | | 19,604 | |
Non-agency residential (1) | 461 | | | 15 | | | (90) | | | 386 | | | 591 | | | 25 | | | (33) | | | 583 | |
| Total mortgage-backed securities | 35,011 | | | 48 | | | (2,603) | | | 32,456 | | | 68,226 | | | 2,003 | | | (323) | | | 69,906 | |
| U.S. Treasury and government agencies | 160,773 | | | 18 | | | (1,769) | | | 159,022 | | | 197,853 | | | 1,610 | | | (318) | | | 199,145 | |
| Non-U.S. securities | 13,455 | | | 4 | | | (52) | | | 13,407 | | | 11,933 | | | — | | | — | | | 11,933 | |
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| Other taxable securities | 4,728 | | | 1 | | | (84) | | | 4,645 | | | 2,725 | | | 39 | | | (3) | | | 2,761 | |
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| Tax-exempt securities | 11,518 | | | 19 | | | (279) | | | 11,258 | | | 15,155 | | | 317 | | | (39) | | | 15,433 | |
| Total available-for-sale debt securities | 225,485 | | | 90 | | | (4,787) | | | 220,788 | | | 295,892 | | | 3,969 | | | (683) | | | 299,178 | |
Other debt securities carried at fair value (2) | 8,986 | | | 376 | | | (156) | | | 9,206 | | | 8,873 | | | 105 | | | (83) | | | 8,895 | |
| Total debt securities carried at fair value | 234,471 | | | 466 | | | (4,943) | | | 229,994 | | | 304,765 | | | 4,074 | | | (766) | | | 308,073 | |
| Held-to-maturity debt securities | | | | | | | | | | | | | | | |
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| Agency mortgage-backed securities | 503,233 | | | — | | | (87,319) | | | 415,914 | | | 553,721 | | | 3,855 | | | (10,366) | | | 547,210 | |
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| U.S. Treasury and government agencies | 121,597 | | | — | | | (20,259) | | | 101,338 | | | 111,859 | | | 254 | | | (2,395) | | | 109,718 | |
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| Other taxable securities | 8,033 | | | — | | | (1,018) | | | 7,015 | | | 9,011 | | | 147 | | | (196) | | | 8,962 | |
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| Total held-to-maturity debt securities | 632,863 | | | — | | | (108,596) | | | 524,267 | | | 674,591 | | | 4,256 | | | (12,957) | | | 665,890 | |
Total debt securities (3,4) | $ | 867,334 | | | $ | 466 | | | $ | (113,539) | | | $ | 754,261 | | | $ | 979,356 | | | $ | 8,330 | | | $ | (13,723) | | | $ | 973,963 | |
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(1)At December 31, 2022 and 2021, the underlying collateral type included approximately 17 percent and 21 percent prime and 83 percent and 79 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 $104.5 billion and $111.9 billion at December 31, 2022 and 2021.
(4)The Corporation held debt securities from FNMA and FHLMC that each exceeded 10 percent of shareholders’ equity, with an amortized cost of $290.5 billion and $176.7 billion, and a fair value of $239.6 billion and $144.6 billion at December 31, 2022, and an amortized cost of $345.3 billion and $205.3 billion, and a fair value of $342.5 billion and $202.4 billion at December 31, 2021.
At December 31, 2022, the accumulated net unrealized loss on AFS debt securities, excluding the amount related to debt securities previously transferred to held to maturity, included in accumulated OCI was $3.5 billion, net of the related income tax benefit of $1.2 billion. At December 31, 2022 and 2021, nonperforming AFS debt securities held by the Corporation were not significant.
At December 31, 2022 and 2021, the Corporation had $191.1 billion and $268.5 billion in AFS debt securities, which were primarily U.S. agency and U.S. Treasury securities that have a zero credit loss assumption. For more information on the zero credit loss assumption, see Note 1 – Summary of Significant Accounting Principles. For the remaining $29.7 billion and $30.7 billion in AFS debt securities at December 31, 2022 and 2021, the amount of ECL was not significant. At December 31, 2022 and 2021, the Corporation had $524.3 billion and $665.9 billion in HTM debt securities, which were substantially all U.S agency and U.S. Treasury securities that have a zero credit loss assumption.
At December 31, 2022 and 2021, the Corporation held equity securities at an aggregate fair value of $581 million
and $513 million and other equity securities, as valued under the measurement alternative, at a carrying value of $340 million and $266 million, both of which are included in other assets. At December 31, 2022 and 2021, the Corporation also held money market investments at a fair value of $868 million and $707 million, 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 2022, 2021 and 2020 are presented in the table below.
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| Gains and Losses on Sales of AFS Debt Securities |
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| (Dollars in millions) | | | | | | | | 2022 | | 2021 | | 2020 |
| Gross gains | | | | | | | | $ | 1,251 | | | $ | 49 | | | $ | 423 | |
| Gross losses | | | | | | | | (1,219) | | | (27) | | | (12) | |
| Net gains on sales of AFS debt securities | | | | | | | | $ | 32 | | | $ | 22 | | | $ | 411 | |
| Income tax expense attributable to realized net gains on sales of AFS debt securities | | | | | | | | $ | 8 | | | $ | 5 | | | $ | 103 | |
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, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| 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, 2022 |
| Continuously unrealized loss-positioned AFS debt securities | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | |
| Agency | $ | 18,759 | | | $ | (1,118) | | | $ | 4,437 | | | $ | (649) | | | $ | 23,196 | | | $ | (1,767) | |
| Agency-collateralized mortgage obligations | 1,165 | | | (96) | | | 1,022 | | | (135) | | | 2,187 | | | (231) | |
| Commercial | 3,273 | | | (150) | | | 2,258 | | | (365) | | | 5,531 | | | (515) | |
| Non-agency residential | 264 | | | (65) | | | 97 | | | (25) | | | 361 | | | (90) | |
| Total mortgage-backed securities | 23,461 | | | (1,429) | | | 7,814 | | | (1,174) | | | 31,275 | | | (2,603) | |
| U.S. Treasury and government agencies | 36,730 | | | (308) | | | 118,636 | | | (1,461) | | | 155,366 | | | (1,769) | |
| Non-U.S. securities | 9,399 | | | (34) | | | 756 | | | (18) | | | 10,155 | | | (52) | |
| | | | | | | | | | | |
| Other taxable securities | 2,036 | | | (16) | | | 1,580 | | | (68) | | | 3,616 | | | (84) | |
| | | | | | | | | | | |
| Tax-exempt securities | 607 | | | (28) | | | 2,849 | | | (251) | | | 3,456 | | | (279) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total AFS debt securities in a continuous
unrealized loss position | $ | 72,233 | | | $ | (1,815) | | | $ | 131,635 | | | $ | (2,972) | | | $ | 203,868 | | | $ | (4,787) | |
| | | | | | | | | | | |
| December 31, 2021 |
| Continuously unrealized loss-positioned AFS debt securities | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | |
| Agency | $ | 11,733 | | | $ | (166) | | | $ | 815 | | | $ | (20) | | | $ | 12,548 | | | $ | (186) | |
| Agency-collateralized mortgage obligations | 1,427 | | | (22) | | | 122 | | | (3) | | | 1,549 | | | (25) | |
| Commercial | 3,451 | | | (41) | | | 776 | | | (38) | | | 4,227 | | | (79) | |
| Non-agency residential | 241 | | | (13) | | | 174 | | | (20) | | | 415 | | | (33) | |
| Total mortgage-backed securities | 16,852 | | | (242) | | | 1,887 | | | (81) | | | 18,739 | | | (323) | |
| U.S. Treasury and government agencies | 103,307 | | | (272) | | | 4,850 | | | (46) | | | 108,157 | | | (318) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Other taxable securities | — | | | — | | | 82 | | | (3) | | | 82 | | | (3) | |
| | | | | | | | | | | |
| Tax-exempt securities | 502 | | | (16) | | | 109 | | | (23) | | | 611 | | | (39) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total AFS debt securities in a continuous
unrealized loss position | $ | 120,661 | | | $ | (530) | | | $ | 6,928 | | | $ | (153) | | | $ | 127,589 | | | $ | (683) | |
The remaining contractual maturity distribution and yields of the Corporation’s debt securities carried at fair value and HTM debt securities at December 31, 2022 are summarized in the table below. Actual duration and yields may differ as prepayments on the loans underlying the MBS 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 | $ | — | | | — | % | | $ | 3 | | | 5.67 | % | | $ | 56 | | | 4.39 | % | | $ | 25,145 | | | 3.37 | % | | $ | 25,204 | | | 3.37 | % |
| Agency-collateralized mortgage obligations | — | | | — | | | 10 | | | 2.60 | | | — | | | — | | | 2,442 | | | 2.89 | | | 2,452 | | | 2.89 | |
| Commercial | 22 | | | 2.09 | | | 670 | | | 3.07 | | | 4,591 | | | 2.03 | | | 1,624 | | | 2.31 | | | 6,907 | | | 2.20 | |
| Non-agency residential | — | | | — | | | — | | | — | | | — | | | — | | | 825 | | | 9.54 | | | 825 | | | 9.54 | |
| Total mortgage-backed securities | 22 | | | 2.09 | | | 683 | | | 3.08 | | | 4,647 | | | 2.06 | | | 30,036 | | | 3.44 | | | 35,388 | | | 3.25 | |
| U.S. Treasury and government agencies | 3,306 | | | 1.59 | | | 79,618 | | | 1.68 | | | 78,378 | | | 1.64 | | | 32 | | | 3.38 | | | 161,334 | | | 1.66 | |
| Non-U.S. securities | 17,499 | | | 2.41 | | | 3,002 | | | 4.58 | | | 723 | | | 3.93 | | | 279 | | | 6.87 | | | 21,503 | | | 2.82 | |
| | | | | | | | | | | | | | | | | | | |
| Other taxable securities | 2,034 | | | 4.77 | | | 2,102 | | | 4.85 | | | 455 | | | 3.46 | | | 137 | | | 3.35 | | | 4,728 | | | 4.64 | |
| | | | | | | | | | | | | | | | | | | |
| Tax-exempt securities | 890 | | | 3.36 | | | 4,765 | | | 3.55 | | | 2,022 | | | 3.73 | | | 3,841 | | | 3.88 | | | 11,518 | | | 3.68 | |
| Total amortized cost of debt securities carried at fair value | $ | 23,751 | | | 2.53 | | | $ | 90,170 | | | 1.96 | | | $ | 86,225 | | | 1.74 | | | $ | 34,325 | | | 3.52 | | | $ | 234,471 | | | 2.16 | |
| Amortized cost of HTM debt securities | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Agency mortgage-backed securities | $ | — | | | — | % | | $ | — | | | — | % | | $ | 14 | | | 2.64 | % | | $ | 503,219 | | | 2.13 | % | | $ | 503,233 | | | 2.13 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| U.S. Treasury and government agencies | — | | | — | | | 4,544 | | | 1.80 | | | 117,053 | | | 1.37 | | | — | | | — | | | 121,597 | | | 1.39 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Other taxable securities | 38 | | | 9.06 | | | 1,251 | | | 2.23 | | | 313 | | | 3.00 | | | 6,431 | | | 2.45 | | | 8,033 | | | 2.47 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Total amortized cost of HTM debt securities | $ | 38 | | | 9.06 | | | $ | 5,795 | | | 1.89 | | | $ | 117,380 | | | 1.37 | | | $ | 509,650 | | | 2.13 | | | $ | 632,863 | | | 1.99 | |
| | | | | | | | | | | | | | | | | | | |
| Debt securities carried at fair value | | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | |
| Agency | $ | — | | | | | $ | 3 | | | | | $ | 56 | | | | | $ | 23,383 | | | | | $ | 23,442 | | | |
| Agency-collateralized mortgage obligations | — | | | | | 10 | | | | | — | | | | | 2,211 | | | | | 2,221 | | | |
| Commercial | 22 | | | | | 650 | | | | | 4,342 | | | | | 1,404 | | | | | 6,418 | | | |
| Non-agency residential | — | | | | | 2 | | | | | — | | | | | 751 | | | | | 753 | | | |
| Total mortgage-backed securities | 22 | | | | | 665 | | | | | 4,398 | | | | | 27,749 | | | | | 32,834 | | | |
| U.S. Treasury and government agencies | 3,312 | | | | | 79,013 | | | | | 77,228 | | | | | 30 | | | | | 159,583 | | | |
| Non-U.S. securities | 17,709 | | | | | 2,960 | | | | | 723 | | | | | 279 | | | | | 21,671 | | | |
| | | | | | | | | | | | | | | | | | | |
| Other taxable securities | 2,028 | | | | | 2,085 | | | | | 413 | | | | | 122 | | | | | 4,648 | | | |
| | | | | | | | | | | | | | | | | | | |
| Tax-exempt securities | 887 | | | | | 4,729 | | | | | 1,997 | | | | | 3,645 | | | | | 11,258 | | | |
| Total debt securities carried at fair value | $ | 23,958 | | | | | $ | 89,452 | | | | | $ | 84,759 | | | | | $ | 31,825 | | | | | $ | 229,994 | | | |
| Fair value of HTM debt securities | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Agency mortgage-backed securities | $ | — | | | | | $ | — | | | | | $ | 13 | | | | | $ | 415,901 | | | | | $ | 415,914 | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| U.S. Treasury and government agencies | — | | | | | 4,164 | | | | | 97,174 | | | | | — | | | | | 101,338 | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Other taxable securities | 38 | | | | | 1,170 | | | | | 295 | | | | | 5,512 | | | | | 7,015 | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Total fair value of HTM debt securities | $ | 38 | | | | | $ | 5,334 | | | | | $ | 97,482 | | | | | $ | 421,413 | | | | | $ | 524,267 | | | |
(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.
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, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| 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, 2022 |
| Consumer real estate | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Residential mortgage | $ | 1,077 | | | $ | 245 | | | $ | 945 | | | $ | 2,267 | | | $ | 227,403 | | | | | | | $ | 229,670 | |
| Home equity | 88 | | | 32 | | | 211 | | | 331 | | | 26,232 | | | | | | | 26,563 | |
| Credit card and other consumer | | | | | | | | | | | | | | | |
| Credit card | 466 | | | 322 | | | 717 | | | 1,505 | | | 91,916 | | | | | | | 93,421 | |
| | | | | | | | | | | | | | | |
Direct/Indirect consumer (2) | 204 | | | 59 | | | 45 | | | 308 | | | 105,928 | | | | | | | 106,236 | |
| Other consumer | — | | | — | | | — | | | — | | | 156 | | | | | | | 156 | |
| Total consumer | 1,835 | | | 658 | | | 1,918 | | | 4,411 | | | 451,635 | | | | | | | 456,046 | |
Consumer loans accounted for under the fair value option (3) | | | | | | | | | | | | | $ | 339 | | | 339 | |
| Total consumer loans and leases | 1,835 | | | 658 | | | 1,918 | | | 4,411 | | | 451,635 | | | | | 339 | | | 456,385 | |
| Commercial | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| U.S. commercial | 827 | | | 288 | | | 330 | | | 1,445 | | | 357,036 | | | | | | | 358,481 | |
| Non-U.S. commercial | 317 | | | 59 | | | 144 | | | 520 | | | 123,959 | | | | | | | 124,479 | |
Commercial real estate (4) | 409 | | | 81 | | | 77 | | | 567 | | | 69,199 | | | | | | | 69,766 | |
| Commercial lease financing | 49 | | | 9 | | | 11 | | | 69 | | | 13,575 | | | | | | | 13,644 | |
U.S. small business commercial (5) | 107 | | | 63 | | | 356 | | | 526 | | | 17,034 | | | | | | | 17,560 | |
| Total commercial | 1,709 | | | 500 | | | 918 | | | 3,127 | | | 580,803 | | | | | | | 583,930 | |
Commercial loans accounted for under the fair value option (3) | | | | | | | | | | | | | 5,432 | | | 5,432 | |
| Total commercial loans and leases | 1,709 | | | 500 | | | 918 | | | 3,127 | | | 580,803 | | | | | 5,432 | | | 589,362 | |
Total loans and leases (6) | $ | 3,544 | | | $ | 1,158 | | | $ | 2,836 | | | $ | 7,538 | | | $ | 1,032,438 | | | | | $ | 5,771 | | | $ | 1,045,747 | |
| Percentage of outstandings | 0.34 | % | | 0.11 | % | | 0.27 | % | | 0.72 | % | | 98.73 | % | | | | 0.55 | % | | 100.00 | % |
(1)Consumer real estate loans 30-59 days past due includes fully-insured loans of $184 million and nonperforming loans of $155 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $75 million and nonperforming loans of $88 million. Consumer real estate loans 90 days or more past due includes fully-insured loans of $368 million and nonperforming loans of $788 million. Consumer real estate loans current or less than 30 days past due includes $1.6 billion, and direct/indirect consumer includes $27 million of nonperforming loans.
(2)Total outstandings primarily includes auto and specialty lending loans and leases of $51.8 billion, U.S. securities-based lending loans of $50.4 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 $71 million and home equity loans of $268 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 $2.5 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 $64.9 billion and non-U.S. commercial real estate loans of $4.8 billion.
(5)Includes Paycheck Protection Program loans.
(6)Total outstandings includes loans and leases pledged as collateral of $18.5 billion. The Corporation also pledged $163.6 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, 2021 |
| Consumer real estate | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Residential mortgage | $ | 1,005 | | | $ | 297 | | | $ | 1,571 | | | $ | 2,873 | | | $ | 219,090 | | | | | | | $ | 221,963 | |
| Home equity | 123 | | | 69 | | | 369 | | | 561 | | | 27,374 | | | | | | | 27,935 | |
| Credit card and other consumer | | | | | | | | | | | | | | | |
| Credit card | 298 | | | 212 | | | 487 | | | 997 | | | 80,441 | | | | | | | 81,438 | |
| | | | | | | | | | | | | | | |
Direct/Indirect consumer (2) | 147 | | | 52 | | | 18 | | | 217 | | | 103,343 | | | | | | | 103,560 | |
| Other consumer | — | | | — | | | — | | | — | | | 190 | | | | | | | 190 | |
| Total consumer | 1,573 | | | 630 | | | 2,445 | | | 4,648 | | | 430,438 | | | | | | | 435,086 | |
Consumer loans accounted for under the fair value option (3) | | | | | | | | | | | | | $ | 618 | | | 618 | |
| Total consumer loans and leases | 1,573 | | | 630 | | | 2,445 | | | 4,648 | | | 430,438 | | | | | 618 | | | 435,704 | |
| Commercial | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| U.S. commercial | 815 | | | 308 | | | 396 | | | 1,519 | | | 324,417 | | | | | | | 325,936 | |
| Non-U.S. commercial | 148 | | | 20 | | | 83 | | | 251 | | | 113,015 | | | | | | | 113,266 | |
Commercial real estate (4) | 115 | | | 34 | | | 285 | | | 434 | | | 62,575 | | | | | | | 63,009 | |
| Commercial lease financing | 104 | | | 28 | | | 13 | | | 145 | | | 14,680 | | | | | | | 14,825 | |
U.S. small business commercial (5) | 129 | | | 259 | | | 89 | | | 477 | | | 18,706 | | | | | | | 19,183 | |
| Total commercial | 1,311 | | | 649 | | | 866 | | | 2,826 | | | 533,393 | | | | | | | 536,219 | |
Commercial loans accounted for under the fair value option (3) | | | | | | | | | | | | | 7,201 | | | 7,201 | |
| Total commercial loans and leases | 1,311 | | | 649 | | | 866 | | | 2,826 | | | 533,393 | | | | | 7,201 | | | 543,420 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total loans and leases (6) | $ | 2,884 | | | $ | 1,279 | | | $ | 3,311 | | | $ | 7,474 | | | $ | 963,831 | | | | | $ | 7,819 | | | $ | 979,124 | |
| Percentage of outstandings | 0.29 | % | | 0.13 | % | | 0.34 | % | | 0.76 | % | | 98.44 | % | | | | 0.80 | % | | 100.00 | % |
(1)Consumer real estate loans 30-59 days past due includes fully-insured loans of $164 million and nonperforming loans of $118 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $89 million and nonperforming loans of $100 million. Consumer real estate loans 90 days or more past due includes fully-insured loans of $633 million and nonperforming loans of $1.3 billion. Consumer real estate loans current or less than 30 days past due includes $1.4 billion, and direct/indirect consumer includes $55 million of nonperforming loans.
(2)Total outstandings primarily includes auto and specialty lending loans and leases of $48.5 billion, U.S. securities-based lending loans of $51.1 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 $279 million and home equity loans of $339 million. Commercial loans accounted for under the fair value option includes U.S. commercial loans of $4.6 billion and non-U.S. commercial loans of $2.6 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 $58.2 billion and non-U.S. commercial real estate loans of $4.8 billion.
(5)Includes Paycheck Protection Program loans.
(6)Total outstandings includes loans and leases pledged as collateral of $13.0 billion. The Corporation also pledged $146.6 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 has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling $9.5 billion and $10.5 billion at December 31, 2022 and 2021, 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 decreased to $1.1 billion at December 31, 2022 from $1.6 billion at December 31, 2021, as paydowns and returns to performing status more than offset new downgrades to nonaccrual status. Consumer nonperforming loans decreased to $2.8 billion at December 31, 2022 from
$3.0 billion at December 31, 2021 primarily due to decreases from consumer real estate loan sales, partially offset by increases from loans whose prior-period deferrals expired and were modified in TDRs during the first quarter of 2022.
The following table presents the Corporation’s nonperforming loans and leases, including nonperforming TDRs, and loans accruing past due 90 days or more at December 31, 2022 and 2021. Nonperforming LHFS are excluded from nonperforming loans and leases as they are recorded at either fair value or the lower of cost or fair value. For more information on the criteria for classification as nonperforming, see Note 1 – Summary of Significant Accounting Principles.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Credit Quality | | |
| | | | | | | |
| |
| Nonperforming Loans
and Leases | | Accruing Past Due
90 Days or More |
| December 31 |
| (Dollars in millions) | 2022 | | 2021 | | 2022 | | 2021 |
Residential mortgage (1) | $ | 2,167 | | | $ | 2,284 | | | $ | 368 | | | $ | 634 | |
With no related allowance (2) | 1,973 | | | 1,950 | | | — | | | — | |
Home equity (1) | 510 | | | 630 | | | — | | | — | |
With no related allowance (2) | 393 | | | 414 | | | — | | | — | |
| Credit Card | n/a | | n/a | | 717 | | | 487 | |
| Direct/indirect consumer | 77 | | | 75 | | | 2 | | | 11 | |
| | | | | | | |
| Total consumer | 2,754 | | | 2,989 | | | 1,087 | | | 1,132 | |
| U.S. commercial | 553 | | | 825 | | | 190 | | | 171 | |
| Non-U.S. commercial | 212 | | | 268 | | | 25 | | | 19 | |
| Commercial real estate | 271 | | | 382 | | | 46 | | | 40 | |
| Commercial lease financing | 4 | | | 80 | | | 8 | | | 8 | |
| U.S. small business commercial | 14 | | | 23 | | | 355 | | | 87 | |
| Total commercial | 1,054 | | | 1,578 | | | 624 | | | 325 | |
| Total nonperforming loans | $ | 3,808 | | | $ | 4,567 | | | $ | 1,711 | | | $ | 1,457 | |
| Percentage of outstanding loans and leases | 0.37 | % | | 0.47 | % | | 0.16 | % | | 0.15 | % |
(1)Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At December 31, 2022 and 2021 residential mortgage included $260 million and $444 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 $108 million and $190 million of loans on which interest was still accruing.
(2)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
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 Fair Isaac Corporation (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 most modificationsare 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 and gross charge-offs for the Corporation's Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments by year of origination, except for revolving loans and revolving loans that were modified into term loans, which are shown on an aggregate basis at December 31, 2022.
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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,
2022 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | | | Prior | | | | | | |
| Residential Mortgage | | | | | | | | | | | | | | | | | | | | | |
Refreshed LTV | | | | | | | | | | | | | | | | | | | | | |
| Less than or equal to 90 percent | $ | 215,713 | | | $ | 39,625 | | | $ | 81,437 | | | $ | 37,228 | | | $ | 18,980 | | | $ | 5,734 | | | | | $ | 32,709 | | | | | | | |
| Greater than 90 percent but less than or equal to 100 percent | 1,615 | | | 950 | | | 530 | | | 93 | | | 15 | | | 8 | | | | | 19 | | | | | | | |
| Greater than 100 percent | 648 | | | 374 | | | 169 | | | 43 | | | 15 | | | 8 | | | | | 39 | | | | | | | |
| Fully-insured loans | 11,694 | | | 580 | | | 3,667 | | | 3,102 | | | 949 | | | 156 | | | | | 3,240 | | | | | | | |
| Total Residential Mortgage | $ | 229,670 | | | $ | 41,529 | | | $ | 85,803 | | | $ | 40,466 | | | $ | 19,959 | | | $ | 5,906 | | | | | $ | 36,007 | | | | | | | |
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| Residential Mortgage | | | | | | | | | | | | | | | | | | | | | |
| Refreshed FICO score | | | | | | | | | | | | | | | | | | | | | |
| Less than 620 | $ | 2,156 | | | $ | 377 | | | $ | 518 | | | $ | 373 | | | $ | 124 | | | $ | 84 | | | | | $ | 680 | | | | | | | |
| Greater than or equal to 620 and less than 680 | 4,978 | | | 1,011 | | | 1,382 | | | 840 | | | 329 | | | 233 | | | | | 1,183 | | | | | | | |
| Greater than or equal to 680 and less than 740 | 25,444 | | | 5,411 | | | 8,290 | | | 4,369 | | | 2,187 | | | 830 | | | | | 4,357 | | | | | | | |
| Greater than or equal to 740 | 185,398 | | | 34,150 | | | 71,946 | | | 31,782 | | | 16,370 | | | 4,603 | | | | | 26,547 | | | | | | | |
| Fully-insured loans | 11,694 | | | 580 | | | 3,667 | | | 3,102 | | | 949 | | | 156 | | | | | 3,240 | | | | | | | |
| Total Residential Mortgage | $ | 229,670 | | | $ | 41,529 | | | $ | 85,803 | | | $ | 40,466 | | | $ | 19,959 | | | $ | 5,906 | | | | | $ | 36,007 | | | | | | | |
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| Gross charge-offs | $ | 161 | | | $ | — | | | $ | 6 | | | $ | 5 | | | $ | 6 | | | $ | 1 | | | | | $ | 143 | | | | | | | |
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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, 2022 | | | | | | | |
| Home Equity | | | | | | | | | | | | | | | | | | | | |
Refreshed LTV | | | | | | | | | | | | | | | | | | | | |
| Less than or equal to 90 percent | $ | 26,395 | | | $ | 1,304 | | | $ | 19,960 | | | $ | 5,131 | | | | | | | | | | | | | | |
| Greater than 90 percent but less than or equal to 100 percent | 62 | | | 20 | | | 24 | | | 18 | | | | | | | | | | | | | | |
| Greater than 100 percent | 106 | | | 37 | | | 35 | | | 34 | | | | | | | | | | | | | | |
| Total Home Equity | $ | 26,563 | | | $ | 1,361 | | | $ | 20,019 | | | $ | 5,183 | | | | | | | | | | | | | | |
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| Home Equity | | | | | | | | | | | | | | | | | | | | |
| Refreshed FICO score | | | | | | | | | | | | | | | | | | | | |
| Less than 620 | $ | 683 | | | $ | 166 | | | $ | 189 | | | $ | 328 | | | | | | | | | | | | | | |
| Greater than or equal to 620 and less than 680 | 1,190 | | | 152 | | | 507 | | | 531 | | | | | | | | | | | | | | |
| Greater than or equal to 680 and less than 740 | 4,321 | | | 312 | | | 2,747 | | | 1,262 | | | | | | | | | | | | | | |
| Greater than or equal to 740 | 20,369 | | | 731 | | | 16,576 | | | 3,062 | | | | | | | | | | | | | | |
| Total Home Equity | $ | 26,563 | | | $ | 1,361 | | | $ | 20,019 | | | $ | 5,183 | | | | | | | | | | | | | | |
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| Gross charge-offs | $ | 45 | | | $ | 5 | | | $ | 24 | | | $ | 16 | | | | | | | | | | | | | | |
(1)Includes reverse mortgages of $937 million and home equity loans of $424 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 | | |
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Indirect as of December 31,
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| Less than 620 | $ | 847 | | | $ | 12 | | | $ | 237 | | | $ | 301 | | | $ | 113 | | | $ | 84 | | | $ | 43 | | | $ | 57 | | | $ | 4,056 | | | $ | 3,866 | | | $ | 190 | |
| Greater than or equal to 620 and less than 680 | 2,521 | | | 12 | | | 1,108 | | | 816 | | | 269 | | | 150 | | | 69 | | | 97 | | | 10,994 | | | 10,805 | | | 189 | |
| Greater than or equal to 680 and less than 740 | 8,895 | | | 52 | | | 4,091 | | | 2,730 | | | 992 | | | 520 | | | 214 | | | 296 | | | 32,186 | | | 32,017 | | | 169 | |
| Greater than or equal to 740 | 39,679 | | | 83 | | | 16,663 | | | 11,392 | | | 5,630 | | | 2,992 | | | 1,236 | | | 1,683 | | | 46,185 | | | 46,142 | | | 43 | |
Other internal credit metrics (2,3) | 54,294 | | | 53,404 | | | 259 | | | 305 | | | 70 | | | 57 | | | 40 | | | 159 | | | — | | | — | | | — | |
Total credit card and other
consumer | $ | 106,236 | | | $ | 53,563 | | | $ | 22,358 | | | $ | 15,544 | | | $ | 7,074 | | | $ | 3,803 | | | $ | 1,602 | | | $ | 2,292 | | | $ | 93,421 | | | $ | 92,830 | | | $ | 591 | |
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| Gross charge-offs | $ | 232 | | | $ | 7 | | | $ | 31 | | | $ | 79 | | | $ | 34 | | | $ | 27 | | | $ | 14 | | | $ | 40 | | | $ | 1,985 | | | $ | 1,909 | | | $ | 76 | |
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(1)Represents TDRs that were modified into term loans.
(2)Other internal credit metrics may include delinquency status, geography or other factors.
(3)Direct/indirect consumer real estateincludes $53.4 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, 2022.
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Commercial – Credit Quality Indicators By Vintage (1) | | | | | | | | |
| | | Term Loans | | | | |
| | | Amortized Cost Basis by Origination Year | | | | |
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| (Dollars in millions) | Total as of
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2022 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving Loans | | |
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| Risk ratings | | | | | | | | | | | | | | | | | |
| Pass rated | $ | 348,447 | | | $ | 61,200 | | | $ | 39,717 | | | $ | 18,609 | | | $ | 16,566 | | | $ | 8,749 | | | $ | 30,282 | | | $ | 173,324 | | | |
| Reservable criticized | 10,034 | | | 278 | | | 794 | | | 697 | | | 884 | | | 1,202 | | | 856 | | | 5,323 | | | |
| Total U.S. Commercial | $ | 358,481 | | | $ | 61,478 | | | $ | 40,511 | | | $ | 19,306 | | | $ | 17,450 | | | $ | 9,951 | | | $ | 31,138 | | | $ | 178,647 | | | |
| Gross charge-offs | $ | 151 | | | $ | 2 | | | $ | 24 | | | $ | 24 | | | $ | 9 | | | $ | 6 | | | $ | 13 | | | $ | 73 | | | |
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| Risk ratings | | | | | | | | | | | | | | | | | |
| Pass rated | $ | 121,890 | | | $ | 24,839 | | | $ | 19,098 | | | $ | 5,183 | | | $ | 3,882 | | | $ | 2,423 | | | $ | 4,697 | | | $ | 61,768 | | | |
| Reservable criticized | 2,589 | | | 45 | | | 395 | | | 331 | | | 325 | | | 98 | | | 475 | | | 920 | | | |
| Total Non-U.S. Commercial | $ | 124,479 | | | $ | 24,884 | | | $ | 19,493 | | | $ | 5,514 | | | $ | 4,207 | | | $ | 2,521 | | | $ | 5,172 | | | $ | 62,688 | | | |
| Gross charge-offs | $ | 41 | | | $ | — | | | $ | 3 | | | $ | 1 | | | $ | — | | | $ | 37 | | | $ | — | | | $ | — | | | |
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| Commercial Real Estate | | | | | | | | | | | | | | | | | |
| Risk ratings | | | | | | | | | | | | | | | | | |
| Pass rated | $ | 64,619 | | | $ | 15,290 | | | $ | 13,089 | | | $ | 5,756 | | | $ | 9,013 | | | $ | 4,384 | | | $ | 8,606 | | | $ | 8,481 | | | |
| Reservable criticized | 5,147 | | | 11 | | | 837 | | | 545 | | | 1,501 | | | 1,151 | | | 1,017 | | | 85 | | | |
| Total Commercial Real Estate | $ | 69,766 | | | $ | 15,301 | | | $ | 13,926 | | | $ | 6,301 | | | $ | 10,514 | | | $ | 5,535 | | | $ | 9,623 | | | $ | 8,566 | | | |
| Gross charge-offs | $ | 75 | | | $ | — | | | $ | — | | | $ | 6 | | | $ | — | | | $ | 26 | | | $ | 43 | | | $ | — | | | |
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| Commercial Lease Financing | | | | | | | | | | | | | | | | | |
| Risk ratings | | | | | | | | | | | | | | | | | |
| Pass rated | $ | 13,404 | | | $ | 3,255 | | | $ | 2,757 | | | $ | 1,955 | | | $ | 1,578 | | | $ | 1,301 | | | $ | 2,558 | | | $ | — | | | |
| Reservable criticized | 240 | | | 9 | | | 35 | | | 12 | | | 71 | | | 50 | | | 63 | | | — | | | |
| Total Commercial Lease Financing | $ | 13,644 | | | $ | 3,264 | | | $ | 2,792 | | | $ | 1,967 | | | $ | 1,649 | | | $ | 1,351 | | | $ | 2,621 | | | $ | — | | | |
| Gross charge-offs | $ | 8 | | | $ | — | | | $ | 4 | | | $ | — | | | $ | 4 | | | $ | — | | | $ | — | | | $ | — | | | |
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U.S. Small Business Commercial (2) | | | | | | | | | | | | | | | | | |
| Risk ratings | | | | | | | | | | | | | | | | | |
| Pass rated | $ | 8,726 | | | $ | 1,825 | | | $ | 1,953 | | | $ | 1,408 | | | $ | 864 | | | $ | 624 | | | $ | 1,925 | | | $ | 127 | | | |
| Reservable criticized | 329 | | | 11 | | | 35 | | | 48 | | | 76 | | | 51 | | | 105 | | | 3 | | | |
| Total U.S. Small Business Commercial | $ | 9,055 | | | $ | 1,836 | | | $ | 1,988 | | | $ | 1,456 | | | $ | 940 | | | $ | 675 | | | $ | 2,030 | | | $ | 130 | | | |
| Gross charge-offs | $ | 31 | | | $ | — | | | $ | 1 | | | $ | 11 | | | $ | 4 | | | $ | 1 | | | $ | 6 | | | $ | 8 | | | |
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| Total | $ | 575,425 | | | $ | 106,763 | | | $ | 78,710 | | | $ | 34,544 | | | $ | 34,760 | | | $ | 20,033 | | | $ | 50,584 | | | $ | 250,031 | | | |
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| Total gross charge-offs | $ | 306 | | | $ | 2 | | | $ | 32 | | | $ | 42 | | | $ | 17 | | | $ | 70 | | | $ | 62 | | | $ | 81 | | | |
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(1) Excludes $5.4 billion of loans meetaccounted for under the definitionfair value option at December 31, 2022.
(2) Excludes U.S. Small Business Card loans of $8.5 billion. Refreshed FICO scores for this portfolio are $297 million for less than 620; $859 million for greater than or equal to 620 and less than 680; $2.4 billion for greater than or equal to 680 and less than 740; and $5.0 billion greater than or equal to 740. Excludes U.S. Small Business Card loans gross charge-offs of $172 million.
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 year of origination, except for revolving loans and revolving loans that were modified into term loans, which are shown on an aggregate basis at December 31, 2021.
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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,
2021 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | | | Prior | | | | | | |
| Residential Mortgage | | | | | | | | | | | | | | | | | | | | | |
Refreshed LTV | | | | | | | | | | | | | | | | | | | | | |
| Less than or equal to 90 percent | $ | 206,562 | | | $ | 87,051 | | | $ | 43,597 | | | $ | 23,205 | | | $ | 7,392 | | | $ | 10,956 | | | | | $ | 34,361 | | | | | | | |
| Greater than 90 percent but less than or equal to 100 percent | 1,938 | | | 1,401 | | | 331 | | | 81 | | | 17 | | | 14 | | | | | 94 | | | | | | | |
| Greater than 100 percent | 759 | | | 520 | | | 112 | | | 29 | | | 11 | | | 12 | | | | | 75 | | | | | | | |
| Fully-insured loans | 12,704 | | | 3,845 | | | 3,486 | | | 1,150 | | | 216 | | | 235 | | | | | 3,772 | | | | | | | |
| Total Residential Mortgage | $ | 221,963 | | | $ | 92,817 | | | $ | 47,526 | | | $ | 24,465 | | | $ | 7,636 | | | $ | 11,217 | | | | | $ | 38,302 | | | | | | | |
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| Residential Mortgage | | | | | | | | | | | | | | | | | | | | | |
| Refreshed FICO score | | | | | | | | | | | | | | | | | | | | | |
| Less than 620 | $ | 2,451 | | | $ | 636 | | | $ | 442 | | | $ | 140 | | | $ | 120 | | | $ | 104 | | | | | $ | 1,009 | | | | | | | |
| Greater than or equal to 620 and less than 680 | 5,199 | | | 1,511 | | | 1,123 | | | 477 | | | 294 | | | 307 | | | | | 1,487 | | | | | | | |
| Greater than or equal to 680 and less than 740 | 24,532 | | | 8,822 | | | 5,454 | | | 2,785 | | | 1,057 | | | 1,434 | | | | | 4,980 | | | | | | | |
| Greater than or equal to 740 | 177,077 | | | 78,003 | | | 37,021 | | | 19,913 | | | 5,949 | | | 9,137 | | | | | 27,054 | | | | | | | |
| Fully-insured loans | 12,704 | | | 3,845 | | | 3,486 | | | 1,150 | | | 216 | | | 235 | | | | | 3,772 | | | | | | | |
| Total Residential Mortgage | $ | 221,963 | | | $ | 92,817 | | | $ | 47,526 | | | $ | 24,465 | | | $ | 7,636 | | | $ | 11,217 | | | | | $ | 38,302 | | | | | | | |
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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, 2021 | | | | | |
| Home Equity | | | | | | | | | | | | | | | | | | | | |
Refreshed LTV | | | | | | | | | | | | | | | | | | | | |
| Less than or equal to 90 percent | | | | | | | | | $ | 27,594 | | | $ | 1,773 | | | $ | 19,095 | | | $ | 6,726 | | | | | | |
| Greater than 90 percent but less than or equal to 100 percent | | | | | | | | | 130 | | | 55 | | | 34 | | | 41 | | | | | | |
| Greater than 100 percent | | | | | | | | | 211 | | | 85 | | | 54 | | | 72 | | | | | | |
| Total Home Equity | | | | | | | | | $ | 27,935 | | | $ | 1,913 | | | $ | 19,183 | | | $ | 6,839 | | | | | | |
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| Home Equity | | | | | | | | | | | | | | | | | | | | |
| Refreshed FICO score | | | | | | | | | | | | | | | | | | | | |
| Less than 620 | | | | | | | | | $ | 893 | | | $ | 244 | | | $ | 209 | | | $ | 440 | | | | | | |
| Greater than or equal to 620 and less than 680 | | | | | | | | | 1,434 | | | 222 | | | 495 | | | 717 | | | | | | |
| Greater than or equal to 680 and less than 740 | | | | | | | | | 4,625 | | | 468 | | | 2,493 | | | 1,664 | | | | | | |
| Greater than or equal to 740 | | | | | | | | | 20,983 | | | 979 | | | 15,986 | | | 4,018 | | | | | | |
| Total Home Equity | | | | | | | | | $ | 27,935 | | | $ | 1,913 | | | $ | 19,183 | | | $ | 6,839 | | | | | | |
(1)Includes reverse mortgages of $1.3 billion and home equity loans of $582 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, 2021 | | Revolving Loans | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total Credit Card as of December 31, 2021 | | Revolving Loans | | Revolving Loans Converted to Term Loans (1) |
| Refreshed FICO score | | | | | | | | | | | | | | | | | | | | | |
| Less than 620 | $ | 685 | | | $ | 13 | | | $ | 179 | | | $ | 115 | | | $ | 129 | | | $ | 79 | | | $ | 101 | | | $ | 69 | | | $ | 3,017 | | | $ | 2,857 | | | $ | 160 | |
| Greater than or equal to 620 and less than 680 | 2,313 | | | 14 | | | 1,170 | | | 414 | | | 313 | | | 148 | | | 134 | | | 120 | | | 9,264 | | | 9,064 | | | 200 | |
| Greater than or equal to 680 and less than 740 | 8,530 | | | 60 | | | 4,552 | | | 1,659 | | | 1,126 | | | 466 | | | 314 | | | 353 | | | 28,347 | | | 28,155 | | | 192 | |
| Greater than or equal to 740 | 37,164 | | | 94 | | | 15,876 | | | 8,642 | | | 6,465 | | | 2,679 | | | 1,573 | | | 1,835 | | | 40,810 | | | 40,762 | | | 48 | |
Other internal credit metrics (2, 3) | 54,868 | | | 54,173 | | | 283 | | | 53 | | | 77 | | | 75 | | | 63 | | | 144 | | | — | | | — | | | — | |
Total credit card and other
consumer | $ | 103,560 | | | $ | 54,354 | | | $ | 22,060 | | | $ | 10,883 | | | $ | 8,110 | | | $ | 3,447 | | | $ | 2,185 | | | $ | 2,521 | | | $ | 81,438 | | | $ | 80,838 | | | $ | 600 | |
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(1)Represents TDRs when a binding offerthat were modified into term loans.
(2)Other internal credit metrics may include delinquency status, geography or other factors.
(3)Direct/indirect consumer includes $54.2 billion of securities-based lending, which is extendedtypically supported by highly liquid collateral with market value greater than or equal to a borrower. the outstanding loan balance and therefore has minimal credit risk at December 31, 2021.
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Commercial – Credit Quality Indicators By Vintage (1) | | | | | | | | |
| | | Term Loans | | | | |
| | | Amortized Cost Basis by Origination Year | | | | |
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| (Dollars in millions) | Total as of December 31, 2021 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving Loans | | |
| U.S. Commercial | | | | | | | | | | | | | | | | | |
| Risk ratings | | | | | | | | | | | | | | | | | |
| Pass rated | $ | 315,618 | | | $ | 55,862 | | | $ | 25,012 | | | $ | 23,373 | | | $ | 11,439 | | | $ | 10,426 | | | $ | 23,877 | | | $ | 165,629 | | | |
| Reservable criticized | 10,318 | | | 598 | | | 687 | | | 1,308 | | | 1,615 | | | 514 | | | 1,072 | | | 4,524 | | | |
| Total U.S. Commercial | $ | 325,936 | | | $ | 56,460 | | | $ | 25,699 | | | $ | 24,681 | | | $ | 13,054 | | | $ | 10,940 | | | $ | 24,949 | | | $ | 170,153 | | | |
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| Non-U.S. Commercial | | | | | | | | | | | | | | | | | |
| Risk ratings | | | | | | | | | | | | | | | | | |
| Pass rated | $ | 110,787 | | | $ | 25,749 | | | $ | 8,703 | | | $ | 7,133 | | | $ | 4,521 | | | $ | 3,016 | | | $ | 3,062 | | | $ | 58,603 | | | |
| Reservable criticized | 2,479 | | | 223 | | | 324 | | | 487 | | | 275 | | | 257 | | | 216 | | | 697 | | | |
| Total Non-U.S. Commercial | $ | 113,266 | | | $ | 25,972 | | | $ | 9,027 | | | $ | 7,620 | | | $ | 4,796 | | | $ | 3,273 | | | $ | 3,278 | | | $ | 59,300 | | | |
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| Commercial Real Estate | | | | | | | | | | | | | | | | | |
| Risk ratings | | | | | | | | | | | | | | | | | |
| Pass rated | $ | 55,511 | | | $ | 14,402 | | | $ | 7,244 | | | $ | 11,237 | | | $ | 5,710 | | | $ | 3,326 | | | $ | 6,831 | | | $ | 6,761 | | | |
| Reservable criticized | 7,498 | | | 277 | | | 990 | | | 2,237 | | | 1,710 | | | 596 | | | 1,464 | | | 224 | | | |
| Total Commercial Real Estate | $ | 63,009 | | | $ | 14,679 | | | $ | 8,234 | | | $ | 13,474 | | | $ | 7,420 | | | $ | 3,922 | | | $ | 8,295 | | | $ | 6,985 | | | |
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| Commercial Lease Financing | | | | | | | | | | | | | | | | | |
| Risk ratings | | | | | | | | | | | | | | | | | |
| Pass rated | $ | 14,438 | | | $ | 3,280 | | | $ | 2,485 | | | $ | 2,427 | | | $ | 2,030 | | | $ | 1,741 | | | $ | 2,475 | | | $ | — | | | |
| Reservable criticized | 387 | | | 25 | | | 18 | | | 91 | | | 67 | | | 48 | | | 138 | | | — | | | |
| Total Commercial Lease Financing | $ | 14,825 | | | $ | 3,305 | | | $ | 2,503 | | | $ | 2,518 | | | $ | 2,097 | | | $ | 1,789 | | | $ | 2,613 | | | $ | — | | | |
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U.S. Small Business Commercial (2) | | | | | | | | | | | | | | | | | |
| Risk ratings | | | | | | | | | | | | | | | | | |
| Pass rated | $ | 11,618 | | | $ | 4,257 | | | $ | 2,922 | | | $ | 1,059 | | | $ | 763 | | | $ | 623 | | | $ | 1,853 | | | $ | 141 | | | |
| Reservable criticized | 433 | | | 12 | | | 29 | | | 91 | | | 87 | | | 64 | | | 147 | | | 3 | | | |
| Total U.S. Small Business Commercial | $ | 12,051 | | | $ | 4,269 | | | $ | 2,951 | | | $ | 1,150 | | | $ | 850 | | | $ | 687 | | | $ | 2,000 | | | $ | 144 | | | |
| Total | $ | 529,087 | | | $ | 104,685 | | | $ | 48,414 | | | $ | 49,443 | | | $ | 28,217 | | | $ | 20,611 | | | $ | 41,135 | | | $ | 236,582 | | | |
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(1) Excludes $7.2 billion of loans accounted for under the fair value option at December 31, 2021.
(2) Excludes U.S. Small Business Card loans of $7.1 billion. Refreshed FICO scores for this portfolio are $192 million for less than 620; $618 million for greater than or equal to 620 and less than 680; $1.9 billion for greater than or equal to 680 and less than 740; and $4.4 billion greater than or equal to 740.
During 2022, commercial credit quality showed some signs of stabilization. Commercial reservable criticized utilized exposure decreased to $19.3 billion at December 31, 2022 from $22.4 billion (to 3.12 percent from 3.91 percent of total commercial reservable utilized exposure) at December 31, 2021, which was broad-based across industries.
Troubled Debt Restructurings
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 $211 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, 2017,2022, of which $358$53 million were classified as nonperforming and $419$33 million were loans fully-insured by the FHA. For more information on loans discharged in Chapter 7 bankruptcy, see Nonperforming Loans and Leases in this Note.
Consumer real estate TDRs are measured primarily based on the net present value of the estimated cash flows discounted at
the loan’s original effective interest rate. If the carrying value of a TDR exceeds this amount, a specific allowance is recorded as a component of the allowance for loan and lease losses. Alternatively, consumer real estate TDRs that are considered to be dependent solely on the collateral for repayment (e.g., due to the lack of income verification) are measured based on the estimated fair value of the collateral and a charge-off is recorded if the carrying value exceeds the fair value of the collateral. Consumer real estate loans that reached 180 days past due prior to modification had been charged off to their net realizable value, less costs to sell, before they were modified as TDRs in accordance with established policy. Therefore, modifications of consumer real estate loans that are 180 or more days past due as TDRs do not have an impact on the allowance for loan and lease losses nor are additional charge-offs required at the time of modification. Subsequent declines in the fair value of the collateral after a loan has reached 180 days past due are recorded as charge-offs. Fully-insured loans are protected against principal loss, and therefore, the Corporation does not record an allowance for loan and lease losses on the outstanding principal balance, even after they have been modified in a TDR.fully insured.
At December 31, 20172022 and 2016,2021, 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$121 million and $363$101 million at December 31, 20172022 and 2016.2021. 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, 20172022 and 2021 was $3.6$871 million and $1.1 billion. During 20172022 and 2016,2021, the Corporation reclassified $815$190 million and $1.4 billion$64 million of consumer real estate loans to foreclosed properties or, for properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans), to other assets. The reclassifications represent non-cash investing activities and, accordingly, are not reflected in the Consolidated Statement of Cash Flows.
The following table provides the unpaid principal balance, carrying value and related allowance at December 31, 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 |
| | $ | — |
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| 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 |
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| 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 |
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| 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, 20162022, 2021 and 20152020 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, 20162022, 2021 and 2015, and net charge-offs recorded during the period in which the modification occurred.2020. 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 |
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| 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 2022, 2021 and 2020 |
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| | | | | | | | | Unpaid Principal Balance | | Carrying
Value | | Pre-Modification Interest Rate | | Post-Modification Interest Rate (1) |
| | | |
| (Dollars in millions) | | | December 31, 2022 |
| Residential mortgage | | | | | | | | | $ | 1,144 | | | $ | 1,015 | | | 3.52 | % | | 3.40 | % |
| Home equity | | | | | | | | | 238 | | | 191 | | | 4.61 | | | 4.65 | |
| Total | | | | | | | | | $ | 1,382 | | | $ | 1,206 | | | 3.71 | | | 3.62 | |
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| | | December 31, 2021 |
| Residential mortgage | | | | | | | | | $ | 891 | | | $ | 788 | | | 3.48 | % | | 3.38 | % |
| Home equity | | | | | | | | | 107 | | | 77 | | | 3.60 | | | 3.59 | |
| Total | | | | | | | | | $ | 998 | | | $ | 865 | | | 3.49 | | | 3.41 | |
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| | | 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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(1)The post-modification interest rate reflects the interest rate applicable only to permanently completed modifications, which exclude loans that are in a trial modification period.
The table below presents the December 31, 2017, 20162022, 2021 and 20152020 carrying value for consumer real estate loans that were modified in a TDR during 2017, 20162022, 2021 and 2015,2020, by type of modification.
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| Consumer Real Estate – Modification Programs | | | | | | | | | | |
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| TDRs Entered into During |
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| (Dollars in millions) | 2022 | | | | | | | | 2021 | | 2020 |
| Modifications under government programs | $ | 2 | | | | | | | | | $ | 4 | | | $ | 13 | |
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| Modifications under proprietary programs | 1,100 | | | | | | | | | 774 | | | 570 | |
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Loans discharged in Chapter 7 bankruptcy (1) | 14 | | | | | | | | | 33 | | | 53 | |
| Trial modifications | 90 | | | | | | | | | 54 | | | 79 | |
| Total modifications | $ | 1,206 | | | | | | | | | $ | 865 | | | $ | 715 | |
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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)
| 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 following table below presents the carrying value of consumer real estate loans that entered into payment default during 2017, 20162022, 2021 and 20152020 that were modified in a TDR during the 12 months preceding payment default. A payment default for consumer real estate TDRs is recognized when a borrower has missed three monthly payments (not necessarily consecutively) since modification.
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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)121 Bank of America
| Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs. |
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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) | | | | | 2022 | | 2021 | | 2020 | | | | | | | | |
| Modifications under government programs | | | | | $ | — | | | $ | 4 | | | $ | 16 | | | | | | | | | | | |
| Modifications under proprietary programs | | | | | 189 | | | 128 | | | 51 | | | | | | | | | | | |
Loans discharged in Chapter 7 bankruptcy (1) | | | | | 2 | | | 9 | | | 19 | | | | | | | | | | | |
Trial modifications (2) | | | | | 25 | | | 19 | | | 54 | | | | | | | | | | | |
| Total modifications | | | | | $ | 216 | | | $ | 160 | | | $ | 140 | | | | | | | | | | | |
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(1)Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs.
(2)Includes trial modification offers to which the customer did not respond.
(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 thatwho 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, 20162022, 2021 and 20152020 unpaid principal balance, carrying value, and average pre- and post-modification interest rates of loans that were modified in TDRs during 2017, 20162022, 2021 and 2015,2020.
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| Credit Card and Other Consumer – TDRs Entered into During 2022, 2021 and 2020 |
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| | | | | | | | | | Unpaid Principal Balance | | Carrying
Value (1) | | Pre-Modification Interest Rate | | Post-Modification Interest Rate | | | | | |
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| (Dollars in millions) | | | December 31, 2022 | | | | | |
| Credit card | | | | | | | | | $ | 284 | | | $ | 293 | | | 22.34 | % | | 3.89 | % | | | | | |
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| Direct/Indirect consumer | | | | | | | | | 6 | | | 5 | | | 5.51 | | | 5.50 | | | | | | |
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| Total | | | | | | | | | $ | 290 | | | $ | 298 | | | 22.06 | | | 3.92 | | | | | | |
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| | | December 31, 2021 | | | | | |
| Credit card | | | | | | | | | $ | 237 | | | $ | 248 | | | 18.45 | % | | 4.09 | % | | | | | |
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| Direct/Indirect consumer | | | | | | | | | 23 | | | 16 | | | 5.88 | | | 5.88 | | | | | | |
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| Total | | | | | | | | | $ | 260 | | | $ | 264 | | | 17.68 | | | 4.20 | | | | | | |
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| | | | | | | | | 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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(1)Includes accrued interest and net charge-offs recordedfees.
The table below presents the December 31, 2022, 2021 and 2020 carrying value for Credit Card and Other Consumer loans that were modified in a TDR during the period in which the modification occurred.2022, 2021 and 2020 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) | | | | | 2022 | | 2021 | | 2020 | | | | | | | | | | | | | | | | |
| Internal programs | | | | | $ | 251 | | | $ | 214 | | | $ | 225 | | | | | | | | | | | | | | | | | |
| External programs | | | | | 44 | | | 44 | | | 73 | | | | | | | | | | | | | | | | | |
| Other | | | | | 3 | | | 6 | | | 16 | | | | | | | | | | | | | | | | | |
| Total | | | | | $ | 298 | | | $ | 264 | | | $ | 314 | | | | | | | | | | | | | | | | | |
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(1) Includes accrued interest and fees. |
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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 |
|
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 two consecutive payments. Payment defaults are one of the factors considered when projecting future cash flows in the calculation of the allowance for loan and lease losses for impaired credit card and other consumer loans.consumer. Based on historical experience, the Corporation estimates that 1315 percent of new U.S. credit card TDRs and 15 percent of new direct/indirect consumer TDRs may be in payment default within 12 months after modification. Loans that entered into payment default during 2017, 2016 and 2015 that had been modified in a TDR during the preceding 12 months were $28 million, $30 million and $43 million for U.S. credit card, $0, $127 million and $152 million for non-U.S. credit card, and $4 million, $2 million and $3 million for direct/indirect consumer.
Commercial Loans
Impaired commercial loans include nonperforming loans and TDRs (both performing and nonperforming). Modifications of loans to commercial borrowers that are experiencing financial difficulty are designed to reduce the Corporation’s loss exposure while providing the borrower with an opportunity to work through financial difficulties, often to avoid foreclosure or bankruptcy. Each modification is unique and reflects the individual circumstances of the borrower. Modifications that result in a TDR may include extensions of maturity at a concessionary (below market) rate of
interest, payment forbearances or other actions designed to benefit the 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, 2017 and 2016, remaining commitments to lend additional funds to debtors whose terms have been modified in a commercial loan TDR were $205 million and $461 million.
Commercial foreclosed properties totaled $52 million and $14 million at December 31, 2017 and 2016.
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 exceededDuring 2022, 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 ofCorporation’s commercial loans that were modified as TDRs during 2017, 2016was $1.9 billion compared to $1.3 billion and 2015,$1.2 billion for 2021 and net charge-offs that2020. At December 31, 2022, 2021 and 2020, the Corporation had commitments to lend $358 million, $283 million and $402 million to commercial borrowers whose loans 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 businessTDRs. The balance of 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 $64was $105 million, $140$262 million and $105$218 million for U.S. commercial and $19 million, $34 million and $25 million for commercial real estate at December 31, 2017, 20162022, 2021 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.2020.
Loans Held-for-sale
The Corporation had LHFS of $11.4$6.9 billion and $9.1$15.6 billion at December 31, 20172022 and 2016.2021. Cash and non-cash proceeds from sales and paydowns of loans originally classified as LHFS were $41.3$32.0 billion, $32.6$43.6 billion and $41.2$20.1 billion for 2017, 20162022, 2021 and 2015, respectively.2020, respectively. Cash used for originations and purchases of LHFS totaled $43.5$24.9 billion, $33.1$37.3 billion and $37.9$19.7 billion for 2017, 20162022, 2021 and 2015,2020, respectively.Also included were non-cash net transfers into LHFS of $1.9 billion during 2022, primarily driven by the transfer of a $1.6 billion affinity card loan portfolio to held for sale that was sold in October 2022, and $808 million during 2021.
Accrued Interest Receivable
Accrued interest receivable for loans and leases and loans held-for-sale at December 31, 2022 and 2021 was $3.8 billion and $2.2 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 2022 and 2021, the Corporation reversed $332 million and $446 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 2022 and 2021, interest and fee income reversed at the time the loans were classified as nonperforming was not significant. For more information on the Corporation's nonperforming loan policies, see Note 1 – Summary of Significant Accounting Principles.
Allowance for Credit Losses
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. 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 December 31, 2022 estimate for allowance for credit losses was based on various economic scenarios, including a baseline scenario derived from consensus estimates, an adverse scenario reflecting an extended moderate recession, a downside scenario reflecting persistent inflation and interest rates above the baseline scenario, a tail risk scenario similar to the severely adverse scenario used in stress testing and an upside scenario that considers the potential for improvement above the baseline scenario. The overall economic outlook is weighted 95 percent towards a recessionary environment in 2023, with continued inflationary pressures leading to lower GDP and higher unemployment rate expectations as compared to the prior year. The weighted economic outlook assumes that the U.S. average unemployment rate will be above five and a half percent by the fourth quarter of 2023 and will slowly decline to five percent by the fourth quarter of 2024. Additionally, in this economic outlook, U.S. gross domestic product is forecasted to contract at 0.4 percent and grow at 1.2 percent year-over-year in the fourth quarters of 2023 and 2024. For comparison, as of December 31, 2021, the weighted economic outlook for the U.S. average unemployment rate was forecasted to be just above five percent by the fourth quarter of 2022 and slowly decline to just under five percent by the fourth quarter of 2023 and U.S. gross domestic product was forecasted at 2.1 percent and 1.9 percent year-over-year in the fourth quarters of 2022 and 2023.
The allowance for credit losses at December 31, 2022 was $14.2 billion, an increase of $379 million compared to December 31, 2021. The increase in the allowance for credit losses was primarily driven by loan growth and a dampened macroeconomic outlook, partially offset by a reserve release for reduced pandemic uncertainties. The change in the allowance for credit losses was comprised of a net increase of $295 million in the allowance for loan and lease losses and an increase of $84 million in the reserve for unfunded lending commitments. The increase in the allowance for credit losses was attributed to increases in the credit card and other consumer portfolios of $341 million, and commercial portfolio of $177 million, partially offset by a decrease in the consumer real estate portfolio of $139 million. The provision for credit losses increased $7.1 billion to an expense of $2.5 billion in 2022 compared to a benefit of $4.6 billion in 2021 and an expense of $11.3 billion in 2020. The increase in the provision for credit losses in 2022 was primarily driven by loan growth and a dampened macroeconomic outlook, partially offset by reduced pandemic uncertainties. The benefit in 2021 was primarily due to an improved macroeconomic outlook and credit quality.
Outstanding loans and leases excluding loans accounted for under the fair value option increased $68.7 billion in 2022 primarily driven by commercial loans, which increased $47.7 billion, driven by broad-based growth, and consumer loans which
|
| | | | | | | |
137123Bank of America 2017
| | |
increased $21.0 billion, primarily driven by credit card and residential mortgage.
NOTE 5 Allowance for Credit Losses
The table below summarizes the changes in the allowance for credit losses, by portfolio segmentincluding net charge-offs and provision for 2017, 2016loan and 2015.lease losses, are detailed in the table below.
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| | 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 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Consumer
Real Estate | | Credit Card and
Other Consumer | | Commercial | | Total |
| |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| (Dollars in millions) | 2022 |
| Allowance for loan and lease losses, January 1 | $ | 557 | | | $ | 6,476 | | | $ | 5,354 | | | $ | 12,387 | |
| Loans and leases charged off | (206) | | | (2,755) | | | (478) | | | (3,439) | |
| Recoveries of loans and leases previously charged off | 224 | | | 882 | | | 161 | | | 1,267 | |
| Net charge-offs | 18 | | | (1,873) | | | (317) | | | (2,172) | |
| Provision for loan and lease losses | (164) | | | 2,215 | | | 409 | | | 2,460 | |
| Other | 9 | | | (1) | | | (1) | | | 7 | |
| Allowance for loan and lease losses, December 31 | 420 | | | 6,817 | | | 5,445 | | | 12,682 | |
| Reserve for unfunded lending commitments, January 1 | 96 | | | — | | | 1,360 | | | 1,456 | |
| Provision for unfunded lending commitments | (3) | | | — | | | 86 | | | 83 | |
| Other | 1 | | | — | | | — | | | 1 | |
| Reserve for unfunded lending commitments, December 31 | 94 | | | — | | | 1,446 | | | 1,540 | |
| Allowance for credit losses, December 31 | $ | 514 | | | $ | 6,817 | | | $ | 6,891 | | | $ | 14,222 | |
| | | | | | | |
| 2021 |
| Allowance for loan and lease losses, January 1 | $ | 858 | | | $ | 9,213 | | | $ | 8,731 | | | $ | 18,802 | |
| Loans and leases charged off | (78) | | | (3,000) | | | (719) | | | (3,797) | |
| Recoveries of loans and leases previously charged off | 225 | | | 1,006 | | | 323 | | | 1,554 | |
| Net charge-offs | 147 | | | (1,994) | | | (396) | | | (2,243) | |
| Provision for loan and lease losses | (449) | | | (744) | | | (2,980) | | | (4,173) | |
| Other | 1 | | | 1 | | | (1) | | | 1 | |
| Allowance for loan and lease losses, December 31 | 557 | | | 6,476 | | | 5,354 | | | 12,387 | |
| Reserve for unfunded lending commitments, January 1 | 137 | | | — | | | 1,741 | | | 1,878 | |
| Provision for unfunded lending commitments | (41) | | | — | | | (380) | | | (421) | |
| Other | — | | | — | | | (1) | | | (1) | |
| Reserve for unfunded lending commitments, December 31 | 96 | | | — | | | 1,360 | | | 1,456 | |
| Allowance for credit losses, December 31 | $ | 653 | | | $ | 6,476 | | | $ | 6,714 | | | $ | 13,843 | |
| | | | | | | |
| 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 | 8 | | | — | | | (8) | | | — | |
| Allowance for loan and lease losses, December 31 | 858 | | | 9,213 | | | 8,731 | | | 18,802 | |
| Reserve for unfunded lending commitments, January 1 | 119 | | | — | | | 1,004 | | | 1,123 | |
| Provision for unfunded lending commitments | 18 | | | — | | | 737 | | | 755 | |
| Reserve for unfunded lending commitments, December 31 | 137 | | | — | | | 1,741 | | | 1,878 | |
| Allowance for credit losses, December 31 | $ | 995 | | | $ | 9,213 | | | $ | 10,472 | | | $ | 20,680 | |
|
| | | | | | | | | | | | | | | |
| | 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, 20172022 and 20162021 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, 20172022 and 20162021 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, 20162022, 2021 and 20152020 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 $978 million and $968 million at December 31, 2022 and 2021.
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, 20162022, 2021 and 2015.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| First-lien Mortgage Securitizations |
| | | | | | | | | | | | | | | | |
| Residential Mortgage - Agency | | | | Commercial Mortgage | | |
| | | | | | | |
| | | |
| (Dollars in millions) | 2022 | | 2021 | | 2020 | | | | 2022 | | 2021 | | 2020 | | |
Proceeds from loan sales (1) | $ | 8,084 | | | $ | 6,664 | | | $ | 15,823 | | | | | $ | 5,853 | | | $ | 10,874 | | | $ | 5,084 | | | |
Gains on securitizations (2) | 8 | | | 9 | | | 728 | | | | | 46 | | | 156 | | | 61 | | | |
Repurchases from securitization trusts (3) | 53 | | | 756 | | | 436 | | | | | — | | | — | | | — | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| 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 receivednormal course of business and primarily receives residential mortgage-backed securities with an initial fair value of $1.9 billion, $4.2 billion and $22.3 billion in connection with first-lien mortgage securitizations in 2017, 2016 and 2015. The receipt of 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 $41 million, $121 million and $160 million net of hedges, during 2022, 2021 and 2020, 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$100.1 billion and $326.2$115.4 billion at December 31, 20172022 and 2016.2021. Servicing fee and ancillary fee income on serviced loans was $893$274 million, $1.2 billion$392 million and $1.4 billion in 2017, 2016$474 million during 2022, 2021 and 2015.2020, respectively. Servicing advances on serviced loans, including loans serviced for others and loans held for investment, were $4.5$1.6 billion and $6.2$2.0 billion at December 31, 20172022 and 2016.2021. For more information on MSRs, see Note 20 – Fair Value Measurements.
During 2016 and 2015,2022, the Corporation deconsolidated agency residential mortgage securitization vehiclestrusts with total assets of $3.8 billion and $4.5 billion, and total liabilities of $628
$784 million, with no significant deconsolidations in 2021.million and $0 followingDuring 2020, the Corporation completed 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, 20172022 and 2016.2021.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| 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. |
|
| | |
141125Bank of America 2017
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| First-lien Mortgage VIEs | | | | | | | | | | | |
| | | | |
| Residential Mortgage | | | |
| | | | | Non-agency | | | |
| | Agency | | Prime | | Subprime | | Alt-A | | Commercial Mortgage |
| | December 31 |
| (Dollars in millions) | 2022 | 2021 | | 2022 | 2021 | | 2022 | 2021 | | 2022 | 2021 | | 2022 | 2021 |
| Unconsolidated VIEs | | | | | | | | | | | | | | |
Maximum loss exposure (1) | $ | 9,112 | | $ | 11,600 | | | $ | 91 | | $ | 121 | | | $ | 735 | | $ | 908 | | | $ | 28 | | $ | 14 | | | $ | 1,594 | | $ | 1,445 | |
| On-balance sheet assets | | | | | | | | | | | | | | |
| Senior securities: | | | | | | | | | | | | | | |
| Trading account assets | $ | 232 | | $ | 175 | | | $ | 3 | | $ | 8 | | | $ | 25 | | $ | 44 | | | $ | 26 | | $ | 12 | | | $ | 91 | | $ | 21 | |
| Debt securities carried at fair value | 3,027 | | 5,009 | | | — | | — | | | 410 | | 537 | | | — | | — | | | — | | — | |
| Held-to-maturity securities | 5,853 | | 6,416 | | | — | | — | | | — | | — | | | — | | — | | | 1,268 | | 1,157 | |
| All other assets | — | | — | | | 3 | | 3 | | | 25 | | 29 | | | 2 | | 2 | | | 101 | | 93 | |
| Total retained positions | $ | 9,112 | | $ | 11,600 | | | $ | 6 | | $ | 11 | | | $ | 460 | | $ | 610 | | | $ | 28 | | $ | 14 | | | $ | 1,460 | | $ | 1,271 | |
Principal balance outstanding (2) | $ | 81,644 | | $ | 93,142 | | | $ | 3,973 | | $ | 4,710 | | | $ | 5,034 | | $ | 6,179 | | | $ | 11,568 | | $ | 13,627 | | | $ | 85,101 | | $ | 85,540 | |
| | | | | | | | | | | | | | |
| Consolidated VIEs | | | | | | | | | | | | | | |
Maximum loss exposure (1) | $ | 1,735 | | $ | 1,644 | | | $ | — | | $ | 49 | | | $ | 78 | | $ | — | | | $ | — | | $ | — | | | $ | — | | $ | — | |
| On-balance sheet assets | | | | | | | | | | | | | | |
| Trading account assets | $ | 1,735 | | $ | 1,644 | | | $ | — | | $ | — | | | $ | 78 | | $ | — | | | $ | — | | $ | — | | | $ | — | | $ | — | |
| Loans and leases, net | — | | — | | | — | | 58 | | | — | | — | | | — | | — | | | — | | — | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Total assets | $ | 1,735 | | $ | 1,644 | | | $ | — | | $ | 58 | | | $ | 78 | | $ | — | | | $ | — | | $ | — | | | $ | — | | $ | — | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Total liabilities | $ | — | | $ | — | | | $ | — | | $ | 9 | | | $ | — | | $ | — | | | $ | — | | $ | — | | | $ | — | | $ | — | |
(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 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, 20172022 and 2016.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| 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) | 2022 | 2021 | | 2022 | 2021 | | 2022 | 2021 | | 2022 | 2021 | | | |
| Unconsolidated VIEs | | | | | | | | | | | | | | |
| Maximum loss exposure | $ | 119 | | $ | 152 | | | $ | — | | $ | — | | | $ | 4,243 | | $ | 6,089 | | | $ | 2,537 | | $ | 4,094 | | | | |
| On-balance sheet assets | | | | | | | | | | | | | | |
Securities (3): | | | | | | | | | | | | | | |
| Trading account assets | $ | — | | $ | — | | | $ | — | | $ | — | | | $ | 456 | | $ | 1,030 | | | $ | — | | $ | — | | | | |
| Debt securities carried at fair value | 1 | | 1 | | | — | | — | | | 1,259 | | 1,903 | | | — | | — | | | | |
| Held-to-maturity securities | — | | — | | | — | | — | | | 2,528 | | 3,156 | | | — | | — | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Total retained positions | $ | 1 | | $ | 1 | | | $ | — | | $ | — | | | $ | 4,243 | | $ | 6,089 | | | $ | — | | $ | — | | | | |
| Total assets of VIEs | $ | 326 | | $ | 430 | | | $ | — | | $ | — | | | $ | 12,255 | | $ | 18,633 | | | $ | 3,016 | | $ | 4,655 | | | | |
| | | | | | | | | | | | | | |
| Consolidated VIEs | | | | | | | | | | | | | | |
| Maximum loss exposure | $ | 32 | | $ | 45 | | | $ | 9,555 | | $ | 10,279 | | | $ | 551 | | $ | 680 | | | $ | — | | $ | 210 | | | | |
| On-balance sheet assets | | | | | | | | | | | | | | |
| Trading account assets | $ | — | | $ | — | | | $ | — | | $ | — | | | $ | 650 | | $ | 686 | | | $ | — | | $ | 122 | | | | |
| | | | | | | | | | | | | | |
| Loans and leases | 97 | | 140 | | | 14,555 | | 14,434 | | | — | | — | | | — | | — | | | | |
| Allowance for loan and lease losses | 12 | | 14 | | | (808) | | (970) | | | — | | — | | | — | | — | | | | |
| | | | | | | | | | | | | | |
| All other assets | 2 | | 3 | | | 68 | | 70 | | | — | | — | | | — | | 88 | | | | |
| Total assets | $ | 111 | | $ | 157 | | | $ | 13,815 | | $ | 13,534 | | | $ | 650 | | $ | 686 | | | $ | — | | $ | 210 | | | | |
| On-balance sheet liabilities | | | | | | | | | | | | | | |
| Short-term borrowings | $ | — | | $ | — | | | $ | — | | $ | — | | | $ | — | | $ | — | | | $ | — | | $ | 196 | | | | |
| Long-term debt | 79 | | 113 | | | 4,247 | | 3,248 | | | 99 | | 6 | | | — | | — | | | | |
| All other liabilities | — | | — | | | 13 | | 7 | | | — | | — | | | — | | — | | | | |
| Total liabilities | $ | 79 | | $ | 113 | | | $ | 4,260 | | $ | 3,255 | | | $ | 99 | | $ | 6 | | | $ | — | | $ | 196 | | | | |
(1)For unconsolidated home equity loan VIEs, the maximum loss exposure includes outstanding trust certificates issued by trusts in rapid amortization, net of recorded reserves. For both consolidated and unconsolidated home equity loan VIEs, the maximum loss exposure excludes the reserve for representations and warranties obligations and corporate guarantees. For more information, see Note 12 – Commitments and Contingencies.
(2)At December 31, 2022 and 2021, loans and leases in the consolidated credit card trust included $3.3 billion and $4.3 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).
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| 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)
| | For unconsolidated home equity loan VIEs, the maximum loss exposure includes outstanding trust certificates issued by trusts in rapid amortization, netBank 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.America 126
|
| |
(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.preceding table. The charges that will ultimately be recorded as a result of the rapid amortization events depend on the undrawn portion of the home equity lines of credit, (HELOCs), performance of the loans, the amount of subsequent draws and the timing of related cash flows.
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, 20162022, 2021 and 2015, 2020, the Corporation issued new senior debt securities issued to third-party investors from the credit card securitization trust were $3.1totaling $2.3 billion, $750 million$1.0 billion, and $2.3 billion.$1.0 billion, respectively.
At December 31, 20172022 and 2016,2021, the Corporation held subordinate securities issued by the credit card securitization trust with a notional principal amount of $7.4$6.7 billion and $7.5$6.5 billion. These securities serve as a form of credit enhancement to the senior debt securities and have a stated interest rate of zero percent.percent. During 2017, 20162022, 2021 and 2015,2020, the credit card securitization trust issued $500$363 million, $121$161 million and $371$161 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$21.8 billion, $23.4$28.9 billion and $30.7$39.0 billion of securities in 2017, 2016during 2022, 2021 and 2015.2020, 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$2.4 billion, $3.3$2.2 billion and $9.8$6.1 billion including $6.9 billion whichduring 2022, 2021 and 2020, respectively. In 2022 and 2021, 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 resecuritization 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 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$2.5 billion and $4.1 billion at both December 31, 20172022 and 2016.2021. The weighted-average remaining life of bonds held in the trusts at December 31, 20172022 was 6.08.7 years. There were no materialsignificant write-downs or downgrades of assets or issuers during 2017, 20162022, 2021 and 2015.2020.
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, 20172022 and 2016.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Other VIEs | | | | | | | | |
| |
| | | |
| Consolidated | | Unconsolidated | | Total | | Consolidated | | Unconsolidated | | Total |
| | | | | | | | | | | |
| (Dollars in millions) | December 31, 2022 | | December 31, 2021 |
| Maximum loss exposure | $ | 2,286 | | | $ | 31,405 | | | $ | 33,691 | | | $ | 4,819 | | | $ | 27,790 | | | $ | 32,609 | |
| On-balance sheet assets | | | | | | | | | | | |
| Trading account assets | $ | 353 | | | $ | 638 | | | $ | 991 | | | $ | 2,552 | | | $ | 626 | | | $ | 3,178 | |
| Debt securities carried at fair value | — | | | 5 | | | 5 | | | — | | | 7 | | | 7 | |
| Loans and leases | 2,086 | | | 90 | | | 2,176 | | | 2,503 | | | 47 | | | 2,550 | |
| Allowance for loan and lease losses | (1) | | | (12) | | | (13) | | | (2) | | | (12) | | | (14) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| All other assets | 46 | | | 30,221 | | | 30,267 | | | 28 | | | 26,628 | | | 26,656 | |
| Total | $ | 2,484 | | | $ | 30,942 | | | $ | 33,426 | | | $ | 5,081 | | | $ | 27,296 | | | $ | 32,377 | |
| On-balance sheet liabilities | | | | | | | | | | | |
| | | | | | | | | | | |
| Short-term borrowings | $ | 42 | | | $ | — | | | $ | 42 | | | $ | 51 | | | $ | — | | | $ | 51 | |
| Long-term debt | 156 | | | — | | | 156 | | | 211 | | | — | | | 211 | |
| All other liabilities | — | | | 7,318 | | | 7,318 | | | — | | | 6,548 | | | 6,548 | |
| Total | $ | 198 | | | $ | 7,318 | | | $ | 7,516 | | | $ | 262 | | | $ | 6,548 | | | $ | 6,810 | |
| Total assets of VIEs | $ | 2,484 | | | $ | 101,271 | | | $ | 103,755 | | | $ | 5,081 | | | $ | 92,249 | | | $ | 97,330 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| 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)127 Bank of America
| 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$914 million and $2.9 billion at December 31, 20172022 and 2016,2021, 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$197 million and $430$235 million at December 31, 20172022 and 2016.2021.
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, 20172022 and 2016,2021, the Corporation’s consolidated investment vehiclesVIEs had total assets of $249$854 million and $846 million.$1.0 billion. The Corporation also held investments in unconsolidated vehiclesVIEs with total assets of $20.3$12.2 billion and $17.3$7.1 billion at December 31, 20172022 and 2016.2021. The Corporation’s maximum loss exposure associated with both consolidated and unconsolidated investment vehiclesVIEs totaled $5.7$2.4 billion and $5.1$2.0 billion at December 31, 20172022 and 20162021 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$1.2 billion and $2.6$1.5 billion at December 31, 20172022 and 2016.2021. 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. As an investor, tax credits associated with the investments in these entities are allocated to the Corporation, as provided by the U.S. Internal Revenue Code and related regulations, and are recognized as income tax benefits in the Corporation’s Consolidated Statement of Income in the year they are earned,
which varies based on the type of investments. Tax credits from environmental, social and governance (ESG) investments in affordable housing are recognized ratably over a term of up to 10 years, and tax credits from wind and solar energy investments are recognized either at inception for transactions electing Investment Tax Credits (ITCs) or as energy is produced for transactions electing Production Tax Credits (PTCs), which is generally up to a 10-year time period. The volume and types of investments held by the Corporation earns a return primarily throughwill influence the receiptamount of tax credits allocated to the projects.recognized each period. The maximum loss exposure included in the Other VIEs table was $13.8$28.8 billion and $12.6$25.7 billion at December 31, 20172022 and 2016.2021. In addition to that amount, the Corporation had unfunded capital contributions for renewable energy investments of $1.9 billion and $1.0 billion at December 31, 2022 and 2021. The capital contributions are contingent on various conditions precedent to funding over the next two years. 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$14.1 billion and $7.4$12.6 billion, including unfunded commitments to provide capital contributions of $3.1$6.6 billion and $2.7$5.8 billion, at December 31, 20172022 and 2016.2021. The unfunded commitments are expected to be paid over the next 5five years. During 2017, 20162022, 2021 and 2015,2020, the Corporation recognized tax credits and other tax benefits from investmentsof $1.5 billion, $1.3 billion and $1.2 billion and reported pretax losses in affordable housing partnershipsother income of $1.0$1.2 billion, $1.1 billion and $928 million and reported pre-tax losses in other noninterest income of $766 million, $789 million and $629 million, respectively. Tax$1.0 billion. These 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 at December 31, 2022 and 2021. The reporting units utilized for goodwill impairment testing are the operating segments or one level below.
| | | | | | | | | | | |
| | | |
| Goodwill | | | |
| | | |
| |
| | | |
| December 31 |
| (Dollars in millions) | 2022 | | 2021 |
| | | |
| | | |
| Consumer Banking | $ | 30,137 | | | $ | 30,137 | |
| | | |
| | | |
| Global Wealth & Investment Management | 9,677 | | | 9,677 | |
| | | |
| | | |
| | | |
| Global Banking | 24,026 | | | 24,026 | |
| Global Markets | 5,182 | | | 5,182 | |
| | | |
| Total goodwill | $ | 69,022 | | | $ | 69,022 | |
During 2022, the Corporation completed its annual goodwill impairment test as of June 30, 2022 using qualitative assessments for all applicable reporting units. Based on the results of the annual goodwill impairment test, the Corporation determined there was no impairment. For more information on the use of qualitative assessments, see Note 1 – Summary of Significant Accounting Principles.
Intangible Assets
At December 31, 2022 and 2021, the net carrying value of intangible assets was $2.1 billion and $2.2 billion. At both December 31, 2022 and 2021, 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 $78 million, $76 million and $95 million for 2022, 2021 and 2020.
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 table below presents the net investment in sales-type and direct financing leases at December 31, 2022 and 2021.
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| | | | | | | | | |
Net Investment (1) | | | | | | | | | |
| | | | | | | | | |
| | | | | | | |
| | | | | December 31 | | |
| (Dollars in millions) | | | | | 2022 | | 2021 | | |
| Lease receivables | | | | | $ | 15,123 | | | $ | 16,806 | | | |
| Unguaranteed residuals | | | | | 2,143 | | | 2,078 | | | |
Total net investment in sales-type and direct
financing leases | | | | | $ | 17,266 | | | $ | 18,884 | | | |
(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 $6.5 billion and $7.1 billion at December 31, 2022 and 2021.
The table below presents lease income for 2022, 2021 and 2020.
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| | | | | | | | | |
| Lease Income | | | | | | | | |
| | | | | | | | | |
| (Dollars in millions) | | | | | 2022 | | 2021 | | 2020 |
| Sales-type and direct financing leases | | | | | $ | 589 | | | $ | 613 | | | $ | 707 | |
| Operating leases | | | | | 941 | | | 930 | | | 931 | |
| Total lease income | | | | | $ | 1,530 | | | $ | 1,543 | | | $ | 1,638 | |
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, 2022 and 2021.
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| | | | |
| Supplemental Information for Lessee Arrangements |
| | | | |
| December 31 | |
| (Dollars in millions) | 2022 | | 2021 | |
| Right-of-use asset | $ | 9,755 | | | $ | 10,233 | | |
| Lease liabilities | 10,359 | | | 10,858 | | |
| Weighted-average discount rate used to calculate present value of future minimum lease payments | 3.25 | % | | 2.91 | % | |
| Weighted-average lease term (in years) | 8.6 | | 9.0 | |
Right-of-use assets obtained in exchange for new operating lease liabilities (1) | $ | 824 | | | $ | 1,713 | | |
| | | | |
| 2022 | | 2021 | 2020 |
Operating cash flows from operating leases (2) | $ | 1,986 | | | $ | 1,964 | | $ | 2,039 | |
| | | | |
Lease Cost and Supplemental
Information: | | | | |
| Operating lease cost | $ | 2,008 | | | $ | 2,025 | | $ | 2,149 | |
Variable lease cost (3) | 464 | | | 462 | | 474 | |
Total lease cost (4) | $ | 2,472 | | | $ | 2,487 | | $ | 2,623 | |
(1)Represents non-cash activity and, accordingly, is not reflected in the Consolidated Statement of Cash Flows.
(2)Represents cash paid for amounts included in the measurements of lease liabilities.
(3)Primarily consists of payments for common area maintenance and property taxes.
(4)Amounts are recorded in occupancy and equipment expense in the Consolidated Statement of Income.
Maturity Analysis
The maturities of lessor and lessee arrangements outstanding at December 31, 2022 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, 2022 |
| 2023 | $ | 819 | | | $ | 4,932 | | | $ | 1,998 | |
| 2024 | 682 | | | 4,399 | | | 1,850 | |
| 2025 | 509 | | | 2,539 | | | 1,567 | |
| 2026 | 368 | | | 1,993 | | | 1,354 | |
| 2027 | 289 | | | 990 | | | 1,131 | |
| Thereafter | 664 | | | 1,635 | | | 4,189 | |
Total undiscounted cash flows | $ | 3,331 | | | 16,488 | | | 12,089 | |
Less: Net present value adjustment | | | 1,365 | | | 1,730 | |
Total (3) | | | $ | 15,123 | | | $ | 10,359 | |
(1)Excludes $278 million in commitments under lessee arrangements that have not yet commenced with lease terms that will begin in 2023.
(2)Includes $10.2 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 scheduled contractual maturities for total time deposits at December 31, 2022 are presented in the table below.
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| | | | | |
| Contractual Maturities of Total Time Deposits | | | | | |
| | | | | |
| (Dollars in millions) | U.S. | | Non-U.S. | | Total |
| | | | | |
| Due in 2023 | $ | 36,114 | | | $ | 7,393 | | | $ | 43,507 | |
| Due in 2024 | 3,576 | | | 67 | | | 3,643 | |
| Due in 2025 | 643 | | | 6 | | | 649 | |
| Due in 2026 | 149 | | | 23 | | | 172 | |
| Due in 2027 | 116 | | | 1,472 | | | 1,588 | |
| Thereafter | 238 | | | 8 | | | 246 | |
| Total time deposits | $ | 40,836 | | | $ | 8,969 | | | $ | 49,805 | |
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| | | | | |
| | | | | |
| | | | | |
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| | | | | |
| | | | | |
At December 31, 2022 and 2021, the Corporation had aggregate U.S. time deposits of $12.8 billion and $9.4 billion and non-U.S. time deposits of $9.0 billion and $10.6 billion in denominations that met or exceeded insurance limits.
NOTE 10 Securities Financing Agreements, Short-term Borrowings, Collateral and Restricted Cash
The Corporation enters into securities financing agreements which include securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase. These financing agreements (also referred to as “matched-book transactions”) are to accommodate customers, obtain securities to cover short positions and finance inventory positions. The Corporation elects to account for certain securities financing agreements under the fair value option. For more information on the fair value option, see Note 21 – Fair Value Option.
Offsetting of Securities Financing Agreements
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, 2022 and 2021. 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 |
| | | | | | | | | |
| Gross Assets/Liabilities (1) | | Amounts Offset | | Net Balance Sheet Amount | | Financial Instruments (2) | | Net Assets/Liabilities |
| (Dollars in millions) | December 31, 2022 |
Securities borrowed or purchased under agreements to resell (3) | $ | 597,847 | | | $ | (330,273) | | | $ | 267,574 | | | $ | (240,120) | | | $ | 27,454 | |
| | | | | | | | | |
| Securities loaned or sold under agreements to repurchase | $ | 525,908 | | | $ | (330,273) | | | $ | 195,635 | | | $ | (183,265) | | | $ | 12,370 | |
Other (4) | 8,427 | | | — | | | 8,427 | | | (8,427) | | | — | |
| Total | $ | 534,335 | | | $ | (330,273) | | | $ | 204,062 | | | $ | (191,692) | | | $ | 12,370 | |
| | | | | | | | | |
| December 31, 2021 |
Securities borrowed or purchased under agreements to resell (3) | $ | 527,054 | | | $ | (276,334) | | | $ | 250,720 | | | $ | (229,525) | | | $ | 21,195 | |
| | | | | | | | | |
| Securities loaned or sold under agreements to repurchase | $ | 468,663 | | | $ | (276,334) | | | $ | 192,329 | | | $ | (181,860) | | | $ | 10,469 | |
Other (4) | 11,391 | | | — | | | 11,391 | | | (11,391) | | | — | |
| Total | $ | 480,054 | | | $ | (276,334) | | | $ | 203,720 | | | $ | (193,251) | | | $ | 10,469 | |
(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 $8.7 billion and $20.1 billion reported in loans and leases on the Consolidated Balance Sheet at December 31, 2022 and 2021.
(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, 2022 |
| Securities sold under agreements to repurchase | $ | 200,087 | | | $ | 181,632 | | | $ | 41,666 | | | $ | 30,107 | | | $ | 453,492 | |
| Securities loaned | 66,909 | | | 288 | | | 1,139 | | | 4,080 | | | 72,416 | |
| Other | 8,427 | | | — | | | — | | | — | | | 8,427 | |
| Total | $ | 275,423 | | | $ | 181,920 | | | $ | 42,805 | | | $ | 34,187 | | | $ | 534,335 | |
| | | | | | | | | |
| December 31, 2021 |
| Securities sold under agreements to repurchase | $ | 148,023 | | | $ | 194,964 | | | $ | 36,939 | | | $ | 36,501 | | | $ | 416,427 | |
| Securities loaned | 46,231 | | | 466 | | | 1,428 | | | 4,111 | | | 52,236 | |
| Other | 11,391 | | | — | | | — | | | — | | | 11,391 | |
| Total | $ | 205,645 | | | $ | 195,430 | | | $ | 38,367 | | | $ | 40,612 | | | $ | 480,054 | |
(1)No agreements have maturities greater than four years.
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| | | | | | | |
| Class of Collateral Pledged |
| | | | | | | |
| |
| Securities Sold Under Agreements to Repurchase | | Securities
Loaned | | Other | | Total |
| (Dollars in millions) | December 31, 2022 |
| U.S. government and agency securities | $ | 193,005 | | | $ | 18 | | | $ | — | | | $ | 193,023 | |
| Corporate securities, trading loans and other | 14,345 | | | 2,896 | | | 317 | | | 17,558 | |
| Equity securities | 10,249 | | | 69,432 | | | 8,110 | | | 87,791 | |
| Non-U.S. sovereign debt | 232,171 | | | 70 | | | — | | | 232,241 | |
| Mortgage trading loans and ABS | 3,722 | | | — | | | — | | | 3,722 | |
| Total | $ | 453,492 | | | $ | 72,416 | | | $ | 8,427 | | | $ | 534,335 | |
| | | | | | | |
| December 31, 2021 |
| U.S. government and agency securities | $ | 201,546 | | | $ | 27 | | | $ | — | | | $ | 201,573 | |
| Corporate securities, trading loans and other | 12,838 | | | 3,440 | | | 1,148 | | | 17,426 | |
| Equity securities | 19,907 | | | 48,650 | | | 10,192 | | | 78,749 | |
| Non-U.S. sovereign debt | 178,019 | | | 119 | | | 51 | | | 178,189 | |
| Mortgage trading loans and ABS | 4,117 | | | — | | | — | | | 4,117 | |
| Total | $ | 416,427 | | | $ | 52,236 | | | $ | 11,391 | | | $ | 480,054 | |
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.
Short-term Bank Notes
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 $6.2 billion and $1.8 billion at December 31, 2022 and 2021. 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.
Collateral
The Corporation accepts securities and loans as collateral that it is permitted by contract or practice to sell or repledge. At December 31, 2022 and 2021, the fair value of this collateral was $827.6 billion and $854.8 billion, of which $764.1 billion and $782.7 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. For more information on the collateral of derivatives, see Note 3 – Derivatives.
Restricted Cash
At December 31, 2022 and 2021, the Corporation held restricted cash included within cash and cash equivalents on the Consolidated Balance Sheet of $7.6 billion and $5.9 billion, predominantly related to cash segregated in compliance with securities regulations and cash held on deposit with central banks to meet reserve requirements.
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, 2022 and 2021, and the related contractual rates and maturity dates as of December 31, 2022.
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| Weighted-average Rate | | | | | | | December 31 |
| (Dollars in millions) | | Interest Rates | | Maturity Dates | | 2022 | | 2021 |
Notes issued by Bank of America Corporation (1) | | | | | | | | | | | |
| Senior notes: | | | | | | | | | | | |
| Fixed | 3.03 | % | | 0.25 - 8.05 | % | | 2023 - 2052 | | $ | 188,429 | | | $ | 194,191 | |
| Floating | 4.2 | | | 0.74 - 9.16 | | | 2023 - 2044 | | 17,469 | | | 18,753 | |
| Senior structured notes | | | | | | | | | 11,608 | | | 15,086 | |
| Subordinated notes: | | | | | | | | | | | |
| Fixed | 4.88 | | | 2.94 - 8.57 | | | 2024 - 2045 | | 21,098 | | | 22,311 | |
| Floating | 3.45 | | | 2.48 - 5.53 | | | 2026 - 2037 | | 4,544 | | | 2,371 | |
| Junior subordinated notes: | | | | | | | | | | | |
| Fixed | 6.71 | | | 6.45 - 8.05 | | | 2027 - 2066 | | 743 | | | 741 | |
| Floating | 5.56 | | | 5.56 | | | 2056 | | 1 | | | 1 | |
| Total notes issued by Bank of America Corporation | | | | | | | | | 243,892 | | | 253,454 | |
| Notes issued by Bank of America, N.A. | | | | | | | | | | | |
| Senior notes: | | | | | | | | | | | |
| Fixed | | | | | | | | | — | | | 501 | |
| Floating | 5.05 | | | 5.05 | | | 2024 | | 2,600 | | | 3,173 | |
| Subordinated notes | 6.00 | | | 6.00 | | | 2036 | | 1,485 | | | 1,780 | |
| Advances from Federal Home Loan Banks: | | | | | | | | | | | |
| Fixed | 4.49 | | | 0.01 - 7.42 | | | 2023 - 2034 | | 681 | | | 290 | |
| | | | | | | | | | | |
Securitizations and other BANA VIEs (2) | | | | | | | | | 4,300 | | | 3,338 | |
| Other | | | | | | | | | 908 | | | 680 | |
| Total notes issued by Bank of America, N.A. | | | | | | | | | 9,974 | | | 9,762 | |
| Other debt | | | | | | | | | | | |
Structured liabilities (3) | | | | | | | | | 21,835 | | | 16,599 | |
Nonbank VIEs (2) | | | | | | | | | 281 | | | 249 | |
| Other | | | | | | | | | — | | | 53 | |
| Total notes issued by nonbank and other entities | | | | | | | | | 22,116 | | | 16,901 | |
| Total long-term debt | | | | | | | | | $ | 275,982 | | | $ | 280,117 | |
(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. Long-term debt of VIEs is collateralized by the assets of the VIEs. At December 31, 2022, amount includes debt predominantly from credit card securitization and other VIEs of $4.2 billion and $156 million. For more information, see Note 6 – Securitizations and Other Variable Interest Entities.
(3)Includes debt outstanding of $8.0 billion and $5.4 billion at December 31, 2022 and 2021 that 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.
During 2022, the Corporation issued $66.0 billion of long-term debt consisting of $44.2 billion of notes issued by Bank of America Corporation, $10.0 billion of notes issued by Bank of America, N.A. and $11.8 billion of other debt. During 2021, the Corporation issued $76.7 billion of long-term debt consisting of $56.2 billion of notes issued by Bank of America Corporation, $8.0 billion of notes issued by Bank of America, N.A. and $12.5 billion of other debt.
During 2022, the Corporation had total long-term debt maturities and redemptions in the aggregate of $33.3 billion consisting of $19.8 billion for Bank of America Corporation, $9.9 billion for Bank of America, N.A. and $3.6 billion of other debt. During 2021, the Corporation had total long-term debt maturities and redemptions in the aggregate of $46.4 billion consisting of $24.4 billion for Bank of America Corporation, $10.4 billion for Bank of America, N.A. and $11.6 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, 2022 and 2021, the amount of foreign currency-denominated debt translated into U.S. dollars included in total long-term debt was $46.7 billion and $53.1 billion. Foreign currency contracts may be used to convert certain foreign currency-denominated debt into U.S. dollars.
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 3.27 percent, 3.23 percent and 4.14 percent, respectively, at December 31, 2022, and 2.83 percent, 3.08 percent and 0.75 percent, respectively, at December 31, 2021. 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.
The table below shows the carrying value for aggregate annual contractual maturities of long-term debt as of December 31, 2022. 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) | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | | Total |
| Bank of America Corporation | | | | | | | | | | | | | |
| Senior notes | $ | 8,029 | | | $ | 22,570 | | | $ | 24,730 | | | $ | 23,972 | | | $ | 16,055 | | | $ | 110,542 | | | $ | 205,898 | |
| Senior structured notes | 767 | | | 456 | | | 558 | | | 946 | | | 641 | | | 8,240 | | | 11,608 | |
| Subordinated notes | — | | | 3,205 | | | 5,132 | | | 4,908 | | | 2,155 | | | 10,242 | | | 25,642 | |
| Junior subordinated notes | — | | | — | | | — | | | — | | | 188 | | | 556 | | | 744 | |
| Total Bank of America Corporation | 8,796 | | | 26,231 | | | 30,420 | | | 29,826 | | | 19,039 | | | 129,580 | | | 243,892 | |
| Bank of America, N.A. | | | | | | | | | | | | | |
| Senior notes | — | | | 2,600 | | | — | | | — | | | — | | | — | | | 2,600 | |
| Subordinated notes | — | | | — | | | — | | | — | | | — | | | 1,485 | | | 1,485 | |
| Advances from Federal Home Loan Banks | 600 | | | — | | | 15 | | | 9 | | | 4 | | | 53 | | | 681 | |
Securitizations and other Bank VIEs (1) | 1,000 | | | 1,000 | | | 2,248 | | | — | | | — | | | 52 | | | 4,300 | |
| Other | 642 | | | 89 | | | 71 | | | 45 | | | 63 | | | (2) | | | 908 | |
| Total Bank of America, N.A. | 2,242 | | | 3,689 | | | 2,334 | | | 54 | | | 67 | | | 1,588 | | | 9,974 | |
| Other debt | | | | | | | | | | | | | |
| Structured Liabilities | 5,253 | | | 2,426 | | | 2,482 | | | 1,474 | | | 2,001 | | | 8,199 | | | 21,835 | |
Nonbank VIEs (1) | — | | | — | | | — | | | — | | | — | | | 281 | | | 281 | |
| Other | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total other debt | 5,253 | | | 2,426 | | | 2,482 | | | 1,474 | | | 2,001 | | | 8,480 | | | 22,116 | |
| Total long-term debt | $ | 16,291 | | | $ | 32,346 | | | $ | 35,236 | | | $ | 31,354 | | | $ | 21,107 | | | $ | 139,648 | | | $ | 275,982 | |
(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 $10.4 billion and $10.7 billion at December 31, 2022 and 2021. The carrying value of the Corporation’s credit extension commitments at December 31, 2022 and 2021, excluding commitments accounted for under
the fair value option, was $1.6 billion and $1.5 billion, which predominantly 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 following table includes the notional amount of commitments of $3.0 billion and $4.8 billion at December 31, 2022 and 2021 that are accounted for under the fair value option. However, the table excludes the cumulative net fair value for these commitments of $110 million and $97 million at December 31, 2022 and 2021, 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, 2022 |
| Notional amount of credit extension commitments | | | | | | | | | |
Loan commitments (1) | $ | 113,962 | | | $ | 162,890 | | | $ | 221,374 | | | $ | 13,667 | | | $ | 511,893 | |
| Home equity lines of credit | 1,479 | | | 7,230 | | | 11,578 | | | 22,154 | | | 42,441 | |
Standby letters of credit and financial guarantees (2) | 22,565 | | | 9,237 | | | 2,787 | | | 628 | | | 35,217 | |
| Letters of credit | 853 | | | 46 | | | 52 | | | 49 | | | 1,000 | |
Other commitments (3) | 5 | | | 93 | | | 71 | | | 1,103 | | | 1,272 | |
| Legally binding commitments | 138,864 | | | 179,496 | | | 235,862 | | | 37,601 | | | 591,823 | |
Credit card lines (4) | 419,144 | | | — | | | — | | | — | | | 419,144 | |
| Total credit extension commitments | $ | 558,008 | | | $ | 179,496 | | | $ | 235,862 | | | $ | 37,601 | | | $ | 1,010,967 | |
| | | | | | | | | |
| | December 31, 2021 |
| Notional amount of credit extension commitments | | | | | | | | | |
Loan commitments (1) | $ | 102,464 | | | $ | 190,687 | | | $ | 174,978 | | | $ | 26,635 | | | $ | 494,764 | |
| Home equity lines of credit | 890 | | | 5,097 | | | 10,268 | | | 24,276 | | | 40,531 | |
Standby letters of credit and financial guarantees (2) | 22,359 | | | 10,742 | | | 2,017 | | | 422 | | | 35,540 | |
| Letters of credit | 1,145 | | | 124 | | | 56 | | | 98 | | | 1,423 | |
Other commitments (3) | 18 | | | 59 | | | 81 | | | 1,233 | | | 1,391 | |
| Legally binding commitments | 126,876 | | | 206,709 | | | 187,400 | | | 52,664 | | | 573,649 | |
Credit card lines (4) | 406,169 | | | — | | | — | | | — | | | 406,169 | |
| Total credit extension commitments | $ | 533,045 | | | $ | 206,709 | | | $ | 187,400 | | | $ | 52,664 | | | $ | 979,818 | |
(1) At December 31, 2022 and 2021, $2.6 billion and $4.6 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 $25.1 billion and $9.5 billion at December 31, 2022, and $26.3 billion and $8.7 billion at December 31, 2021. Amounts in the table include consumer SBLCs of $575 million and $512 million at December 31, 2022 and 2021.
(3) Primarily includes second-loss positions on lease-end residual value guarantees.
(4) Includes business card unused lines of credit.
Other Commitments
At December 31, 2022 and 2021, the Corporation had commitments to purchase loans (e.g., residential mortgage and commercial real estate) of $636 million and $181 million, which upon settlement will be included in trading account assets, loans or LHFS, and commitments to purchase commercial loans of $294 million and $518 million, which upon settlement will be included in trading account assets.
At December 31, 2022 and 2021, the Corporation had commitments to purchase commodities, primarily liquefied natural gas, of $0 and $949 million, which upon settlement will be included in trading account assets.
At both December 31, 2022 and 2021, the Corporation had commitments to enter into resale and forward-dated resale and securities borrowing agreements of $92.0 billion, and commitments to enter into forward-dated repurchase and securities lending agreements of $57.8 billion and $32.6 billion as of both period ends. These commitments generally expire within the next 12 months.
At December 31, 2022 and 2021, the Corporation had a commitment to originate or purchase up to $3.7 billion and $4.0 billion on a rolling 12-month basis, of auto loans and leases from a strategic partner. This commitment extends through November 2026 and can be terminated with 12 months prior notice.
At December 31, 2022 and 2021, the Corporation had unfunded equity investment commitments of $571 million and $395 million.
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, 2022 and 2021, the notional amount of these guarantees totaled $4.3
billion and $6.3 billion. At December 31, 2022 and 2021, the Corporation’s maximum exposure related to these guarantees totaled $632 million and $928 million, 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
The Corporation in its role as merchant acquirer or as a sponsor of other merchant acquirers may be held liable for any reversed charges that cannot be collected from the merchants, due to, among other things, merchant fraud or insolvency. 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
payment network rules and regulations, which include, but are not limited to, the type of charge, type of payment used and time limits. The total amount of transactions subject to reversal under payment network rules and regulations processed for the preceding six-month period, which was approximately $501 billion, is an estimate of the Corporation’s maximum potential exposure as of December 31, 2022. 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.
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 $59.6 billion and $42.0 billion at December 31, 2022 and 2021.
Other Guarantees
In the normal course of business, the Corporation periodically guarantees the obligations of its affiliates in a variety of transactions including ISDA-related transactions and non-ISDA related transactions such as commodities trading, repurchase agreements, prime brokerage agreements and other transactions.
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 representations and warranties repurchase claims represent the notional amount of repurchase claims made by counterparties, typically the outstanding principal balance or the unpaid principal balance at the time of default. In the case of first-lien mortgages, the claim amount is often significantly greater than the expected loss amount due to the benefit of collateral and, in some cases, mortgage insurance or mortgage guarantee payments. Claims received from a counterparty remain outstanding until the underlying loan is repurchased, the claim is rescinded by the counterparty, the Corporation determines that the applicable statute of limitations has expired, or representations and warranties claims with respect to the applicable trust are settled, and fully and finally released. The Corporation does not include duplicate claims in the amounts disclosed.
The table below presents unresolved repurchase claims atAt December 31, 20172022 and 2016. The unresolved repurchase claims include only claims where2021, the Corporation believes that the counterparty has the contractual right to submit claims. The unresolved repurchase claims predominantly relate to subprimenet carrying value of intangible assets was $2.1 billion and pay option first-lien loans$2.2 billion. At both December 31, 2022 and home equity loans originated primarily between 2004 and 2008. For more information, see Private-label Securitizations and Whole-loan Sales Experience in this Note and Note 12 – Commitments and Contingencies.
2021, intangible assets included $1.6
|
| | | | | | | |
| | | | |
| 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 claims and $794 million in claims were resolved, including $640 million related to settlements. Of the remaining unresolved monoline claims, substantially all of the claims pertain to second-lien loans and are currently the subject of litigation with a single monoline insurer. There may be additional claims or file requests in the future.
|
| | | | | | | |
| | Bank of America 2017144128 |
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 $78 million, $76 million and $95 million for 2022, 2021 and 2020.
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 table below presents the net investment in sales-type and direct financing leases at December 31, 2022 and 2021.
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
Net Investment (1) | | | | | | | | | |
| | | | | | | | | |
| | | | | | | |
| | | | | December 31 | | |
| (Dollars in millions) | | | | | 2022 | | 2021 | | |
| Lease receivables | | | | | $ | 15,123 | | | $ | 16,806 | | | |
| Unguaranteed residuals | | | | | 2,143 | | | 2,078 | | | |
Total net investment in sales-type and direct
financing leases | | | | | $ | 17,266 | | | $ | 18,884 | | | |
(1)In additioncertain 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 unresolved repurchase claimsasset value was $6.5 billion and $7.1 billion at December 31, 2022 and 2021.
The table below presents lease income for 2022, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Lease Income | | | | | | | | |
| | | | | | | | | |
| (Dollars in millions) | | | | | 2022 | | 2021 | | 2020 |
| Sales-type and direct financing leases | | | | | $ | 589 | | | $ | 613 | | | $ | 707 | |
| Operating leases | | | | | 941 | | | 930 | | | 931 | |
| Total lease income | | | | | $ | 1,530 | | | $ | 1,543 | | | $ | 1,638 | |
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, 2022 and 2021.
| | | | | | | | | | | | | | |
| | | | |
| Supplemental Information for Lessee Arrangements |
| | | | |
| December 31 | |
| (Dollars in millions) | 2022 | | 2021 | |
| Right-of-use asset | $ | 9,755 | | | $ | 10,233 | | |
| Lease liabilities | 10,359 | | | 10,858 | | |
| Weighted-average discount rate used to calculate present value of future minimum lease payments | 3.25 | % | | 2.91 | % | |
| Weighted-average lease term (in years) | 8.6 | | 9.0 | |
Right-of-use assets obtained in exchange for new operating lease liabilities (1) | $ | 824 | | | $ | 1,713 | | |
| | | | |
| 2022 | | 2021 | 2020 |
Operating cash flows from operating leases (2) | $ | 1,986 | | | $ | 1,964 | | $ | 2,039 | |
| | | | |
Lease Cost and Supplemental
Information: | | | | |
| Operating lease cost | $ | 2,008 | | | $ | 2,025 | | $ | 2,149 | |
Variable lease cost (3) | 464 | | | 462 | | 474 | |
Total lease cost (4) | $ | 2,472 | | | $ | 2,487 | | $ | 2,623 | |
(1)Represents non-cash activity and, accordingly, is not reflected in the Unresolved Repurchase Claims by Counterparty, NetConsolidated Statement 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 loansCash Flows.
(2)Represents cash paid 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 isamounts included in the provisionmeasurements of lease liabilities.
(3)Primarily consists of payments for common area maintenance and reserve for representationsproperty taxes.
(4)Amounts are recorded in occupancy and warranties.equipment expense in the Consolidated Statement of Income.
Maturity Analysis
The presencematurities of repurchase claims on a given trust, receipt of notices of indemnification obligationslessor and receipt of other communications, as discussed above, are all factors that inform the Corporation’s reserve for representations and warranties and the corresponding estimated range of possible loss.
Private-label Securitizations and Whole-loan Sales Experience
The notional amount of unresolved repurchase claimslessee arrangements outstanding at December 31, 20172022 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, 2022 |
| 2023 | $ | 819 | | | $ | 4,932 | | | $ | 1,998 | |
| 2024 | 682 | | | 4,399 | | | 1,850 | |
| 2025 | 509 | | | 2,539 | | | 1,567 | |
| 2026 | 368 | | | 1,993 | | | 1,354 | |
| 2027 | 289 | | | 990 | | | 1,131 | |
| Thereafter | 664 | | | 1,635 | | | 4,189 | |
Total undiscounted cash flows | $ | 3,331 | | | 16,488 | | | 12,089 | |
Less: Net present value adjustment | | | 1,365 | | | 1,730 | |
Total (3) | | | $ | 15,123 | | | $ | 10,359 | |
(1)Excludes $278 million in commitments under lessee arrangements that have not yet commenced with lease terms that will begin in 2023.
(2)Includes $10.2 billion in commercial lease financing receivables and 2016 included $6.9$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 scheduled contractual maturities for total time deposits at December 31, 2022 are presented in the table below.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Contractual Maturities of Total Time Deposits | | | | | |
| | | | | |
| (Dollars in millions) | U.S. | | Non-U.S. | | Total |
| | | | | |
| Due in 2023 | $ | 36,114 | | | $ | 7,393 | | | $ | 43,507 | |
| Due in 2024 | 3,576 | | | 67 | | | 3,643 | |
| Due in 2025 | 643 | | | 6 | | | 649 | |
| Due in 2026 | 149 | | | 23 | | | 172 | |
| Due in 2027 | 116 | | | 1,472 | | | 1,588 | |
| Thereafter | 238 | | | 8 | | | 246 | |
| Total time deposits | $ | 40,836 | | | $ | 8,969 | | | $ | 49,805 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
At December 31, 2022 and 2021, the Corporation had aggregate U.S. time deposits of $12.8 billion and $5.6$9.4 billion and non-U.S. time deposits of claims related$9.0 billion and $10.6 billion in denominations that met or exceeded insurance limits.
NOTE 10 Securities Financing Agreements, Short-term Borrowings, Collateral and Restricted Cash
The Corporation enters into securities financing agreements which include securities borrowed or purchased under agreements to loans in specific private-label securitization groupsresell and securities loaned or tranches wheresold under agreements to repurchase. These financing agreements (also referred to as “matched-book transactions”) are to accommodate customers, obtain securities to cover short positions and finance inventory positions. The Corporation elects to account for certain securities financing agreements under the Corporation owns substantiallyfair value option. For more information on the fair value option, see Note 21 – Fair Value Option.
Offsetting of Securities Financing Agreements
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 duedefault 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, 2022 and 2021. 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Securities Financing Agreements |
| | | | | | | | | |
| Gross Assets/Liabilities (1) | | Amounts Offset | | Net Balance Sheet Amount | | Financial Instruments (2) | | Net Assets/Liabilities |
| (Dollars in millions) | December 31, 2022 |
Securities borrowed or purchased under agreements to resell (3) | $ | 597,847 | | | $ | (330,273) | | | $ | 267,574 | | | $ | (240,120) | | | $ | 27,454 | |
| | | | | | | | | |
| Securities loaned or sold under agreements to repurchase | $ | 525,908 | | | $ | (330,273) | | | $ | 195,635 | | | $ | (183,265) | | | $ | 12,370 | |
Other (4) | 8,427 | | | — | | | 8,427 | | | (8,427) | | | — | |
| Total | $ | 534,335 | | | $ | (330,273) | | | $ | 204,062 | | | $ | (191,692) | | | $ | 12,370 | |
| | | | | | | | | |
| December 31, 2021 |
Securities borrowed or purchased under agreements to resell (3) | $ | 527,054 | | | $ | (276,334) | | | $ | 250,720 | | | $ | (229,525) | | | $ | 21,195 | |
| | | | | | | | | |
| Securities loaned or sold under agreements to repurchase | $ | 468,663 | | | $ | (276,334) | | | $ | 192,329 | | | $ | (181,860) | | | $ | 10,469 | |
Other (4) | 11,391 | | | — | | | 11,391 | | | (11,391) | | | — | |
| Total | $ | 480,054 | | | $ | (276,334) | | | $ | 203,720 | | | $ | (193,251) | | | $ | 10,469 | |
(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 $8.7 billion and negotiation between$20.1 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, 2022 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.2021.
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 possibility of timely claims in ordersecurities 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 determine the representationsreturn those securities.
Repurchase Agreements and warranties reserve and the corresponding estimated range of possible loss.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 presents a rollforward ofbased on the reserve for representations and warranties and corporate guarantees.remaining contractual term to maturity.
|
| | | | | | | |
| | | | |
| 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 partBank of the settlement with BNY Mellon.America 130
|
The representations and warranties reserve represents
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| 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, 2022 |
| Securities sold under agreements to repurchase | $ | 200,087 | | | $ | 181,632 | | | $ | 41,666 | | | $ | 30,107 | | | $ | 453,492 | |
| Securities loaned | 66,909 | | | 288 | | | 1,139 | | | 4,080 | | | 72,416 | |
| Other | 8,427 | | | — | | | — | | | — | | | 8,427 | |
| Total | $ | 275,423 | | | $ | 181,920 | | | $ | 42,805 | | | $ | 34,187 | | | $ | 534,335 | |
| | | | | | | | | |
| December 31, 2021 |
| Securities sold under agreements to repurchase | $ | 148,023 | | | $ | 194,964 | | | $ | 36,939 | | | $ | 36,501 | | | $ | 416,427 | |
| Securities loaned | 46,231 | | | 466 | | | 1,428 | | | 4,111 | | | 52,236 | |
| Other | 11,391 | | | — | | | — | | | — | | | 11,391 | |
| Total | $ | 205,645 | | | $ | 195,430 | | | $ | 38,367 | | | $ | 40,612 | | | $ | 480,054 | |
(1)No agreements have maturities greater than four years.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Class of Collateral Pledged |
| | | | | | | |
| |
| Securities Sold Under Agreements to Repurchase | | Securities
Loaned | | Other | | Total |
| (Dollars in millions) | December 31, 2022 |
| U.S. government and agency securities | $ | 193,005 | | | $ | 18 | | | $ | — | | | $ | 193,023 | |
| Corporate securities, trading loans and other | 14,345 | | | 2,896 | | | 317 | | | 17,558 | |
| Equity securities | 10,249 | | | 69,432 | | | 8,110 | | | 87,791 | |
| Non-U.S. sovereign debt | 232,171 | | | 70 | | | — | | | 232,241 | |
| Mortgage trading loans and ABS | 3,722 | | | — | | | — | | | 3,722 | |
| Total | $ | 453,492 | | | $ | 72,416 | | | $ | 8,427 | | | $ | 534,335 | |
| | | | | | | |
| December 31, 2021 |
| U.S. government and agency securities | $ | 201,546 | | | $ | 27 | | | $ | — | | | $ | 201,573 | |
| Corporate securities, trading loans and other | 12,838 | | | 3,440 | | | 1,148 | | | 17,426 | |
| Equity securities | 19,907 | | | 48,650 | | | 10,192 | | | 78,749 | |
| Non-U.S. sovereign debt | 178,019 | | | 119 | | | 51 | | | 178,189 | |
| Mortgage trading loans and ABS | 4,117 | | | — | | | — | | | 4,117 | |
| Total | $ | 416,427 | | | $ | 52,236 | | | $ | 11,391 | | | $ | 480,054 | |
Under repurchase agreements, the Corporation’s best estimate of probable incurred losses as of December 31, 2017. However, itCorporation is reasonably possible that future representations and warranties losses may occurrequired to post collateral with a market value equal to or in excess of the amounts recorded forprincipal 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 exposures.agreements by sourcing funding from a diverse group of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate.
Short-term Bank Notes
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 $6.2 billion and $1.8 billion at December 31, 2022 and 2021. 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.
Collateral
The Corporation currently estimatesaccepts securities and loans as collateral that the range of possible loss for representations and warranties exposures could be upit is permitted by contract or practice to $1 billion over existing accruals atsell or repledge. At December 31, 2017. This estimate2022 and 2021, the fair value of this collateral was $827.6 billion and $854.8 billion, of which $764.1 billion and $782.7 billion were sold or repledged. The primary source of this collateral is lower than the estimate at December 31, 2016 duesecurities borrowed or purchased under agreements to recent reductions in risk as we reach settlements with counterparties. resell.
The Corporation treats claimsalso pledges company-owned securities and loans as collateral in transactions that are time-barred as resolvedinclude repurchase agreements, securities loaned, public and does not consider such claimstrust 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 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 materialcounterparties to the Corporation’s resultstransactions, 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 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.Consolidated VIEs.
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145131Bank of America 2017
| | |
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. For more information on the collateral of derivatives, see Note 3 – Derivatives.
Restricted Cash
At December 31, 2022 and 2021, the Corporation held restricted cash included within cash and cash equivalents on the Consolidated Balance Sheet of $7.6 billion and $5.9 billion, predominantly related to cash segregated in compliance with securities regulations and cash held on deposit with central banks to meet reserve requirements.
NOTE 8 Goodwill and Intangible Assets11 Long-term Debt
Goodwill
Long-term debt consists of borrowings having an original maturity of one year or more. The table below presents goodwill balances by business segment and All Otherthe balance of long-term debt at December 31, 20172022 and 2016.2021, and the related contractual rates and maturity dates as of December 31, 2022.
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| | | | | | | | | | | |
| Weighted-average Rate | | | | | | | December 31 |
| (Dollars in millions) | | Interest Rates | | Maturity Dates | | 2022 | | 2021 |
Notes issued by Bank of America Corporation (1) | | | | | | | | | | | |
| Senior notes: | | | | | | | | | | | |
| Fixed | 3.03 | % | | 0.25 - 8.05 | % | | 2023 - 2052 | | $ | 188,429 | | | $ | 194,191 | |
| Floating | 4.2 | | | 0.74 - 9.16 | | | 2023 - 2044 | | 17,469 | | | 18,753 | |
| Senior structured notes | | | | | | | | | 11,608 | | | 15,086 | |
| Subordinated notes: | | | | | | | | | | | |
| Fixed | 4.88 | | | 2.94 - 8.57 | | | 2024 - 2045 | | 21,098 | | | 22,311 | |
| Floating | 3.45 | | | 2.48 - 5.53 | | | 2026 - 2037 | | 4,544 | | | 2,371 | |
| Junior subordinated notes: | | | | | | | | | | | |
| Fixed | 6.71 | | | 6.45 - 8.05 | | | 2027 - 2066 | | 743 | | | 741 | |
| Floating | 5.56 | | | 5.56 | | | 2056 | | 1 | | | 1 | |
| Total notes issued by Bank of America Corporation | | | | | | | | | 243,892 | | | 253,454 | |
| Notes issued by Bank of America, N.A. | | | | | | | | | | | |
| Senior notes: | | | | | | | | | | | |
| Fixed | | | | | | | | | — | | | 501 | |
| Floating | 5.05 | | | 5.05 | | | 2024 | | 2,600 | | | 3,173 | |
| Subordinated notes | 6.00 | | | 6.00 | | | 2036 | | 1,485 | | | 1,780 | |
| Advances from Federal Home Loan Banks: | | | | | | | | | | | |
| Fixed | 4.49 | | | 0.01 - 7.42 | | | 2023 - 2034 | | 681 | | | 290 | |
| | | | | | | | | | | |
Securitizations and other BANA VIEs (2) | | | | | | | | | 4,300 | | | 3,338 | |
| Other | | | | | | | | | 908 | | | 680 | |
| Total notes issued by Bank of America, N.A. | | | | | | | | | 9,974 | | | 9,762 | |
| Other debt | | | | | | | | | | | |
Structured liabilities (3) | | | | | | | | | 21,835 | | | 16,599 | |
Nonbank VIEs (2) | | | | | | | | | 281 | | | 249 | |
| Other | | | | | | | | | — | | | 53 | |
| Total notes issued by nonbank and other entities | | | | | | | | | 22,116 | | | 16,901 | |
| Total long-term debt | | | | | | | | | $ | 275,982 | | | $ | 280,117 | |
(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. Long-term debt of VIEs is collateralized by the assets of the VIEs. At December 31, 2022, amount includes debt predominantly from credit card securitization and other VIEs of $4.2 billion and $156 million. For more information, see Note 6 – Securitizations and Other Variable Interest Entities.
(3)Includes debt outstanding of $8.0 billion and $5.4 billion at December 31, 2022 and 2021 that 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.
During 2022, the Corporation issued $66.0 billion of long-term debt consisting of $44.2 billion of notes issued by Bank of America Corporation, $10.0 billion of notes issued by Bank of America, N.A. and $11.8 billion of other debt. During 2021, the Corporation issued $76.7 billion of long-term debt consisting of $56.2 billion of notes issued by Bank of America Corporation, $8.0 billion of notes issued by Bank of America, N.A. and $12.5 billion of other debt.
During 2022, the Corporation had total long-term debt maturities and redemptions in the aggregate of $33.3 billion consisting of $19.8 billion for Bank of America Corporation, $9.9 billion for Bank of America, N.A. and $3.6 billion of other debt. During 2021, the Corporation had total long-term debt maturities and redemptions in the aggregate of $46.4 billion consisting of $24.4 billion for Bank of America Corporation, $10.4 billion for Bank of America, N.A. and $11.6 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 reporting units utilizednotes may be denominated in U.S. dollars or foreign currencies. At December 31, 2022 and 2021, the amount of foreign currency-denominated debt translated into U.S. dollars included in total long-term debt was $46.7 billion and $53.1 billion. Foreign currency contracts may be used to convert certain foreign currency-denominated debt into U.S. dollars.
The weighted-average effective interest rates for goodwill impairment testingtotal long-term debt (excluding senior structured notes), total fixed-rate debt and total floating-rate debt were 3.27 percent, 3.23 percent and 4.14 percent, respectively, at December 31, 2022, and 2.83 percent, 3.08 percent and 0.75 percent, respectively, at December 31, 2021. 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 operating segmentscontractual interest rates on the debt and do not reflect the impacts of derivative transactions.
The table below shows the carrying value for aggregate annual contractual maturities of long-term debt as of December 31, 2022. 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 one level below.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) | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | | Total |
| Bank of America Corporation | | | | | | | | | | | | | |
| Senior notes | $ | 8,029 | | | $ | 22,570 | | | $ | 24,730 | | | $ | 23,972 | | | $ | 16,055 | | | $ | 110,542 | | | $ | 205,898 | |
| Senior structured notes | 767 | | | 456 | | | 558 | | | 946 | | | 641 | | | 8,240 | | | 11,608 | |
| Subordinated notes | — | | | 3,205 | | | 5,132 | | | 4,908 | | | 2,155 | | | 10,242 | | | 25,642 | |
| Junior subordinated notes | — | | | — | | | — | | | — | | | 188 | | | 556 | | | 744 | |
| Total Bank of America Corporation | 8,796 | | | 26,231 | | | 30,420 | | | 29,826 | | | 19,039 | | | 129,580 | | | 243,892 | |
| Bank of America, N.A. | | | | | | | | | | | | | |
| Senior notes | — | | | 2,600 | | | — | | | — | | | — | | | — | | | 2,600 | |
| Subordinated notes | — | | | — | | | — | | | — | | | — | | | 1,485 | | | 1,485 | |
| Advances from Federal Home Loan Banks | 600 | | | — | | | 15 | | | 9 | | | 4 | | | 53 | | | 681 | |
Securitizations and other Bank VIEs (1) | 1,000 | | | 1,000 | | | 2,248 | | | — | | | — | | | 52 | | | 4,300 | |
| Other | 642 | | | 89 | | | 71 | | | 45 | | | 63 | | | (2) | | | 908 | |
| Total Bank of America, N.A. | 2,242 | | | 3,689 | | | 2,334 | | | 54 | | | 67 | | | 1,588 | | | 9,974 | |
| Other debt | | | | | | | | | | | | | |
| Structured Liabilities | 5,253 | | | 2,426 | | | 2,482 | | | 1,474 | | | 2,001 | | | 8,199 | | | 21,835 | |
Nonbank VIEs (1) | — | | | — | | | — | | | — | | | — | | | 281 | | | 281 | |
| Other | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total other debt | 5,253 | | | 2,426 | | | 2,482 | | | 1,474 | | | 2,001 | | | 8,480 | | | 22,116 | |
| Total long-term debt | $ | 16,291 | | | $ | 32,346 | | | $ | 35,236 | | | $ | 31,354 | | | $ | 21,107 | | | $ | 139,648 | | | $ | 275,982 | |
(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 $10.4 billion and $10.7 billion at December 31, 2022 and 2021. The carrying value of the Corporation’s credit extension commitments at December 31, 2022 and 2021, excluding commitments accounted for under
the fair value option, was $1.6 billion and $1.5 billion, which predominantly 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 following table includes the notional amount of commitments of $3.0 billion and $4.8 billion at December 31, 2022 and 2021 that are accounted for under the fair value option. However, the table excludes the cumulative net fair value for these commitments of $110 million and $97 million at December 31, 2022 and 2021, 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.
|
| | | | | | | |
| | | | |
| 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)133 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. | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| 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, 2022 |
| Notional amount of credit extension commitments | | | | | | | | | |
Loan commitments (1) | $ | 113,962 | | | $ | 162,890 | | | $ | 221,374 | | | $ | 13,667 | | | $ | 511,893 | |
| Home equity lines of credit | 1,479 | | | 7,230 | | | 11,578 | | | 22,154 | | | 42,441 | |
Standby letters of credit and financial guarantees (2) | 22,565 | | | 9,237 | | | 2,787 | | | 628 | | | 35,217 | |
| Letters of credit | 853 | | | 46 | | | 52 | | | 49 | | | 1,000 | |
Other commitments (3) | 5 | | | 93 | | | 71 | | | 1,103 | | | 1,272 | |
| Legally binding commitments | 138,864 | | | 179,496 | | | 235,862 | | | 37,601 | | | 591,823 | |
Credit card lines (4) | 419,144 | | | — | | | — | | | — | | | 419,144 | |
| Total credit extension commitments | $ | 558,008 | | | $ | 179,496 | | | $ | 235,862 | | | $ | 37,601 | | | $ | 1,010,967 | |
| | | | | | | | | |
| | December 31, 2021 |
| Notional amount of credit extension commitments | | | | | | | | | |
Loan commitments (1) | $ | 102,464 | | | $ | 190,687 | | | $ | 174,978 | | | $ | 26,635 | | | $ | 494,764 | |
| Home equity lines of credit | 890 | | | 5,097 | | | 10,268 | | | 24,276 | | | 40,531 | |
Standby letters of credit and financial guarantees (2) | 22,359 | | | 10,742 | | | 2,017 | | | 422 | | | 35,540 | |
| Letters of credit | 1,145 | | | 124 | | | 56 | | | 98 | | | 1,423 | |
Other commitments (3) | 18 | | | 59 | | | 81 | | | 1,233 | | | 1,391 | |
| Legally binding commitments | 126,876 | | | 206,709 | | | 187,400 | | | 52,664 | | | 573,649 | |
Credit card lines (4) | 406,169 | | | — | | | — | | | — | | | 406,169 | |
| Total credit extension commitments | $ | 533,045 | | | $ | 206,709 | | | $ | 187,400 | | | $ | 52,664 | | | $ | 979,818 | |
(1) At December 31, 2022 and 2021, $2.6 billion and $4.6 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 $25.1 billion and $9.5 billion at December 31, 2022, and $26.3 billion and $8.7 billion at December 31, 2021. Amounts in the table include consumer SBLCs of $575 million and $512 million at December 31, 2022 and 2021.
(3) Primarily includes second-loss positions on lease-end residual value guarantees.
(4) Includes business card unused lines of credit.
Other Commitments
At December 31, 2022 and 2021, the Corporation completed its annual goodwill impairment testhad commitments to purchase loans (e.g., residential mortgage and commercial real estate) of $636 million and $181 million, which upon settlement will be included in trading account assets, loans or LHFS, and commitments to purchase commercial loans of $294 million and $518 million, which upon settlement will be included in trading account assets.
At December 31, 2022 and 2021, the Corporation had commitments to purchase commodities, primarily liquefied natural gas, of $0 and $949 million, which upon settlement will be included in trading account assets.
At both December 31, 2022 and 2021, the Corporation had commitments to enter into resale and forward-dated resale and securities borrowing agreements of $92.0 billion, and commitments to enter into forward-dated repurchase and securities lending agreements of $57.8 billion and $32.6 billion as of June 30, 2017both period ends. These commitments generally expire within the next 12 months.
At December 31, 2022 and 2021, the Corporation had a commitment to originate or purchase up to $3.7 billion and $4.0 billion on a rolling 12-month basis, of auto loans and leases from a strategic partner. This commitment extends through November 2026 and can be terminated with 12 months prior notice.
At December 31, 2022 and 2021, the Corporation had unfunded equity investment commitments of $571 million and $395 million.
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, 2022 and 2021, the notional amount of these guarantees totaled $4.3
billion and $6.3 billion. At December 31, 2022 and 2021, the Corporation’s maximum exposure related to these guarantees totaled $632 million and $928 million, 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 allseveral 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
The Corporation in its role as merchant acquirer or as a sponsor of other merchant acquirers may be held liable for any reversed charges that cannot be collected from the merchants, due to, among other things, merchant fraud or insolvency. 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 reporting units. Based on
payment network rules and regulations, which include, but are not limited to, the resultstype of charge, type of payment used and time limits. The total amount of transactions subject to reversal under payment network rules and regulations processed for the preceding six-month period, which was approximately $501 billion, is an estimate of the annual goodwill impairment test,Corporation’s maximum potential exposure as of December 31, 2022. 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.
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 determined theremay 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 no impairment.$59.6 billion and $42.0 billion at December 31, 2022 and 2021.
Other Guarantees
In the normal course of business, the Corporation periodically guarantees the obligations of its affiliates in a variety of transactions including ISDA-related transactions and non-ISDA related transactions such as commodities trading, repurchase agreements, prime brokerage agreements and other transactions.
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
At December 31, 2022 and 2021, the net carrying value of intangible assets was $2.1 billion and $2.2 billion. At both December 31, 2022 and 2021, 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 $78 million, $76 million and $95 million for 2022, 2021 and 2020.
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 table below presents the grossnet investment in sales-type and net carrying values and accumulated amortization for intangible assetsdirect financing leases at December 31, 20172022 and 2016.2021.
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
Net Investment (1) | | | | | | | | | |
| | | | | | | | | |
| | | | | | | |
| | | | | December 31 | | |
| (Dollars in millions) | | | | | 2022 | | 2021 | | |
| Lease receivables | | | | | $ | 15,123 | | | $ | 16,806 | | | |
| Unguaranteed residuals | | | | | 2,143 | | | 2,078 | | | |
Total net investment in sales-type and direct
financing leases | | | | | $ | 17,266 | | | $ | 18,884 | | | |
(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 $6.5 billion and $7.1 billion at December 31, 2022 and 2021.
The table below presents lease income for 2022, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Lease Income | | | | | | | | |
| | | | | | | | | |
| (Dollars in millions) | | | | | 2022 | | 2021 | | 2020 |
| Sales-type and direct financing leases | | | | | $ | 589 | | | $ | 613 | | | $ | 707 | |
| Operating leases | | | | | 941 | | | 930 | | | 931 | |
| Total lease income | | | | | $ | 1,530 | | | $ | 1,543 | | | $ | 1,638 | |
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, 2022 and 2021.
| | | | | | | | | | | | | | |
| | | | |
| Supplemental Information for Lessee Arrangements |
| | | | |
| December 31 | |
| (Dollars in millions) | 2022 | | 2021 | |
| Right-of-use asset | $ | 9,755 | | | $ | 10,233 | | |
| Lease liabilities | 10,359 | | | 10,858 | | |
| Weighted-average discount rate used to calculate present value of future minimum lease payments | 3.25 | % | | 2.91 | % | |
| Weighted-average lease term (in years) | 8.6 | | 9.0 | |
Right-of-use assets obtained in exchange for new operating lease liabilities (1) | $ | 824 | | | $ | 1,713 | | |
| | | | |
| 2022 | | 2021 | 2020 |
Operating cash flows from operating leases (2) | $ | 1,986 | | | $ | 1,964 | | $ | 2,039 | |
| | | | |
Lease Cost and Supplemental
Information: | | | | |
| Operating lease cost | $ | 2,008 | | | $ | 2,025 | | $ | 2,149 | |
Variable lease cost (3) | 464 | | | 462 | | 474 | |
Total lease cost (4) | $ | 2,472 | | | $ | 2,487 | | $ | 2,623 | |
(1)Represents non-cash activity and, accordingly, is not reflected in the Consolidated Statement of Cash Flows.
(2)Represents cash paid for amounts included in the measurements of lease liabilities.
(3)Primarily consists of payments for common area maintenance and property taxes.
(4)Amounts are recorded in occupancy and equipment expense in the Consolidated Statement of Income.
Maturity Analysis
The maturities of lessor and lessee arrangements outstanding at December 31, 2022 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, 2022 |
| 2023 | $ | 819 | | | $ | 4,932 | | | $ | 1,998 | |
| 2024 | 682 | | | 4,399 | | | 1,850 | |
| 2025 | 509 | | | 2,539 | | | 1,567 | |
| 2026 | 368 | | | 1,993 | | | 1,354 | |
| 2027 | 289 | | | 990 | | | 1,131 | |
| Thereafter | 664 | | | 1,635 | | | 4,189 | |
Total undiscounted cash flows | $ | 3,331 | | | 16,488 | | | 12,089 | |
Less: Net present value adjustment | | | 1,365 | | | 1,730 | |
Total (3) | | | $ | 15,123 | | | $ | 10,359 | |
(1)Excludes $278 million in commitments under lessee arrangements that have not yet commenced with lease terms that will begin in 2023.
(2)Includes $10.2 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.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
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.
|
Amortization of intangibles expense was $621 million, $730 million and $834 million for 2017, 2016 and 2015. The Corporation estimates aggregate amortization expense will be $538 million, $105 million and $53 million for the years through 2020 and none for the years thereafter.
|
| | | | | | | |
| | 129Bank of America 2017146 | | |
NOTE 9 Deposits
The table below presents information about the Corporation’s time deposits of $100 thousand or more at December 31, 2017 and 2016. The Corporation also had aggregate time deposits of $17.0 billion and $18.3 billion in denominations that met or exceeded the Federal Deposit Insurance Corporation (FDIC) insurance limit at December 31, 2017 and 2016.
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Time Deposits of $100 Thousand or More | | | | | | | | | |
| | | | | | | | | | |
| | 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, 20172022 are presented in the table below.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Contractual Maturities of Total Time Deposits | | | | | |
| | | | | |
| (Dollars in millions) | U.S. | | Non-U.S. | | Total |
| | | | | |
| Due in 2023 | $ | 36,114 | | | $ | 7,393 | | | $ | 43,507 | |
| Due in 2024 | 3,576 | | | 67 | | | 3,643 | |
| Due in 2025 | 643 | | | 6 | | | 649 | |
| Due in 2026 | 149 | | | 23 | | | 172 | |
| Due in 2027 | 116 | | | 1,472 | | | 1,588 | |
| Thereafter | 238 | | | 8 | | | 246 | |
| Total time deposits | $ | 40,836 | | | $ | 8,969 | | | $ | 49,805 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
At December 31, 2022 and 2021, the Corporation had aggregate U.S. time deposits of $12.8 billion and $9.4 billion and non-U.S. time deposits of $9.0 billion and $10.6 billion in denominations that met or exceeded insurance limits.
|
| | | | | | | | | | | |
| | | | | | |
| 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, Collateral and Restricted Cash
The table below presents federal funds sold or purchased,Corporation enters into securities financing agreements which include securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase,repurchase. These financing agreements (also referred to as “matched-book transactions”) are to accommodate customers, obtain securities to cover short positions and short-term borrowings.finance inventory positions. 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 |
| (Dollars in millions) | 2017 | | 2016 |
| Federal funds sold and securities borrowed or purchased under agreements to resell | | | | | | | |
| Average during year | $ | 222,818 |
| | 1.07 | % | | $ | 216,161 |
| | 0.52 | % |
| Maximum month-end balance during year | 237,064 |
| | n/a |
| | 225,015 |
| | n/a |
|
| Federal funds purchased and securities loaned or sold under agreements to repurchase | | | | | | | |
| Average during year | $ | 199,501 |
| | 1.30 | % | | $ | 183,818 |
| | 0.97 | % |
| Maximum month-end balance during year | 218,017 |
| | n/a |
| | 196,631 |
| | n/a |
|
| Short-term borrowings | | | | | | | |
| Average during year | 37,337 |
| | 2.48 | % | | 29,440 |
| | 1.95 | % |
| Maximum month-end balance during year | 46,202 |
| | n/a |
| | 33,051 |
| | n/a |
|
n/a = not applicable
Bank of America, N.A. maintains a global program to offer up to a maximum of $75 billion outstanding at any one time, of bank notes with fixed or floating rates and maturities of at least seven days from the date of issue. Short-term bank notes outstanding under this program totaled $14.2 billion and $9.3 billion at December 31, 2017 and 2016. These short-term bank notes, along with FHLB advances, U.S. Treasury tax and loan notes, and term federal funds purchased, are included in short-term borrowings on the Consolidated Balance Sheet.
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, 20172022 and 2016.2021. 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.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, 2022 |
Securities borrowed or purchased under agreements to resell (3) | $ | 597,847 | | | $ | (330,273) | | | $ | 267,574 | | | $ | (240,120) | | | $ | 27,454 | |
| | | | | | | | | |
| Securities loaned or sold under agreements to repurchase | $ | 525,908 | | | $ | (330,273) | | | $ | 195,635 | | | $ | (183,265) | | | $ | 12,370 | |
Other (4) | 8,427 | | | — | | | 8,427 | | | (8,427) | | | — | |
| Total | $ | 534,335 | | | $ | (330,273) | | | $ | 204,062 | | | $ | (191,692) | | | $ | 12,370 | |
| | | | | | | | | |
| December 31, 2021 |
Securities borrowed or purchased under agreements to resell (3) | $ | 527,054 | | | $ | (276,334) | | | $ | 250,720 | | | $ | (229,525) | | | $ | 21,195 | |
| | | | | | | | | |
| Securities loaned or sold under agreements to repurchase | $ | 468,663 | | | $ | (276,334) | | | $ | 192,329 | | | $ | (181,860) | | | $ | 10,469 | |
Other (4) | 11,391 | | | — | | | 11,391 | | | (11,391) | | | — | |
| Total | $ | 480,054 | | | $ | (276,334) | | | $ | 203,720 | | | $ | (193,251) | | | $ | 10,469 | |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| 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)(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 $8.7 billion and $20.1 billion reported in loans and leases on the Consolidated Balance Sheet at December 31, 2022 and 2021. (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. | 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. |
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
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, 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 2017148130 |
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| 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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| 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, 2022 |
| Securities sold under agreements to repurchase | $ | 200,087 | | | $ | 181,632 | | | $ | 41,666 | | | $ | 30,107 | | | $ | 453,492 | |
| Securities loaned | 66,909 | | | 288 | | | 1,139 | | | 4,080 | | | 72,416 | |
| Other | 8,427 | | | — | | | — | | | — | | | 8,427 | |
| Total | $ | 275,423 | | | $ | 181,920 | | | $ | 42,805 | | | $ | 34,187 | | | $ | 534,335 | |
| | | | | | | | | |
| December 31, 2021 |
| Securities sold under agreements to repurchase | $ | 148,023 | | | $ | 194,964 | | | $ | 36,939 | | | $ | 36,501 | | | $ | 416,427 | |
| Securities loaned | 46,231 | | | 466 | | | 1,428 | | | 4,111 | | | 52,236 | |
| Other | 11,391 | | | — | | | — | | | — | | | 11,391 | |
| Total | $ | 205,645 | | | $ | 195,430 | | | $ | 38,367 | | | $ | 40,612 | | | $ | 480,054 | |
(1)No agreements have maturities greater than four years.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Class of Collateral Pledged |
| | | | | | | |
| |
| Securities Sold Under Agreements to Repurchase | | Securities
Loaned | | Other | | Total |
| (Dollars in millions) | December 31, 2022 |
| U.S. government and agency securities | $ | 193,005 | | | $ | 18 | | | $ | — | | | $ | 193,023 | |
| Corporate securities, trading loans and other | 14,345 | | | 2,896 | | | 317 | | | 17,558 | |
| Equity securities | 10,249 | | | 69,432 | | | 8,110 | | | 87,791 | |
| Non-U.S. sovereign debt | 232,171 | | | 70 | | | — | | | 232,241 | |
| Mortgage trading loans and ABS | 3,722 | | | — | | | — | | | 3,722 | |
| Total | $ | 453,492 | | | $ | 72,416 | | | $ | 8,427 | | | $ | 534,335 | |
| | | | | | | |
| December 31, 2021 |
| U.S. government and agency securities | $ | 201,546 | | | $ | 27 | | | $ | — | | | $ | 201,573 | |
| Corporate securities, trading loans and other | 12,838 | | | 3,440 | | | 1,148 | | | 17,426 | |
| Equity securities | 19,907 | | | 48,650 | | | 10,192 | | | 78,749 | |
| Non-U.S. sovereign debt | 178,019 | | | 119 | | | 51 | | | 178,189 | |
| Mortgage trading loans and ABS | 4,117 | | | — | | | — | | | 4,117 | |
| Total | $ | 416,427 | | | $ | 52,236 | | | $ | 11,391 | | | $ | 480,054 | |
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.
Short-term Bank Notes
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 $6.2 billion and $1.8 billion at December 31, 2022 and 2021. 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.
Collateral
The Corporation accepts securities and loans as collateral that it is permitted by contract or practice to sell or repledge. At December 31, 2022 and 2021, the fair value of this collateral was $827.6 billion and $854.8 billion, of which $764.1 billion and $782.7 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.
|
| | | | | | | |
149131Bank of America 2017
| | |
NOTE 11Long-term DebtIn 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. For more information on the collateral of derivatives, see Note 3 – Derivatives.
Restricted Cash
At December 31, 2022 and 2021, the Corporation held restricted cash included within cash and cash equivalents on the Consolidated Balance Sheet of $7.6 billion and $5.9 billion, predominantly related to cash segregated in compliance with securities regulations and cash held on deposit with central banks to meet reserve requirements.
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, 20172022 and 2016,2021, and the related contractual rates and maturity dates as of December 31, 2017.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Weighted-average Rate | | | | | | | December 31 |
| (Dollars in millions) | | Interest Rates | | Maturity Dates | | 2022 | | 2021 |
Notes issued by Bank of America Corporation (1) | | | | | | | | | | | |
| Senior notes: | | | | | | | | | | | |
| Fixed | 3.03 | % | | 0.25 - 8.05 | % | | 2023 - 2052 | | $ | 188,429 | | | $ | 194,191 | |
| Floating | 4.2 | | | 0.74 - 9.16 | | | 2023 - 2044 | | 17,469 | | | 18,753 | |
| Senior structured notes | | | | | | | | | 11,608 | | | 15,086 | |
| Subordinated notes: | | | | | | | | | | | |
| Fixed | 4.88 | | | 2.94 - 8.57 | | | 2024 - 2045 | | 21,098 | | | 22,311 | |
| Floating | 3.45 | | | 2.48 - 5.53 | | | 2026 - 2037 | | 4,544 | | | 2,371 | |
| Junior subordinated notes: | | | | | | | | | | | |
| Fixed | 6.71 | | | 6.45 - 8.05 | | | 2027 - 2066 | | 743 | | | 741 | |
| Floating | 5.56 | | | 5.56 | | | 2056 | | 1 | | | 1 | |
| Total notes issued by Bank of America Corporation | | | | | | | | | 243,892 | | | 253,454 | |
| Notes issued by Bank of America, N.A. | | | | | | | | | | | |
| Senior notes: | | | | | | | | | | | |
| Fixed | | | | | | | | | — | | | 501 | |
| Floating | 5.05 | | | 5.05 | | | 2024 | | 2,600 | | | 3,173 | |
| Subordinated notes | 6.00 | | | 6.00 | | | 2036 | | 1,485 | | | 1,780 | |
| Advances from Federal Home Loan Banks: | | | | | | | | | | | |
| Fixed | 4.49 | | | 0.01 - 7.42 | | | 2023 - 2034 | | 681 | | | 290 | |
| | | | | | | | | | | |
Securitizations and other BANA VIEs (2) | | | | | | | | | 4,300 | | | 3,338 | |
| Other | | | | | | | | | 908 | | | 680 | |
| Total notes issued by Bank of America, N.A. | | | | | | | | | 9,974 | | | 9,762 | |
| Other debt | | | | | | | | | | | |
Structured liabilities (3) | | | | | | | | | 21,835 | | | 16,599 | |
Nonbank VIEs (2) | | | | | | | | | 281 | | | 249 | |
| Other | | | | | | | | | — | | | 53 | |
| Total notes issued by nonbank and other entities | | | | | | | | | 22,116 | | | 16,901 | |
| Total long-term debt | | | | | | | | | $ | 275,982 | | | $ | 280,117 | |
(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. Long-term debt of VIEs is collateralized by the assets of the VIEs. At December 31, 2022, amount includes debt predominantly from credit card securitization and other VIEs of $4.2 billion and $156 million. For more information, see Note 6 – Securitizations and Other Variable Interest Entities.
(3)Includes debt outstanding of $8.0 billion and $5.4 billion at December 31, 2022 and 2021 that 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.
During 2022, the Corporation issued $66.0 billion of long-term debt consisting of $44.2 billion of notes issued by Bank of America Corporation, $10.0 billion of notes issued by Bank of America, N.A. and $11.8 billion of other debt. During 2021, the Corporation issued $76.7 billion of long-term debt consisting of $56.2 billion of notes issued by Bank of America Corporation, $8.0 billion of notes issued by Bank of America, N.A. and $12.5 billion of other debt.
During 2022, the Corporation had total long-term debt maturities and redemptions in the aggregate of $33.3 billion consisting of $19.8 billion for Bank of America Corporation, $9.9 billion for Bank of America, N.A. and $3.6 billion of other debt. During 2021, the Corporation had total long-term debt maturities and redemptions in the aggregate of $46.4 billion consisting of $24.4 billion for Bank of America Corporation, $10.4 billion for Bank of America, N.A. and $11.6 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, 20172022 and 2016,2021, the amount of foreign currency-denominated debt translated into U.S. dollars included in total long-term debt was $51.8$46.7 billion and $44.7$53.1 billion. Foreign currency contracts may be used to convert certain foreign currency-denominated debt into U.S. dollars.
At December 31, 2017, long-term debt of consolidated VIEs in the table above included debt from credit card, home equity and all other VIEs of $8.6 billion, $76 million and $1.2 billion, respectively. Long-term debt of VIEs is collateralized by the assets of the VIEs. For more information, see Note 6 – Securitizations and Other Variable Interest Entities.
The weighted-average effective interest rates for total long-term debt (excluding senior structured notes), total fixed-rate debt and total floating-rate debt were 3.443.27 percent, 3.873.23 percent and 1.494.14 percent, respectively, at December 31, 2017,2022, and 3.802.83 percent, 4.363.08 percent and 1.520.75 percent, respectively, at December 31, 2016.2021. 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 billion at December 31, 2017 was issued by a 100 percent owned finance subsidiary of the parent company and is unconditionally guaranteed by the parent company.
The following table below shows the carrying value for aggregate annual contractual maturities of long-term debt as of December 31, 2017.2022. 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) | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | | Total |
| Bank of America Corporation | | | | | | | | | | | | | |
| Senior notes | $ | 8,029 | | | $ | 22,570 | | | $ | 24,730 | | | $ | 23,972 | | | $ | 16,055 | | | $ | 110,542 | | | $ | 205,898 | |
| Senior structured notes | 767 | | | 456 | | | 558 | | | 946 | | | 641 | | | 8,240 | | | 11,608 | |
| Subordinated notes | — | | | 3,205 | | | 5,132 | | | 4,908 | | | 2,155 | | | 10,242 | | | 25,642 | |
| Junior subordinated notes | — | | | — | | | — | | | — | | | 188 | | | 556 | | | 744 | |
| Total Bank of America Corporation | 8,796 | | | 26,231 | | | 30,420 | | | 29,826 | | | 19,039 | | | 129,580 | | | 243,892 | |
| Bank of America, N.A. | | | | | | | | | | | | | |
| Senior notes | — | | | 2,600 | | | — | | | — | | | — | | | — | | | 2,600 | |
| Subordinated notes | — | | | — | | | — | | | — | | | — | | | 1,485 | | | 1,485 | |
| Advances from Federal Home Loan Banks | 600 | | | — | | | 15 | | | 9 | | | 4 | | | 53 | | | 681 | |
Securitizations and other Bank VIEs (1) | 1,000 | | | 1,000 | | | 2,248 | | | — | | | — | | | 52 | | | 4,300 | |
| Other | 642 | | | 89 | | | 71 | | | 45 | | | 63 | | | (2) | | | 908 | |
| Total Bank of America, N.A. | 2,242 | | | 3,689 | | | 2,334 | | | 54 | | | 67 | | | 1,588 | | | 9,974 | |
| Other debt | | | | | | | | | | | | | |
| Structured Liabilities | 5,253 | | | 2,426 | | | 2,482 | | | 1,474 | | | 2,001 | | | 8,199 | | | 21,835 | |
Nonbank VIEs (1) | — | | | — | | | — | | | — | | | — | | | 281 | | | 281 | |
| Other | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total other debt | 5,253 | | | 2,426 | | | 2,482 | | | 1,474 | | | 2,001 | | | 8,480 | | | 22,116 | |
| Total long-term debt | $ | 16,291 | | | $ | 32,346 | | | $ | 35,236 | | | $ | 31,354 | | | $ | 21,107 | | | $ | 139,648 | | | $ | 275,982 | |
(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$10.4 billion and $12.1$10.7 billion at December 31, 20172022 and 2016. At2021. The carrying value of the Corporation’s credit extension commitments at December 31, 2017, the carrying value of
these commitments,2022 and 2021, excluding commitments accounted for under
the fair value option, was $793 million, including deferred revenue of $16 million$1.6 billion and a$1.5 billion, which predominantly 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 following table includes the notional amount of commitments of $3.0 billion and $4.8 billion at December 31, 2022 and 2021 that are accounted for under the fair value option. However, the table excludes the cumulative net fair value for these commitments of $110 million and $97 million at December 31, 2022 and 2021, 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, 2022 |
| Notional amount of credit extension commitments | | | | | | | | | |
Loan commitments (1) | $ | 113,962 | | | $ | 162,890 | | | $ | 221,374 | | | $ | 13,667 | | | $ | 511,893 | |
| Home equity lines of credit | 1,479 | | | 7,230 | | | 11,578 | | | 22,154 | | | 42,441 | |
Standby letters of credit and financial guarantees (2) | 22,565 | | | 9,237 | | | 2,787 | | | 628 | | | 35,217 | |
| Letters of credit | 853 | | | 46 | | | 52 | | | 49 | | | 1,000 | |
Other commitments (3) | 5 | | | 93 | | | 71 | | | 1,103 | | | 1,272 | |
| Legally binding commitments | 138,864 | | | 179,496 | | | 235,862 | | | 37,601 | | | 591,823 | |
Credit card lines (4) | 419,144 | | | — | | | — | | | — | | | 419,144 | |
| Total credit extension commitments | $ | 558,008 | | | $ | 179,496 | | | $ | 235,862 | | | $ | 37,601 | | | $ | 1,010,967 | |
| | | | | | | | | |
| | December 31, 2021 |
| Notional amount of credit extension commitments | | | | | | | | | |
Loan commitments (1) | $ | 102,464 | | | $ | 190,687 | | | $ | 174,978 | | | $ | 26,635 | | | $ | 494,764 | |
| Home equity lines of credit | 890 | | | 5,097 | | | 10,268 | | | 24,276 | | | 40,531 | |
Standby letters of credit and financial guarantees (2) | 22,359 | | | 10,742 | | | 2,017 | | | 422 | | | 35,540 | |
| Letters of credit | 1,145 | | | 124 | | | 56 | | | 98 | | | 1,423 | |
Other commitments (3) | 18 | | | 59 | | | 81 | | | 1,233 | | | 1,391 | |
| Legally binding commitments | 126,876 | | | 206,709 | | | 187,400 | | | 52,664 | | | 573,649 | |
Credit card lines (4) | 406,169 | | | — | | | — | | | — | | | 406,169 | |
| Total credit extension commitments | $ | 533,045 | | | $ | 206,709 | | | $ | 187,400 | | | $ | 52,664 | | | $ | 979,818 | |
(1) At December 31, 2022 and 2021, $2.6 billion and $4.6 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 $25.1 billion and $9.5 billion at December 31, 2022, and $26.3 billion and $8.7 billion at December 31, 2021. Amounts in the table include consumer SBLCs of $575 million and $512 million at December 31, 2022 and 2021.
(3) Primarily includes second-loss positions on lease-end residual value guarantees.
(4) Includes business card unused lines of credit.
Other Commitments
At December 31, 20172022 and 2016,2021, the Corporation had commitments to purchase loans (e.g., residential mortgage and commercial real estate) of $344$636 million and $767 million, and commitments to purchase commercial loans of $994 million and $636$181 million, which upon settlement will be included in trading account assets, loans or LHFS.LHFS, and commitments to purchase commercial loans of $294 million and $518 million, which upon settlement will be included in trading account assets.
At December 31, 20172022 and 2016,2021, the Corporation had commitments to purchase commodities, primarily liquefied natural gas, of $1.5 billion$0 and $1.9 billion,$949 million, which upon settlement will be included in trading account assets.
At both December 31, 20172022 and 2016,2021, the Corporation had commitments to enter into resale and forward-dated resale and securities borrowing agreements of $56.8 billion and $48.9$92.0 billion, and commitments to enter into forward-dated repurchase and securities lending agreements of $34.3$57.8 billion and $24.4 billion.$32.6 billion as of both period ends. 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, 20172022 and 2016, the Corporation’s maximum purchase commitment was $345 million and $475 million. In addition,2021, the Corporation hashad a commitment to originate or purchase up to $3.7 billion and $4.0 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 20222026 and can be terminated with 12 months prior notice.
TheAt December 31, 2022 and 2021, the Corporation is a party to operating leases for certainhad unfunded equity investment commitments of its premises$571 million and equipment. Commitments under these leases are approximately $2.3 billion, $2.1 billion, $1.9 billion, $1.7 billion$395 million.
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, 20172022 and 2016,2021, the notional amount of these guarantees which is recorded as derivatives totaled $10.4 $4.3
billion and $13.9$6.3 billion. At December 31, 20172022 and 2016,2021, the Corporation’s maximum exposure related to these guarantees totaled $1.6 billion$632 million and $3.2 billion,$928 million, 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, theThe Corporation sponsorsin its role as merchant processing servicers that process credit and debit card transactions on behalfacquirer or as a sponsor of various merchants. In connection with these services, a liabilityother merchant acquirers 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 any reversed charges that cannot be collected from the disputed amount. In 2017merchants, due to, among other things, merchant fraud or insolvency. If charges are properly reversed after a purchase and 2016,cannot be collected from either the sponsored entities processedmerchants 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
payment network rules and settled $812.2 billionregulations, which include, but are not limited to, the type of charge, type of payment used and $731.4 billiontime limits. The total amount of transactions subject to reversal under payment network rules and recorded losses of $28 million and $33 million. A significant portion of this activityregulations processed for the preceding six-month period, which was processed by a joint venture in which the Corporation holds a 49 percent ownership, whichapproximately $501 billion, is recorded in other assets on the Consolidated Balance Sheet and in All Other. At both December 31, 2017 and 2016, the carrying valuean estimate of the Corporation’s investment in the merchant services joint venture was $2.9 billion.
Asmaximum potential exposure as of December 31, 20172022. 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 maximum potential exposure for sponsored transactions totaled $346.4 billion and $325.7 billion. However,losses incurred related to the Corporation believes that the maximum potential exposure ismerchant processing activity were not representative of the actual potential loss exposure and does not expect to make material payments in connection with these guarantees.significant.
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.
Other GuaranteesFixed Income Clearing Corporation Sponsored Member Repo Program
The Corporation has entered into additionalacts 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 agreementsobligation is secured by a security interest in cash or high-quality securities collateral placed by clients with the clearinghouse 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.therefore, the potential for the Corporation to incur significant losses under this arrangement is remote. The Corporation’s maximum potential future payment under these agreementsexposure, without taking into consideration the related collateral, was approximately $5.9$59.6 billion and $6.7$42.0 billion at December 31, 20172022 and 2016. The estimated maturity dates of these obligations extend up to 2040. The Corporation has made no material payments under these guarantees.2021.
Other Guarantees
In the normal course of business, the Corporation periodically guarantees the obligations of its affiliates in a variety of transactions including ISDA-related transactions and non-ISDA related transactions such as commodities trading, repurchase agreements, prime brokerage agreements and other transactions.
Payment Protection Insurance Claims 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, 2022 and 2021 was $5.5 billion and $8.4 billion. These balances included $2.2 billion and $2.8 billion at December 31, 2022 and 2021 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 2022, the Corporation received $82 million in new repurchase claims that were not time-barred. During 2022, $3.0 billion in claims were resolved.
Reserve and Related Provision
The reserve for representations and warranties obligations and corporate guarantees was $612 million and $1.2 billion at December 31, 2022 and 2021 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 below, 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-relatedlitigation and regulatory investigation-related expense of $753$1.2 billion and $164 million was recognized for 2017 compared to $1.2 billion for 2016.in 2022 and 2021.
For a limited number of the mattersany matter 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$0.8 billion in excess of the accrued liability, (if any) related to those matters. Thisif any, as of December 31, 2022.
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 hereinbelow, 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 thesethose matters, some of which are beyond the Corporation’s control, and the very large or indeterminate damages sought in some of thesethose matters, an adverse outcome in one or more of thesethose matters could be
material to the Corporation’s business or results of operations or liquidity for any particular reporting period.
Ambac Bond Insurance Litigation
Ambac Assurance Corporation and the Segregated Account of Ambac Assurance Corporation (together, Ambac) have filed five separate lawsuits against the Corporation and its subsidiaries relating to bond insurance policies Ambac provided on certain securitized pools of HELOCs, first-lien subprime home equity loans, fixed-rate second-lien mortgage loans and negative amortization pay option adjustable-rate mortgage loans. Ambac alleges that they have paidperiod, or will pay claims as a result of defaults in the underlying loans and assert that the defendants misrepresented the characteristics of the underlying loans and/or breached certain contractual 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.cause significant reputational harm.
Ambac v. Countrywide I
The Corporation, Countrywide and other Countrywide entities are named as defendants in an action filed on September 29, 2010 in New York Supreme Court. Ambac asserts claims for fraudulent inducement as well as breach of contract and seeks damages in excess of $2.2 billion, plus unspecified punitive damages.
On May 16, 2017, the First Department issued its decision on the parties’ cross-appeals of the trial court’s October 22, 2015 summary judgment rulings. Among other things, the First Department reversed on the applicability of New York insurance law to Ambac’s common-law fraud claim, ruling that Ambac must prove all of the elements of its fraudulent inducement claim, including justifiable reliance and loss causation; reversed as to Ambac’s remedy for its breach of contract claims, finding that Ambac’s sole remedy is the repurchase protocol of cure, repurchases or substitution of any materially defective loan; affirmed the trial court’s ruling that Ambac’s compensatory damages claim was an impermissible request for rescissory damages; reversed the dismissal of Ambac’s claim for reimbursement of claims payments, but affirmed the dismissal of Ambac’s claim for reimbursements of attorneys’ fees; and reversed as to the meaning of specific representations and warranties, ruling that disputed issues of fact precluded summary judgment. On July 25, 2017, the First Department granted Ambac’s motion for leave to appeal to the Court of Appeals. That appeal is pending.
Ambac v. Countrywide II
On December 30, 2014, Ambac filed a complaint in New York Supreme Court against the same defendants, claiming fraudulent inducement against Countrywide, and successor and vicarious liability against the Corporation. Ambac claims damages in excess of $600 million plus punitive damages. On December 19, 2016, the Court granted in part and denied in part Countrywide’s motion to dismiss the complaint.
Ambac v. Countrywide III
On December 30, 2014, Ambac filed an action in Wisconsin state court against Countrywide. The complaint seeks damages in excess of $350 million plus punitive damages. Countrywide has challenged the Wisconsin courts’ jurisdiction over it. Following a ruling by the lower court that jurisdiction did not exist, the Wisconsin Court of Appeals reversed. On June 30, 2017, the Wisconsin Supreme Court reversed the decision of the Wisconsin Court of Appeals and held that Countrywide did not consent to the jurisdiction of the Wisconsin courts and remanded the case to the Court of Appeals for further consideration of whether specific jurisdiction exists. On December 14, 2017, the Wisconsin Court of Appeals ruled that specific jurisdiction over Countrywide does not exist for this matter. On January 16, 2018, Ambac asked the Wisconsin Supreme Court to review the decision of the Court of Appeals.
Ambac v. Countrywide IV
On July 21, 2015, Ambac filed an action in New York Supreme Court against Countrywide asserting the same claims for fraudulent inducement that Ambac asserted in Ambac v. Countrywide III. Ambac simultaneously moved to stay the action pending resolution of its appeal in Ambac v. Countrywide III. Countrywide moved to dismiss the complaint. On September 20, 2016, the Court granted Ambac’s motion to stay the action pending resolution of Ambac v. Countrywide III.
Ambac v. First Franklin
On April 16, 2012, Ambac filed an action against BANA, First Franklin and various Merrill Lynch entities, including Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S) in New York Supreme Court relating to guaranty insurance Ambac provided on a First Franklin securitization sponsored by Merrill Lynch. The complaint alleges fraudulent inducement and breach of contract, including breach of contract claims against BANA based upon its servicing of the loans in the securitization. The complaint alleges that Ambac has paid hundreds of millions of dollars in claims and has accrued and continues to accrue tens of millions of dollars in additional claims. Ambac seeks as damages the total claims it has paid and its projected future claims payment obligations, as well as specific performance of defendants’ contractual repurchase obligations.
ATM Access Fee Litigation
On January 10, 2012, a putative consumer class action was filed in U.S. District Court for the District of Columbia against Visa, Inc., MasterCard, Inc. and several financial institutions, including the Corporation and BANA alleging that surcharges paid at financial institution ATMs are artificially inflated by Visa and MasterCard rules and regulations. The network rules are alleged to be the product of a conspiracy between Visa, MasterCard and financial institutions in violation of Section 1 of the Sherman Act. Plaintiffs seek compensatory and treble damages and injunctive relief.
On February 13, 2013, the District Court granted defendants’ motion to dismiss. On August 4, 2015, the U.S. Court of Appeals for the District of Columbia Circuit vacated the District Court’s decision and remanded the case to the District Court, where proceedings have resumed.
Deposit Insurance Assessment
On January 9, 2017, the FDICFederal Deposit Insurance Corporation (FDIC) filed suit against BANA in the U.S. District Court for the District of Columbia (“District Court”) 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 the U.S. District Court for the Eastern District of New York under the caption In re Payment Card Interchange Fee and Merchant Discount Anti-Trust Litigation (Interchange), named Visa, MasterCard and several banks and bank holding companies, including the Corporation, as defendants. Plaintiffs allege that defendants conspired to fix the level of default interchange rates and that certain rules of Visa and MasterCard were unreasonable restraints of trade. Plaintiffs sought compensatory and treble damages and injunctive relief.
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. AlthoughMarch 27, 2018, the District Court approveddenied BANA’s partial motion to dismiss certain of the class settlement agreement,FDIC’s claims. On January 24, 2023, the U.S. Court of Appeals formagistrate judge assigned to the Second Circuit reversed the decision on appeal. The Interchange class case was remanded tomatter by the District Court where proceedings have resumed.judge held oral argument on the parties’ motions for summary judgment and took the motions under advisement.
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, to make inquiries of, and to pursue proceedings against, a significant number of FX market participants, including the Corporation, regarding FX market participants’ conduct and systems and controls. Government authorities also continue to conduct investigations concerning conduct and systems and controls of panel banks in connection with the setting of other reference rates as well as the trading of government, sovereign, supranational and agency bonds. The Corporation is responding to and cooperating with these proceedings and investigations.
In addition, the Corporation, BANA and certain Merrill Lynch entities have been named as defendants along with most of the other LIBOR panel banks in a number of individual and putative class actions by persons alleging they sustained losses on U.S. dollar LIBOR-based financial instruments as a result of collusion or manipulation by defendants regarding the setting of U.S. dollar LIBOR. Plaintiffs assert a variety of claims, including antitrust, Commodity Exchange Act, (CEA), Racketeer Influenced and Corrupt Organizations (RICO), Securities Exchange Act of 1934, (Exchange Act), common law fraud and breach of contract claims, and seek compensatory, treble and punitive damages, and injunctive relief. All but one of the cases naming the Corporation and its affiliates relating to U.S. dollar LIBOR have been consolidated for pre-trial purposes in the U.S. District Court for the Southern District of New York.
In a series of rulings beginning in March 2013, the District Court dismissed antitrust, RICO, Exchange Act and certain state law claims, dismissed all manipulation claims based on alleged trader conduct as to the Corporation and BANA, and substantially limited the scope of CEA and various other claims. On May 23, 2016, the U.S. Court of Appeals for the Second Circuit reversed the District Court’s dismissal of the antitrust claims and remanded for further proceedings in the District Court, and on December 20, 2016, the District Court again dismissed certain plaintiffs’ antitrust claims in their entirety and substantially limited the scope of the remaining antitrust claims.
Certain antitrust, CEA and state law claims remainare pending in the District Court against the Corporation, BANA and certain Merrill Lynch entities, and the Court is continuing to consider motions regarding them. Plaintiffs whose antitrust, Exchange Act and/or state law claims were previously dismissed by the District Court are pursuing appeals in the Second Circuit.
In addition, the Corporation, BANA and MLPF&S were named as defendants along with other FX market participants in a putative class action filed in the U.S. District Court for the Southern District of New York (“District Court”). The District Court has dismissed all RICO claims, and dismissed all manipulation claims against Bank of America entities based on alleged trader conduct. The District Court has also substantially limited the scope of antitrust, Commodity Exchange Act and various other claims, including by dismissing 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 transactionstheir entirety certain individual and FX transactions on an exchange. Plaintiffs assertputative class plaintiffs’ antitrust claims andfor lack of standing. On December 30, 2021, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal of these antitrust claims for violationslack of the CEAstanding. Certain individual and seek compensatory and treble damages, as well as declaratory and injunctive relief. On October 1, 2015,putative class actions remain pending against the Corporation, BANA and MLPF&S executed a final settlement agreement, in which they agreed to pay $187.5 million to settlecertain Merrill Lynch entities. On February 28, 2018, the litigation. The settlement is subject to final District Court approval.
Mortgage-backed Securities Litigation
The Corporationgranted certification of a class of persons that purchased OTC swaps 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 claimsnotes that referenced U.S. dollar LIBOR from underwriters of MBS that were issued by these entities, and from underwriters and issuers of MBS backed by loans originated by these entities.
Mortgage Repurchase Litigation
U.S. Bank - Harborview Repurchase Litigation
On August 29, 2011, U.S. Bank, National Association (U.S. Bank), as trustee for the HarborView Mortgage Loan Trust 2005-10 (the Trust), a mortgage pool backed by loans originated by Countrywide Home Loans, Inc. (CHL), filed a complaint in New York Supreme Court, 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 finalizationone of the settlement discussed below.
On December 5, 2016, the defendants and certain certificate-holders in the Trust agreedU.S. dollar LIBOR panel banks, limited to settle the litigation in an amount not material to the Corporation, subject to acceptance by U.S. Bank. U.S. Bank has initiated a trust instruction proceeding in Minnesota state court relating to the proposed settlement, and that proceeding is ongoing.
U.S. Bank - SURF/OWNIT Repurchase Litigation
On August 29, 2014 and September 2, 2014, U.S. Bank, solely in its capacity as Trustee for seven securitization trusts (the Trusts), served seven summonses with notice commencing actions against First Franklin Financial Corporation, Merrill Lynch Mortgage Lending, Inc., Merrill Lynch Mortgage Investors, Inc. (MLMI) and Ownit Mortgage Solutions Inc. in New York Supreme Court. The summonses advance breach of contract claims alleging that defendants breached representations and warranties related to loans securitized in the Trusts. The summonses allege that defendants failed to repurchase breaching mortgage loans from the Trusts, and seek specific performance of defendants’ alleged obligation to repurchase breaching loans, declaratory judgment, compensatory, rescissory and other damages, and indemnity.
On February 25, 2015 and March 11, 2015, U.S. Bank served complaints regarding fourunder Section 1 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.
Sherman Act.
NOTE 13 Shareholders’ Equity
NOTE 13 Shareholders’ Equity
Common Stock
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Declared Quarterly Cash Dividends on Common Stock (1) |
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| Declaration Date | | Record Date | | Payment Date | | Dividend Per Share |
| January 31, 2018 | | March 2, 2018 | | March 30, 2018 | | $ | 0.12 |
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| October 25, 2017 | | December 1, 2017 | | December 29, 2017 | | 0.12 |
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| July 26, 2017 | | September 1, 2017 | | September 29, 2017 | | 0.12 |
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| April 26, 2017 | | June 2, 2017 | | June 30, 2017 | | 0.075 |
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| January 26, 2017 | | March 3, 2017 | | March 31, 2017 | | 0.075 |
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Declared Quarterly Cash Dividends on Common Stock (1) | In 2017 and through February 22, 2018.
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| Declaration Date | | Record Date | | Payment Date | | Dividend Per Share |
| February 1, 2023 | | March 3, 2023 | | March 31, 2023 | | $ | 0.22 | |
| October 19, 2022 | | December 2, 2022 | | December 30, 2022 | | 0.22 | |
| July 20, 2022 | | September 2, 2022 | | September 30, 2022 | | 0.22 | |
| April 27, 2022 | | June 3, 2022 | | June 24, 2022 | | 0.21 | |
| February 2, 2022 | | March 4, 2022 | | March 25, 2022 | | 0.21 | |
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(1) In 2022, and through February 22, 2023.The followingcash dividends paid per share of common stock were $0.86 $0.78 and $0.72 for 2022, 2021 and 2020, respectively.
The table below summarizes common stock repurchases during 2017, 20162022, 2021 and 2015.2020.
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| Common Stock Repurchase Summary |
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| (in millions) | | 2022 | | 2021 | | 2020 |
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| Total share repurchases, including CCAR capital plan repurchases | | 126 | | | 615 | | | 227 | |
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Purchase price of shares repurchased and retired (1) | | $ | 5,073 | | | $ | 25,126 | | | $ | 7,025 | |
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| Common Stock Repurchase Summary |
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| (in millions) | 2017 | 2016 | 2015 |
| Total share repurchases, including CCAR capital plan repurchases | 509 |
| 333 |
| 140 |
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Purchase price of shares repurchased and retired (1) | | | |
| CCAR capital plan repurchases | $ | 9,347 |
| $ | 4,312 |
| $ | 2,374 |
|
| Other authorized repurchases | 3,467 |
| 800 |
| — |
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| Total shares repurchased | $ | 12,814 |
| $ | 5,112 |
| $ | 2,374 |
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(1)
| Represents reductions to shareholders’ equity due to common stock repurchases. |
On June 28, 2017, following the Federal Reserve’s non-objection to the Corporation’s 2017 Comprehensive Capital Analysis and Review (CCAR) capital plan, the Board(1) Consists of Directors (Board) authorized the repurchase of $12.0 billion of common stock from July 1, 2017 through June 30, 2018, plus repurchases expected to be approximately $900 million to offset the effect of equity-based compensation plans during the same period. The common stock repurchase authorization includes both common stock and warrants. The Corporation’s 2017 capital plan also included a request to increase the quarterly common stock dividend from $0.075 per share to $0.12 per share. On December 5, 2017, following approval by the Federal Reserve, the Board authorized the repurchase of an additional $5.0 billion of common stock through June 30, 2018.
In 2017, the Corporation repurchased $12.8 billion of common stock in connection with the 2017 and 2016 CCAR capital plans and pursuant to other repurchases approved by the Board and the Federal Reserve. Other authorized repurchases included $1.8 billion of common stock pursuant to the Corporation’s plan announced on January 13, 2017 and $1.7 billion under the authorization announced on December 5, 2017.CCAR capital plans.
At December 31, 2017,During 2022, in connection with employee stock plans, the Corporation had warrants outstanding and exercisable to purchase 122issued 73 million shares of its common stock expiring on Octoberand, to satisfy tax withholding obligations, repurchased 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 and repurchased approximately 27 million shares of its common stock to satisfy tax withholding obligations.stock.At December 31, 2017,2022, the Corporation had reserved 869491 million unissued shares of common stock for future issuances under employee stock plans, common stock warrants, convertible notes and preferred stock.
Preferred Stock
The cash dividends declared on preferred stock were $1.6 billion $1.7in 2022 and $1.4 billion in both 2021 and $1.52020.
On January 25, 2022, the Corporation issued 70,000 shares of 4.375% Fixed-Rate Reset Non-Cumulative Preferred Stock, Series RR for $1.8 billion, for 2017, 2016 and 2015, respectively.with quarterly dividends commencing in April 2022. The following table presents a summary of perpetualSeries RR preferred stock outstanding at Decemberhas 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 31, 2017.2022 the Corporation issued 28,000 shares of 4.750% Non-Cumulative Preferred Stock, Series SS for $700 million, with quarterly dividends commencing in May 2022. The Series SS 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 April 22, 2022, the Corporation issued 80,000 shares of 6.125% Fixed-Rate Reset Non-Cumulative Preferred Stock, Series TT for $2.0 billion, with quarterly dividends commencing in July 2022. The Series TT 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.
Through a cash tender offer announced and completed in the fourth quarter of 2022, the Corporation partially repurchased Series E, Series FF, Series HH, Series JJ, Series KK, Series LL, Series MM, Series NN, Series PP, Series QQ, Series RR, Series SS, Series 1 and Series 5 preferred stock with a total carrying value of $737 million for $654 million in cash, with $83 million recognized in additional paid-in capital as a preferred stock benefit.
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 TG Preferred Stock, if any dividend payable on these series is in arrears for three or more semi-annual or six or more quarterly dividend periods, as applicable (whether consecutive or not), the holders of these series and any other class or series of preferred stock ranking equally as to payment of dividends and upon which equivalent voting rights have been conferred and are exercisable (voting as a single class) will be entitled to vote for the election of two additional directors. These voting rights terminate when the Corporation has paid in full dividends on these series for at least two semi-annual or four quarterly dividend periods, as applicable, following the dividend arrearage.
The 7.25% Non-Cumulative Perpetual Convertible Preferred Stock, Series L (Series L Preferred Stock) does not have early redemption/call rights. Each share of the Series L Preferred Stock may be converted at any time, at the option of the holder, into 20 shares of the Corporation’s common stock plus cash in lieu of fractional shares. The Corporation may cause some or all of the Series L Preferred Stock, at its option, at any time or from time to time, to be converted into shares of common stock at the then-applicable conversion rate if, for 20 trading days during any period of 30 consecutive trading days, the closing price of common stock exceeds 130 percent of the then-applicable conversion price of
the Series L Preferred Stock. If a conversion of Series L Preferred Stock occurs at the option of the holder, subsequent to a dividend
record date but prior to the dividend payment date, the Corporation will still pay any accrued dividends payable.
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| Preferred Stock Summary | | | | | | | | | | |
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| (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 |
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(1)137 Bank of America
| Amounts shown are before third-party issuance costs and certain book value adjustments of $299 million.
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The table below presents a summary of perpetual preferred stock outstanding at December 31, 2022.
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| Preferred Stock Summary | | | | | | | | | | | | | | |
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| (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)(1) | | Annual Dividend | | Redemption Period (2) |
| Series B | 7.000% Cumulative Redeemable | | June
1997 | | 7,076 | | | $ | 100 | | | $ | 1 | | | 7.00 | % | | $ | 7 | | | $ | — | | | n/a |
Series E (3) | Floating Rate Non-Cumulative | | November
2006 | | 12,317 | | | 25,000 | | | 308 | | | 3-mo. LIBOR + 35 bps (4) | | 1.01 | | | 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 (4) | | 4,055.56 | | | 6 | | | On or after
March 15, 2012 |
| Series G | Adjustable Rate Non-Cumulative | | March
2012 | | 4,925 | | | 100,000 | | | 492 | | | 3-mo. LIBOR + 40 bps (4) | | 4,055.56 | | | 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 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 | | 52.00 | | | 52 | | | On or after
June 1, 2023 |
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 | | 62.50 | | | 125 | | | On or after
September 5, 2024 |
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 | | 65.00 | | | 91 | | | 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 | | 61.00 | | | 116 | | | On or after
March 17, 2025 |
| | | | | | | | | | | | | | | | | |
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 | | 63.00 | | | 63 | | | On or after
March 10, 2026 |
| | | | | | | | | | | | | | | | | |
Series FF (5) | Fixed-to-Floating Rate Non-Cumulative | | March
2018 | | 90,834 | | | 25,000 | | | 2,271 | | | 5.875% to, but excluding, 3/15/28; 3-mo. LIBOR +293.1 bps thereafter | | 58.75 | | | 139 | | | On or after
March 15, 2028 |
Series GG (3) | 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 (3) | 5.875% Non-Cumulative | | July
2018 | | 34,049 | | | 25,000 | | | 851 | | | 5.875 | % | | 1.47 | | | 50 | | | On or after
July 24, 2023 |
Series JJ (5) | Fixed-to-Floating Rate Non-Cumulative | | June
2019 | | 34,171 | | | 25,000 | | | 854 | | | 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 (3) | 5.375% Non-Cumulative | | June
2019 | | 55,273 | | | 25,000 | | | 1,382 | | | 5.375 | % | | 1.34 | | | 75 | | | On or after
June 25, 2024 |
Series LL (3) | 5.000% Non-Cumulative | | September
2019 | | 52,045 | | | 25,000 | | | 1,301 | | | 5.000 | % | | 1.25 | | | 66 | | | On or after
September 17, 2024 |
Series MM (5) | Fixed-to-Floating Rate Non-Cumulative | | January
2020 | | 30,753 | | | 25,000 | | | 769 | | | 4.300 | % | | 43.00 | | | 46 | | | On or after
January 28, 2025 |
Series NN (3) | 4.375% Non-Cumulative | | October
2020 | | 42,993 | | | 25,000 | | | 1,075 | | | 4.375 | % | | 1.09 | | | 48 | | | On or after
November 3, 2025 |
Series PP (3) | 4.125% Non-Cumulative | | January 2021 | | 36,500 | | | 25,000 | | | 912 | | | 4.125 | % | | 1.03 | | | 38 | | | On or after
February 2, 2026 |
Series QQ (3) | 4.250% Non-Cumulative | | October 2021 | | 51,879 | | | 25,000 | | | 1,297 | | | 4.250 | % | | 1.12 | | | 58 | | | On or after
November 17, 2026 |
Series RR (6) | 4.375% Fixed-Rate Reset Non-Cumulative | | January 2022 | | 66,738 | | | 25,000 | | | 1,668 | | | 4.375% to, but excluding, 1/27/27; 5-yr U.S. Treasury Rate +276 bps thereafter | | 43.99 | | | 77 | | | On or after
January 27, 2027 |
Series SS (3) | 4.750% Non-Cumulative | | January 2022 | | 27,463 | | | 25,000 | | | 687 | | | 4.750 | % | | 0.95 | | | 27 | | | On or after
February 17, 2027 |
Series TT (6) | 6.125% Fixed-Rate Reset Non-Cumulative | | April 2022 | | 80,000 | | | 25,000 | | | 2,000 | | | 6.125% to, but excluding, 4/27/27; 5-yr U.S. Treasury Rate +323.1 bps thereafter | | 46.79 | | | 94 | | | On or after
April 27, 2027 |
Series 1 (7) | Floating Rate Non-Cumulative | | November
2004 | | 3,186 | | | 30,000 | | | 96 | | | 3-mo. LIBOR + 75 bps (8) | | 0.80 | | | 3 | | | 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) | | 0.80 | | | 10 | | | On or after
November 28, 2009 |
Series 4 (7) | Floating Rate Non-Cumulative | | November
2005 | | 7,010 | | | 30,000 | | | 210 | | | 3-mo. LIBOR + 75 bps (4) | | 1.01 | | | 9 | | | On or after
November 28, 2010 |
Series 5 (7) | Floating Rate Non-Cumulative | | March
2007 | | 13,331 | | | 30,000 | | | 400 | | | 3-mo. LIBOR + 50 bps (4) | | 1.01 | | | 17 | | | On or after
May 21, 2012 |
| Issuance costs and certain adjustments | | | | | | | | (347) | | | | | | | | | |
| Total | | | | | 4,088,101 | | | | | $ | 28,397 | | | | | | | | | |
(1)For all series of preferred stock other than Series B, Series F, Series G and Series L, “Dividend per Share” means the amount of dividends per depositary share of such series.
(2)The Corporation may redeem series of preferred stock on or after the redemption date, in whole or in part, at its option, at the liquidation preference plus declared and unpaid dividends. Series B and Series L Preferred Stock do not have early redemption/call rights.
(3)Ownership is held in the form of depositary shares, each representing a 1/1,000th interest in a share of preferred stock, paying a quarterly cash dividend, if and when declared.
(4)Subject to 4.00% minimum rate per annum.
(5)Ownership is held in the form of depositary shares, each representing a 1/25th interest in a share of preferred stock, paying a semi-annual cash dividend, if and when declared, until the first redemption date at which time, it adjusts to a quarterly cash dividend, if and when declared, thereafter.
(6)Ownership is held in the form of depositary shares, each representing a 1/25th interest in a share of preferred stock, paying a quarterly cash dividend, if and when declared.
(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.
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 2017138
| | |
NOTE 14Accumulated Other Comprehensive Income (Loss)
The table below presents the changes in accumulated OCI after-tax for 2015, 20162022, 2021 and2017. 2020.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| (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 | ) |
| Net change | (1,625 | ) | | 45 |
| | 615 |
| | 584 |
| | 394 |
| | (123 | ) | | (110 | ) |
| Balance, December 31, 2015 | $ | 16 |
| | $ | 62 |
| | $ | (611 | ) | | $ | (1,077 | ) | | $ | (2,956 | ) | | $ | (792 | ) | | $ | (5,358 | ) |
| Net change | (1,315 | ) | | (30 | ) | | (156 | ) | | 182 |
| | (524 | ) | | (87 | ) | | (1,930 | ) |
| Balance, December 31, 2016 | $ | (1,299 | ) | | $ | 32 |
| | $ | (767 | ) | | $ | (895 | ) | | $ | (3,480 | ) | | $ | (879 | ) | | $ | (7,288 | ) |
| Net change | 91 |
| | (30 | ) | | (293 | ) | | 64 |
| | 288 |
| | 86 |
| | 206 |
|
| Balance, December 31, 2017 | $ | (1,208 | ) | | $ | 2 |
| | $ | (1,060 | ) | | $ | (831 | ) | | $ | (3,192 | ) | | $ | (793 | ) | | $ | (7,082 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| (Dollars in millions) | Debt Securities | | Debit Valuation Adjustments | | Derivatives | | Employee Benefit Plans | | Foreign Currency | | Total |
| Balance, December 31, 2019 | $ | 323 | | | $ | (1,494) | | | $ | (400) | | | $ | (4,168) | | | $ | (894) | | | $ | (6,633) | |
| Net change | 4,799 | | | (498) | | | 826 | | | (98) | | | (52) | | | 4,977 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance, December 31, 2020 | $ | 5,122 | | | $ | (1,992) | | | $ | 426 | | | $ | (4,266) | | | $ | (946) | | | $ | (1,656) | |
| Net change | (2,077) | | | 356 | | | (2,306) | | | 624 | | | (45) | | | (3,448) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance, December 31, 2021 | $ | 3,045 | | | $ | (1,636) | | | $ | (1,880) | | | $ | (3,642) | | | $ | (991) | | | $ | (5,104) | |
| Net change | (6,028) | | | 755 | | | (10,055) | | | (667) | | | (57) | | | (16,052) | |
| Balance, December 31, 2022 | $ | (2,983) | | | $ | (881) | | | $ | (11,935) | | | $ | (4,309) | | | $ | (1,048) | | | $ | (21,156) | |
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, 20162022, 2021 and 2015.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Pretax | | Tax
effect | | After-
tax | | Pretax | | Tax
effect | | After-
tax | | Pretax | | Tax effect | | After-
tax |
| | | | | | | |
| (Dollars in millions) | 2022 | | 2021 | | 2020 |
| Debt securities: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net increase (decrease) in fair value | $ | (7,995) | | | $ | 1,991 | | | $ | (6,004) | | | $ | (2,749) | | | $ | 689 | | | $ | (2,060) | | | $ | 6,819 | | | $ | (1,712) | | | $ | 5,107 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net realized (gains) losses reclassified into earnings (1) | (32) | | | 8 | | | (24) | | | (22) | | | 5 | | | (17) | | | (411) | | | 103 | | | (308) | |
| Net change | (8,027) | | | 1,999 | | | (6,028) | | | (2,771) | | | 694 | | | (2,077) | | | 6,408 | | | (1,609) | | | 4,799 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Debit valuation adjustments: | | | | | | | | | | | | | | | | | |
| Net increase (decrease) in fair value | 980 | | | (237) | | | 743 | | | 449 | | | (103) | | | 346 | | | (669) | | | 156 | | | (513) | |
Net realized (gains) losses reclassified into earnings (1) | 16 | | | (4) | | | 12 | | | 13 | | | (3) | | | 10 | | | 19 | | | (4) | | | 15 | |
| | | | | | | | | | | | | | | | | |
| Net change | 996 | | | (241) | | | 755 | | | 462 | | | (106) | | | 356 | | | (650) | | | 152 | | | (498) | |
| Derivatives: | | | | | | | | | | | | | | | | | |
| Net increase (decrease) in fair value | (13,711) | | | 3,430 | | | (10,281) | | | (2,849) | | | 703 | | | (2,146) | | | 1,098 | | | (268) | | | 830 | |
| Reclassifications into earnings: | | | | | | | | | | | | | | | | | |
| Net interest income | 332 | | | (84) | | | 248 | | | (166) | | | 48 | | | (118) | | | 6 | | | (1) | | | 5 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Compensation and benefits expense | (29) | | | 7 | | | (22) | | | (55) | | | 13 | | | (42) | | | (12) | | | 3 | | | (9) | |
| Net realized (gains) losses reclassified into earnings | 303 | | | (77) | | | 226 | | | (221) | | | 61 | | | (160) | | | (6) | | | 2 | | | (4) | |
| | | | | | | | | | | | | | | | | |
| Net change | (13,408) | | | 3,353 | | | (10,055) | | | (3,070) | | | 764 | | | (2,306) | | | 1,092 | | | (266) | | | 826 | |
| Employee benefit plans: | | | | | | | | | | | | | | | | | |
| Net increase (decrease) in fair value | (1,103) | | | 276 | | | (827) | | | 463 | | | (72) | | | 391 | | | (381) | | | 80 | | | (301) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net actuarial losses and other reclassified into earnings (2) | 198 | | | (49) | | | 149 | | | 295 | | | (67) | | | 228 | | | 261 | | | (63) | | | 198 | |
| Settlements, curtailments and other | 11 | | | — | | | 11 | | | 5 | | | — | | | 5 | | | 5 | | | — | | | 5 | |
| Net change | (894) | | | 227 | | | (667) | | | 763 | | | (139) | | | 624 | | | (115) | | | 17 | | | (98) | |
| Foreign currency: | | | | | | | | | | | | | | | | | |
| Net increase (decrease) in fair value | 332 | | | (390) | | | (58) | | | 296 | | | (341) | | | (45) | | | (251) | | | 199 | | | (52) | |
Net realized (gains) losses reclassified into earnings (1) | — | | | 1 | | | 1 | | | (5) | | | 5 | | | — | | | (1) | | | 1 | | | — | |
| | | | | | | | | | | | | | | | | |
| Net change | 332 | | | (389) | | | (57) | | | 291 | | | (336) | | | (45) | | | (252) | | | 200 | | | (52) | |
| Total other comprehensive income (loss) | $ | (21,001) | | | $ | 4,949 | | | $ | (16,052) | | | $ | (4,325) | | | $ | 877 | | | $ | (3,448) | | | $ | 6,483 | | | $ | (1,506) | | | $ | 4,977 | |
(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, 20162022, 2021 and 2015 2020is presented below. For more information on the calculation of EPS, see Note 1 – Summary of Significant Accounting Principles.Principles.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | |
| (In millions, except per share information) | 2022 | | | | | | | | 2021 | | 2020 |
| Earnings per common share | | | | | | | | | | | |
| Net income | $ | 27,528 | | | | | | | | | $ | 31,978 | | | $ | 17,894 | |
| Preferred stock dividends and other | (1,513) | | | | | | | | | (1,421) | | | (1,421) | |
| Net income applicable to common shareholders | $ | 26,015 | | | | | | | | | $ | 30,557 | | | $ | 16,473 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Average common shares issued and outstanding | 8,113.7 | | | | | | | | | 8,493.3 | | | 8,753.2 | |
| Earnings per common share | $ | 3.21 | | | | | | | | | $ | 3.60 | | | $ | 1.88 | |
| | | | | | | | | | | |
| Diluted earnings per common share | | | | | | | | | | | |
| | | | | | | | | | | |
| Net income applicable to common shareholders | $ | 26,015 | | | | | | | | | $ | 30,557 | | | $ | 16,473 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Average common shares issued and outstanding | 8,113.7 | | | | | | | | | 8,493.3 | | | 8,753.2 | |
Dilutive potential common shares (1) | 53.8 | | | | | | | | | 65.1 | | | 43.7 | |
| Total diluted average common shares issued and outstanding | 8,167.5 | | | | | | | | | 8,558.4 | | | 8,796.9 | |
| Diluted earnings per common share | $ | 3.19 | | | | | | | | | $ | 3.57 | | | $ | 1.87 | |
(1)Includes incremental dilutive shares from preferred stock, restricted stock units, 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)139 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 2022, 2021 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, 2020, 62 million average dilutive potential common shares associated with the Series L preferred stock were not included in the diluted share count because the result would have been antidilutive under the “if-converted” method. For 2017, 2016 and 2015, average options to purchase 21 million, 45 million and 66 million shares of common stock, respectively, were outstanding but not included in the computation of EPS because the result would have been antidilutive under the treasury stock method. For 2017, 2016 and 2015, average warrants to purchase 122 million shares of common stock were outstanding but not included in the computation of EPS because the result would have been antidilutive under the treasury stock method. For 2017, average warrants to purchase 143 million shares of common stock were included in the diluted EPS calculation under the treasury stock method compared to 150 million shares of common stock in both 2016 and 2015.
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 PCA framework, and was the Advanced approaches method at December 31, 2017 and 2016.Prompt Corrective Action (PCA) framework.
The followingCorporation is required to maintain a minimum supplementary leverage ratio (SLR) of 3.0 percent plus a leverage buffer of 2.0 percent in order to avoid certain restrictions on capital distributions and discretionary bonus payments. The Corporation’s insured depository institution subsidiaries are required to maintain a minimum 6.0 percent SLR to be considered well capitalized under the PCA framework.
The table below presents capital ratios and related information in accordance with Basel 3 Standardized and Advanced approaches – Transition as measured at December 31, 20172022 and 20162021 for the Corporation and BANA.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
Regulatory Capital under Basel 3 | | | | | | | | |
| |
| Bank of America Corporation | | Bank of America, N.A. |
| Standardized Approach (1) | | Advanced Approaches (1) | | Regulatory Minimum (2) | | Standardized Approach (1) | | Advanced Approaches (1) | | Regulatory Minimum (3) |
| (Dollars in millions, except as noted) | December 31, 2022 |
| Risk-based capital metrics: | | | | | | | | | | | |
| Common equity tier 1 capital | $ | 180,060 | | | $ | 180,060 | | | | | $ | 181,089 | | | $ | 181,089 | | | |
| Tier 1 capital | 208,446 | | | 208,446 | | | | | 181,089 | | | 181,089 | | | |
Total capital (4) | 238,773 | | | 230,916 | | | | | 194,254 | | | 186,648 | | | |
| Risk-weighted assets (in billions) | 1,605 | | | 1,411 | | | | | 1,386 | | | 1,087 | | | |
| Common equity tier 1 capital ratio | 11.2 | % | | 12.8 | % | | 10.4 | % | | 13.1 | % | | 16.7 | % | | 7.0 | % |
| Tier 1 capital ratio | 13.0 | | | 14.8 | | | 11.9 | | | 13.1 | | | 16.7 | | | 8.5 | |
| Total capital ratio | 14.9 | | | 16.4 | | | 13.9 | | | 14.0 | | | 17.2 | | | 10.5 | |
| | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (5) | $ | 2,997 | | | $ | 2,997 | | | | | $ | 2,358 | | | $ | 2,358 | | | |
| Tier 1 leverage ratio | 7.0 | % | | 7.0 | % | | 4.0 | | | 7.7 | % | | 7.7 | % | | 5.0 | |
| | | | | | | | | | | |
| Supplementary leverage exposure (in billions) | | | $ | 3,523 | | | | | | | $ | 2,785 | | | |
| Supplementary leverage ratio | | | 5.9 | % | | 5.0 | | | | | 6.5 | % | | 6.0 | |
| | | | | | | | | | | |
| | December 31, 2021 |
| Risk-based capital metrics: | | | | | | | | | | | |
| Common equity tier 1 capital | $ | 171,759 | | | $ | 171,759 | | | | | $ | 182,526 | | | $ | 182,526 | | | |
| Tier 1 capital | 196,465 | | | 196,465 | | | | | 182,526 | | | 182,526 | | | |
Total capital (4) | 227,592 | | | 220,616 | | | | | 194,773 | | | 188,091 | | | |
| Risk-weighted assets (in billions) | 1,618 | | | 1,399 | | | | | 1,352 | | | 1,048 | | | |
| Common equity tier 1 capital ratio | 10.6 | % | | 12.3 | % | | 9.5 | % | | 13.5 | % | | 17.4 | % | | 7.0 | % |
| Tier 1 capital ratio | 12.1 | | | 14.0 | | | 11.0 | | | 13.5 | | | 17.4 | | | 8.5 | |
| Total capital ratio | 14.1 | | | 15.8 | | | 13.0 | | | 14.4 | | | 17.9 | | | 10.5 | |
| | | | | | | | | | | |
| Leverage-based metrics: | | | | | | | | | | | |
Adjusted quarterly average assets (in billions) (5) | $ | 3,087 | | | $ | 3,087 | | | | | $ | 2,414 | | | $ | 2,414 | | | |
| Tier 1 leverage ratio | 6.4 | % | | 6.4 | % | | 4.0 | | | 7.6 | % | | 7.6 | % | | 5.0 | |
| | | | | | | | | | | |
| Supplementary leverage exposure (in billions) | | | $ | 3,604 | | | | | | | $ | 2,824 | | | |
| Supplementary leverage ratio | | | 5.5 | % | | 5.0 | | | | | 6.5 | % | | 6.0 | |
(1)As of December 31, 2022 and 2021, capital ratios are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of the current expected credit losses accounting standard on January 1, 2020.
(2)The capital conservation buffer and global systemically important bank (G-SIB) surcharge were 2.5 percent at both December 31, 2022 and 2021. The Corporation’s stress capital buffer applied in place of the capital conservation buffer under the Standardized approach was 3.4 percent at December 31, 2022 and 2.5 percent at December 31, 2021. The countercyclical capital buffer for both periods was zero. The CET1 capital regulatory minimum is the sum of the CET1 capital ratio minimum of 4.5 percent, the Corporation’s G-SIB surcharge of 2.5 percent and the Corporation’s capital conservation buffer of 2.5 percent or the SCB, as applicable, of 3.4 percent at December 31, 2022 and 2.5 percent at December 31, 2021. The SLR regulatory minimum includes a leverage buffer of 2.0 percent.
(3)Risk-based capital regulatory minimums at December 31, 2022 and 2021 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.
| | | | | | | | |
| | |
161Bank of America 2017140
| | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
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, 20172022 and 2016,2021, the Corporation and its banking entity affiliates were “wellwell capitalized.”
Other Regulatory Matters
The Federal Reserve requires the Corporation’s bank subsidiaries to maintain reserve requirements based on a percentage of certain deposit liabilities. The average daily reserve balance requirements, in excess of vault cash, maintained by the Corporation with the Federal Reserve were $8.9 billion and $7.7 billion for 2017 and 2016. At December 31, 20172022 and 2016,2021, the Corporation had cash and cash equivalents in the amount of $4.1$5.6 billion and $4.8$4.0 billion, and securities with a fair value of $17.3$16.6 billion and $14.6$10.6 billion that were segregated in compliance with securities regulations. Cash and cash equivalents segregated in compliance with securities regulations are a component of restricted cash. For more information, see Note 10 – Securities Financing Agreements, Short-term Borrowings, Collateral and Restricted Cash. In addition, at December 31, 20172022 and 2016,2021, the Corporation had
cash deposited with clearing organizations of $11.9$20.7 billion and $10.2$28.6 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 2017,2022, the Corporation received dividends of $22.2$22.0 billion from BANA and $275$250 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 2018,2023, BANA can declare and pay dividends of approximately $6.0$16.1 billion to the Corporation plus an additional amount equal to its retained net profits for 20182023 up to the date of any such dividend declaration. Bank of America California, N.A. can pay dividends of $195$173 million in 20182023 plus an additional amount equal to its retained net profits for 20182023 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 no contribution under this agreement in 20172022 or 2016.2021. 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, 20172022 and 2016.2021. 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 decreasesincreases in the weighted-average discount raterates in 2017 and 20162022 resulted in a decrease to the PBO of $5.3 billion at December 31, 2022. The increases in the weighted-average discount rates in 2021 resulted in a decrease to the PBO of approximately $1.1 billion and $1.3 billion$895 million atDecember 31, 20172021. Significant gains and 2016.losses related to changes in the PBO for 2022 and 2021 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
|
| | | |
163141Bank of America 2017
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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) | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| Fair value, January 1 | $ | 22,078 | | | $ | 21,776 | | | $ | 3,031 | | | $ | 3,078 | | | $ | 2,585 | | | $ | 2,789 | | | $ | 117 | | | $ | 143 | |
| Actual return on plan assets | (3,896) | | | 1,215 | | | (898) | | | 62 | | | (332) | | | (55) | | | 2 | | | — | |
| Company contributions (withdrawals) | — | | | — | | | 30 | | | 24 | | | (135) | | | 87 | | | 45 | | | 38 | |
| Plan participant contributions | — | | | — | | | 1 | | | 1 | | | — | | | — | | | 104 | | | 107 | |
| Settlements and curtailments | — | | | — | | | (51) | | | (11) | | | (6) | | | — | | | — | | | — | |
| Benefits paid | (924) | | | (913) | | | (62) | | | (84) | | | (226) | | | (236) | | | (161) | | | (171) | |
| Federal subsidy on benefits paid | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | — | | | — | |
| Foreign currency exchange rate changes | n/a | | n/a | | (323) | | | (39) | | | n/a | | n/a | | n/a | | n/a |
| Fair value, December 31 | $ | 17,258 | | | $ | 22,078 | | | $ | 1,728 | | | $ | 3,031 | | | $ | 1,886 | | | $ | 2,585 | | | $ | 107 | | | $ | 117 | |
| Change in projected benefit obligation | | | | | | | | | | | | | | | |
| Projected benefit obligation, January 1 | $ | 15,676 | | | $ | 16,427 | | | $ | 3,116 | | | $ | 3,340 | | | $ | 2,753 | | | $ | 3,005 | | | $ | 928 | | | $ | 1,007 | |
| Service cost | — | | | — | | | 29 | | | 28 | | | — | | | — | | | 4 | | | 5 | |
| Interest cost | 438 | | | 414 | | | 53 | | | 45 | | | 74 | | | 67 | | | 25 | | | 24 | |
| Plan participant contributions | — | | | — | | | 1 | | | 1 | | | — | | | — | | | 104 | | | 107 | |
| Plan amendments | — | | | — | | | 3 | | | — | | | — | | | — | | | — | | | — | |
| Settlements and curtailments | — | | | — | | | (51) | | | (11) | | | (6) | | | — | | | — | | | — | |
| Actuarial loss (gain) | (3,610) | | | (252) | | | (1,054) | | | (152) | | | (486) | | | (83) | | | (198) | | | (44) | |
| Benefits paid | (924) | | | (913) | | | (62) | | | (84) | | | (226) | | | (236) | | | (161) | | | (171) | |
| Federal subsidy on benefits paid | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | — | | | — | |
| Foreign currency exchange rate changes | n/a | | n/a | | (283) | | | (51) | | | n/a | | n/a | | (2) | | | — | |
| | | | | | | | | | | | | | | |
| Projected benefit obligation, December 31 | $ | 11,580 | | | $ | 15,676 | | | $ | 1,752 | | | $ | 3,116 | | | $ | 2,109 | | | $ | 2,753 | | | $ | 700 | | | $ | 928 | |
| Amounts recognized on Consolidated Balance Sheet | | | | | | | | | | | | | | | |
| Other assets | $ | 5,678 | | | $ | 6,402 | | | $ | 370 | | | $ | 550 | | | $ | 495 | | | $ | 777 | | | $ | — | | | $ | — | |
| Accrued expenses and other liabilities | — | | | — | | | (394) | | | (635) | | | (718) | | | (945) | | | (593) | | | (811) | |
| Net amount recognized, December 31 | $ | 5,678 | | | $ | 6,402 | | | $ | (24) | | | $ | (85) | | | $ | (223) | | | $ | (168) | | | $ | (593) | | | $ | (811) | |
| Funded status, December 31 | | | | | | | | | | | | | | | |
| Accumulated benefit obligation | $ | 11,580 | | | $ | 15,676 | | | $ | 1,694 | | | $ | 3,031 | | | $ | 2,109 | | | $ | 2,753 | | | n/a | | n/a |
| Overfunded (unfunded) status of ABO | 5,678 | | | 6,402 | | | 34 | | | — | | | (223) | | | (168) | | | n/a | | n/a |
| Provision for future salaries | — | | | — | | | 58 | | | 85 | | | — | | | — | | | n/a | | n/a |
| Projected benefit obligation | 11,580 | | | 15,676 | | | 1,752 | | | 3,116 | | | 2,109 | | | 2,753 | | | $ | 700 | | | $ | 928 | |
| Weighted-average assumptions, December 31 | | | | | | | | | | | | | | | |
| Discount rate | 5.54 | % | | 2.86 | % | | 4.59 | % | | 1.85 | % | | 5.58 | % | | 2.80 | % | | 5.56 | % | | 2.85 | % |
| Rate of compensation increase | n/a | | n/a | | 4.25 | | | 4.46 | | | 4.00 | | | 4.00 | | | n/a | | n/a |
| Interest-crediting rate | 5.36 | % | | 4.83 | % | | 2.03 | | | 1.90 | | | 4.69 | | | 4.22 | | | 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 20182023 is $17$26 million, $92$89 million and $19$22 million, respectively. The Corporation does not expect to make a contribution to the Qualified Pension Plan in 2018.2023. 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, 20172022 and 20162021 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) | | | | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | | | | |
| PBO | | | | | $ | 458 | | | $ | 841 | | | $ | 719 | | | $ | 945 | |
| ABO | | | | | 416 | | | 780 | | | 719 | | | 945 | |
| Fair value of plan assets | | | | | 71 | | | 207 | | | 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) | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
| Components of net periodic benefit cost (income) | | | | | | | | | | | |
| Service cost | $ | — | | | $ | — | | | $ | — | | | $ | 29 | | | $ | 28 | | | $ | 20 | |
| Interest cost | 438 | | | 414 | | | 500 | | | 53 | | | 45 | | | 49 | |
| Expected return on plan assets | (1,204) | | | (1,173) | | | (1,154) | | | (59) | | | (70) | | | (66) | |
| | | | | | | | | | | |
| Amortization of actuarial loss (gain) and prior service cost | 140 | | | 193 | | | 173 | | | 14 | | | 19 | | | 9 | |
| | | | | | | | | | | |
| Other | — | | | — | | | — | | | 10 | | | 5 | | | 8 | |
| Net periodic benefit cost (income) | $ | (626) | | | $ | (566) | | | $ | (481) | | | $ | 47 | | | $ | 27 | | | $ | 20 | |
| Weighted-average assumptions used to determine net cost for years ended December 31 | | | | | | | | | | | |
| Discount rate | 2.86 | % | | 2.57 | % | | 3.32 | % | | 1.85 | % | | 1.35 | % | | 1.81 | % |
| Expected return on plan assets | 5.75 | | | 5.75 | | | 6.00 | | | 2.17 | | | 2.30 | | | 2.57 | |
| Rate of compensation increase | n/a | | n/a | | n/a | | 4.46 | | | 4.11 | | | 4.10 | |
| | | | | | | | | | | |
| Nonqualified and
Other Pension Plans | | Postretirement Health
and Life Plans |
| (Dollars in millions) | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
| Components of net periodic benefit cost (income) | | | | | | | | | | | |
| Service cost | $ | — | | | $ | — | | | $ | 1 | | | $ | 4 | | | $ | 5 | | | $ | 5 | |
| Interest cost | 74 | | | 67 | | | 90 | | | 25 | | | 24 | | | 32 | |
| Expected return on plan assets | (59) | | | (49) | | | (71) | | | (2) | | | (3) | | | (4) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Amortization of actuarial loss (gain) and prior service cost | 54 | | | 63 | | | 50 | | | (9) | | | 20 | | | 29 | |
| | | | | | | | | | | |
| Other | 1 | | | — | | | — | | | — | | | — | | | (2) | |
| Net periodic benefit cost (income) | $ | 70 | | | $ | 81 | | | $ | 70 | | | $ | 18 | | | $ | 46 | | | $ | 60 | |
| Weighted-average assumptions used to determine net cost for years ended December 31 | | | | | | | | | | | |
| Discount rate | 2.80 | % | | 2.33 | % | | 3.20 | % | | 2.85 | % | | 2.48 | % | | 3.27 | % |
| Expected return on plan assets | 2.38 | | | 1.88 | | | 2.77 | | | 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 7.006.50 percent for 2018,2023, reducing in steps to 5.00 percent in 20232028 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 2018.2022.
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| | | | | | | | | | | | | | | | | | | |
| 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) | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| Net actuarial loss (gain) | $ | 4,775 | | | $ | 3,425 | | | $ | 312 | | | $ | 456 | | | $ | 796 | | | $ | 945 | | | $ | (187) | | | $ | 4 | | | $ | 5,696 | | | $ | 4,830 | |
| Prior service cost (credits) | — | | | — | | | 43 | | | 17 | | | — | | | — | | | (1) | | | (3) | | | 42 | | | 14 | |
| Amounts recognized in accumulated OCI | $ | 4,775 | | | $ | 3,425 | | | $ | 355 | | | $ | 473 | | | $ | 796 | | | $ | 945 | | | $ | (188) | | | $ | 1 | | | $ | 5,738 | | | $ | 4,844 | |
| | | | | | | | | | | | | | | | | | | |
| Current year actuarial loss (gain) | $ | 1,490 | | | $ | (294) | | | $ | (107) | | | $ | (154) | | | $ | (95) | | | $ | 21 | | | $ | (198) | | | $ | (41) | | | $ | 1,090 | | | $ | (468) | |
Amortization of actuarial gain (loss) and prior service cost | (140) | | | (193) | | | (14) | | | (19) | | | (54) | | | (63) | | | 9 | | | (20) | | | (199) | | | (295) | |
| Current year prior service cost (credit) | — | | | — | | | 3 | | | — | | | — | | | — | | | — | | | — | | | 3 | | | — | |
| | | | | | | | | | | | | | | | | | | |
| Amounts recognized in OCI | $ | 1,350 | | | $ | (487) | | | $ | (118) | | | $ | (173) | | | $ | (149) | | | $ | (42) | | | $ | (189) | | | $ | (61) | | | $ | 894 | | | $ | (763) | |
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|
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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 20182023 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.table below. Equity securities for the Qualified Pension Plan include common stock of the Corporation in the amounts of $261$296 million (1.33(1.72 percent of total plan assets) and $203$398 million (1.11(1.80 percent of total plan assets) at December 31, 20172022 and 2016.2021.
| | | | | |
| | | |
| | | 2023 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 - 20% | Nonqualified
and Other
Pension Plans
0 - 5% |
EquityDebt securities | 30-6045 - 80% | 5-3540 - 75% | 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, 20172022 and 20162021 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 2017166144 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Fair Value Measurements | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| (Dollars in millions) | December 31, 2022 | | December 31, 2021 |
| | | |
| Money market and interest-bearing cash | $ | 1,329 | | | $ | — | | | $ | — | | | $ | 1,329 | | | $ | 1,339 | | | $ | — | | | $ | — | | | $ | 1,339 | |
| U.S. government and government agency obligations | 3,313 | | | 704 | | | 5 | | | 4,022 | | | 4,948 | | | 934 | | | 6 | | | 5,888 | |
| Corporate debt | — | | | 3,587 | | | — | | | 3,587 | | | — | | | 4,900 | | | — | | | 4,900 | |
| Non-U.S. debt securities | 327 | | | 933 | | | — | | | 1,260 | | | 925 | | | 1,165 | | | — | | | 2,090 | |
| Asset-backed securities | — | | | 1,273 | | | — | | | 1,273 | | | — | | | 1,485 | | | — | | | 1,485 | |
| Mutual and exchange-traded funds | 1,247 | | | — | | | — | | | 1,247 | | | 1,395 | | | — | | | — | | | 1,395 | |
| Collective investment funds | — | | | 1,988 | | | — | | | 1,988 | | | — | | | 3,419 | | | — | | | 3,419 | |
| Common and preferred stocks | 3,901 | | | — | | | — | | | 3,901 | | | 4,826 | | | — | | | — | | | 4,826 | |
| Real estate investment trusts | 76 | | | — | | | — | | | 76 | | | 87 | | | — | | | — | | | 87 | |
| Participant loans | — | | | — | | | 6 | | | 6 | | | — | | | — | | | 7 | | | 7 | |
| | | | | | | | | | | | | | | |
Other investments (1) | 1 | | | 23 | | | 410 | | | 434 | | | 1 | | | 29 | | | 630 | | | 660 | |
Total plan investment assets, at fair value (2) | $ | 10,194 | | | $ | 8,508 | | | $ | 421 | | | $ | 19,123 | | | $ | 13,521 | | | $ | 11,932 | | | $ | 643 | | | $ | 26,096 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
(1)Other investments includes insurance annuity contracts of $390 million and $612 million and other various investments of $44 million and $48 million at December 31, 2022 and 2021.
(2)At December 31, 2022 and 2021, excludes $1.9 billion and $1.7 billion of certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient and are not required to be classified in the fair value hierarchy.
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, 20162022, 2021 and 2015.2020.
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| 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 |
| (Dollars in millions) | 2017 |
| Fixed income | |
| | |
| | |
| | |
|
| U.S. government and agency securities | $ | 10 |
| | $ | — |
| | $ | (1 | ) | | $ | 9 |
|
| Real estate | | | |
| | | |
|
|
| Private real estate | 150 |
| | 8 |
| | (65 | ) | | 93 |
|
| Real estate commingled/mutual funds | 748 |
| | 63 |
| | 20 |
| | 831 |
|
| Limited partnerships | 38 |
| | 14 |
| | 33 |
| | 85 |
|
| Other investments | 83 |
| | 5 |
| | (14 | ) | | 74 |
|
| Total | $ | 1,029 |
| | $ | 90 |
| | $ | (27 | ) | | $ | 1,092 |
|
| | | | | | | | |
| | 2016 |
| Fixed income | |
| | |
| | |
| | |
|
| U.S. government and agency securities | $ | 11 |
| | $ | — |
| | $ | (1 | ) | | $ | 10 |
|
| Real estate | |
| | |
| | | | |
| Private real estate | 144 |
| | 1 |
| | 5 |
| | 150 |
|
| Real estate commingled/mutual funds | 731 |
| | 21 |
| | (4 | ) | | 748 |
|
| Limited partnerships | 49 |
| | (2 | ) | | (9 | ) | | 38 |
|
| Other investments | 102 |
| | 4 |
| | (23 | ) | | 83 |
|
| Total | $ | 1,037 |
| | $ | 24 |
| | $ | (32 | ) | | $ | 1,029 |
|
| | | | | | | | |
| | 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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| 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 |
| (Dollars in millions) | 2022 |
| U.S. government and government agency obligations | $ | 6 | | | $ | — | | | $ | (1) | | | | | $ | 5 | |
| | | | | | | | | |
| Participant Loans | 7 | | | — | | | (1) | | | | | 6 | |
| Other investments | 630 | | | (8) | | | (212) | | | | | 410 | |
| Total | $ | 643 | | | $ | (8) | | | $ | (214) | | | | | $ | 421 | |
| | | | | | | | | |
| | 2021 |
| U.S. government and government agency obligations | $ | 7 | | | $ | — | | | $ | (1) | | | | | $ | 6 | |
| | | | | | | | | |
| Participant Loans | 7 | | | — | | | — | | | | | 7 | |
| Other investments | 684 | | | (5) | | | (49) | | | | | 630 | |
| Total | $ | 698 | | | $ | (5) | | | $ | (50) | | | | | $ | 643 | |
| | | | | | | | | |
| 2020 |
| U.S. government and government agency obligations | $ | 8 | | | $ | — | | | $ | (1) | | | | | $ | 7 | |
| | | | | | | | | |
| Participant loans | 8 | | | — | | | (1) | | | | | 7 | |
| Other investments | 628 | | | 6 | | | 50 | | | | | 684 | |
| Total | $ | 644 | | | $ | 6 | | | $ | 48 | | | | | $ | 698 | |
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) |
| 2023 | $ | 892 | | | $ | 114 | | | $ | 235 | | | $ | 73 | |
| 2024 | 927 | | | 108 | | | 232 | | | 70 | |
| 2025 | 918 | | | 116 | | | 223 | | | 67 | |
| 2026 | 921 | | | 117 | | | 215 | | | 64 | |
| 2027 | 908 | | | 114 | | | 209 | | | 61 | |
| 2028 - 2032 | 4,289 | | | 580 | | | 884 | | | 263 | |
(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.
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| 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)145 Bank of America
| Benefit payments expected to be made from the plan’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 $1.0$1.2 billion in each of 2017, 20162022, 2021 and 20152020 related to the qualified defined contribution plans. At December 31, 20172022 and 2016, 2182021, 179 million and 224173 million shares of the Corporation’s
common stock were held by these plans. Payments to the plans for dividends on common stock were $86$153 million, $60$139 million and $48$138 million in 2017, 20162022, 2021 and 2015,2020, 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 EmployeeCorporation Equity Plan (KEEP)(BACEP). Under this plan, 450715 million shares of the Corporation’s common stock are authorized to be used for grants of awards.
During 20172022 and 2016,2021, the Corporation granted 85102 million and 16399 million RSU awards to certain employees under the KEEP. Generally, one-third of theBACEP. 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. AwardsThe RSUs granted in 2022 will generally vest over four years. Of the RSUs granted in 2021, 81 million will generally vest over four years prior to 2016 were predominantly cash settled.
Effective October 1, 2017,and 18 million will vest over three years. The four-year awards vest primarily in one-fourth increments on each of the first four anniversaries of the grant date while the three-year awards vest primarily 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. Of the RSUs granted in 2022 and 2021 that vest over four years, 39 million and 27 million do not include retirement eligibility. For all other RSUs granted to retirement-eligible employees who are retirement eligible, they 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 of Significant Accounting Principles.
The compensation cost for the stock-based plans was $2.2$2.9 billion, $2.2$3.0 billion and $2.1 billion, in 2017, 2016 and 2015 and the related income tax benefit was $829$697 million, $835$723 million and $792$505 million for 2017, 20162022, 2021 and 2015,2020, 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, 2017,2022, there was an estimated $1.1$3.6 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 1.72.7 years.
Restricted Stock and Restricted Stock Units
The total fair value of restricted stock and restricted stock units vested in 2017, 20162022, 2021 and 20152020 was $1.3$3.4 billion, $358 million and $145 million, respectively. In 2017, 2016 and 2015, the amount of cash paid to settle equity-based awards for all equity compensation plans was $1.9 billion, $1.7$2.3 billion and $3.0$2.3 billion, respectively.
Stock Options
The table below presents the status of all option plans at December 31, 20172022 of the share-settled restricted stock and restricted stock units and changes during 2017.2022.
| | | | | | | | | | | |
| | | |
| Stock-settled Restricted Stock and Restricted Stock Units |
| | | |
| Shares/Units | | Weighted-
average Grant Date Fair Value |
| Outstanding at January 1, 2022 | 185,050,842 | | | $ | 31.54 | |
| Granted | 100,108,395 | | | 46.10 | |
| Vested | (73,288,792) | | | 30.85 | |
| Canceled | (9,310,647) | | | 39.80 | |
| Outstanding at December 31, 2022 | 202,559,798 | | | 38.60 | |
|
| | | | | | |
| | | | |
| 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, 20162022, 2021 and 20152020 are presented in the table below.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Income Tax Expense | | | | |
| | | | | |
| (Dollars in millions) | 2022 | | 2021 | | 2020 |
| Current income tax expense | | | | | |
| U.S. federal | $ | 1,157 | | | $ | 1,076 | | | $ | 1,092 | |
| U.S. state and local | 389 | | | 775 | | | 1,076 | |
| Non-U.S. | 1,156 | | | 985 | | | 670 | |
| Total current expense | 2,702 | | | 2,836 | | | 2,838 | |
| Deferred income tax expense | | | | | |
| U.S. federal | 110 | | | 962 | | | (799) | |
| U.S. state and local | 254 | | | 491 | | | (233) | |
| Non-U.S. | 375 | | | (2,291) | | | (705) | |
| Total deferred expense | 739 | | | (838) | | | (1,737) | |
| Total income tax expense | $ | 3,441 | | | $ | 1,998 | | | $ | 1,101 | |
|
| | | | | | | | | | | |
| | | | | | |
| 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 a benefit of $1.2$4.9 billion and $498$877 million in 20172022 and 20162021 and an expense of $631 million$1.5 billion 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 2015.2020.
Income tax expense for 2017, 20162022, 2021 and 20152020 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 2022, 2021 and 2020. 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, 20162022, 2021 and 20152020 are presented in the table below.following table.
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| 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.Bank of America 146
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Reconciliation of Income Tax Expense | | | | | | | | | | |
| | | | | | | | | | | |
| | Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
| (Dollars in millions) | 2022 | | 2021 | | 2020 |
| Expected U.S. federal income tax expense | $ | 6,504 | | | 21.0 | % | | $ | 7,135 | | | 21.0 | % | | $ | 3,989 | | | 21.0 | % |
| Increase (decrease) in taxes resulting from: | | | | | | | | | | | |
| State tax expense, net of federal benefit | 756 | | | 2.4 | | | 1,087 | | | 3.2 | | | 728 | | | 3.8 | |
| Affordable housing/energy/other credits | (3,698) | | | (11.9) | | | (3,795) | | | (11.2) | | | (2,869) | | | (15.1) | |
| Tax-exempt income, including dividends | (273) | | | (0.9) | | | (352) | | | (1.0) | | | (346) | | | (1.8) | |
| Changes in prior-period UTBs, including interest | (273) | | | (0.9) | | | (155) | | | (0.5) | | | (41) | | | (0.2) | |
| Rate differential on non-U.S. earnings | 368 | | | 1.2 | | | 45 | | | 0.1 | | | 218 | | | 1.1 | |
| Nondeductible expenses | 352 | | | 1.1 | | | 206 | | | 0.6 | | | 324 | | | 1.7 | |
| Tax law changes | 186 | | | 0.6 | | | (2,050) | | | (6.0) | | | (699) | | | (3.7) | |
| Other | (481) | | | (1.5) | | | (123) | | | (0.3) | | | (203) | | | (1.0) | |
| | | | | | | | | | | |
| Total income tax expense | $ | 3,441 | | | 11.1 | % | | $ | 1,998 | | | 5.9 | % | | $ | 1,101 | | | 5.8 | % |
Tax Law changes reflect the impact of the 2022, 2021 and 2020 U.K. enacted corporate income tax rate changes, which resulted in a negative tax adjustment of approximately $186 million in 2022 and positive income tax adjustments of approximately $2.0 billion and $700 million in 2021 and 2020, with corresponding adjustments of U.K. net deferred tax assets. The U.K. net deferred tax assets are primarily net operating losses (NOLs), incurred by the Corporation’s U.K. broker-dealer entity in historical periods, which do not expire under U.K. tax law and are assessed regularly for impairment. If further U.K. tax law changes are enacted, a corresponding income tax adjustment will be made based on the amount of available net deferred tax assets and applicable tax rate changes.
Tax credits originate from ESG investments in affordable housing and renewable energy partnerships and similar entities. Significant increases in the tax credits recognized over the last three annual periods have been primarily driven by the Corporation’s continued growth in the volume of investments in wind and solar energy production facilities, consistent with the Corporation’s commitment to support the transition to a lower carbon economy. For additional information, see Note 6 – Securitizations and Other Variable Interest Entities.
The reconciliation of the beginning unrecognized tax benefits (UTB) balance to the ending balance is presented in the followingtable below.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Reconciliation of the Change in Unrecognized Tax Benefits |
| | | | | |
| (Dollars in millions) | 2022 | | 2021 | | 2020 |
| Balance, January 1 | $ | 1,322 | | | $ | 1,340 | | | $ | 1,175 | |
| Increases related to positions taken during the current year | 121 | | | 208 | | | 238 | |
Increases related to positions taken during prior years (1) | 167 | | | 265 | | | 99 | |
Decreases related to positions taken during prior years (1) | (289) | | | (413) | | | (172) | |
| Settlements | (99) | | | (23) | | | — | |
| Expiration of statute of limitations | (166) | | | (55) | | | — | |
| Balance, December 31 | $ | 1,056 | | | $ | 1,322 | | | $ | 1,340 | |
(1) The sum of the positions taken during prior years differs from the $(273) million, $(155) million and $(41) million in the Reconciliation of Income Tax Expense table due to temporary items, state items and jurisdictional offsets, as well as the inclusion of interest in the Reconciliation of Income Tax Expense table.
|
| | | | | | | | | | | |
| | | | | | |
| 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, 20162022, 2021 and 2015,2020, 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$709 million, $959 million and $0.7 billion,$976 million, 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 $375 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 an interest benefit of $50 million in 2022 and interest expense of $32 million and $9 million in 2021 and 2020. At December 31, 2022 and 2021, the Corporation’s accrual for interest and penalties that related to income taxes, net of taxes and remittances, was $107 million and $167 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 below 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 20172022 |
| United States | 2012 – 20132017-2021 | | IRS AppealsField Examination |
United StatesCalifornia | 2014 – 20162012-2014 | | Field examinationAppeals |
New YorkCalifornia | 20152015-2017 | | Field examinationExamination |
United KingdomCalifornia | 20162018-2020 | | To begin in 20182023 |
| New York | 2019-2021 | | To begin in 2023 |
(1)United Kingdom (2)
| All tax years subsequent to the years shown remain subject to examination.2019-2020 | | 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 2021 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.2023.
Significant components of the Corporation’s net deferred tax assets and liabilities at December 31, 20172022 and 20162021 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) | 2022 | | 2021 |
| Deferred tax assets | | | |
| Net operating loss carryforwards | $ | 9,029 | | | $ | 9,360 | |
| Security, loan and debt valuations | 4,788 | | | 2,746 | |
| Allowance for credit losses | 3,503 | | | 3,097 | |
| Lease liability | 2,443 | | | 2,508 | |
| Employee compensation and retirement benefits | 1,625 | | | 1,392 | |
| Accrued expenses | 1,143 | | | 1,626 | |
| Available-for-sale securities | 960 | | | — | |
| Credit carryforwards | 769 | | | 705 | |
| Other | 1,371 | | | 1,160 | |
| Gross deferred tax assets | 25,631 | | | 22,594 | |
| Valuation allowance | (2,133) | | | (1,988) | |
Total deferred tax assets, net of valuation
allowance | 23,498 | | | 20,606 | |
| | | |
| Deferred tax liabilities | | | |
| Equipment lease financing | 2,432 | | | 3,083 | |
| Right-of-use asset | 2,303 | | | 2,358 | |
| ESG-related tax credit investments | 1,759 | | | 1,387 | |
| Fixed Assets | 1,200 | | | 2,082 | |
Available-for-sale securities
| — | | | 1,016 | |
| Other | 2,459 | | | 1,527 | |
| Gross deferred tax liabilities | 10,153 | | | 11,453 | |
| Net deferred tax assets | $ | 13,345 | | | $ | 9,153 | |
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, 2017.2022. | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| 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.K. (1) | $ | 7,661 | | | $ | — | | | $ | 7,661 | | | None |
| Net operating losses - other non-U.S. | 331 | | | (147) | | | 184 | | | Various |
Net operating losses - U.S. states (2) | 1,036 | | | (627) | | | 409 | | | Various |
| | | | | | | |
| Foreign tax credits | 769 | | | (769) | | | — | | | 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 $1.3 billion and $794 million.
Management concluded that no 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, 2017,2022, 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.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 2017,2022, 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.
|
| | | | | | | |
| | 149Bank of America 2017172 | | |
Assets and liabilities carried at fair value on a recurring basis at December 31, 20172022 and 2016,2021, including financial instruments whichthat the Corporation accounts for under the fair value option, are summarized in the following tables.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| December 31, 2022 |
| | 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 | $ | 868 | | | $ | — | | | $ | — | | | $ | — | | | $ | 868 | |
| Federal funds sold and securities borrowed or purchased under agreements to resell | — | | | 146,999 | | | — | | | — | | | 146,999 | |
| Trading account assets: | | | | | | | | | |
| U.S. Treasury and government agencies | 58,894 | | | 212 | | | — | | | — | | | 59,106 | |
| Corporate securities, trading loans and other | — | | | 46,897 | | | 2,384 | | | — | | | 49,281 | |
| Equity securities | 77,868 | | | 35,065 | | | 145 | | | — | | | 113,078 | |
| Non-U.S. sovereign debt | 7,392 | | | 26,306 | | | 518 | | | — | | | 34,216 | |
| Mortgage trading loans, MBS and ABS: | | | | | | | | | |
| U.S. government-sponsored agency guaranteed | — | | | 28,563 | | | 34 | | | — | | | 28,597 | |
| Mortgage trading loans, ABS and other MBS | — | | | 10,312 | | | 1,518 | | | — | | | 11,830 | |
Total trading account assets (2) | 144,154 | | | 147,355 | | | 4,599 | | | — | | | 296,108 | |
| Derivative assets | 14,775 | | | 380,380 | | | 3,213 | | | (349,726) | | | 48,642 | |
| AFS debt securities: | | | | | | | | | |
| U.S. Treasury and government agencies | 158,102 | | | 920 | | | — | | | — | | | 159,022 | |
| Mortgage-backed securities: | | | | | | | | | |
| Agency | — | | | 23,442 | | | — | | | — | | | 23,442 | |
| Agency-collateralized mortgage obligations | — | | | 2,221 | | | — | | | — | | | 2,221 | |
| Non-agency residential | — | | | 128 | | | 258 | | | — | | | 386 | |
| Commercial | — | | | 6,407 | | | — | | | — | | | 6,407 | |
| Non-U.S. securities | — | | | 13,212 | | | 195 | | | — | | | 13,407 | |
| | | | | | | | | |
| Other taxable securities | — | | | 4,645 | | | — | | | — | | | 4,645 | |
| Tax-exempt securities | — | | | 11,207 | | | 51 | | | — | | | 11,258 | |
| Total AFS debt securities | 158,102 | | | 62,182 | | | 504 | | | — | | | 220,788 | |
| Other debt securities carried at fair value: | | | | | | | | | |
| U.S. Treasury and government agencies | 561 | | | — | | | — | | | — | | | 561 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Non-agency residential MBS | — | | | 248 | | | 119 | | | — | | | 367 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Non-U.S. and other securities | 3,027 | | | 5,251 | | | — | | | — | | | 8,278 | |
| Total other debt securities carried at fair value | 3,588 | | | 5,499 | | | 119 | | | — | | | 9,206 | |
| Loans and leases | — | | | 5,518 | | | 253 | | | — | | | 5,771 | |
| Loans held-for-sale | — | | | 883 | | | 232 | | | — | | | 1,115 | |
| | | | | | | | | |
| | | | | | | | | |
Other assets (3) | 6,898 | | | 897 | | | 1,799 | | | — | | | 9,594 | |
| | | | | | | | | |
Total assets (4) | $ | 328,385 | | | $ | 749,713 | | | $ | 10,719 | | | $ | (349,726) | | | $ | 739,091 | |
| | | | | | | | | |
| Liabilities | | | | | | | | | |
| Interest-bearing deposits in U.S. offices | $ | — | | | $ | 311 | | | $ | — | | | $ | — | | | $ | 311 | |
| Federal funds purchased and securities loaned or sold under agreements to repurchase | — | | | 151,708 | | | — | | | — | | | 151,708 | |
| Trading account liabilities: | | | | | | | | | |
| U.S. Treasury and government agencies | 13,906 | | | 181 | | | — | | | — | | | 14,087 | |
| Equity securities | 36,937 | | | 4,825 | | | — | | | — | | | 41,762 | |
| Non-U.S. sovereign debt | 9,636 | | | 8,228 | | | — | | | — | | | 17,864 | |
| Corporate securities and other | — | | | 6,628 | | | 58 | | | — | | | 6,686 | |
| | | | | | | | | |
| Total trading account liabilities | 60,479 | | | 19,862 | | | 58 | | | — | | | 80,399 | |
| Derivative liabilities | 15,431 | | | 376,979 | | | 6,106 | | | (353,700) | | | 44,816 | |
| Short-term borrowings | — | | | 818 | | | 14 | | | — | | | 832 | |
| Accrued expenses and other liabilities | 7,458 | | | 2,262 | | | 32 | | | — | | | 9,752 | |
| Long-term debt | — | | | 32,208 | | | 862 | | | — | | | 33,070 | |
Total liabilities (4) | $ | 83,368 | | | $ | 584,148 | | | $ | 7,072 | | | $ | (353,700) | | | $ | 320,888 | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | 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 securities with a fair value of $16.6 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet. Trading account assets also includes certain commodities inventory of $40 million that is accounted for at the lower of cost or net realizable value, which is the current selling price less any costs to sell.
(3)Includes MSRs of $1.0 billion, which 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.
|
(4)Total recurring Level 3 assets were 0.35 percent of total consolidated assets, and total recurring Level 3 liabilities were 0.25 percent of total consolidated liabilities.
|
| | | | | | | |
| | Bank of America 2017174150 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| December 31, 2021 |
| 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 | $ | 707 | | | $ | — | | | $ | — | | | $ | — | | | $ | 707 | |
| Federal funds sold and securities borrowed or purchased under agreements to resell | — | | | 150,665 | | | — | | | — | | | 150,665 | |
| Trading account assets: | | | | | | | | | |
| U.S. Treasury and government agencies | 44,599 | | | 803 | | | — | | | — | | | 45,402 | |
| Corporate securities, trading loans and other | — | | | 31,601 | | | 2,110 | | | — | | | 33,711 | |
| Equity securities | 61,425 | | | 38,383 | | | 190 | | | — | | | 99,998 | |
| Non-U.S. sovereign debt | 3,822 | | | 25,612 | | | 396 | | | — | | | 29,830 | |
| Mortgage trading loans, MBS and ABS: | | | | | | | | | |
| U.S. government-sponsored agency guaranteed | — | | | 25,645 | | | 109 | | | — | | | 25,754 | |
| Mortgage trading loans, ABS and other MBS | — | | | 10,967 | | | 1,418 | | | — | | | 12,385 | |
Total trading account assets (2) | 109,846 | | | 133,011 | | | 4,223 | | | — | | | 247,080 | |
| Derivative assets | 34,748 | | | 310,581 | | | 3,133 | | | (313,118) | | | 35,344 | |
| AFS debt securities: | | | | | | | | | |
| U.S. Treasury and government agencies | 198,071 | | | 1,074 | | | — | | | — | | | 199,145 | |
| Mortgage-backed securities: | | | | | | | | | |
| Agency | — | | | 46,339 | | | — | | | — | | | 46,339 | |
| Agency-collateralized mortgage obligations | — | | | 3,380 | | | — | | | — | | | 3,380 | |
| Non-agency residential | — | | | 267 | | | 316 | | | — | | | 583 | |
| Commercial | — | | | 19,604 | | | — | | | — | | | 19,604 | |
| Non-U.S. securities | — | | | 11,933 | | | — | | | — | | | 11,933 | |
| | | | | | | | | |
| Other taxable securities | — | | | 2,690 | | | 71 | | | — | | | 2,761 | |
| Tax-exempt securities | — | | | 15,381 | | | 52 | | | — | | | 15,433 | |
| Total AFS debt securities | 198,071 | | | 100,668 | | | 439 | | | — | | | 299,178 | |
| Other debt securities carried at fair value: | | | | | | | | | |
| U.S. Treasury and government agencies | 575 | | | — | | | — | | | — | | | 575 | |
| | | | | | | | | |
| | | | | | | | | |
| Non-agency residential MBS | — | | | 343 | | | 242 | | | — | | | 585 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Non-U.S. and other securities | 2,580 | | | 5,155 | | | — | | | — | | | 7,735 | |
| Total other debt securities carried at fair value | 3,155 | | | 5,498 | | | 242 | | | — | | | 8,895 | |
| Loans and leases | — | | | 7,071 | | | 748 | | | — | | | 7,819 | |
| Loans held-for-sale | — | | | 4,138 | | | 317 | | | — | | | 4,455 | |
Other assets (3) | 7,657 | | | 2,915 | | | 1,572 | | | — | | | 12,144 | |
| | | | | | | | | |
Total assets (4) | $ | 354,184 | | | $ | 714,547 | | | $ | 10,674 | | | $ | (313,118) | | | $ | 766,287 | |
| | | | | | | | | |
| Liabilities | | | | | | | | | |
| Interest-bearing deposits in U.S. offices | $ | — | | | $ | 408 | | | $ | — | | | $ | — | | | $ | 408 | |
| Federal funds purchased and securities loaned or sold under agreements to repurchase | — | | | 139,641 | | | — | | | — | | | 139,641 | |
| Trading account liabilities: | | | | | | | | | |
| U.S. Treasury and government agencies | 19,826 | | | 313 | | | — | | | — | | | 20,139 | |
| Equity securities | 41,744 | | | 6,491 | | | — | | | — | | | 48,235 | |
| Non-U.S. sovereign debt | 10,400 | | | 13,781 | | | — | | | — | | | 24,181 | |
| Corporate securities and other | — | | | 8,124 | | | 11 | | | — | | | 8,135 | |
| Total trading account liabilities | 71,970 | | | 28,709 | | | 11 | | | — | | | 100,690 | |
| Derivative liabilities | 35,282 | | | 314,380 | | | 5,795 | | | (317,782) | | | 37,675 | |
| Short-term borrowings | — | | | 4,279 | | | — | | | — | | | 4,279 | |
| Accrued expenses and other liabilities | 8,359 | | | 3,130 | | | — | | | — | | | 11,489 | |
| Long-term debt | — | | | 28,633 | | | 1,075 | | | — | | | 29,708 | |
Total liabilities (4) | $ | 115,611 | | | $ | 519,180 | | | $ | 6,881 | | | $ | (317,782) | | | $ | 323,890 | |
| | | | | | | | | |
(1)Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2)Includes securities with a fair value of $10.6 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. Trading account assets also includes certain commodities inventory of $752 million that is accounted for at the lower of cost or net realizable value, which is the current selling price less any costs to sell.
(3)Includes MSRs of $818 million, which are classified as Level 3 assets.
(4)Total recurring Level 3 assets were 0.34 percent of total consolidated assets, and total recurring Level 3 liabilities were 0.24 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, 20162022, 2021 and 2015,2020, 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, 2022 | | | | | | | | | | | | |
| Trading account assets: | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Corporate securities, trading loans and other | 2,110 | | | (52) | | (2) | | 1,069 | | (384) | | — | | (606) | | 1,023 | | (774) | | 2,384 | | (78) | |
| Equity securities | 190 | | | (3) | | — | | 45 | | (25) | | — | | (4) | | 38 | | (96) | | 145 | | (6) | |
| Non-U.S. sovereign debt | 396 | | | 59 | | 16 | | 54 | | (4) | | — | | (68) | | 75 | | (10) | | 518 | | 56 | |
| Mortgage trading loans, MBS and ABS | 1,527 | | | (254) | | — | | 729 | | (665) | | — | | (112) | | 536 | | (209) | | 1,552 | | (152) | |
| Total trading account assets | 4,223 | | | (250) | | 14 | | 1,897 | | (1,078) | | — | | (790) | | 1,672 | | (1,089) | | 4,599 | | (180) | |
Net derivative assets (liabilities) (4) | (2,662) | | | 551 | | — | | 319 | | (830) | | — | | 294 | | (180) | | (385) | | (2,893) | | 259 | |
| AFS debt securities: | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Non-agency residential MBS | 316 | | | — | | (35) | | — | | (8) | | — | | (75) | | 73 | | (13) | | 258 | | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Non-U.S. and other taxable securities | 71 | | | 10 | | (10) | | 126 | | — | | — | | (22) | | 311 | | (291) | | 195 | | 1 | |
| Tax-exempt securities | 52 | | | — | | 1 | | — | | — | | — | | (3) | | 1 | | — | | 51 | | — | |
| Total AFS debt securities | 439 | | | 10 | | (44) | | 126 | | (8) | | — | | (100) | | 385 | | (304) | | 504 | | 1 | |
| Other debt securities carried at fair value – Non-agency residential MBS | 242 | | | (19) | | — | | — | | — | | — | | (111) | | 30 | | (23) | | 119 | | 14 | |
Loans and leases (5,6) | 748 | | | (45) | | — | | — | | (154) | | 82 | | (129) | | — | | (249) | | 253 | | (21) | |
Loans held-for-sale (5,6) | 317 | | | 9 | | 4 | | 171 | | (6) | | — | | (271) | | 8 | | — | | 232 | | 19 | |
Other assets (6,7) | 1,572 | | | 305 | | (21) | | 39 | | (35) | | 208 | | (271) | | 5 | | (3) | | 1,799 | | 213 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Trading account liabilities – Corporate securities and other | (11) | | | 5 | | — | | (4) | | — | | — | | (2) | | (46) | | — | | (58) | | 1 | |
Short-term borrowings (5) | — | | | 3 | | — | | — | | (17) | | — | | — | | (3) | | 3 | | (14) | | 2 | |
Accrued expenses and other liabilities (5) | — | | | (23) | | — | | (9) | | — | | — | | — | | — | | — | | (32) | | (7) | |
Long-term debt (5) | (1,075) | | | (197) | | 82 | | — | | 14 | | (1) | | 57 | | (24) | | 282 | | (862) | | (200) | |
| | | | | | | | | | | | |
| Year Ended December 31, 2021 | | | | | | | | | | | | |
| Trading account assets: | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Corporate securities, trading loans and other | $ | 1,359 | | | $ | (17) | | $ | — | | $ | 765 | | $ | (437) | | $ | — | | $ | (327) | | $ | 1,218 | | $ | (451) | | $ | 2,110 | | $ | (79) | |
| Equity securities | 227 | | | (18) | | — | | 103 | | (68) | | — | | — | | 112 | | (166) | | 190 | | (44) | |
| Non-U.S. sovereign debt | 354 | | | 31 | | (20) | | 18 | | — | | — | | (13) | | 26 | | — | | 396 | | 34 | |
| Mortgage trading loans, MBS and ABS | 1,440 | | | (58) | | — | | 518 | | (721) | | 7 | | (167) | | 771 | | (263) | | 1,527 | | (91) | |
| Total trading account assets | 3,380 | | | (62) | | (20) | | 1,404 | | (1,226) | | 7 | | (507) | | 2,127 | | (880) | | 4,223 | | (180) | |
Net derivative assets (liabilities) (4) | (3,468) | | | 927 | | — | | 521 | | (653) | | — | | 293 | | (74) | | (208) | | (2,662) | | 800 | |
| AFS debt securities: | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Non-agency residential MBS | 378 | | | (11) | | (111) | | — | | (98) | | — | | (45) | | 304 | | (101) | | 316 | | 8 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Non-U.S. and other taxable securities | 89 | | | (4) | | (7) | | 8 | | (10) | | — | | (4) | | — | | (1) | | 71 | | — | |
| Tax-exempt securities | 176 | | | 20 | | — | | — | | — | | — | | (2) | | — | | (142) | | 52 | | (19) | |
| Total AFS debt securities | 643 | | | 5 | | (118) | | 8 | | (108) | | — | | (51) | | 304 | | (244) | | 439 | | (11) | |
| Other debt securities carried at fair value – Non-agency residential MBS | 267 | | | 1 | | — | | — | | (45) | | — | | (37) | | 101 | | (45) | | 242 | | 10 | |
Loans and leases (5,6) | 717 | | | 62 | | — | | 59 | | (13) | | 70 | | (180) | | 46 | | (13) | | 748 | | 65 | |
Loans held-for-sale (5,6) | 236 | | | 13 | | (6) | | 132 | | (1) | | — | | (79) | | 26 | | (4) | | 317 | | 18 | |
Other assets (6,7) | 1,970 | | | 7 | | 3 | | 26 | | (202) | | 144 | | (383) | | 9 | | (2) | | 1,572 | | 3 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Trading account liabilities – Corporate securities and other | (16) | | | 6 | | — | | — | | — | | (1) | | — | | — | | — | | (11) | | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Long-term debt (5) | (1,164) | | | (92) | | 13 | | (6) | | 15 | | (12) | | 98 | | (65) | | 138 | | (1,075) | | (113) | |
Significant transfers out of(1)Assets (liabilities). For assets, increase (decrease) to Level 3 primarily dueand for liabilities, (increase) decrease to increased price observability, during 2017 included $1.3 billion of tradingLevel 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 $139 million of(liabilities) - market making and similar activities and other income; AFS debt securities $263 million of federal funds purchased- other income; Other debt securities carried at fair value - other income; Loans and securities loaned or sold under agreementsleases - market making and similar activities and other income; Loans held-for-sale - other income; Other assets - market making and similar activities and other income related to repurchaseMSRs; Short-term borrowings - market making and $218 million of long-term debt.similar activities; Accrued expenses and other liabilities - market making and similar activities and other income; Long-term debt - market making and similar activities.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
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(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. 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 in the impactCorporation’s credit spreads on long-term debt accounted for under the fair value option. Amounts include net unrealized gains (losses) of unobservable inputs on$28 million and $(19) million related to financial instruments still held at December 31, 2022 and 2021.
(4)Net derivative assets (liabilities) include derivative assets of $3.2 billion and $3.1 billion and derivative liabilities of $6.1 billion and $5.8 billion at December 31, 2022 and 2021.
(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 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, 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 2017176152 |
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Level 3 – Fair Value Measurements (1) | | | | | | | | |
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| (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, 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) | | — | | 78 | | (53) | | — | | (3) | | 58 | | (49) | | 227 | | (31) | |
| Non-U.S. sovereign debt | 482 | | 45 | | (46) | | 76 | | (61) | | — | | (39) | | 150 | | (253) | | 354 | | 47 | |
| Mortgage trading loans, MBS and ABS | 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) | | — | | 120 | | (646) | | — | | (112) | | (235) | | 178 | | (3,468) | | (953) | |
| AFS debt securities: | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Non-agency residential MBS | 424 | | (2) | | 3 | | 23 | | (54) | | — | | (44) | | 158 | | (130) | | 378 | | (2) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Non-U.S. and other taxable securities | 67 | | 1 | | — | | 9 | | (5) | | — | | (1) | | 18 | | — | | 89 | | 1 | |
| Tax-exempt securities | 108 | | (21) | | 3 | | — | | — | | — | | (169) | | 265 | | (10) | | 176 | | (20) | |
| Total AFS debt securities | 599 | | (22) | | 6 | | 32 | | (59) | | — | | (214) | | 441 | | (140) | | 643 | | (21) | |
| Other debt securities carried at fair value - Non-agency residential MBS | 299 | | 26 | | — | | — | | (180) | | — | | (24) | | 190 | | (44) | | 267 | | 3 | |
Loans and leases (5,6) | 693 | | (4) | | — | | 145 | | (76) | | 22 | | (161) | | 98 | | — | | 717 | | 9 | |
| | | | | | | | | | | |
Loans held-for-sale (5,6) | 375 | | 26 | | (28) | | — | | (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 | | — | | — | | — | | — | | — | | — | | 1 | | — | | — | |
| Trading account liabilities – Corporate securities and other | (15) | | 8 | | — | | (7) | | (3) | | — | | 1 | | — | | — | | (16) | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Long-term debt (5) | (1,149) | | (46) | | 2 | | (104) | | — | | (47) | | 218 | | (52) | | 14 | | (1,164) | | (5) | |
(1)Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2)Includes gains/losses reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly market making and similar activities; Net derivative assets (liabilities) - market making and similar activities and other income; AFS debt securities - 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 - market making and similar activities and other income related to MSRs; Long-term debt - market making and similar activities.
(3)Includes unrealized 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 $41 million related to financial instruments still held at December 31, 2020.
(4)Net derivative assets (liabilities) include derivative assets of $2.8 billion and derivative liabilities of $6.2 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 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.
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Level 3 – Fair Value Measurements in 2015 (1) | | | | | | | | |
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| (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 |
|
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(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.
|
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(4)
| Net derivatives include derivative assets of $5.1 billion and derivative liabilities of $5.6 billion.
|
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(5)
| Amounts represent instruments that are accounted for under the fair value option. |
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(6)
| Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales. |
| |
(7)
| Settlements represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time. |
Significant transfers into Level 3, primarily due to decreased price observability, during 2015 included $1.7 billion of trading account assets, $167 million of AFS debt securities, $144 million of loans and leases, $203 million of LHFS, $411 million of federal funds purchased and securities loaned or sold under agreements to repurchase and $1.6 billion of long-term debt. Transfers occur on a regular basis for these long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.
Significant transfers out of Level 3, primarily due to increased price observability, unless otherwise noted, during 2015 included $851 million of trading account assets, as a result of increased market liquidity, $976 million of AFS debt securities, $300 million of loans and leases, $322 million of other assets and $1.4 billion of long-term debt.
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177153Bank of America 2017
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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, 20172022 and 2016.2021.
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| Quantitative Information about Level 3 Fair Value Measurements at December 31, 2022 | |
| | | | |
| (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 | $ | 852 | | Discounted cash flow, Market comparables | Yield | 0% to 25% | 10 | % |
| Trading account assets – Mortgage trading loans, MBS and ABS | 338 | | Prepayment speed | 0% to 29% CPR | 12% CPR |
| Loans and leases | 137 | | Default rate | 0% to 3% CDR | 1% CDR |
| | | | |
| AFS debt securities – Non-agency residential | 258 | | Price | $0 to $111 | $26 |
| | | | |
| Other debt securities carried at fair value – Non-agency residential | 119 | | Loss severity | 0% to 100% | 24 | % |
| Instruments backed by commercial real estate assets | $ | 362 | | Discounted cash
flow | Yield | 0% to 25% | 10 | % |
| Trading account assets – Corporate securities, trading loans and other | 292 | | Price | $0 to $100 | $75 |
| Trading account assets – Mortgage trading loans, MBS and ABS | 66 | | | | |
| | | | |
| Loans held-for-sale | 4 | | | | |
| Commercial loans, debt securities and other | $ | 4,348 | | Discounted cash flow, Market comparables | Yield | 5% to 43% | 15 | % |
| Trading account assets – Corporate securities, trading loans and other | 2,092 | | Prepayment speed | 10% to 20% | 15 | % |
| Trading account assets – Non-U.S. sovereign debt | 518 | | Default rate | 3% to 4% | 4 | % |
| Trading account assets – Mortgage trading loans, MBS and ABS | 1,148 | | Loss severity | 35% to 40% | 38 | % |
| AFS debt securities – Tax-exempt securities | 51 | | Price | $0 to $157 | $75 |
| AFS debt securities – Non-U.S. and other taxable securities | 195 | | | | |
| Loans and leases | 116 | | | | |
| Loans held-for-sale | 228 | | | | |
| | | | | |
| Other assets, primarily auction rate securities | $ | 779 | | Discounted cash flow, Market comparables | Price | $10 to $97 | $94 |
| | Discount rate | 11 | % | n/a |
| | | | |
| | | | |
| MSRs | $ | 1,020 | | Discounted cash
flow | Weighted-average life, fixed rate (5) | 0 to 14 years | 6 years |
| | Weighted-average life, variable rate (5) | 0 to 12 years | 4 years |
| | Option-adjusted spread, fixed rate | 7% to 14% | 9 | % |
| | Option-adjusted spread, variable rate | 9% to 15% | 12 | % |
| Structured liabilities | | | | | |
| Long-term debt | $ | (862) | | Discounted cash flow, Market comparables, Industry standard derivative pricing (3) | Yield | 22% to 43% | 23 | % |
| | Equity correlation | 0% to 95% | 69 | % |
| | | | |
| | Price | $0 to $119 | $90 |
| | Natural gas forward price | $3/MMBtu to $13/MMBtu | $9 /MMBtu |
| Net derivative assets (liabilities) | | | | | |
| | | | | |
| Credit derivatives | $ | (44) | | Discounted cash flow, Stochastic recovery correlation model | Credit spreads | 3 to 63 bps | 22 bps |
| | Upfront points | 0 to 100 points | 83 points |
| | | | |
| | | | |
| | Prepayment speed | 15% CPR | n/a |
| | Default rate | 2% CDR | n/a |
| | Credit correlation | 18% to 53% | 44 | % |
| | Price | $0 to $151 | $63 |
| Equity derivatives | $ | (1,534) | | Industry standard derivative pricing (3) | Equity correlation | 0% to 100% | 73 | % |
| | Long-dated equity volatilities | 4% to 101% | 44 | % |
| Commodity derivatives | $ | (291) | | Discounted cash flow, Industry standard derivative pricing (3) | Natural gas forward price | $3/MMBtu to $13/MMBtu | $8 /MMBtu |
| | | | |
| | Power forward price | $9 to $123 | $43 |
| | | | |
| | | | | |
| Interest rate derivatives | $ | (1,024) | | Industry standard derivative pricing (4) | Correlation (IR/IR) | (35)% to 89% | 67 | % |
| | Correlation (FX/IR) | 11% to 58% | 43 | % |
| | Long-dated inflation rates | 0% to 39% | 1 | % |
| | Long-dated inflation volatilities | 0% to 5% | 2 | % |
| | Interest rate volatilities | 0% to 2% | 1 | % |
| | | | |
| Total net derivative assets (liabilities) | $ | (2,893) | | | | | |
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| 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 150: Trading account assets – Corporate securities, trading loans and other of $2.4 billion, Trading account assets – Non-U.S. sovereign debt of $518 million, Trading account assets – Mortgage trading loans, MBS and ABS of $1.6 billion, AFS debt securities of $504 million, Other debt securities carried at fair value - Non-agency residential of $119 million, Other assets, including MSRs, of $1.8 billion, Loans and leases of $253 million and LHFS of $232 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
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| | Bank of America 2017178154 |
| | | | | | | |
| Quantitative Information about Level 3 Fair Value Measurements at December 31, 2016 | |
| Quantitative Information about Level 3 Fair Value Measurements at December 31, 2021 | | Quantitative Information about Level 3 Fair Value Measurements at December 31, 2021 |
| | | | | | | | |
| (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 | $ | 1,269 | | 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, MBS and ABS | | Trading account assets – Mortgage trading loans, MBS and ABS | 338 | | Prepayment speed | 1% to 40% CPR | 19% CPR |
| Loans and leases | 718 |
| Default rate | 0% to 3% CDR |
| 2 | % | Loans and leases | 373 | | Default rate | 0% to 3% CDR | 1% CDR |
| Loans held-for-sale | 11 |
| Discounted cash flow, Market comparables | Loss severity | 0% to 54% |
| 18 | % | |
| AFS debt securities - Non-agency residential | | AFS debt securities - Non-agency residential | 316 | | Discounted cash
flow, Market comparables | Price | $0 to td68 | $92 |
| Other debt securities carried at fair value - Non-agency residential | | Other debt securities carried at fair value - Non-agency residential | 242 | | Loss severity | 0% to 43% | 13 | % |
| Instruments backed by commercial real estate assets | $ | 317 |
| Yield | 0% to 39% |
| 11 | % | Instruments backed by commercial real estate assets | $ | 298 | | Yield | 0% to 25% | 4 | % |
| Trading account assets – Corporate securities, trading loans and other | 178 |
| Discounted cash flow, Market comparables | Price | $0 to td00 |
| $65 | Trading account assets – Corporate securities, trading loans and other | 138 | | Price | $0 to td01 | $57 |
| Trading account assets – Mortgage trading loans, ABS and other MBS | 53 |
| | | |
| Trading account assets – Mortgage trading loans, MBS and ABS | | Trading account assets – Mortgage trading loans, MBS and ABS | 77 | | Discounted cash
flow | | | |
| AFS debt securities – Non-U.S. and other taxable securities | | AFS debt securities – Non-U.S. and other taxable securities | 71 | | | | |
| Loans held-for-sale | 86 |
| Discounted cash flow, Market comparables | | | Loans held-for-sale | 12 | | | | |
| Commercial loans, debt securities and other | $ | 4,486 |
| Yield | 1% to 37% |
| 14 | % | Commercial loans, debt securities and other | $ | 4,212 | | Yield | 0% to 19% | 10 | % |
| 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 | 1,972 | | Prepayment speed | 10% to 20% | 16 | % |
| Trading account assets – Non-U.S. sovereign debt | 510 |
| Default rate | 3% to 4% |
| 4 | % | Trading account assets – Non-U.S. sovereign debt | 396 | | Discounted cash flow, Market comparables | Default rate | 3% to 4% | 4 | % |
| Trading account assets – Mortgage trading loans, ABS and other MBS | 821 |
| Discounted cash flow, Market comparables | Loss severity | 0% to 50% |
| 19 | % | |
| AFS debt securities – Other taxable securities | 29 |
| Price | $0 to td92 |
| $68 | |
| Trading account assets – Mortgage trading loans, MBS and ABS | | Trading account assets – Mortgage trading loans, MBS and ABS | 1,112 | | Loss severity | 35% to 40% | 37 | % |
| AFS debt securities – Tax-exempt securities | | AFS debt securities – Tax-exempt securities | 52 | | Price | $0 to td89 | $73 |
| Loans and leases | 2 |
| Duration | 0 to 5 years |
| 3 years | Loans and leases | 375 | | Long-dated equity volatilities | 45% | n/a |
| Loans held-for-sale | 559 |
| Enterprise value/EBITDA multiple | 34x |
| n/a | Loans held-for-sale | 305 | | | | |
| Auction rate securities | $ | 1,141 |
| Discounted cash flow, Market comparables | 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 | $ | 754 | | Discounted cash flow, Market comparables | Price | td0 to $96 | $91 |
| |
| | Discount rate | 9% | n/a |
| | MSRs | $ | 2,747 |
| Discounted cash flow | Weighted-average life, fixed rate (4) | 0 to 15 years |
| 6 years |
| MSRs | $ | 818 | | Discounted cash
flow | Weighted-average life, fixed rate (5) | 0 to 14 years | 4 years |
| | | Weighted-average life, variable rate (4) | 0 to 14 years |
| 4 years |
| | | Weighted-average life, variable rate (5) | 0 to 10 years | 3 years |
| | | Option Adjusted Spread, fixed rate | 9% to 14% |
| 10 | % | | | 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% | 12 | % |
| 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 | $ | (1,075) | | Discounted cash flow, Market comparables, Industry standard derivative pricing (3) | Yield | 0% to 19% | 18 | % |
| | | Long-dated equity volatilities | 4% to 76% |
| 26 | % | | | Equity correlation | 3% to 100% | 80 | % |
| | | Yield | 6% to 37% |
| 20 | % | | | Long-dated equity volatilities | 5% to 78% | 36 | % |
| | | Price | td2 to $87 |
| $73 | | | Price | $0 to td25 | $82 |
| | | Duration | 0 to 5 years |
| 3 years |
| | | Natural gas forward price | td/MMBtu to $8/MMBtu | $4/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 | $ | (104) | | Discounted cash flow, Stochastic recovery correlation model | Credit spreads | 7 to 155 bps | 61 bps |
| | | Upfront points | 0 to 100 points |
| 72 points |
| | | Upfront points | 16 to 100 points | 68 points |
| | | Credit spreads | 17 bps to 814 bps |
| 248 bps |
| |
| | | Credit correlation | 21% to 80% |
| 44 | % | | | Prepayment speed | 15% CPR | n/a |
| | | Prepayment speed | 10% to 20% CPR |
| 18 | % | | | Default rate | 2% CDR | n/a |
| | | Default rate | 1% to 4% CDR |
| 3 | % | | | Credit correlation | 20% to 60% | 55 | % |
| | | Loss severity | 35 | % | n/a |
| | | Price | $0 to td20 | $53 |
| Equity derivatives | $ | (1,690 | ) | Industry standard derivative pricing (2) | Equity correlation | 13% to 100% |
| 68 | % | Equity derivatives | $ | (1,710) | | Industry standard derivative pricing (3) | Equity correlation | 3% to 100% | 80 | % |
| | | Long-dated equity volatilities | 4% to 76% |
| 26 | % | | | Long-dated equity volatilities | 5% to 78% | 36 | % |
| Commodity derivatives | $ | 6 |
| Discounted cash flow, Industry standard derivative pricing (2) | Natural gas forward price | td/MMBtu to $6/MMBtu |
| $4/MMBtu |
| Commodity derivatives | $ | (976) | | Discounted cash flow, Industry standard derivative pricing (3) | Natural gas forward price | td/MMBtu to $8/MMBtu | $4/MMBtu |
| | | Correlation | 66% to 95% |
| 85 | % | | | Correlation | 65% to 85% | 76 | % |
| | | Volatilities | 23% to 96% |
| 36 | % | | | Power forward price | td1 to td03 | $32 |
| | | | | | | Volatilities | 41% to 69% | 63 | % |
| Interest rate derivatives | $ | 500 |
| Industry standard derivative pricing (3) | Correlation (IR/IR) | 15% to 99% |
| 56 | % | Interest rate derivatives | $ | 128 | | Industry standard derivative pricing (4) | Correlation (IR/IR) | (1)% to 90% | 54 | % |
| | | Correlation (FX/IR) | 0% to 40% |
| 2 | % | | | Correlation (FX/IR) | (1)% to 58% | 44 | % |
| | | Illiquid IR and long-dated inflation rates | -12% to 35% |
| 5 | % | | | Long-dated inflation rates | G(10)% to 11% | 3 | % |
| | | Long-dated inflation volatilities | 0% to 2% |
| 1 | % | | | Long-dated inflation volatilities | 0% to 2% | 2 | % |
| Total net derivative assets | $ | (1,313 | ) | | | | | |
| | | | Industry standard derivative pricing (4) | Interest rates volatilities | 0% to 2% | 1 | % |
| Total net derivative assets (liabilities) | | Total net derivative assets (liabilities) | $ | (2,662) | | | | |
| |
(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 151: Trading account assets – Corporate securities, trading loans and other of $2.1 billion, Trading account assets – Non-U.S. sovereign debt of $396 million, Trading account assets – Mortgage trading loans, MBS and ABS of $1.5 billion, AFS debt securities of $439 million, Other debt securities carried at fair value - Non-agency residential of $242 million, Other assets, including MSRs, of $1.6 billion, Loans and leases of $748 million and LHFS of $317 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
|
| | | | | | | |
179155Bank 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 levellevels 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, 20162022, 2021, and 2015.2020.
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| | | | | | | | | | |
| Assets Measured at Fair Value on a Nonrecurring Basis |
| |
| |
| December 31, 2022 | | | | | December 31, 2021 |
| (Dollars in millions) | Level 2 | | Level 3 | | | Level 2 | | Level 3 |
| Assets | | | | | | | | | | |
| Loans held-for-sale | $ | 1,979 | | | $ | 3,079 | | | | | | $ | 634 | | | $ | 24 | |
Loans and leases (1) | — | | | 166 | | | | | | — | | | 213 | |
Foreclosed properties (2, 3) | — | | | 7 | | | | | | — | | | 5 | |
| Other assets | 88 | | | 165 | | | | | | 256 | | | 2,046 | |
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| | | | | | | | | | |
| | | Gains (Losses) |
| | | 2022 | | | | | 2021 | | 2020 |
| Assets | | | | | | | | | | |
| Loans held-for-sale | | | $ | (387) | | | | | | $ | (44) | | | $ | (79) | |
Loans and leases (1) | | | (48) | | | | | | (60) | | | (73) | |
| Foreclosed properties | | | (6) | | | | | | (2) | | | (6) | |
| Other assets | | | (91) | | | | | | (492) | | | (98) | |
(1)Includes $15 million, $24 million and $30 million of losses on loans that were written down to a collateral value of zero during 2022, 2021 and 2020, 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 $60 million and $52 million of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) at December 31, 2022 and 2021.
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| | | | | | | | |
| 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 156
|
| |
(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 assets and liabilitiesfair value measurements at December 31, 20172022 and 2016. Loans and leases backed by residential real estate assets represent2021.
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| | | | | |
| 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) | Year Ended December 31, 2022 |
| Loans held-for-sale | $ | 3,079 | | Pricing model | Implied yield | 9% to 24% | n/a |
Loans and leases (2) | 166 | | Market comparables | OREO discount | 10% to 66% | 26 | % |
| | | Costs to sell | 8% to 24% | 9 | % |
Other assets (3) | 165 | | Discounted cash flow | Discount rate | 7 | % | n/a |
| | | | | |
| Year Ended December 31, 2021 |
| | | | | |
Loans and leases (2) | $ | 213 | | Market comparables | OREO discount | 13% to 59% | 24 | % |
| | | Costs to sell | 8% to 26% | 9 | % |
Other assets (4) | 1,875 | | Discounted cash flow | Discount rate | 7% | n/a |
| 166 | Market comparables | Estimated appraisal value | n/a | n/a |
(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.
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| 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 | % |
n/a = not applicable
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 also 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, 20172022 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 trade2021, 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, 20162022, 2021 and 2015.2020.
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| Fair Value Option Elections |
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| December 31, 2022 | | December 31, 2021 |
| (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 | $ | 146,999 | | | $ | 147,158 | | | $ | (159) | | | $ | 150,665 | | | $ | 150,677 | | | $ | (12) | |
Loans reported as trading account assets (1) | 10,143 | | | 17,682 | | | (7,539) | | | 10,864 | | | 18,895 | | | (8,031) | |
| Trading inventory – other | 20,770 | | | n/a | | n/a | | 21,986 | | | n/a | | n/a |
| Consumer and commercial loans | 5,771 | | | 5,897 | | | (126) | | | 7,819 | | | 7,888 | | | (69) | |
Loans held-for-sale (1) | 1,115 | | | 1,873 | | | (758) | | | 4,455 | | | 5,343 | | | (888) | |
| | | | | | | | | | | |
| Other assets | 620 | | | n/a | | n/a | | 544 | | | n/a | | n/a |
| Long-term deposits | 311 | | | 381 | | | (70) | | | 408 | | | 401 | | | 7 | |
| Federal funds purchased and securities loaned or sold under agreements to repurchase | 151,708 | | | 151,885 | | | (177) | | | 139,641 | | | 139,682 | | | (41) | |
| Short-term borrowings | 832 | | | 833 | | | (1) | | | 4,279 | | | 4,127 | | | 152 | |
| Unfunded loan commitments | 110 | | | n/a | | n/a | | 97 | | | n/a | | n/a |
| Accrued expenses and other liabilities | 1,217 | | | 1,161 | | | 56 | | | — | | | — | | | — | |
| Long-term debt | 33,070 | | | 36,830 | | | (3,760) | | | 29,708 | | | 30,903 | | | (1,195) | |
(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 |
|
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| | 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 |
|
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| | 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 |
|
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(1)
| The gains in trading account profits are primarily offset by losses on trading liabilities that hedge these assets. |
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(2)
| Includes the value of IRLCs on funded loans, including those sold during the period. |
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(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. |
|
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| Gains (Losses) Related to Borrower-specific Credit Risk for Assets Accounted for Under the Fair Value Option |
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| (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 |
|
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183Bank of America 2017158
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| Gains (Losses) Related to Assets and Liabilities Accounted for Under the Fair Value Option |
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| | | |
| Market making
and similar
activities | | Other
Income | | Total | | | | | | |
| (Dollars in millions) | 2022 | | |
| | | | | | | | | | | |
| Loans reported as trading account assets | $ | (164) | | | $ | — | | | $ | (164) | | | | | | | |
Trading inventory – other (1) | (1,159) | | | — | | | (1,159) | | | | | | | |
| Consumer and commercial loans | (58) | | | (27) | | | (85) | | | | | | | |
Loans held-for-sale (2) | — | | | (304) | | | (304) | | | | | | | |
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| Short-term borrowings | 639 | | | — | | | 639 | | | | | | | |
| Unfunded loan commitments | — | | | 8 | | | 8 | | | | | | | |
| Accrued expenses and other liabilities | 11 | | | — | | | 11 | | | | | | | |
Long-term debt (3) | 4,359 | | | (46) | | | 4,313 | | | | | | | |
Other (4) | 74 | | | 30 | | | 104 | | | | | | | |
| Total | $ | 3,702 | | | $ | (339) | | | $ | 3,363 | | | | | | | |
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| 2021 | | | | | | |
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| Loans reported as trading account assets | $ | 275 | | | $ | — | | | $ | 275 | | | | | | | |
Trading inventory – other (1) | (211) | | | — | | | (211) | | | | | | | |
| Consumer and commercial loans | 78 | | | 40 | | | 118 | | | | | | | |
Loans held-for-sale (2) | — | | | 58 | | | 58 | | | | | | | |
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| Short-term borrowings | 883 | | | — | | | 883 | | | | | | | |
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Long-term debt (3) | (604) | | | (41) | | | (645) | | | | | | | |
Other (4) | 18 | | | (23) | | | (5) | | | | | | | |
| Total | $ | 439 | | | $ | 34 | | | $ | 473 | | | | | | | |
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| 2020 | | | | | | |
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| Loans reported as trading account assets | $ | 107 | | | $ | — | | | $ | 107 | | | | | | | |
Trading inventory – other (1) | 3,216 | | | — | | | 3,216 | | | | | | | |
| Consumer and commercial loans | 22 | | | (3) | | | 19 | | | | | | | |
Loans held-for-sale (2) | — | | | 103 | | | 103 | | | | | | | |
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| Short-term borrowings | (170) | | | — | | | (170) | | | | | | | |
| Unfunded loan commitments | — | | | (65) | | | (65) | | | | | | | |
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Long-term debt (3) | (2,175) | | | (53) | | | (2,228) | | | | | | | |
Other (4) | 35 | | | (22) | | | 13 | | | | | | | |
| Total | $ | 1,035 | | | $ | (40) | | | $ | 995 | | | | | | | |
(1) The gains (losses) in market making and similar activities are primarily offset by (losses) gains 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, other assets, 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) | 2022 | | 2021 | | | | 2020 | | |
| Loans reported as trading account assets | $ | (950) | | | $ | 128 | | | | | $ | (172) | | | |
| Consumer and commercial loans | (51) | | | 7 | | | | | (19) | | | |
| Loans held-for-sale | (23) | | | 28 | | | | | (105) | | | |
| Unfunded loan commitments | 8 | | | (1) | | | | | (65) | | | |
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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, 20172022 and 20162021 are presented in the following table.table below.
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| Fair Value of Financial Instruments |
| | | |
| | | Fair Value |
| Carrying Value | | Level 2 | | Level 3 | | Total |
| (Dollars in millions) | December 31, 2022 |
| Financial assets | | | | | | | |
| Loans | $ | 1,014,593 | | | $ | 50,194 | | | $ | 935,282 | | | $ | 985,476 | |
| Loans held-for-sale | 6,871 | | | 3,417 | | | 3,455 | | | 6,872 | |
| Financial liabilities | | | | | | | |
Deposits (1) | 1,930,341 | | | 1,930,165 | | | — | | | 1,930,165 | |
| Long-term debt | 275,982 | | | 271,993 | | | 1,136 | | | 273,129 | |
Commercial unfunded lending commitments (2) | 1,650 | | | 77 | | | 6,596 | | | 6,673 | |
| | | | | | | |
| December 31, 2021 |
| Financial assets | | | | | | | |
| Loans | $ | 946,142 | | | $ | 53,544 | | | $ | 919,980 | | | $ | 973,524 | |
| Loans held-for-sale | 15,635 | | | 15,016 | | | 627 | | | 15,643 | |
| Financial liabilities | | | | | | | |
Deposits (1) | 2,064,446 | | | 2,064,438 | | | — | | | 2,064,438 | |
| Long-term debt | 280,117 | | | 286,802 | | | 1,288 | | | 288,090 | |
Commercial unfunded lending commitments (2) | 1,554 | | | 97 | | | 6,384 | | | 6,481 | |
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| Fair Value of Financial Instruments |
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| | | | 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 $918.9 billion and fair values of the Corporation’s commercial unfunded lending commitments were $897 million and $4.0 billion$1.0 trillion with no stated maturities at December 31, 2017,2022 and $937 million and $4.9 billion at December 31, 2016. Substantially all commercial unfunded lending commitments are classified as Level 3.2021.
(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 four business segments: Consumer Banking, GWIMBanking, Global Wealth & Investment Management,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.loans.
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 primarily 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, interest rate and foreign currency risk management activities for which 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 majority of the Corporation’s ALM activities are allocated to the business segments and fluctuate based on the performance of the ALM activities. ALM activities include external product pricing decisions including deposit pricing strategies, the effects of the Corporation’s internal funds transfer pricing process and the net effects of other ALM activities.
Certain expenses not directly attributable to a specific business segment are allocated to the segments. The costs of certain centralized or shared functions are allocated based on methodologies that reflect utilization.
Effective October 1, 2021, a business activity previously
included in the Global Markets segment is being reported as a liquidating business in All Other, consistent with a realignment in performance reporting to senior management. While this activity was not material to Global Markets’ results of operations and historical results have not been restated, this activity’s noninterest expense of $309 million and $473 million for the three months ended September 30, 2021 and June 30, 2021 was elevated and would have been excluded from Global Markets’ results of operations for those periods under the new basis of presentation.
The tablestable below presentpresents net income (loss) and the components thereto (with net interest income on an FTE basis)basis for 2017, 2016the business segments, All Other and 2015,the total Corporation) for 2022, 2021 and 2020, and total assets at December 31, 20172022, 2021 and 20162020 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) | | | | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | | | | | 2020 |
| Net interest income | | | | | $ | 52,900 | | | $ | 43,361 | | | $ | 43,859 | | | $ | 30,045 | | | $ | 24,929 | | | | | | | $ | 24,698 | |
| Noninterest income | | | | | 42,488 | | | 46,179 | | | 42,168 | | | 8,590 | | | 9,076 | | | | | | | 8,564 | |
| Total revenue, net of interest expense | | | | | 95,388 | | | 89,540 | | | 86,027 | | | 38,635 | | | 34,005 | | | | | | | 33,262 | |
| Provision for credit losses | | | | | 2,543 | | | (4,594) | | | 11,320 | | | 1,980 | | | (1,035) | | | | | | | 5,765 | |
| Noninterest expense | | | | | 61,438 | | | 59,731 | | | 55,213 | | | 20,077 | | | 19,290 | | | | | | | 18,882 | |
| Income before income taxes | | | | | 31,407 | | | 34,403 | | | 19,494 | | | 16,578 | | | 15,750 | | | | | | | 8,615 | |
| Income tax expense | | | | | 3,879 | | | 2,425 | | | 1,600 | | | 4,062 | | | 3,859 | | | | | | | 2,111 | |
| Net income | | | | | $ | 27,528 | | | $ | 31,978 | | | $ | 17,894 | | | $ | 12,516 | | | $ | 11,891 | | | | | | | $ | 6,504 | |
| Year-end total assets | | | | | $ | 3,051,375 | | | $ | 3,169,495 | | | | | $ | 1,126,453 | | | $ | 1,131,142 | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | Global Wealth & Investment Management | | Global Banking |
| | | | | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | | | | | 2020 |
| Net interest income | | | | | $ | 7,466 | | | $ | 5,664 | | | $ | 5,468 | | | $ | 12,184 | | | $ | 8,511 | | | | | | | $ | 9,013 | |
| Noninterest income | | | | | 14,282 | | | 15,084 | | | 13,116 | | | 10,045 | | | 12,364 | | | | | | | 9,974 | |
| Total revenue, net of interest expense | | | | | 21,748 | | | 20,748 | | | 18,584 | | | 22,229 | | | 20,875 | | | | | | | 18,987 | |
| Provision for credit losses | | | | | 66 | | | (241) | | | 357 | | | 641 | | | (3,201) | | | | | | | 4,897 | |
| Noninterest expense | | | | | 15,490 | | | 15,258 | | | 14,160 | | | 10,966 | | | 10,632 | | | | | | | 9,342 | |
| Income before income taxes | | | | | 6,192 | | | 5,731 | | | 4,067 | | | 10,622 | | | 13,444 | | | | | | | 4,748 | |
| Income tax expense | | | | | 1,517 | | | 1,404 | | | 996 | | | 2,815 | | | 3,630 | | | | | | | 1,282 | |
| Net income | | | | | $ | 4,675 | | | $ | 4,327 | | | $ | 3,071 | | | $ | 7,807 | | | $ | 9,814 | | | | | | | $ | 3,466 | |
| Year-end total assets | | | | | $ | 368,893 | | | $ | 438,275 | | | | | $ | 588,466 | | | $ | 638,131 | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | Global Markets | | All Other |
| | | | | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | | | | | 2020 |
| Net interest income | | | | | $ | 3,088 | | | $ | 4,011 | | | $ | 4,646 | | | $ | 117 | | | $ | 246 | | | | | | | $ | 34 | |
| Noninterest income | | | | | 15,050 | | | 15,244 | | | 14,119 | | | (5,479) | | | (5,589) | | | | | | | (3,605) | |
| Total revenue, net of interest expense | | | | | 18,138 | | | 19,255 | | | 18,765 | | | (5,362) | | | (5,343) | | | | | | | (3,571) | |
| Provision for credit losses | | | | | 28 | | | 65 | | | 251 | | | (172) | | | (182) | | | | | | | 50 | |
| Noninterest expense | | | | | 12,420 | | | 13,032 | | | 11,417 | | | 2,485 | | | 1,519 | | | | | | | 1,412 | |
| Income (loss) before income taxes | | | | | 5,690 | | | 6,158 | | | 7,097 | | | (7,675) | | | (6,680) | | | | | | | (5,033) | |
| Income tax expense (benefit) | | | | | 1,508 | | | 1,601 | | | 1,845 | | | (6,023) | | | (8,069) | | | | | | | (4,634) | |
| Net income (loss) | | | | | $ | 4,182 | | | $ | 4,557 | | | $ | 5,252 | | | $ | (1,652) | | | $ | 1,389 | | | | | | | $ | (399) | |
| Year-end total assets | | | | | $ | 812,489 | | | $ | 747,794 | | | | | $ | 155,074 | | | $ | 214,153 | | | | | | | |
(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 tables below present noninterest income and the associated components for 2022, 2021 and 2020 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) | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
| Fees and commissions: | | | | | | | | | | | | | | | | | |
| Card income | | | | | | | | | | | | | | | | | |
| Interchange fees | $ | 4,096 | | | $ | 4,560 | | | $ | 3,954 | | | $ | 3,239 | | | $ | 3,597 | | | $ | 3,027 | | | $ | 20 | | | $ | 43 | | | $ | 36 | |
| Other card income | 1,987 | | | 1,658 | | | 1,702 | | | 1,930 | | | 1,575 | | | 1,646 | | | 50 | | | 42 | | | 42 | |
| Total card income | 6,083 | | | 6,218 | | | 5,656 | | | 5,169 | | | 5,172 | | | 4,673 | | | 70 | | | 85 | | | 78 | |
| Service charges | | | | | | | | | | | | | | | | | |
| Deposit-related fees | 5,190 | | | 6,271 | | | 5,991 | | | 2,706 | | | 3,538 | | | 3,417 | | | 65 | | | 72 | | | 67 | |
| Lending-related fees | 1,215 | | | 1,233 | | | 1,150 | | | — | | | — | | | — | | | 8 | | | — | | | — | |
| Total service charges | 6,405 | | | 7,504 | | | 7,141 | | | 2,706 | | | 3,538 | | | 3,417 | | | 73 | | | 72 | | | 67 | |
| Investment and brokerage services | | | | | | | | | | | | | | | | | |
| Asset management fees | 12,152 | | | 12,729 | | | 10,708 | | | 195 | | | 188 | | | 146 | | | 11,957 | | | 12,541 | | | 10,578 | |
| Brokerage fees | 3,749 | | | 3,961 | | | 3,866 | | | 109 | | | 132 | | | 127 | | | 1,604 | | | 1,771 | | | 1,692 | |
| Total investment and brokerage services | 15,901 | | | 16,690 | | | 14,574 | | | 304 | | | 320 | | | 273 | | | 13,561 | | | 14,312 | | | 12,270 | |
| Investment banking fees | | | | | | | | | | | | | | | | | |
| Underwriting income | 1,970 | | | 5,077 | | | 4,698 | | | — | | | — | | | — | | | 189 | | | 388 | | | 391 | |
| Syndication fees | 1,070 | | | 1,499 | | | 861 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Financial advisory services | 1,783 | | | 2,311 | | | 1,621 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total investment banking fees | 4,823 | | | 8,887 | | | 7,180 | | | — | | | — | | | — | | | 189 | | | 388 | | | 391 | |
| Total fees and commissions | 33,212 | | | 39,299 | | | 34,551 | | | 8,179 | | | 9,030 | | | 8,363 | | | 13,893 | | | 14,857 | | | 12,806 | |
| Market making and similar activities | 12,075 | | | 8,691 | | | 8,355 | | | 10 | | | 1 | | | 2 | | | 102 | | | 40 | | | 63 | |
| Other income (loss) | (2,799) | | | (1,811) | | | (738) | | | 401 | | | 45 | | | 199 | | | 287 | | | 187 | | | 247 | |
| Total noninterest income | $ | 42,488 | | | $ | 46,179 | | | $ | 42,168 | | | $ | 8,590 | | | $ | 9,076 | | | $ | 8,564 | | | $ | 14,282 | | | $ | 15,084 | | | $ | 13,116 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Global Banking | | Global Markets | | All Other (1) |
| | | |
| 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
| Fees and commissions: | | | | | | | | | | | | | | | | | |
| Card income | | | | | | | | | | | | | | | | | |
| Interchange fees | $ | 767 | | | $ | 700 | | | $ | 499 | | | $ | 66 | | | $ | 220 | | | $ | 391 | | | $ | 4 | | | $ | — | | | $ | 1 | |
| Other card income | 7 | | | 13 | | | 14 | | | — | | | — | | | — | | | — | | | 28 | | | — | |
| Total card income | 774 | | | 713 | | | 513 | | | 66 | | | 220 | | | 391 | | | 4 | | | 28 | | | 1 | |
| Service charges | | | | | | | | | | | | | | | | | |
| Deposit-related fees | 2,310 | | | 2,508 | | | 2,298 | | | 101 | | | 146 | | | 177 | | | 8 | | | 7 | | | 32 | |
| Lending-related fees | 983 | | | 1,015 | | | 940 | | | 224 | | | 218 | | | 210 | | | — | | | — | | | — | |
| Total service charges | 3,293 | | | 3,523 | | | 3,238 | | | 325 | | | 364 | | | 387 | | | 8 | | | 7 | | | 32 | |
| Investment and brokerage services | | | | | | | | | | | | | | | | | |
| Asset management fees | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (16) | |
| Brokerage fees | 42 | | | 104 | | | 74 | | | 2,002 | | | 1,979 | | | 1,973 | | | (8) | | | (25) | | | — | |
| Total investment and brokerage services | 42 | | | 104 | | | 74 | | | 2,002 | | | 1,979 | | | 1,973 | | | (8) | | | (25) | | | (16) | |
| Investment banking fees | | | | | | | | | | | | | | | | | |
| Underwriting income | 796 | | | 2,187 | | | 2,070 | | | 1,176 | | | 2,725 | | | 2,449 | | | (191) | | | (223) | | | (212) | |
| Syndication fees | 565 | | | 781 | | | 482 | | | 505 | | | 718 | | | 379 | | | — | | | — | | | — | |
| Financial advisory services | 1,643 | | | 2,139 | | | 1,458 | | | 139 | | | 173 | | | 163 | | | 1 | | | (1) | | | — | |
| Total investment banking fees | 3,004 | | | 5,107 | | | 4,010 | | | 1,820 | | | 3,616 | | | 2,991 | | | (190) | | | (224) | | | (212) | |
| Total fees and commissions | 7,113 | | | 9,447 | | | 7,835 | | | 4,213 | | | 6,179 | | | 5,742 | | | (186) | | | (214) | | | (195) | |
| Market making and similar activities | 215 | | | 145 | | | 103 | | | 11,406 | | | 8,760 | | | 8,471 | | | 342 | | | (255) | | | (284) | |
| Other income (loss) | 2,717 | | | 2,772 | | | 2,036 | | | (569) | | | 305 | | | (94) | | | (5,635) | | | (5,120) | | | (3,126) | |
| Total noninterest income | $ | 10,045 | | | $ | 12,364 | | | $ | 9,974 | | | $ | 15,050 | | | $ | 15,244 | | | $ | 14,119 | | | $ | (5,479) | | | $ | (5,589) | | | $ | (3,605) | |
(1)All Other includes eliminations of intercompany transactions.
| | | | | | | | |
| | Bank of America 2017186162 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Business Segment Reconciliations | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| (Dollars in millions) | | | | | | 2022 | | 2021 | | 2020 |
| Segments’ total revenue, net of interest expense | | | | | | $ | 100,750 | | | $ | 94,883 | | | $ | 89,598 | |
Adjustments (1): | | | | | | | | | | |
| Asset and liability management activities | | | | | | (164) | | | (4) | | | 375 | |
| Liquidating businesses, eliminations and other | | | | | | (5,198) | | | (5,339) | | | (3,946) | |
| FTE basis adjustment | | | | | | (438) | | | (427) | | | (499) | |
| Consolidated revenue, net of interest expense | | | | | | $ | 94,950 | | | $ | 89,113 | | | $ | 85,528 | |
| Segments’ total net income | | | | | | 29,180 | | | 30,589 | | | 18,293 | |
Adjustments, net-of-tax (1): | | | | | | | | | | |
| Asset and liability management activities | | | | | | (122) | | | 11 | | | 279 | |
| Liquidating businesses, eliminations and other | | | | | | (1,530) | | | 1,378 | | | (678) | |
| Consolidated net income | | | | | | $ | 27,528 | | | $ | 31,978 | | | $ | 17,894 | |
| | | | | | | | | | |
| | | | | | December 31 |
| | | | | | | | 2022 | | 2021 |
| Segments’ total assets | | | | | | | | $ | 2,896,301 | | | $ | 2,955,342 | |
Adjustments (1): | | | | | | | | | | |
| Asset and liability management activities, including securities portfolio | | | | | | | | 1,133,375 | | | 1,363,626 | |
| Elimination of segment asset allocations to match liabilities | | | | | | | | (1,041,793) | | | (1,216,891) | |
| | | | | | | | | | |
| Other | | | | | | | | 63,492 | | | 67,418 | |
| Consolidated total assets | | | | | | | | $ | 3,051,375 | | | $ | 3,169,495 | |
(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) | 2022 | | 2021 | | 2020 |
| Income | | | | | |
| Dividends from subsidiaries: | | | | | |
| Bank holding companies and related subsidiaries | $ | 22,250 | | | $ | 15,621 | | | $ | 10,352 | |
| | | | | |
| Interest from subsidiaries | 12,420 | | | 8,362 | | | 8,825 | |
| Other income (loss) | (201) | | | (114) | | | (138) | |
| Total income | 34,469 | | | 23,869 | | | 19,039 | |
| Expense | | | | | |
| Interest on borrowed funds from subsidiaries | 236 | | | 54 | | | 136 | |
| Other interest expense | 7,041 | | | 3,383 | | | 4,119 | |
| Noninterest expense | 1,322 | | | 1,531 | | | 1,651 | |
| Total expense | 8,599 | | | 4,968 | | | 5,906 | |
| Income before income taxes and equity in undistributed earnings of subsidiaries | 25,870 | | | 18,901 | | | 13,133 | |
| Income tax expense | 683 | | | 886 | | | 649 | |
| Income before equity in undistributed earnings of subsidiaries | 25,187 | | | 18,015 | | | 12,484 | |
| Equity in undistributed earnings (losses) of subsidiaries: | | | | | |
| Bank holding companies and related subsidiaries | 2,333 | | | 14,078 | | | 5,372 | |
| Nonbank companies and related subsidiaries | 8 | | | (115) | | | 38 | |
| Total equity in undistributed earnings (losses) of subsidiaries | 2,341 | | | 13,963 | | | 5,410 | |
| Net income | $ | 27,528 | | | $ | 31,978 | | | $ | 17,894 | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | |
| | | | | | |
| 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) | 2022 | | 2021 |
| Assets | | | |
| Cash held at bank subsidiaries | $ | 9,609 | | | $ | 5,011 | |
| Securities | 617 | | | 671 | |
| Receivables from subsidiaries: | | | |
| Bank holding companies and related subsidiaries | 222,584 | | | 217,447 | |
| Banks and related subsidiaries | 220 | | | 347 | |
| Nonbank companies and related subsidiaries | 978 | | | 368 | |
| Investments in subsidiaries: | | | |
| Bank holding companies and related subsidiaries | 301,207 | | | 316,497 | |
| Nonbank companies and related subsidiaries | 3,770 | | | 3,645 | |
| Other assets | 7,156 | | | 8,602 | |
| Total assets | $ | 546,141 | | | $ | 552,588 | |
| Liabilities and shareholders’ equity | | | |
| | | |
| Accrued expenses and other liabilities | $ | 14,193 | | | $ | 17,394 | |
| Payables to subsidiaries: | | | |
| | | |
| Banks and related subsidiaries | 260 | | | 107 | |
| Bank holding companies and related subsidiaries | 21 | | | 3 | |
| Nonbank companies and related subsidiaries | 14,578 | | | 11,564 | |
| Long-term debt | 243,892 | | | 253,454 | |
| Total liabilities | 272,944 | | | 282,522 | |
| Shareholders’ equity | 273,197 | | | 270,066 | |
| Total liabilities and shareholders’ equity | $ | 546,141 | | | $ | 552,588 | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| Condensed Statement of Cash Flows | | | | | |
| | | | | |
| (Dollars in millions) | 2022 | | 2021 | | 2020 |
| Operating activities | | | | | |
| Net income | $ | 27,528 | | | $ | 31,978 | | | $ | 17,894 | |
| Reconciliation of net income (loss) to net cash provided by (used in) operating activities: | | | | | |
| Equity in undistributed (earnings) losses of subsidiaries | (2,341) | | | (13,963) | | | (5,410) | |
| Other operating activities, net | (31,777) | | | (7,144) | | | 14,303 | |
| Net cash provided by (used in) operating activities | (6,590) | | | 10,871 | | | 26,787 | |
| Investing activities | | | | | |
| Net sales (purchases) of securities | 25 | | | (14) | | | (4) | |
| Net payments to subsidiaries | (6,044) | | | (10,796) | | | (33,111) | |
| Other investing activities, net | (34) | | | (26) | | | (7) | |
| Net cash used in investing activities | (6,053) | | | (10,836) | | | (33,122) | |
| Financing activities | | | | | |
| | | | | |
| Net increase (decrease) in other advances | 2,853 | | | 503 | | | (422) | |
| Proceeds from issuance of long-term debt | 44,123 | | | 56,106 | | | 43,766 | |
| Retirement of long-term debt | (19,858) | | | (24,544) | | | (23,168) | |
| Proceeds from issuance of preferred stock and warrants | 4,426 | | | 2,170 | | | 2,181 | |
| Redemption of preferred stock | (654) | | | (1,971) | | | (1,072) | |
| Common stock repurchased | (5,073) | | | (25,126) | | | (7,025) | |
| Cash dividends paid | (8,576) | | | (8,055) | | | (7,727) | |
| | | | | |
| Net cash provided by (used in) financing activities | 17,241 | | | (917) | | | 6,533 | |
| Net increase (decrease) in cash held at bank subsidiaries | 4,598 | | | (882) | | | 198 | |
| Cash held at bank subsidiaries at January 1 | 5,011 | | | 5,893 | | | 5,695 | |
| Cash held at bank subsidiaries at December 31 | $ | 9,609 | | | $ | 5,011 | | | $ | 5,893 | |
|
| | | | | | | | | | | |
| | | | | | |
| 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) | 2022 | | $ | 2,631,815 | | | $ | 82,890 | | | $ | 28,135 | | | $ | 25,607 | |
| | 2016 | | 1,901,043 |
| | 72,418 |
| | 22,282 |
| | 16,183 |
| | 2021 | | 2,789,862 | | | 78,012 | | | 31,392 | | | 27,781 | |
| | 2015 | | |
| | 72,117 |
| | 20,181 |
| | 14,711 |
| | 2020 | | 75,576 | | | 18,247 | | | 16,692 | |
| Asia | 2017 | | 103,255 |
| | 3,405 |
| | 676 |
| | 464 |
| Asia | 2022 | | 127,399 | | | 4,597 | | | 1,144 | | | 865 | |
| | 2016 | | 85,410 |
| | 3,365 |
| | 674 |
| | 488 |
| | 2021 | | 117,085 | | | 4,439 | | | 988 | | | 733 | |
| | 2015 | | |
| | 3,524 |
| | 726 |
| | 457 |
| | 2020 | | 4,232 | | | 1,051 | | | 788 | |
| Europe, Middle East and Africa | 2017 | | 189,661 |
| | 7,907 |
| | 2,990 |
| | 1,926 |
| Europe, Middle East and Africa | 2022 | | 262,856 | | | 6,044 | | | 1,121 | | | 689 | |
| | 2016 | | 174,934 |
| | 6,608 |
| | 1,705 |
| | 925 |
| | 2021 | | 233,356 | | | 5,423 | | | 1,097 | | | 3,134 | |
| | 2015 | | | | 6,081 |
| | 938 |
| | 516 |
| | 2020 | | 4,491 | | | (596) | | | 264 | |
| Latin America and the Caribbean | 2017 | | 22,828 |
| | 1,210 |
| | 439 |
| | 292 |
| Latin America and the Caribbean | 2022 | | 29,305 | | | 1,419 | | | 569 | | | 367 | |
| | 2016 | | 26,680 |
| | 1,310 |
| | 360 |
| | 226 |
| | 2021 | | 29,192 | | | 1,239 | | | 499 | | | 330 | |
| | 2015 | | |
| | 1,243 |
| | 342 |
| | 226 |
| | 2020 | | 1,229 | | | 293 | | | 150 | |
| Total Non-U.S. | 2017 | | 315,744 |
| | 12,522 |
| | 4,105 |
| | 2,682 |
| Total Non-U.S. | 2022 | | 419,560 | | | 12,060 | | | 2,834 | | | 1,921 | |
| | 2016 | | 287,024 |
| | 11,283 |
| | 2,739 |
| | 1,639 |
| | 2021 | | 379,633 | | | 11,101 | | | 2,584 | | | 4,197 | |
| | 2015 | | |
| | 10,848 |
| | 2,006 |
| | 1,199 |
| | 2020 | | 9,952 | | | 748 | | | 1,202 | |
| Total Consolidated | 2017 | | $ | 2,281,234 |
| | $ | 87,352 |
| | $ | 29,213 |
| | $ | 18,232 |
| Total Consolidated | 2022 | | $ | 3,051,375 | | | $ | 94,950 | | | $ | 30,969 | | | $ | 27,528 | |
| | 2016 | | 2,188,067 |
| | 83,701 |
| | 25,021 |
| | 17,822 |
| | 2021 | | 3,169,495 | | | 89,113 | | | 33,976 | | | 31,978 | |
| | 2015 | | |
| | 82,965 |
| | 22,187 |
| | 15,910 |
| | 2020 | | 85,528 | | | 18,995 | | | 17,894 | |
| |
(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.
|
| | | | | | | |
| | 165Bank 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.
Macro Products – Include currencies, interest rates and commodities products.
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 active users over the past 90 days.
Active Mobile Banking Users – Mobile active users over the past 90 days.
Book Value – Ending common shareholders’ equity divided by ending common shares outstanding.
Common Equity Ratio - Ending common shareholders’ equity divided by ending total assets.
Deposit Spread –Annualized net interest income divided by average deposits.
Dividend Payout Ratio – Common dividends declared divided by net income applicable to common shareholders.
Efficiency Ratio – Noninterest expense divided by total revenue, net of interest expense.
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.
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.
Risk-adjusted Margin – Difference between total revenue, net of interest expense, and net credit losses divided by average loans.
| | | | | | | | |
189167Bank of America 2017
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Acronyms
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| 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 |
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| BANA | Bank of America, National Association |
| BHC | Bank holding company |
| |
| BofAS | BofA Securities, Inc. |
| BofASE | BofA Securities Europe SA |
| bps | Basis points |
| CAE | Chief Audit Executive |
| |
| CCAR | Comprehensive Capital Analysis and Review |
| CDO | Collateralized debt obligation |
| CDS | Credit default swap |
| CECL | Current expected credit losses |
| CET1 | Common equity tier 1 |
| CFPB | Consumer Financial Protection Bureau |
| CFTC | Commodity Futures Trading Commission |
| |
| CLO | Collateralized loan obligation |
| CLTV | Combined loan-to-value |
| CRO | Chief Risk Officer |
| CVA | Credit valuation adjustment |
| DIF | Deposit Insurance Fund |
| DVA | Debit valuation adjustment |
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| ECL | Expected credit losses |
| |
| EPS | Earnings per common share |
| ERC | Enterprise Risk Committee |
| ESG | Environmental, social and governance |
| EU | European Union |
| |
| FCA | Financial Conduct Authority |
| FDIC | Federal Deposit Insurance Corporation |
| FDICIA | Federal Deposit Insurance Corporation Improvement Act of 1991 |
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ABSFHA | 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 |
CCAR | Comprehensive Capital Analysis and Review |
CDO | Collateralized debt obligation |
CDS | Credit default swap |
CGA | Corporate General Auditor |
CLO | Collateralized loan obligation |
CLTV | Combined loan-to-value |
CVA | Credit valuation adjustment |
DIF | Deposit Insurance Fund |
DVA | Debit valuation adjustment |
EAD | Exposure at Default |
EPS | Earnings per common share |
ERC | Enterprise Risk Committee |
FASB | Financial Accounting Standards Board |
FCA | Financial Conduct Authority |
FDIC | Federal Deposit Insurance Corporation |
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 |
FTEFNMA | Fully taxable-equivalentFannie Mae |
FVAFTE | 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 | |
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| GNMA | Government National Mortgage Association |
GSEGRM | Government-sponsored enterpriseGlobal Risk Management |
G-SIBGSE | Government-sponsored enterprise |
| G-SIB | Global systemically important bank |
| 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 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 |
NSFR | |
| NOL | Net operating loss |
| NSFR | Net Stable Funding Ratio |
OAS | Option-adjusted spread |
| OCC | Office of the Comptroller of the Currency |
OCI | |
| 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 |
| |
| SEC | Securities and Exchange Commission |
| SLR | Supplementary leverage ratio |
TDR | |
| |
| |
| TDR | Troubled debt restructurings |
| TLAC | Total loss-absorbing capacity |
TTF | Time-to-required funding |
VAUDAAP | Unfair, deceptive, or abusive acts or practices |
| VA | U.S. Department of Veterans Affairs |
| VaR | Value-at-Risk |
| VIE | Variable interest entity |
|
| | | | | | | |
| | Bank of America 2017190168 |
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 overOver Financial Reporting is set forth on page 9687 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 88 and 89 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, 2017,2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
NoneDisclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934
Pursuant to Section 13(r) of the Exchange Act, an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure may be required even where the activities, transactions or dealings were conducted in compliance with applicable law. As previously disclosed in its related quarterly reports on Form 10-Q, the Corporation identified and reported certain activities pursuant to Section 13(r) for the first, second and third quarters of 2022. The information provided pursuant to Section 13(r) of the Exchange Act in Item 5 of the quarters ended March 31, 2022, June 30, 2022 and September 30, 2022 is hereby incorporated by reference to such reports. Except as set forth below, as of the date of this Annual Report on Form 10-K, the Corporation is not aware of any other activity, transaction or dealing by any of its affiliates during the quarter ended December 31, 2022 that requires disclosure under Section 13(r) of the Exchange Act.
During the fourth quarter of 2022, Bank of America, National Association (BANA), a U.S. subsidiary of Bank of America Corporation, processed two authorized wire deposits totaling $596,890 pursuant to a specific license issued on April 21, 2022, by the U.S. Department of the Treasury’s Office of
Foreign Assets Control. The wire deposits were processed by BANA on behalf of a U.S. client into its account at BANA and settled invoices owed to the U.S. client. The deposits were unblocked funds belonging to Jammal Trust Bank, which at the time of the deposits was designated pursuant to Executive Order 13224. There was no measurable gross revenue or net profit to the Corporation relating to these transactions. The Corporation may in the future engage in similar transactions for its clients to the extent permitted by U.S. law.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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)(56)President, Regional Banking since October 2021; President, Retail and Preferred & Small Business Banking and from January 2019 to October 2021; 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) Aditya Bhasin (49)Chief Operations and Technology Officer since July 2015; and Global Technology & Information Officer since October 2021; Chief Information Officer and Head of Technology for Consumer, Small Business, Wealth Management and Employee Technology from October 2017 to October 2021; CIO, Retail, Preferred & Wealth Management Technology, and Wealth Management Operations from June 2015 to October 2017.
Darrin Steve Boland (54) Chief Administrative Officersince October 2021; President, Retail from February 2020 to October 2021; Head of Consumer Lending from May 2017 to February 2020; Consumer Lending Executive from May 2015 to May 2017.
Alastair M. Borthwick (54) Chief Financial Officersince November 2021; President of Global Commercial Banking from October 2012 to October 2021.
Sheri Bronstein (54) 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.
James P. DeMare (53) President, Global Marketssince September 2020; Global Co-Head of FICC Trading and Commercial Real Estate Banking from February 2015 to September 2020.
Paul M. Donofrio (57)(62) Vice Chair since November 2021; Chief Financial Officer sincefrom August 2015;2015 to November 2021; 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)(58) Chief Risk Officersince April 2014; and Head of Enterprise Capital Management from April 2011 to April 2014.
Terrence P. Laughlin (63) Vice Chairman,Kathleen A. Knox (59) President, The Private Bank since November 2017; Head of Business Banking from October 2014 to November 2017; and Retail Banking & Distribution Executive from June 2011 to October 2014.
Matthew M. Koder (51) President, Global WealthCorporate & Investment Management Bankingsince January 2016; Vice ChairmanDecember 2018; President of APAC from JulyMarch 2012 to December 2018.
Bernard A. Mensah (54) President, International,CEO of Merrill Lynch International (MLI), BANA London Branch Head since August 2020. President of UK and Central and Eastern Europe, the Middle East, Africa, CEO of MLI, BANA London Branch and Co-Head of Global Fixed Income Currency and Commodities (FICC) Trading from September 2019 to August 2020; Co-Head of Global FICC Trading from March 2015 to January 2016; President of Strategic Initiatives from April 2014 to July 2015; and Chief Risk Officer from August 2011 to April 2014.September 2019.
David G. Leitch (57)Lauren A. Mogensen (60) Global General Counselsince January 2016;November 2021; Head of Global Compliance & Operational Risk, and General Counsel of Ford Motor CompanyReputational Risk from April 2005December 2013 to December 2015.October 2021.
Thomas K. Montag (61) Chief Operating Officersince September 2014; and Co-Chief Operating OfficerfromSeptember2011to September 2014.
Brian T. Moynihan (58) Chairman(63) Chair 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(64)Vice Chair, Head of Global Strategy & Enterprise Platforms since October 2021;Vice Chairman from January 2019 to October 2021; 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.
Andrea B. SmithThomas M. Scrivener (51)Chief Administrative Officer Operations Executive since July 2015; and GlobalOctober 2021; Head of Human ResourcesConsumer, Small Business & Wealth Management Operations from October 2019 to October 2021; Global Real Estate and Enterprise Initiatives Executive from September 2018 to October 2019; Enterprise Scenario Planning and Execution Executive from May 2016 to September 2018; Enterprise Stress Testing, Recovery & Resolution Planning Executive from June 2014 to March 2016.
Andrew M. Sieg (55) President, Merrill Wealth Management since January 20102017; and Head of Global Wealth & Retirement
Solutions with Merrill Lynch from October 2011 to January 2017.
Bruce R. Thompson (58) Vice Chair, Head of Enterprise Creditsince October 2021; Vice Chairman, Head of Institutional Credit Exposure Management (from December 2020) and Wholesale Credit Underwriting and Monitoring (from May 2021) to October 2021; Vice Chairman, President of the EU & Switzerland and CEO of Bank of America Europe DAC from May 2018 to December 2020; Vice Chairman of Bank of America Corporation from March 2016 to May 2018; Managing Director from July 2015 to March 2016; Chief Financial Officer from July 2011 to July 2015.
Information included under the following captions in the Corporation’s proxy statement relating to its 20182023 annual meeting of stockholders, scheduled to be held on April 25, 2018shareholders (the 20182023 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 20182023 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;”
●“CEO pay ratio;”
●“Corporate governance;” and
●“Director compensation.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information included under the following caption in the 20182023 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, 2017:2022:
| | | | | | | | | | | | | | | | | |
| | | | | |
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 | 206,439,608 | | | — | | | 164,047,513 | |
| Plans not approved by shareholders | — | | | — | | | — | |
| Total | 206,439,608 | | | — | | | 164,047,513 | |
(1)This table does not include 522,076 vested restricted stock units and stock option gain deferrals at December 31, 2022 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 3,914,068 vested restricted stock units subject to a required 12-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 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 20182023 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 20182023 Proxy Statement is incorporated herein by reference:
● “Proposal 4: Ratifying the appointment of our independent registered public accounting firm for 2023.”
| |
● | “Proposal 3: Ratifying the Appointment of our Independent Registered Public Accounting Firm for 2018.” |
| | | | |
| | |
193Bank of America 2017170
| | |
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 (PCAOB ID 238)
Consolidated Statement of Income for the years ended December 31, 2017, 20162022, 2021 and 20152020
Consolidated Statement of Comprehensive Income for the years ended December 31, 2017, 20162022, 2021 and 20152020
Consolidated Balance Sheet at December 31, 20172022 and 20162021
Consolidated Statement of Changes in Shareholders’ Equity for the years ended December 31, 2017, 20162022, 2021 and 20152020
Consolidated Statement of Cash Flows for the years ended December 31, 2017, 20162022, 2021 and 20152020
Notes to Consolidated Financial Statements
(2) Schedules:
None
(3) Index to Exhibits
With the exception of the information expressly incorporated herein by reference, the 20182023 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 | | | | 10-Q | 3.1 | 04/29/22 | 1-6523 |
| 3.2 | | | 1 | | | | |
| 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 | 4.4 | 8/2/21 | 333-257399 |
| 4.26 | | | | S-3 | 4.5 | 8/2/21 | 333-257399 |
| 4.27 | | | | S-3 | 4.6 | 6/27/18 | 333-224523 |
| 4.28 | | | | S-3 | 4.7 | 6/27/18 | 333-224523 |
| 4.29 | | | | S-3 | 4.7 | 8/2/21 | 333-257399 |
| | 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 | | | | | |
| 4.30 | | | 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 | | | 2 | 10-K | 10.15 | 2/24/21 | 1-6523 |
| 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 |
|
| | | | | | | |
| | Bank of America 2017194172 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
| Exhibit No. | | Description | Notes | Form | Exhibit | Filing Date | File No. |
| 10.23 | | | 2 | 8-K | 10.1 | 4/22/21 | 1-6523 |
| 10.24 | | | 2 | 10-Q | 10(a) | 5/2/16 | 1-6523 |
| 10.25 | | | 2 | 10-K | 10(h) | 2/26/19 | 1-6523 |
| 10.26 | | | 2 | 10-Q | 10.1 | 5/1/20 | 1-6523 |
| 10.27 | | | 2 | 10-Q | 10.2 | 5/1/20 | 1-6523 |
| 10.28 | | | 2 | 10-Q | 10.1 | 4/29/21 | 1-6523 |
| 10.29 | | | 2 | 10-Q | 10.2 | 4/29/21 | 1-6523 |
| 10.30 | | | 2 | 10-K | 10.32 | 2/22/22 | 1-6523 |
| 10.31 | | | 2 | 10-K | 10.33 | 2/22/22 | 1-6523 |
| 10.32 | | | 2 | 10-K | 10.34 | 2/22/22 | 1-6523 |
| 10.33 | | | 2 | 10-K | 10.35 | 2/22/22 | 1-6523 |
| 10.34 | | | 2 | 10-K | 10(v) | 3/1/04 | 1-6523 |
| 10.35 | | | 2 | 10-K | 10(r) | 3/1/05 | 1-6523 |
| 10.36 | | | 2 | 10-K | 10(u) | 3/1/05 | 1-6523 |
| 10.37 | | | 2 | 10-K | 10(v) | 3/1/05 | 1-6523 |
| 10.38 | | | 2 | 10-K | 10(p) | 2/26/10 | 1-6523 |
| 10.39 | | | 2 | 10-K | 10(I) | 2/28/13 | 1-6523 |
| 10.40 | | | 2 | 10-K | 10(c) | 2/25/11 | 1-6523 |
| 10.41 | | | 2 | 10-K | 10(x) | 3/1/05 | 1-6523 |
| 10.42 | | | 2 | 10-K | 10(y) | 3/1/05 | 1-6523 |
| 10.43 | | | 2 | 10-K | 10(z) | 3/1/05 | 1-6523 |
| 10.44 | | | 2 | 10-K | 10(aa) | 3/1/05 | 1-6523 |
| 10.45 | | | 2 | 10-K | 10(cc) | 3/1/05 | 1-6523 |
| 10.46 | | | 2 | 10-K | 10(hh) | 3/1/05 | 1-6523 |
| 10.47 | | | 2 | 10-K | 10(ii) | 3/1/05 | 1-6523 |
| 10.48 | | | 2 | 10-K | 10(jj) | 3/1/05 | 1-6523 |
| 10.49 | | | 2 | 10-K | 10(ll) | 3/1/05 | 1-6523 |
| 10.50 | | | 2 | 10-K | 10(oo) | 3/1/05 | 1-6523 |
| 10.51 | | | 2 | S-4 | 10(d) | 12/4/03 | 333-110924 |
| 10.52 | | | 2 | 8-K | 10.1 | 10/26/05 | 1-6523 |
| 10.53 | | | 2 | 8-K | 10.2 | 10/26/05 | 1-6523 |
| | | | | | | |
| 10.54 | | | 2 | 10-K | 10(bbb) | 2/26/10 | 1-6523 |
| | | | | | | |
| 10.55 | | | | 8-K | 1.1 | 8/25/11 | 1-6523 |
| 10.56 | | | 2 | 10-Q | 10 | 7/30/18 | 1-6523 |
|
| | | | | | |
| | | | 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 |
|
| | | | | | | |
195173Bank 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. |
| 10.57 | | | 2 | 10-Q | 10(b) | 7/29/19 | 1-6523 |
| 10.58 | | | 2 | 10-Q | 10.1 | 10/28/22 | 1-6523 |
| 10.59 | | | 2, 3 | 10-Q | 10.1 | 4/29/22 | 1-6523 |
| 10.60 | | | 2, 3 | 10-Q | 10.2 | 4/29/22 | 1-6523 |
| 10.61 | | | 2, 3 | 10-Q | 10.3 | 4/29/22 | 1-6523 |
| 10.62 | | | 1, 2, 3 | | | | |
| 21 | |
| 1 | | | | |
| 22 | | | 1 | | | | |
| 23 | | | 1 | | | | |
| | | | | | | |
| 24 | | | 1 | | | | |
| 31.1 | | | 1 | | | | |
| 31.2 | | | 1 | | | | |
| 32.1 | | | 4 | | | | |
| 32.2 | | | 4 | | | | |
| 99.1 | | | 1 | | | | |
| 101.INS | | Inline XBRL Instance Document | 5 | | | | |
| 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)As permitted by Regulation S-K, Item 601(b)(10)(iv) of the Securities Exchange Act of 1934, as amended, certain portions of this exhibit have been redacted from the publicly filed document.
(4)Furnished herewith. This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
(5)The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
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, President, Chair and Director
(Principal Executive Officer) | | February 22, 2023 |
| Brian T. Moynihan | | |
| | | | | |
| */s/ Alastair M. Borthwick | | Chief Financial Officer
(Principal Financial Officer) | | February 22, 2023 |
| Alastair M. Borthwick | | |
| | | | | |
| */s/ Rudolf A. Bless | | Chief Accounting Officer
(Principal Accounting Officer) | | February 22, 2023 |
| Rudolf A. Bless | | |
| | | | | |
| */s/ Sharon L. Allen | | Director | | February 22, 2023 |
| Sharon L. Allen | | |
| | | | | |
| Signature | | Title | | Date |
| | | | | |
| */s/ Brian T. Moynihan José E. Almeida | | 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 | | |
| 2023 |
| José E. Almeida | |
197Bank of America 2017
| | |
|
| | | | | |
| Signature*/s/ Frank P. Bramble, Sr. | | TitleDirector | | DateFebruary 22, 2023 |
| Frank P. Bramble, Sr. | | | | |
| | | | | |
| */s/ Thomas J. MayPierre J.P. de Weck | | Director | | February 22, 20182023 |
| Thomas J. MayPierre J.P. de Weck | | |
| | | | | |
| */s/ Arnold W. Donald | | Director | | February 22, 2023 |
| Arnold W. Donald | | |
| | | | | |
| */s/ Linda P. Hudson | | Director | | February 22, 2023 |
| Linda P. Hudson | | |
| | | | | |
| */s/ Monica C. Lozano | | Director | | February 22, 2023 |
| Monica C. Lozano | | |
| | | | | |
| | | | | |
| | | |
| | | | | |
| */s/ Lionel L. Nowell III | | Director | | February 22, 20182023 |
| Lionel L. Nowell III | | |
| | | | | |
| | | | | |
| */s/ Michael D. WhiteDenise L. Ramos | | Director | | February 22, 20182023 |
| Michael D. WhiteDenise L. Ramos | | |
| | | | | |
| */s/ Thomas D. Woods | | Director | | February 22, 2018 |
| Thomas D. Woods | | |
| | | | | |
| */s/ R. David Yost | | Director | | February 22, 2018 |
| R. David Yost | | |
| | | | | |
| */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/ Clayton S. Rose | | Director | | February 22, 2023 |
| Clayton S. Rose | | |
| | | | | |
| */s/ Michael D. White | | Director | | February 22, 2023 |
| Michael D. White | | |
| | | | | |
| */s/ Thomas D. Woods | | Director | | February 22, 2023 |
| Thomas D. Woods | | |
| | | | | |
| */s/ R. David Yost | | Director | | February 22, 2023 |
| R. David Yost | | |
| | | | | |
| */s/ Maria T. Zuber | | Director | | February 22, 2023 |
| Maria T. Zuber | | |
| | | | | |
| *By | /s/ Ross E. Jeffries, Jr. | | | | |
| Ross E. Jeffries, Jr.
Attorney-in-Fact | | | | |
| | | | | | | | |
| | Bank of America 2017198176 |
