BANK OF AMERICA CORPORATION
Page
Executive Summary 24
Recent Developments 25
Financial Highlights 27
Balance Sheet Overview 29
Supplemental Financial Data 31
Business Segment Operations 36
Consumer Banking 37
Global Wealth & Investment Management 40
Global Banking 42
Global Markets 44
All Other 45
Off-Balance Sheet Arrangements and Contractual Obligations 46
Managing Risk 47
Strategic Risk Management 50
Capital Management 50
Liquidity Risk 57
Credit Risk Management 61
Consumer Portfolio Credit Risk Management 62
Commercial Portfolio Credit Risk Management 68
Non-U.S. Portfolio 74
Allowance for Credit Losses 76
Market Risk Management 78
Trading Risk Management 79
Interest Rate Risk Management for the Banking Book 82
Mortgage Banking Risk Management 84
Compliance and Operational Risk Management 84
Reputational Risk Management 85
Climate Risk Management 85
Complex Accounting Estimates 85
Non-GAAP Reconciliations 88
Statistical Tables 89
23 Bank of America --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of Operations Bank of America Corporation (the "Corporation") and its management may make certain statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as "anticipates," "targets," "expects," "hopes," "estimates," "intends," "plans," "goals," "believes," "continue" and other similar expressions or future or conditional verbs such as "will," "may," "might," "should," "would" and "could." 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: the Corporation's potential judgments, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions; the possibility that the Corporation's future liabilities may be in excess of its recorded liability and estimated range of possible loss for litigation, and regulatory and government actions, including as a result of our participation in and execution of government programs related to the Coronavirus Disease 2019 (COVID-19) pandemic; the possibility that the Corporation could face increased claims from one or more parties involved in mortgage securitizations; the Corporation's ability to resolve representations and warranties repurchase and related claims; the risks related to the discontinuation of the London Interbank Offered Rate and other reference rates, including increased expenses and litigation and the effectiveness of hedging strategies; uncertainties about the financial stability and growth rates of non-U.S. jurisdictions, the risk that those jurisdictions may face difficulties servicing their sovereign debt, and related stresses on financial markets, currencies and trade, and the Corporation's exposures to such risks, including direct, indirect and operational; the impact ofU.S. and global interest rates, inflation, currency exchange rates, economic conditions, trade policies and tensions, including tariffs, and potential geopolitical instability; the impact of the interest rate environment on the Corporation's business, financial condition and results of operations; the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions, customer behavior, adverse developments with respect toU.S. or global economic conditions and other uncertainties; the Corporation's concentration of credit risk; the Corporation's ability to achieve its expense targets and expectations regarding revenue, net interest income, 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 impact of adverse changes to total loss-absorbing capacity requirements, stress capital buffer requirements and/or global systemically important bank surcharges; the potential impact of actions of theBoard of Governors of theFederal Reserve System on the Corporation's capital plans; the effect of regulations, other guidance or additional information on the impact from the Tax Cuts and Jobs Act; the impact of implementation and compliance withU.S. and international laws, regulations and regulatory interpretations, including, but not limited to, recovery and resolution planning requirements,Federal Deposit Insurance Corporation assessments, the Volcker Rule, fiduciary standards, derivatives regulations and the 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 or campaigns; the impact on the Corporation's business, financial condition and results of operations from theUnited Kingdom's exit from theEuropean Union ; the impact of climate change; the impact of any future federal government shutdown and uncertainty regarding the federal government's debt limit or changes to theU.S. presidential administration andCongress ; the emergence of widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic and its impact on theU.S. and/or global, financial market conditions and our business, results of operations, financial condition and prospects; the impact of natural disasters, extreme weather events, military conflict, terrorism or other geopolitical events; and other 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 aDelaware corporation, a bank holding company (BHC) and a financial holding company. When used in this report, "the 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 inCharlotte, North Carolina . Through our various bank and nonbank subsidiaries throughout theU.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 ofBank of America 24
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America, National Association (Bank of America, N.A . or BANA) charter. AtDecember 31, 2020 , the Corporation had$2.8 trillion in assets and a headcount of approximately 213,000 employees. As ofDecember 31, 2020 , we served clients through operations across theU.S. , its territories and approximately 35 countries. Our retail banking footprint covers all major markets in theU.S. , and we serve approximately 66 million consumer and small business clients with approximately 4,300 retail financial centers, approximately 17,000 ATMs, and leading digital banking platforms (www.bankofamerica.com) with more than 39 million active users, including approximately 31 million active mobile users. We offer industry-leading support to approximately three million small business households. Our GWIM businesses, with client balances of$3.3 trillion , provide tailored solutions to meet client needs through a full set of investment management, brokerage, banking, trust and retirement products. We are a global leader in corporate and investment banking and trading across a broad range of asset classes serving corporations, governments, institutions and individuals around the world. Recent Developments Capital Management InJune 2020 , theBoard of Governors of theFederal Reserve System (Federal Reserve ) notified BHCs of their 2020 Comprehensive Capital Analysis and Review (CCAR) supervisory stress test results. Due to economic uncertainty resulting from the Coronavirus Disease 2019 (COVID-19) pandemic (the pandemic), theFederal Reserve required all large banks to update and resubmit their capital plans inNovember 2020 based on theFederal Reserve's updated supervisory stress test scenarios. The results of the additional supervisory stress tests were published inDecember 2020 . TheFederal Reserve also required large banks to suspend share repurchase programs during the second half of 2020, except for repurchases to offset shares awarded under equity-based compensation plans, and to limit common stock dividends to existing rates that did not exceed the average of the last four quarters' net income. InDecember 2020 , theFederal Reserve announced that beginning in the first quarter of 2021, large banks would be permitted to pay common stock dividends at existing rates and to repurchase shares in an amount that, when combined with dividends paid, does not exceed the average of net income over the last four quarters. OnJanuary 19, 2021 , we announced that the Board of Directors (the Board) declared a quarterly common stock dividend of$0.18 per share, payable onMarch 26, 2021 to shareholders of record as ofMarch 5, 2021 . We also announced that the Board authorized the repurchase of$2.9 billion in common stock throughMarch 31, 2021 , plus repurchases to offset shares awarded under equity-based compensation plans during the same period, estimated to be approximately$300 million . This authorization equals the maximum amount allowed by theFederal Reserve for the period. For more information, see Capital Management on page 50. COVID-19 Pandemic In the first quarter of 2020, theWorld Health Organization declared the outbreak of COVID-19 a pandemic. In an attempt to contain the spread and impact of the pandemic, travel bans and restrictions, quarantines, shelter-in-place orders and other limitations on business activity were implemented. Additionally, there has been a decline in global economic activity, reducedU.S. and global economic output and a deterioration in macroeconomic conditions in theU.S. and globally. This has resulted in, among other things, higher rates of unemployment and underemployment and caused volatility and disruptions in the global financial markets, including the energy and commodity markets. Although vaccines have been approved for immunization against COVID-19 in certain countries and restrictive measures have been eased in certain areas, COVID-19 cases have significantly increased in recent months in theU.S. and many regions of the world compared to earlier levels. Businesses, market participants, our counterparties and clients, and theU.S. and global economies have been negatively impacted and are likely to be so for an extended period of time, as there remains significant uncertainty about the timing and strength of an economic recovery. To address the economic impact in theU.S. , in March andApril 2020 , four economic stimulus packages were enacted to provide relief to businesses and individuals, including the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Among other measures, the CARES Act established theSmall Business Administration (SBA) Paycheck Protection Program (PPP), which provides loans to small businesses to keep their employees on payroll and make other eligible payments. The original funding for the PPP under the CARES Act was fully allocated bymid-April 2020 , with additional funding made available onApril 24, 2020 under the Paycheck Protection Program and Health Care Enhancement Act. InDecember 2020 , an additional economic stimulus package was included as part of the Consolidated Appropriations Act of 2021 (the Consolidated Appropriations Act), which provides relief to individuals and businesses. This relief included additional funding for the PPP under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Economic Aid Act). In response to the pandemic, the Corporation has implemented protocols and processes to execute its business continuity plans and help protect its employees and support its clients. The Corporation is managing its response to the pandemic according to its Enterprise Response Framework, which invokes centralized management of the crisis event and the integration of its response. The CEO and key members of the Corporation's management team meet regularly with co-leaders of theExecutive Response Team , which is composed of senior executives across the Corporation, to help drive decisions, communications and consistency of response across all businesses and functions. We are also coordinating with global, regional and local authorities and health experts, including theU.S. Centers for Disease Control and Prevention (CDC ) and theWorld Health Organization . Additionally, we have implemented a number of measures to assist our employees, clients and the communities we serve as discussed below. Employees We are providing support to our teammates to help promote the health and safety of our employees and help to ensure our protocols remain aligned to current guidance by monitoring guidance from theCDC , medical boards and health authorities and sharing such guidance with our employees. We are also operating our businesses from remote locations and leveraging our business continuity plans and capabilities. The Corporation has globally implemented a work-from-home posture, which has resulted in the substantial majority of our employees working from home, and pre-planned contingency strategies for site-based operations for our remaining employees. We continue to evaluate our continuity plans and work-from-home strategy in an effort to best protect the health and safety of our employees. 25Bank of America --------------------------------------------------------------------------------
Clients
We continue to leverage our business continuity plans and capabilities to service our clients and meet our clients' financial needs by offering assistance to clients affected by the pandemic, including providing access to credit and the important financial services on which our clients rely. We are also participating in the programs created by the CARES Act andFederal Reserve lending programs for businesses, including originating PPP loans. We have also participated in the Main Street Lending Program, which ended onJanuary 8, 2021 . While most of our deferral programs expired in the third quarter of 2020, we continue to offer assistance on a case-by-case basis when requested by clients affected by the pandemic. As ofDecember 31, 2020 , we had approximately 332,000 PPP loans outstanding with a carrying value of$22.7 billion , which were recorded in the Consumer, GWIM and Global Banking segments. Since the PPP's inception throughFebruary 17, 2021 , borrowers have submitted applications for forgiveness to us for approximately 113,000 PPP loans with balances totaling$10.9 billion . We have submitted approximately 72,000 PPP loans with balances totaling$8.5 billion to the SBA for repayment, of which we have received to date$5.4 billion in repayment from the SBA. Additionally, as ofFebruary 17, 2021 , we have originated$4.1 billion in PPP loans under the Economic Aid Act. For more information on PPP loans, see Credit Risk Management on page 61, and for more information on accounting for PPP loans and loan modifications under the CARES Act, see Note 1 - Summary of Significant Accounting Principles to the Consolidated Financial Statements.Community Partners We continue to support the communities where we live and work by engaging in various initiatives to help those affected by COVID-19. These initiatives include committing resources to provide medical supplies, food and other necessities for those in need. We are also supporting racial equality, economic opportunity and environmental sustainability through direct equity investments in minority-owned depository institutions, equity investments in minority entrepreneurs, businesses and funds, as well as other initiatives. Risk Management We continue to manage the increased operational risk related to the execution of our business continuity plans in accordance with our Enterprise Response Framework, Risk Framework and Operational Risk Management Program. For more information, see Managing Risk on page 47. Loan Modifications The Corporation has implemented various consumer and commercial loan modification programs to provide its borrowers relief from the economic impacts of COVID-19. Based on guidance in the CARES Act that the Corporation adopted, COVID-19 related modifications to consumer and commercial loans that were current as ofDecember 31, 2019 are exempt from troubled debt restructuring (TDR) classification under accounting principles generally accepted inthe United States of America (GAAP). In addition, the bank regulatory agencies issued interagency guidance stating that COVID-19 related short-term modifications (i.e., six months or less) granted to consumer or commercial loans that were current as of the loan modification program implementation date are not TDRs. InDecember 2020 , the Consolidated Appropriations Act amended the CARES Act by extending the exemption from TDR classification for COVID-19 related modifications fromDecember 31, 2020 to the earlier ofJanuary 1, 2022 or 60 days after the national emergency has ended. For more information, see Note 1 - Summary of Significant Accounting Principles and Note 5 - Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements. We have provided borrowers with relief from the economic impacts of COVID-19 through payment deferral and forbearance programs. A significant portion of deferrals expired during the second half of 2020, reflecting a decline in customer requests for assistance. As ofFebruary 17, 2021 , deferred consumer and small business loans recorded on the Consolidated Balance Sheet totaled$6.8 billion , predominantly consisting of$6.4 billion of residential mortgage and home equity loans, including loans serviced by others, that are well-collateralized. Other Related Matters Although the macroeconomic outlook improved modestly during the second half of 2020, the future direct and indirect impact of COVID-19 on our businesses, results of operations and financial condition of the Corporation remains highly uncertain. Should current economic conditions persist or deteriorate, this macroeconomic environment will have a continued adverse effect on our businesses and results of operations and could have an adverse effect on our financial condition. For more information on how the risks related to the pandemic may adversely affect our businesses, results of operations and financial condition, see Part I. Item 1A. Risk Factors on page 7. LIBOR and Other Benchmark Rates Following the 2017 announcement by theU.K.'s Financial Conduct Authority (FCA) that it would no longer compel participating banks to submit rates for the London Interbank Offered Rate (LIBOR) after 2021, regulators, trade associations and financial industry working groups have identified recommended replacement rates for LIBOR, as well as other Interbank Offered Rates (IBORs), and have published recommended conventions to allow new and existing products to incorporate fallbacks or that reference these Alternative Reference Rates (ARRs). The continuation of all British Pound Sterling, Euro, Swiss Franc and Japanese Yen LIBOR settings and one-week and two-monthU.S. dollar LIBOR settings on the current basis are expected to terminate at the end ofDecember 2021 , and the remainingU.S. dollar LIBOR settings (i.e., overnight, one month, three month, six month and 12 month) are expected to terminate at the end ofJune 2023 . As a result of this and other announcements, financial benchmark reforms, regulatory guidance and changes in short-term interbank lending markets more generally, a major transition is in progress in global financial markets with respect to the replacement of IBORs and certain benchmarks. The transition of IBORs to ARRs is a complex process impacting a variety of global financial markets and our business and operations. IBORs are used in many of the Corporation's products and contracts, including derivatives, consumer and commercial loans, mortgages, floating-rate notes and other adjustable-rate products and financial instruments. The discontinuation of IBORs requires us to transition a significant number of IBOR-based products and contracts, including related hedging arrangements. In response, the Corporation established an enterprise-wide IBOR transition program led by senior management in early 2018. This program, which is led by the Corporation's Chief Operating Officer, includes active involvement of senior management and regular reports to the Enterprise Risk Committee (ERC). The program is intended to address the Corporation's industry and regulatory engagement, client and financial contract changes, internal and external communications, technology and operations modifications,
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introduction of new products, migration of existing clients, and program strategy and governance. In addition, the program is designed to monitor a variety of scenarios, including operational risks associated with insufficient preparation by individual market participants or the overall market ecosystem, volatility along the Secured Overnight Financing Rate (SOFR) curve, development and adoption of credit-sensitive and other rates, regulatory and legal uncertainty with respect to various matters including contract continuity, access by market participants to liquidity in certain products, and IBOR continuity beyondDecember 2021 . As ofFebruary 1, 2021 , a significant majority of the aggregate notional amount of our LIBOR-based products and contracts maturing after 2021 include or have been updated to include fallbacks to ARRs based on market driven protocols, regulatory guidance and industry-recommended fallback provisions and related mechanisms. For certain of the remaining products and contracts, the transition will be more complex, particularly where there is no industry-wide protocol or similar mechanism. The Corporation is executing transition plans that are intended to be in line with applicable major industry-wide IBOR product cessation and launch milestones recommended by the Alternative Reference Rates Committee, a group of private market participants and official sector entities convened by theFederal Reserve and theFederal Reserve Bank of New York , and theBank of England Sterling Risk Free Rate Working Group , other than the cessation of LIBOR-based adjustable-rate consumer mortgages. The Corporation plans to no longer offer these mortgages and launch SOFR-based adjustable-rate consumer mortgages by the end of the first quarter of 2021. The Corporation is executing product and client roadmaps that it believes align with industry-recommended and regulatory milestones, and the Corporation has developed employee training programs as well as other internal and external sources of information on the various challenges and opportunities that the replacement of IBORs presents. As the transition to ARRs evolves, the Corporation continues to monitor and participate in the development and usage of certain ARRs, including SOFR, the Euro Short Term Rate and the Sterling Overnight Index Average (SONIA). The Corporation's key transition efforts to date include issuances of debt and deposits linked to SOFR and SONIA by the Corporation, facilitating debt issuances linked to ARRs by clients and secondary market liquidity for products linked to ARRs, originating and arranging loans linked to ARRs, including hedging arrangements, executing, trading, market making and clearing ARR-based derivatives, and launching capabilities and services to support the issuance and trading in products indexed to certain ARRs. The Corporation updated its operational models, systems, procedures and internal infrastructure in connection with the transition to ARRs by the central clearing counterparties. InOctober 2020 , the Corporation and certain of its subsidiaries adhered to theInternational Swaps and Derivatives Association, Inc. 2020 IBOR Fallbacks Protocol, effectiveJanuary 25, 2021 , which provides a mechanism to enable market participants to incorporate fallbacks for certain legacy non-cleared derivatives linked to certain IBORs. Additionally, the Corporation is continuing to evaluate potential regulatory, tax and accounting impacts of the transition, including guidance published and/or proposed by the Internal Revenue Service andFinancial Accounting Standards Board , engage impacted clients in connection with the transition to ARRs and work actively with global regulators, industry working groups and trade associations to develop strategies for an effective transition to ARRs. For more information on the expected replacement of LIBOR and other benchmark rates, see Item 1A. Risk Factors - Other on page 19.U.K. Exit from the EU OnJanuary 31, 2020 , theU.K. formally exited theEuropean Union (EU), and a transition period began during which time theU.K. and the EU negotiated a trade agreement and other terms associated with their future relationship. The transition period ended onDecember 31, 2020 . We conduct business inEurope , theMiddle East andAfrica primarily through our subsidiaries in theU.K. ,Ireland andFrance and implemented changes to enable us to continue to operate in the region, including establishing a bank and broker-dealer in the EU, as well as minimize the potential for any operational disruption. As the global economic impact of theU.K.'s withdrawal from the EU remains uncertain and could result in regional and global financial market disruptions, we continue to assess potential operational, regulatory and legal risks. For more information, see Item 1A. Risk Factors - Geopolitical on page 12. Financial Highlights EffectiveJanuary 1, 2020 , we adopted the new accounting standard on current expected credit losses (CECL), under which the allowance is measured based on management's best estimate of lifetime expected credit losses (ECL). Prior-year periods presented reflect measurement of the allowance based on management's estimate of probable incurred credit losses. For more information, see Note 1 - Summary of Significant Accounting Principles to the Consolidated Financial Statements. Table 1 Summary Income Statement and Selected
Financial Data
(Dollars in millions, except per share information) 2020 2019 Income statement Net interest income$ 43,360 $ 48,891 Noninterest income 42,168 42,353 Total revenue, net of interest expense 85,528 91,244 Provision for credit losses 11,320 3,590 Noninterest expense 55,213 54,900 Income before income taxes 18,995 32,754 Income tax expense 1,101 5,324 Net income 17,894 27,430 Preferred stock dividends 1,421 1,432 Net income applicable to common shareholders$ 16,473 $ 25,998 Per common share information Earnings $ 1.88 $ 2.77 Diluted earnings 1.87 2.75 Dividends paid 0.72 0.66 Performance ratios Return on average assets (1) 0.67 % 1.14 % Return on average common shareholders' equity (1) 6.76
10.62
Return on average tangible common shareholders' equity (2) 9.48 14.86 Efficiency ratio (1) 64.55 60.17 Balance sheet at year end Total loans and leases$ 927,861 $ 983,426 Total assets 2,819,627 2,434,079 Total deposits 1,795,480 1,434,803 Total liabilities 2,546,703 2,169,269 Total common shareholders' equity 248,414 241,409 Total shareholders' equity 272,924 264,810 (1)For definitions, see Key Metrics on page 173. (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 inthe United States of America , see Non-GAAP Reconciliations on page 88. 27 Bank of America
-------------------------------------------------------------------------------- Net income was$17.9 billion or$1.87 per diluted share in 2020 compared to$27.4 billion or$2.75 per diluted share in 2019. The decline in net income was primarily due to higher provision for credit losses driven by the weaker economic outlook related to COVID-19 and lower net interest income. For discussion and analysis of our consolidated and business segment results of operations for 2019 compared to 2018, see the Financial Highlights and Business Segment Operations sections in the MD&A of the Corporation's 2019 Annual Report on Form 10-K. Net Interest Income Net interest income decreased$5.5 billion to$43.4 billion in 2020 compared to 2019. Net interest yield on a fully taxable-equivalent (FTE) basis decreased 53 basis points (bps) to 1.90 percent for 2020. The decrease in net interest income was primarily driven by lower interest rates, partially offset by reduced deposit and funding costs, the deployment of excess deposits into securities and an additional day of interest accrual. Assuming continued economic improvement and based on the forward interest rate curve as ofJanuary 19, 2021 , when we announced quarterly and annual results for the periods endedDecember 31, 2020 , we expect net interest income to be higher in the second half of 2021 as compared to both the second half of 2020 and the first half of 2021. For more information on net interest yield and the FTE basis, see Supplemental Financial Data on page 31, and for more information on interest rate risk management, see Interest Rate Risk Management for the Banking Book on page 82. Noninterest Income Table 2 Noninterest Income (Dollars in millions) 2020 2019 Fees and commissions: Card income$ 5,656 $ 5,797 Service charges 7,141 7,674 Investment and brokerage services 14,574 13,902 Investment banking fees 7,180 5,642 Total fees and commissions 34,551 33,015 Market making and similar activities 8,355 9,034 Other income (738) 304 Total noninterest income$ 42,168 $ 42,353 Noninterest income decreased$185 million to$42.2 billion in 2020 compared to 2019. The following highlights the significant changes. ? Card income decreased$141 million primarily due to lower levels of consumer spending driven by the impact of COVID-19, partially offset by higher income related to the processing of unemployment insurance. ? Service charges decreased$533 million primarily due to higher deposit balances and lower client activity due to the impact of COVID-19. ? Investment and brokerage services income increased$672 million primarily due to higher client transactional activity, higher market valuations and assets under management (AUM) flows, partially offset by declines in AUM pricing. ? Investment banking fees increased$1.5 billion primarily driven by higher equity issuance fees. ? Market making and similar activities decreased$679 million primarily due to the impact of lowerU.S. interest rates on certain risk management derivatives, partially offset by increased client activity and strong trading performance in fixed income, currencies and commodities (FICC). ? Other income decreased$1.0 billion primarily due to lower equity investment income, higher partnership losses on tax credit investments, primarily affordable housing and renewable energy, partially offset by higher gains on loan sales and sales of debt securities. Provision for Credit Losses The provision for credit losses increased$7.7 billion to$11.3 billion in 2020 compared to 2019 primarily driven by higher ECL due to a weaker economic outlook related to COVID-19. For more information on the provision for credit losses, see Allowance for Credit Losses on page 76. Noninterest Expense Table 3 Noninterest Expense (Dollars in millions) 2020 2019 Compensation and benefits$ 32,725 $ 31,977 Occupancy and equipment 7,141 6,588 Information processing and communications 5,222
4,646
Product delivery and transaction related 3,433 2,762 Marketing 1,701 1,934 Professional fees 1,694 1,597 Other general operating 3,297 5,396 Total noninterest expense$ 55,213 $ 54,900 Noninterest expense increased$313 million to$55.2 billion in 2020 compared to 2019. The increase was primarily due to higher operating costs related to COVID-19, merchant services expenses, which were previously recorded in other income as part of joint venture net earnings, and higher activity-based expenses due to increased client activity, partially offset by a$2.1 billion pretax impairment charge related to the notice of termination of the merchant services joint venture in 2019. Income Tax Expense Table 4 Income Tax Expense (Dollars in millions) 2020 2019 Income before income taxes$ 18,995 $ 32,754 Income tax expense 1,101 5,324 Effective tax rate 5.8 % 16.3 %
Income tax expense was
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The change in the effective tax rate for 2020 was driven by the impact of our recurring tax preference benefits on lower levels of pretax income. These benefits primarily consist of tax credits from environmental, social and governance (ESG) investments in affordable housing and renewable energy, aligning with our responsible growth strategy to address global sustainability challenges. Excluding tax credits related to our ESG investment activity, the effective tax rate for 2020 would have been 21 percent. The 2020 rate also included the impact of theU.K. tax law change, whereby onJuly 22, 2020 , theU.K. enacted a repeal of the final two percent of scheduled decreases in theU.K. corporation tax rate, which had been previously enacted. This change will unfavorably affect income tax expense on futureU.K. earnings, and requires a reversal of the adjustment to theU.K. net deferred tax assets recognized at the time the tax rate decreases were originally enacted. Accordingly, during the third quarter of 2020, the Corporation recorded an income tax benefit of approximately$700 million along with a corresponding increase to theU.K. net deferred tax assets. The effective tax rate for 2019 included net tax benefits primarily related to the resolution of various tax controversy matters. Absent unusual items, we expect the effective tax rate for 2021 to be in the range of 10 - 12 percent, reflecting tax credits related to our ESG investment activity. Balance Sheet Overview Table 5 Selected Balance Sheet Data December 31 (Dollars in millions) 2020 2019 % Change
Assets
Cash and cash equivalents$ 380,463 $ 161,560 135 % Federal funds sold and securities borrowed or purchased under agreements to resell 304,058 274,597 11 Trading account assets 198,854 229,826 (13) Debt securities 684,850 472,197 45 Loans and leases 927,861 983,426 (6) Allowance for loan and lease losses (18,802) (9,416) 100 All other assets 342,343 321,889 6 Total assets$ 2,819,627 $ 2,434,079 16 Liabilities Deposits$ 1,795,480 $ 1,434,803 25
Federal funds purchased and securities loaned or sold under agreements to repurchase
170,323 165,109 3
Trading account liabilities 71,320 83,270 (14)
Short-term borrowings 19,321 24,204 (20)
Long-term debt 262,934 240,856 9
All other liabilities 227,325 221,027 3
Total liabilities 2,546,703 2,169,269 17
Shareholders' equity 272,924 264,810 3
Total liabilities and shareholders' equity $ 2,819,627 $ 2,434,079 16
Assets
AtDecember 31, 2020 , total assets were approximately$2.8 trillion , up$385.5 billion fromDecember 31, 2019 . The increase in assets was primarily due to higher cash held at central banks that was primarily funded by deposit growth and debt securities, partially offset by a decline in loans and leases. Cash and Cash Equivalents Cash and cash equivalents increased$218.9 billion driven by deposit growth. 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$29.5 billion primarily due to deployment of deposit inflows. Trading Account Assets Trading account assets consist primarily of long positions in equity and fixed-income securities includingU.S. government and agency securities, corporate securities and non-U.S. sovereign debt. Trading account assets decreased$31.0 billion due to a decline in inventory within Global Markets.Debt Securities Debt securities primarily includeU.S. Treasury and agency securities, mortgage-backed securities (MBS), principally agency MBS, non-U.S. bonds, corporate bonds and municipal debt. We use the debt securities portfolio primarily to manage interest rate and liquidity risk and to take advantage of market conditions that create economically attractive returns on these investments. Debt securities increased$212.7 billion primarily driven by the deployment of deposit inflows. For more information on debt securities, see Note 4 - Securities to the Consolidated Financial Statements.
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Loans and Leases Loans and leases decreased$55.6 billion primarily driven by commercial loan paydowns, lower credit card spending and lower residential mortgages due to higher paydowns and a decline in originations. For more information on the loan portfolio, see Credit Risk Management on page 61. Allowance for Loan and Lease Losses The allowance for loan and lease losses increased$9.4 billion primarily due to the weaker economic outlook related to COVID-19 and the impact of the adoption of the new credit loss accounting standard. For more information, see Allowance for Credit Losses on page 76. Liabilities AtDecember 31, 2020 , total liabilities were approximately$2.5 trillion , up$377.4 billion fromDecember 31, 2019 , primarily due to deposit growth. Deposits Deposits increased$360.7 billion primarily due to an increase in retail and wholesale deposits. Federal Funds Purchased and Securities Loaned or Sold Under Agreements to Repurchase Federal funds transactions involve borrowing reserve balances on a short-term basis. Securities loaned or sold under agreements to repurchase are collateralized borrowing transactions utilized to accommodate customer transactions, earn interest rate spreads and finance assets on the balance sheet. Federal funds purchased and securities loaned or sold under agreements to repurchase increased$5.2 billion primarily driven by client activity within Global Markets. Trading Account Liabilities Trading account liabilities consist primarily of short positions in equity and fixed-income securities includingU.S. Treasury and agency securities, corporate securities and non-U.S. sovereign debt. Trading account liabilities decreased$12.0 billion primarily due to lower levels of short positions within Global Markets. Short-term Borrowings Short-term borrowings provide an additional funding source and primarily consist ofFederal Home Loan Bank (FHLB) short-term borrowings, notes payable and various other borrowings that generally have maturities of one year or less. Short-term borrowings decreased$4.9 billion due to higher deposit levels. For more information on short-term borrowings, see Note 10 - Federal Funds Sold or Purchased, Securities Financing Agreements, Short-term Borrowings and Restricted Cash to the Consolidated Financial Statements. Long-term Debt Long-term debt increased$22.1 billion primarily due to debt issuances and valuation adjustments, partially offset by maturities and redemptions. For more information on long-term debt, see Note 11 - Long-term Debt to the Consolidated Financial Statements. Shareholders' Equity Shareholders' equity increased$8.1 billion driven by net income, market value increases on debt securities and issuances of preferred and common stock, partially offset by the return of capital to shareholders totaling$14.7 billion through share repurchases and common and preferred stock dividends, as well as the impact of the adoption of the new credit loss accounting standard and the redemption of preferred stock. Cash Flows Overview The Corporation's operating assets and liabilities support our global markets and lending activities. We believe that cash flows from operations, available cash balances and our ability to generate cash through short- and long-term debt are sufficient to fund our operating liquidity needs. Our investing activities primarily include the debt securities portfolio and loans and leases. Our financing activities reflect cash flows primarily related to customer deposits, securities financing agreements and long-term debt. For more information on liquidity, see Liquidity Risk on page 57.
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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 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 21 percent and a representative state tax rate. Net interest yield,
which measures the basis points we earn over the cost of funds, utilizes net
interest income on an FTE basis. We believe that presentation of these items on
an FTE basis allows for comparison of amounts from both taxable and tax-exempt
sources and is consistent with industry practices.
We may present certain key performance indicators and ratios excluding certain
items (e.g., debit valuation adjustment (DVA) gains (losses)) which result in
non-GAAP financial measures. We believe that the presentation of measures that
exclude these items is useful because such measures provide additional
information to assess the underlying operational performance and trends of our
businesses and to allow better comparison of period-to-period operating
performance.
We also evaluate our business based on certain ratios that utilize tangible
equity, a non-GAAP financial measure. Tangible equity represents shareholders'
equity or common shareholders' equity reduced by goodwill and intangible assets
(excluding mortgage servicing rights (MSRs)), net of related deferred tax
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 objectives.
These ratios are as follows:
? Return on average tangible common shareholders' equity measures our net
income applicable to common shareholders as a percentage of adjusted average
common shareholders' equity. The tangible common equity ratio represents
adjusted ending common shareholders' equity divided by total tangible assets.
? Return on average tangible shareholders' equity measures our net income as a
percentage of adjusted average total shareholders' equity. The tangible equity
ratio represents adjusted ending shareholders' equity divided by total tangible
assets.
? Tangible book value per common share represents adjusted ending common
shareholders' equity divided by ending common shares outstanding.
We believe ratios utilizing tangible equity provide 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 6 and 7.
For more information on the reconciliation of these non-GAAP financial measures
to the corresponding GAAP financial measures, see Non-GAAP Reconciliations on
page 88.
Key Performance Indicators
We present certain key financial and nonfinancial performance indicators (key
performance indicators) that management uses when assessing our consolidated
and/or segment results. We believe they are useful to investors because they
provide additional information about our underlying operational performance and
trends. These key performance indicators (KPIs) may not be defined or calculated
in the same way as similar KPIs used by other companies. For information on how
these metrics are defined, see Key Metrics on page 173.
Our consolidated key performance indicators, which include various equity and
credit metrics, are presented in Table 1 on page 27 and/or Tables 6 and 7 on
pages 32 and 33.
For information on key segment performance metrics, see Business Segment
Operations on page 36.
31 Bank of America --------------------------------------------------------------------------------
Five-year Summary of Selected
Table 6 Financial Data
(In millions, except per share information) 2020 2019 2018 2017 2016
Income statement
Net interest income $ 43,360 $ 48,891 $ 48,162 $ 45,239 $ 41,486
Noninterest income 42,168 42,353 42,858 41,887 42,012
Total revenue, net of interest expense 85,528 91,244 91,020 87,126 83,498
Provision for credit losses 11,320 3,590 3,282 3,396 3,597
Noninterest expense 55,213 54,900 53,154 54,517 54,880
Income before income taxes 18,995 32,754 34,584 29,213 25,021
Income tax expense 1,101 5,324 6,437 10,981 7,199
Net income 17,894 27,430 28,147 18,232 17,822
Net income applicable to common shareholders 16,473 25,998 26,696 16,618 16,140
Average common shares issued and outstanding 8,753.2 9,390.5 10,096.5 10,195.6
10,248.1
Average diluted common shares issued and outstanding 8,796.9 9,442.9 10,236.9 10,778.4 11,046.8 Performance ratios Return on average assets (1) 0.67 % 1.14 % 1.21 % 0.80 % 0.81 % Return on average common shareholders' equity (1) 6.76 10.62 11.04 6.72
6.69
Return on average tangible common shareholders' equity (2) 9.48
14.86 15.55 9.41 9.51
Return on average shareholders' equity (1) 6.69 10.24 10.63 6.72
6.70
Return on average tangible shareholders' equity (2) 9.07 13.85 14.46 9.08
9.17
Total ending equity to total ending assets 9.68 10.88 11.27 11.71
12.17
Total average equity to total average assets 9.96 11.14 11.39 11.96 12.14 Dividend payout 38.18 23.65 20.31 24.24 15.94 Per common share data Earnings$ 1.88 $ 2.77 $ 2.64 $ 1.63 $ 1.57 Diluted earnings 1.87 2.75 2.61 1.56 1.49 Dividends paid 0.72 0.66 0.54 0.39 0.25 Book value (1) 28.72 27.32 25.13 23.80 23.97 Tangible book value (2) 20.60 19.41 17.91 16.96 16.89 Market capitalization$ 262,206 $ 311,209 $ 238,251 $ 303,681 $ 222,163 Average balance sheet Total loans and leases$ 982,467 $ 958,416 $ 933,049 $ 918,731 $ 900,433 Total assets 2,683,122 2,405,830 2,325,246 2,268,633 2,190,218 Total deposits 1,632,998 1,380,326 1,314,941 1,269,796 1,222,561 Long-term debt 220,440 201,623 200,399 194,882 204,826 Common shareholders' equity 243,685 244,853 241,799 247,101
241,187
Total shareholders' equity 267,309 267,889 264,748 271,289
265,843
Asset quality (3) Allowance for credit losses (4)$ 20,680
3,837 5,244 6,758 8,084
Allowance for loan and lease losses as a percentage of total loans and leases outstanding (5)
2.04 % 0.97 % 1.02 % 1.12 % 1.26 % Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5)
380 265 194 161 149
Net charge-offs $ 4,121
0.42 % 0.38 % 0.41 % 0.44 % 0.43 %
Capital ratios at year end (6)
Common equity tier 1 capital 11.9 % 11.2 % 11.6 % 11.5 % 10.8 % Tier 1 capital 13.5 12.6 13.2 13.0 12.4 Total capital 16.1 14.7 15.1 14.8 14.2 Tier 1 leverage 7.4 7.9 8.4 8.6 8.8 Supplementary leverage ratio 7.2 6.4 6.8 n/a n/a Tangible equity (2) 7.4 8.2 8.6 8.9 9.2 Tangible common equity (2) 6.5 7.3 7.6 7.9 8.0 (1)For definitions, see Key Metrics on page 173 (2)Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. For more information on these ratios and corresponding reconciliations to GAAP financial measures, see Supplemental Financial Data on page 31 and Non-GAAP Reconciliations on page 88. (3)Asset quality metrics include$75 million of non-U.S. consumer credit card net charge-offs in 2017 and$243 million of non-U.S. consumer credit card allowance for loan and lease losses,$9.2 billion of non-U.S. consumer credit card loans and$175 million of non-U.S. consumer credit card net charge-offs in 2016. The Corporation sold its non-U.S. consumer credit card business in 2017. (4)Includes the allowance for loan and leases losses and the reserve for unfunded lending commitments. (5)Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Consumer Portfolio Credit Risk Management - Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 67 and corresponding Table 28 and Commercial Portfolio Credit Risk Management - Nonperforming Commercial Loans,Leases and Foreclosed Properties Activity on page 71 and corresponding Table 35. (6)Basel 3 transition provisions for regulatory capital adjustments and deductions were fully phased-in as ofJanuary 1, 2018 . Prior periods are presented on a fully phased-in basis. For additional information, including which approach is used to assess capital adequacy, see Capital Management on page 50. n/a = not applicableBank of America 32
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Table 7 Selected Quarterly Financial Data
2020 Quarters 2019 Quarters
(In millions, except per share information) Fourth Third Second First Fourth Third Second First
Income statement
Net interest income $ 10,253 $ 10,129 $ 10,848 $ 12,130 $ 12,140 $ 12,187 $ 12,189 $ 12,375
Noninterest income 9,846 10,207 11,478 10,637 10,209 10,620 10,895 10,629
Total revenue, net of interest expense 20,099 20,336 22,326 22,767 22,349 22,807 23,084 23,004
Provision for credit losses 53 1,389 5,117 4,761 941 779 857 1,013
Noninterest expense 13,927 14,401 13,410 13,475 13,239 15,169 13,268 13,224
Income before income taxes 6,119 4,546 3,799 4,531 8,169 6,859 8,959 8,767
Income tax expense 649 (335) 266 521 1,175 1,082 1,611 1,456
Net income 5,470 4,881 3,533 4,010 6,994 5,777 7,348 7,311
Net income applicable to common shareholders 5,208 4,440 3,284 3,541 6,748 5,272 7,109 6,869
Average common shares issued and outstanding 8,724.9 8,732.9 8,739.9 8,815.6 9,017.1 9,303.6 9,523.2 9,725.9
Average diluted common shares issued and
outstanding 8,785.0 8,777.5 8,768.1 8,862.7 9,079.5 9,353.0 9,559.6 9,787.3
Performance ratios
Return on average assets (1) 0.78 % 0.71 % 0.53 % 0.65 % 1.13 % 0.95 % 1.23 % 1.26 %
Four-quarter trailing return on average
assets (2) 0.67 0.75 0.81 0.99 1.14 1.17 1.24 1.22
Return on average common shareholders' equity
(1) 8.39 7.24 5.44 5.91 11.00 8.48 11.62 11.42
Return on average tangible common shareholders'
equity (3) 11.73 10.16 7.63 8.32 15.43 11.84 16.24 16.01
Return on average shareholders' equity (1) 8.03 7.26 5.34 6.10 10.40 8.48 11.00 11.14
Return on average tangible shareholders'
equity (3) 10.84 9.84 7.23 8.29 14.09 11.43 14.88 15.10
Total ending equity to total ending assets 9.68 9.82 9.69 10.11 10.88 11.06 11.33 11.23
Total average equity to total average assets 9.71 9.76 9.85 10.60 10.89 11.21 11.17 11.28
Dividend payout 30.11 35.36 47.87 44.57 23.90 31.48 19.95 21.20
Per common share data
Earnings $ 0.60 $ 0.51 $ 0.38 $ 0.40 $ 0.75 $ 0.57 $ 0.75 $ 0.71
Diluted earnings 0.59 0.51 0.37 0.40 0.74 0.56 0.74 0.70
Dividends paid 0.18 0.18 0.18 0.18 0.18 0.18 0.15 0.15
Book value (1) 28.72 28.33 27.96 27.84 27.32 26.96 26.41 25.57
Tangible book value (3) 20.60 20.23 19.90 19.79 19.41 19.26 18.92 18.26
Market capitalization $ 262,206 $
208,656
$ 264,842 $ 270,935 $ 263,992 Average balance sheet Total loans and leases$ 934,798 $ 974,018 $ 1,031,387 $ 990,283 $ 973,986 $ 964,733 $ 950,525 $ 944,020 Total assets 2,791,874 2,739,684 2,704,186 2,494,928 2,450,005 2,412,223 2,399,051 2,360,992 Total deposits 1,737,139 1,695,488 1,658,197 1,439,336 1,410,439 1,375,052 1,375,450 1,359,864 Long-term debt 225,423 224,254 221,167 210,816 206,026 202,620 201,007 196,726 Common shareholders' equity 246,840 243,896 242,889 241,078 243,439 246,630 245,438 243,891 Total shareholders' equity 271,020 267,323 266,316 264,534 266,900 270,430 267,975 266,217 Asset quality Allowance for credit losses (4)$ 20,680 $
21,506
$ 10,242 $ 10,333 $ 10,379 Nonperforming loans, leases and foreclosed properties (5) 5,116 4,730 4,611 4,331 3,837 3,723 4,452 5,145 Allowance for loan and lease losses as a percentage of total loans and leases outstanding (5) 2.04 % 2.07 % 1.96 % 1.51 % 0.97 % 0.98 % 1.00 % 1.02 % Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5) 380 431 441 389 265 271 228 197 Net charge-offs$ 881 $ 972 $ 1,146 $ 1,122 $ 959
0.38 % 0.40 % 0.45 % 0.46 % 0.39 % 0.34 % 0.38 % 0.43 %Capital ratios at period end (6)
Common equity tier 1 capital 11.9 % 11.9 % 11.4 % 10.8 % 11.2 % 11.4 % 11.7 % 11.6 % Tier 1 capital 13.5 13.5 12.9 12.3 12.6 12.9 13.3 13.1 Total capital 16.1 16.1 14.8 14.6 14.7 15.1 15.4 15.2 Tier 1 leverage 7.4 7.4 7.4 7.9 7.9 8.2 8.4 8.4 Supplementary leverage ratio 7.2 6.9 7.1 6.4 6.4 6.6 6.8 6.8 Tangible equity (3) 7.4 7.4 7.3 7.7 8.2 8.4 8.7 8.5 Tangible common equity (3) 6.5 6.6 6.5 6.7 7.3 7.4 7.6 7.6 Total loss-absorbing capacity and long-term debt metrics Total loss-absorbing capacity to risk-weighted assets 27.4 % 26.9 % 26.0 % 24.6 % 24.6 % 24.8 % 25.5 % 24.8 % Total loss-absorbing capacity to supplementary leverage exposure 14.5 13.7 14.2 12.8 12.5 12.7 13.0 12.8 Eligible long-term debt to risk-weighted assets 13.3 12.9 12.4 11.6 11.5 11.4 11.8 11.4 Eligible long-term debt to supplementary leverage exposure 7.1 6.6 6.7 6.1 5.8 5.8 6.0 5.9 (1)For definitions, see Key Metrics on page 173. (2)Calculated as total net income for four consecutive quarters divided by annualized average assets for four consecutive quarters. (3)Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. For more information on these ratios and corresponding reconciliations to GAAP financial measures, see Supplemental Financial Data on page 31 and Non-GAAP Reconciliations on page 88. (4)Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments. (5)Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Consumer Portfolio Credit Risk Management - Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 68 and corresponding Table 28 and Commercial Portfolio Credit Risk Management - Nonperforming Commercial Loans,Leases and Foreclosed Properties Activity on page 72 and corresponding Table 35. (6)For more information, including which approach is used to assess capital adequacy, see Capital Management on page 50. 33Bank of America
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Table 8 Average Balances and Interest Rates - FTE Basis
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense (1) Rate Balance Expense (1) Rate Balance Expense (1) Rate
(Dollars in millions) 2020 2019 2018
Earning assets
Interest-bearing deposits with the
$ 253,227 $ 359 0.14 %$ 125,555 $ 1,823 1.45 %$ 139,848 $ 1,926 1.38 % Time deposits placed and other short-term investments 8,840 29 0.33 9,427 207 2.19 9,446 216
2.29
Federal funds sold and securities borrowed or purchased under agreements to resell 309,945 903 0.29 279,610 4,843 1.73 251,328 3,176 1.26 Trading account assets 148,076 4,185 2.83 148,076 5,269 3.56 132,724 4,901 3.69 Debt securities 532,266 9,868 1.87 450,090 11,917 2.65 437,312 11,837 2.66 Loans and leases (2) Residential mortgage 236,719 7,338 3.10 220,552 7,651 3.47 207,523 7,294 3.51 Home equity 38,251 1,290 3.37 44,600 2,194 4.92 53,886 2,573 4.77 Credit card 85,017 8,759 10.30 94,488 10,166 10.76 94,612 9,579 10.12 Direct/Indirect and other consumer (3) 89,974 2,545 2.83 90,656 3,261 3.60 93,036 3,104 3.34 Total consumer 449,961 19,932 4.43 450,296 23,272 5.17 449,057 22,550 5.02U.S. commercial (4) 344,095 9,712 2.82 321,467 13,161 4.09 304,387 11,937 3.92 Non-U.S. commercial (4) 106,487 2,208 2.07 103,918 3,402 3.27 97,664 3,220 3.30 Commercial real estate (5) 63,428 1,790 2.82 62,044 2,741 4.42 60,384 2,618 4.34 Commercial lease financing 18,496 559 3.02 20,691 718 3.47 21,557 698 3.24 Total commercial 532,506 14,269 2.68 508,120 20,022 3.94 483,992 18,473 3.82 Total loans and leases 982,467 34,201 3.48 958,416 43,294 4.52 933,049 41,023 4.40 Other earning assets 83,078 2,539 3.06 69,089 4,478 6.48 76,524 4,300 5.62 Total earning assets 2,317,899 52,084 2.25 2,040,263 71,831 3.52 1,980,231 67,379 3.40 Cash and due from banks 31,885 26,193 25,830
Other assets, less allowance for loan and lease losses 333,338
339,374 319,185
Total assets $ 2,683,122 $ 2,405,830 $ 2,325,246
Interest-bearing liabilities
U.S. interest-bearing deposits
Savings $ 58,113 $ 6 0.01 % $ 52,020 $ 5 0.01 % $ 54,226 $ 6 0.01 %
Demand and money market deposit accounts 829,719 977 0.12 741,126 4,471 0.60 676,382 2,636 0.39
Consumer CDs and IRAs 47,780 405 0.85 47,577 471 0.99 39,823 157 0.39
Negotiable CDs, public funds and other deposits 64,857 323 0.50 66,866 1,407 2.11 50,593 991 1.96
TotalU.S. interest-bearing deposits 1,000,469 1,711 0.17 907,589 6,354 0.70 821,024 3,790
0.46
Non-U.S. interest-bearing deposits Banks located in non-U.S. countries 1,476 4 0.27 1,936 20 1.04 2,312 39
1.69
Governments and official institutions 184 - 0.01 181 - 0.05 810 - 0.01 Time, savings and other 75,386 228 0.30 69,351 814 1.17 65,097 666 1.02 Total non-U.S. interest-bearing deposits 77,046 232 0.30 71,468 834 1.17 68,219 705
1.03
Total interest-bearing deposits 1,077,515 1,943 0.18 979,057 7,188 0.73 889,243 4,495
0.51
Federal funds purchased, securities loaned or sold under agreements to repurchase, short-term borrowings and other interest-bearing liabilities
293,466 987 0.34 276,432 7,208 2.61 269,748 5,839 2.17
Trading account liabilities 41,386 974 2.35 45,449 1,249 2.75 50,928 1,358 2.67
Long-term debt 220,440 4,321 1.96 201,623 6,700 3.32 200,399 6,915 3.45
Total interest-bearing liabilities 1,632,807 8,225 0.50 1,502,561 22,345 1.49 1,410,318 18,607 1.32
Noninterest-bearing sources
Noninterest-bearing deposits 555,483 401,269 425,698
Other liabilities (6) 227,523 234,111 224,482
Shareholders' equity 267,309 267,889 264,748
Total liabilities and shareholders' equity $ 2,683,122 $ 2,405,830 $ 2,325,246
Net interest spread 1.75 % 2.03 % 2.08 %
Impact of noninterest-bearing sources 0.15 0.40 0.37
Net interest income/yield on earning assets (7)$ 43,859 1.90 %$ 49,486 2.43 %$ 48,772 2.45 % (1)Includes the impact of interest rate risk management contracts. For more information, see Interest Rate Risk Management for the Banking Book on page 82. (2)Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis. (3)Includes non-U.S. consumer loans of$2.9 billion ,$2.9 billion and$2.8 billion for 2020, 2019 and 2018, respectively. (4)Certain prior-period amounts for 2019 have been reclassified to conform to current-period presentation. (5)IncludesU.S. commercial real estate loans of$59.8 billion ,$57.3 billion and$56.4 billion , and non-U.S. commercial real estate loans of$3.6 billion ,$4.7 billion and$4.0 billion for 2020, 2019 and 2018, respectively. (6)Includes$34.3 billion ,$35.5 billion and$30.4 billion of structured notes and liabilities for 2020, 2019 and 2018, respectively. (7)Net interest income includes FTE adjustments of$499 million ,$595 million and$610 million for 2020, 2019 and 2018, respectively.Bank of America 34
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Table 9 Analysis of Changes in Net Interest Income - FTE Basis
Due to Change in (1) Due to Change in (1)
Volume Rate Net Change Volume Rate Net Change
(Dollars in millions) From 2019 to 2020 From 2018 to 2019
Increase (decrease) in interest income
Interest-bearing deposits with the Federal Reserve , non-U.S.
central banks and other banks $ 1,849 $ (3,313) $ (1,464) $ (193) $ 90 $ (103)
Time deposits placed and other short-term investments (13) (165) (178) - (9) (9)
Federal funds sold and securities borrowed or purchased under
agreements to resell 519 (4,459) (3,940) 347 1,320 1,667
Trading account assets 3 (1,087) (1,084) 563 (195) 368
Debt securities 2,188 (4,237) (2,049) 135 (55) 80
Loans and leases
Residential mortgage 563 (876) (313) 447 (90) 357
Home equity (312) (592) (904) (446) 67 (379)
Credit card (1,018) (389) (1,407) (17) 604 587
Direct/Indirect and other consumer (22) (694) (716) (76) 233 157
Total consumer (3,340) 722
U.S. commercial (2) 912 (4,361) (3,449) 665 559 1,224
Non-U.S. commercial (2) 80 (1,274) (1,194) 209 (27) 182
Commercial real estate 63 (1,014) (951) 75 48 123
Commercial lease financing (76) (83) (159) (28) 48 20
Total commercial (5,753) 1,549
Total loans and leases (9,093) 2,271
Other earning assets 905 (2,844) (1,939) (417) 595 178
Net increase (decrease) in interest income $ (19,747) $ 4,452
Increase (decrease) in interest expense
U.S. interest-bearing deposits
Savings $ 1 $ - $ 1 $ (1) $ - $ (1)
Demand and money market deposit accounts 507 (4,001) (3,494) 254 1,581 1,835
Consumer CDs and IRAs 2 (68) (66) 29 285 314
Negotiable CDs, public funds and other deposits (39) (1,045) (1,084) 320 96 416
Total U.S. interest-bearing deposits (4,643) 2,564
Non-U.S. interest-bearing deposits
Banks located in non-U.S. countries (5) (11) (16) (6) (13) (19)
Time, savings and other 68 (654) (586) 41 107 148
Total non-U.S. interest-bearing deposits (602) 129
Total interest-bearing deposits (5,245) 2,693
Federal funds purchased, securities loaned or sold under
agreements to repurchase, short-term borrowings and other
interest-bearing liabilities 451 (6,672) (6,221) 160 1,209 1,369
Trading account liabilities (111) (164) (275) (145) 36 (109)
Long-term debt 619 (2,998) (2,379) 41 (256) (215)
Net increase (decrease) in interest expense (14,120) 3,738
Net increase (decrease) in net interest income (3) $ (5,627) $ 714
(1)The changes for each category of interest income and expense are divided
between the portion of change attributable to the variance in volume and the
portion of change attributable to the variance in rate for that category. The
unallocated change in rate or volume variance is allocated between the rate and
volume variances.
(2)Certain prior-period amounts have been reclassified to conform to
current-period presentation.
(3)Includes changes in FTE basis adjustments of a $96 million decrease from 2019
to 2020 and a $15 million decrease from 2018 to 2019.
35 Bank of America
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Business Segment Operations
Segment Description and Basis of Presentation
We report our results of operations through four business segments: Consumer
Banking, GWIM, Global Banking and Global Markets, with the remaining operations
recorded in All Other. We manage our segments and report their results on an FTE
basis. The primary activities, products and businesses of the business segments
and All Other are shown below.
[[Image Removed: bac-20201231_g1.jpg]]
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 47. The
capital allocated to the business segments is referred to as allocated capital.
Allocated equity in the reporting units is comprised of allocated capital plus
capital for the portion of goodwill and intangibles specifically assigned to the
reporting unit. For more information, including the definition of a reporting
unit, see Note 7 - Goodwill and Intangible Assets to the Consolidated Financial
Statements.
For more information on our presentation of financial information on an FTE
basis, see Supplemental Financial Data on page 31, and for reconciliations to
consolidated total revenue, net income and period-end total assets, see Note 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.
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Consumer Banking
Deposits Consumer Lending Total Consumer Banking
(Dollars in millions) 2020 2019 2020 2019 2020 2019 % Change
Net interest income $ 13,739 $ 16,904 $ 10,959 $ 11,254 $ 24,698 $ 28,158 (12) %
Noninterest income:
Card income (20) (33) 4,693 5,117 4,673 5,084 (8)
Service charges 3,416 4,216 1 2 3,417 4,218 (19)
All other income 310 833 164 294 474 1,127 (58)
Total noninterest income 3,706 5,016 4,858 5,413 8,564 10,429 (18)
Total revenue, net of interest expense 17,445 21,920 15,817 16,667 33,262 38,587 (14)
Provision for credit losses 379 269 5,386 3,503 5,765 3,772 53
Noninterest expense 11,508 10,718 7,370 6,928 18,878 17,646 7
Income before income taxes 5,558 10,933 3,061 6,236 8,619 17,169 (50)
Income tax expense 1,362 2,679 750 1,528 2,112 4,207 (50)
Net income $ 4,196 $ 8,254 $ 2,311 $ 4,708 $ 6,507 $ 12,962 (50)
Effective tax rate (1) 24.5 % 24.5 %
Net interest yield 1.69 % 2.40 % 3.53 % 3.80 % 2.88 3.81
Return on average allocated capital 35 69 9 19 17 35
Efficiency ratio 65.97 48.90 46.60 41.56 56.76 45.73
Balance Sheet
Average
Total loans and leases $ 5,144 $ 5,371 $ 310,436 $ 295,562 $ 315,580 $ 300,933 5 %
Total earning assets (2) 813,779 703,481 310,862 296,051 858,724 738,807 16
Total assets (2) 849,924 735,298 314,599 306,169 898,606 780,742 15
Total deposits 816,968 702,972 6,698 5,368 823,666 708,340 16
Allocated capital 12,000 12,000 26,500 25,000 38,500 37,000 4
Year end
Total loans and leases $ 4,673 $ 5,467 $ 295,261 $ 311,942 $ 299,934 $ 317,409 (6) %
Total earning assets (2) 899,951 724,573 295,627 312,684 945,343 760,174 24
Total assets (2) 939,629 758,459 299,186 322,717 988,580 804,093 23
Total deposits 906,092 725,665 6,560 5,080 912,652 730,745 25
(1)Estimated at the segment level only.
(2)In segments and businesses where the total of liabilities and equity exceeds
assets, we allocate assets from All Other to match the segments' and businesses'
liabilities and allocated shareholders' equity. As a result, total earning
assets and total assets of the businesses may not equal total Consumer Banking.
Consumer Banking, which is comprised of Deposits and Consumer Lending, offers a
diversified range of credit, banking and investment products and services to
consumers and small businesses. Deposits and Consumer Lending include the net
impact of migrating customers and their related deposit, brokerage asset and
loan balances between Deposits, Consumer Lending and GWIM, as well as other
client-managed businesses. Our customers and clients have access to a coast to
coast network including financial centers in 38 states and the District of
Columbia . Our network includes approximately 4,300 financial centers,
approximately 17,000 ATMS, nationwide call centers and leading digital banking
platforms with more than 39 million active users, including approximately
31 million active mobile users.
Consumer Banking Results.
Net income for Consumer Banking decreased $6.5 billion to $6.5 billion in 2020
compared to 2019 primarily due to lower revenue, higher provision for credit
losses and higher expenses. Net interest income decreased $3.5 billion to $24.7
billion
primarily due to lower rates, partially offset by the benefit of higher deposit
and loan balances. Noninterest income decreased $1.9 billion to $8.6 billion
driven by a decline in service charges primarily due to higher deposit balances
and lower card income due to decreased client activity, as well as lower other
income due to the allocation of asset and liability management (ALM) results.
The provision for credit losses increased $2.0 billion to $5.8 billion primarily
due to the weaker economic outlook related to COVID-19. Noninterest expense
increased $1.2 billion to $18.9 billion primarily driven by incremental expense
to support customers and employees during the pandemic, as well as the cost of
increased client activity and continued investments for business growth,
including the merchant services platform.
The return on average allocated capital was 17 percent, down from 35 percent,
driven by lower net income and, to a lesser extent, an increase in allocated
capital. For information on capital allocated to the business segments, see
Business Segment Operations on page 36.
37
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Deposits
Deposits includes the results of consumer deposit activities which consist of a comprehensive range of products provided to consumers and small businesses. Our deposit products include traditional savings accounts, money market savings accounts, CDs and IRAs, and noninterest- and interest-bearing checking accounts, as well as investment accounts and products. Net interest income is allocated to the deposit products using our funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Deposits generates fees such as account service fees, non-sufficient funds fees, overdraft charges and ATM fees, as well as investment and brokerage fees fromMerrill Edge accounts.Merrill Edge is an integrated investing and banking service targeted at customers with less than$250,000 in investable assets.Merrill Edge provides investment advice and guidance, client brokerage asset services, a self-directed online investing platform and key banking capabilities including access to the Corporation's network of financial centers and ATMs. Net income for Deposits decreased$4.1 billion to$4.2 billion primarily driven by lower revenue. Net interest income declined$3.2 billion to$13.7 billion primarily due to lower interest rates, partially offset by the benefit of growth in deposits. Noninterest income decreased$1.3 billion to$3.7 billion primarily driven by lower service charges due to higher deposit balances and lower client activity related to the impact of COVID-19, as well as lower other income due to the allocation of ALM results. The provision for credit losses increased$110 million to$379 million in 2020 due to the weaker economic outlook related to COVID-19. Noninterest expense increased$790 million to$11.5 billion driven by continued investments in the business and incremental expense to support customers and employees during the pandemic. Average deposits increased$114.0 billion to$817.0 billion in 2020 driven by strong organic growth of$79.3 billion in checking and time deposits and$34.4 billion in traditional savings and money market savings. The following table 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. Key Statistics - Deposits 2020 2019 Total deposit spreads (excludes noninterest costs) (1) 1.94% 2.34% Year End Consumer investment assets (in millions) (2) $ 306,104 $ 240,132 Active digital banking users (units in thousands) (3) 39,315 38,266 Active mobile banking users (units in thousands) (4) 30,783 29,174 Financial centers 4,312 4,300 ATMs 16,904 16,788 (1)Includes deposits held in Consumer Lending. (2)Includes client brokerage assets, deposit sweep balances and AUM in Consumer Banking. (3)Active digital banking users represents mobile and/or online users at period end. (4)Active mobile banking users represents mobile users at period end. Consumer investment assets increased$66.0 billion in 2020 driven by market performance and client flows. Active mobile banking users increased approximately two million reflecting continuing changes in our customers' banking preferences. We had a net increase of 12 financial centers as we continued to optimize our consumer banking network. Consumer Lending Consumer Lending offers products to consumers and small businesses across theU.S. The products offered include credit and debit cards, residential mortgages and home equity loans, and direct and indirect loans such as automotive, recreational vehicle and consumer personal loans. In addition to earning net interest spread revenue on its lending activities, Consumer Lending generates interchange revenue from credit and debit card transactions, late fees, cash advance fees, annual credit card fees, mortgage banking fee income and other miscellaneous fees. Consumer Lending products are available to our customers through our retail network, direct telephone, and online and mobile channels. Consumer Lending results also include the impact of servicing residential mortgages and home equity loans in the core portfolio, including loans held on the balance sheet of Consumer Lending and loans serviced for others.
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Net income for Consumer Lending was$2.3 billion , a decrease of$2.4 billion , primarily due to higher provision for credit losses. Net interest income declined$295 million to$11.0 billion primarily due to lower interest rates, partially offset by loan growth. Noninterest income decreased$555 million to$4.9 billion primarily driven by lower card income due to lower client activity, as well as lower other income due to the allocation of ALM results. The provision for credit losses increased$1.9 billion to$5.4 billion primarily due to the weaker economic outlook related to COVID-19. Noninterest expense increased$442 million to$7.4 billion primarily driven by investments in the business and incremental expense to support customers and employees during the pandemic. Average loans increased$14.9 billion to$310.4 billion primarily driven by an increase in residential mortgages and PPP loans, partially offset by a decline in credit cards. The following table provides key performance indicators for Consumer Lending. Management uses these metrics, and we believe they are useful to investors because they provide additional information about loan growth and profitability.
Key Statistics - Consumer Lending
(Dollars in millions) 2020 2019
Total credit card (1)
Gross interest yield (2) 10.27 % 10.76 %
Risk-adjusted margin (3) 9.16 8.28
New accounts (in thousands) 2,505 4,320
Purchase volumes $
251,599
Debit card purchase volumes $
384,503
(1)Includes GWIM's credit card portfolio. (2)Calculated as the effective annual percentage rate divided by average loans. (3)Calculated as the difference between total revenue, net of interest expense, and net credit losses divided by average loans. During 2020, the total risk-adjusted margin increased 88 bps compared to 2019 driven by a lower mix of customer balances at promotional rates, the lower interest rate environment and lower net credit losses. Total credit card purchase volumes declined$26.3 billion to$251.6 billion . The decline in credit card purchase volumes was driven by the impact of COVID-19. While overall spending improved during the second half of 2020, spending for travel and entertainment remained lower compared to 2019. During 2020, debit card purchase volumes increased$23.8 billion to$384.5 billion , despite COVID-19 impacts. Debit card purchase volumes improved in the second half of 2020 as businesses reopened and spending improved. Key Statistics - Residential Mortgage Loan Production (1) (Dollars in millions) 2020 2019 Consumer Banking: First mortgage$ 43,197 $ 49,179 Home equity 6,930 9,755 Total (2): First mortgage$ 69,086 $ 72,467 Home equity 8,160 11,131 (1)The loan production amounts represent the unpaid principal balance of loans and, in the case of home equity, the principal amount of the total line of credit. (2)In addition to loan production in Consumer Banking, there is also first mortgage and home equity loan production in GWIM. First mortgage loan originations in Consumer Banking and for the total Corporation decreased$6.0 billion and$3.4 billion in 2020 primarily driven by a decline in nonconforming applications. Home equity production in Consumer Banking and for the total Corporation decreased$2.8 billion and$3.0 billion in 2020 primarily driven by a decline in applications. 39 Bank of America
-------------------------------------------------------------------------------- Global Wealth & Investment Management (Dollars in millions) 2020 2019 % Change Net interest income$ 5,468 $ 6,504 (16) % Noninterest income: Investment and brokerage services 12,270 11,870 3 All other income 846 1,164 (27) Total noninterest income 13,116 13,034 1 Total revenue, net of interest expense 18,584 19,538 (5) Provision for credit losses 357 82 n/m Noninterest expense 14,154 13,825 2 Income before income taxes 4,073 5,631 (28) Income tax expense 998 1,380 (28) Net income$ 3,075 $ 4,251 (28) Effective tax rate 24.5 % 24.5 % Net interest yield 1.73 2.33 Return on average allocated capital 21 29 Efficiency ratio 76.16 70.76 Balance Sheet Average Total loans and leases$ 183,402 $ 168,910 9 % Total earning assets 316,008 279,681 13 Total assets 328,384 292,016 12 Total deposits 287,123 256,516 12 Allocated capital 15,000 14,500 3 Year end Total loans and leases$ 188,562 $ 176,600 7 % Total earning assets 356,873 287,201 24 Total assets 369,736 299,770 23 Total deposits 322,157 263,113 22 n/m = not meaningful GWIM consists of two primary businesses:Merrill Lynch Global Wealth Management (MLGWM) andBank of America Private Bank . MLGWM's advisory business provides a high-touch client experience through a network of financial advisors focused on clients with over$250,000 in total investable assets. MLGWM provides tailored solutions to meet clients' needs through a full set of investment management, brokerage, banking and retirement products.Bank of America Private Bank , together with MLGWM'sPrivate 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 decreased$1.2 billion to$3.1 billion primarily due to lower net interest income, higher noninterest expense and higher provision for credit losses. Net interest income decreased$1.0 billion to$5.5 billion due to the impact of lower interest rates, partially offset by the benefit of strong deposit and loan growth. Noninterest income, which primarily includes investment and brokerage services income, increased$82 million to$13.1 billion primarily due to higher market valuations and positive AUM flows, largely offset by declines in AUM pricing as well as lower other income due to the allocation of ALM results. The provision for credit losses increased$275 million to$357 million primarily due to the weaker economic outlook related to COVID-19. Noninterest expense increased$329 million to$14.2 billion primarily driven by higher investments in primary sales professionals and revenue-related incentives. The return on average allocated capital was 21 percent, down from 29 percent, due to lower net income and, to a lesser extent, a small increase in allocated capital. Average loans increased$14.5 billion to$183.4 billion primarily driven by residential mortgage and custom lending. Average deposits increased$30.6 billion to$287.1 billion primarily driven by inflows resulting from client responses to market volatility and lower spending. MLGWM revenue of$15.3 billion decreased five percent primarily driven by the impact of lower interest rates, partially offset by the benefits of higher market valuations and positive AUM flows.Bank of America Private Bank revenue of$3.3 billion decreased four percent primarily driven by the impact of lower interest rates.
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Key Indicators and Metrics
(Dollars in millions, except as noted) 2020 2019 Revenue by Business Merrill Lynch Global Wealth Management$ 15,292 $ 16,112 Bank of America Private Bank 3,292 3,426 Total revenue, net of interest expense
Client Balances by Business, at year end Merrill Lynch Global Wealth Management$ 2,808,340 $ 2,558,102 Bank of America Private Bank 541,464 489,690 Total client balances$ 3,349,804 $ 3,047,792
Client Balances by Type, at year end
Assets under management$ 1,408,465 $ 1,275,555 Brokerage and other assets 1,479,614 1,372,733 Deposits 322,157 263,103 Loans and leases (1) 191,124 179,296 Less: Managed deposits in assets under management (51,556) (42,895) Total client balances
Assets Under Management Rollforward Assets under management, beginning of year$ 1,275,555 $ 1,072,234 Net client flows 19,596 24,865 Market valuation/other 113,314 178,456 Total assets under management, end of year
Associates, at year end Number of financial advisors 17,331 17,458 Total wealth advisors, including financial advisors 19,373 19,440
Total primary sales professionals, including financial advisors and wealth advisors
21,213 20,586
Merrill Lynch Global Wealth Management Metric
Financial advisor productivity (2) (in thousands) Bank of America Private Bank Metric , at year end Primary sales professionals 1,759 1,766 (1)Includes margin receivables which are classified in customer and other receivables on the Consolidated Balance Sheet. (2)For a definition, see Key Metrics on page 173. Client Balances Client balances managed under advisory and/or discretion of GWIM are AUM and are typically held in diversified portfolios. Fees earned on AUM are calculated as a percentage of clients' AUM balances. The asset management fees charged to clients per year depend on various factors, but are commonly driven by the breadth of the client's relationship. 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$302.0 billion , or 10 percent, to$3.3 trillion atDecember 31, 2020 compared toDecember 31, 2019 . The increase in client balances was primarily due to higher market valuations and positive client flows. 41Bank of America -------------------------------------------------------------------------------- Global Banking (Dollars in millions) 2020 2019 % Change Net interest income$ 9,013 $ 10,675 (16) % Noninterest income: Service charges 3,238 3,015 7 Investment banking fees 4,010 3,137 28 All other income 2,726 3,656 (25) Total noninterest income 9,974 9,808 2 Total revenue, net of interest expense 18,987 20,483 (7) Provision for credit losses 4,897 414 n/m Noninterest expense 9,337 9,011 4 Income before income taxes 4,753 11,058 (57) Income tax expense 1,283 2,985 (57) Net income$ 3,470 $ 8,073 (57) Effective tax rate 27.0 % 27.0 % Net interest yield 1.86 2.75 Return on average allocated capital 8 20 Efficiency ratio 49.17 43.99 Balance Sheet Average Total loans and leases$ 382,264 $ 374,304 2 % Total earning assets 485,688 388,152 25 Total assets 542,302 443,083 22 Total deposits 456,562 362,731 26 Allocated capital 42,500 41,000 4 Year end Total loans and leases$ 339,649 $ 379,268 (10) % Total earning assets 522,650 407,180 28 Total assets 580,561 464,032 25 Total deposits 493,748 383,180 29 n/m = not meaningful 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, short-term investing options and merchant services. We also provide investment banking products to our clients such as debt and equity underwriting and distribution, and merger-related and other advisory services. Underwriting debt and equity issuances, fixed-income and equity research, and certain market-based activities are executed through our global broker-dealer affiliates, which are our primary dealers in several countries. Within Global Banking, Global Corporate Banking clients generally include large global corporations, financial institutions and leasing clients. Global Commercial Banking clients generally include middle-market companies, commercial real estate firms and not-for-profit companies. Business Banking clients include mid-sizedU.S. -based businesses requiring customized and integrated financial advice and solutions. Net income for Global Banking decreased$4.6 billion to$3.5 billion primarily driven by higher provision for credit losses as well as lower revenue. Revenue decreased$1.5 billion to$19.0 billion driven by lower net interest income. Net interest income decreased$1.7 billion to$9.0 billion primarily driven by lower interest rates, partially offset by higher loan and deposit balances. Noninterest income of$10.0 billion increased$166 million driven by higher investment banking fees, partially offset by lower valuation driven adjustments on the fair value loan portfolio, debt securities and leveraged loans, as well as the allocation of ALM results. The provision for credit losses increased$4.5 billion to$4.9 billion primarily due to the weaker economic outlook related to COVID-19. Noninterest expense increased$326 million primarily due to continued investments in the business, partially offset by lower revenue-related incentives. The return on average allocated capital was eight percent in 2020 compared to 20 percent in 2019 due to lower net income and, to a lesser extent, an increase in allocated capital. For information on capital allocated to the business segments, see Business Segment Operations on page 36. Global Corporate, Global Commercial and Business Banking Global Corporate, Global Commercial and Business Banking each include Business Lending and Global Transaction Services activities. Business Lending includes various lending-related products and services, and related hedging activities, including commercial loans, leases, commitment facilities, trade finance, real estate lending and asset-based lending. Global Transaction Services includes deposits, treasury management, credit card, foreign exchange and short-term investment products.Bank of America 42
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The table below and following discussion present a summary of the results, which
exclude certain investment banking, merchant services and PPP activities in
Global Banking.
Global Corporate, Global Commercial and Business Banking
Global Corporate Banking Global Commercial Banking Business Banking Total
(Dollars in millions) 2020 2019 2020 2019 2020 2019 2020 2019
Revenue
Business Lending $ 3,552 $ 3,994 $ 3,743 $ 4,132 $ 261 $ 363 $ 7,556 $ 8,489
Global Transaction Services 2,986 3,994 3,169 3,499 893 1,064 7,048 8,557
Total revenue, net of
interest expense $ 6,538 $ 7,988 $ 6,912 $ 7,631 $ 1,154 $ 1,427 $ 14,604 $ 17,046
Balance Sheet
Average
Total loans and leases $ 179,393 $ 177,713 $ 182,212 $ 181,485 $ 14,410 $ 15,058 $ 376,015 $ 374,256
Total deposits 216,371 177,924 191,813 144,620 48,214 40,196 456,398 362,740
Year end
Total loans and leases $ 153,126 $ 181,409 $ 164,641 $ 182,727 $ 13,242 $ 15,152 $ 331,009 $ 379,288
Total deposits 233,484 185,352 207,597 157,322 52,150 40,504 493,231 383,178
Business Lending revenue decreased $933 million in 2020 compared to 2019. The
decrease was primarily driven by lower interest rates.
Global Transaction Services revenue decreased $1.5 billion in 2020 compared to
2019 driven by the allocation of ALM results, partially offset by the impact of
higher deposit balances.
Average loans and leases were relatively flat in 2020 compared to 2019. Average
deposits increased 26 percent primarily due to client responses to market
volatility, government stimulus and placement of credit draws.
Global Investment Banking
Client teams and product specialists underwrite and distribute debt, equity and
loan products, and provide advisory services and tailored risk management
solutions. The economics of certain investment banking and underwriting
activities are shared primarily between Global Banking and Global Markets under
an internal revenue-sharing arrangement. Global Banking originates certain
deal-related transactions with our corporate and commercial clients that are
executed and distributed by Global Markets. To provide a complete discussion of
our
consolidated investment banking fees, the following table presents total
Corporation investment banking fees and the portion attributable to Global
Banking.
Investment Banking Fees
Global Banking Total Corporation
(Dollars in millions) 2020 2019 2020 2019
Products
Advisory $ 1,458 $ 1,336 $ 1,621 $ 1,460
Debt issuance 1,555 1,348 3,443 3,107
Equity issuance 997 453 2,328 1,259
Gross investment banking
fees 4,010 3,137 7,392 5,826
Self-led deals (93) (62) (212) (184)
Total investment banking
fees $ 3,917 $ 3,075 $ 7,180 $ 5,642
Total Corporation investment banking fees, excluding self-led deals, of $7.2
billion , which are primarily included within Global Banking and Global Markets,
increased 27 percent primarily driven by higher equity issuance fees.
43 Bank of America
--------------------------------------------------------------------------------Global Markets (Dollars in millions) 2020 2019 % Change Net interest income$ 4,646 $ 3,915 19 % Noninterest income: Investment and brokerage services 1,973 1,738 14 Investment banking fees 2,991 2,288 31 Market making and similar activities 8,471 7,065 20 All other income 685 608 13 Total noninterest income 14,120 11,699 21 Total revenue, net of interest expense 18,766 15,614 20 Provision for credit losses 251 (9) n/m Noninterest expense 11,422 10,728 6 Income before income taxes 7,093 4,895 45 Income tax expense 1,844 1,395 32 Net income$ 5,249 $ 3,500 50 Effective tax rate 26.0 % 28.5 % Return on average allocated capital 15 10 Efficiency ratio 60.86 68.71 Balance Sheet Average Trading-related assets: Trading account securities$ 243,519 $ 246,336 (1) % Reverse repurchases 104,697 116,883 (10) Securities borrowed 87,125 83,216 5 Derivative assets 47,655 43,273 10 Total trading-related assets 482,996 489,708 (1) Total loans and leases 73,062 71,334 2 Total earning assets 482,171 476,225 1 Total assets 685,047 679,300 1 Total deposits 47,400 31,380 51 Allocated capital 36,000 35,000 3 Year end Total trading-related assets$ 421,698 $ 452,499 (7) % Total loans and leases 78,415 72,993 7 Total earning assets 447,350 471,701 (5) Total assets 616,609 641,809 (4) Total deposits 53,925 34,676 56 n/m = not meaningful Global Markets offers sales and trading services and research services to institutional clients across fixed-income, credit, currency, commodity and equity businesses. Global Markets product coverage includes securities and derivative products in both the primary and secondary markets. Global Markets provides market-making, financing, securities clearing, settlement and custody services globally to our institutional investor clients in support of their investing and trading activities. We also work with our commercial and corporate clients to provide risk management products using interest rate, equity, credit, currency and commodity derivatives, foreign exchange, fixed-income and mortgage-related products. As a result of our market-making activities in these products, we may be required to manage risk in a broad range of financial products including government securities, equity and equity-linked securities, high-grade and high-yield corporate debt securities, syndicated loans, MBS, commodities and asset-backed securities. The economics of certain investment banking and underwriting activities are shared primarily between Global Markets and Global Banking under an 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 43. The following explanations for year-over-year changes for Global Markets, including those disclosed under Sales and Trading Revenue, are the same for amounts including and excluding net DVA. Amounts excluding net DVA are a non-GAAP financial measure. For more information on net DVA, see Supplemental Financial Data on page 31. Net income for Global Markets increased$1.7 billion to$5.2 billion . Net DVA losses were$133 million compared to losses of$222 million in 2019. Excluding net DVA, net income increased$1.7 billion to$5.4 billion . These increases were primarily driven by higher revenue, partially offset by higher noninterest expense and provision for credit losses. Revenue increased$3.2 billion to$18.8 billion primarily driven by higher sales and trading revenue and investment banking fees. Sales and trading revenue increased$2.3 billion , and excluding net DVA, increased$2.2 billion . These increases were driven by higher revenue across FICC and Equities. The provision for credit losses increased$260 million primarily due to the weaker economic outlook related to COVID-19. Noninterest expense increased$694 million toBank of America 44
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$11.4 billion driven by higher activity-based expenses for both card and trading. Average total assets increased$5.7 billion to$685.0 billion driven by higher client balances inGlobal Equities . Year-end total assets decreased$25.2 billion to$616.6 billion driven by lower levels of inventory in FICC and increased hedging of client activity in Equities with derivative transactions relative to stock positions. The return on average allocated capital was 15 percent, up from 10 percent, reflecting higher net income, partially offset by an increase in allocated capital. Sales and Trading Revenue Sales and trading revenue includes unrealized and realized gains and losses on trading and other assets which are included in market making and similar activities, net interest income, and fees primarily from commissions on equity securities. Sales and trading revenue is segregated into fixed-income (government debt obligations, investment and non-investment grade corporate debt obligations, commercial MBS, residential mortgage-backed securities, collateralized loan obligations, interest rate and credit derivative contracts), currencies (interest rate and foreign exchange contracts), commodities (primarily futures, forwards, swaps and options) and equities (equity-linked derivatives and cash equity activity). The following table and related discussion present sales and trading revenue, substantially all of which is in Global Markets, with the remainder in Global Banking. In addition, the following table and related discussion present sales and trading revenue, excluding net DVA, which is a non-GAAP financial measure. For more information on net DVA, see Supplemental Financial Data on page 31. Sales and Trading Revenue (1, 2, 3) (Dollars in millions) 2020 2019 Sales and trading revenue Fixed income, currencies and commodities$ 9,595 $ 8,189 Equities 5,422 4,493 Total sales and trading revenue$ 15,017 $ 12,682 Sales and trading revenue, excluding net DVA (4) Fixed income, currencies and commodities$ 9,725 $ 8,397 Equities 5,425 4,507 Total sales and trading revenue, excluding net DVA$ 15,150 $ 12,904 (1)For more information on sales and trading revenue, see Note 3 - Derivatives to the Consolidated Financial Statements. (2)Includes FTE adjustments of$196 million and$187 million for 2020 and 2019. (3) Includes Global Banking sales and trading revenue of$478 million and$538 million for 2020 and 2019. (4) FICC and Equities sales and trading revenue, excluding net DVA, is a non-GAAP financial measure. FICC net DVA losses were$130 million and$208 million for 2020 and 2019. Equities net DVA losses were$3 million and$14 million for 2020 and 2019. FICC revenue increased$1.3 billion driven by increased client activity and improved market-making conditions across macro products. Equities revenue increased$918 million driven by increased client activity and a strong trading performance in a more volatile market environment. All Other (Dollars in millions) 2020 2019 % Change Net interest income$ 34 $ 234 (85) % Noninterest income (loss) (3,606) (2,617) 38 Total revenue, net of interest expense (3,572) (2,383) 50 Provision for credit losses 50 (669) (107) Noninterest expense 1,422 3,690 (61) Loss before income taxes (5,044) (5,404) (7) Income tax benefit (4,637) (4,048) 15 Net loss$ (407) $ (1,356) (70) Balance Sheet Average Total loans and leases$ 28,159 $ 42,935 (34) % Total assets (1) 228,783 210,689 9 Total deposits 18,247 21,359 (15) Year end Total loans and leases$ 21,301 $ 37,156 (43) % Total assets (1) 264,141 224,375 18 Total deposits 12,998 23,089 (44) (1)In segments where the total of liabilities and equity exceeds assets, which are generally deposit-taking segments, we allocate assets from All Other to those segments to match liabilities (i.e., deposits) and allocated shareholders' equity. Average allocated assets were$763.1 billion and$544.3 billion for 2020 and 2019, and year-end allocated assets were$977.7 billion and$565.4 billion atDecember 31, 2020 and 2019. All Other consists of ALM activities, equity investments, non-core mortgage loans and servicing activities, liquidating businesses and certain expenses not otherwise allocated to a business segment. ALM activities encompass certain residential mortgages, debt securities, and interest rate and foreign currency risk management activities. Substantially all of the results of ALM activities are allocated to our business segments. For more information on our ALM activities, see Note 23 - Business Segment Information to the Consolidated Financial Statements. Residential mortgage loans that are held for ALM purposes, including interest rate or liquidity risk management, are classified as core and are presented on the balance sheet of All Other. During 2020, residential mortgage loans held for ALM activities decreased$12.7 billion to$9.0 billion due primarily to loan sales. Non-core residential mortgage and home equity loans, which are principally runoff portfolios, are also held in All 45Bank of America -------------------------------------------------------------------------------- Other. During 2020, total non-core loans decreased$3.0 billion to$12.6 billion due primarily to payoffs and paydowns, as well asFederal Housing Administration (FHA) loan conveyances and sales, partially offset by repurchases. For more information on the composition of the core and non-core portfolios, see Consumer Portfolio Credit Risk Management on page 62. The net loss for All Other decreased$949 million to a net loss of$407 million , primarily due to a$2.1 billion pretax impairment charge related to the notice of termination of the merchant services joint venture in 2019, partially offset by lower revenue and higher provision for credit losses. Revenue decreased$1.2 billion primarily due to extinguishment losses on certain structured liabilities, higher client-driven ESG investment activity, resulting in higher partnership losses on these tax-advantaged investments, and lower net interest income, partially offset by a gain on sales of mortgage loans. The provision for credit losses increased$719 million to$50 million from a provision benefit of$669 million in 2019, primarily due to recoveries from sales of previously charged-off non-core consumer real estate loans in 2019, as well as the weaker economic outlook related to COVID-19. Noninterest expense decreased$2.3 billion to$1.4 billion primarily due to the$2.1 billion pretax impairment charge in 2019, partially offset by higher litigation expense. The income tax benefit increased$589 million primarily driven by the impact of theU.K. tax law change and a higher level of income tax credits related to our ESG investment activity, partially offset by the positive impact from the resolution of various tax controversy matters in 2019. Both years included income tax benefit adjustments to eliminate the FTE treatment of certain tax credits recorded in Global Banking. Off-Balance Sheet Arrangements and Contractual Obligations We have contractual obligations to make future payments on debt and lease agreements. Additionally, in the normal course of business, we enter into contractual arrangements whereby we commit to future purchases of products or services from unaffiliated parties. Purchase obligations are defined as obligations that are legally binding agreements whereby we agree to purchase products or services with a specific minimum quantity at a fixed, minimum or variable price over a specified period of time. Included in purchase obligations are vendor contracts, the most significant of which include communication services, processing services and software contracts. Debt, lease and other obligations are more fully discussed in Note 11 - Long-term Debt and Note 12 - Commitments and Contingencies to the Consolidated Financial Statements. Other long-term liabilities include our contractual funding obligations related to the Non-U.S. Pension Plans and Nonqualified and Other Pension Plans (together, the Plans). Obligations to the Plans are based on the current and projected obligations of the Plans, performance of the Plans' assets, and any participant contributions, if applicable. During 2020 and 2019, we contributed$115 million and$135 million to the Plans, and we expect to make$136 million of contributions during 2021. The Plans are more fully discussed in Note 17 - Employee Benefit Plans to the Consolidated Financial Statements. We enter into commitments to extend credit such as loan commitments, standby letters of credit (SBLCs) and commercial letters of credit to meet the financing needs of our customers. For a summary of the total unfunded, or off-balance sheet, credit extension commitment amounts by expiration date, see Credit Extension Commitments in Note 12 - Commitments and Contingencies to the Consolidated Financial Statements. We also utilize variable interest entities (VIEs) in the ordinary course of business to support our financing and investing needs as well as those of our customers. For more information on our involvement with unconsolidated VIEs, see Note 6 - Securitizations and Other Variable Interest Entities to the Consolidated Financial Statements. Table 10 includes certain contractual obligations atDecember 31, 2020 and 2019. Table 10 Contractual Obligations December 31 December 31, 2020 2019 Due After Due After Three Years Due in One One Year Through Through Due After (Dollars in millions) Year or Less Three Years Five Years Five Years Total Total Long-term debt$ 20,352
$ 50,824
1,927 3,169 2,395 4,609 12,100 11,794
Purchase obligations 551 700 80 103 1,434 3,530
Time deposits 50,661 3,206 426 1,563 55,856 74,673
Other long-term liabilities 1,656 1,092 953 781 4,482 4,099
Estimated interest expense on long-term debt and
time deposits (1) 4,542 8,123 6,958 30,924 50,547 44,385
Total contractual obligations $ 79,689 $ 67,114
(1)Represents forecasted net interest expense on long-term debt and time deposits based on interest rates atDecember 31, 2020 and 2019. Forecasts are based on the contractual maturity dates of each liability, and are net of derivative hedges, where applicable. 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.
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Managing Risk Risk is inherent in all our business activities. Sound risk management enables us to serve our customers and deliver for our shareholders. If not managed well, risks can result in financial loss, regulatory sanctions and penalties, and damage to our reputation, each of which may adversely impact our ability to execute our business strategies. We take a comprehensive approach to risk management with a defined Risk Framework and an articulated Risk Appetite Statement, which are approved annually by the ERC and the Board. The seven key types of risk faced by the Corporation are strategic, credit, market, liquidity, compliance, operational and reputational. ? Strategic risk is the risk to current or projected financial condition arising from incorrect assumptions about external or internal factors, inappropriate business plans, ineffective business strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic or competitive environments in the geographic locations in which we operate. ? Credit risk is the risk of loss arising from the inability or failure of a borrower or counterparty to meet its obligations. ? Market risk is the risk that changes in market conditions may adversely impact the value of assets or liabilities, or otherwise negatively impact earnings. Market risk is composed of price risk and interest rate risk. ? Liquidity risk is the inability to meet expected or unexpected cash flow and collateral needs while continuing to support our businesses and customers under a range of economic conditions. ? Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to the reputation of the Corporation arising from the failure of the Corporation to comply with the requirements of applicable laws, rules and regulations and our internal policies and procedures. ? Operational risk is the risk of loss resulting from inadequate or failed processes, people and systems, or from external events. ? Reputational risk is the risk that negative perceptions of the Corporation's conduct or business practices may adversely impact its profitability or operations. The following sections address in more detail the specific procedures, measures and analyses of the major categories of risk. This discussion of managing risk focuses on the current Risk Framework that, as part of its annual review process, was approved by the ERC and the Board. As set forth in our Risk Framework, a culture of managing risk well is fundamental to fulfilling our purpose and our values and delivering responsible growth. It requires us to focus on risk in all activities and encourages the necessary mindset and behavior to enable effective risk management, and promotes sound risk-taking within our risk appetite. Sustaining a culture of managing risk well throughout the organization is critical to our success and is a clear expectation of our executive management team and the Board. Our Risk Framework serves as the foundation for the consistent and effective management of risks facing the Corporation. The Risk Framework sets forth clear roles, responsibilities and accountability for the management of risk and provides a blueprint for how the Board, through delegation of authority to committees and executive officers, establishes risk appetite and associated limits for our activities. Executive management assesses, with Board oversight, the risk-adjusted returns of each business. Management reviews and approves the strategic and financial operating plans, as well as the capital plan and Risk Appetite Statement, and recommends them annually to theBoard for approval. Our strategic plan takes into consideration return objectives and financial resources, which must align with risk capacity and risk appetite. Management sets financial objectives for each business by allocating capital and setting a target for return on capital for each business. Capital allocations and operating limits are regularly evaluated as part of our overall governance processes as the businesses and the economic environment in which we operate continue to evolve. For more information regarding capital allocations, see Business Segment Operations on page 36. The Corporation's risk appetite indicates the amount of capital, earnings or liquidity we are willing to put at risk to achieve our strategic objectives and business plans, consistent with applicable regulatory requirements. Our risk appetite provides a common and comparable set of measures for senior management and the Board to clearly indicate our aggregate level of risk and to monitor whether the Corporation's risk profile remains in alignment with our strategic and capital plans. Our risk appetite is formally articulated in the Risk Appetite Statement, which includes both qualitative components and quantitative limits. Our overall capacity to take risk is limited; therefore, we prioritize the risks we take in order to maintain a strong and flexible financial position so we can withstand challenging economic conditions and take advantage of organic growth opportunities. Therefore, we set objectives and targets for capital and liquidity that are intended to permit us to continue to operate in a safe and sound manner, including during periods of stress. Our lines of business operate with risk limits (which may include credit, market and/or operational limits, as applicable) that align with the Corporation's risk appetite. Executive management is responsible for tracking and reporting performance measurements as well as any exceptions to guidelines or limits. The Board, and its committees when appropriate, oversee financial performance, execution of the strategic and financial operating plans, adherence to risk appetite limits and the adequacy of internal controls. For a more detailed discussion of our risk management activities, see the discussion below and pages 50 through 85. For more information about the Corporation's risks related to the pandemic, see Part I. Item 1A. Risk Factors on page 7. These COVID-19 related risks are being managed within our Risk Framework and supporting risk management programs. Risk Management Governance The Risk Framework describes delegations of authority whereby the Board and its committees may delegate authority to management-level committees or executive officers. Such delegations may authorize certain decision-making and approval functions, which may be evidenced in, for example, committee charters, job descriptions, meeting minutes and resolutions. The chart below illustrates the inter-relationship among the Board, Board committees and management committees that have the majority of risk oversight responsibilities for the Corporation. 47Bank of America --------------------------------------------------------------------------------
The chart below illustrates the inter-relationship among the Board, Board committees and management committees that have the majority of risk oversight responsibilities for the Corporation.
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Board of Directors and Board Committees
The Board is composed of 17 directors, all but one of whom are independent. The
Board authorizes management to maintain an effective Risk Framework, and
oversees compliance with safe and sound banking practices. In addition, the
Board or its committees conduct inquiries of, and receive reports from
management on risk-related matters to assess scope or resource limitations that
could impede the ability of Independent Risk Management (IRM) and/or Corporate
Audit to execute its responsibilities. The Board committees discussed below have
the principal responsibility for enterprise-wide oversight of our risk
management activities. Through these activities, the Board and applicable
committees are provided with information on our risk profile and oversee
executive management addressing key risks we face. Other Board committees, as
described below, provide additional oversight of specific risks.
Each of the committees shown on the above chart regularly reports to the Board
on risk-related matters within the committee's responsibilities, which is
intended to collectively provide the Board with integrated insight about our
management of enterprise-wide risks.
Audit Committee
The Audit Committee oversees the qualifications, performance and independence of
the Independent Registered Public Accounting Firm, the performance of our
corporate audit function, the integrity of our consolidated financial
statements, our compliance with legal and regulatory requirements, and makes
inquiries of management or the Chief Audit Executive (CAE) to determine whether
there are scope or resource limitations that impede the ability of Corporate
Audit to execute its responsibilities. The Audit Committee is also responsible
for overseeing compliance risk pursuant to the New York Stock Exchange listing
standards.
Enterprise Risk Committee
The ERC has primary responsibility for oversight of the Risk Framework and key
risks we face and of the Corporation's overall risk appetite. It approves the
Risk Framework and the Risk Appetite Statement and further recommends these
documents to the Board for approval. The ERC oversees senior management's
responsibilities for the identification, measurement, monitoring and control of
key risks we face. The
ERC may consult with other Board committees on risk-related matters.
Other Board Committees
Our Corporate Governance, ESG, and Sustainability Committee oversees our Board's
governance processes, identifies and reviews the qualifications of potential
Board members, recommends nominees for election to our Board, recommends
committee appointments for Board approval and reviews our Environmental, Social
and Governance and stockholder engagement activities.
Our Compensation and Human 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;
reviewing and approving all of our executive officers' compensation, as well as
compensation for non-management directors; and reviewing certain other human
capital management topics.
Management Committees
Management committees may receive their authority from the Board, a Board
committee, another management committee or from one or more executive officers.
Our primary management level risk committee is the Management Risk Committee
(MRC). Subject to Board oversight, the MRC is responsible for management
oversight of key risks facing the Corporation. This includes providing
management oversight of our compliance and operational risk programs, balance
sheet and capital management, funding activities and other liquidity activities,
stress testing, trading activities, recovery and resolution planning, model
risk, subsidiary governance and activities between member banks and their
nonbank affiliates pursuant to Federal Reserve rules and regulations, among
other things.
Lines of Defense
We have clear ownership and accountability across three lines of defense: Front
Line Units (FLUs), IRM and Corporate Audit. We also have control functions
outside of FLUs and IRM (e.g., Legal and Global Human Resources). The three
lines of defense are integrated into our management-level governance structure.
Each of these functional roles is further described in this section.
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Executive Officers Executive officers lead various functions representing the functional roles. Authority for functional roles may be delegated to executive officers from the Board, Board committees or management-level committees. Executive officers, in turn, may further delegate responsibilities, as appropriate, to management level committees, management routines or individuals. Executive officers review our activities for consistency with our Risk Framework, Risk Appetite Statement and applicable strategic, capital and financial operating plans, as well as applicable policies, standards, procedures and processes. Executive officers and other employees make decisions individually on a day-to-day basis, consistent with the authority they have been delegated. Executive officers and other employees may also serve on committees and participate in committee decisions. Front Line Units FLUs, which include the lines of business as well as theGlobal Technology and Operations Group , are responsible for appropriately assessing and effectively managing all of the risks associated with their activities. Three organizational units that include FLU activities and control function activities, but are not part of IRM are first, the Chief Financial Officer (CFO) Group; second, Environmental, Social and Governance (ESG), Capital Deployment (CD) and Public Policy (PP); and third, the Chief Administrative Officer (CAO) Group. Independent Risk Management IRM is part of our control functions and includes Global Risk Management. 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 theCFO Group ; ESG, CD and PP; andCAO Group . IRM, led by the Chief Risk Officer (CRO), is responsible for independently assessing and overseeing risks within FLUs and other control functions. IRM establishes written enterprise policies and procedures that include concentration risk limits, where appropriate. Such policies and procedures outline how aggregate risks are identified, measured, monitored and controlled. The CRO has the stature, authority and independence to develop and implement a meaningful risk management framework. The CRO has unrestricted access to the Board and reports directly to both the ERC and to the CEO. Global Risk Management is organized into horizontal risk teams that cover a specific risk area and vertical CRO teams that cover a particular front line unit or control function. These teams work collaboratively in executing their respective duties. Corporate Audit Corporate Audit and the CAE maintain their independence from the FLUs, IRM and other control functions by reporting directly to the Audit Committee or the Board. The CAE administratively reports to the CEO. Corporate Audit provides independent assessment and validation through testing of key processes and controls across the Corporation. Corporate Audit includes Credit Review which periodically tests and examines credit portfolios and processes. Risk Management Processes The Risk Framework requires that strong risk management practices are integrated in key strategic, capital and financial planning processes and in day-to-day business processes across the Corporation, with a goal of ensuring risks are appropriately considered, evaluated and responded to in a timely manner. We employ our risk management process, referred to as Identify, Measure, Monitor and Control, as part of our daily activities. Identify - To be effectively managed, risks must be clearly defined and proactively identified. Proper risk identification focuses on recognizing and understanding key risks inherent in our business activities or key risks that may arise from external factors. Each employee is expected to identify and escalate risks promptly. Risk identification is an ongoing process, incorporating input from FLUs and control functions, designed to be forward looking and capture relevant risk factors across all of our lines of business. Measure - Once a risk is identified, it must be prioritized and accurately measured through a systematic risk quantification process including quantitative and qualitative components. Risk is measured at various levels including, but not limited to, risk type, FLU, legal entity and on an aggregate basis. This risk quantification process helps to capture changes in our risk profile due to changes in strategic direction, concentrations, portfolio quality and the overall economic environment. Senior management considers how risk exposures might evolve under a variety of stress scenarios. Monitor - We monitor risk levels regularly to track adherence to risk appetite, policies, standards, procedures and processes. We also regularly update risk assessments and review risk exposures. Through our monitoring, we can determine our level of risk relative to limits and can take action in a timely manner. We also can determine when risk limits are breached and have processes to appropriately report and escalate exceptions. This includes requests for approval to managers and alerts to executive management, management-level committees or the Board (directly or through an appropriate committee). Control - We establish and communicate risk limits and controls through policies, standards, procedures and processes that define the responsibilities and authority for risk-taking. The limits and controls can be adjusted by the Board or management when conditions or risk tolerances warrant. These limits may be absolute (e.g., loan amount, trading volume) or relative (e.g., percentage of loan book in higher-risk categories). Our lines of business are held accountable to perform within the established limits. 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 is also critical to effective risk management. We understand that improper actions, behaviors or practices that are illegal, unethical or contrary to our core values could result in harm to the Corporation, our shareholders or our customers, damage the integrity of the financial markets, or negatively impact our reputation, and have established protocols and structures so that such conduct risk is governed and reported across the Corporation. Specifically, our Code of Conduct provides a framework for all of our employees to conduct themselves with the highest integrity. Additionally, we continue to strengthen the link between the employee performance management process and individual compensation to encourage employees to work toward enterprise-wide risk goals. 49Bank of America -------------------------------------------------------------------------------- Corporation-wide Stress Testing Integral to our Capital Planning, Financial Planning and Strategic Planning processes, we conduct capital scenario management and stress forecasting on a periodic basis to better understand balance sheet, earnings and capital sensitivities to certain economic and business scenarios, including economic and market conditions that are more severe than anticipated. These stress forecasts provide an understanding of the potential impacts from our risk profile on the balance sheet, earnings and capital, and serve as a key component of our capital and risk management practices. The intent of stress testing is to develop a comprehensive understanding of potential impacts of on- and off-balance sheet risks at the Corporation and how they impact financial resiliency, which provides confidence to management, regulators and our investors. Contingency Planning We have developed and maintain contingency plans that are designed to prepare us in advance to respond in the event of potential adverse economic, financial or market stress. These contingency plans include our Capital Contingency Plan and Financial Contingency and Recovery Plan, which provide monitoring, escalation, actions and routines designed to enable us to increase capital, access funding sources and reduce risk through consideration of potential options that include asset sales, business sales, capital or debt issuances, or other de-risking strategies. We also maintain a Resolution Plan to limit adverse systemic impacts that could be associated with a potential resolution ofBank of America .Strategic Risk Management Strategic risk is embedded in every business and is one of the major risk categories along with credit, market, liquidity, compliance, operational and reputational risks. This risk results from incorrect assumptions about external or internal factors, inappropriate business plans, ineffective business strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic or competitive environments in the geographic locations in which we operate, such as competitor actions, changing customer preferences, product obsolescence and technology developments. Our strategic plan is consistent with our risk appetite, capital plan and liquidity requirements and specifically addresses strategic risks. On an annual basis, the Board reviews and approves the strategic plan, capital plan, financial operating plan and Risk Appetite Statement. With oversight by the Board, executive management directs the lines of business to execute our strategic plan consistent with our core operating principles and risk appetite. The executive management team monitors business performance throughout the year and provides the Board with regular progress reports on whether strategic objectives and timelines are being met, including reports on strategic risks and if additional or alternative actions need to be considered or implemented. The regular executive reviews focus on assessing forecasted earnings and returns on capital, the current risk profile, current capital and liquidity requirements, staffing levels and changes required to support the strategic plan, stress testing results, and other qualitative factors such as market growth rates and peer analysis. Significant strategic actions, such as capital actions, material acquisitions or divestitures, and resolution plans are reviewed and approved by the Board. At the business level, processes are in place to discuss the strategic risk implications of new, expanded or modified businesses, products or services and other strategic initiatives, and to provide formal review and approval where required. With oversight by the Board and the ERC, executive management performs similar analyses throughout the year and evaluates changes to the financial forecast or the risk, capital or liquidity positions as deemed appropriate to balance and optimize achieving the targeted risk appetite, shareholder returns and maintaining the targeted financial strength. Proprietary models are used to measure the capital requirements for credit, country, market, operational and strategic risks. The allocated capital assigned to each business is based on its unique risk profile. With oversight by the Board, executive management assesses the risk-adjusted returns of each business in approving strategic and financial operating plans. The businesses use allocated capital to define business strategies and price products and transactions. Capital Management The Corporation manages its capital position so that its capital is more than adequate to support its business activities and aligns with risk, risk appetite and strategic planning. Additionally, we seek to maintain safety and soundness at all times, even under adverse scenarios, take advantage of organic growth opportunities, meet obligations to creditors and counterparties, maintain ready access to financial markets, continue to serve as a credit intermediary, remain a source of strength for our subsidiaries, and satisfy current and future regulatory capital requirements. Capital management is integrated into our risk and governance processes, as capital is a key consideration in the development of our strategic plan, risk appetite and risk limits. We conduct an Internal Capital Adequacy Assessment Process (ICAAP) on a periodic basis. The ICAAP is a forward-looking assessment of our projected capital needs and resources, incorporating earnings, balance sheet and risk forecasts under baseline and adverse economic and market conditions. We utilize periodic stress tests to assess the potential impacts to our balance sheet, earnings, regulatory capital and liquidity under a variety of stress scenarios. We perform qualitative risk assessments to identify and assess material risks not fully captured in our forecasts or stress tests. We assess the potential capital impacts of proposed changes to regulatory capital requirements. Management assesses ICAAP results and provides documented quarterly assessments of the adequacy of our capital guidelines and capital position to the Board or its committees. We periodically review capital allocated to our businesses and allocate capital annually during the strategic and capital planning processes. For more information, see Business Segment Operations on page 36. CCAR and Capital Planning TheFederal Reserve requires BHCs to submit a capital plan and planned capital actions on an annual basis, consistent with the rules governing the CCAR capital plan. Based on the results of our 2020 CCAR supervisory stress test that was submitted to theFederal Reserve in the second quarter of 2020, we are subject to a 2.5 percent stress capital buffer (SCB) for the period beginningOctober 1, 2020 and ending onSeptember 30, 2021 . Our Common equity tier 1 (CET1) capital ratio under the Standardized approach must remain above 9.5 percent during this period (the sum of our CET1 capital ratio minimum of 4.5 percent, global systemically important bank (G-SIB) surcharge of 2.5 percent and our SCB of 2.5 percent) in order to avoid restrictions on capital distributions and discretionary bonus payments.Bank of America 50
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Due to economic uncertainty resulting from the pandemic, theFederal Reserve required all large banks to update and resubmit their capital plans inNovember 2020 based on theFederal Reserve's updated supervisory stress test scenarios. The results of the additional supervisory stress tests were published inDecember 2020 . TheFederal Reserve also required large banks to suspend share repurchase programs during the second half of 2020, except for repurchases to offset shares awarded under equity-based compensation plans, and to limit common stock dividends to existing rates that did not exceed the average of the last four quarters' net income. TheFederal Reserve's directives regarding share repurchases aligned with our decision to voluntarily suspend our general common stock repurchase program during the first half of 2020. The suspension of our repurchases did not include repurchases to offset shares awarded under our equity-based compensation plans. Pursuant to the Board's authorization, we repurchased$7.0 billion of common stock during 2020. InDecember 2020 , theFederal Reserve announced that beginning in the first quarter of 2021, large banks would be permitted to pay common stock dividends at existing rates and to repurchase shares in an amount that, when combined with dividends paid, does not exceed the average of net income over the last four quarters. OnJanuary 19, 2021 , we announced that the Board declared a quarterly common stock dividend of$0.18 per share, payable onMarch 26, 2021 to shareholders of record as ofMarch 5, 2021 . We also announced that the Board authorized the repurchase of$2.9 billion in common stock throughMarch 31, 2021 , plus repurchases to offset shares awarded under equity-based compensation plans during the same period, estimated to be approximately$300 million . This authorization equals the maximum amount allowed by theFederal Reserve for the period. Our stock repurchase program is subject to various factors, including the Corporation's capital position, liquidity, financial performance and alternative uses of capital, stock trading price and general market conditions, and may be suspended at any time. Such repurchases may be effected through open market purchases or privately negotiated transactions, including repurchase plans that satisfy the conditions of Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (Exchange Act).Regulatory Capital As a financial services holding company, we are subject to regulatory capital rules, includingBasel 3, issued byU.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 underBasel 3 and are required to report regulatory risk-based capital ratios and RWA under both the Standardized and Advanced approaches. The approach that yields the lower ratio is used to assess capital adequacy including under the PCA framework. As ofDecember 31, 2020 , the CET1, Tier 1 capital and Total capital ratios for the Corporation were lower under the Standardized approach. Minimum Capital Requirements In order to avoid restrictions on capital distributions and discretionary bonus payments, the Corporation must meet risk-based capital ratio requirements that include a capital conservation buffer greater than 2.5 percent, plus any applicable countercyclical capital buffer and a G-SIB surcharge. OnOctober 1, 2020 , the capital conservation buffer was replaced by the SCB for the Corporation's Standardized approach ratio requirements. The buffers and surcharge must be comprised solely of CET1 capital. The Corporation is also required to maintain a minimum supplementary leverage ratio (SLR) of 3.0 percent plus a leverage buffer of 2.0 percent in order to avoid certain restrictions on capital distributions and discretionary bonus payments. Our insured depository institution subsidiaries are required to maintain a minimum 6.0 percent SLR to be considered well capitalized under the PCA framework. The numerator of the SLR is quarter-endBasel 3 Tier 1 capital. The denominator is total leverage exposure based on the daily average of the sum of on-balance sheet exposures less permitted deductions and applicable temporary exclusions, as well as the simple average of certain off-balance sheet exposures, as of the end of each month in a quarter. For more information, see Capital Management - Regulatory Developments on page 55. Capital Composition and Ratios Table 11 presents Bank of America Corporation's capital ratios and related information in accordance withBasel 3 Standardized and Advanced approaches as measured atDecember 31, 2020 and 2019. For the periods presented herein, the Corporation met the definition of well capitalized under current regulatory requirements. 51Bank of America --------------------------------------------------------------------------------
Table 11 Bank of America Corporation Regulatory Capital under Basel 3
Standardized Advanced Regulatory
Approach (1, 2) Approaches (1) Minimum (3)
(Dollars in millions, except as noted) December 31, 2020
Risk-based capital metrics:
Common equity tier 1 capital $ 176,660 $ 176,660
Tier 1 capital 200,096 200,096
Total capital (4) 237,936 227,685
Risk-weighted assets (in billions) 1,480 1,371
Common equity tier 1 capital ratio 11.9 % 12.9 % 9.5 %
Tier 1 capital ratio 13.5 14.6 11.0
Total capital ratio 16.1 16.6 13.0
Leverage-based metrics:
Adjusted quarterly average assets (in billions) (5) $ 2,719 $ 2,719
Tier 1 leverage ratio 7.4 % 7.4 % 4.0
Supplementary leverage exposure (in billions) (6) $ 2,786
Supplementary leverage ratio 7.2 % 5.0
December 31, 2019
Risk-based capital metrics:
Common equity tier 1 capital $ 166,760 $ 166,760
Tier 1 capital 188,492 188,492
Total capital (4) 221,230 213,098
Risk-weighted assets (in billions) 1,493 1,447
Common equity tier 1 capital ratio 11.2 % 11.5 % 9.5 %
Tier 1 capital ratio 12.6 13.0 11.0
Total capital ratio 14.8 14.7 13.0
Leverage-based metrics:
Adjusted quarterly average assets (in billions) (5) $ 2,374 $ 2,374
Tier 1 leverage ratio 7.9 % 7.9 % 4.0
Supplementary leverage exposure (in billions) $ 2,946
Supplementary leverage ratio 6.4 % 5.0
(1)As of December 31, 2020 , capital ratios are calculated using the regulatory
capital rule that allows a five-year transition period related to the adoption
of CECL.
(2)Derivative exposure amounts are calculated using the standardized approach
for measuring counterparty credit risk at December 31, 2020 and the current
exposure method at December 31, 2019 .
(3)The capital conservation buffer and G-SIB surcharge were 2.5 percent at both
December 31, 2020 and 2019. At December 31, 2020 , the Corporation's SCB of 2.5
percent was applied in place of the capital conservation buffer under the
Standardized approach. The countercyclical capital buffer for both periods was
zero. The SLR minimum includes a leverage buffer of 2.0 percent.
(4)Total capital under the Advanced approaches differs from the Standardized
approach due to differences in the amount permitted in Tier 2 capital related to
the qualifying allowance for credit losses.
(5)Reflects total average assets adjusted for certain Tier 1 capital deductions.
(6)Supplementary leverage exposure at December 31, 2020 reflects the temporary
exclusion of U.S. Treasury securities and deposits at Federal Reserve Banks.
At December 31, 2020 , CET1 capital was $176.7 billion , an increase of $9.9
billion from December 31, 2019 , driven by earnings and net unrealized gains on
available-for-sale (AFS) debt securities included in accumulated other
comprehensive income (OCI), partially offset by common stock repurchases and
dividends. Total capital under the Standardized approach increased $16.7 billion
primarily driven by the same factors as CET1 capital, an increase in the
adjusted allowance for credit
losses included in Tier 2 capital and the issuance of preferred stock. RWA under
the Standardized approach, which yielded the lower CET1 capital ratio at
December 31, 2020 , decreased $13.7 billion during 2020 to $1,480 billion
primarily due to lower commercial and consumer lending exposures, partially
offset by investments of excess deposits in securities. Table 12 shows the
capital composition at December 31, 2020 and 2019.
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Table 12 Capital Composition under
December 31
(Dollars in millions) 2020 2019
Total common shareholders' equity $ 248,414 $ 241,409
CECL transitional amount (1) 4,213 -
Goodwill, net of related deferred tax liabilities (68,565) (68,570)
Deferred tax assets arising from net operating loss and tax credit carryforwards
(5,773) (5,193)
Intangibles, other than mortgage servicing rights, net of related deferred tax liabilities
(1,617) (1,328)
Defined benefit pension plan net assets (1,164) (1,003)
Cumulative unrealized net (gain) loss related to changes in fair value of
financial liabilities attributable to own creditworthiness,
net-of-tax 1,753 1,278
Other (601) 167
Common equity tier 1 capital 176,660 166,760
Qualifying preferred stock, net of issuance cost 23,437 22,329
Other (1) (597)
Tier 1 capital 200,096 188,492
Tier 2 capital instruments 22,213 22,538
Qualifying allowance for credit losses (2) 15,649 10,229
Other (22) (29)
Total capital under the Standardized approach 237,936 221,230
Adjustment in qualifying allowance for credit losses under the Advanced approaches (2)
(10,251) (8,132)
Total capital under the Advanced approaches (1)The CECL transitional amount includes the impact of the Corporation's adoption of the new CECL accounting standard onJanuary 1, 2020 plus 25 percent of the increase in the adjusted allowance for credit losses fromJanuary 1, 2020 throughDecember 31, 2020 . (2)The balance atDecember 31, 2020 includes the impact of transition provisions related to the new CECL accounting standard. Table 13 shows the components of RWA as measured underBasel 3 atDecember 31, 2020 and 2019. Table 13 Risk-weighted Assets under Basel 3 Standardized Advanced Standardized Advanced Approach (1) Approaches Approach (1) Approaches December 31
(Dollars in billions) 2020 2019 Credit risk $ 1,420$ 896 $ 1,437$ 858 Market risk 60 60 56 55 Operational risk (2) n/a 372 n/a 500 Risks related to credit valuation adjustments n/a 43 n/a 34 Total risk-weighted assets $ 1,480$ 1,371 $ 1,493$ 1,447 (1) Derivative exposure amounts are calculated using the standardized approach for measuring counterparty credit risk atDecember 31, 2020 and the current exposure method atDecember 31, 2019 . (2)December 31, 2020 includes the effects of an update made to our operational risk RWA model during the third quarter of 2020. n/a = not applicable 53 Bank of America --------------------------------------------------------------------------------Bank of America, N.A .Regulatory Capital Table 14 presents regulatory capital information for BANA in accordance withBasel 3 Standardized and Advanced approaches as measured atDecember 31, 2020 and 2019. BANA met the definition of well capitalized under the PCA framework for both periods. Table 14 Bank of America, N.A. Regulatory Capital under Basel 3 Standardized Advanced Regulatory Approach (1, 2) Approaches (1) Minimum (3) (Dollars in millions, except as noted) December 31, 2020 Risk-based capital metrics: Common equity tier 1 capital$ 164,593 $ 164,593 Tier 1 capital 164,593 164,593 Total capital (4) 181,370 170,922 Risk-weighted assets (in billions) 1,221 1,014 Common equity tier 1 capital ratio 13.5 % 16.2 % 7.0 % Tier 1 capital ratio 13.5 16.2 8.5 Total capital ratio 14.9 16.9 10.5 Leverage-based metrics: Adjusted quarterly average assets (in billions) (5)$ 2,143 $ 2,143 Tier 1 leverage ratio 7.7 % 7.7 % 5.0 Supplementary leverage exposure (in billions)$ 2,525 Supplementary leverage ratio 6.5 % 6.0 December 31, 2019 Risk-based capital metrics: Common equity tier 1 capital$ 154,626 $ 154,626 Tier 1 capital 154,626 154,626 Total capital (4) 166,567 158,665 Risk-weighted assets (in billions) 1,241 991 Common equity tier 1 capital ratio 12.5 % 15.6 % 7.0 % Tier 1 capital ratio 12.5 15.6 8.5 Total capital ratio 13.4 16.0 10.5 Leverage-based metrics: Adjusted quarterly average assets (in billions) (5)$ 1,780 $ 1,780 Tier 1 leverage ratio 8.7 % 8.7 % 5.0 Supplementary leverage exposure (in billions)$ 2,177 Supplementary leverage ratio 7.1 % 6.0 (1)As ofDecember 31, 2020 , capital ratios are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of CECL. (2)Derivative exposure amounts are calculated using the standardized approach for measuring counterparty credit risk atDecember 31, 2020 and the current exposure method atDecember 31, 2019 . (3)Risk-based capital regulatory minimums at bothDecember 31, 2020 and 2019 are the minimum ratios underBasel 3 including a capital conservation buffer of 2.5 percent. The regulatory minimums for the leverage ratios as of both period ends are the percent required to be considered well capitalized under the PCA framework. (4)Total capital under the Advanced approaches differs from the Standardized approach due to differences in the amount permitted in Tier 2 capital related to the qualifying allowance for credit losses. (5)Reflects total average assets adjusted for certain Tier 1 capital deductions. Total Loss-Absorbing Capacity Requirements Total loss-absorbing capacity (TLAC) consists of the Corporation's Tier 1 capital and eligible long-term debt issued directly by the Corporation. Eligible long-term debt for TLAC ratios is comprised of unsecured debt that has a remaining maturity of at least one year and satisfies additional requirements as prescribed in the TLAC final rule. As with the risk-based capital ratios and SLR, the Corporation is required to maintain TLAC ratios in excess of minimum requirements plus applicable buffers to avoid restrictions on capital distributions and discretionary bonus payments. Table 15 presents the Corporation's TLAC and long-term debt ratios and related information as ofDecember 31, 2020 and 2019.
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Table 15 Bank of America Corporation Total Loss-Absorbing Capacity and Long-Term Debt
Regulatory Minimum Long-term Regulatory Minimum
TLAC (1) (2) Debt (3)
(Dollars in millions) December 31, 2020
Total eligible balance $ 405,153 $ 196,997
Percentage of risk-weighted assets (4) 27.4 % 22.0 % 13.3 % 8.5 %
Percentage of supplementary leverage exposure (5, 6) 14.5 9.5 7.1 4.5
December 31, 2019
Total eligible balance $ 367,449 $ 171,349
Percentage of risk-weighted assets (4) 24.6 % 22.0 % 11.5 % 8.5 %
Percentage of supplementary leverage exposure (6) 12.5 9.5 5.8 4.5
(1)As of December 31, 2020 , TLAC ratios are calculated using the regulatory
capital rule that allows a five-year transition period related to the adoption
of CECL.
(2)The TLAC RWA regulatory minimum consists of 18.0 percent plus a TLAC RWA
buffer comprised of 2.5 percent plus the Method 1 G-SIB surcharge of 1.5
percent. The countercyclical buffer is zero for both periods. The TLAC
supplementary leverage exposure regulatory minimum consists of 7.5 percent plus
a 2.0 percent TLAC leverage buffer. The TLAC RWA and leverage buffers must be
comprised solely of CET1 capital and Tier 1 capital, respectively.
(3)The long-term debt RWA regulatory minimum is comprised of 6.0 percent plus an
additional 2.5 percent requirement based on the Corporation's Method 2 G-SIB
surcharge. The long-term debt leverage exposure regulatory minimum is 4.5
percent.
(4)The approach that yields the higher RWA is used to calculate TLAC and
long-term debt ratios, which was the Standardized approach as of both December
31, 2020 and 2019.
(5)Supplementary leverage exposure at December 31, 2020 reflects the temporary
exclusion of U.S. Treasury Securities and deposits at Federal Reserve Banks.
(6)Derivative exposure amounts are calculated using the standardized approach
for measuring counterparty credit risk at December 31, 2020 and the current
exposure method at December 31, 2019 .
Regulatory Developments
Revisions to Basel 3 to Address Current Expected Credit Loss Accounting
On January 1, 2020 , the Corporation adopted the new accounting standard that
requires the measurement of the allowance for credit losses to be based on
management's best estimate of lifetime ECL inherent in the Corporation's
relevant financial assets. For more information, see Note 1 - Summary of
Significant Accounting Principles to the Consolidated Financial Statements.
During the first quarter of 2020, in accordance with an interim final rule
issued by U.S. banking regulators that was finalized on August 26, 2020 , the
Corporation delayed for two years the initial adoption impact of CECL on
regulatory capital, followed by a three-year transition period to phase out the
aggregate amount of the capital benefit provided during 2020 and 2021 (i.e., a
five-year transition period). During the two-year delay, the Corporation will
add back to CET1 capital 100 percent of the initial adoption impact of CECL plus
25 percent of the cumulative quarterly changes in the allowance for credit
losses (i.e., quarterly transitional amounts). After two years, starting on
January 1, 2022 , the quarterly transitional amounts along with the initial
adoption impact of CECL will be phased out of CET1 capital over the three-year
period.
Stress Capital Buffer
On March 4, 2020 , the Federal Reserve issued a final rule that integrates the
annual quantitative assessment of the CCAR program with the buffer requirements
in the U.S. Basel 3 Final Rule. The new approach replaced the static 2.5 percent
capital conservation buffer for Basel 3 Standardized approach requirements with
a SCB, calculated as the decline in the CET1 capital ratio under the supervisory
severely adverse scenario plus four quarters of planned common stock dividends,
floored at 2.5 percent. Based on the CCAR 2020 supervisory stress test results,
the Corporation is subject to a 2.5 percent SCB for the period beginning October
1, 2020 and ending on September 30, 2021 .
In conjunction with this new requirement, the Federal Reserve has removed the
annual CCAR quantitative objection process beginning with CCAR 2020. While the
final rule continues to require that the Corporation describe its planned
capital distributions in its CCAR capital plan, the Corporation is no longer
required to seek prior approval if it makes capital distributions in excess of
those included in its CCAR capital
plan. The Corporation is instead subject to automatic distribution limitations
if its capital ratios fall below its buffer requirements, which include the SCB.
Eligible Retained Income
On March 17, 2020 , in response to the economic impact of the pandemic, the U.S.
banking regulators issued an interim final rule that revises the definition of
eligible retained income to be based on average net income over the prior four
quarters. This change, which was finalized on August 26, 2020 , more gradually
phases in automatic distribution restrictions to the extent capital buffers are
breached.
Supplementary Leverage Ratio
On April 1, 2020 , in response to the economic impact of the pandemic, the
Federal Reserve issued an interim final rule to temporarily exclude the
on-balance sheet amounts of U.S. Treasury securities and deposits at Federal
Reserve Banks from the calculation of supplementary leverage exposure for bank
holding companies. The rule is effective for June 30, 2020 through March 31,
2021 reports. As of December 31, 2020 , temporary exclusions improved the SLR by
1.0 percent to 7.2 percent.
On May 15, 2020 , the U.S. banking regulators issued an interim final rule that
provides a similar temporary exclusion to depository institutions, effective
from the beginning of the second quarter of 2020 through March 31, 2021 ;
however, institutions must elect the relief. Beginning in the third quarter of
2020, a depository institution electing to apply the exclusion must receive
approval from its primary regulator prior to making any capital distributions as
long as the exclusion is in effect. As of December 31, 2020 , the Corporation's
insured depository institution subsidiaries have not elected the exclusion.
Paycheck Protection Program Loans
On April 9, 2020 , in response to the economic impact of the pandemic, the U.S.
banking regulators issued an interim final rule that, among other things,
stipulates PPP loans, which are guaranteed by the SBA, will receive a zero
percent risk weight under the Basel 3 Advanced and Standardized approaches. The
rule was later finalized by the U.S. banking regulators on October 28, 2020 . For
more information on the PPP, see Executive Summary - Recent Developments -
COVID-19 Pandemic on page 25 and Note 1 - Summary of Significant Accounting
Principles to the Consolidated Financial Statements.
55 Bank of America
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Standardized Approach for Measuring Counterparty Credit Risk
On June 30, 2020 the Corporation adopted the new standardized approach for
measuring counterparty credit risk (SA-CCR), which replaces the current exposure
method for calculating the exposure amount of derivative contracts for
risk-weighted assets and supplementary leverage exposure. Adoption of SA-CCR
resulted in a decrease of approximately $15 billion in the Corporation's
Standardized RWA, and a $66 billion decrease in supplementary leverage exposure.
Swap Dealer Capital Requirements
On July 22, 2020 , the U.S. Commodity Futures Trading Commission (CFTC) issued a
final rule to establish capital requirements for swap dealers and major swap
participants that are not subject to existing U.S. prudential regulation. Under
the rule, applicable subsidiaries of the Corporation would be permitted to elect
one of two approaches to compute their regulatory capital. The first approach is
a bank-based capital approach, which requires that firms maintain CET1 capital
greater than or equal to 6.5 percent of the entity's RWA as calculated under
Basel 3, Total capital greater than or equal to 8.0 percent of the entity's RWA
as calculated under Basel 3 and Total capital greater than or equal to 8.0
percent of the entity's uncleared swap margin. The second approach is based on
net liquid assets and requires that a firm maintain net capital greater than or
equal to 2.0 percent of its uncleared swap margin. The final rule also includes
reporting requirements. The impact on the Corporation is not expected to be
significant.
Deduction of Unsecured Debt of G-SIBs
On October 20, 2020 , the Federal Reserve , Federal Deposit Insurance Corporation
(FDIC) and the Office of the Comptroller of the Currency (U.S. Agencies)
finalized a rule requiring Advanced approaches institutions to deduct from
regulatory capital certain investments in TLAC-eligible long-term debt and other
pari passu or subordinated debt instruments issued by G-SIBs above a specified
threshold. The final rule is intended to limit the interconnectedness between
G-SIBs and is complementary to existing regulatory capital requirements that
generally require banks to deduct investments in the regulatory capital of
financial institutions. The final rule is effective April 1, 2021 . The impact to
the Corporation is not expected to be significant.
Volcker Rule
Effective January 1, 2020 , we became subject to certain changes to the Volcker
Rule, including removing the requirement for banking organizations to deduct
from Tier 1 capital ownership interests of covered funds acquired or retained
under the underwriting or market-making exemptions of the Volcker Rule, which
the banking entity did not organize or offer.
Single-Counterparty Credit Limits
The Federal Reserve established single-counterparty credit limits (SCCL) for
BHCs with total consolidated assets of $250 billion or more. The SCCL rule is
designed to ensure that the maximum possible loss that a BHC could incur due to
the default of a single counterparty or a group of connected counterparties
would not endanger the BHC's survival, thereby reducing the probability of
future financial crises. Beginning January 1, 2020 , G-SIBs must calculate SCCL
on a daily basis by dividing the aggregate net credit exposure to a given
counterparty by the G-SIB's Tier 1 capital, ensuring that exposures to other
G-SIBs
and nonbank financial institutions regulated by the Federal Reserve do not
breach 15 percent of Tier 1 capital and exposures to most other counterparties
do not breach 25 percent of Tier 1 capital. Certain exposures, including
exposures to the U.S. government, U.S. government-sponsored entities and
qualifying central counterparties, are exempt from the credit limits.
Regulatory Capital and Securities Regulation
The Corporation's principal U.S. broker-dealer subsidiaries are BofA Securities,
Inc. (BofAS), Merrill Lynch Professional Clearing Corp. (MLPCC) and Merrill
Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). The Corporation's principal
European broker-dealer subsidiaries are Merrill Lynch International (MLI) and
BofA Securities Europe SA (BofASE).
The U.S. broker-dealer subsidiaries are subject to the net capital requirements
of Rule 15c3-1 under the Exchange Act. BofAS computes its minimum capital
requirements as an alternative net capital broker-dealer under Rule 15c3-1e, and
MLPCC and MLPF&S compute their minimum capital requirements in accordance with
the alternative standard under Rule 15c3-1. BofAS and MLPCC are also registered
as futures commission merchants and are subject to CFTC Regulation 1.17. The
U.S. broker-dealer subsidiaries are also registered with the Financial Industry
Regulatory Authority, Inc. (FINRA). Pursuant to FINRA Rule 4110, FINRA may
impose higher net capital requirements than Rule 15c3-1 under the Exchange Act
with respect to each of the broker-dealers.
BofAS provides institutional services, and in accordance with the alternative
net capital requirements, is required to maintain tentative net capital in
excess of $1.0 billion and net capital in excess of the greater of $500 million
or a certain percentage of its reserve requirement. BofAS must also notify the
Securities and Exchange Commission (SEC) in the event its tentative net capital
is less than $5.0 billion . BofAS is also required to hold a certain percentage
of its customers' and affiliates' risk-based margin in order to meet its CFTC
minimum net capital requirement. At December 31, 2020 , BofAS had tentative net
capital of $16.8 billion . BofAS also had regulatory net capital of $14.1
billion , which exceeded the minimum requirement of $2.9 billion .
MLPCC is a fully-guaranteed subsidiary of BofAS and provides clearing and
settlement services as well as prime brokerage and arranged financing services
for institutional clients. At December 31, 2020 , MLPCC's regulatory net capital
of $8.6 billion exceeded the minimum requirement of $1.4 billion .
MLPF&S provides retail services. At December 31, 2020 , MLPF&S' regulatory net
capital was $3.6 billion , which exceeded the minimum requirement of $180
million .
Our European broker-dealers are regulated by non-U.S. regulators. MLI, a U.K.
investment firm, is regulated by the Prudential Regulation Authority and the FCA
and is subject to certain regulatory capital requirements. At December 31, 2020 ,
MLI's capital resources were $34.1 billion , which exceeded the minimum Pillar 1
requirement of $14.7 billion . BofASE, a French investment firm, is regulated by
the Autorité de Contrôle Prudentiel et de Résolution and the Autorité des
Marchés Financiers, and is subject to certain regulatory capital requirements.
At December 31, 2020 , BofASE's capital resources were $6.2 billion , which
exceeded the minimum Pillar 1 requirement of $1.9 billion .
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Liquidity Risk Funding and Liquidity Risk Management Our primary liquidity risk management objective is to meet expected or unexpected cash flow and collateral needs while continuing to support our businesses and customers under a range of economic conditions. To achieve that objective, we analyze and monitor our liquidity risk under expected and stressed conditions, maintain liquidity and access to diverse funding sources, including our stable deposit base, and seek to align liquidity-related incentives and risks. These liquidity risk management practices have allowed us to effectively manage the market stress from the pandemic that began in the first quarter of 2020. For more information on the effects of the pandemic, see Part I. Item 1A. Risk Factors - Coronavirus Disease on page 7 and Executive Summary - Recent Developments - COVID-19 Pandemic on page 25. We define liquidity as readily available assets, limited to cash and high-quality, liquid, unencumbered securities that we can use to meet our contractual and contingent financial obligations as those obligations arise. We manage our liquidity position through line-of-business and ALM activities, as well as through our legal entity funding strategy, on both a forward and current (including intraday) basis under both expected and stressed conditions. We believe that a centralized approach to funding and liquidity management enhances our ability to monitor liquidity requirements, maximizes access to funding sources, minimizes borrowing costs and facilitates timely responses to liquidity events. The Board approves our liquidity risk policy and the Financial Contingency and Recovery Plan. The ERC establishes our liquidity risk tolerance levels. The MRC is responsible for overseeing liquidity risks and directing management to maintain exposures within the established tolerance levels. The MRC reviews and monitors our liquidity position and stress testing results, approves certain liquidity risk limits and reviews the impact of strategic decisions on our liquidity. For more information, see Managing Risk on page 47. Under this governance framework, we have developed certain funding and liquidity risk management practices which include: maintaining liquidity at the parent company and selected subsidiaries, including our bank subsidiaries and other regulated entities; determining what amounts of liquidity are appropriate for these entities based on analysis of debt maturities and other potential cash outflows, including those that we may experience during stressed market conditions; diversifying funding sources, considering our asset profile and legal entity structure; and performing contingency planning.NB Holdings Corporation We have intercompany arrangements with certain key subsidiaries under which we transferred certain assets of Bank of America Corporation, as the parent company, which is a separate and distinct legal entity from our bank and nonbank subsidiaries, and agreed to transfer certain additional parent company assets not needed to satisfy anticipated near-term expenditures, toNB Holdings Corporation , a wholly-owned holding company subsidiary (NB Holdings ). The parent company is expected to continue to have access to the same flow of dividends, interest and other amounts of cash necessary to service its debt, pay dividends and perform other obligations as it would have had if it had not entered into these arrangements and transferred any assets. In consideration for the transfer of assets,NB Holdings issued a subordinated note to the parent company in a principal amount equal to the value of the transferred assets. The aggregate principal amount of the note will increase by the amount of any future asset transfers.NB Holdings also provided the parent company with a committed line of credit that allows the parent company to draw funds necessary to service near-term cash needs. These arrangements support our preferred single point of entry resolution strategy, under which only the parent company would be resolved under theU.S. Bankruptcy Code. These arrangements include provisions to terminate the line of credit, forgive the subordinated note and require the parent company to transfer its remaining financial assets toNB Holdings if our projected liquidity resources deteriorate so severely that resolution of the parent company becomes imminent. Global Liquidity Sources and Other Unencumbered Assets We maintain liquidity available to the Corporation, including the parent company and selected subsidiaries, in the form of cash and high-quality, liquid, unencumbered securities. Our liquidity buffer, referred to as Global Liquidity Sources (GLS), is comprised of assets that are readily available to the parent company and selected subsidiaries, including holding company, bank and broker-dealer subsidiaries, even during stressed market conditions. Our cash is primarily on deposit with theFederal Reserve Bank and, to a lesser extent, central banks outside of theU.S. We limit the composition of high-quality, liquid, unencumbered securities toU.S. government securities,U.S. agency securities,U.S. agency MBS and a select group of non-U.S. government securities. We can quickly obtain cash for these securities, even in stressed conditions, through repurchase agreements or outright sales. We hold our GLS in legal entities that allow us to meet the liquidity requirements of our global businesses, and we consider the impact of potential regulatory, tax, legal and other restrictions that could limit the transferability of funds among entities. Table 16 presents average GLS for the three months endedDecember 31, 2020 and 2019. Table 16 Average Global Liquidity Sources Three Months Ended December 31 (Dollars in billions) 2020 2019 Bank entities$ 773 $ 454 Nonbank and other entities (1) 170 122 Total Average Global Liquidity Sources$ 943 $ 576 (1) Nonbank includes Parent,NB Holdings and other regulated entities. Our bank subsidiaries' liquidity is primarily driven by deposit and lending activity, as well as securities valuation and net debt activity. Bank subsidiaries can also generate incremental liquidity by pledging a range of unencumbered loans and securities to certain FHLBs and theFederal Reserve Discount Window. The cash we could have obtained by borrowing against this pool of specifically-identified eligible assets was$306 billion and$372 billion atDecember 31, 2020 and 2019. We have established operational procedures to enable us to borrow against these assets, including regularly monitoring our total pool of eligible loans and securities collateral. Eligibility is defined in guidelines from the FHLBs and theFederal Reserve and is subject to change at their discretion. Due to regulatory restrictions, liquidity generated by the bank subsidiaries can generally be used only to fund obligations within the bank subsidiaries, and transfers to the parent company or nonbank subsidiaries may be subject to prior regulatory approval. 57Bank of America -------------------------------------------------------------------------------- Liquidity is also held in nonbank entities, including the Parent,NB Holdings and other regulated entities. Parent company andNB Holdings liquidity is typically in the form of cash deposited at BANA and is excluded from the liquidity at bank subsidiaries. Liquidity held in other regulated entities, comprised primarily of broker-dealer subsidiaries, is primarily available to meet the obligations of that entity, and transfers to the parent company or to any other subsidiary may be subject to prior regulatory approval due to regulatory restrictions and minimum requirements. Our other regulated entities also hold unencumbered investment-grade securities and equities that we believe could be used to generate additional liquidity. Table 17 presents the composition of average GLS for the three months endedDecember 31, 2020 and 2019. Table 17 Average Global Liquidity Sources Composition Three Months Ended December 31 (Dollars in billions) 2020 2019 Cash on deposit $ 322 $ 103 U.S. Treasury securities 141 98
462 358
Non-U.S. government securities 18 17
Total Average Global Liquidity Sources $ 943 $ 576
Our GLS are substantially the same in composition to what qualifies as High
Quality Liquid Assets (HQLA) under the final U.S. Liquidity Coverage Ratio (LCR)
rules. However, HQLA for purposes of calculating LCR is not reported at market
value, but at a lower value that incorporates regulatory deductions and the
exclusion of excess liquidity held at certain subsidiaries. The LCR is
calculated as the amount of a financial institution's unencumbered HQLA relative
to the estimated net cash outflows the institution could encounter over a 30-day
period of significant liquidity stress, expressed as a percentage. Our average
consolidated HQLA, on a net basis, was $584 billion and $464 billion for the
three months ended December 31, 2020 and 2019. For the same periods, the average
consolidated LCR was 122 percent and 116 percent. Our LCR fluctuates due to
normal business flows from customer activity.
Liquidity Stress Analysis
We utilize liquidity stress analysis to assist us in determining the appropriate
amounts of liquidity to maintain at the parent company and our subsidiaries to
meet contractual and contingent cash outflows under a range of scenarios. The
scenarios we consider and utilize incorporate market-wide and
Corporation -specific events, including potential credit rating downgrades for
the parent company and our subsidiaries, and more severe events including
potential resolution scenarios. The scenarios are based on our historical
experience, experience of distressed and failed financial institutions,
regulatory guidance, and both expected and unexpected future events.
The types of potential contractual and contingent cash outflows we consider in
our scenarios may include, but are not limited to, upcoming contractual
maturities of unsecured debt and reductions in new debt issuances; diminished
access to secured financing markets; potential deposit withdrawals; increased
draws on loan commitments, liquidity facilities and letters of credit;
additional collateral that counterparties could call if our credit ratings were
downgraded; collateral and margin requirements arising from market value
changes; and potential
liquidity required to maintain businesses and finance customer activities.
Changes in certain market factors, including, but not limited to, credit rating
downgrades, could negatively impact potential contractual and contingent
outflows and the related financial instruments, and in some cases these impacts
could be material to our financial results.
We consider all sources of funds that we could access during each stress
scenario and focus particularly on matching available sources with corresponding
liquidity requirements by legal entity. We also use the stress modeling results
to manage our asset and liability profile and establish limits and guidelines on
certain funding sources and businesses.
Net Stable Funding Ratio Final Rule
On October 20, 2020 , the U.S. Agencies finalized the Net Stable Funding Ratio
(NSFR), a rule requiring large banks to maintain a minimum level of stable
funding over a one-year period. The final rule is intended to support the
ability of banks to lend to households and businesses in both normal and adverse
economic conditions and is complementary to the LCR rule, which focuses on
short-term liquidity risks. The final rule is effective July 1, 2021 . The U.S.
NSFR would apply to the Corporation on a consolidated basis and to our insured
depository institutions. The Corporation expects to be in compliance within the
final NSFR rule in the regulatory timeline provided and does not expect any
significant impacts to the Corporation.
Diversified Funding Sources
We fund our assets primarily with a mix of deposits, and secured and unsecured
liabilities through a centralized, globally coordinated funding approach
diversified across products, programs, markets, currencies and investor groups.
The primary benefits of our centralized funding approach include greater
control, reduced funding costs, wider name recognition by investors and greater
flexibility to meet the variable funding requirements of subsidiaries. Where
regulations, time zone differences or other business considerations make parent
company funding impractical, certain other subsidiaries may issue their own
debt.
We fund a substantial portion of our lending activities through our deposits,
which were $1.80 trillion and $1.43 trillion at December 31, 2020 and 2019.
Deposits are primarily generated by our Consumer Banking, GWIM and Global
Banking segments. These deposits are diversified by clients, product type and
geography, and the majority of our U.S. deposits are insured by the FDIC . We
consider a substantial portion of our deposits to be a stable, low-cost and
consistent source of funding. We believe this deposit funding is generally less
sensitive to interest rate changes, market volatility or changes in our credit
ratings than wholesale funding sources. Our lending activities may also be
financed through secured borrowings, including credit card securitizations and
securitizations with government-sponsored enterprises (GSE), the FHA and
private-label investors, as well as FHLB loans.
Our trading activities in other regulated entities are primarily funded on a
secured basis through securities lending and repurchase agreements, and these
amounts will vary based on customer activity and market conditions. We believe
funding these activities in the secured financing markets is more cost-efficient
and less sensitive to changes in our credit ratings than unsecured financing.
Repurchase agreements are generally short-term and often overnight. Disruptions
in secured financing markets for financial institutions have occurred in prior
market cycles which resulted in adverse changes in terms or significant
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reductions in the availability of such financing. We manage the liquidity risks arising from secured funding by sourcing funding globally from a diverse group of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate. For more information on secured financing agreements, see Note 10 - Federal Funds Sold or Purchased, Securities Financing Agreements, Short-term Borrowings and Restricted Cash to the Consolidated Financial Statements. Total long-term debt increased$22.1 billion to$262.9 billion during 2020, primarily due to debt issuances and valuation adjustments, partially offset by maturities and redemptions. We may, from time to time, purchase outstanding debt instruments in various transactions, depending on market conditions, liquidity and other factors. Our other regulated entities may also make markets in our debt instruments to provide liquidity for investors. During 2020, we issued$56.9 billion of long-term debt consisting of$43.8 billion of notes issued by Bank of America Corporation, substantially all of which was TLAC compliant,$4.8 billion of notes issued byBank of America, N.A . and$8.3 billion of other debt. During 2019, we issued$52.5 billion of long-term debt consisting of$29.3 billion of notes issued by Bank of America Corporation, substantially all of which was TLAC compliant,$10.9 billion of notes issued byBank of America, N.A . and$12.3 billion of other debt. During 2020, we had total long-term debt maturities and redemptions in the aggregate of$47.1 billion consisting of$22.6 billion for Bank of America Corporation,$11.5 billion forBank of America, N.A . and$13.0 billion of other debt. During 2019, we had total long-term debt maturities and redemptions in the aggregate of$50.6 billion consisting of$21.1 billion for Bank of America Corporation,$19.9 billion forBank of America, N.A . and$9.6 billion of other debt. AtDecember 31, 2020 , Bank of America Corporation's senior notes of$191.2 billion included$146.6 billion of outstanding notes that are both TLAC eligible and callable at least one year before their stated maturities. Of these senior notes,$12.0 billion will be callable and become TLAC ineligible during 2021, and$15.3 billion ,$14.6 billion ,$11.7 billion and$13.2 billion will do so during each of 2022 through 2025, respectively, and$79.8 billion thereafter. We issue long-term unsecured debt in a variety of maturities and currencies to achieve cost-efficient funding and to maintain an appropriate maturity profile. While the cost and availability of unsecured funding may be negatively impacted by general market conditions or by matters specific to the financial services industry or the Corporation, we seek to mitigate refinancing risk by actively managing the amount of our borrowings that we anticipate will mature within any month or quarter. We may issue unsecured debt in the form of structured notes for client purposes, certain of which qualify as TLAC-eligible debt. During 2020, we issued$7.3 billion of structured notes, which are unsecured debt obligations that pay investors returns linked to other debt or equity securities, indices, currencies or commodities. We typically hedge the returns we are obligated to pay on these liabilities with derivatives and/or investments in the underlying instruments, so that from a funding perspective, the cost is similar to our other unsecured long-term debt. We could be required to settle certain structured note obligations for cash or other securities prior to maturity under certain circumstances, which we consider for liquidity planning purposes. We believe, however, that a portion of such borrowings will remain outstanding beyond the earliest put or redemption date. Substantially all of our senior and subordinated debt obligations contain no provisions that could trigger a requirement for an early repayment, require additional collateral support, result in changes to terms, accelerate maturity or create additional financial obligations upon an adverse change in our credit ratings, financial ratios, earnings, cash flows or stock price. For more information on long-term debt funding, including issuances and maturities and redemptions, see Note 11 - Long-term Debt to the Consolidated Financial Statements. We use derivative transactions to manage the duration, interest rate and currency risks of our borrowings, considering the characteristics of the assets they are funding. For more information on our ALM activities, see Interest Rate Risk Management for the Banking Book on page 82. Contingency Planning We maintain contingency funding plans that outline our potential responses to liquidity stress events at various levels of severity. These policies and plans are based on stress scenarios and include potential funding strategies and communication and notification procedures that we would implement in the event we experienced stressed liquidity conditions. We periodically review and test the contingency funding plans to validate efficacy and assess readiness. OurU.S. bank subsidiaries can access contingency funding through the Federal Reserve Discount Window. Certain non-U.S. subsidiaries have access to central bank facilities in the jurisdictions in which they operate. While we do not rely on these sources in our liquidity modeling, we maintain the policies, procedures and governance processes that would enable us to access these sources if necessary. Credit Ratings Our borrowing costs and ability to raise funds are impacted by our credit ratings. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including over-the-counter (OTC) derivatives. Thus, it is our objective to maintain high-quality credit ratings, and management maintains an active dialogue with the major rating agencies. Credit ratings and outlooks are opinions expressed by rating agencies on our creditworthiness and that of our obligations or securities, including long-term debt, short-term borrowings, preferred stock and other securities, including asset securitizations. Our credit ratings are subject to ongoing review by the rating agencies, and they consider a number of factors, including our own financial strength, performance, prospects and operations as well as factors not under our control. The rating agencies could make adjustments to our ratings at any time, and they provide no assurances that they will maintain our ratings at current levels. Other factors that influence our credit ratings include changes to the rating agencies' methodologies for our industry or certain security types; the rating agencies' assessment of the general operating environment for financial services companies; our relative positions in the markets in which we compete; our various risk exposures and risk management policies and activities; pending litigation and other contingencies or potential tail risks; our reputation; our liquidity position, diversity of funding sources and funding costs; the current and expected level and volatility of our earnings; our capital position and capital management practices; our corporate governance; the sovereign credit ratings of theU.S. government; current or future regulatory and legislative 59Bank of America -------------------------------------------------------------------------------- initiatives; and the agencies' views on whether theU.S. government would provide meaningful support to the Corporation or its subsidiaries in a crisis. OnApril 22, 2020 , Fitch Ratings (Fitch) completed its review of large, complex securities trading and universal banks in theU.S. , includingBank of America , in response to declining economic activity from the pandemic. The agency affirmed its long-term and short-term senior debt ratings for the Corporation and all of its rated subsidiaries, except for select issuer and instrument-level ratings that had previously been placed under criteria observation onMarch 4, 2020 , following changes in the agency's bank rating criteria onFebruary 28, 2020 . Concurrently, Fitch reached a conclusion on select under-criteria-observation designations for the Corporation and upgraded its long-term and short-term senior debt ratings of MLI and BofASE by one notch to AA-/F1+. The agency also upgraded its preferred stock rating for the Corporation by one notch to BBB and downgraded its subordinated debt rating for the Corporation by one notch to A-. According to Fitch, rating changes under criteria observation are the sole result of bank rating criteria changes and do not reflect a change in the underlying fundamentals of the institution. Fitch's outlook for all of our long-term ratings is currently Stable. OnJune 9, 2020 , Fitch affirmed its rating for the subordinated debt of BANA at A. This rating had remained under criteria observation following Fitch's broader rating actions. OnNovember 18, 2020 , Moody's Investors Service (Moody's) affirmed its long-term and short-term debt ratings for the Corporation and all of its rated subsidiaries, which did not change during 2020. Moody's outlook for all of our long-term ratings is currently Stable. The current ratings and Stable outlooks for the Corporation and its subsidiaries from Standard & Poor's Global Ratings also did not change during 2020. Table 18 presents the Corporation's current long-term/short-term senior debt ratings and outlooks expressed by the rating agencies. Table 18 Senior Debt Ratings Moody's Investors Service Standard & Poor's Global Ratings Fitch Ratings Long-term Short-term Outlook Long-term Short-term Outlook Long-term Short-term Outlook
Bank of America Corporation A2 P-1 Stable A- A-2 Stable A+ F1 StableBank of America, N.A . Aa2 P-1 Stable A+ A-1 Stable AA- F1+ StableBank of America Europe Designated Activity Company NR NR NR A+ A-1 Stable AA- F1+
Stable
Merrill Lynch, Pierce, Fenner & Smith Incorporated NR NR NR A+ A-1 Stable AA- F1+ StableBofA Securities, Inc. NR NR NR A+ A-1 Stable AA- F1+ StableMerrill Lynch International NR NR NR A+ A-1 Stable AA- F1+ StableBofA Securities Europe SA NR NR NR A+ A-1 Stable AA- F1+ Stable NR = not rated A reduction in certain of our credit ratings or the ratings of certain asset-backed securitizations may have a material adverse effect on our liquidity, potential loss of access to credit markets, the related cost of funds, our businesses and on certain revenues, particularly in those businesses where counterparty creditworthiness is critical. In addition, under the terms of certain OTC derivative contracts and other trading agreements, in the event of downgrades of our or our rated subsidiaries' credit ratings, the counterparties to those agreements may require us to provide additional collateral, or to terminate these contracts or agreements, which could cause us to sustain losses and/or adversely impact our liquidity. If the short-term credit ratings of our parent company, bank or broker-dealer subsidiaries were downgraded by one or more levels, the potential loss of access to short-term funding sources such as repo financing and the effect on our incremental cost of funds could be material. While certain potential impacts are contractual and quantifiable, the full scope of the consequences of a credit rating downgrade to a financial institution is inherently uncertain, as it depends upon numerous dynamic, complex and inter-related factors and assumptions, including whether any downgrade of a company's long-term credit ratings precipitates downgrades to its short-term credit ratings, and assumptions about the potential behaviors of various customers, investors and counterparties. For more information on potential impacts of credit rating downgrades, see Liquidity Risk - Liquidity Stress Analysis on page 58. For more information on additional collateral and termination payments that could be required in connection with certain over-the-counter derivative contracts and other trading agreements in the event of a credit rating downgrade, see Note 3 - Derivatives to the Consolidated Financial Statements and Part I. Item 1A. Risk Factors.
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Common Stock Dividends For a summary of our declared quarterly cash dividends on common stock during 2020 and throughFebruary 24, 2021 , see Note 13 - Shareholders' Equity to the Consolidated Financial Statements.Finance Subsidiary Issuers and Parent Guarantor BofA Finance LLC , aDelaware 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 byBofA Finance . In addition, each ofBAC Capital Trust XIII andBAC Capital Trust XIV ,Delaware statutory trusts (collectively, the Trusts), is a 100 percent owned finance subsidiary of the Corporation that has issued and sold trust preferred securities (the Trust Preferred Securities and, together with the Guaranteed Notes, the Guaranteed Securities) that remained outstanding at December 31, 2020. The Corporation guarantees the payment of amounts and distributions with respect to the Trust Preferred Securities if not paid by the Trusts, to the extent of funds held by the Trusts, and this guarantee, together with the Corporation's other obligations with respect to the Trust Preferred Securities, effectively constitutes a full and unconditional guarantee of the Trusts' payment obligations on the Trust Preferred Securities. No other subsidiary of the Corporation guarantees the Guaranteed Securities.BofA Finance and each of the Trusts are finance subsidiaries, have no independent assets, revenues or operations and are dependent upon the Corporation and/or the Corporation's other subsidiaries to meet their respective obligations under the Guaranteed Securities in the ordinary course. If holders of the Guaranteed Securities make claims on their Guaranteed Securities in a bankruptcy, resolution or similar proceeding, any recoveries on those claims will be limited to those available under the applicable guarantee by the Corporation, as described above. The Corporation is a holding company and depends upon its subsidiaries for liquidity. Applicable laws and regulations and intercompany arrangements entered into in connection with the Corporation's resolution plan could restrict the availability of funds from subsidiaries to the Corporation, which could adversely affect the Corporation's ability to make payments under its guarantees. In addition, the obligations of the Corporation under the guarantees of the Guaranteed Securities will be structurally subordinated to all existing and future liabilities of its subsidiaries, and claimants should look only to assets of the Corporation for payments. If the Corporation, as guarantor of the Guaranteed Notes, transfers all or substantially all of its assets to one or more direct or indirect majority-owned subsidiaries, under the indenture governing the Guaranteed Notes, the subsidiary or subsidiaries will not be required to assume the Corporation's obligations under its guarantee of the Guaranteed Notes. For more information on factors that may affect payments to holders of the Guaranteed Securities, see Liquidity Risk -NB Holdings Corporation in this section, Item 1. Business - Insolvency and the Orderly Liquidation Authority on page 5 and Part I. Item 1A. Risk Factors - Liquidity on page 9. Credit Risk Management Credit risk is the risk of loss arising from the inability or failure of a borrower or counterparty to meet its obligations. Credit risk can also arise from operational failures that result in an erroneous advance, commitment or investment of funds. We define the credit exposure to a borrower or counterparty as the loss potential arising from all product classifications including loans and leases, deposit overdrafts, derivatives, assets held-for-sale and unfunded lending commitments which include loan commitments, letters of credit and financial guarantees. Derivative positions are recorded at fair value and assets held-for-sale are recorded at either fair value or the lower of cost or fair value. Certain loans and unfunded commitments are accounted for under the fair value option. Credit risk for categories of assets carried at fair value is not accounted for as part of the allowance for credit losses but as part of the fair value adjustments recorded in earnings. For derivative positions, our credit risk is measured as the net cost in the event the counterparties with contracts in which we are in a gain position fail to perform under the terms of those contracts. We use the current fair value to represent credit exposure without giving consideration to future mark-to-market changes. The credit risk amounts take into consideration the effects of legally enforceable master netting agreements and cash collateral. Our consumer and commercial credit extension and review procedures encompass funded and unfunded credit exposures. For more information on derivatives and credit extension commitments, see Note 3 - Derivatives and Note 12 - Commitments and Contingencies to the Consolidated Financial Statements. We manage credit risk based on the risk profile of the borrower or counterparty, repayment sources, the nature of underlying collateral, and other support given current events, conditions and expectations. We classify our portfolios as either consumer or commercial and monitor credit risk in each as discussed below. We refine our underwriting and credit risk management practices as well as credit standards to meet the changing economic environment. To mitigate losses and enhance customer support in our consumer businesses, we have in place collection programs and loan modification and customer assistance infrastructures. We utilize a number of actions to mitigate losses in the commercial businesses including increasing the frequency and intensity of portfolio monitoring, hedging activity and our practice of transferring management of deteriorating commercial exposures to independent special asset officers as credits enter criticized categories. For information on our credit risk management activities, see Consumer Portfolio Credit Risk Management below, Commercial Portfolio Credit Risk Management on page 68, Non-U.S. Portfolio on page 74, Allowance for Credit Losses on page 76, and Note 5 - Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements. During 2020, the pandemic negatively impacted economic activity in theU.S. and around the world. In particular, beginning in the latter portion of the first quarter of 2020, the pandemic resulted in changes to consumer and business behaviors and restrictions on economic activity. These restrictions gave rise to increased unemployment and underemployment, lower business profits, increased business closures and bankruptcies, fluctuations and disruptions to commercial and consumer spending and markets, and lower global GDP, all of which negatively impacted our consumer and commercial credit portfolio. 61 Bank of America -------------------------------------------------------------------------------- To provide relief to individuals and businesses in theU.S. , economic stimulus packages were enacted throughout 2020, including the CARES Act, an executive order signed in August 2020 to establish the Lost Wage Assistance Program, and most recently, the Consolidated Appropriations Act enacted in December 2020. In addition,U.S. bank regulatory agencies issued interagency guidance to financial institutions that have worked with and continue to work with borrowers affected by COVID-19. To support our customers, we implemented various loan modification programs and other forms of support beginning in March 2020, including offering loan payment deferrals, refunding certain fees, and pausing foreclosure sales, evictions and repossessions. Since June 2020, we have experienced a decline in the need for customer assistance as the number of customer accounts and balances on deferral decreased significantly. For information on the accounting for loan modifications related to the pandemic, see Note 1 - Summary of Significant Accounting Principles to the Consolidated Financial Statements. Furthermore, as COVID-19 cases eased and initial restrictions lifted, the global economy began to improve. This improvement, coupled with the aforementioned relief, facilitated economic recovery, with unemployment dropping from double-digit highs in the second quarter of 2020 and GDP significantly rebounding in the third quarter of 2020. However, economic recovery remains uneven, with certain sectors of the economy more significantly impacted from the pandemic (e.g., travel and entertainment). As a result, we have experienced increases in commercial reservable criticized utilized exposures driven by industries most heavily impacted by COVID-19. Also, we have seen modest increases in nonperforming loans driven by commercial loans and consumer real estate customer deferral activities, though consumer charge-offs remained low during 2020 due to payment deferrals and government stimulus benefits. The pandemic and its full impact on the global economy continue to be highly uncertain. While COVID-19 cases have begun to ease from their January 2021 peak, the spread of new, more contagious variants could impact the magnitude and duration of this health crisis. However, ongoing virus containment efforts and vaccination progress, as well as the possibility of further government stimulus, could accelerate the macroeconomic recovery. For more information on how the pandemic may affect our operations, see Executive Summary - Recent Developments - COVID-19 Pandemic on page 25 and Part I. Item 1A. Risk Factors - Coronavirus Disease on page 7. Consumer Portfolio Credit Risk Management Credit risk management for the consumer portfolio begins with initial underwriting and continues throughout a borrower's credit cycle. Statistical techniques in conjunction with experiential judgment are used in all aspects of portfolio management including underwriting, product pricing, risk appetite, setting credit limits, and establishing operating processes and metrics to quantify and balance risks and returns. Statistical models are built using detailed behavioral information from external sources such as credit bureaus and/or internal historical experience and are a component of our consumer credit risk management process. These models are used in part to assist in making both new and ongoing credit decisions, as well as portfolio management strategies, including authorizations and line management, collection practices and strategies, and determination of the allowance for loan and lease losses and allocated capital for credit risk. Consumer Credit Portfolio While COVID-19 is severely impacting economic activity, and is contributing to increasing nonperforming loans within certain consumer portfolios, it did not have a significant impact on consumer portfolio charge-offs during 2020 due to payment deferrals and government stimulus benefits. However, COVID-19 could lead to adverse impacts to credit quality metrics in future periods if negative economic conditions continue or worsen. During 2020, net charge-offs decreased $334 million to $2.7 billion primarily due to lower credit card losses. The consumer allowance for loan and lease losses increased $5.5 billion in 2020 to $10.1 billion due to the adoption of the new CECL accounting standard and deterioration in the economic outlook resulting from the impact of COVID-19. For more information, see Allowance for Credit Losses on page 76. For more information on our accounting policies regarding delinquencies, nonperforming status, charge-offs, TDRs for the consumer portfolio, as well as interest accrual policies and delinquency status for loan modifications related to the pandemic, see Note 1 - Summary of Significant Accounting Principles and Note 5 - Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements. Table 19 presents our outstanding consumer loans and leases, consumer nonperforming loans and accruing consumer loans past due 90 days or more.
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Table 19 Consumer Credit Quality
Accruing Past Due
Outstandings Nonperforming 90 Days or More
December 31
(Dollars in millions) 2020 2019 2020 2019 2020 2019
Residential mortgage (1) $ 223,555 $ 236,169 $ 2,005 $ 1,470 $ 762 $ 1,088
Home equity 34,311 40,208 649 536 - -
Credit card 78,708 97,608 n/a n/a 903 1,042
Direct/Indirect consumer (2) 91,363 90,998 71 47 33 33
Other consumer 124 192 - - - -
Consumer loans excluding loans accounted for
under the fair value option $ 428,061 $ 465,175 $ 2,725 $ 2,053 $ 1,698 $ 2,163
Loans accounted for under the fair value option
(3) 735 594
Total consumer loans and leases $ 428,796 $
465,769
Percentage of outstanding consumer loans and leases (4) n/a n/a 0.64 % 0.44 % 0.40 % 0.47 % Percentage of outstanding consumer loans and leases, excluding fully-insured loan portfolios (4) n/a n/a 0.65 0.46 0.22 0.24 (1)Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At December 31, 2020 and 2019, residential mortgage includes $537 million and $740 million of loans on which interest had been curtailed by the FHA, and therefore were no longer accruing interest, although principal was still insured, and $225 million and $348 million of loans on which interest was still accruing. (2)Outstandings primarily include auto and specialty lending loans and leases of $46.4 billion and $50.4 billion,U.S. securities-based lending loans of $41.1 billion and $36.7 billion and non-U.S. consumer loans of $3.0 billion and $2.8 billion at December 31, 2020 and 2019. (3)Consumer loans accounted for under the fair value option include residential mortgage loans of $298 million and $257 million and home equity loans of $437 million and $337 million at December 31, 2020 and 2019. For more information on the fair value option, see Note 21 - Fair Value Option to the Consolidated Financial Statements. (4)Excludes consumer loans accounted for under the fair value option. At December 31, 2020 and 2019, $11 million and $6 million of loans accounted for under the fair value option were past due 90 days or more and not accruing interest. n/a = not applicable Table 20 presents net charge-offs and related ratios for consumer loans and leases. Table 20 Consumer Net Charge-offs and Related Ratios Net Charge-offs Net
Charge-off Ratios (1)
(Dollars in millions) 2020 2019 2020 2019
Residential mortgage $ (30) $ (47) (0.01) % (0.02) %
Home equity (73) (358) (0.19) (0.81)
Credit card 2,349 2,948 2.76 3.12
Direct/Indirect consumer 122 209 0.14 0.23
Other consumer 284 234 n/m n/m
Total $ 2,652 $ 2,986 0.59 0.66
(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.
n/m = not meaningful
Table 21 presents outstandings, nonperforming balances, net charge-offs,
allowance for credit losses and provision for credit losses for the core and
non-core portfolios within the consumer real estate portfolio. We categorize
consumer real estate loans as core and non-core based on loan and customer
characteristics such as origination date, product type, loan-to value (LTV),
Fair Isaac Corporation (FICO) score and delinquency status consistent with our
current consumer and mortgage servicing strategy. Generally, loans that were
originated after January 1, 2010, qualified under GSE underwriting guidelines,
or otherwise met our underwriting guidelines in place in 2015
are characterized as core loans. All other loans are generally characterized as
non-core loans and represent runoff portfolios. Core loans as reported in Table
21 include loans held in the Consumer Banking and GWIM segments, as well as
loans held for ALM activities in All Other.
As shown in Table 21, outstanding core consumer real estate loans decreased
$15.4 billion during 2020 driven by a decrease of $10.5 billion in residential
mortgage and a $4.9 billion decrease in home equity.
63 Bank of America
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Table 21 Consumer Real Estate Portfolio (1)
Outstandings Nonperforming
December 31 Net Charge-offs
(Dollars in millions) 2020 2019 2020 2019 2020 2019
Core portfolio
Residential mortgage $ 215,273 $ 225,770 $ 1,390 $ 883 $ (25) $ 7
Home equity 30,328 35,226 462 363 (6) 51
Total core portfolio 245,601 260,996 1,852 1,246 (31) 58
Non-core portfolio
Residential mortgage 8,282 10,399 615 587 (5) (54)
Home equity 3,983 4,982 187 173 (67) (409)
Total non-core portfolio 12,265 15,381 802 760 (72) (463)Consumer real estate portfolio
Residential mortgage 223,555 236,169 2,005 1,470 (30) (47) Home equity 34,311 40,208 649 536 (73) (358)
Total consumer real estate portfolio $ 257,866 $ 276,377
$ 2,654 $ 2,006 $ (103) $ (405)
Allowance for Loan
and Lease Losses Provision for Loan
December 31 and Lease Losses
2020 2019 2020 2019
Core portfolio
Residential mortgage $ 374 $ 229 $ 136 $ 22
Home equity 599 120 135 (58)
Total core portfolio 973 349 271 (36)
Non-core portfolio
Residential mortgage 85 96 75 (134)
Home equity (2) (63) 101 (21) (510)
Total non-core portfolio 22 197 54 (644)Consumer real estate portfolio
Residential mortgage 459 325 211 (112) Home equity (3) 536 221 114 (568) Total consumer real estate portfolio $ 995 $ 546 $ 325
$ (680)
(1)Outstandings and nonperforming loans exclude loans accounted for under the fair value option. Consumer loans accounted for under the fair value option include residential mortgage loans of $298 million and $257 million and home equity loans of $437 million and $337 million at December 31, 2020 and 2019. For more information, see Note 21 - Fair Value Option to the Consolidated Financial Statements. (2)The home equity non-core allowance is in a negative position at December 31, 2020 as it includes expected recoveries of amounts previously charged off. (3)Home equity allowance includes a reserve for unfunded lending commitments of $137 million at December 31, 2020. We believe that the presentation of information adjusted to exclude the impact of 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 fully-insured loan portfolio in certain credit quality statistics. Residential Mortgage The residential mortgage portfolio made up the largest percentage of our consumer loan portfolio at 52 percent of consumer loans and leases at December 31, 2020. Approximately 52 percent of the residential mortgage portfolio was in Consumer Banking and 40 percent was in GWIM. The remaining portion was in All Other and was comprised of loans used in our overall ALM activities, delinquent FHA loans repurchased pursuant to our servicing agreements with theGovernment National Mortgage Association as well as loans repurchased related to our representations and warranties. Outstanding balances in the residential mortgage portfolio decreased $12.6 billion in 2020 as both loan sales and paydowns were partially offset by originations. At December 31, 2020 and 2019, the residential mortgage portfolio included $11.8 billion and $18.7 billion of outstanding fully-insured loans, of which $2.8 billion and $11.2 billion had FHA insurance, with the remainder protected by Fannie Mae long-term standby agreements. The decline was primarily driven by sales of loans with FHA insurance during 2020. Table 22 presents certain residential mortgage key credit statistics on both a reported basis and excluding the fully-insured loan portfolio. The following discussion presents the residential mortgage portfolio excluding the fully-insured loan portfolio.
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Table 22 Residential Mortgage - Key Credit Statistics
Reported Basis (1) Excluding Fully-insured Loans (1)
December 31
(Dollars in millions) 2020 2019 2020 2019
Outstandings $ 223,555 $ 236,169 $ 211,737 $ 217,479
Accruing past due 30 days or more 2,314 3,108 1,224 1,296
Accruing past due 90 days or more 762 1,088 - -
Nonperforming loans (2) 2,005 1,470 2,005 1,470
Percent of portfolio
Refreshed LTV greater than 90 but less than or equal to 100 2 % 2 % 1 % 2 %
Refreshed LTV greater than 100 1 1 1 1
Refreshed FICO below 620 2 3 1 2
2006 and 2007 vintages (3) 3 4 3 4
(1)Outstandings, accruing past due, nonperforming loans and percentages of
portfolio exclude loans accounted for under the fair value option. For
information on our interest accrual policies and delinquency status for loan
modifications related to the pandemic, see Note 1 - Summary of Significant
Accounting Principles to the Consolidated Financial Statements.
(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.
(3)These vintages of loans accounted for $503 million and $365 million, or 25
percent, of nonperforming residential mortgage loans at both December 31, 2020
and 2019.
Nonperforming outstanding balances in the residential mortgage portfolio
increased $535 million in 2020 primarily driven by COVID-19 deferral activity,
as well as the inclusion of certain loans that, upon adoption of the new credit
loss standard, became accounted for on an individual basis, which previously had
been accounted for under a pool basis. Of the nonperforming residential mortgage
loans at December 31, 2020, $892 million, or 45 percent, were current on
contractual payments. Loans accruing past due 30 days or more decreased $72
million.
Net charge-offs increased $17 million to a net recovery of $30 million in 2020
compared to a net recovery of $47 million in 2019. This increase is due largely
to lower recoveries from the sales of previously charged-off loans.
Of the $211.7 billion in total residential mortgage loans outstanding at
December 31, 2020, as shown in Table 22, 27 percent were originated as
interest-only loans. The outstanding balance of interest-only residential
mortgage loans that have entered the amortization period was $5.9 billion, or 10
percent, at December 31, 2020. Residential mortgage loans that have entered the
amortization period generally have experienced a higher rate of early stage
delinquencies and nonperforming status compared to the residential mortgage
portfolio as a whole. At December 31, 2020, $113 million, or two percent of
outstanding interest-only residential mortgages that had entered
the amortization period were accruing past due 30 days or more compared to $1.2
billion, or less than one percent, for the entire residential mortgage
portfolio. In addition, at December 31, 2020, $356 million, or six percent, of
outstanding interest-only residential mortgage loans that had entered the
amortization period were nonperforming, of which $96 million were contractually
current, compared to $2.0 billion, or one percent, for the entire residential
mortgage portfolio. Loans that have yet to enter the amortization period in our
interest-only residential mortgage portfolio are primarily well-collateralized
loans to our wealth management clients and have an interest-only period of three
to ten years. Approximately 98 percent of these loans that have yet to enter the
amortization period will not be required to make a fully-amortizing payment
until 2022 or later.
Table 23 presents outstandings, nonperforming loans and net charge-offs by
certain state concentrations for the residential mortgage portfolio. The Los
Angeles-Long Beach-Santa Ana Metropolitan Statistical Area (MSA) within
California represented 16 percent of outstandings at both December 31, 2020 and
2019. In the New York area, the New York-Northern New Jersey-Long Island MSA
made up 14 percent and 13 percent of outstandings at December 31, 2020 and 2019.
Table 23 Residential Mortgage State Concentrations
Outstandings (1) Nonperforming (1)
December 31 Net Charge-offs
(Dollars in millions) 2020 2019 2020 2019 2020 2019
California $ 83,185 $ 88,998 $ 570 $ 274 $ (18) $ (22)
New York 23,832 22,385 272 196 3 5
Florida 13,017 12,833 175 143 (5) (12)
Texas 8,868 8,943 78 65 - 1
New Jersey 8,806 8,734 98 77 (1) (4)
Other 74,029 75,586 812 715 (9) (15)
Residential mortgage loans $ 211,737 $ 217,479 $ 2,005 $ 1,470 $ (30) $ (47)
Fully-insured loan portfolio 11,818 18,690
Total residential mortgage loan portfolio $ 223,555 $ 236,169
(1)Outstandings and nonperforming loans exclude loans accounted for under the
fair value option.
Home Equity
At December 31, 2020, the home equity portfolio made up eight percent of the
consumer portfolio and was comprised of home equity lines of credit (HELOCs),
home equity loans and reverse mortgages. HELOCs generally have an initial draw
period of 10 years, and after the initial draw period ends, the loans generally
convert to 15- or 20-year amortizing loans. We no longer originate home equity
loans or reverse mortgages.
At December 31, 2020, 80 percent of the home equity portfolio was in Consumer
Banking, 12 percent was in All Other and the remainder of the portfolio was
primarily in GWIM. Outstanding balances in the home equity portfolio decreased
65 Bank of America
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$5.9 billion in 2020 primarily due to paydowns outpacing new originations and
draws on existing lines. Of the total home equity portfolio at December 31, 2020
and 2019, $13.8 billion, or 40 percent, and $15.0 billion, or 37 percent, were
in first-lien positions. At December 31, 2020, outstanding balances in the home
equity portfolio that were in a second-lien or more junior-lien position and
where we also held the first-lien loan totaled
$5.9 billion, or 17 percent, of our total home equity portfolio.
Unused HELOCs totaled $42.3 billion and $43.6 billion at December 31, 2020 and
2019. The HELOC utilization rate was 43 percent and 46 percent at December 31,
2020 and 2019.
Table 24 presents certain home equity portfolio key credit statistics.
Table 24 Home Equity - Key Credit Statistics (1)
December 31
(Dollars in millions) 2020 2019
Outstandings $ 34,311 $ 40,208
Accruing past due 30 days or more (2) 186 218
Nonperforming loans (2, 3) 649 536
Percent of portfolio
Refreshed CLTV greater than 90 but less than or equal to 100 1 % 1 %
Refreshed CLTV greater than 100 1 2
Refreshed FICO below 620 3 3
2006 and 2007 vintages (4) 16 18
(1)Outstandings, accruing past due, nonperforming loans and percentages of the
portfolio exclude loans accounted for under the fair value option. For
information on our interest accrual policies and delinquency status for loan
modifications related to the pandemic, see Note 1 - Summary of Significant
Accounting Principles to the Consolidated Financial Statements.
(2)Accruing past due 30 days or more include $25 million and $30 million and
nonperforming loans include $88 million and $57 million of loans where we
serviced the underlying first lien at December 31, 2020 and 2019.
(3)Includes loans that are contractually current which primarily consist of
collateral-dependent TDRs, including those that have been discharged in Chapter
7 bankruptcy, junior-lien loans where the underlying first lien is 90 days or
more past due, as well as loans that have not yet demonstrated a sustained
period of payment performance following a TDR.
(4)These vintages of loans accounted for 36 percent and 34 percent of
nonperforming home equity loans at December 31, 2020 and 2019.
Nonperforming outstanding balances in the home equity portfolio increased $113
million during 2020 primarily driven by COVID-19 deferral activity. Of the
nonperforming home equity loans at December 31, 2020, $259 million, or 40
percent, were current on contractual payments. In addition, $237 million, or 36
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 $32 million
in 2020.
Net charge-offs increased $285 million to a net recovery of $73 million in 2020
compared to a net recovery of $358 million in 2019 as the prior-year period
included recoveries from non-core home equity loan sales.
Of the $34.3 billion in total home equity portfolio outstandings at December 31,
2020, as shown in Table 24, 15 percent require interest-only payments. The
outstanding balance of HELOCs that have reached the end of their draw period and
have entered the amortization period was $9.2 billion at December 31, 2020. The
HELOCs that have entered the amortization period have experienced a higher
percentage of early stage delinquencies and nonperforming status when compared
to the HELOC portfolio as a whole. At December 31, 2020, $121 million, or one
percent of outstanding HELOCs that had entered the amortization period were
accruing past due 30
days or more. In addition, at December 31, 2020, $477 million, or five percent,
were nonperforming. Loans that have yet to enter the amortization period in our
interest-only portfolio are primarily post-2008 vintages and generally have
better credit quality than the previous vintages that had entered the
amortization period. We communicate to contractually current customers more than
a year prior to the end of their draw period to inform them of the potential
change to the payment structure before entering the amortization period, and
provide payment options to customers prior to the end of the draw period.
Although we do not actively track how many of our home equity customers pay only
the minimum amount due on their home equity loans and lines, we can infer some
of this information through a review of our HELOC portfolio that we service and
that is still in its revolving period. During 2020, nine percent of these
customers with an outstanding balance did not pay any principal on their HELOCs.
Table 25 presents outstandings, nonperforming balances and net charge-offs by
certain state concentrations for the home equity portfolio. In the New York
area, the New York-Northern New Jersey-Long Island MSA made up 13 percent of the
outstanding home equity portfolio at both December 31, 2020 and 2019. The Los
Angeles-Long Beach-Santa Ana MSA within California made up 11 percent of the
outstanding home equity portfolio at both December 31, 2020 and 2019.
Table 25 Home Equity State Concentrations
Outstandings (1) Nonperforming (1)
December 31 Net Charge-offs
(Dollars in millions) 2020 2019 2020 2019 2020 2019
California $ 9,488 $ 11,232 $ 143 $ 101 $ (26) $ (117)
Florida 3,715 4,327 80 71 (11) (74)
New Jersey 2,749 3,216 67 56 (3) (8)
New York 2,495 2,899 103 85 (1) (1)
Massachusetts 1,719 2,023 32 29 (1) (5)
Other 14,145 16,511 224 194 (31) (153)
Total home equity loan portfolio $ 34,311 $ 40,208 $ 649 $ 536 $ (73) $ (358)
(1)Outstandings and nonperforming loans exclude loans accounted for under the fair value option.
Bank of America 66
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Credit Card
At December 31, 2020, 97 percent of the credit card portfolio was managed in
Consumer Banking with the remainder in GWIM. Outstandings in the credit card
portfolio decreased $18.9 billion in 2020 to $78.7 billion due to lower retail
spending and higher payments. Net charge-offs decreased $599 million to $2.3
billion during 2020 compared to net charge-offs of $2.9 billion in 2019 due to
government stimulus benefits and payment deferrals associated with COVID-19.
Credit card loans 30 days
or more past due and still accruing interest decreased $346 million, and loans
90 days or more past due and still accruing interest decreased $139 million
primarily due to government stimulus benefits and declines in loan balances.
Unused lines of credit for credit card increased to $342.4 billion at
December 31, 2020 from $336.9 billion in 2019.
Table 26 presents certain state concentrations for the credit card portfolio.
Table 26 Credit Card State Concentrations
Accruing Past Due
Outstandings 90 Days or More (1)
December 31 Net Charge-offs
(Dollars in millions) 2020 2019 2020 2019 2020 2019
California $ 12,543 $ 16,135 $ 166 $ 178 $ 419 $ 526
Florida 7,666 9,075 135 135 306 363
Texas 6,499 7,815 87 93 202 241
New York 4,654 5,975 76 80 188 243
Washington 3,685 4,639 21 26 56 71
Other 43,661 53,969 418 530 1,178 1,504
Total credit card portfolio $ 78,708 $ 97,608 $ 903 $ 1,042 $ 2,349 $ 2,948
(1)For information on our interest accrual policies and delinquency status for
loan modifications related to the pandemic, see Note 1 - Summary of Significant
Accounting Principles to the Consolidated Financial Statements.
Direct/Indirect Consumer
At December 31, 2020, 51 percent of the direct/indirect portfolio was included
in Consumer Banking (consumer auto and recreational vehicle lending) and 49
percent was included in GWIM (principally securities-based lending loans).
Outstandings
in the direct/indirect portfolio increased $365 million in 2020 to $91.4 billion
primarily due to increases in securities-based lending offset by lower
originations in Auto.
Table 27 presents certain state concentrations for the direct/indirect consumer
loan portfolio.
Table 27 Direct/Indirect State Concentrations
Accruing Past Due
Outstandings 90 Days or More (1)
December 31 Net Charge-offs
(Dollars in millions) 2020 2019 2020 2019 2020 2019
California $ 12,248 $ 11,912 $ 6 $ 4 $ 20 $ 49
Florida 10,891 10,154 4 4 20 27
Texas 8,981 9,516 6 5 20 29
New York 6,609 6,394 2 1 9 12
New Jersey 3,572 3,468 - 1 2 4
Other 49,062 49,554 15 18 51 88Total direct/indirect loan portfolio $ 91,363 $ 90,998
$ 33 $ 33 $ 122 $ 209
(1)For information on our interest accrual policies and delinquency status for
loan modifications related to the pandemic, see Note 1 - Summary of Significant
Accounting Principles to the Consolidated Financial Statements.
Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity
Table 28 presents nonperforming consumer loans, leases and foreclosed properties
activity during 2020 and 2019. During 2020, nonperforming consumer loans
increased $672 million to $2.7 billion primarily driven by COVID-19 deferral
activity, as well as the inclusion of $144 million of certain loans that were
previously classified as purchased credit-impaired loans and accounted for under
a pool basis.
At December 31, 2020, $892 million, or 33 percent of nonperforming loans were
180 days or more past due and had been written down to their estimated property
value less costs to sell. In addition, at December 31, 2020, $1.2 billion, or 45
percent of nonperforming consumer loans were modified and are now current after
successful trial periods, or are current
loans classified as nonperforming loans in accordance with applicable policies.
Foreclosed properties decreased $106 million in 2020 to $123 million as the
Corporation has paused formal loan foreclosure proceedings and foreclosure sales
for occupied properties during 2020.
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 are included in Table 28. For more information
on our loan modification programs offered in response to the pandemic, most of
which are not TDRs, see Executive Summary - Recent Developments - COVID-19
Pandemic on page 25 and Note 1 - Summary of Significant Accounting Principles to
the Consolidated Financial Statements.
67 Bank of America
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Nonperforming Consumer Loans, Leases and Foreclosed Properties
Table 28 Activity (Dollars in millions) 2020 2019 Nonperforming loans and leases, January 1 $ 2,053 $ 3,842 Additions 2,278 1,407
Reductions:
Paydowns and payoffs (440) (701) Sales (38) (1,523) Returns to performing status (1) (1,014) (766) Charge-offs (78) (111) Transfers to foreclosed properties (36) (95)
Total net additions/(reductions) to nonperforming loans and leases
672 (1,789)
Total nonperforming loans and leases, December 31 2,725 2,053
Foreclosed properties, December 31 (2) 123 229
Nonperforming consumer loans, leases and foreclosed properties, December 31
$ 2,848 $ 2,282
Nonperforming consumer loans and leases as a percentage of outstanding consumer loans and leases (3)
0.64 % 0.44 %
Nonperforming consumer loans, leases and foreclosed properties as a percentage of outstanding consumer loans, leases and foreclosed properties (3)
0.66 0.49
(1)Consumer loans may be returned to performing status when all principal and
interest is current and full repayment of the remaining contractual principal
and interest is expected, or when the loan otherwise becomes well-secured and is
in the process of collection.
(2)Foreclosed property balances do not include properties insured by certain
government-guaranteed loans, principally FHA-insured, of $119 million and $260
million at December 31, 2020 and 2019.
(3)Outstanding consumer loans and leases exclude loans accounted for under the
fair value option.
Table 29 presents TDRs for the consumer real estate portfolio. Performing TDR
balances are excluded from nonperforming loans and leases in Table 28. For more
information on our loan modification programs offered in response to the
pandemic, most of which are not TDRs, see Executive Summary - Recent
Developments - COVID-19 Pandemic on page 25 and Note 1 - Summary of Significant
Accounting Principles to the Consolidated Financial Statements.
Table 29 Consumer Real Estate Troubled Debt Restructurings
December 31, 2020 December 31, 2019
(Dollars in millions) Nonperforming Performing Total Nonperforming Performing Total
Residential mortgage (1, 2) $ 1,195 $ 2,899 $ 4,094 $ 921 $ 3,832 $ 4,753
Home equity (3) 248 836 1,084 252 977 1,229
Total consumer real estate troubled debt
restructurings $ 1,443 $ 3,735 $ 5,178 $ 1,173 $ 4,809 $ 5,982
(1)At December 31, 2020 and 2019, residential mortgage TDRs deemed collateral
dependent totaled $1.4 billion and $1.2 billion, and included $1.0 billion and
$748 million of loans classified as nonperforming and $361 million and $468
million of loans classified as performing.
(2)At December 31, 2020 and 2019, residential mortgage performing TDRs include
$1.5 billion and $2.1 billion of loans that were fully-insured.
(3)At December 31, 2020 and 2019, home equity TDRs deemed collateral dependent
totaled $407 million and $442 million, and include $216 million and $209 million
of loans classified as nonperforming and $191 million and $233 million of loans
classified as performing.
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.
Modifications of credit card and other consumer loans are made through programs
utilizing direct customer contact, but may also utilize external programs. At
December 31, 2020 and 2019, our credit card and other consumer TDR portfolio was
$701 million and $679 million, of which $614 million and $570 million were
current or less than 30 days past due under the modified terms.
Commercial Portfolio Credit Risk Management
Credit risk management for the commercial portfolio begins with an assessment of
the credit risk profile of the borrower or counterparty based on an analysis of
its financial position. As part of the overall credit risk assessment, our
commercial credit exposures are assigned a risk rating and are subject to
approval based on defined credit approval standards. Subsequent to loan
origination, risk ratings are monitored on an ongoing basis, and if necessary,
adjusted to reflect changes in the financial condition, cash flow, risk profile
or outlook of a borrower or counterparty. In making credit decisions, we
consider risk rating, collateral, country, industry and single-name
concentration limits while also balancing these considerations with the total
borrower or counterparty relationship. We use a variety of tools to continuously
monitor the ability of a borrower or counterparty to perform under its
obligations. We use risk rating aggregations to measure and evaluate
concentrations within portfolios. In addition, risk ratings are a factor in
determining the level of allocated capital and the allowance for credit losses.
As part of our ongoing risk mitigation initiatives, we attempt to work with
clients experiencing financial difficulty to modify their loans to terms that
better align with their current ability to pay. In situations where an economic
concession has been granted to a borrower experiencing financial difficulty, we
identify these loans as TDRs. For more information on our accounting policies
regarding delinquencies, nonperforming status and net charge-offs for the
commercial portfolio, see Note 1 - Summary of Significant Accounting Principles
to the Consolidated Financial Statements.
Management of Commercial Credit Risk Concentrations
Commercial credit risk is evaluated and managed with the goal that
concentrations of credit exposure 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
Bank of America 68
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non-U.S. portfolio, we evaluate exposures by region and by country. Tables 34, 37 and 40 summarize our concentrations. We also utilize syndications of exposure to third parties, loan sales, hedging and other risk mitigation techniques to manage the size and risk profile of the commercial credit portfolio. For more information on our industry concentrations, see Commercial Portfolio Credit Risk Management - Industry Concentrations on page 72 and Table 37. We account for certain large corporate loans and loan commitments, including issued but unfunded letters of credit which are considered utilized for credit risk management purposes, that exceed our single-name credit risk concentration guidelines under the fair value option. Lending commitments, both funded and unfunded, are actively managed and monitored, and as appropriate, credit risk for these lending relationships may be mitigated through the use of credit derivatives, with our credit view and market perspectives determining the size and timing of the hedging activity. In addition, we purchase credit protection to cover the funded portion as well as the unfunded portion of certain other credit exposures. To lessen the cost of obtaining our desired credit protection levels, credit exposure may be added within an industry, borrower or counterparty group by selling protection. These credit derivatives do not meet the requirements for treatment as accounting hedges. They are carried at fair value with changes in fair value recorded in other income. In addition, we are a member of various securities and derivative exchanges and clearinghouses, both in theU.S. and other countries. As a member, we may be required to pay a pro-rata share of the losses incurred by some of these organizations as a result of another member default and under other loss scenarios. For more information, see Note 12 - Commitments and Contingencies to the Consolidated Financial Statements. Commercial Credit Portfolio During 2020, commercial asset quality weakened as a result of the economic impact from COVID-19. However, there were also positive signs during this period. The draws by large corporate and commercial clients contributing to the $67.2 billion loan growth in the first quarter of 2020 have largely been repaid, as emergency or contingent funding was no longer needed or clients were able to access capital markets. Additionally, as part of the CARES Act, we had $22.7 billion of PPP loans outstanding with our small business clients at December 31, 2020, which are included inU.S. small business commercial in the tables in this section. For more information on PPP loans, see Note 1 - Summary of Significant Accounting Principles to the Consolidated Financial Statements. Credit quality of commercial real estate borrowers has begun to stabilize in many sectors as certain economies have reopened. Certain sectors, including hospitality and retail, continue to be negatively impacted as a result of COVID-19. Moreover, many real estate markets, while improving, are still experiencing some disruptions in demand, supply chain challenges and tenant difficulties. The commercial allowance for loan and lease losses increased $3.9 billion during 2020 to $8.7 billion due to the deterioration in the economic outlook resulting from the impact of COVID-19. For more information, see Allowance for Credit Losses on page 76. Total commercial utilized credit exposure decreased $15.0 billion during 2020 to $620.3 billion driven by lower loans and leases. The utilization rate for loans and leases, SBLCs and financial guarantees, and commercial letters of credit, in the aggregate, was 57 percent at December 31, 2020 and 58 percent at December 31, 2019. Table 30 presents commercial credit exposure by type for utilized, unfunded and total binding committed credit exposure. Commercial utilized credit exposure includes SBLCs and financial guarantees and commercial letters of credit that have been issued and for which we are legally bound to advance funds under prescribed conditions during a specified time period, and excludes exposure related to trading account assets. Although funds have not yet been advanced, these exposure types are considered utilized for credit risk management purposes. Table 30 Commercial Credit Exposure by Type Commercial Utilized (1) Commercial Unfunded (2, 3, 4) Total
Commercial Committed
December 31
(Dollars in millions) 2020 2019 2020 2019 2020 2019
Loans and leases $ 499,065 $ 517,657 $ 404,740 $ 405,834 $ 903,805 $ 923,491
Derivative assets (5) 47,179 40,485 - - 47,179 40,485
Standby letters of credit and financial
guarantees 34,616 36,062 538 468 35,154 36,530
Debt securities and other investments 22,618 25,546 4,827 5,101 27,445 30,647
Loans held-for-sale 8,378 7,047 9,556 15,135 17,934 22,182
Operating leases 6,424 6,660 - - 6,424 6,660
Commercial letters of credit 855 1,049 280 451 1,135 1,500
Other 1,168 800 - - 1,168 800
Total $ 620,303 $ 635,306 $ 419,941 $ 426,989 $ 1,040,244 $ 1,062,295
(1)Commercial utilized exposure includes loans of $5.9 billion and $7.7 billion
and issued letters of credit with a notional amount of $89 million and $170
million accounted for under the fair value option at December 31, 2020 and 2019.
(2)Commercial unfunded exposure includes commitments accounted for under the
fair value option with a notional amount of $3.9 billion and $4.2 billion at
December 31, 2020 and 2019.
(3)Excludes unused business card lines, which are not legally binding.
(4)Includes the notional amount of unfunded legally binding lending commitments
net of amounts distributed (i.e., syndicated or participated) to other financial
institutions. The distributed amounts were $10.5 billion and $10.6 billion at
December 31, 2020 and 2019.
(5)Derivative assets are carried at fair value, reflect the effects of legally
enforceable master netting agreements and have been reduced by cash collateral
of $42.5 billion and $33.9 billion at December 31, 2020 and 2019. Not reflected
in utilized and committed exposure is additional non-cash derivative collateral
held of $39.3 billion and $35.2 billion at December 31, 2020 and 2019, which
consists primarily of other marketable securities.
69 Bank of America
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Outstanding commercial loans and leases decreased $18.6 billion during 2020
primarily driven by repayments due in part to reduced working capital needs and
a favorable capital markets environment, partially offset by $22.7 billion of
PPP loans outstanding at December 31, 2020. Nonperforming commercial loans
increased $728 million across industries, and commercial
reservable criticized utilized exposure increased $27.2 billion spread across
several industries, including travel and entertainment, as a result of weaker
economic conditions arising from COVID-19. Table 31 presents our commercial
loans and leases portfolio and related credit quality information at December
31, 2020 and 2019.
Table 31 Commercial Credit Quality
Accruing Past Due
Outstandings Nonperforming 90 Days or More (3)
December 31
(Dollars in millions) 2020 2019 2020 2019 2020 2019
Commercial and industrial:
U.S. commercial $ 288,728 $ 307,048 $ 1,243 $ 1,094 $ 228 $ 106
Non-U.S. commercial 90,460 104,966 418 43 10 8
Total commercial and industrial 379,188 412,014 1,661 1,137 238 114
Commercial real estate 60,364 62,689 404 280 6 19
Commercial lease financing 17,098 19,880 87 32 25 20
456,650 494,583 2,152 1,449 269 153
U.S. small business commercial (1) 36,469 15,333 75 50 115 97
Commercial loans excluding loans
accounted for under the fair value option 493,119 509,916 2,227 1,499 384 250
Loans accounted for under the fair value
option (2) 5,946 7,741
Total commercial loans and leases $ 499,065 $ 517,657
(1)Includes card-related products. (2)Commercial loans accounted for under the fair value option includeU.S. commercial of $2.9 billion and $4.7 billion and non-U.S. commercial of $3.0 billion and $3.1 billion at December 31, 2020 and 2019. For more information on the fair value option, see Note 21 - Fair Value Option to the Consolidated Financial Statements. (3)For information on our interest accrual policies and delinquency status for loan modifications related to the pandemic, see Note 1 - Summary of Significant Accounting Principles to the Consolidated Financial Statements. Table 32 presents net charge-offs and related ratios for our commercial loans and leases for 2020 and 2019. Table 32 Commercial Net Charge-offs and Related Ratios Net Charge-offs Net Charge-off Ratios (1) (Dollars in millions) 2020 2019 2020 2019 Commercial and industrial: U.S. commercial $ 718 $ 256 0.23 % 0.08 % Non-U.S. commercial 155 84 0.15 0.08 Total commercial and industrial 873 340 0.21 0.08 Commercial real estate 270 29 0.43 0.05 Commercial lease financing 59 21 0.32 0.10 1,202 390 0.24 0.08 U.S. small business commercial 267 272 0.86 1.83 Total commercial $ 1,469 $ 662 0.28 0.13 (1)Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans and leases excluding loans accounted for under the fair value option. Table 33 presents commercial reservable criticized utilized exposure by loan type. Criticized exposure corresponds to the Special Mention, Substandard and Doubtful asset categories as defined by regulatory authorities. Total commercial reservable criticized utilized exposure increased $27.2 billion during 2020, which was spread across several industries, including travel and entertainment, as a result of weaker economic conditions arising from COVID-19. At December 31, 2020 and 2019, 79 percent and 90 percent of commercial reservable criticized utilized exposure was secured. Table 33 Commercial Reservable Criticized Utilized Exposure (1, 2) December 31 (Dollars in millions) 2020 2019 Commercial and industrial: U.S. commercial $ 21,388 6.83 % $ 8,272 2.46 % Non-U.S. commercial 5,051 5.03 989 0.89 Total commercial and industrial 26,439 6.40 9,261 2.07 Commercial real estate 10,213 16.42 1,129 1.75 Commercial lease financing 714 4.18 329 1.66 37,366 7.59 10,719 2.01 U.S. small business commercial 1,300 3.56 733 4.78 Total commercial reservable criticized utilized exposure (1) $ 38,666 7.31 $ 11,452 2.09 (1)Total commercial reservable criticized utilized exposure includes loans and leases of $36.6 billion and $10.7 billion and commercial letters of credit of $2.1 billion and $715 million at December 31, 2020 and 2019. (2)Percentages are calculated as commercial reservable criticized utilized exposure divided by total commercial reservable utilized exposure for each exposure category.
Bank of America 70
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Commercial and Industrial Commercial and industrial loans includeU.S. commercial and non-U.S. commercial portfolios.U.S. Commercial At December 31, 2020, 65 percent of theU.S. commercial loan portfolio, excluding small business, was managed in Global Banking, 18 percent in Global Markets, 15 percent in GWIM (generally business-purpose loans for high net worth clients) and the remainder primarily in Consumer Banking.U.S. commercial loans decreased $18.3 billion during 2020 driven by Global Banking. Reservable criticized utilized exposure increased $13.1 billion, which was spread across several industries, including travel and entertainment, as a result of weaker economic conditions arising from COVID-19. Non-U.S. Commercial At December 31, 2020, 79 percent of the non-U.S. commercial loan portfolio was managed in Global Banking and 21 percent in Global Markets. Non-U.S. commercial loans decreased $14.5 billion during 2020, primarily in Global Banking. For information on the non-U.S. commercial portfolio, see Non-U.S. Portfolio on page 74.Commercial Real Estate Commercial real estate primarily includes commercial loans secured by non-owner-occupied real estate and is dependent on the sale or lease of the real estate as the primary source of repayment. Outstanding loans declined by $2.3 billion during 2020 as paydowns exceeded new originations. Reservable criticized utilized exposure increased $9.1 billion to $10.2 billion from $1.1 billion, or 16.42 and 1.75 percent of the commercial real estate portfolio at December 31, 2020 and 2019, due to downgrades driven by the impact of COVID-19 across industries, primarily hotels. Although we have observed property-level improvements in a number of the most impacted sectors, the length of time for recovery has been slower than originally anticipated, which has prompted additional downgrades. The portfolio remains diversified across property types and geographic regions.California represented the largest state concentration at 23 percent and 24 percent of the commercial real estate portfolio at December 31, 2020 and 2019. The commercial real estate portfolio is predominantly managed in Global Banking and consists of loans made primarily to public and private developers, and commercial real estate firms. During 2020, we continued to see low default rates and varying degrees of improvement in the portfolio. We use a number of proactive risk mitigation initiatives to reduce adversely rated exposure in the commercial real estate portfolio, including transfers of deteriorating exposures to management by independent special asset officers and the pursuit of loan restructurings or asset sales to achieve the best results for our customers and the Corporation. Table 34 presents outstanding commercial real estate loans by geographic region, based on the geographic location of the collateral, and by property type. Table 34 Outstanding Commercial Real Estate Loans December 31 (Dollars in millions) 2020 2019 By Geographic Region California $ 14,028 $ 14,910 Northeast 11,628 12,408 Southwest 8,551 8,408 Southeast 6,588 5,937 Florida 4,294 3,984 Midwest 3,483 3,203 Illinois 2,594 3,349 Midsouth 2,370 2,468 Northwest 1,634 1,638 Non-U.S. 3,187 3,724 Other (1) 2,007 2,660 Total outstanding commercial real estate loans $ 60,364 $ 62,689 By Property Type Non-residential Office $ 17,667 $ 17,902 Industrial / Warehouse 8,330 8,677 Shopping centers / Retail 7,931 8,183 Hotels / Motels 7,226 6,982 Multi-family rental 7,051 7,250 Unsecured 2,336 3,438 Multi-use 1,460 1,788 Other 7,146 6,958 Total non-residential 59,147 61,178 Residential 1,217 1,511
Total outstanding commercial real estate loans $ 60,364 $ 62,689
(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 ofColorado ,Utah ,Hawaii ,Wyoming andMontana .U.S. Small Business Commercial TheU.S. small business commercial loan portfolio is comprised of small business card loans and small business loans primarily managed in Consumer Banking, and includes $22.7 billion of PPP loans outstanding at December 31, 2020. Excluding PPP, credit card-related products were 50 percent and 52 percent of theU.S. small business commercial portfolio at December 31, 2020 and 2019. Of theU.S. small business commercial net charge-offs, 91 percent and 94 percent were credit card-related products in 2020 and 2019. Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity Table 35 presents the nonperforming commercial loans, leases and foreclosed properties activity during 2020 and 2019. 71 Bank of America -------------------------------------------------------------------------------- Nonperforming loans do not include loans accounted for under the fair value option. During 2020, nonperforming commercial loans and leases increased $728 million to $2.2 billion, primarily driven by the impact of COVID-19. At December 31, 2020, 84 percent of commercial nonperforming loans, leases and foreclosed properties were secured and 66 percent were contractually current. Commercial nonperforming loans were carried at 81 percent of their unpaid principal balance before consideration of the allowance for loan and lease losses, as the carrying value of these loans has been reduced to the estimated collateral value less costs to sell. Table 35 Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity (1, 2) (Dollars in millions) 2020 2019 Nonperforming loans and leases, January 1 $ 1,499 $ 1,102 Additions 3,518 2,048 Reductions: Paydowns (1,002) (648) Sales (350) (215) Returns to performing status (3) (172) (120) Charge-offs (1,208) (478) Transfers to foreclosed properties (2) (9) Transfers to loans held-for-sale (56) (181) Total net additions to nonperforming loans and leases 728 397 Total nonperforming loans and leases, December 31 2,227 1,499 Foreclosed properties, December 31 41 56
Nonperforming commercial loans, leases and foreclosed properties, December 31
2,268 1,555
Nonperforming commercial loans and leases as a percentage of outstanding commercial loans and leases (4)
0.45 % 0.29 %
Nonperforming commercial loans, leases and foreclosed properties as a percentage of outstanding commercial loans, leases and foreclosed properties (4)
0.46 0.30
(1)Balances do not include nonperforming loans held-for-sale of $359 million and
$239 million at December 31, 2020 and 2019.
(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 36 presents our commercial TDRs by product type and performing status.
U.S. small business commercial TDRs are comprised of renegotiated small business
card loans and small business loans. The renegotiated small business card loans
are not classified as nonperforming as they are charged off no later than the
end of the month in which the loan becomes 180 days past due. For more
information on TDRs, see Note 5 -
Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated
Financial Statements. For more information on our loan modification programs
offered in response to the pandemic, most of which are not TDRs, see Executive
Summary - Recent Developments - COVID-19 Pandemic on page 25 and Note 1 -
Summary of Significant Accounting Principles to the Consolidated Financial
Statements.
Table 36 Commercial Troubled Debt Restructurings
December 31, 2020 December 31, 2019
(Dollars in millions) Nonperforming Performing Total Nonperforming Performing Total
Commercial and industrial:
U.S. commercial $ 509 $ 850 $ 1,359 $ 617 $ 999 $ 1,616
Non-U.S. commercial 49 119 168 41 193 234
Total commercial and industrial 558 969 1,527 658 1,192 1,850
Commercial real estate 137 - 137 212 14 226
Commercial lease financing 42 2 44 18 31 49
737 971 1,708 888 1,237 2,125
U.S. small business commercial - 29 29 - 27 27
Total commercial troubled debt restructurings $ 737 $ 1,000 $ 1,737 $ 888 $ 1,264 $ 2,152 Industry Concentrations Table 37 presents commercial committed and utilized credit exposure by industry and the total net credit default protection purchased to cover the funded and unfunded portions of certain credit exposures. Our commercial credit exposure is diversified across a broad range of industries. Total commercial committed exposure decreased $22.1 billion, or two percent, during 2020 to $1.0 trillion. The decrease in commercial committed exposure was concentrated in the Global commercial banks, Asset managers and funds, Utilities, and Real estate industry sectors. Decreases were partially offset by increased exposure to the Finance companies and Automobiles and components industry sectors. Industry limits are used internally to manage industry concentrations and are based on committed exposure that is determined on an industry-by-industry basis. A risk management framework is in place to set and approve industry limits as well as to provide ongoing monitoring. The MRC oversees industry limit governance. Asset managers and funds, our largest industry concentration with committed exposure of $101.5 billion, decreased $8.5 billion, or eight percent, during 2020. Real estate, our second largest industry concentration with committed exposure of $92.4 billion, decreased $4.0 billion, or four percent, during 2020. For more information on the commercial real estate and related portfolios, see Commercial Portfolio Credit Risk Management -Commercial Real Estate on page 71. Capital goods, our third largest industry concentration with committed exposure of $81.0 billion, remained flat during 2020.
Bank of America 72
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Given the widespread impact of the pandemic on theU.S. and global economy, a number of industries have been and will likely continue to be adversely impacted. We continue to monitor all industries, particularly higher risk industries which are experiencing or could experience a more significant impact to their financial condition. The impact of the pandemic has also placed significant stress on global demand for oil. Our energy- related committed exposure decreased $3.3 billion, or nine percent, during 2020 to $33.0 billion, driven by declines in exploration and production, refining and marketing exposure, energy equipment and services, partially offset by an increase in our integrated client exposure. For more information on COVID-19, see Executive Summary - Recent Developments - COVID-19 Pandemic on page 25. Table 37 Commercial Credit Exposure by Industry (1) Commercial Total Commercial Utilized Committed (2) December 31
(Dollars in millions) 2020 2019 2020 2019 Asset managers and funds $ 68,093 $ 71,386 $ 101,540 $ 110,069 Real estate (3) 69,267 70,361 92,414 96,370 Capital goods 39,911 41,082 80,959 80,892 Finance companies 46,948 40,173 70,004 63,942 Healthcare equipment and services 33,759 34,353 57,880 55,918 Government and public education 41,669 41,889 56,212 53,566 Materials 24,548 26,663 50,792 52,129 Retailing 24,749 25,868 49,710 48,317 Consumer services 32,000 28,434 48,026 49,071 Food, beverage and tobacco 22,871 24,163 44,628 45,956 Commercial services and supplies 21,154 23,103 38,149 38,944 Transportation 23,426 23,449 33,444 33,028 Energy 13,936 16,406 32,983 36,326 Utilities 12,387 12,383 29,234 36,060 Individuals and trusts 18,784 18,927 25,881 27,817 Technology hardware and equipment 10,515 10,646 24,796 24,072 Media 13,144 12,445 24,677 23,645 Software and services 11,709 10,432 23,647 20,556 Global commercial banks 20,751 30,171 22,922 32,345 Automobiles and components 10,956 7,345 20,765 14,910 Consumer durables and apparel 9,232 10,193 20,223 21,245 Vehicle dealers 15,028 18,013 18,696 21,435 Pharmaceuticals and biotechnology 5,217 5,964 16,349 20,206 Telecommunication services 9,411 9,154 15,605 16,113 Insurance 5,921 6,673 13,491 15,218 Food and staples retailing 5,209 6,290 11,810 10,392 Financial markets infrastructure (clearinghouses) 4,939 5,496 8,648 7,997 Religious and social organizations 4,769 3,844 6,759 5,756 Total commercial credit exposure by industry $ 620,303
$ 635,306 $ 1,040,244 $ 1,062,295 Net credit default protection purchased on total commitments (4)
$ (4,170) $ (3,349)
(1)Includes U.S. small business commercial exposure.
(2)Includes the notional amount of unfunded legally binding lending commitments
net of amounts distributed (i.e., syndicated or participated) to other financial
institutions. The distributed amounts were $10.5 billion and $10.6 billion at
December 31, 2020 and 2019.
(3)Industries are viewed from a variety of perspectives to best isolate the
perceived risks. For purposes of this table, the real estate industry is defined
based on the primary business activity of the borrowers or counterparties using
operating cash flows and primary source of repayment as key factors.
(4)Represents net notional credit protection purchased to hedge funded and
unfunded exposures for which we elected the fair value option, as well as
certain other credit exposures. 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, 2020 and 2019, net notional credit default protection purchased
in our credit derivatives portfolio to hedge
our funded and unfunded exposures for which we elected the fair value option, as
well as certain other credit exposures, was $4.2 billion and $3.3 billion. We
recorded net losses of $240 million in 2020 compared to net losses of $145
million in 2019 for these same positions. The gains and losses on these
instruments were offset by gains and losses on the related exposures. The
Value-at-Risk (VaR) results for these exposures are included in the fair value
option portfolio information in Table 44. For more information, see Trading Risk
Management on page 79.
73 Bank of America
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Tables 38 and 39 present the maturity profiles and the credit exposure debt
ratings of the net credit default protection portfolio at December 31, 2020 and
2019.
Table 38 Net Credit Default Protection by Maturity
December 31
2020 2019
Less than or equal to one year 65 % 54 %
Greater than one year and less than or equal to five years 34 45
Greater than five years 1
1
Total net credit default protection 100 % 100 %
Table 39 Net Credit Default Protection by Credit Exposure Debt Rating
Net Percent of Net Percent of
Notional (1) Total Notional (1) Total
December 31
(Dollars in millions) 2020 2019
Ratings (2, 3)
A $ (250) 6.0 % $ (697) 20.8 %
BBB (1,856) 44.5 (1,089) 32.5
BB (1,363) 32.7 (766) 22.9
B (465) 11.2 (373) 11.1
CCC and below (182) 4.4 (119) 3.6
NR (4) (54) 1.2 (305) 9.1
Total net credit
default protection $ (4,170) 100.0 % $ (3,349) 100.0 %
(1)Represents net credit default protection purchased.
(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. For more
information on credit derivatives and counterparty credit risk valuation
adjustments, see Note 3 - Derivatives to the Consolidated Financial Statements.
Non-U.S. Portfolio
Our non-U.S. credit and trading portfolios are subject to country risk. We
define country risk as the risk of loss from unfavorable economic and political
conditions, currency fluctuations, social instability and changes in government
policies. A risk management framework is in place to measure, monitor and manage
non-U.S. risk and exposures. In addition to the direct risk of doing business in
a country, we also are exposed to indirect country risks (e.g., related to the
collateral received on secured financing transactions or related to client
clearing activities). These indirect exposures are managed in the normal course
of business through credit, market and operational risk governance, rather than
through country risk governance.
Table 40 presents our 20 largest non-U.S. country exposures at December 31,
2020. These exposures accounted for 90 percent and 88 percent of our total
non-U.S. exposure at December 31, 2020 and 2019. Net country exposure for these
20 countries increased $21.2 billion in 2020. The majority of the increase was
due to higher deposits with central banks in Germany and Japan .
Non-U.S. exposure is presented on an internal risk management basis and includes
sovereign and non-sovereign credit exposure, securities and other investments
issued by or domiciled in countries other than the U.S.
Funded loans and loan equivalents include loans, leases, and other extensions of
credit and funds, including letters of credit and due from placements. Unfunded
commitments are the undrawn portion of legally binding commitments related to
loans and loan equivalents. Net counterparty exposure includes the fair value of
derivatives, including the counterparty risk associated with 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.
Bank of America 74
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Table 40 Top 20 Non-U.S. Countries Exposure
Country Net Country Increase
Securities/ Exposure at Hedges and Credit Exposure at (Decrease) from
Funded Loans and Unfunded Loan Net Counterparty Other December 31 Default December 31 December 31
(Dollars in millions) Loan Equivalents Commitments Exposure Investments 2020 Protection 2020 2019
United Kingdom $ 31,817 $ 18,201 $ 6,601 $ 4,086 $ 60,705 $ (1,233) $ 59,472 $ 3,628
Germany 29,169 10,772 2,155 4,492 46,588 (1,685) 44,903 14,075
Canada 8,657 8,681 1,624 2,628 21,590 (456) 21,134 1,012
France 8,219 8,353 988 4,329 21,889 (1,098) 20,791 4,536
Japan 12,679 1,086 1,115 3,325 18,205 (709) 17,496 6,964
China 10,098 67 1,529 1,952 13,646 (226) 13,420 (2,167)
Australia 6,559 4,242 372 2,235 13,408 (321) 13,087 1,985
Brazil 5,854 696 708 3,288 10,546 (253) 10,293 (1,479)
Netherlands 4,654 4,109 486 997 10,246 (562) 9,684 (643)
Singapore 4,115 278 359 4,603 9,355 (73) 9,282 1,456
South Korea 5,161 856 488 2,214 8,719 (168) 8,551 (154)
India 5,428 221 353 1,989 7,991 (180) 7,811 (4,206)
Switzerland 3,811 2,817 412 130 7,170 (275) 6,895 (490)
Hong Kong 4,434 452 584 1,128 6,598 (61) 6,537 (519)
Mexico 3,712 1,379 205 1,112 6,408 (121) 6,287 (1,524)
Italy 2,456 1,784 553 1,568 6,361 (669) 5,692 315
Belgium 2,471 1,334 505 797 5,107 (140) 4,967 (1,540)
Spain 2,835 1,156 262 914 5,167 (351) 4,816 94
Ireland 2,785 1,050 100 253 4,188 (23) 4,165 798
United Arab Emirates 2,218 136 266 77 2,697 (10) 2,687 (900)
Total top 20 non-U.S.
countries exposure $ 157,132 $ 67,670 $ 19,665 $ 42,117 $ 286,584 $ (8,614) $ 277,970 $ 21,241
Our largest non-U.S. country exposure at December 31, 2020 was the U.K. with net
exposure of $59.5 billion, which represents a $3.6 billion increase from
December 31, 2019. Our second largest non-U.S. country exposure was Germany with
net exposure of $44.9 billion at December 31, 2020, a $14.1 billion increase
from December 31, 2019. The increase in Germany was primarily driven by an
increase in deposits with the central bank.
In light of the global pandemic, we are monitoring our non-U.S. exposure
closely, particularly in countries where restrictions on certain activities, in
an attempt to contain the spread and impact of the virus, have affected and will
likely continue to adversely affect economic activity. We are managing the
impact to our international business operations as part of our overall response
framework and are taking actions to manage exposure carefully in impacted
regions while supporting the needs of our clients. The magnitude and duration of
the pandemic and its full impact on the global economy continue to be highly
uncertain.
The impact of COVID-19 could have an adverse impact on the global economy for a
prolonged period of time. For more information on how the pandemic may affect
our operations, see Executive Summary - Recent Developments - COVID-19 Pandemic
on page 25 and Part I. Item 1A. Risk Factors on page 7.
Table 41 presents countries that had total cross-border exposure, including the
notional amount of cash loaned under secured financing agreements, exceeding one
percent of our total assets at December 31, 2020. Local exposure, defined as
exposure booked in local offices of a respective country with clients in the
same country, is excluded. At December 31, 2020, the U.K. and France were the
only countries where their respective total cross-border exposures exceeded one
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, 2020.
Table 41 Total Cross-border Exposure Exceeding One Percent of Total Assets
Exposure as a
Public Private Cross-border Percent of
(Dollars in millions) December 31 Sector Banks Sector Exposure Total Assets
United Kingdom 2020 $ 4,733 $ 2,269 $ 95,180 $ 102,182 3.62 %
2019 1,859 3,580 93,232 98,671 4.05
2018 1,505 3,458 46,191 51,154 2.17
France 2020 3,073 1,726 26,399 31,198 1.11
2019 736 2,473 23,172 26,381 1.08
2018 633 2,385 29,847 32,865 1.40
75 Bank of America
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Allowance for Credit Losses
On January 1, 2020, the Corporation adopted the new accounting standard that
requires the measurement of the allowance for credit losses to be based on
management's best estimate of lifetime ECL inherent in the Corporation's
relevant financial assets. Upon adoption of the new accounting standard, the
Corporation recorded a net increase of $3.3 billion in the allowance for credit
losses which was comprised of a net increase of $2.9 billion in the allowance
for loan and lease losses and an increase of $310 million in the reserve for
unfunded lending commitments. The net increase was primarily driven by a $3.1
billion increase related to the credit card portfolio.
The allowance for credit losses further increased by $7.2 billion from
January 1, 2020 to $20.7 billion at December 31, 2020, which included a $5.0
billion reserve increase related to the commercial portfolio and a $2.2 billion
reserve increase related to the consumer portfolio. The increases were driven by
deterioration in the economic outlook resulting from the impact of COVID-19.
The following table presents an allocation of the allowance for credit losses by
product type for December 31, 2020, January 1, 2020 and December 31, 2019 (prior
to the adoption of the CECL accounting standard).
Table 42 Allocation of the Allowance for Credit Losses by Product Type
Percent of Percent of Percent of
Loans and Loans and Loans and
Percent of Leases Percent of Leases Percent of Leases
Amount Total Outstanding (1) Amount Total Outstanding (1) Amount Total Outstanding (1)
(Dollars in millions) December 31, 2020 January 1, 2020 December 31, 2019
Allowance for loan and lease losses
Residential mortgage $ 459 2.44 % 0.21 % $ 212 1.72 % 0.09 % $ 325 3.45 % 0.14 %
Home equity 399 2.12 1.16 228 1.84 0.57 221 2.35 0.55
Credit card 8,420 44.79 10.70 6,809 55.10 6.98 3,710 39.39 3.80
Direct/Indirect consumer 752 4.00 0.82 566 4.58 0.62 234 2.49 0.26
Other consumer 41 0.22 n/m 55 0.45 n/m 52 0.55 n/m
Total consumer 10,071 53.57 2.35 7,870 63.69 1.69 4,542 48.23 0.98
U.S. commercial (2) 5,043 26.82 1.55 2,723 22.03 0.84 3,015 32.02 0.94
Non-U.S. commercial 1,241 6.60 1.37 668 5.41 0.64 658 6.99 0.63
Commercial real estate 2,285 12.15 3.79 1,036 8.38 1.65 1,042 11.07 1.66
Commercial lease financing 162 0.86 0.95 61 0.49 0.31 159 1.69 0.80
Total commercial 8,731 46.43 1.77 4,488 36.31 0.88 4,874 51.77 0.96
Allowance for loan and lease losses 18,802 100.00 % 2.04 12,358 100.00 % 1.27 9,416 100.00 % 0.97
Reserve for unfunded lending commitments 1,878 1,123 813 Allowance for credit losses $ 20,680 $ 13,481 $ 10,229 (1)Ratios are calculated as allowance for loan and lease losses as a percentage of loans and leases outstanding excluding loans accounted for under the fair value option. Consumer loans accounted for under the fair value option include residential mortgage loans of $298 million at December 31, 2020 and $257 million at January 1, 2020 and December 31, 2019 and home equity loans of $437 million at December 31, 2020 and $337 million at January 1, 2020 and December 31, 2019. Commercial loans accounted for under the fair value option includeU.S. commercial loans of $2.9 billion, $5.1 billion and $4.7 billion at December 31, 2020, January 1, 2020 and December 31, 2019, and non-U.S. commercial loans of $3.0 billion, $3.2 billion and $3.1 billion at December 31, 2020, January 1, 2020 and December 31, 2019. (2)Includes allowance for loan and lease losses forU.S. small business commercial loans of $1.5 billion, $831 million and $523 million at December 31, 2020, January 1, 2020 and December 31, 2019. n/m = not meaningful Net charge-offs for 2020 were $4.1 billion compared to $3.6 billion in 2019 driven by increases in commercial losses. The provision for credit losses increased $7.7 billion to $11.3 billion during 2020 compared to 2019. The allowance for credit losses included a reserve build of $7.2 billion for 2020, excluding the impact of the new accounting standard, primarily due to the deterioration in the economic outlook resulting from the impact of COVID-19 on both the consumer and commercial portfolios. The provision for credit losses for the consumer portfolio, including unfunded lending commitments, increased $2.0 billion to $4.9 billion during 2020 compared to 2019. The provision for credit losses for the commercial portfolio, including unfunded lending commitments, increased $5.7 billion to $6.5 billion during 2020 compared to 2019. The following table presents a rollforward of the allowance for credit losses, including certain loan and allowance ratios for 2020, noting that measurement of the allowance for credit losses for 2019 was based on management's estimate of probable incurred losses. For more information on the Corporation's credit loss accounting policies and activity related to the allowance for credit losses, see Note 1 - Summary of Significant Accounting Principles and Note 5 - Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements. Bank of America 76
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Table 43 Allowance for Credit Losses
(Dollars in millions) 2020 2019 Allowance for loan and lease losses, January 1 $ 12,358 $ 9,601 Loans and leases charged off Residential mortgage (40) (93) Home equity (58) (429) Credit card (2,967) (3,535) Direct/Indirect consumer (372) (518) Other consumer (307) (249) Total consumer charge-offs (3,744) (4,824) U.S. commercial (1) (1,163) (650) Non-U.S. commercial (168) (115) Commercial real estate (275) (31) Commercial lease financing (69) (26) Total commercial charge-offs (1,675) (822) Total loans and leases charged off (5,419) (5,646) Recoveries of loans and leases previously charged off Residential mortgage 70 140 Home equity 131 787 Credit card 618 587 Direct/Indirect consumer 250 309 Other consumer 23 15 Total consumer recoveries 1,092 1,838 U.S. commercial (2) 178 122 Non-U.S. commercial 13 31 Commercial real estate 5 2 Commercial lease financing 10 5 Total commercial recoveries 206 160 Total recoveries of loans and leases previously charged off 1,298 1,998 Net charge-offs (4,121) (3,648) Provision for loan and lease losses 10,565 3,574 Other - (111) Allowance for loan and lease losses, December 31 18,802 9,416 Reserve for unfunded lending commitments, January 1 1,123 797 Provision for unfunded lending commitments 755 16 Reserve for unfunded lending commitments, December 31 1,878 813 Allowance for credit losses, December 31 $ 20,680 $ 10,229 Loan and allowance ratios: Loans and leases outstanding at December 31 (3) $ 921,180 $ 975,091
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (3)
2.04 % 0.97 %
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (4)
2.35 0.98
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (5)
1.77 0.96
Average loans and leases outstanding (3) $ 974,281 $ 951,583
Annualized net charge-offs as a percentage of average loans and leases outstanding (3)
0.42 % 0.38 %
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31
380 265
4.56 2.58
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (6)
$ 9,854 $ 4,151
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (6)
181 % 148 %
(1)Includes U.S. small business commercial charge-offs of $321 million in 2020
compared to $320 million in 2019.
(2)Includes U.S. small business commercial recoveries of $54 million in 2020
compared to $48 million in 2019.
(3)Outstanding loan and lease balances and ratios do not include loans accounted
for under the fair value option of $6.7 billion and $8.3 billion at December 31,
2020 and 2019. Average loans accounted for under the fair value option were $8.2
billion in 2020 compared to $6.8 billion in 2019.
(4)Excludes consumer loans accounted for under the fair value option of $735
million and $594 million at December 31, 2020 and 2019.
(5)Excludes commercial loans accounted for under the fair value option of $5.9
billion and $7.7 billion at December 31, 2020 and 2019.
(6)Primarily includes amounts related to credit card and unsecured consumer
lending portfolios in Consumer Banking.
77 Bank of America
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Market Risk Management
Market risk is the risk that changes in market conditions may adversely impact
the value of assets or liabilities, or otherwise negatively impact earnings.
This risk is inherent in the financial instruments associated with our
operations, primarily within our Global Markets segment. We are also exposed to
these risks in other areas of the Corporation (e.g., our ALM activities). In the
event of market stress, these risks could have a material impact on our results.
For more information, see Interest Rate Risk Management for the Banking Book on
page 82.
We have been affected, and expect to continue to be affected, by market stress
resulting from the pandemic that began in the first quarter of 2020. For more
information on the effects of the pandemic, see Executive Summary - Recent
Developments - COVID-19 Pandemic on page 25.
Our traditional banking loan and deposit products are non-trading positions and
are generally reported at amortized cost for assets or the amount owed for
liabilities (historical cost). However, these positions are still subject to
changes in economic value based on varying market conditions, with one of the
primary risks being changes in the levels of interest rates. The risk of adverse
changes in the economic value of our non-trading positions arising from changes
in interest rates is managed through our ALM activities. We have elected to
account for certain assets and liabilities under the fair value option.
Our trading positions are reported at fair value with changes reflected in
income. Trading positions are subject to various changes in market-based risk
factors. The majority of this risk is generated by our activities in the
interest rate, foreign exchange, credit, equity and commodities markets. In
addition, the values of assets and liabilities could change due to market
liquidity, correlations across markets and expectations of market volatility. We
seek to manage these risk exposures by using a variety of techniques that
encompass a broad range of financial instruments. The key risk management
techniques are discussed in more detail in the Trading Risk Management section.
Global Risk Management is responsible for providing senior management with a
clear and comprehensive understanding of the trading risks to which we are
exposed. These responsibilities include ownership of market risk policy,
developing and maintaining quantitative risk models, calculating aggregated risk
measures, establishing and monitoring position limits consistent with risk
appetite, conducting daily reviews and analysis of trading inventory, approving
material risk exposures and fulfilling regulatory requirements. Market risks
that impact businesses outside of Global Markets are monitored and governed by
their respective governance functions.
Model risk is the potential for adverse consequences from decisions based on
incorrect or misused model outputs and reports. Given that models are used
across the Corporation, model risk impacts all risk types including credit,
market and operational risks. The Enterprise Model Risk Policy defines model
risk standards, consistent with our risk framework and risk appetite, prevailing
regulatory guidance and industry best practice. All models, including risk
management, valuation and regulatory capital models, must meet certain
validation criteria, including effective challenge of the conceptual soundness
of the model, independent model testing and ongoing monitoring through outcomes
analysis and benchmarking. The Enterprise Model Risk Committee (EMRC), a
subcommittee of the MRC, oversees that model standards are consistent with model
risk requirements and monitors the effective challenge in the model validation
process across the Corporation.
Interest Rate Risk
Interest rate risk represents exposures to instruments whose values vary with
the level or volatility of interest rates. These instruments include, but are
not limited to, loans, debt securities, certain trading-related assets and
liabilities, deposits, borrowings and derivatives. Hedging instruments used to
mitigate these risks include derivatives such as options, futures, forwards and
swaps.
Foreign Exchange Risk
Foreign exchange risk represents exposures to changes in the values of current
holdings and future cash flows denominated in currencies other than the U.S.
dollar. The types of instruments exposed to this risk include investments in
non-U.S. subsidiaries, foreign currency-denominated loans and securities, future
cash flows in foreign currencies arising from foreign exchange transactions,
foreign currency-denominated debt and various foreign exchange derivatives whose
values fluctuate with changes in the level or volatility of currency exchange
rates or non-U.S. interest rates. Hedging instruments used to mitigate this risk
include foreign exchange options, currency swaps, futures, forwards, and foreign
currency-denominated debt and deposits.
Mortgage Risk
Mortgage risk represents exposures to changes in the values of mortgage-related
instruments. The values of these instruments are sensitive to prepayment rates,
mortgage rates, agency debt ratings, default, market liquidity, government
participation and interest rate volatility. Our exposure to these instruments
takes several forms. For example, we trade and engage in market-making
activities in a variety of mortgage securities including whole loans,
pass-through certificates, commercial mortgages and collateralized mortgage
obligations including collateralized debt obligations using mortgages as
underlying collateral. In addition, we originate a variety of MBS, which
involves the accumulation of mortgage-related loans in anticipation of eventual
securitization, and we may hold positions in mortgage securities and residential
mortgage loans as part of the ALM portfolio. We also record MSRs as part of our
mortgage origination activities. Hedging instruments used to mitigate this risk
include derivatives such as options, swaps, futures and forwards as well as
securities including MBS and U.S. Treasury securities. For more information, see
Mortgage Banking Risk Management on page 84.
Equity Market Risk
Equity market risk represents exposures to securities that represent an
ownership interest in a corporation in the form of domestic and foreign common
stock or other equity-linked instruments. Instruments that would lead to this
exposure include, but are not limited to, the following: common stock,
exchange-traded funds, American Depositary Receipts, convertible bonds, listed
equity options (puts and calls), OTC equity options, equity total return swaps,
equity index futures and other equity derivative products. Hedging instruments
used to mitigate this risk include options, futures, swaps, convertible bonds
and cash positions.
Commodity Risk
Commodity risk represents exposures to instruments traded in the petroleum,
natural gas, power and metals markets. These instruments consist primarily of
futures, forwards, swaps and options. Hedging instruments used to mitigate this
risk include
Bank of America 78
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options, futures and swaps in the same or similar commodity product, as well as cash positions. Issuer Credit Risk Issuer credit risk represents exposures to changes in the creditworthiness of individual issuers or groups of issuers. Our portfolio is exposed to issuer credit risk where the value of an asset may be adversely impacted by changes in the levels of credit spreads, by credit migration or by defaults. Hedging instruments used to mitigate this risk include bonds, CDS and other credit fixed-income instruments. Market Liquidity Risk Market liquidity risk represents the risk that the level of expected market activity changes dramatically and, in certain cases, may even cease. This exposes us to the risk that we will not be able to transact business and execute trades in an orderly manner which may impact our results. This impact could be further exacerbated if expected hedging or pricing correlations are compromised by disproportionate demand or lack of demand for certain instruments. We utilize various risk mitigating techniques as discussed in more detail in Trading Risk Management. Trading Risk Management To evaluate risks in our trading activities, we focus on the actual and potential volatility of revenues generated by individual positions as well as portfolios of positions. Various techniques and procedures are utilized to enable the most complete understanding of these risks. Quantitative measures of market risk are evaluated on a daily basis from a single position to the portfolio of the Corporation. These measures include sensitivities of positions to various market risk factors, such as the potential impact on revenue from a one basis point change in interest rates, and statistical measures utilizing both actual and hypothetical market moves, such as VaR and stress testing. Periods of extreme market stress influence the reliability of these techniques to varying degrees. Qualitative evaluations of market risk utilize the suite of quantitative risk measures while understanding each of their respective limitations. Additionally, risk managers independently evaluate the risk of the portfolios under the current market environment and potential future environments. VaR is a common statistic used to measure market risk as it allows the aggregation of market risk factors, including the effects of portfolio diversification. A VaR model simulates the value of a portfolio under a range of scenarios in order to generate a distribution of potential gains and losses. VaR represents the loss a portfolio is not expected to exceed more than a certain number of times per period, based on a specified holding period, confidence level and window of historical data. We use one VaR model consistently across the trading portfolios and it uses a historical simulation approach based on a three-year window of historical data. Our primary VaR statistic is equivalent to a 99 percent confidence level, which means that for a VaR with a one-day holding period, there should not be losses in excess of VaR, on average, 99 out of 100 trading days. Within any VaR model, there are significant and numerous assumptions that will differ from company to company. The accuracy of a VaR model depends on the availability and quality of historical data for each of the risk factors in the portfolio. A VaR model may require additional modeling assumptions for new products that do not have the necessary historical market data or for less liquid positions for which accurate daily prices are not consistently available. For positions with insufficient historical data for the VaR calculation, the process for establishing an appropriate proxy is based on fundamental and statistical analysis of the new product or less liquid position. This analysis identifies reasonable alternatives that replicate both the expected volatility and correlation to other market risk factors that the missing data would be expected to experience. VaR may not be indicative of realized revenue volatility as changes in market conditions or in the composition of the portfolio can have a material impact on the results. In particular, the historical data used for the VaR calculation might indicate higher or lower levels of portfolio diversification than will be experienced. In order for the VaR model to reflect current market conditions, we update the historical data underlying our VaR model on a weekly basis, or more frequently during periods of market stress, and regularly review the assumptions underlying the model. A minor portion of risks related to our trading positions is not included in VaR. These risks are reviewed as part of our ICAAP. For more information regarding ICAAP, see Capital Management on page 50. Global Risk Management continually reviews, evaluates and enhances our VaR model so that it reflects the material risks in our trading portfolio. Changes to the VaR model are reviewed and approved prior to implementation and any material changes are reported to management through the appropriate management committees. Trading limits on quantitative risk measures, including VaR, are independently set by Global Markets Risk Management and reviewed on a regular basis so that trading limits remain relevant and within our overall risk appetite for market risks. Trading limits are reviewed in the context of market liquidity, volatility and strategic business priorities. Trading limits are set at both a granular level to allow for extensive coverage of risks as well as at aggregated portfolios to account for correlations among risk factors. All trading limits are approved at least annually. Approved trading limits are stored and tracked in a centralized limits management system. Trading limit excesses are communicated to management for review. Certain quantitative market risk measures and corresponding limits have been identified as critical in the Corporation's Risk Appetite Statement. These risk appetite limits are reported on a daily basis and are approved at least annually by the ERC and the Board. In periods of market stress, Global Markets senior leadership communicates daily to discuss losses, key risk positions and any limit excesses. As a result of this process, the businesses may selectively reduce risk. Table 44 presents the total market-based portfolio VaR which is the combination of the total covered positions (and less liquid trading positions) portfolio and the fair value option portfolio. Covered positions are defined by regulatory standards as trading assets and liabilities, both on- and off-balance sheet, that meet a defined set of specifications. These specifications identify the most liquid trading positions which are intended to be held for a short-term horizon and where we are able to hedge the material risk elements in a two-way market. Positions in less liquid markets, or where there are restrictions on the ability to trade the positions, typically do not qualify as covered positions. Foreign exchange and commodity positions are always considered covered positions, except for structural foreign currency positions that are excluded with prior regulatory approval. In addition, Table 44 presents our fair value option portfolio, which includes substantially all of the funded and unfunded exposures for which we elect the fair value option, and their corresponding hedges. Additionally, market risk VaR for 79 Bank of America -------------------------------------------------------------------------------- trading activities as presented in Table 44 differs from VaR used for regulatory capital calculations due to the holding period being used. The holding period for VaR used for regulatory capital calculations is 10 days, while for the market risk VaR presented below, it is one day. Both measures utilize the same process and methodology. The total market-based portfolio VaR results in Table 44 include market risk to which we are exposed from all business segments, excluding credit valuation adjustment (CVA), DVA and related hedges. The majority of this portfolio is within the Global Markets segment. Table 44 presents year-end, average, high and low daily trading VaR for 2020 and 2019 using a 99 percent confidence level. The amounts disclosed in Table 44 and Table 45 align to the view of covered positions used in theBasel 3 capital calculations. Foreign exchange and commodity positions are always considered covered positions, regardless of trading or banking treatment for the trade, except for structural foreign currency positions that are excluded with prior regulatory approval. The annual average of total covered positions and less liquid trading positions portfolio VaR increased for 2020 compared to 2019 primarily due to the impact of market volatility related to the pandemic in the VaR look back period. Table 44 Market Risk VaR for Trading Activities 2020 2019 Year Year (Dollars in millions) End Average High (1) Low (1) End Average High (1) Low (1) Foreign exchange $ 8 $ 7 $ 25 $ 2 $ 4 $ 6 $ 13 $ 2 Interest rate 30 19 39 7 25 24 49 14 Credit 79 58 91 25 26 23 32 16 Equity 20 24 162 12 29 22 33 14 Commodities 4 6 12 3 4 6 31 4 Portfolio diversification (72) (61) - - (47) (49) - - Total covered positions portfolio 69 53 171 27 41 32 47 24 Impact from less liquid exposures 52 27 - - - 3 - - Total covered positions and less liquid trading positions portfolio 121 80 169 30 41 35 53 27 Fair value option loans 52 52 84 7 8 10 13 7 Fair value option hedges 11 13 17 9 10 10 17 4 Fair value option portfolio diversification (17) (24) - - (9) (10) - - Total fair value option portfolio 46 41 86 9 9 10 16 5 Portfolio diversification (4) (15) - - (5) (7) - - Total market-based portfolio $ 163 $ 106 171 32 $ 45 $ 38 56 28 (1)The high and low for each portfolio may have occurred on different trading days than the high and low for the components. Therefore the impact from less liquid exposures and the amount of portfolio diversification, which is the difference between the total portfolio and the sum of the individual components, is not relevant. The graph below presents the daily covered positions and less liquid trading positions portfolio VaR for 2020, corresponding to the data in Table 44. Peak VaR in mid-March 2020 was driven by increased market realized volatility and higher implied volatilities. [[Image Removed: bac-20201231_g3.jpg]] Additional VaR statistics produced within our single VaR model are provided in Table 45 at the same level of detail as in Table 44. Evaluating VaR with additional statistics allows for an increased understanding of the risks in the portfolio as the historical market data used in the VaR calculation does not necessarily follow a predefined statistical distribution. Table 45 presents average trading VaR statistics at 99 percent and 95 percent confidence levels for 2020 and 2019. The increase in VaR for the 99 percent confidence level for 2020 was primarily due to COVID-19 related market volatility, which impacted the 99 percent VaR average more severely than the 95 percent VaR average.
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Average Market Risk VaR for Trading Activities - 99 percent and 95 percent VaR
Table 45 Statistics
2020 2019
(Dollars in millions) 99 percent 95 percent 99 percent 95 percent
Foreign exchange $ 7 $ 4 $ 6 $ 3
Interest rate 19 9 24 15
Credit 58 18 23 15
Equity 24 13 22 11
Commodities 6 3 6 3
Portfolio diversification (61) (26) (49) (29)
Total covered positions portfolio 53 21 32 18
Impact from less liquid exposures 27 2 3 2
Total covered positions and less liquid trading positions
portfolio 80 23 35 20
Fair value option loans 52 13 10 5
Fair value option hedges 13 7 10 6
Fair value option portfolio diversification (24) (8) (10) (5)
Total fair value option portfolio 41 12 10 6
Portfolio diversification (15) (6) (7) (5)
Total market-based portfolio $ 106 $ 29 $ 38 $ 21
Backtesting
The accuracy of the VaR methodology is evaluated by backtesting, which compares
the daily VaR results, utilizing a one-day holding period, against a comparable
subset of trading revenue. A backtesting excess occurs when a trading loss
exceeds the VaR for the corresponding day. These excesses are evaluated to
understand the positions and market moves that produced the trading loss with a
goal to ensure that the VaR methodology accurately represents those losses. We
expect the frequency of trading losses in excess of VaR to be in line with the
confidence level of the VaR statistic being tested. For example, with a 99
percent confidence level, we expect one trading loss in excess of VaR every 100
days or between two to three trading losses in excess of VaR over the course of
a year. The number of backtesting excesses observed can differ from the
statistically expected number of excesses if the current level of market
volatility is materially different than the level of market volatility that
existed during the three years of historical data used in the VaR calculation.
The trading revenue used for backtesting is defined by regulatory agencies in
order to most closely align with the VaR component of the regulatory capital
calculation. This revenue differs from total trading-related revenue in that it
excludes revenue from trading activities that either do not generate market risk
or the market risk cannot be included in VaR. Some examples of the types of
revenue excluded for backtesting are fees, commissions, reserves, net interest
income and intra-day trading revenues.
We conduct daily backtesting on the VaR results used for regulatory capital
calculations as well as the VaR results for key legal entities, regions and risk
factors. These results are reported to senior market risk management. Senior
management regularly reviews and evaluates the results of these tests.
During 2020, there were seven days where this subset of trading revenue had
losses that exceeded our total covered portfolio VaR, utilizing a one-day
holding period.
Total Trading-related Revenue
Total trading-related revenue, excluding brokerage fees, and CVA, DVA and
funding valuation adjustment gains (losses), represents the total amount earned
from trading positions, including market-based net interest income, which are
taken in a diverse range of financial instruments and markets. For more
information on fair value, see Note 20 - Fair Value Measurements to the
Consolidated Financial Statements.
Trading-related revenue can be volatile and is largely driven by general market
conditions and customer demand. Also, trading-related revenue is dependent on
the volume and type of transactions, the level of risk assumed, and the
volatility of price and rate movements at any given time within the
ever-changing market environment. Significant daily revenue by business is
monitored and the primary drivers of these are reviewed.
The following histogram is a graphic depiction of trading volatility and
illustrates the daily level of trading-related revenue for 2020 and 2019. During
2020, positive trading-related revenue was recorded for 98 percent of the
trading days, of which 87 percent were daily trading gains of over $25 million,
and the largest loss was $90 million. This compares to 2019 where positive
trading-related revenue was recorded for 98 percent of the trading days, of
which 80 percent were daily trading gains of over $25 million, and the largest
loss was $35 million.
[[Image Removed: bac-20201231_g4.jpg]]
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
81 Bank of America
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severe point during a crisis is selected for each historical scenario.
Hypothetical scenarios provide estimated portfolio impacts from potential future
market stress events. Scenarios are reviewed and updated in response to changing
positions and new economic or political information. In addition, new or ad hoc
scenarios are developed to address specific potential market events or
particular vulnerabilities in the portfolio. The stress tests are reviewed on a
regular basis and the results are presented to senior management.
Stress testing for the trading portfolio is integrated with enterprise-wide
stress testing and incorporated into the limits framework. The macroeconomic
scenarios used for enterprise-wide stress testing purposes differ from the
typical trading portfolio scenarios in that they have a longer time horizon and
the results are forecasted over multiple periods for use in consolidated capital
and liquidity planning. For more information, see Managing Risk on page 47.
Interest Rate Risk Management for the Banking Book
The following discussion presents net interest income for banking book
activities.
Interest rate risk represents the most significant market risk exposure to our
banking book balance sheet. Interest rate risk is measured as the potential
change in net interest income caused by movements in market interest rates.
Client-facing activities, primarily lending and deposit-taking, create interest
rate sensitive positions on our balance sheet.
We prepare forward-looking forecasts of net interest income. The baseline
forecast takes into consideration expected future business growth, ALM
positioning -and the direction of interest rate movements as implied by the
market-based forward curve.
We then measure and evaluate the impact that alternative interest rate scenarios
have on the baseline forecast in order to assess interest rate sensitivity under
varied conditions. The net interest income forecast is frequently updated for
changing assumptions and differing outlooks based on economic trends, market
conditions and business strategies. Thus, we continually monitor our balance
sheet position in order to maintain an acceptable level of exposure to interest
rate changes.
The interest rate scenarios that we analyze incorporate balance sheet
assumptions such as loan and deposit growth and pricing, changes in funding mix,
product repricing, maturity characteristics and investment securities premium
amortization. Our overall goal is to manage interest rate risk so that movements
in interest rates do not significantly adversely affect earnings and capital.
Table 46 presents the spot and 12-month forward rates used in our baseline
forecasts at December 31, 2020 and 2019.
Table 46 Forward Rates
December 31, 2020
Federal Three-month 10-Year
Funds LIBOR Swap
Spot rates 0.25 % 0.24 % 0.93 %
12-month forward rates 0.25 0.19 1.06
December 31, 2019
Spot rates 1.75 % 1.91 % 1.90 %
12-month forward rates 1.50 1.62 1.92
Table 47 shows the pretax impact to forecasted net interest income over the next
12 months from December 31, 2020 and 2019 resulting from instantaneous parallel
and non-parallel
shocks to the market-based forward curve. Periodically we evaluate the scenarios
presented so that they are meaningful in the context of the current rate
environment. The interest rate scenarios also assume U.S. dollar rates are
floored at zero.
During 2020, the asset sensitivity of our balance sheet increased in both
up-rate and down-rate scenarios primarily due to continued deposit growth
invested in long-term securities. We continue to be asset sensitive to a
parallel upward move in interest rates with the majority of that impact coming
from the short end of the yield curve. Additionally, higher interest rates
impact the fair value of debt securities and, accordingly, for debt securities
classified as AFS, may adversely affect accumulated OCI and thus capital levels
under the Basel 3 capital rules. Under instantaneous upward parallel shifts, the
near-term adverse impact to Basel 3 capital is reduced over time by offsetting
positive impacts to net interest income. For more information on Basel 3, see
Capital Management - Regulatory Capital on page 51.
Table 47 Estimated Banking Book Net Interest Income Sensitivity to Curve Changes
Short Long December 31
(Dollars in millions) Rate (bps) Rate (bps) 2020 2019
Parallel Shifts
+100 bps
instantaneous shift +100 +100 $ 10,468 $ 4,190
-25 bps
instantaneous shift -25 -25 (2,766) (1,500)
Flatteners
Short-end
instantaneous change +100 - 6,321 2,641
Long-end
instantaneous change - -25 (1,686) (653)
Steepeners
Short-end
instantaneous change -25 - (1,084) (844)
Long-end
instantaneous change - +100 4,333 1,561
The sensitivity analysis in Table 47 assumes that we take no action in response
to these rate shocks and does not assume any change in other macroeconomic
variables normally correlated with changes in interest rates. As part of our ALM
activities, we use securities, certain residential mortgages, and interest rate
and foreign exchange derivatives in managing interest rate sensitivity.
The behavior of our deposits portfolio in the baseline forecast and in alternate
interest rate scenarios is a key assumption in our projected estimates of net
interest income. The sensitivity analysis in Table 47 assumes no change in
deposit portfolio size or mix from the baseline forecast in alternate rate
environments. In higher rate scenarios, any customer activity resulting in the
replacement of low-cost or non-interest-bearing deposits with higher yielding
deposits or market-based funding would reduce our benefit in those scenarios.
Interest Rate and Foreign Exchange Derivative Contracts
Interest rate and foreign exchange derivative contracts are utilized in our ALM
activities and serve as an efficient tool to manage our interest rate and
foreign exchange risk. We use derivatives to hedge the variability in cash flows
or changes in fair value on our balance sheet due to interest rate and foreign
exchange components. For more information on our hedging
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activities, see Note 3 - Derivatives to the Consolidated Financial Statements. Our interest rate contracts are generally non-leveraged generic interest rate and foreign exchange basis swaps, options, futures and forwards. In addition, we use foreign exchange contracts, including cross-currency interest rate swaps, foreign currency futures contracts, foreign currency forward contracts and options to mitigate the foreign exchange risk associated with foreign currency-denominated assets and liabilities. Changes to the composition of our derivatives portfolio during 2020 reflect actions taken for interest rate and foreign exchange rate risk management. The decisions to reposition our derivatives portfolio are based on the current assessment of economic and financial conditions including the interest rate and foreign currency environments, balance sheet composition and trends, and the relative mix of our cash and derivative positions. We use interest rate derivative instruments to hedge the variability in the cash flows of our assets and liabilities and other forecasted transactions (collectively referred to as cash flow hedges). The net results on both open and terminated cash flow hedge derivative instruments recorded in accumulated OCI were a gain of $580 million and a loss of $496 million, on a pretax basis, at December 31, 2020 and 2019. These gains and losses are expected to be reclassified into earnings in the same period as the hedged cash flows affect earnings and will decrease income or increase expense on the respective hedged cash flows. Assuming no change in open cash flow derivative hedge positions and no changes in prices or interest rates beyond what is implied in forward yield curves at December 31, 2020, the after-tax net gains are expected to be reclassified into earnings as follows: a gain of $187 million within the next year, a gain of $358 million in years two through five, a loss of $59 million in years six through ten, with the remaining loss of $50 million thereafter. For more information on derivatives designated as cash flow hedges, see Note 3 - Derivatives to the Consolidated Financial Statements. We hedge our net investment in non-U.S. operations determined to have functional currencies other than theU.S. dollar using forward foreign exchange contracts that typically settle in less than 180 days, cross-currency basis swaps and foreign exchange options. We recorded net after-tax losses on derivatives in accumulated OCI associated with net investment hedges which were offset by gains on our net investments in consolidated non-U.S. entities at December 31, 2020. Table 48 presents derivatives utilized in our ALM activities and shows the notional amount, fair value, weighted-average receive-fixed and pay-fixed rates, expected maturity and average estimated durations of our open ALM derivatives at December 31, 2020 and 2019. These amounts do not include derivative hedges on our MSRs. During 2020, the fair value of receive-fixed interest rate swaps increased while pay-fixed interest swaps decreased, primarily driven by lower swap rates on hedges ofU.S. dollar long-term debt. Table 48 Asset and Liability Management Interest Rate and Foreign Exchange Contracts December 31, 2020 Expected Maturity Average (Dollars in millions, average Fair Estimated estimated duration in years) Value Total 2021 2022 2023 2024 2025 Thereafter Duration Receive-fixed interest rate swaps (1) $ 14,885 8.08 Notional amount $ 269,015
$ 11,050 $ 20,908 $ 30,654 $ 31,317 $ 32,898 $ 142,188 Weighted-average fixed-rate
1.54 % 3.25 % 0.91 % 1.48 % 1.17 % 1.07 % 1.69 %
Pay-fixed interest rate swaps (1) (5,502) 6.52
Notional amount $ 252,698 $ 7,562 $ 21,667 $ 24,671 $ 24,406 $ 32,052 $ 142,340 Weighted-average fixed-rate
0.89 % 0.57 % 0.10 % 1.28 % 0.86 % 0.68 % 1.00 %
Same-currency basis swaps (2) (235)
Notional amount $ 223,659 $ 18,769 $ 12,245 $ 9,747 $ 22,737 $ 28,222 $ 131,939
Foreign exchange basis swaps (1, 3,
4) (1,014)
Notional amount 112,465 27,424 16,038 8,066 3,819 4,446 52,672
Foreign exchange contracts (1, 4, 5) 349
Notional amount (6) (42,490) (69,299) 2,841 2,505 4,735 4,369 12,359
Futures and forward rate contracts 47
Notional amount 14,255 14,255 - - - - -
Option products -
Notional amount 17 - - 17 - - -
Net ALM contracts $ 8,530
83 Bank of America
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Table 48 Asset and Liability Management Interest Rate and
Foreign Exchange Contracts (continued)
December 31, 2019
Expected Maturity
Average
(Dollars in millions, average estimated Fair Estimated
duration in years) Value Total 2020 2021 2022 2023 2024 Thereafter Duration
Receive-fixed interest rate swaps (1) $ 12,370 6.47
Notional amount $ 215,123 $ 16,347 $ 14,642 $ 21,616 $ 36,356 $ 21,257 $ 104,905
Weighted-average fixed-rate 2.68 % 2.68 % 3.17 % 2.48 % 2.36 % 2.55 % 2.79 %
Pay-fixed interest rate swaps (1) (2,669) 6.99
Notional amount $ 69,586 $ 4,344 $ 2,117 $ - $ 13,993 $ 8,194 $ 40,938
Weighted-average fixed-rate 2.36 % 2.16 % 2.15 % - % 2.52 % 2.26 % 2.35 %
Same-currency basis swaps (2) (290)
Notional amount $ 152,160 $ 18,857 $ 18,590 $ 4,306 $ 2,017
$ 14,567 $ 93,823 Foreign exchange basis swaps (1, 3, 4) (1,258) Notional amount
113,529 23,639 24,215 14,611 7,111 3,521 40,432
Foreign exchange contracts (1, 4, 5) 414
Notional amount (6) (53,106) (79,315) 4,539 2,674 2,340 4,432 12,224
Option products -
Notional amount 15 - - - 15 - -
Net ALM contracts $ 8,567
(1)Does not include basis adjustments on either fixed-rate debt issued by the
Corporation or AFS debt securities, which are hedged using derivatives
designated as fair value hedging instruments, that substantially offset the fair
values of these derivatives.
(2)At December 31, 2020 and 2019, the notional amount of same-currency basis
swaps included $223.7 billion and $152.2 billion in both foreign currency and
U.S. dollar-denominated basis swaps in which both sides of the swap are in the
same currency.
(3)Foreign exchange basis swaps consisted of cross-currency variable interest
rate swaps used separately or in conjunction with receive-fixed interest rate
swaps.
(4)Does not include foreign currency translation adjustments on certain non-U.S.
debt issued by the Corporation that substantially offset the fair values of
these derivatives.
(5)The notional amount of foreign exchange contracts of $(42.5) billion at
December 31, 2020 was comprised of $34.2 billion in foreign currency-denominated
and cross-currency receive-fixed swaps, $(74.3) billion in net foreign currency
forward rate contracts, $(3.1) billion in foreign currency-denominated interest
rate swaps and $711 million in net foreign currency futures contracts. Foreign
exchange contracts of $(53.1) billion at December 31, 2019 were comprised of
$29.0 billion in foreign currency-denominated and cross-currency receive-fixed
swaps, $(82.4) billion in net foreign currency forward rate contracts, $(313)
million in foreign currency-denominated interest rate swaps and $644 million in
foreign currency futures contracts.
(6)Reflects the net of long and short positions. Amounts shown as negative
reflect a net short position.
Mortgage Banking Risk Management
We originate, fund and service mortgage loans, which subject us to credit,
liquidity and interest rate risks, among others. We determine whether loans will
be held for investment or held for sale at the time of commitment and manage
credit and liquidity risks by selling or securitizing a portion of the loans we
originate.
Interest rate risk and market risk can be substantial in the mortgage business.
Changes in interest rates and other market factors impact the volume of mortgage
originations. Changes in interest rates also impact the value of interest rate
lock commitments (IRLCs) and the related residential first mortgage loans
held-for-sale (LHFS) between the date of the IRLC and the date the loans are
sold to the secondary market. An increase in mortgage interest rates typically
leads to a decrease in the value of these instruments. Conversely, when there is
an increase in interest rates, the value of the MSRs will increase driven by
lower prepayment expectations. Because the interest rate risks of these hedged
items offset, we combine them into one overall hedged item with one combined
economic hedge portfolio consisting of derivative contracts and securities.
During 2020, 2019 and 2018, we recorded gains of $321 million, $291 million and
$244 million related to the change in fair value of the MSRs, IRLCs and LHFS,
net of gains and losses on the hedge portfolio. For more information on MSRs,
see Note 20 - Fair Value Measurements to the Consolidated Financial Statements.
Compliance and Operational Risk Management
Compliance risk is the risk of legal or regulatory sanctions, material financial
loss or damage to the reputation of the Corporation arising from the failure of
the Corporation to comply with the requirements of applicable laws, rules,
regulations and our internal policies and procedures (collectively, applicable
laws, rules and regulations).
Operational risk is the risk of loss resulting from inadequate or failed
processes, people and systems or from external
events. Operational risk may occur anywhere in the Corporation, including
third-party business processes, and is not limited to operations functions.
Effects may extend beyond financial losses and may result in reputational risk
impacts. Operational risk includes legal risk. Additionally, operational risk is
a component in the calculation of total RWA used in the Basel 3 capital
calculation. For more information on Basel 3 calculations, see Capital
Management on page 50.
FLUs and control functions are first and foremost responsible for managing all
aspects of their businesses, including their compliance and operational risk.
FLUs and control functions are required to understand their business processes
and related risks and controls, including third-party dependencies, the related
regulatory requirements, and monitor and report on the effectiveness of the
control environment. In order to actively monitor and assess the performance of
their processes and controls, they must conduct comprehensive quality assurance
activities and identify issues and risks to remediate control gaps and
weaknesses. FLUs and control functions must also adhere to compliance and
operational risk appetite limits to meet strategic, capital and financial
planning objectives. Finally, FLUs and control functions are responsible for the
proactive identification, management and escalation of compliance and
operational risks across the Corporation.
Global Compliance and Operational Risk teams independently assess compliance and
operational risk, monitor business activities and processes and evaluate FLUs
and control functions for adherence to applicable laws, rules and regulations,
including identifying issues and risks, determining and developing tests to be
conducted by the Enterprise Independent Testing unit, and reporting on the state
of the control environment. Enterprise Independent Testing, an independent
testing function within IRM, works with Global Compliance and Operational Risk,
the FLUs and control functions in the identification of testing needs and test
design, and is accountable for test execution, reporting and analysis of
results.
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Corporate Audit provides independent assessment and validation through testing of key compliance and operational risk processes and controls across the Corporation. The Corporation's Global Compliance Enterprise Policy and Operational Risk Management - Enterprise Policy set the requirements for reporting compliance and operational risk information to executive management as well as the Board or appropriate Board-level committees in support of Global Compliance and Operational Risk's responsibilities for conducting independent oversight of our compliance and operational risk management activities. The Board provides oversight of compliance risk through its Audit Committee and the ERC, and operational risk through the ERC. A key operational risk facing the Corporation is information security, which includes cybersecurity. Cybersecurity risk represents, among other things, exposure to failures or interruptions of service or breaches of security, including as a result of malicious technological attacks, that impact the confidentiality, availability or integrity of our, or third parties' (including their downstream service providers, the financial services industry and financial data aggregators) operations, systems or data, including sensitive corporate and customer information. The Corporation manages information security risk in accordance with internal policies which govern our comprehensive information security program designed to protect the Corporation by enabling preventative, detective and responsive measures to combat information and cybersecurity risks. The Board and the ERC provide cybersecurity and information security risk oversight for the Corporation, and our Global Information Security Team manages the day-to-day implementation of our information security program. Reputational Risk Management Reputational risk is the risk that negative perceptions of the Corporation's conduct or business practices may adversely impact its profitability or operations. Reputational risk may result from many of the Corporation's activities, including those related to the management of our strategic, operational, compliance and credit risks. The Corporation manages reputational risk through established policies and controls in its businesses and risk management processes to mitigate reputational risks in a timely manner and through proactive monitoring and identification of potential reputational risk events. If reputational risk events occur, we focus on remediating the underlying issue and taking action to minimize damage to the Corporation's reputation. The Corporation has processes and procedures in place to respond to events that give rise to reputational risk, including educating individuals and organizations that influence public opinion, implementing external communication strategies to mitigate the risk, and informing key stakeholders of potential reputational risks. The Corporation's organization and governance structure provides oversight of reputational risks, and reputational risk reporting is provided regularly and directly to management and the ERC, which provides primary oversight of reputational risk. In addition, each FLU has a committee, which includes representatives from Compliance, Legal and Risk, that is responsible for the oversight of reputational risk. Such committees' oversight includes providing approval for business activities that present elevated levels of reputational risks. Climate Risk Management Climate-related risks are divided into two major categories: (1) risks related to the transition to a low-carbon economy, which may entail extensive policy, legal, technology and market changes, and (2) risks related to the physical impacts of climate change, driven by extreme weather events, such as hurricanes and floods, as well as chronic longer-term shifts, such as temperature increases and sea level rises. These changes and events can have broad impacts on operations, supply chains, distribution networks, customers, and markets and are otherwise referred to, respectively, as transition risk and physical risk. The financial impacts of transition risk can lead to and amplify credit risk. Physical risk can also lead to increased credit risk by diminishing borrowers' repayment capacity or collateral values. As climate risk is interconnected with all key risk types, we have developed and continue to enhance processes to embed climate risk considerations into our Risk Framework and risk management programs established for strategic, credit, market, liquidity, compliance, operational and reputational risks. A key element of how we manage climate risk is the Risk Identification process through which climate and other risks are identified across all FLUs and control functions, prioritized in our risk inventory and evaluated to determine estimated severity and likelihood of occurrence. Once identified, climate risks are assessed for potential impacts and incorporated into the design of macroeconomic scenarios to generate loss forecasts and assess how climate-related impacts could affect us and our clients. Our governance framework establishes oversight of climate risk practices and strategies by the Board, supported by its Corporate Governance, ESG, and Sustainability Committee, the ERC and the Global Environmental, Social and Governance Committee, a management-level committee comprised of senior leaders across every major FLU and control function. The Climate Risk Steering Council oversees our climate risk management practices, shapes our approach to managing climate-related risks in line with our Risk Framework and meets monthly. In 2020, the climate risk management effort was bolstered through the appointment of a Global Climate Risk Executive who reports to the CRO, and establishment of a new division within our Global Risk organization to drive execution of the climate risk management program with the support of FLUs, Technology & Operations and Risk partners. For additional information about climate risk, see the Bank of America website (the content of which is not incorporated by reference into this Annual Report on Form 10-K). Complex Accounting Estimates Our significant accounting principles, as described in Note 1 - Summary of Significant Accounting Principles to the Consolidated Financial Statements, are essential in understanding the MD&A. Many of our significant accounting principles require complex judgments to estimate the values of assets and liabilities. We have procedures and processes in place to facilitate making these judgments. The more judgmental estimates are summarized in the following discussion. We have identified and described the development of the variables most important in the estimation processes that involve mathematical models to derive the estimates. In many cases, there are numerous alternative judgments that could be used in the process of determining the inputs to the models. Where alternatives exist, we have used the factors that we believe represent the most reasonable value in developing the inputs. Actual performance that differs from our estimates of the key variables could materially impact our results of operations. Separate from the possible future impact to our results of operations from input and model variables, the value of our lending portfolio and market-sensitive assets and 85 Bank of America -------------------------------------------------------------------------------- liabilities may change subsequent to the balance sheet date, often significantly, due to the nature and magnitude of future credit and market conditions. Such credit and market conditions may change quickly and in unforeseen ways and the resulting volatility could have a significant, negative effect on future operating results. These fluctuations would not be indicative of deficiencies in our models or inputs. Allowance for Credit Losses On January 1, 2020, the Corporation adopted the new accounting standard that requires the measurement of the allowance for credit losses, which includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, to be based on management's best estimate of lifetime ECL inherent in the Corporation's relevant financial assets. The Corporation's estimate of lifetime ECL includes the use of quantitative models that incorporate forward-looking macroeconomic scenarios that are applied over the contractual life of the loan portfolios, adjusted for expected prepayments and borrower-controlled extension options. These macroeconomic scenarios include variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to, unemployment rates, real estate prices, gross domestic product and corporate bond spreads. As any one economic outlook is inherently uncertain, the Corporation leverages multiple scenarios. The scenarios that are chosen each quarter and the amount of weighting given to each scenario depend on a variety of factors including recent economic events, leading economic indicators, views of internal and third-party economists and industry trends. The Corporation also includes qualitative reserves to cover losses that are expected but, in the Corporation's assessment, may not be adequately reflected in the economic assumptions described above. For example, factors the Corporation considers include changes in lending policies and procedures, business conditions, the nature and size of the portfolio, portfolio concentrations, the volume and severity of past due loans and nonaccrual loans, the effect of external factors such as competition and legal and regulatory requirements, among others. Further, the Corporation considers the inherent uncertainty in quantitative models that are built on historical data. The allowance for credit losses can also be impacted by unanticipated changes in asset quality of the portfolio, such as increases in risk rating downgrades in our commercial portfolio, deterioration in borrower delinquencies or credit scores in our credit card portfolio or increases in LTVs in our consumer real estate portfolio. In addition, while we have incorporated our estimated impact of COVID-19 into our allowance for credit losses, the ultimate impact of the pandemic is still unknown, including how long economic activities will be impacted and what effect the unprecedented levels of government fiscal and monetary actions will have on the economy and our credit losses. As described above, the process to determine the allowance for credit losses requires numerous estimates and assumptions, some of which require a high degree of judgment and are often interrelated. Changes in the estimates and assumptions can result in significant changes in the allowance for credit losses. Our process for determining the allowance for credit losses is further discussed in Note 1 - Summary of Significant Accounting Principles and Note 5 - Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements. Fair Value of Financial Instruments Under applicable accounting standards, we are required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. We classify fair value measurements of financial instruments and MSRs based on the three-level fair value hierarchy in the accounting standards. The fair values of assets and liabilities may include adjustments, such as market liquidity and credit quality, where appropriate. Valuations of products using models or other techniques are sensitive to assumptions used for the significant inputs. Where market data is available, the inputs used for valuation reflect that information as of our valuation date. Inputs to valuation models are considered unobservable if they are supported by little or no market activity. In periods of extreme volatility, lessened liquidity or in illiquid markets, there may be more variability in market pricing or a lack of market data to use in the valuation process. In keeping with the prudent application of estimates and management judgment in determining the fair value of assets and liabilities, we have in place various processes and controls that include: a model validation policy that requires review and approval of quantitative models used for deal pricing, financial statement fair value determination and risk quantification; a trading product valuation policy that requires verification of all traded product valuations; and a periodic review and substantiation of daily profit and loss reporting for all traded products. Primarily through validation controls, we utilize both broker and pricing service inputs which can and do include both market-observable and internally-modeled values and/or valuation inputs. Our reliance on this information is affected by our understanding of how the broker and/or pricing service develops its data with a higher degree of reliance applied to those that are more directly observable and lesser reliance applied to those developed through their own internal modeling. For example, broker quotes in less active markets may only be indicative and therefore less reliable. These processes and controls are performed independently of the business. For more information, see Note 20 - Fair Value Measurements and Note 21 - Fair Value Option to the Consolidated Financial Statements. Level 3 Assets and Liabilities Financial assets and liabilities, and MSRs, where values are based on valuation techniques that require inputs that are both unobservable and are significant to the overall fair value measurement are classified as Level 3 under the fair value hierarchy established in applicable accounting standards. The fair value of these Level 3 financial assets and liabilities and MSRs is determined using pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value requires significant management judgment or estimation. Level 3 financial instruments may be hedged with derivatives classified as Level 1 or 2; therefore, gains or losses associated with Level 3 financial instruments may be offset by gains or losses associated with financial instruments classified in other levels of the fair value hierarchy. The Level 3 gains and losses recorded in earnings did not have a significant impact on our liquidity or capital. We conduct a review of our fair value hierarchy classifications on a quarterly basis. Transfers into or out of Level 3 are made if the significant inputs used in the financial models measuring the fair values of the assets and
Bank of America 86
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liabilities became unobservable or observable, respectively, in the current marketplace. For more information on transfers into and out of Level 3 during 2020, 2019 and 2018, see Note 20 - Fair Value Measurements to the Consolidated Financial Statements. Accrued Income Taxes and Deferred Tax Assets Accrued income taxes, reported as a component of either other assets or accrued expenses and other liabilities on the Consolidated Balance Sheet, represent the net amount of current income taxes we expect to pay to or receive from various taxing jurisdictions attributable to our operations to date. We currently file income tax returns in more than 100 jurisdictions and consider many factors, including statutory, judicial and regulatory guidance, in estimating the appropriate accrued income taxes for each jurisdiction. Net deferred tax assets, reported as a component of other assets on the Consolidated Balance Sheet, represent the net decrease in taxes expected to be paid in the future because of net operating loss (NOL) and tax credit carryforwards and because of future reversals of temporary differences in the bases of assets and liabilities as measured by tax laws and their bases as reported in the financial statements. NOL and tax credit carryforwards result in reductions to future tax liabilities, and many of these attributes can expire if not utilized within certain periods. We consider the need for valuation allowances to reduce net deferred tax assets to the amounts that we estimate are more likely than not to be realized. Consistent with the applicable accounting guidance, we monitor relevant tax authorities and change our estimates of accrued income taxes and/or net deferred tax assets due to changes in income tax laws and their interpretation by the courts and regulatory authorities. These revisions of our estimates, which also may result from our income tax planning and from the resolution of income tax audit matters, may be material to our operating results for any given period. See Note 19 - Income Taxes to the Consolidated Financial Statements for a table of significant tax attributes and additional information. For more information, see page 16 under Part I. Item 1A. Risk Factors - Regulatory, Compliance and Legal. Goodwill and Intangible Assets The nature of and accounting for goodwill and intangible assets are discussed in Note 1 - Summary of Significant Accounting Principles, and Note 7 - Goodwill and Intangible Assets to the Consolidated Financial Statements. We completed our annual goodwill impairment test as of June 30, 2020. In performing that test, we compared the fair value of each reporting unit to its estimated carrying value as measured by allocated equity. We estimated the fair value of each reporting unit based on the income approach (which utilizes the present value of cash flows to estimate fair value) and the market multiplier approach (which utilizes observable market prices and metrics of peer companies to estimate fair value). Our discounted cash flows were generally based on the Corporation's three-year internal forecasts with a long-term growth rate of 3.68 percent. Our estimated cash flows considered the current challenging global industry and market conditions related to the pandemic, including the low interest rate environment. The cash flows were discounted using rates that ranged from 9 percent to 12 percent, which were derived from a capital asset pricing model that incorporates the risk and uncertainty in the cash flow forecasts, the financial markets and industries similar to each of the reporting units. Under the market multiplier approach, we estimated the fair value of the individual reporting units utilizing various market multiples, primarily various pricing multiples, from comparable publicly-traded companies in industries similar to the reporting unit and then factored in a control premium based upon observed comparable premiums paid for change-in-control transactions for financial institutions. Based on the results of the test, we determined that each reporting unit's estimated fair value exceeded its respective carrying value and that the goodwill assigned to each reporting unit was not impaired. The fair values of the reporting units as a percentage of their carrying values ranged from 109 percent to 213 percent. It currently remains difficult to estimate the future economic impacts related to the pandemic. If economic and market conditions (both in the U.S. and internationally) deteriorate, our reporting units could be negatively impacted, which could change our key assumptions and related estimates and may result in a future impairment charge. Certain Contingent Liabilities For more information on the complex judgments associated with certain contingent liabilities, see Note 12 - Commitments and Contingencies to the Consolidated Financial Statements. 87 Bank of America
-------------------------------------------------------------------------------- Non-GAAP Reconciliations Tables 49 and 50 provide reconciliations of certain non-GAAP financial measures to GAAP financial measures. Table 49 Five-year Reconciliations to GAAP Financial Measures (1) (Dollars in millions, shares in thousands) 2020 2019 2018 2017 2016 Reconciliation of average shareholders' equity to average tangible shareholders' equity and average tangible common shareholders' equity Shareholders' equity $ 267,309 $
267,889 $ 264,748 $ 271,289 $ 265,843 Goodwill
(68,951) (68,951) (68,951) (69,286) (69,750)
Intangible assets (excluding MSRs) (1,862) (1,721) (2,058) (2,652) (3,382)
Related deferred tax liabilities 821 773 906 1,463 1,644
Tangible shareholders' equity $ 197,317 $ 197,990 $ 194,645 $ 200,814 $ 194,355 Preferred stock
(23,624) (23,036) (22,949) (24,188) (24,656)
Tangible common shareholders' equity $ 173,693 $ 174,954 $ 171,696 $ 176,626 $ 169,699
Reconciliation of year-end shareholders' equity to year-end tangible shareholders' equity and year-end tangible common shareholders' equity Shareholders' equity
$ 272,924 $ 264,810 $ 265,325 $ 267,146 $ 266,195 Goodwill
(68,951) (68,951) (68,951) (68,951) (69,744)
Intangible assets (excluding MSRs) (2,151) (1,661) (1,774) (2,312) (2,989)
Related deferred tax liabilities 920 713 858 943 1,545
Tangible shareholders' equity $ 202,742 $ 194,911 $ 195,458 $ 196,826 $ 195,007 Preferred stock
(24,510) (23,401) (22,326) (22,323) (25,220)
Tangible common shareholders' equity $ 178,232 $ 171,510 $ 173,132 $ 174,503 $ 169,787
Reconciliation of year-end assets to year-end
tangible assets
Assets $ 2,819,627 $ 2,434,079 $ 2,354,507 $ 2,281,234 $ 2,188,067
Goodwill (68,951) (68,951) (68,951) (68,951) (69,744)
Intangible assets (excluding MSRs) (2,151) (1,661) (1,774) (2,312) (2,989)
Related deferred tax liabilities 920 713 858 943 1,545
Tangible assets $ 2,749,445 $ 2,364,180 $ 2,284,640 $ 2,210,914 $ 2,116,879
(1)Presents reconciliations of non-GAAP financial measures to GAAP financial
measures. For more information on non-GAAP financial measures and ratios we use
in assessing the results of the Corporation, see Supplemental Financial Data on
page 31.
Table 50 Quarterly Reconciliations to GAAP Financial Measures (1)
2020 Quarters 2019 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 $ 271,020 $ 267,323 $ 266,316 $ 264,534 $ 266,900 $ 270,430 $ 267,975 $ 266,217
Goodwill (68,951) (68,951) (68,951) (68,951) (68,951) (68,951) (68,951) (68,951)
Intangible assets (excluding MSRs) (2,173) (1,976) (1,640) (1,655) (1,678) (1,707) (1,736) (1,763)
Related deferred tax liabilities 910 855 790 728 730 752 770 841
Tangible shareholders' equity $ 200,806 $ 197,251 $ 196,515 $ 194,656 $ 197,001 $ 200,524 $ 198,058 $ 196,344
Preferred stock (24,180) (23,427) (23,427) (23,456) (23,461) (23,800) (22,537) (22,326)
Tangible common shareholders' equity $ 176,626 $ 173,824 $ 173,088 $ 171,200 $ 173,540
$ 176,724 $ 175,521 $ 174,018
Reconciliation of period-end shareholders' equity to period-end tangible shareholders' equity and period-end tangible common shareholders' equity Shareholders' equity $ 272,924 $ 268,850 $ 265,637 $ 264,918 $ 264,810 $ 268,387 $ 271,408 $ 267,010 Goodwill (68,951) (68,951) (68,951) (68,951) (68,951) (68,951) (68,951) (68,951) Intangible assets (excluding MSRs) (2,151) (2,185) (1,630) (1,646) (1,661) (1,690) (1,718) (1,747) Related deferred tax liabilities 920 910 789 790 713 734 756 773 Tangible shareholders' equity $ 202,742 $ 198,624 $ 195,845 $ 195,111 $ 194,911 $ 198,480 $ 201,495 $ 197,085 Preferred stock (24,510) (23,427) (23,427) (23,427) (23,401) (23,606) (24,689) (22,326) Tangible common shareholders' equity $ 178,232 $
175,197 $ 172,418 $ 171,684 $ 171,510
$ 174,874 $ 176,806 $ 174,759
Reconciliation of period-end assets to
period-end tangible assets
Assets $ 2,819,627 $ 2,738,452 $ 2,741,688 $ 2,619,954 $ 2,434,079
$ 2,426,330 $ 2,395,892 $ 2,377,164 Goodwill
(68,951) (68,951) (68,951) (68,951) (68,951) (68,951) (68,951) (68,951)
Intangible assets (excluding MSRs) (2,151) (2,185) (1,630) (1,646) (1,661) (1,690) (1,718) (1,747)
Related deferred tax liabilities 920 910 789 790 713 734 756 773
Tangible assets $ 2,749,445 $ 2,668,226 $ 2,671,896 $ 2,550,147 $ 2,364,180 $ 2,356,423 $ 2,325,979 $ 2,307,239
(1)Presents reconciliations of non-GAAP financial measures to GAAP financial
measures. For more information on non-GAAP financial measures and ratios we use
in assessing the results of the Corporation, see Supplemental Financial Data on
page 31.
Bank of America 88
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Statistical Tables
Table of Contents
Page
Table I - Outstanding Loans and Leases 89
Table II - Nonperforming Loans, Leases and Foreclosed Properties 90
Table III - Accruing Loans and Leases Past Due 90 Days or More 90
Table IV - Selected Loan Maturity Data 91
Table V - Allowance for Credit Losses 91
Table VI - Allocation of the Allowance for Credit Losses by Product Type 92
Table I Outstanding Loans and Leases
December 31
(Dollars in millions) 2020 2019 2018 2017 2016
Consumer
Residential mortgage $ 223,555 $ 236,169 $ 208,557 $ 203,811 $ 191,797
Home equity 34,311 40,208 48,286 57,744 66,443
Credit card 78,708 97,608 98,338 96,285 92,278
Non-U.S. credit card - - - - 9,214
Direct/Indirect consumer (1) 91,363 90,998 91,166 96,342 95,962
Other consumer (2) 124 192 202 166 626
Total consumer loans excluding loans accounted for under the fair value option
428,061 465,175 446,549 454,348 456,320
Consumer loans accounted for under the fair value
option (3) 735 594 682 928 1,051
Total consumer 428,796 465,769 447,231 455,276 457,371
Commercial
U.S. commercial 288,728 307,048 299,277 284,836 270,372
Non-U.S. commercial 90,460 104,966 98,776 97,792 89,397
Commercial real estate (4) 60,364 62,689 60,845 58,298 57,355
Commercial lease financing 17,098 19,880 22,534 22,116 22,375
456,650 494,583 481,432 463,042 439,499
U.S. small business commercial (5) 36,469 15,333 14,565 13,649 12,993
Total commercial loans excluding loans accounted
for under the fair value option 493,119 509,916 495,997 476,691 452,492
Commercial loans accounted for under the fair value option (3)
5,946 7,741 3,667 4,782 6,034
Total commercial 499,065 517,657 499,664 481,473 458,526
Less: Loans of business held for sale (6) - - - - (9,214)
Total loans and leases $ 927,861 $ 983,426 $ 946,895 $ 936,749 $ 906,683
(1)Includes primarily auto and specialty lending loans and leases of $46.4 billion, $50.4 billion, $50.1 billion, $52.4 billion and $50.7 billion, U.S. securities-based lending loans of $41.1 billion, $36.7 billion, $37.0 billion, $39.8 billion and $40.1 billion and non-U.S. consumer loans of $3.0 billion, $2.8 billion, $2.9 billion, $3.0 billion and $3.0 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively. (2)Substantially all of other consumer at December 31, 2020, 2019, 2018 and 2017 is consumer overdrafts. Other consumer at December 31, 2016 also includes consumer finance loans of $465 million. (3)Consumer loans accounted for under the fair value option include residential mortgage loans of $298 million, $257 million, $336 million, $567 million and $710 million, and home equity loans of $437 million, $337 million, $346 million, $361 million and $341 million at December 31, 2020, 2019, 2018, 2017 and 2016, respectively. Commercial loans accounted for under the fair value option include U.S. commercial loans of $2.9 billion, $4.7 billion, $2.5 billion, $2.6 billion and $2.9 billion, and non-U.S. commercial loans of $3.0 billion, $3.1 billion, $1.1 billion, $2.2 billion and $3.1 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively. (4)Includes U.S. commercial real estate loans of $57.2 billion, $59.0 billion, $56.6 billion, $54.8 billion and $54.3 billion, and non-U.S. commercial real estate loans of $3.2 billion, $3.7 billion, $4.2 billion, $3.5 billion and $3.1 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively. (5)Includes card-related products. (6)Represents non-U.S. credit card loans, which were included in assets of business held for sale on the Consolidated Balance Sheet.
89 Bank of America
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Table II Nonperforming Loans, Leases and Foreclosed Properties (1)
December 31
(Dollars in millions) 2020 2019 2018 2017 2016
Consumer
Residential mortgage $ 2,005 $ 1,470 $ 1,893 $ 2,476 $ 3,056
Home equity 649 536 1,893 2,644 2,918
Direct/Indirect consumer 71 47 56 46 28
Other consumer - - - - 2
Total consumer (2) 2,725 2,053 3,842 5,166 6,004
Commercial
U.S. commercial 1,243 1,094 794 814 1,256
Non-U.S. commercial 418 43 80 299 279
Commercial real estate 404 280 156 112 72
Commercial lease financing 87 32 18 24 36
2,152 1,449 1,048 1,249 1,643
U.S. small business commercial 75 50 54 55 60
Total commercial (3) 2,227 1,499 1,102 1,304 1,703
Total nonperforming loans and leases 4,952 3,552 4,944 6,470 7,707
Foreclosed properties 164 285 300 288 377
Total nonperforming loans, leases and foreclosed
properties $ 5,116 $ 3,837 $ 5,244 $ 6,758 $ 8,084
(1)Balances exclude foreclosed properties insured by certain
government-guaranteed loans, principally FHA-insured loans, that entered
foreclosure of $119 million, $260 million, $488 million, $801 million and $1.2
billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(2)In 2020, $372 million in interest income was estimated to be contractually
due on $2.7 billion of consumer loans and leases classified as nonperforming at
December 31, 2020, as presented in the table above, plus $4.4 billion of TDRs
classified as performing at December 31, 2020. Approximately $254 million of the
estimated $372 million in contractual interest was received and included in
interest income for 2020.
(3)In 2020, $115 million in interest income was estimated to be contractually
due on $2.2 billion of commercial loans and leases classified as nonperforming
at December 31, 2020, as presented in the table above, plus $1.0 billion of TDRs
classified as performing at December 31, 2020. Approximately $71 million of the
estimated $115 million in contractual interest was received and included in
interest income for 2020.
Table III Accruing Loans and Leases Past Due 90 Days or More (1)
December 31
(Dollars in millions) 2020 2019 2018 2017 2016
Consumer
Residential mortgage (2) $ 762 $ 1,088 $ 1,884 $ 3,230 $ 4,793
Credit card 903 1,042 994 900 782
Non-U.S. credit card - - - - 66
Direct/Indirect consumer 33 33 38 40 34
Other consumer - - - - 4
Total consumer 1,698 2,163 2,916 4,170 5,679
Commercial
U.S. commercial 228 106 197 144 106
Non-U.S. commercial 10 8 - 3 5
Commercial real estate 6 19 4 4 7
Commercial lease financing 25 20 29 19 19
269 153 230 170 137
U.S. small business commercial 115 97 84 75 71
Total commercial 384 250 314 245 208
Total accruing loans and leases past due 90 days or more $ 2,082
$ 2,413 $ 3,230 $ 4,415 $ 5,887
(1)Our policy is to classify consumer real estate-secured loans as nonperforming at 90 days past due, except for the fully-insured loan portfolio and loans accounted for under the fair value option. (2)Balances are fully-insured loans.
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Table IV Selected Loan Maturity Data (1, 2)
December 31, 2020
Due in One Due After One Year Due After
(Dollars in millions) Year or Less Through Five Years Five Years Total
U.S. commercial $ 82,577 $ 198,898 $ 46,642 $ 328,117
U.S. commercial real estate 14,073 37,552 5,552 57,177
Non-U.S. and other (3) 33,196 54,488 8,989 96,673
Total selected loans $ 129,846 $ 290,938 $ 61,183 $ 481,967
Percent of total 27 % 60 % 13 % 100 %Sensitivity of selected loans to changes in interest rates for loans due after one year: Fixed interest rates
$ 46,911 $ 32,280
Floating or adjustable interest rates 244,027 28,903
Total $ 290,938 $ 61,183
(1)Loan maturities are based on the remaining maturities under contractual
terms.
(2)Includes loans accounted for under the fair value option.
(3)Loan maturities include non-U.S. commercial and commercial real estate loans.
Table V Allowance for Credit Losses (1)
(Dollars in millions) 2020 2019 2018 2017 2016
Allowance for loan and lease losses, January 1 $ 12,358 $ 9,601 $ 10,393 $ 11,237 $ 12,234
Loans and leases charged off
Residential mortgage (40) (93) (207) (188) (403)
Home equity (58) (429) (483) (582) (752)
Credit card (2,967) (3,535) (3,345) (2,968) (2,691)Non-U.S. credit card (2) - - - (103) (238) Direct/Indirect consumer (372) (518) (495) (491) (392) Other consumer (307) (249) (197) (212) (232) Total consumer charge-offs (3,744)
(4,824) (4,727) (4,544) (4,708)
U.S. commercial (3) (1,163) (650) (575) (589) (567)
Non-U.S. commercial (168) (115) (82) (446) (133)
Commercial real estate (275) (31) (10) (24) (10)
Commercial lease financing (69) (26) (8) (16) (30)
Total commercial charge-offs (1,675) (822) (675) (1,075) (740)
Total loans and leases charged off (5,419) (5,646) (5,402) (5,619) (5,448)
Recoveries of loans and leases previously charged off
Residential mortgage 70 140 179 288 272
Home equity 131 787 485 369 347
Credit card 618 587 508 455 422
Non-U.S. credit card (2) - - - 28 63
Direct/Indirect consumer 250 309 300 277 258
Other consumer 23 15 15 49 27
Total consumer recoveries 1,092
1,838 1,487 1,466 1,389
U.S. commercial (4) 178 122 120 142 175
Non-U.S. commercial 13 31 14 6 13
Commercial real estate 5 2 9 15 41
Commercial lease financing 10 5 9 11 9
Total commercial recoveries 206 160 152 174 238Total recoveries of loans and leases previously charged off 1,298
1,998 1,639 1,640 1,627
Net charge-offs (4,121) (3,648) (3,763) (3,979) (3,821)
Provision for loan and lease losses 10,565 3,574 3,262 3,381 3,581
Other (5) - (111) (291) (246) (514)
Total allowance for loan and lease losses, December 31 18,802 9,416 9,601 10,393 11,480Less: Allowance included in assets of business held for sale (6) -
- - - (243)
Allowance for loan and lease losses, December 31 18,802 9,416 9,601 10,393 11,237
Reserve for unfunded lending commitments, January 1 1,123 797 777 762 646
Provision for unfunded lending commitments 755 16 20 15 16
Other (5) - - - - 100
Reserve for unfunded lending commitments, December 31 1,878 813 797 777 762
Allowance for credit losses, December 31 $ 20,680 $ 10,229 $ 10,398 $ 11,170 $ 11,999
(1)On January 1, 2020, the Corporation adopted the CECL accounting standard, which increased the allowance for loan and lease losses by $2.9 billion and the reserve for unfunded lending commitments by $310 million. For more information, see Note 1 - Summary of Significant Accounting Principles to the Consolidated Financial Statements. (2)Represents amounts related to the non-U.S. credit card loan portfolio, which was sold in 2017. (3)Includes U.S. small business commercial charge-offs of $321 million, $320 million, $287 million, $258 million and $253 million in 2020, 2019, 2018, 2017 and 2016, respectively. (4)Includes U.S. small business commercial recoveries of $54 million, $48 million, $47 million, $43 million and $45 million in 2020, 2019, 2018, 2017 and 2016, respectively. (5)Primarily represents write-offs of purchased credit-impaired loans for years prior to 2020, the net impact of portfolio sales, consolidations and deconsolidations, foreign currency translation adjustments, transfers to held for sale and certain other reclassifications. (6)Represents allowance related to the non-U.S. credit card loan portfolio, which was sold in 2017. 91 Bank of America --------------------------------------------------------------------------------
Table V Allowance for Credit Losses (continued)
(Dollars in millions) 2020 2019 2018 2017 2016 Loan and allowance ratios (7): Loans and leases outstanding at December 31 (8) $ 921,180 $ 975,091 $ 942,546 $ 931,039 $ 908,812 Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (8) 2.04 % 0.97 % 1.02 % 1.12 % 1.26 % Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (9) 2.35 0.98 1.08 1.18 1.36
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (10)
1.77 0.96 0.97 1.05 1.16
Average loans and leases outstanding (8) $ 974,281 $ 951,583 $ 927,531 $ 911,988 $ 892,255 Net charge-offs as a percentage of average loans and leases outstanding (8)
0.42 % 0.38 % 0.41 % 0.44 % 0.43 %
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31
380 265 194 161 149
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs
4.56 2.58 2.55 2.61 3.00
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (11) $ 9,854 $
4,151 $ 4,031 $ 3,971 $ 3,951 Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (11)
181 % 148 % 113 % 99 % 98 %
(7)Loan and allowance ratios for 2016 include $243 million of non-U.S. credit
card allowance for loan and lease losses and $9.2 billion of ending non-U.S.
credit card loans, which were sold in 2017.
(8)Outstanding loan and lease balances and ratios do not include loans accounted
for under the fair value option of $6.7 billion, $8.3 billion, $4.3 billion,
$5.7 billion and $7.1 billion at December 31, 2020, 2019, 2018, 2017 and 2016,
respectively. Average loans accounted for under the fair value option were $8.2
billion, $6.8 billion, $5.5 billion, $6.7 billion and $8.2 billion in 2020,
2019, 2018, 2017 and 2016, respectively.
(9)Excludes consumer loans accounted for under the fair value option of $735
million, $594 million, $682 million, $928 million and $1.1 billion at
December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(10)Excludes commercial loans accounted for under the fair value option of $5.9
billion, $7.7 billion, $3.7 billion, $4.8 billion and $6.0 billion at
December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(11)Primarily includes amounts related to credit card and unsecured consumer
lending portfolios in Consumer Banking and, in 2017 and 2016, the non-U.S.
credit card portfolio in All Other.
Table VI Allocation of the Allowance for Credit Losses by Product Type (1)
December 31
2020 2019 2018 2017 2016
Percent Percent Percent Percent Percent
(Dollars in millions) Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
Allowance for loan and lease losses
Residential mortgage $ 459 2.44 % $ 325 3.45 % $ 422 4.40 % $ 701 6.74 % $ 1,012 8.82 %
Home equity 399 2.12 221 2.35 506 5.27 1,019 9.80 1,738 15.14
Credit card 8,420 44.79 3,710 39.39 3,597 37.47 3,368 32.41 2,934 25.56
Non-U.S. credit card - - - - - - - - 243 2.12
Direct/Indirect consumer 752 4.00 234 2.49 248 2.58 264 2.54 244 2.13
Other consumer 41 0.22 52 0.55 29 0.30 31 0.30 51 0.44
Total consumer 10,071 53.57 4,542 48.23 4,802 50.02 5,383 51.79 6,222 54.21
U.S. commercial (2) 5,043 26.82 3,015 32.02 3,010 31.35 3,113 29.95 3,326 28.97
Non-U.S. commercial 1,241 6.60 658 6.99 677 7.05 803 7.73 874 7.61
Commercial real estate 2,285 12.15 1,042 11.07 958 9.98 935 9.00 920 8.01
Commercial lease financing 162 0.86 159 1.69 154 1.60 159 1.53 138 1.20
Total commercial 8,731 46.43 4,874 51.77 4,799 49.98 5,010 48.21 5,258 45.79
Total allowance for loan and lease losses 18,802 100.00 % 9,416 100.00 % 9,601 100.00 % 10,393 100.00 % 11,480 100.00 %
Less: Allowance included in assets of
business held for sale (3) - - - - (243)
Allowance for loan and lease losses 18,802 9,416 9,601 10,393 11,237
Reserve for unfunded lending commitments 1,878 813 797 777 762
Allowance for credit losses $ 20,680 $ 10,229 $ 10,398 $ 11,170 $ 11,999
(1)On January 1, 2020, the Corporation adopted the CECL accounting standard. For
more information, see Note 1 - Summary of Significant Accounting Principles to
the Consolidated Financial Statements.
(2)Includes allowance for loan and lease losses for U.S. small business
commercial loans of $1.5 billion, $523 million, $474 million, $439 million and
$416 million at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(3)Represents allowance for loan and lease losses related to the non-U.S. credit
card loan portfolio, which was sold in 2017.
Bank of America 92
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Item 7A. Quantitative and Qualitative Disclosures about Market Risk See Market Risk Management on page 78 in the MD&A and the sections referenced therein for Quantitative and Qualitative Disclosures about Market Risk.
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