Bank of America Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Derivatives (Tables)

Derivatives (Tables)

12 Months Ended

Dec. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The following tables present derivative instruments included on the Consolidated Balance Sheet in derivative assets and liabilities at December 31, 2013 and 2012. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and have been reduced by the cash collateral received or paid.




			December 31, 2013
			Gross Derivative Assets							Gross Derivative Liabilities
(Dollars in billions)	Contract/ Notional ⁽¹⁾		Trading Derivatives and Other Risk Management Derivatives		Qualifying Accounting Hedges		Total			Trading Derivatives and Other Risk Management Derivatives		Qualifying Accounting Hedges		Total
Interest rate contracts
Swaps	$	33,272.0	$	659.9	$	7.5	$	667.4		$	658.4	$	0.9	$	659.3
Futures and forwards	8,217.6		1.6		—		1.6			1.5		—		1.5
Written options	2,065.4		—		—		—			64.4		—		64.4
Purchased options	2,028.3		65.4		—		65.4			—		—		—
Foreign exchange contracts
Swaps	2,284.1		43.1		1.0		44.1			42.7		1.0		43.7
Spot, futures and forwards	2,922.5		32.5		0.7		33.2			33.5		1.1		34.6
Written options	412.4		—		—		—			9.2		—		9.2
Purchased options	392.4		8.8		—		8.8			—		—		—
Equity contracts
Swaps	162.0		3.6		—		3.6			4.2		—		4.2
Futures and forwards	71.4		1.1		—		1.1			1.4		—		1.4
Written options	315.6		—		—		—			29.6		—		29.6
Purchased options	266.7		30.4		—		30.4			—		—		—
Commodity contracts
Swaps	73.1		3.8		—		3.8			5.7		—		5.7
Futures and forwards	454.4		4.7		—		4.7			2.5		—		2.5
Written options	157.3		—		—		—			5.0		—		5.0
Purchased options	164.0		5.2		—		5.2			—		—		—
Credit derivatives
Purchased credit derivatives:
Credit default swaps	1,305.1		15.7		—		15.7			28.1		—		28.1
Total return swaps/other	38.1		2.0		—		2.0			3.2		—		3.2
Written credit derivatives:
Credit default swaps	1,265.4		29.3		—		29.3			13.8		—		13.8
Total return swaps/other	63.4		4.0		—		4.0			0.2		—		0.2
Gross derivative assets/liabilities			$	911.1	$	9.2	$	920.3		$	903.4	$	3.0	$	906.4
Less: Legally enforceable master netting agreements							(825.5		)					(825.5		)
Less: Cash collateral received/paid							(47.3		)					(43.5		)
Total derivative assets/liabilities							$	47.5						$	37.4


⁽¹⁾	Represents the total contract/notional amount of derivative assets and liabilities outstanding.




			December 31, 2012
			Gross Derivative Assets							Gross Derivative Liabilities
(Dollars in billions)	Contract/ Notional ⁽¹⁾		Trading Derivatives and Other Risk Management Derivatives		Qualifying Accounting Hedges		Total			Trading Derivatives and Other Risk Management Derivatives		Qualifying Accounting Hedges		Total
Interest rate contracts
Swaps	$	34,667.4	$	1,075.4	$	13.8	$	1,089.2		$	1,062.6	$	4.7	$	1,067.3
Futures and forwards	11,950.5		2.8		—		2.8			2.7		—		2.7
Written options	2,343.5		—		—		—			106.0		—		106.0
Purchased options	2,162.6		105.5		—		105.5			—		—		—
Foreign exchange contracts
Swaps	2,489.0		47.4		1.4		48.8			53.2		1.8		55.0
Spot, futures and forwards	3,023.0		31.5		0.4		31.9			30.5		0.8		31.3
Written options	363.3		—		—		—			7.3		—		7.3
Purchased options	321.8		6.5		—		6.5			—		—		—
Equity contracts
Swaps	127.1		1.6		—		1.6			2.0		—		2.0
Futures and forwards	58.4		1.0		—		1.0			1.0		—		1.0
Written options	295.3		—		—		—			20.2		—		20.2
Purchased options	271.0		20.4		—		20.4			—		—		—
Commodity contracts
Swaps	60.5		2.5		0.1		2.6			4.0		—		4.0
Futures and forwards	498.9		4.8		—		4.8			2.7		—		2.7
Written options	166.4		—		—		—			7.4		—		7.4
Purchased options	168.2		7.1		—		7.1			—		—		—
Credit derivatives
Purchased credit derivatives:
Credit default swaps	1,559.5		35.6		—		35.6			22.1		—		22.1
Total return swaps/other	43.5		2.5		—		2.5			2.9		—		2.9
Written credit derivatives:
Credit default swaps	1,531.5		23.0		—		23.0			32.6		—		32.6
Total return swaps/other	68.8		0.2		—		0.2			0.3		—		0.3
Gross derivative assets/liabilities			$	1,367.8	$	15.7	$	1,383.5		$	1,357.5	$	7.3	$	1,364.8
Less: Legally enforceable master netting agreements							(1,271.9		)					(1,271.9		)
Less: Cash collateral received/paid							(58.1		)					(46.9		)
Total derivative assets/liabilities							$	53.5						$	46.0


⁽¹⁾	Represents the total contract/notional amount of derivative assets and liabilities outstanding.

Offsetting Assets/Liabilities




Offsetting of Derivatives

	December 31, 2013						December 31, 2012
(Dollars in billions)	Derivative Assets			Derivative Liabilities			Derivative Assets			Derivative Liabilities
Interest rate contracts
Over-the-counter	$	381.7		$	365.9		$	646.7		$	623.4
Exchange-traded	0.4			0.3			—			—
Over-the-counter cleared	351.2			356.5			539.5			545.1
Foreign exchange contracts
Over-the-counter	82.9			83.9			84.1			88.7
Equity contracts
Over-the-counter	20.3			17.6			15.2			13.3
Exchange-traded	8.4			9.8			4.8			4.7
Commodity contracts
Over-the-counter	6.3			7.4			6.9			7.9
Exchange-traded	3.3			2.9			3.4			3.2
Credit derivatives
Over-the-counter	44.0			38.9			56.0			53.9
Over-the-counter cleared	5.8			5.9			3.8			3.4
Total gross derivative assets/liabilities, before netting
Over-the-counter	535.2			513.7			808.9			787.2
Exchange-traded	12.1			13.0			8.2			7.9
Over-the-counter cleared	357.0			362.4			543.3			548.5
Less: Legally enforceable master netting agreements and cash collateral received/paid
Over-the-counter	(505.0		)	(495.4		)	(780.8		)	(764.4		)
Exchange-traded	(11.2		)	(11.2		)	(5.9		)	(5.9		)
Over-the-counter cleared	(356.6		)	(362.4		)	(543.3		)	(548.5		)
Derivative assets/liabilities, after netting	31.5			20.1			30.4			24.8
Other gross derivative assets/liabilities	16.0			17.3			23.1			21.2
Total derivative assets/liabilities	47.5			37.4			53.5			46.0
Less: Financial instruments collateral ⁽¹⁾	(10.1		)	(4.6		)	(11.5		)	(14.6		)
Total net derivative assets/liabilities	$	37.4		$	32.8		$	42.0		$	31.4


⁽¹⁾	These amounts are limited to the derivative asset/liability balance and, accordingly, do not include excess collateral received/pledged.

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value

The table below summarizes certain information related to fair value hedges for 2013, 2012 and 2011, including hedges of interest rate risk on long-term debt that were acquired as part of a business combination and redesignated. At redesignation, the fair value of the derivatives was positive. As the derivatives mature, the fair value will approach zero. As a result, ineffectiveness will occur and the fair value changes in the derivatives and the long-term debt being hedged may be directionally the same in certain scenarios. Based on a regression analysis, the derivatives continue to be highly effective at offsetting changes in the fair value of the long-term debt attributable to interest rate risk.




Derivatives Designated as Fair Value Hedges

Gains (Losses)	2013
(Dollars in millions)	Derivative			Hedged Item			Hedge Ineffectiveness
Interest rate risk on long-term debt ⁽¹⁾	$	(4,704	)	$	3,925		$	(779	)
Interest rate and foreign currency risk on long-term debt ⁽¹⁾	(1,291		)	1,085			(206		)
Interest rate risk on available-for-sale securities ⁽²⁾	839			(840		)	(1		)
Price risk on commodity inventory ⁽³⁾	(13		)	11			(2		)
Total	$	(5,169	)	$	4,181		$	(988	)

	2012
Interest rate risk on long-term debt ⁽¹⁾	$	(195	)	$	(770	)	$	(965	)
Interest rate and foreign currency risk on long-term debt ⁽¹⁾	(1,482		)	1,225			(257		)
Interest rate risk on available-for-sale securities ⁽²⁾	(4		)	91			87
Price risk on commodity inventory ⁽³⁾	(6		)	6			—
Total	$	(1,687	)	$	552		$	(1,135	)

	2011
Interest rate risk on long-term debt ⁽¹⁾	$	4,384		$	(4,969	)	$	(585	)
Interest rate and foreign currency risk on long-term debt ⁽¹⁾	780			(1,057		)	(277		)
Interest rate risk on available-for-sale securities ⁽²⁾	(11,386		)	10,490			(896		)
Price risk on commodity inventory ⁽³⁾	16			(16		)	—
Total	$	(6,206	)	$	4,448		$	(1,758	)


⁽¹⁾	Amounts are recorded in interest expense on long-term debt and in other income (loss).


⁽²⁾	Amounts are recorded in interest income on debt securities. Hedged AFS securities positions were sold during 2013 and the related hedges were terminated.


⁽³⁾	Amounts relating to commodity inventory are recorded in trading account profits.

Cash Flow and Net Investment Hedges




Derivatives Designated as Cash Flow and Net Investment Hedges

	2013
(Dollars in millions, amounts pre-tax)	Gains (Losses) Recognized in Accumulated OCI on Derivatives			Gains (Losses) in Income Reclassified from Accumulated OCI			Hedge Ineffectiveness and Amounts Excluded from Effectiveness Testing ⁽¹⁾
Cash flow hedges
Interest rate risk on variable-rate portfolios	$	(321	)	$	(1,102	)	$	—
Price risk on restricted stock awards	477			329			—
Total	$	156		$	(773	)	$	—
Net investment hedges
Foreign exchange risk	$	1,024		$	(355	)	$	(134	)

	2012
Cash flow hedges
Interest rate risk on variable-rate portfolios	$	10		$	(957	)	$	—
Price risk on restricted stock awards	420			(78		)	—
Total	$	430		$	(1,035	)	$	—
Net investment hedges
Foreign exchange risk	$	(771	)	$	(26	)	$	(269	)

	2011
Cash flow hedges
Interest rate risk on variable-rate portfolios	$	(2,079	)	$	(1,392	)	$	(8	)
Commodity price risk on forecasted purchases and sales	(3		)	6			(3		)
Price risk on restricted stock awards	(408		)	(231		)	—
Total	$	(2,490	)	$	(1,617	)	$	(11	)
Net investment hedges
Foreign exchange risk	$	(1,055	)	$	384		$	(572	)


⁽¹⁾	Amounts related to derivatives designated as cash flow hedges represent hedge ineffectiveness and amounts related to net investment hedges represent amounts excluded from effectiveness testing.

Economic Hedges

The table below presents gains (losses) on these derivatives for 2013, 2012 and 2011. These gains (losses) are largely offset by the income or expense that is recorded on the hedged item.




Other Risk Management Derivatives

Gains (Losses)

(Dollars in millions)	2013			2012			2011
Price risk on mortgage banking production income ^{(1, 2)}	$	968		$	3,022		$	2,852
Market-related risk on mortgage banking servicing income ⁽¹⁾	(1,108		)	2,000			3,612
Credit risk on loans ⁽³⁾	(47		)	(95		)	30
Interest rate and foreign currency risk on ALM activities ⁽⁴⁾	2,501			424			(48		)
Price risk on restricted stock awards ⁽⁵⁾	865			1,008			(610		)
Other	(19		)	58			281
Total	$	3,160		$	6,417		$	6,117


⁽¹⁾	Net gains on these derivatives are recorded in mortgage banking income.


⁽²⁾	Includes net gains on interest rate lock commitments related to the origination of mortgage loans that are held-for-sale, which are considered derivative instruments, of $927 million, $3.0 billion and $3.8 billion for 2013, 2012 and 2011, respectively.


⁽³⁾	Net gains (losses) on these derivatives are recorded in other income (loss).


⁽⁴⁾	The balance is primarily related to hedges of debt securities carried at fair value and hedges of foreign currency-denominated debt. Results from these items are recorded in other income (loss). The offsetting mark-to-market, while not included in the table above, is also recorded in other income (loss).


⁽⁵⁾	Gains (losses) on these derivatives are recorded in personnel expense.

Schedule of Derivative Instruments Included in Trading Activities

The table below presents CVA and DVA gains (losses), which are recorded in trading account profits on a gross and net of hedge basis.




Valuation Adjustments on Derivatives

	2013						2012						2011
(Dollars in millions)	Gross			Net			Gross			Net			Gross			Net
Derivative assets (CVA) ⁽¹⁾	$	738		$	(96	)	$	1,022		$	291		$	(1,863	)	$	(606	)
Derivative liabilities (DVA) ⁽²⁾	(39		)	(75		)	(2,212		)	(2,477		)	1,385			1,000


⁽¹⁾	At December 31, 2013, 2012 and 2011, the cumulative CVA reduced the derivative assets balance by $1.6 billion, $2.4 billion and $2.8 billion, respectively.


⁽²⁾	At December 31, 2013, 2012 and 2011, the cumulative DVA reduced the derivative liabilities balance by $803 million, $807 million and $2.4 billion, respectively.

The table below, which includes both derivatives and non-derivative cash instruments, identifies the amounts in the respective income statement line items attributable to the Corporation’s sales and trading revenue in Global Markets, categorized by primary risk, for 2013, 2012 and 2011. The difference between total trading account profits in the table below and in the Consolidated Statement of Income represents trading activities in business segments other than Global Markets. This table includes debit valuation adjustment (DVA) gains (losses), net of hedges. Global Markets results in Note 24 – Business Segment Information are presented on a fully taxable-equivalent (FTE) basis. The table below is not presented on a FTE basis.




Sales and Trading Revenue

	2013
(Dollars in millions)	Trading Account Profits		Net Interest Income			Other ⁽¹⁾			Total
Interest rate risk	$	1,120	$	1,104		$	83		$	2,307
Foreign exchange risk	1,170		4			(26		)	1,148
Equity risk	1,994		112			2,094			4,200
Credit risk	2,075		2,711			88			4,874
Other risk	375		(203		)	202			374
Total sales and trading revenue	$	6,734	$	3,728		$	2,441		$	12,903

	2012
Interest rate risk	$	583	$	1,040		$	(6	)	$	1,617
Foreign exchange risk	909		5			6			920
Equity risk	1,180		(57		)	1,891			3,014
Credit risk	2,522		2,321			961			5,804
Other risk	512		(219		)	(42		)	251
Total sales and trading revenue	$	5,706	$	3,090		$	2,810		$	11,606

	2011
Interest rate risk	$	2,148	$	923		$	(63	)	$	3,008
Foreign exchange risk	1,090		8			(10		)	1,088
Equity risk	1,482		129			2,347			3,958
Credit risk	1,067		2,605			552			4,224
Other risk	630		(184		)	(72		)	374
Total sales and trading revenue	$	6,417	$	3,481		$	2,754		$	12,652


⁽¹⁾	Represents amounts in investment and brokerage services and other income (loss) that are recorded in Global Markets and included in the definition of sales and trading revenue. Includes investment and brokerage services revenue of $2.0 billion, $1.8 billion and $2.2 billion for 2013, 2012 and 2011, respectively.

Disclosure of Credit Derivatives

Credit derivative instruments where the Corporation is the seller of credit protection and their expiration are summarized at December 31, 2013 and 2012 in the table below. These instruments are classified as investment and non-investment grade based on the credit quality of the underlying referenced obligation. The Corporation considers ratings of BBB- or higher as investment grade. Non-investment grade includes non-rated credit derivative instruments. The Corporation discloses internal categorizations of investment grade and non-investment grade consistent with how risk is managed for these instruments.




Credit Derivative Instruments

	December 31, 2013
	Carrying Value
(Dollars in millions)	Less than One Year		One to Three Years		Three to Five Years		Over Five Years		Total
Credit default swaps:
Investment grade	$	2	$	220	$	974	$	1,134	$	2,330
Non-investment grade	424		1,924		2,469		6,667		11,484
Total	426		2,144		3,443		7,801		13,814
Total return swaps/other:
Investment grade	22		—		—		—		22
Non-investment grade	29		38		2		86		155
Total	51		38		2		86		177
Total credit derivatives	$	477	$	2,182	$	3,445	$	7,887	$	13,991
Credit-related notes: ⁽¹⁾
Investment grade	$	—	$	278	$	595	$	4,457	$	5,330
Non-investment grade	145		107		756		946		1,954
Total credit-related notes	$	145	$	385	$	1,351	$	5,403	$	7,284
	Maximum Payout/Notional
Credit default swaps:
Investment grade	$	170,764	$	379,273	$	411,426	$	36,039	$	997,502
Non-investment grade	53,316		90,986		95,319		28,257		267,878
Total	224,080		470,259		506,745		64,296		1,265,380
Total return swaps/other:
Investment grade	21,771		—		—		—		21,771
Non-investment grade	27,784		8,150		4,103		1,599		41,636
Total	49,555		8,150		4,103		1,599		63,407
Total credit derivatives	$	273,635	$	478,409	$	510,848	$	65,895	$	1,328,787



	December 31, 2012
	Carrying Value
Credit default swaps:
Investment grade	$	52	$	757	$	5,595	$	2,903	$	9,307
Non-investment grade	923		4,403		7,030		10,959		23,315
Total	975		5,160		12,625		13,862		32,622
Total return swaps/other:
Investment grade	39		—		—		—		39
Non-investment grade	57		104		39		37		237
Total	96		104		39		37		276
Total credit derivatives	$	1,071	$	5,264	$	12,664	$	13,899	$	32,898
Credit-related notes: ⁽¹⁾
Investment grade	$	4	$	12	$	441	$	3,849	$	4,306
Non-investment grade	116		161		314		1,425		2,016
Total credit-related notes	$	120	$	173	$	755	$	5,274	$	6,322
	Maximum Payout/Notional
Credit default swaps:
Investment grade	$	260,177	$	349,125	$	500,038	$	90,453	$	1,199,793
Non-investment grade	79,861		99,043		110,248		42,559		331,711
Total	340,038		448,168		610,286		133,012		1,531,504
Total return swaps/other:
Investment grade	43,536		15		—		—		43,551
Non-investment grade	5,566		11,028		7,631		1,035		25,260
Total	49,102		11,043		7,631		1,035		68,811
Total credit derivatives	$	389,140	$	459,211	$	617,917	$	134,047	$	1,600,315


⁽¹⁾	For credit-related notes, maximum payout/notional is the same as carrying value.

Additional Collateral required to be posted upon downgrade [Table Text Block]

The table below presents the amount of additional collateral contractually required by derivative contracts and other trading agreements at December 31, 2013 if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by one incremental notch and by an additional second incremental notch.




Additional Collateral Required to be Posted Upon Downgrade

	December 31, 2013
(Dollars in millions)	One incremental notch		Second incremental notch
Bank of America Corporation	$	1,302	$	4,101
Bank of America, N.A. and subsidiaries ⁽¹⁾	881		3,039


⁽¹⁾	Included in Bank of America Corporation collateral requirements in this table.

Derivative Liability subject to unilateral termination upon downgrade [Table Text Block]

The table below presents the derivative liability that would be subject to unilateral termination by counterparties and the amounts of collateral that would have been posted at December 31, 2013 if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by one incremental notch and by an additional second incremental notch.




Derivative Liability Subject to Unilateral Termination Upon Downgrade

	December 31, 2013
(Dollars in millions)	One incremental notch		Second incremental notch
Derivative liability	$	927	$	1,878
Collateral posted	733		1,467