Bank of America Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Derivatives (Tables)

Derivatives (Tables)

3 Months Ended

Mar. 31, 2019

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 March 31, 2019 and December 31, 2018. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and have been reduced by cash collateral received or paid.




			March 31, 2019
			Gross Derivative Assets							Gross Derivative Liabilities
(Dollars in billions)	Contract/ Notional ⁽¹⁾		Trading and Other Risk Management Derivatives		Qualifying Accounting Hedges		Total			Trading and Other Risk Management Derivatives		Qualifying Accounting Hedges		Total
Interest rate contracts
Swaps	$	19,100.3	$	152.8	$	5.3	$	158.1		$	153.4	$	1.1	$	154.5
Futures and forwards	5,526.5		2.9		—		2.9			3.1		—		3.1
Written options	1,604.1		—		—		—			30.8		—		30.8
Purchased options	1,638.6		34.1		—		34.1			—		—		—
Foreign exchange contracts
Swaps	1,732.6		35.7		1.4		37.1			37.5		1.8		39.3
Spot, futures and forwards	5,229.9		33.3		0.4		33.7			32.9		0.2		33.1
Written options	306.6		—		—		—			4.5		—		4.5
Purchased options	291.8		4.1		—		4.1			—		—		—
Equity contracts
Swaps	278.4		5.3		—		5.3			6.4		—		6.4
Futures and forwards	119.9		0.4		—		0.4			0.6		—		0.6
Written options	714.9		—		—		—			29.5		—		29.5
Purchased options	667.9		35.6		—		35.6			—		—		—
Commodity contracts
Swaps	43.7		1.6		—		1.6			3.7		—		3.7
Futures and forwards	57.8		3.1		—		3.1			0.5		—		0.5
Written options	26.9		—		—		—			1.1		—		1.1
Purchased options	27.0		1.1		—		1.1			—		—		—
Credit derivatives ⁽²⁾
Purchased credit derivatives:
Credit default swaps	425.4		4.2		—		4.2			6.3		—		6.3
Total return swaps/options	79.4		0.2		—		0.2			1.0		—		1.0
Written credit derivatives:
Credit default swaps	382.6		6.0		—		6.0			3.4		—		3.4
Total return swaps/options	73.3		0.7		—		0.7			0.4		—		0.4
Gross derivative assets/liabilities			$	321.1	$	7.1	$	328.2		$	315.1	$	3.1	$	318.2
Less: Legally enforceable master netting agreements							(253.3		)					(253.3		)
Less: Cash collateral received/paid							(32.5		)					(28.6		)
Total derivative assets/liabilities							$	42.4						$	36.3


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


⁽²⁾	The net derivative asset (liability) and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names were $2.0 billion and $361.9 billion at March 31, 2019.




			December 31, 2018
			Gross Derivative Assets							Gross Derivative Liabilities
(Dollars in billions)	Contract/ Notional ⁽¹⁾		Trading and Other Risk Management Derivatives		Qualifying Accounting Hedges		Total			Trading and Other Risk Management Derivatives		Qualifying Accounting Hedges		Total
Interest rate contracts
Swaps	$	15,977.9	$	141.0	$	3.2	$	144.2		$	138.9	$	2.0	$	140.9
Futures and forwards	3,656.6		4.7		—		4.7			5.0		—		5.0
Written options	1,584.9		—		—		—			28.6		—		28.6
Purchased options	1,614.0		30.8		—		30.8			—		—		—
Foreign exchange contracts
Swaps	1,704.8		38.8		1.4		40.2			42.2		2.3		44.5
Spot, futures and forwards	4,276.0		39.8		0.4		40.2			39.3		0.3		39.6
Written options	256.7		—		—		—			5.0		—		5.0
Purchased options	240.4		4.6		—		4.6			—		—		—
Equity contracts
Swaps	253.6		7.7		—		7.7			8.4		—		8.4
Futures and forwards	100.0		2.1		—		2.1			0.3		—		0.3
Written options	597.1		—		—		—			27.5		—		27.5
Purchased options	549.4		36.0		—		36.0			—		—		—
Commodity contracts
Swaps	43.1		2.7		—		2.7			4.5		—		4.5
Futures and forwards	51.7		3.2		—		3.2			0.5		—		0.5
Written options	27.5		—		—		—			2.2		—		2.2
Purchased options	23.4		1.7		—		1.7			—		—		—
Credit derivatives ⁽²⁾
Purchased credit derivatives:
Credit default swaps	408.1		5.3		—		5.3			4.9		—		4.9
Total return swaps/options	84.5		0.4		—		0.4			1.0		—		1.0
Written credit derivatives:
Credit default swaps	371.9		4.4		—		4.4			4.3		—		4.3
Total return swaps/options	87.3		0.6		—		0.6			0.6		—		0.6
Gross derivative assets/liabilities			$	323.8	$	5.0	$	328.8		$	313.2	$	4.6	$	317.8
Less: Legally enforceable master netting agreements							(252.7		)					(252.7		)
Less: Cash collateral received/paid							(32.4		)					(27.2		)
Total derivative assets/liabilities							$	43.7						$	37.9


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

⁽²⁾

The net derivative asset (liability) and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names were $(185) million and $342.8 billion at December 31, 2018.

Derivative [Line Items]

Gains and Losses on Derivatives Designated as Fair Value Hedges

The table below summarizes information related to fair value hedges for the three months ended March 31, 2019 and 2018.




Gains and Losses on Derivatives Designated as Fair Value Hedges

	Three Months Ended March 31
	2019						2018
(Dollars in millions)	Derivative			Hedged Item			Derivative			Hedged Item
Interest rate risk on long-term debt ⁽¹⁾	$	1,913		$	(1,929	)	$	(2,305	)	$	2,236
Interest rate and foreign currency risk on long-term debt ⁽²⁾	57			(48		)	322			(346		)
Interest rate risk on available-for-sale securities ⁽³⁾	(45		)	43			(31		)	30
Total	$	1,925		$	(1,934	)	$	(2,014	)	$	1,920


⁽¹⁾	Amounts are recorded in interest expense in the Consolidated Statement of Income.


⁽²⁾	For the three months ended March 31, 2019 and 2018, the derivative amount includes gains of $170 million and losses of $64 million in interest expense and losses of $121 million and gains of $433 million in other income. Line item totals are in the Consolidated Statement of Income.

⁽³⁾

Amounts are recorded in interest income in the Consolidated Statement of Income.

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

The table below summarizes the carrying value of hedged assets and liabilities that are designated and qualifying in fair value hedging relationships along with the cumulative amount of fair value hedging adjustments included in the carrying value that have been recorded in the current hedging relationships. These fair value hedging adjustments are open basis adjustments that are not subject to amortization as long as the hedging relationship remains designated.




Designated Fair Value Hedged Assets (Liabilities)

	March 31, 2019						December 31, 2018
(Dollars in millions)	Carrying Value			Cumulative Fair Value Adjustments ⁽¹⁾			Carrying Value			Cumulative Fair Value Adjustments⁽¹⁾
Long-term debt	$	(148,566	)	$	(4,691	)	$	(138,682	)	$	(2,117	)
Available-for-sale debt securities	1,596			4			981			(29		)

⁽¹⁾

For assets, increase (decrease) to carrying value and for liabilities, (increase) decrease to carrying value.

Cash Flow and Net Investment Hedges

The following table summarizes certain information related to cash flow hedges and net investment hedges for the three months

ended March 31, 2019 and 2018. Of the $787 million after-tax net loss ($1.0 billion pretax) on derivatives in accumulated other comprehensive income (OCI) at March 31, 2019, $196 million after-tax ($258 million pretax) is expected to be reclassified into earnings in the next 12 months. These net losses reclassified into earnings are expected to primarily reduce net interest income related to the respective hedged items. For terminated cash flow hedges, the time period over which the majority of the forecasted transactions are hedged is approximately 4 years, with a maximum length of time for certain forecasted transactions of 17 years.




Gains and Losses on Derivatives Designated as Cash Flow and Net Investment Hedges

	Three Months Ended March 31
	2019					2018
(Dollars in millions)	Gains (Losses) Recognized in Accumulated OCI on Derivatives		Gains (Losses) in Income Reclassified from Accumulated OCI			Gains (Losses) Recognized in Accumulated OCI on Derivatives			Gains (Losses) in Income Reclassified from Accumulated OCI
Cash flow hedges
Interest rate risk on variable-rate assets ⁽¹⁾	$	254	$	(23	)	$	(428	)	$	(50	)
Price risk on certain restricted stock awards ⁽²⁾	—		—			4			27
Total	$	254	$	(23	)	$	(424	)	$	(23	)
Net investment hedges
Foreign exchange risk ⁽³⁾	$	6	$	1		$	(244	)	$	(1	)


⁽¹⁾	Amounts reclassified from accumulated OCI are recorded in interest income in the Consolidated Statement of Income.


⁽²⁾	Amounts reclassified from accumulated OCI are recorded in compensation and benefits expense in the Consolidated Statement of Income.

⁽³⁾

Amounts reclassified from accumulated OCI are recorded in other income in the Consolidated Statement of Income. For the three months ended March 31, 2019 and 2018, amounts excluded from effectiveness testing and recognized in other income were gains of $53 million and $4 million

Other Risk Management Derivatives

The table below presents gains (losses) on these derivatives for the three months ended March 31, 2019 and 2018. These gains (losses) are largely offset by the income or expense recorded on the hedged item.




Gains and Losses on Other Risk Management Derivatives

	Three Months Ended March 31
(Dollars in millions)	2019			2018
Interest rate risk on mortgage activities ⁽¹⁾	$	104		$	(135	)
Credit risk on loans	(26		)	(3		)
Interest rate and foreign currency risk on ALM activities ⁽²⁾	1,112			(139		)


⁽¹⁾	Primarily related to hedges of interest rate risk on mortgage servicing rights (MSRs) and interest rate lock commitments (IRLCs) to originate mortgage loans that will be held for sale. The net gains on IRLCs, which are not included in the table but are considered derivative instruments, were $12 million and $14 million for the three months ended March 31, 2019 and 2018.

⁽²⁾

Primarily related to hedges of debt securities carried at fair value and hedges of foreign currency-denominated debt.

Schedule of Derivative Instruments Included in Trading Activities

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 the three months ended March 31, 2019 and 2018. The difference between total trading account income in the following table and in the Consolidated Statement of Income represents trading activities in business segments other than Global Markets. This table includes debit valuation adjustment (DVA) and funding valuation adjustment (FVA) gains (losses). Global Markets results in Note 18 – Business Segment Information are presented on a fully taxable-equivalent (FTE) basis. The table below is not presented on an FTE basis.




Sales and Trading Revenue

	Trading Account Income		Net Interest Income			Other ⁽¹⁾		Total
(Dollars in millions)	Three Months Ended March 31, 2019
Interest rate risk	$	286	$	414		$	82	$	782
Foreign exchange risk	318		16			3		337
Equity risk	969		(176		)	395		1,188
Credit risk	501		429			134		1,064
Other risk	9		19			12		40
Total sales and trading revenue	$	2,083	$	702		$	626	$	3,411

	Three Months Ended March 31, 2018
Interest rate risk	$	459	$	413		$	71	$	943
Foreign exchange risk	402		(1		)	4		405
Equity risk	1,126		(96		)	457		1,487
Credit risk	540		466			147		1,153
Other risk	29		47			15		91
Total sales and trading revenue	$	2,556	$	829		$	694	$	4,079

⁽¹⁾

Represents amounts in investment and brokerage services and other income that are recorded in Global Markets and included in the definition of sales and trading revenue. Includes investment and brokerage services revenue of $433 million and $476 million for the

Disclosure of Credit Derivatives

Credit derivative instruments where the Corporation is the seller of credit protection and their expiration at March 31, 2019 and December 31, 2018 are summarized in the following table.




Credit Derivative Instruments

	Less than One Year		One to Three Years		Three to Five Years		Over Five Years		Total
	March 31, 2019
(Dollars in millions)	Carrying Value
Credit default swaps:
Investment grade	$	—	$	7	$	188	$	505	$	700
Non-investment grade	174		486		757		1,311		2,728
Total	174		493		945		1,816		3,428
Total return swaps/options:
Investment grade	35		—		—		—		35
Non-investment grade	305		17		—		—		322
Total	340		17		—		—		357
Total credit derivatives	$	514	$	510	$	945	$	1,816	$	3,785
Credit-related notes:
Investment grade	$	—	$	3	$	—	$	575	$	578
Non-investment grade	1		—		1		1,569		1,571
Total credit-related notes	$	1	$	3	$	1	$	2,144	$	2,149
	Maximum Payout/Notional
Credit default swaps:
Investment grade	$	52,444	$	95,398	$	118,377	$	10,881	$	277,100
Non-investment grade	21,642		31,254		41,546		11,064		105,506
Total	74,086		126,652		159,923		21,945		382,606
Total return swaps/options:
Investment grade	54,991		430		60		73		55,554
Non-investment grade	17,245		436		39		65		17,785
Total	72,236		866		99		138		73,339
Total credit derivatives	$	146,322	$	127,518	$	160,022	$	22,083	$	455,945

	December 31, 2018
	Carrying Value
Credit default swaps:
Investment grade	$	2	$	44	$	436	$	488	$	970
Non-investment grade	132		636		914		1,691		3,373
Total	134		680		1,350		2,179		4,343
Total return swaps/options:
Investment grade	105		—		—		—		105
Non-investment grade	472		21		—		—		493
Total	577		21		—		—		598
Total credit derivatives	$	711	$	701	$	1,350	$	2,179	$	4,941
Credit-related notes:
Investment grade	$	—	$	—	$	4	$	532	$	536
Non-investment grade	1		1		1		1,500		1,503
Total credit-related notes	$	1	$	1	$	5	$	2,032	$	2,039
	Maximum Payout/Notional
Credit default swaps:
Investment grade	$	53,758	$	95,699	$	95,274	$	20,054	$	264,785
Non-investment grade	24,297		33,881		34,530		14,426		107,134
Total	78,055		129,580		129,804		34,480		371,919
Total return swaps/options:
Investment grade	60,042		822		59		72		60,995
Non-investment grade	24,524		1,649		39		70		26,282
Total	84,566		2,471		98		142		87,277
Total credit derivatives	$	162,621	$	132,051	$	129,902	$	34,622	$	459,196

Additional Collateral Required to be Posted Upon Downgrade

The table below presents the amount of additional collateral that would have been contractually required by derivative contracts and other trading agreements at March 31, 2019 if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by one incremental notch and by an additional second incremental notch.




Additional Collateral Required to be Posted Upon Downgrade at March 31, 2019

(Dollars in millions)	One incremental notch		Second incremental notch
Bank of America Corporation	$	448	$	383
Bank of America, N.A. and subsidiaries ⁽¹⁾	177		289

⁽¹⁾

Included in Bank of America Corporation collateral requirements in this table.

Derivative Liability Subject to Unilateral Termination Upon Downgrade

The following table presents the derivative liabilities that would be subject to unilateral termination by counterparties and the amounts of collateral that would have been contractually required at March 31, 2019 if the long-term senior debt ratings for the Corporation or certain subsidiaries had been lower by one incremental notch and by an additional second incremental notch.




Derivative Liabilities Subject to Unilateral Termination Upon Downgrade at March 31, 2019

(Dollars in millions)	One incremental notch		Second incremental notch
Derivative liabilities	$	90	$	633
Collateral posted	64		448

Valuation Adjustments on Derivatives

The table below presents credit valuation adjustment (CVA), DVA and FVA gains (losses) on derivatives, which are recorded in trading account income, on a gross and net of hedge basis for the three months ended March 31, 2019 and 2018. For more information on the valuation adjustments on derivatives, see Note 3 – Derivatives to the Consolidated Financial Statements of the Corporation’s 2018 Annual Report on Form 10-K.




Valuation Adjustments on Derivatives ⁽¹⁾

	Three Months Ended March 31
Gains (Losses)	2019						2018
(Dollars in millions)	Gross			Net			Gross			Net
Derivative assets (CVA)	$	66		$	25		$	(24	)	$	18
Derivative assets/liabilities (FVA)	7			23			(37		)	(1		)
Derivative liabilities (DVA)	(81		)	(65		)	114			106

⁽¹⁾

At March 31, 2019 and December 31, 2018, cumulative CVA reduced the derivative assets balance by $534 million and $600 million, cumulative FVA reduced the net derivatives balance by $144 million and $151 million, and cumulative DVA reduced the derivative liabilities balance by $350 million and $432 million, respectively.

Derivative

Derivative [Line Items]

Offsetting Assets

The following table presents derivative instruments included in derivative assets and liabilities on the Consolidated Balance Sheet at March 31, 2019 and December 31, 2018 by primary risk (e.g., interest rate risk) and the platform, where applicable, on

which these derivatives are transacted. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total gross derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements which include reducing the balance for counterparty netting and cash collateral received or paid.

For more information on offsetting of securities financing agreements, see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements, Short-term Borrowings and Restricted Cash.




Offsetting of Derivatives ⁽¹⁾

	Derivative Assets			Derivative Liabilities			Derivative Assets			Derivative Liabilities
(Dollars in billions)	March 31, 2019						December 31, 2018
Interest rate contracts
Over-the-counter	$	187.9		$	181.9		$	174.2		$	169.4
Over-the-counter cleared	5.5			4.7			4.8			4.0
Foreign exchange contracts
Over-the-counter	72.7			74.2			82.5			86.3
Over-the-counter cleared	1.0			1.1			0.9			0.9
Equity contracts
Over-the-counter	21.0			14.7			24.6			14.6
Exchange-traded	14.2			13.3			16.1			15.1
Commodity contracts
Over-the-counter	2.3			3.5			3.5			4.5
Exchange-traded	0.7			0.6			1.0			0.9
Credit derivatives
Over-the-counter	7.1			7.6			7.7			8.2
Over-the-counter cleared	3.3			3.1			2.5			2.3
Total gross derivative assets/liabilities, before netting
Over-the-counter	291.0			281.9			292.5			283.0
Exchange-traded	14.9			13.9			17.1			16.0
Over-the-counter cleared	9.8			8.9			8.2			7.2
Less: Legally enforceable master netting agreements and cash collateral received/paid
Over-the-counter	(265.7		)	(262.3		)	(264.4		)	(259.2		)
Exchange-traded	(12.3		)	(12.3		)	(13.5		)	(13.5		)
Over-the-counter cleared	(7.8		)	(7.3		)	(7.2		)	(7.2		)
Derivative assets/liabilities, after netting	29.9			22.8			32.7			26.3
Other gross derivative assets/liabilities ⁽²⁾	12.5			13.5			11.0			11.6
Total derivative assets/liabilities	42.4			36.3			43.7			37.9
Less: Financial instruments collateral ⁽³⁾	(15.4		)	(9.5		)	(16.3		)	(8.6		)
Total net derivative assets/liabilities	$	27.0		$	26.8		$	27.4		$	29.3


⁽¹⁾	Over-the-counter (OTC) derivatives include bilateral transactions between the Corporation and a particular counterparty. OTC-cleared derivatives include bilateral transactions between the Corporation and a counterparty where the transaction is cleared through a clearinghouse. Exchange-traded derivatives include listed options transacted on an exchange.


⁽²⁾	Consists of derivatives entered into under master netting agreements where the enforceability of these agreements is uncertain under bankruptcy laws in some countries or industries.

⁽³⁾

Amounts are limited to the derivative asset/liability balance and, accordingly, do not include excess collateral received/pledged. Financial instruments collateral includes securities collateral received or pledged and cash securities held and posted at third-party custodians that are not offset on the Consolidated Balance Sheet but shown as a reduction to derive net derivative assets and liabilities.

Offsetting Liabilities

For more information on offsetting of securities financing agreements, see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements, Short-term Borrowings and Restricted Cash.




Offsetting of Derivatives ⁽¹⁾

	Derivative Assets			Derivative Liabilities			Derivative Assets			Derivative Liabilities
(Dollars in billions)	March 31, 2019						December 31, 2018
Interest rate contracts
Over-the-counter	$	187.9		$	181.9		$	174.2		$	169.4
Over-the-counter cleared	5.5			4.7			4.8			4.0
Foreign exchange contracts
Over-the-counter	72.7			74.2			82.5			86.3
Over-the-counter cleared	1.0			1.1			0.9			0.9
Equity contracts
Over-the-counter	21.0			14.7			24.6			14.6
Exchange-traded	14.2			13.3			16.1			15.1
Commodity contracts
Over-the-counter	2.3			3.5			3.5			4.5
Exchange-traded	0.7			0.6			1.0			0.9
Credit derivatives
Over-the-counter	7.1			7.6			7.7			8.2
Over-the-counter cleared	3.3			3.1			2.5			2.3
Total gross derivative assets/liabilities, before netting
Over-the-counter	291.0			281.9			292.5			283.0
Exchange-traded	14.9			13.9			17.1			16.0
Over-the-counter cleared	9.8			8.9			8.2			7.2
Less: Legally enforceable master netting agreements and cash collateral received/paid
Over-the-counter	(265.7		)	(262.3		)	(264.4		)	(259.2		)
Exchange-traded	(12.3		)	(12.3		)	(13.5		)	(13.5		)
Over-the-counter cleared	(7.8		)	(7.3		)	(7.2		)	(7.2		)
Derivative assets/liabilities, after netting	29.9			22.8			32.7			26.3
Other gross derivative assets/liabilities ⁽²⁾	12.5			13.5			11.0			11.6
Total derivative assets/liabilities	42.4			36.3			43.7			37.9
Less: Financial instruments collateral ⁽³⁾	(15.4		)	(9.5		)	(16.3		)	(8.6		)
Total net derivative assets/liabilities	$	27.0		$	26.8		$	27.4		$	29.3


⁽¹⁾	Over-the-counter (OTC) derivatives include bilateral transactions between the Corporation and a particular counterparty. OTC-cleared derivatives include bilateral transactions between the Corporation and a counterparty where the transaction is cleared through a clearinghouse. Exchange-traded derivatives include listed options transacted on an exchange.


⁽²⁾	Consists of derivatives entered into under master netting agreements where the enforceability of these agreements is uncertain under bankruptcy laws in some countries or industries.

⁽³⁾