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, 2015

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, 2015 and 2014. 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, 2015
			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	$	21,706.8	$	439.6	$	7.4	$	447.0		$	440.7	$	1.2	$	441.9
Futures and forwards	7,259.7		1.1		—		1.1			1.3		—		1.3
Written options	1,322.4		—		—		—			57.7		—		57.7
Purchased options	1,403.3		58.9		—		58.9			—		—		—
Foreign exchange contracts
Swaps	2,149.9		49.2		0.9		50.1			52.2		2.8		55.0
Spot, futures and forwards	4,104.4		46.0		1.2		47.2			45.8		0.3		46.1
Written options	467.2		—		—		—			10.6		—		10.6
Purchased options	439.9		10.2		—		10.2			—		—		—
Equity contracts
Swaps	201.2		3.3		—		3.3			3.8		—		3.8
Futures and forwards	74.0		2.1		—		2.1			1.2		—		1.2
Written options	352.8		—		—		—			21.1		—		21.1
Purchased options	325.4		23.8		—		23.8			—		—		—
Commodity contracts
Swaps	47.0		4.7		—		4.7			7.1		—		7.1
Futures and forwards	268.7		3.8		—		3.8			0.7		—		0.7
Written options	58.7		—		—		—			5.5		—		5.5
Purchased options	65.7		5.3		—		5.3			—		—		—
Credit derivatives
Purchased credit derivatives:
Credit default swaps	928.3		14.4		—		14.4			14.8		—		14.8
Total return swaps/other	26.4		0.2		—		0.2			1.9		—		1.9
Written credit derivatives:
Credit default swaps	924.1		15.3		—		15.3			13.1		—		13.1
Total return swaps/other	39.7		2.3		—		2.3			0.4		—		0.4
Gross derivative assets/liabilities			$	680.2	$	9.5	$	689.7		$	677.9	$	4.3	$	682.2
Less: Legally enforceable master netting agreements							(597.8		)					(597.8		)
Less: Cash collateral received/paid							(41.9		)					(45.9		)
Total derivative assets/liabilities							$	50.0						$	38.5


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




			December 31, 2014
			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	$	29,445.4	$	658.5	$	8.5	$	667.0		$	658.2	$	0.5	$	658.7
Futures and forwards	10,159.4		1.7		—		1.7			2.0		—		2.0
Written options	1,725.2		—		—		—			85.4		—		85.4
Purchased options	1,739.8		85.6		—		85.6			—		—		—
Foreign exchange contracts
Swaps	2,159.1		51.5		0.8		52.3			54.6		1.9		56.5
Spot, futures and forwards	4,226.4		68.9		1.5		70.4			72.4		0.2		72.6
Written options	600.7		—		—		—			16.0		—		16.0
Purchased options	584.6		15.1		—		15.1			—		—		—
Equity contracts
Swaps	193.7		3.2		—		3.2			4.0		—		4.0
Futures and forwards	69.5		2.1		—		2.1			1.8		—		1.8
Written options	341.0		—		—		—			26.0		—		26.0
Purchased options	318.4		27.9		—		27.9			—		—		—
Commodity contracts
Swaps	74.3		5.8		—		5.8			8.5		—		8.5
Futures and forwards	376.5		4.5		—		4.5			1.8		—		1.8
Written options	129.5		—		—		—			11.5		—		11.5
Purchased options	141.3		10.7		—		10.7			—		—		—
Credit derivatives
Purchased credit derivatives:
Credit default swaps	1,094.8		13.3		—		13.3			23.4		—		23.4
Total return swaps/other	44.3		0.2		—		0.2			1.4		—		1.4
Written credit derivatives:
Credit default swaps	1,073.1		24.5		—		24.5			11.9		—		11.9
Total return swaps/other	61.0		0.5		—		0.5			0.3		—		0.3
Gross derivative assets/liabilities			$	974.0	$	10.8	$	984.8		$	979.2	$	2.6	$	981.8
Less: Legally enforceable master netting agreements							(884.8		)					(884.8		)
Less: Cash collateral received/paid							(47.3		)					(50.1		)
Total derivative assets/liabilities							$	52.7						$	46.9


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

Derivative [Line Items]

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

The table below summarizes information related to fair value hedges for 2015, 2014 and 2013, including hedges of interest rate risk on long-term debt that were acquired as part of a business combination and redesignated at that time. 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)	2015
(Dollars in millions)	Derivative			Hedged Item			Hedge Ineffectiveness
Interest rate risk on long-term debt ⁽¹⁾	$	(718	)	$	(77	)	$	(795	)
Interest rate and foreign currency risk on long-term debt ⁽¹⁾	(1,898		)	1,812			(86		)
Interest rate risk on available-for-sale securities ⁽²⁾	105			(127		)	(22		)
Price risk on commodity inventory ⁽³⁾	15			(11		)	4
Total	$	(2,496	)	$	1,597		$	(899	)

	2014
Interest rate risk on long-term debt ⁽¹⁾	$	2,144		$	(2,935	)	$	(791	)
Interest rate and foreign currency risk on long-term debt ⁽¹⁾	(2,212		)	2,120			(92		)
Interest rate risk on available-for-sale securities ⁽²⁾	(35		)	3			(32		)
Price risk on commodity inventory ⁽³⁾	21			(15		)	6
Total	$	(82	)	$	(827	)	$	(909	)

	2013
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	)


⁽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.


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

Cash Flow and Net Investment Hedges

The table below summarizes certain information related to cash flow hedges and net investment hedges for 2015, 2014 and 2013. Of the $1.1 billion net loss (after-tax) on derivatives in accumulated OCI for 2015, $563 million ($352 million after-tax) 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. Amounts related to price risk on restricted stock awards reclassified from accumulated OCI are recorded in personnel expense. For terminated cash flow hedges, the time period over which substantially all of the forecasted transactions are hedged is approximately seven years, with a maximum length of time for certain forecasted transactions of 20 years.




Derivatives Designated as Cash Flow and Net Investment Hedges

	2015
(Dollars in millions, amounts pretax)	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	$	95		$	(974	)	$	(2	)
Price risk on restricted stock awards ⁽²⁾	(40		)	91			—
Total	$	55		$	(883	)	$	(2	)
Net investment hedges
Foreign exchange risk	$	3,010		$	153		$	(298	)

	2014
Cash flow hedges
Interest rate risk on variable-rate portfolios	$	68		$	(1,119	)	$	(4	)
Price risk on restricted stock awards⁽²⁾	127			359			—
Total	$	195		$	(760	)	$	(4	)
Net investment hedges
Foreign exchange risk	$	3,021		$	21		$	(503	)

	2013
Cash flow hedges
Interest rate risk on variable-rate portfolios	$	(321	)	$	(1,102	)	$	—
Price risk on restricted stock awards ⁽²⁾	477			329			—
Total	$	156		$	(773	)	$	—
Net investment hedges
Foreign exchange risk	$	1,024		$	(355	)	$	(134	)


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


⁽²⁾	The hedge gain (loss) recognized in accumulated OCI is primarily related to the change in the Corporation’s stock price for the period.

Other Risk Management Derivatives

The table below presents gains (losses) on these derivatives for 2015, 2014 and 2013. 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)	2015			2014			2013
Interest rate risk on mortgage banking income ⁽¹⁾	$	254		$	1,017		$	(619	)
Credit risk on loans ⁽²⁾	(22		)	16			(47		)
Interest rate and foreign currency risk on ALM activities ⁽³⁾	(222		)	(3,683		)	2,501
Price risk on restricted stock awards ⁽⁴⁾	(267		)	600			865
Other	11			(9		)	(19		)

⁽¹⁾

Net gains (losses) on these derivatives are recorded in mortgage banking income as they are used to mitigate the interest rate risk related to MSRs, IRLCs and mortgage loans held-for-sale, all of which are measured at fair value with changes in fair value recorded in mortgage banking income. The net gains on IRLCs related to the origination of mortgage loans that are held-for-sale, which are not included in the table but are considered derivative instruments, were $714 million, $776 million and $927 million for 2015, 2014 and 2013, respectively.


⁽²⁾	Primarily related to derivatives that are economic hedges of credit risk on loans. Net gains (losses) on these derivatives are recorded in other income.


⁽³⁾	Primarily related to hedges of debt securities carried at fair value and hedges of foreign currency-denominated debt. Gains (losses) on these derivatives and the related hedged items are recorded in other income.


⁽⁴⁾	Gains (losses) on these derivatives are recorded in personnel expense.

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 2015, 2014 and 2013. 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 DVA and funding valuation adjustment (FVA) gains (losses). 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 an FTE basis.

The results for 2015 were impacted by the early adoption of new accounting guidance on recognition and measurement of financial instruments. As such, amounts in the "Other" column for 2015 exclude unrealized DVA resulting from changes in the Corporation’s own credit spreads on liabilities accounted for under the fair value option. Amounts for 2014 and 2013 include such amounts. For more information on the new accounting guidance, see Note 1 – Summary of Significant Accounting Principles.




Sales and Trading Revenue

	2015
(Dollars in millions)	Trading Account Profits		Net Interest Income			Other ⁽¹⁾			Total
Interest rate risk	$	1,251	$	1,457		$	(319	)	$	2,389
Foreign exchange risk	1,322		(10		)	(117		)	1,195
Equity risk	2,115		56			2,146			4,317
Credit risk	901		2,360			452			3,713
Other risk	481		(80		)	61			462
Total sales and trading revenue	$	6,070	$	3,783		$	2,223		$	12,076

	2014
Interest rate risk	$	962	$	1,097		$	401		$	2,460
Foreign exchange risk	1,177		7			(128		)	1,056
Equity risk	1,954		(79		)	2,307			4,182
Credit risk	1,396		2,563			617			4,576
Other risk	508		(123		)	106			491
Total sales and trading revenue	$	5,997	$	3,465		$	3,303		$	12,765

	2013
Interest rate risk	$	1,217	$	1,158		$	(290	)	$	2,085
Foreign exchange risk	1,169		6			(100		)	1,075
Equity risk	1,994		112			2,066			4,172
Credit risk	1,966		2,647			77			4,690
Other risk	388		(217		)	69			240
Total sales and trading revenue	$	6,734	$	3,706		$	1,822		$	12,262


⁽¹⁾	Represents amounts in investment and brokerage services and other income that are recorded in Global Markets and included in the definition of sales and trading revenue. Includes investment and brokerage services revenue of $2.2 billion, $2.2 billion and $2.1 billion for 2015, 2014 and 2013, respectively.

Disclosure of Credit Derivatives

Credit derivative instruments where the Corporation is the seller of credit protection and their expiration at December 31, 2015 and 2014 are summarized 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, 2015
	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	$	84	$	481	$	2,203	$	680	$	3,448
Non-investment grade	672		3,035		2,386		3,583		9,676
Total	756		3,516		4,589		4,263		13,124
Total return swaps/other:
Investment grade	5		—		—		—		5
Non-investment grade	171		236		8		2		417
Total	176		236		8		2		422
Total credit derivatives	$	932	$	3,752	$	4,597	$	4,265	$	13,546
Credit-related notes:
Investment grade	$	267	$	57	$	444	$	2,203	$	2,971
Non-investment grade	61		118		117		1,264		1,560
Total credit-related notes	$	328	$	175	$	561	$	3,467	$	4,531
	Maximum Payout/Notional
Credit default swaps:
Investment grade	$	149,177	$	280,658	$	178,990	$	26,352	$	635,177
Non-investment grade	81,596		135,850		53,299		18,221		288,966
Total	230,773		416,508		232,289		44,573		924,143
Total return swaps/other:
Investment grade	9,758		—		—		—		9,758
Non-investment grade	20,917		6,989		1,371		623		29,900
Total	30,675		6,989		1,371		623		39,658
Total credit derivatives	$	261,448	$	423,497	$	233,660	$	45,196	$	963,801



	December 31, 2014
	Carrying Value
Credit default swaps:
Investment grade	$	100	$	714	$	1,455	$	939	$	3,208
Non-investment grade	916		2,107		1,338		4,301		8,662
Total	1,016		2,821		2,793		5,240		11,870
Total return swaps/other:
Investment grade	24		—		—		—		24
Non-investment grade	64		247		2		—		313
Total	88		247		2		—		337
Total credit derivatives	$	1,104	$	3,068	$	2,795	$	5,240	$	12,207
Credit-related notes:
Investment grade	$	2	$	365	$	568	$	2,634	$	3,569
Non-investment grade	5		141		85		1,443		1,674
Total credit-related notes	$	7	$	506	$	653	$	4,077	$	5,243
	Maximum Payout/Notional
Credit default swaps:
Investment grade	$	132,974	$	342,914	$	242,728	$	28,982	$	747,598
Non-investment grade	54,326		170,580		80,011		20,586		325,503
Total	187,300		513,494		322,739		49,568		1,073,101
Total return swaps/other:
Investment grade	22,645		—		—		—		22,645
Non-investment grade	23,839		10,792		3,268		487		38,386
Total	46,484		10,792		3,268		487		61,031
Total credit derivatives	$	233,784	$	524,286	$	326,007	$	50,055	$	1,134,132

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 December 31, 2015 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, 2015
(Dollars in millions)	One incremental notch		Second incremental notch
Bank of America Corporation	$	1,011	$	1,948
Bank of America, N.A. and subsidiaries ⁽¹⁾	762		1,474


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

Derivative Liability subject to unilateral termination upon downgrade

The table below presents the derivative liabilities that would be subject to unilateral termination by counterparties and the amounts of collateral that would have been contractually required at December 31, 2015 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

	December 31, 2015
(Dollars in millions)	One incremental notch		Second incremental notch
Derivative liabilities	$	879	$	2,792
Collateral posted	501		2,269

Valuation Adjustments on Derivatives

The table below presents CVA, DVA and FVA gains (losses) on derivatives, which are recorded in trading account profits, on a gross and net of hedge basis for 2015, 2014 and 2013. CVA gains reduce the cumulative CVA thereby increasing the derivative assets balance. DVA gains increase the cumulative DVA thereby decreasing the derivative liabilities balance. CVA and DVA losses have the opposite impact. FVA gains related to derivative assets reduce the cumulative FVA thereby increasing the derivative assets balance. FVA gains related to derivative liabilities increase the cumulative FVA thereby decreasing the derivative liabilities balance.




Valuation Adjustments on Derivatives

Gains (Losses)
	2015						2014						2013
(Dollars in millions)	Gross			Net			Gross			Net			Gross			Net
Derivative assets (CVA) ⁽¹⁾	$	255		$	227		$	(22	)	$	191		$	738		$	(96	)
Derivative assets (FVA) ⁽²⁾	(34		)	(34		)	(632		)	(632		)	n/a			n/a
Derivative liabilities (DVA) ⁽³⁾	(18		)	(153		)	(28		)	(150		)	(39		)	(75		)
Derivative liabilities (FVA) ⁽²⁾	50			50			135			135			n/a			n/a


⁽¹⁾	At December 31, 2015, 2014 and 2013, the cumulative CVA reduced the derivative assets balance by $1.4 billion, $1.6 billion and $1.6 billion, respectively.


⁽²⁾	FVA was adopted in 2014 and the cumulative FVA reduced the net derivatives balance by $481 million and $497 million at December 31, 2015 and 2014.


⁽³⁾	At December 31, 2015, 2014 and 2013, the cumulative DVA reduced the derivative liabilities balance by $750 million, $769 million and $803 million, respectively.

n/a = not applicable

Derivative

Derivative [Line Items]

Offsetting Liabilities




Offsetting of Derivatives

	December 31, 2015						December 31, 2014
(Dollars in billions)	Derivative Assets			Derivative Liabilities			Derivative Assets			Derivative Liabilities
Interest rate contracts
Over-the-counter	$	309.3		$	297.2		$	386.6		$	373.2
Exchange-traded	—			—			0.1			0.1
Over-the-counter cleared	197.0			201.7			365.7			368.7
Foreign exchange contracts
Over-the-counter	103.2			107.5			133.0			139.9
Over-the-counter cleared	0.1			0.1			—			—
Equity contracts
Over-the-counter	16.6			14.0			19.5			16.7
Exchange-traded	10.0			9.2			8.6			7.8
Commodity contracts
Over-the-counter	7.3			8.9			10.2			11.9
Exchange-traded	2.9			2.9			7.4			7.7
Over-the-counter cleared	0.1			0.1			0.1			0.6
Credit derivatives
Over-the-counter	24.6			22.9			30.8			30.2
Over-the-counter cleared	6.5			6.4			7.0			6.8
Total gross derivative assets/liabilities, before netting
Over-the-counter	461.0			450.5			580.1			571.9
Exchange-traded	12.9			12.1			16.1			15.6
Over-the-counter cleared	203.7			208.3			372.8			376.1
Less: Legally enforceable master netting agreements and cash collateral received/paid
Over-the-counter	(426.6		)	(425.7		)	(545.7		)	(545.5		)
Exchange-traded	(9.8		)	(9.8		)	(13.9		)	(13.9		)
Over-the-counter cleared	(203.3		)	(208.2		)	(372.5		)	(375.5		)
Derivative assets/liabilities, after netting	37.9			27.2			36.9			28.7
Other gross derivative assets/liabilities	12.1			11.3			15.8			18.2
Total derivative assets/liabilities	50.0			38.5			52.7			46.9
Less: Financial instruments collateral ⁽¹⁾	(13.9		)	(6.5		)	(13.3		)	(8.9		)
Total net derivative assets/liabilities	$	36.1		$	32.0		$	39.4		$	38.0


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

Offsetting Assets




Offsetting of Derivatives

	December 31, 2015						December 31, 2014
(Dollars in billions)	Derivative Assets			Derivative Liabilities			Derivative Assets			Derivative Liabilities
Interest rate contracts
Over-the-counter	$	309.3		$	297.2		$	386.6		$	373.2
Exchange-traded	—			—			0.1			0.1
Over-the-counter cleared	197.0			201.7			365.7			368.7
Foreign exchange contracts
Over-the-counter	103.2			107.5			133.0			139.9
Over-the-counter cleared	0.1			0.1			—			—
Equity contracts
Over-the-counter	16.6			14.0			19.5			16.7
Exchange-traded	10.0			9.2			8.6			7.8
Commodity contracts
Over-the-counter	7.3			8.9			10.2			11.9
Exchange-traded	2.9			2.9			7.4			7.7
Over-the-counter cleared	0.1			0.1			0.1			0.6
Credit derivatives
Over-the-counter	24.6			22.9			30.8			30.2
Over-the-counter cleared	6.5			6.4			7.0			6.8
Total gross derivative assets/liabilities, before netting
Over-the-counter	461.0			450.5			580.1			571.9
Exchange-traded	12.9			12.1			16.1			15.6
Over-the-counter cleared	203.7			208.3			372.8			376.1
Less: Legally enforceable master netting agreements and cash collateral received/paid
Over-the-counter	(426.6		)	(425.7		)	(545.7		)	(545.5		)
Exchange-traded	(9.8		)	(9.8		)	(13.9		)	(13.9		)
Over-the-counter cleared	(203.3		)	(208.2		)	(372.5		)	(375.5		)
Derivative assets/liabilities, after netting	37.9			27.2			36.9			28.7
Other gross derivative assets/liabilities	12.1			11.3			15.8			18.2
Total derivative assets/liabilities	50.0			38.5			52.7			46.9
Less: Financial instruments collateral ⁽¹⁾	(13.9		)	(6.5		)	(13.3		)	(8.9		)
Total net derivative assets/liabilities	$	36.1		$	32.0		$	39.4		$	38.0


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