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, 2018

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, 2018 and 2017. 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.




			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, 3)}
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 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.


⁽³⁾	Derivative assets and liabilities for credit default swaps (CDS) reflect a central clearing counterparty’s amendments to legally re-characterize daily cash variation margin from collateral, which secures an outstanding exposure, to settlement, which discharges an outstanding exposure, effective in 2018.




			December 31, 2017
			Gross Derivative Assets							Gross Derivative Liabilities
(Dollars in billions)	Contract/ Notional ⁽¹⁾		Trading and Other Risk Management Derivatives		Qualifying Accounting Hedges		Total			Trading and Other Risk Management Derivatives		Qualifying Accounting Hedges		Total
Interest rate contracts
Swaps	$	15,416.4	$	175.1	$	2.9	$	178.0		$	172.5	$	1.7	$	174.2
Futures and forwards	4,332.4		0.5		—		0.5			0.5		—		0.5
Written options	1,170.5		—		—		—			35.5		—		35.5
Purchased options	1,184.5		37.6		—		37.6			—		—		—
Foreign exchange contracts
Swaps	2,011.1		35.6		2.2		37.8			36.1		2.7		38.8
Spot, futures and forwards	3,543.3		39.1		0.7		39.8			39.1		0.8		39.9
Written options	291.8		—		—		—			5.1		—		5.1
Purchased options	271.9		4.6		—		4.6			—		—		—
Equity contracts
Swaps	265.6		4.8		—		4.8			4.4		—		4.4
Futures and forwards	106.9		1.5		—		1.5			0.9		—		0.9
Written options	480.8		—		—		—			23.9		—		23.9
Purchased options	428.2		24.7		—		24.7			—		—		—
Commodity contracts
Swaps	46.1		1.8		—		1.8			4.6		—		4.6
Futures and forwards	47.1		3.5		—		3.5			0.6		—		0.6
Written options	21.7		—		—		—			1.4		—		1.4
Purchased options	22.9		1.4		—		1.4			—		—		—
Credit derivatives ⁽²⁾
Purchased credit derivatives:
Credit default swaps	470.9		4.1		—		4.1			11.1		—		11.1
Total return swaps/options	54.1		0.1		—		0.1			1.3		—		1.3
Written credit derivatives:
Credit default swaps	448.2		10.6		—		10.6			3.6		—		3.6
Total return swaps/options	55.2		0.8		—		0.8			0.2		—		0.2
Gross derivative assets/liabilities			$	345.8	$	5.8	$	351.6		$	340.8	$	5.2	$	346.0
Less: Legally enforceable master netting agreements							(279.2		)					(279.2		)
Less: Cash collateral received/paid							(34.6		)					(32.5		)
Total derivative assets/liabilities							$	37.8						$	34.3


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

⁽²⁾

The net derivative asset and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names were $6.4 billion and $435.1 billion at December 31, 2017.

Derivative [Line Items]

Gains and Losses on Derivatives Designated as Fair Value Hedges

The table below summarizes information related to fair value hedges for 2018, 2017 and 2016.




Gains and Losses on Derivatives Designated as Fair Value Hedges

	Derivative									Hedged Item
(Dollars in millions)	2018			2017			2016			2018		2017			2016
Interest rate risk on long-term debt ⁽¹⁾	$	(1,538	)	$	(1,537	)	$	(1,488	)	$	1,429	$	1,045		$	646
Interest rate and foreign currency risk on long-term debt ⁽²⁾	(1,187		)	1,811			(941		)	1,079		(1,767		)	944
Interest rate risk on available-for-sale securities ⁽³⁾	(52		)	(67		)	227			50		35			(286		)
Total	$	(2,777	)	$	207		$	(2,202	)	$	2,558	$	(687	)	$	1,304


⁽¹⁾	Amounts are recorded in interest expense in the Consolidated Statement of Income. In 2017 and 2016, amounts representing hedge ineffectiveness were losses of $492 million and $842 million.


⁽²⁾	In 2018, 2017 and 2016, the derivative amount includes losses of $992 million, gains of $2.2 billion and losses of $910 million, respectively, in other income and losses of $116 million, $365 million and $30 million, respectively, in interest expense. 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)

	December 31, 2018
(Dollars in millions)	Carrying Value			Cumulative Fair Value Adjustments ⁽¹⁾
Long-term debt	$	(138,682	)	$	(2,117	)
Available-for-sale debt securities	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 2018, 2017 and 2016.

Of the $1.0 billion after-tax net loss ($1.3 billion pretax) on derivatives in accumulated OCI at December 31, 2018, $253 million after-tax ($332 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

	Gains (Losses) Recognized in Accumulated OCI on Derivatives									Gains (Losses) in Income Reclassified from Accumulated OCI
(Dollars in millions, amounts pretax)	2018			2017			2016			2018			2017			2016
Cash flow hedges
Interest rate risk on variable-rate assets ⁽¹⁾	$	(159	)	$	(109	)	$	(340	)	$	(165	)	$	(327	)	$	(553	)
Price risk on certain restricted stock awards ⁽²⁾	4			59			41			27			148			(32		)
Total	$	(155	)	$	(50	)	$	(299	)	$	(138	)	$	(179	)	$	(585	)
Net investment hedges
Foreign exchange risk ⁽³⁾	$	989		$	(1,588	)	$	1,636		$	411		$	1,782		$	3


⁽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 personnel expense in the Consolidated Statement of Income.

⁽³⁾

Amounts reclassified from accumulated OCI are recorded in other income in the Consolidated Statement of Income. Amounts excluded from effectiveness testing and recognized in other income were gains of $47 million, $120 million and $325 million in 2018, 2017 and 2016, respectively.

Other Risk Management Derivatives

The table below presents gains (losses) on these derivatives for 2018, 2017 and 2016. These gains (losses) are largely offset by the income or expense that is recorded on the hedged item.




Gains and Losses on Other Risk Management Derivatives

(Dollars in millions)	2018			2017			2016
Interest rate risk on mortgage activities ⁽¹⁾	$	(107	)	$	8		$	461
Credit risk on loans	9			(6		)	(107		)
Interest rate and foreign currency risk on ALM activities ⁽²⁾	1,010			(36		)	(754		)


⁽¹⁾	Primarily related to hedges of interest rate risk on MSRs and 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 $47 million, $220 million and $533 million for 2018, 2017 and 2016, respectively.

⁽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 2018, 2017 and 2016. The difference between total trading account profits in the following table and in the Consolidated Statement of Income represents trading activities in business segments other than Global Markets. This table includes debit valuation adjustment (DVA) and funding valuation adjustment (FVA) gains (losses). Global Markets results in Note 23 – Business Segment Information are presented on a fully taxable-equivalent (FTE) basis. The table below is not presented on an FTE basis.




Sales and Trading Revenue

	Trading Account Profits		Net Interest Income			Other ⁽¹⁾		Total
(Dollars in millions)	2018
Interest rate risk	$	1,180	$	1,292		$	220	$	2,692
Foreign exchange risk	1,503		(7		)	6		1,502
Equity risk	3,994		(781		)	1,619		4,832
Credit risk	1,063		1,853			552		3,468
Other risk	189		64			66		319
Total sales and trading revenue	$	7,929	$	2,421		$	2,463	$	12,813
	2017
Interest rate risk	$	712	$	1,560		$	249	$	2,521
Foreign exchange risk	1,417		(1		)	7		1,423
Equity risk	2,689		(517		)	1,903		4,075
Credit risk	1,685		1,937			576		4,198
Other risk	203		45			76		324
Total sales and trading revenue	$	6,706	$	3,024		$	2,811	$	12,541
	2016
Interest rate risk	$	1,189	$	2,002		$	145	$	3,336
Foreign exchange risk	1,360		(10		)	5		1,355
Equity risk	1,917		28			2,074		4,019
Credit risk	1,674		1,956			424		4,054
Other risk	407		(7		)	39		439
Total sales and trading revenue	$	6,547	$	3,969		$	2,687	$	13,203

⁽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 $1.7 billion, $2.0 billion and $2.1 billion for 2018, 2017 and 2016, respectively.

Disclosure of Credit Derivatives

Credit derivative instruments where the Corporation is the seller of credit protection and their expiration at December 31, 2018 and 2017 are summarized in the following table.




Credit Derivative Instruments

	Less than One Year		One to Three Years		Three to Five Years		Over Five Years		Total
	December 31, 2018
(Dollars in millions)	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

	December 31, 2017
	Carrying Value
Credit default swaps:
Investment grade	$	4	$	3	$	61	$	245	$	313
Non-investment grade	203		453		484		2,133		3,273
Total	207		456		545		2,378		3,586
Total return swaps/options:
Investment grade	30		—		—		—		30
Non-investment grade	150		—		—		3		153
Total	180		—		—		3		183
Total credit derivatives	$	387	$	456	$	545	$	2,381	$	3,769
Credit-related notes:
Investment grade	$	—	$	—	$	7	$	689	$	696
Non-investment grade	12		4		34		1,548		1,598
Total credit-related notes	$	12	$	4	$	41	$	2,237	$	2,294
	Maximum Payout/Notional
Credit default swaps:
Investment grade	$	61,388	$	115,480	$	107,081	$	21,579	$	305,528
Non-investment grade	39,312		49,843		39,098		14,420		142,673
Total	100,700		165,323		146,179		35,999		448,201
Total return swaps/options:
Investment grade	37,394		2,581		—		143		40,118
Non-investment grade	13,751		514		143		697		15,105
Total	51,145		3,095		143		840		55,223
Total credit derivatives	$	151,845	$	168,418	$	146,322	$	36,839	$	503,424

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, 2018 if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by one incremental notch and by an additional second incremental notch.




Additional Collateral Required to be Posted Upon Downgrade at December 31, 2018

(Dollars in millions)	One incremental notch		Second incremental notch
Bank of America Corporation	$	619	$	347
Bank of America, N.A. and subsidiaries ⁽¹⁾	209		268

⁽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 December 31, 2018 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 December 31, 2018

(Dollars in millions)	One incremental notch		Second incremental notch
Derivative liabilities	$	13	$	581
Collateral posted	1		305

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 2018, 2017 and 2016. CVA gains reduce the cumulative CVA thereby increasing the derivative assets balance. DVA gains increase the cumulative DVA thereby decreasing the derivative liabilities balance. CVA and DVA losses have the opposite impact. FVA gains related to derivative assets reduce the cumulative FVA thereby increasing the derivative assets balance. FVA gains related to derivative liabilities increase the cumulative FVA thereby decreasing the derivative liabilities balance. FVA losses have the opposite impact.




Valuation Adjustments on Derivatives ⁽¹⁾

Gains (Losses)	Gross			Net			Gross			Net			Gross		Net
(Dollars in millions)	2018						2017						2016
Derivative assets (CVA)	$	77		$	187		$	330		$	98		$	374	$	214
Derivative assets/liabilities (FVA)	(15		)	14			160			178			186		102
Derivative liabilities (DVA)	(19		)	(55		)	(324		)	(281		)	24		(141		)

⁽¹⁾

At December 31, 2018, 2017 and 2016, cumulative CVA reduced the derivative assets balance by $600 million, $677 million and $1.0 billion, cumulative FVA reduced the net derivatives balance by $151 million, $136 million and $296 million, and cumulative DVA reduced the derivative liabilities balance by $432 million, $450 million and $774 million, respectively.

Derivative

Derivative [Line Items]

Offsetting Assets

The following table presents derivative instruments included in derivative assets and liabilities on the Consolidated Ba

lance Sheet at December 31, 2018 and 2017 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)	December 31, 2018						December 31, 2017
Interest rate contracts
Over-the-counter	$	174.2		$	169.4		$	211.7		$	206.0
Over-the-counter cleared	4.8			4.0			1.9			1.8
Foreign exchange contracts
Over-the-counter	82.5			86.3			78.7			80.8
Over-the-counter cleared	0.9			0.9			0.9			0.7
Equity contracts
Over-the-counter	24.6			14.6			18.3			16.2
Exchange-traded	16.1			15.1			9.1			8.5
Commodity contracts
Over-the-counter	3.5			4.5			2.9			4.4
Exchange-traded	1.0			0.9			0.7			0.8
Credit derivatives
Over-the-counter	7.7			8.2			9.1			9.6
Over-the-counter cleared	2.5			2.3			6.1			6.0
Total gross derivative assets/liabilities, before netting
Over-the-counter	292.5			283.0			320.7			317.0
Exchange-traded	17.1			16.0			9.8			9.3
Over-the-counter cleared	8.2			7.2			8.9			8.5
Less: Legally enforceable master netting agreements and cash collateral received/paid
Over-the-counter	(264.4		)	(259.2		)	(296.9		)	(294.6		)
Exchange-traded	(13.5		)	(13.5		)	(8.6		)	(8.6		)
Over-the-counter cleared	(7.2		)	(7.2		)	(8.3		)	(8.5		)
Derivative assets/liabilities, after netting	32.7			26.3			25.6			23.1
Other gross derivative assets/liabilities ⁽²⁾	11.0			11.6			12.2			11.2
Total derivative assets/liabilities	43.7			37.9			37.8			34.3
Less: Financial instruments collateral ⁽³⁾	(16.3		)	(8.6		)	(11.2		)	(10.4		)
Total net derivative assets/liabilities	$	27.4		$	29.3		$	26.6		$	23.9


⁽¹⁾	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

The following table presents derivative instruments included in derivative assets and liabilities on the Consolidated Ba

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)	December 31, 2018						December 31, 2017
Interest rate contracts
Over-the-counter	$	174.2		$	169.4		$	211.7		$	206.0
Over-the-counter cleared	4.8			4.0			1.9			1.8
Foreign exchange contracts
Over-the-counter	82.5			86.3			78.7			80.8
Over-the-counter cleared	0.9			0.9			0.9			0.7
Equity contracts
Over-the-counter	24.6			14.6			18.3			16.2
Exchange-traded	16.1			15.1			9.1			8.5
Commodity contracts
Over-the-counter	3.5			4.5			2.9			4.4
Exchange-traded	1.0			0.9			0.7			0.8
Credit derivatives
Over-the-counter	7.7			8.2			9.1			9.6
Over-the-counter cleared	2.5			2.3			6.1			6.0
Total gross derivative assets/liabilities, before netting
Over-the-counter	292.5			283.0			320.7			317.0
Exchange-traded	17.1			16.0			9.8			9.3
Over-the-counter cleared	8.2			7.2			8.9			8.5
Less: Legally enforceable master netting agreements and cash collateral received/paid
Over-the-counter	(264.4		)	(259.2		)	(296.9		)	(294.6		)
Exchange-traded	(13.5		)	(13.5		)	(8.6		)	(8.6		)
Over-the-counter cleared	(7.2		)	(7.2		)	(8.3		)	(8.5		)
Derivative assets/liabilities, after netting	32.7			26.3			25.6			23.1
Other gross derivative assets/liabilities ⁽²⁾	11.0			11.6			12.2			11.2
Total derivative assets/liabilities	43.7			37.9			37.8			34.3
Less: Financial instruments collateral ⁽³⁾	(16.3		)	(8.6		)	(11.2		)	(10.4		)
Total net derivative assets/liabilities	$	27.4		$	29.3		$	26.6		$	23.9


⁽¹⁾	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⁾