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

Quarterly report pursuant to Section 13 or 15(d)

Fair Value Option

Fair Value Option

6 Months Ended

Jun. 30, 2015

NOTE 15 – Fair Value Option

The Corporation elects to account for certain financial instruments under the fair value option. For more information on the primary financial instruments for which the fair value option elections have been made, see Note 21 – Fair Value Option to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K.

The table below provides information about the fair value carrying amount and the contractual principal outstanding of assets and liabilities accounted for under the fair value option at June 30, 2015 and December 31, 2014.



Fair Value Option Elections
	June 30, 2015							December 31, 2014
(Dollars in millions)	Fair Value Carrying Amount		Contractual Principal Outstanding		Fair Value Carrying Amount Less Unpaid Principal			Fair Value Carrying Amount		Contractual Principal Outstanding		Fair Value Carrying Amount Less Unpaid Principal
Federal funds sold and securities borrowed or purchased under agreements to resell	$	70,791	$	70,490	$	301		$	62,182	$	61,902	$	280
Loans reported as trading account assets⁽¹⁾	4,286		8,374		(4,088		)	4,607		8,487		(3,880		)
Trading inventory – other	7,039		n/a		n/a			6,865		n/a		n/a
Consumer and commercial loans	7,629		7,880		(251		)	8,681		8,925		(244		)
Loans held-for-sale	4,924		6,335		(1,411		)	6,801		8,072		(1,271		)
Other assets	268		270		(2		)	253		270		(17		)
Long-term deposits	1,215		1,123		92			1,469		1,361		108
Federal funds purchased and securities loaned or sold under agreements to repurchase	32,017		32,534		(517		)	35,357		35,332		25
Unfunded loan commitments	392		n/a		n/a			405		n/a		n/a
Short-term borrowings	1,841		1,841		—			2,697		2,697		—
Long-term debt ⁽²⁾	32,920		32,603		317			36,404		35,815		589


⁽¹⁾	A significant portion of the loans reported as trading account assets are distressed loans which trade and were purchased at a deep discount to par, and the remainder are loans with a fair value near contractual principal outstanding.


⁽²⁾	Includes structured liabilities with a fair value of $31.9 billion and contractual principal outstanding of $31.4 billion at June 30, 2015 compared to $35.3 billion and $34.6 billion at December 31, 2014.

n/a = not applicable

The following tables provide information about where changes in the fair value of assets and liabilities accounted for under the fair value option are included in the Consolidated Statement of Income for the three and six months ended June 30, 2015 and 2014. Of the changes in fair value for loans reported as trading account assets, gains of $22 million and $30 million were attributable to changes in borrower-specific credit risk for the three and six months ended June 30, 2015 compared to gains of $1 million for both of the same periods in 2014. Of the changes in fair value for consumer and commercial loans, gains of $16 million and losses of $12 million were attributable to changes in borrower-specific credit risk for the three and six months ended June 30, 2015 compared to gains of $43 million and $79 million for the same periods in 2014. Of the changes in fair value for LHFS, gains of $11 million and $50 million were attributable to changes in borrower-specific credit risk for the three and six months ended June 30, 2015 compared to gains of $22 million and $49 million for the same periods in 2014.



Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option
	Three Months Ended June 30, 2015
(Dollars in millions)	Trading Account Profits (Losses)			Mortgage Banking Income (Loss)		Other Income (Loss)			Total
Federal funds sold and securities borrowed or purchased under agreements to resell	$	(24	)	$	—	$	—		$	(24	)
Loans reported as trading account assets	33			—		—			33
Trading inventory – other ⁽¹⁾	188			—		—			188
Consumer and commercial loans	(6		)	—		16			10
Loans held-for-sale⁽²⁾	26			107		25			158
Other assets	—			—		(1		)	(1		)
Long-term deposits	4			—		26			30
Federal funds purchased and securities loaned or sold under agreements to repurchase	(6		)	—		—			(6		)
Unfunded loan commitments	—			—		(63		)	(63		)
Long-term debt ⁽³⁾	337			—		106			443
Total	$	552		$	107	$	109		$	768

	Three Months Ended June 30, 2014
Federal funds sold and securities borrowed or purchased under agreements to resell	$	(13	)	$	—	$	—		$	(13	)
Loans reported as trading account assets	14			—		—			14
Trading inventory – other ⁽¹⁾	(122		)	—		—			(122		)
Consumer and commercial loans	13			—		53			66
Loans held-for-sale ⁽²⁾	(3		)	197		30			224
Other assets	—			—		2			2
Long-term deposits	(2		)	—		(3		)	(5		)
Unfunded loan commitments	—			—		5			5
Short-term borrowings	18			—		—			18
Long-term debt ⁽³⁾	(259		)	—		68			(191		)
Total	$	(354	)	$	197	$	155		$	(2	)


⁽¹⁾	The gains (losses) in trading account profits (losses) are primarily offset by gains (losses) on trading liabilities that hedge these assets.


⁽²⁾	Includes the value of interest rate lock commitments on loans funded, including those sold during the period.


⁽³⁾	The majority of the net gains (losses) in trading account profits (losses) relate to the embedded derivative in structured liabilities and are offset by gains (losses) on derivatives and securities that hedge these liabilities. The net gains (losses) in other income (loss) relate to the impact on structured liabilities of changes in the Corporation's credit spreads.



Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option
	Six Months Ended June 30, 2015
(Dollars in millions)	Trading Account Profits (Losses)			Mortgage Banking Income (Loss)		Other Income (Loss)			Total
Federal funds sold and securities borrowed or purchased under agreements to resell	$	(88	)	$	—	$	—		$	(88	)
Loans reported as trading account assets	(68		)	—		—			(68		)
Trading inventory – other ⁽¹⁾	174			—		—			174
Consumer and commercial loans	29			—		(67		)	(38		)
Loans held-for-sale ⁽²⁾	(21		)	372		88			439
Other assets	—			—		7			7
Long-term deposits	—			—		21			21
Federal funds purchased and securities loaned or sold under agreements to repurchase	48			—		—			48
Unfunded loan commitments	—			—		55			55
Short-term borrowings	(1		)	—		—			(1		)
Long-term debt⁽³⁾	590			—		171			761
Total	$	663		$	372	$	275		$	1,310

	Six Months Ended June 30, 2014
Federal funds sold and securities borrowed or purchased under agreements to resell	$	(33	)	$	—	$	—		$	(33	)
Loans reported as trading account assets	48			—		—			48
Trading inventory – other ⁽¹⁾	(290		)	—		—			(290		)
Consumer and commercial loans	18			—		105			123
Loans held-for-sale ⁽²⁾	(4		)	383		70			449
Long-term deposits	11			—		(12		)	(1		)
Federal funds purchased and securities loaned or sold under agreements to repurchase	(2		)	—		—			(2		)
Unfunded loan commitments	—			—		14			14
Short-term borrowings	54			—		—			54
Long-term debt ⁽³⁾	(627		)	—		265			(362		)
Total	$	(825	)	$	383	$	442		$	—


⁽¹⁾	The gains (losses) in trading account profits (losses) are primarily offset by gains (losses) on trading liabilities that hedge these assets.


⁽²⁾	Includes the value of interest rate lock commitments on loans funded, including those sold during the period.


⁽³⁾	The majority of the net gains (losses) in trading account profits (losses) relate to the embedded derivative in structured liabilities and are offset by gains (losses) on derivatives and securities that hedge these liabilities. The net gains (losses) in other income (loss) relate to the impact on structured liabilities of changes in the Corporation's credit spreads.

- Definition

The entire disclosure for a company's election to apply the fair value option for measurement and reporting of eligible financial assets and liabilities (as defined), as well as certain other eligible items (as defined) included in the statement of financial position, whether such option is elected for a single eligible item or a group of similar eligible items and is in addition to other disclosures concerning fair value which the company may be required to provide. Such disclosure might be expected to include: (1) for items included in the statement of financial position: (a) the reasons for electing a fair value option for each eligible item or group of similar eligible items; (b) if the fair value option is elected for some but not all eligible items within a group of similar eligible items: (i) a description of those similar items and the reasons for partial election and (ii) information of how the group of similar items relates to individual balance sheet line items; (c) for each line item in the statement of financial position that includes an item or items for which the fair value option has been elected: (i) information of how each line item in the statement of financial position relates to major categories of assets and liabilities presented in accordance with other fair value disclosures and (ii) the aggregate carrying amount of ineligible items included in each line item in the balance sheet, if any; (d) the difference between the aggregate fair value and the aggregate unpaid principal balance (assuming contractual principal amounts and fair value option elected) of: (i) loans and long-term receivables (other than securities otherwise reported at fair value) and (ii) long-term debt instruments; (e) for loans held as assets for which the fair value option has been elected: (i) the aggregate fair value of loans that are 90 days or more past due, (ii) if the policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in nonaccrual status, and (iii) the difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in nonaccrual status, or both; (f) for investments that would have been accounted for under the equity method if the entity had not chosen to apply the fair value option, the information required for such investments, if material either individually or in the aggregate; (2) for items included in the income statement: (a) the amounts of gains and losses from fair value changes included in earnings and in which line in the income statement those gains and losses are reported whether or not combined with gains and losses from items required to be accounted for at fair value; (b) a description of how interest and dividends are measured and where they are reported in the income statement; (c) for loans and other receivables held as assets: (i) the estimated amount of gains or losses included in earnings attributable to changes in instrument-specific credit risk and (ii) how the gains or losses attributable to changes in instrument-specific credit risk were determined; (d) for liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk: (i) the estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk, (ii) qualitative information about the reasons for those changes, and (iii) how the gains and losses attributable to changes in instrument-specific credit risk were determined; and (3) certain other disclosures as required or determined to be provided.

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