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

Quarterly report pursuant to Section 13 or 15(d)

Derivatives

Derivatives

3 Months Ended

Mar. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Balances

Derivatives are entered into on behalf of customers, for trading or to support risk management activities. Derivatives used in risk management activities include derivatives that may or may not be designated in qualifying hedge accounting relationships. Derivatives that are not designated in qualifying hedge accounting relationships are referred to as other risk management derivatives. For more information on the Corporation’s derivatives and hedging activities, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K. The following tables present derivative instruments included on the Consolidated Balance Sheet in derivative assets and liabilities at March 31, 2018 and December 31, 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.




			March 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	$	17,401.6	$	166.4	$	2.2	$	168.6			$	160.8	$	3.5	$	164.3
Futures and forwards	6,470.8		1.6		—		1.6				1.6		—		1.6
Written options	1,274.0		—		—		—				33.7		—		33.7
Purchased options	1,258.0		35.4		—		35.4				—		—		—
Foreign exchange contracts
Swaps	2,044.4		35.8		2.0		37.8				37.3		2.5		39.8
Spot, futures and forwards	4,734.3		43.4		0.8		44.2				40.5		0.7		41.2
Written options	363.3		—		—		—				5.1		—		5.1
Purchased options	323.2		4.9		—		4.9				—		—		—
Equity contracts
Swaps	271.1		5.7		—		5.7				5.8		—		5.8
Futures and forwards	102.4		0.9		—		0.9				0.7		—		0.7
Written options	521.5		—		—		—				25.5		—		25.5
Purchased options	491.0		38.3		—		38.3				—		—		—
Commodity contracts
Swaps	49.4		1.9		—		1.9				4.6		—		4.6
Futures and forwards	52.8		3.6		—		3.6				0.7		—		0.7
Written options	23.1		—		—		—				1.5		—		1.5
Purchased options	24.3		1.6		—		1.6				—		—		—
Credit derivatives ⁽²⁾
Purchased credit derivatives:
Credit default swaps	484.1		3.9		—		3.9				11.4		—		11.4
Total return swaps/options	67.6		0.2		—		0.2				1.3		—		1.3
Written credit derivatives:
Credit default swaps	457.4		11.0		—		11.0				3.4		—		3.4
Total return swaps/options	65.2		0.8		—		0.8				0.3		—		0.3
Gross derivative assets/liabilities			$	355.4	$	5.0	$	360.4			$	334.2	$	6.7	$	340.9
Less: Legally enforceable master netting agreements							(276.0		)	—					(276.0		)
Less: Cash collateral received/paid							(36.5		)						(31.0		)
Total derivative assets/liabilities							$	47.9							$	33.9


⁽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 $6.7 billion and $456.5 billion at March 31, 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.

Offsetting of Derivatives

The Corporation enters into International Swaps and Derivatives Association, Inc. (ISDA) master netting agreements or similar agreements with substantially all of the Corporation’s derivative counterparties. Where legally enforceable, these master netting agreements give the Corporation, in the event of default by the counterparty, the right to liquidate securities held as collateral and to offset receivables and payables with the same counterparty. For purposes of the Consolidated Balance Sheet, the Corporation offsets derivative assets and liabilities and cash collateral held with the same counterparty where it has such a legally enforceable master netting agreement.

The following table presents derivative instruments included in derivative assets and liabilities on the Consolidated Balance Sheet at March 31, 2018 and December 31, 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 9 – 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, 2018						December 31, 2017
Interest rate contracts
Over-the-counter	$	200.0		$	194.2		$	211.7		$	206.0
Over-the-counter cleared	3.4			2.9			1.9			1.8
Foreign exchange contracts
Over-the-counter	83.5			83.3			78.7			80.8
Over-the-counter cleared	0.5			0.5			0.9			0.7
Equity contracts
Over-the-counter	28.5			16.3			18.3			16.2
Exchange-traded	11.7			11.3			9.1			8.5
Commodity contracts
Over-the-counter	3.2			4.2			2.9			4.4
Exchange-traded	0.8			0.8			0.7			0.8
Credit derivatives
Over-the-counter	8.7			9.3			9.1			9.6
Over-the-counter cleared	6.8			6.6			6.1			6.0
Total gross derivative assets/liabilities, before netting
Over-the-counter	323.9			307.3			320.7			317.0
Exchange-traded	12.5			12.1			9.8			9.3
Over-the-counter cleared	10.7			10.0			8.9			8.5
Less: Legally enforceable master netting agreements and cash collateral received/paid
Over-the-counter	(291.8		)	(286.0		)	(296.9		)	(294.6		)
Exchange-traded	(11.0		)	(11.0		)	(8.6		)	(8.6		)
Over-the-counter cleared	(9.7		)	(10.0		)	(8.3		)	(8.5		)
Derivative assets/liabilities, after netting	34.6			22.4			25.6			23.1
Other gross derivative assets/liabilities ⁽²⁾	13.3			11.5			12.2			11.2
Total derivative assets/liabilities	47.9			33.9			37.8			34.3
Less: Financial instruments collateral ⁽³⁾	(20.1		)	(8.7		)	(11.2		)	(10.4		)
Total net derivative assets/liabilities	$	27.8		$	25.2		$	26.6		$	23.9


⁽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, and 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.

ALM and Risk Management Derivatives

The Corporation’s asset and liability management (ALM) and risk management activities include the use of derivatives to mitigate risk to the Corporation including derivatives designated in qualifying hedge accounting relationships and derivatives used in other risk management activities. For additional information, see Note 2 – Derivatives to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.

Derivatives Designated as Accounting Hedges

The Corporation uses various types of interest rate and foreign exchange derivative contracts to protect against changes in the fair value of its assets and liabilities due to fluctuations in interest rates and exchange rates (fair value hedges). The Corporation also

uses these types of contracts and equity derivatives to protect against changes in the cash flows of its assets and liabilities, and other forecasted transactions (cash flow hedges). The Corporation hedges its net investment in consolidated non-U.S. operations determined to have functional currencies other than the U.S. dollar using forward exchange contracts and cross-currency basis swaps, and by issuing foreign currency-denominated debt (net investment hedges).

Effective January 1, 2018, the Corporation early adopted the new hedge accounting standard on a prospective basis and, accordingly, prior-period hedge accounting disclosures were not conformed to the current-period presentation. For more information, see Note 1 – Summary of Significant Accounting Principles.

Fair Value Hedges

The table below summarizes information related to fair value hedges for the three months ended March 31, 2018 and 2017.




Gains and Losses on Derivatives Designated as Fair Value Hedges

	Three Months Ended March 31
	2018						2017
(Dollars in millions)	Derivative			Hedged Item			Derivative			Hedged Item			Hedge Ineffectiveness
Interest rate risk on long-term debt ⁽¹⁾	$	(2,305	)	$	2,236		$	(750	)	$	566		$	(184	)
Interest rate and foreign currency risk on long-term debt ^{(2, 3)}	322			(346		)	123			(133		)	(10		)
Interest rate risk on available-for-sale securities ⁽⁴⁾	(31		)	30			17			(37		)	(20		)
Total	$	(2,014	)	$	1,920		$	(610	)	$	396		$	(214	)


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


⁽²⁾	For the three months ended March 31, 2018, the derivative amount includes a gain of $433 million in other income and a loss of $64 million in interest expense. For the three months ended March 31, 2017, the derivative amount includes a gain of $280 million in other income and a loss of $157 million in interest expense. Line item totals are in the Consolidated Statement of Income.


⁽³⁾	For the three months ended March 31, 2018, the derivative amount includes a $47 million loss related to certain changes in the fair value of derivatives that were excluded from effectiveness testing and recognized in accumulated OCI. None of the excluded amounts have been reclassified into earnings.


⁽⁴⁾	Amounts are recorded in interest income in the Consolidated Statement of Income.

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, 2018
(Dollars in millions)	Carrying Value			Cumulative Fair Value Adjustments ⁽¹⁾
Long-term debt	$	(129,893	)	$	1,086
Available-for-sale securities ⁽²⁾	961			(36		)


⁽¹⁾	For assets, increase (decrease) to carrying value and for liabilities, (increase) decrease to carrying value.


⁽²⁾	The amortized cost of available-for-sale securities in fair value hedging relationships was $959 million and is included in debt securities carried at fair value on the Consolidated Balance Sheet.

At March 31, 2018, the cumulative fair value adjustments remaining on long-term debt and available-for-sale (AFS) securities from discontinued hedging relationships were an increase of $1.1 billion and a decrease of $42 million, respectively, which are being amortized over the remaining contractual life of the de-designated hedged items.

Cash Flow and Net Investment Hedges

The table below summarizes certain information related to cash flow hedges and net investment hedges for the three months ended March 31, 2018 and 2017. Of the $1.2 billion after-tax net loss ($1.6 billion pretax) on derivatives in accumulated OCI at March 31, 2018, $269 million after-tax ($354 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 seven years, with a maximum length of time for certain forecasted transactions of 18 years.




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

	Three Months Ended March 31
	2018						2017
(Dollars in millions, amounts pretax)	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⁾	$	(428	)	$	(50	)	$	(37	)	$	(112	)
Price risk on certain restricted stock awards ⁽²⁾	4			27			28			42
Total	$	(424	)	$	(23	)	$	(9	)	$	(70	)
Net investment hedges
Foreign exchange risk ⁽³⁾	$	(244	)	$	(1	)	$	(389	)	$	(130	)


⁽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. For the three months ended March 31, 2018 and 2017, amounts excluded from effectiveness testing and recognized in other income were a gain of $4 million and a loss of $15 million.

Other Risk Management Derivatives

Other risk management derivatives are used by the Corporation to reduce certain risk exposures by economically hedging various assets and liabilities. The gains and losses on these derivatives are recognized in other income. The table below presents gains (losses) on these derivatives for the three months ended March 31, 2018 and 2017. These gains (losses) are largely offset by the income or expense that is recorded on the hedged item.




Other Risk Management Derivatives

Gains (Losses)	Three Months Ended March 31
(Dollars in millions)	2018			2017
Interest rate risk on mortgage activities ⁽¹⁾	$	(135	)	$	(24	)
Credit risk on loans ⁽²⁾	(3		)	(2		)
Interest rate and foreign currency risk on ALM activities ⁽³⁾	(139		)	(290		)


⁽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 $14 million and $56 million for the three months ended March 31, 2018 and 2017.


⁽²⁾	Primarily related to derivatives that are economic hedges of credit risk on loans.


⁽³⁾	Primarily related to hedges of debt securities carried at fair value and hedges of foreign currency-denominated debt.

Transfers of Financial Assets with Risk Retained through Derivatives

The Corporation enters into certain transactions involving the transfer of financial assets that are accounted for as sales where substantially all of the economic exposure to the transferred financial assets is retained through derivatives (e.g., interest rate and/or credit), but the Corporation does not retain control over the assets transferred. At March 31, 2018 and December 31, 2017, the Corporation had transferred $6.2 billion and $6.0 billion of non-U.S. government-guaranteed mortgage-backed securities (MBS) to a third-party trust and retained economic exposure to the

transferred assets through derivative contracts. In connection with these transfers, the Corporation received gross cash proceeds of $6.2 billion and $6.0 billion at the transfer dates. At both March 31, 2018 and December 31, 2017, the fair value of the transferred securities was $6.1 billion. At March 31, 2018 and December 31, 2017, derivative assets of $48 million and $46 million and liabilities of $3 million for both periods were recorded and are included in credit derivatives in the derivative instruments table on page 59.

Sales and Trading Revenue

The Corporation enters into trading derivatives to facilitate client transactions and to manage risk exposures arising from trading account assets and liabilities. It is the Corporation’s policy to include these derivative instruments in its trading activities which include derivatives and non-derivative cash instruments. The resulting risk from these derivatives is managed on a portfolio basis as part of the Corporation’s Global Markets business segment. For more information on sales and trading revenue, see Note 2 – Derivatives to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.

The following table, 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, 2018 and 2017. 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 17 – 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

(Dollars in millions)	Trading Account Profits		Net Interest Income			Other ⁽¹⁾		Total
	Three Months Ended March 31, 2018
Interest rate risk	$	620	$	206		$	68	$	894
Foreign exchange risk	404		(5		)	2		401
Equity risk	1,154		(125		)	449		1,478
Credit risk	463		591			136		1,190
Other risk	62		9			16		87
Total sales and trading revenue	$	2,703	$	676		$	671	$	4,050

	Three Months Ended March 31, 2017
Interest rate risk	$	348	$	310		$	76	$	734
Foreign exchange risk	368		(3		)	1		366
Equity risk	672		(75		)	486		1,083
Credit risk	686		644			197		1,527
Other risk	103		4			33		140
Total sales and trading revenue	$	2,177	$	880		$	793	$	3,850


⁽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 $476 million and $524 million for the three months ended March 31, 2018 and 2017.

Credit Derivatives

The Corporation enters into credit derivatives primarily to facilitate client transactions and to manage credit risk exposures. Credit derivatives derive value based on an underlying third-party referenced obligation or a portfolio of referenced obligations and generally require the Corporation, as the seller of credit protection, to make payments to a buyer upon the occurrence of a predefined credit event. Such credit events generally include bankruptcy of the referenced credit entity and failure to pay under the obligation, as well as acceleration of indebtedness and payment repudiation or moratorium. For credit derivatives based on a portfolio of referenced credits or credit indices, the Corporation may not be required to make payment until a specified amount of loss has occurred and/or may only be required to make payment up to a specified amount.

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




Credit Derivative Instruments

	Less than One Year		One to Three Years		Three to Five Years		Over Five Years		Total
	March 31, 2018
(Dollars in millions)	Carrying Value
Credit default swaps:
Investment grade	$	2	$	1	$	30	$	182	$	215
Non-investment grade	219		371		520		2,124		3,234
Total	221		372		550		2,306		3,449
Total return swaps/options:
Investment grade	41		—		—		—		41
Non-investment grade	209		17		—		—		226
Total	250		17		—		—		267
Total credit derivatives	$	471	$	389	$	550	$	2,306	$	3,716
Credit-related notes:
Investment grade	$	—	$	—	$	8	$	634	$	642
Non-investment grade	4		3		10		1,682		1,699
Total credit-related notes	$	4	$	3	$	18	$	2,316	$	2,341
	Maximum Payout/Notional
Credit default swaps:
Investment grade	$	39,988	$	113,263	$	118,991	$	34,167	$	306,409
Non-investment grade	39,210		44,802		46,083		20,866		150,961
Total	79,198		158,065		165,074		55,033		457,370
Total return swaps/options:
Investment grade	45,484		2,089		—		139		47,712
Non-investment grade	16,844		275		169		220		17,508
Total	62,328		2,364		169		359		65,220
Total credit derivatives	$	141,526	$	160,429	$	165,243	$	55,392	$	522,590

	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

Credit derivatives 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.

The notional amount represents the maximum amount payable by the Corporation for most credit derivatives. However, the Corporation does not monitor its exposure to credit derivatives based solely on the notional amount because this measure does not take into consideration the probability of occurrence. As such, the notional amount is not a reliable indicator of the Corporation’s exposure to these contracts. Instead, a risk framework is used to define risk tolerances and establish limits so that certain credit risk-related losses occur within acceptable, predefined limits.

Credit-related notes in the table above include investments in securities issued by collateralized debt obligation (CDO), collateralized loan obligation and credit-linked note vehicles. These instruments are primarily classified as trading securities. The carrying value of these instruments equals the Corporation’s maximum exposure to loss. The Corporation is not obligated to make any payments to the entities under the terms of the securities owned.

Credit-related Contingent Features and Collateral

A majority of the Corporation’s derivative contracts contain credit risk-related contingent features, primarily in the form of ISDA master netting agreements and credit support documentation that enhance the creditworthiness of these instruments compared to other obligations of the respective counterparty with whom the Corporation has transacted. These contingent features may be for the benefit of the Corporation as well as its counterparties with respect to changes in the Corporation’s creditworthiness and the mark-to-market exposure under the derivative transactions. At March 31, 2018 and December 31, 2017, the Corporation held cash and securities collateral of $90.4 billion and $77.2 billion, and posted cash and securities collateral of $58.3 billion and $59.2 billion in the normal course of business under derivative agreements, excluding cross-product margining agreements where clients are permitted to margin on a net basis for both derivative and secured financing arrangements.

In connection with certain OTC derivative contracts and other trading agreements, the Corporation can be required to provide additional collateral or to terminate transactions with certain counterparties in the event of a downgrade of the senior debt ratings of the Corporation or certain subsidiaries. The amount of

additional collateral required depends on the contract and is usually a fixed incremental amount and/or the market value of the exposure. For more information on credit-related contingent features and collateral, see Note 2 – Derivatives to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.

At March 31, 2018, the amount of collateral, calculated based on the terms of the contracts, that the Corporation and certain subsidiaries could be required to post to counterparties but had not yet posted to counterparties was $2.2 billion, including $1.1 billion for Bank of America, National Association (Bank of America, N.A. or BANA).

Some counterparties are currently able to unilaterally terminate certain contracts, or the Corporation or certain subsidiaries may be required to take other action such as find a suitable replacement or obtain a guarantee. At March 31, 2018 and December 31, 2017, the liability recorded for these derivative contracts was not significant.

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, 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 March 31, 2018

(Dollars in millions)	One incremental notch		Second incremental notch
Bank of America Corporation	$	647	$	591
Bank of America, N.A. and subsidiaries ⁽¹⁾	323		207


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

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 March 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 March 31, 2018

(Dollars in millions)	One incremental notch		Second incremental notch
Derivative liabilities	$	382	$	1,158
Collateral posted	311		716

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 profits, on a gross and net of hedge basis for the three months ended March 31, 2018 and 2017. For more information on the valuation adjustments on derivatives, see Note 2 – Derivatives to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.




Valuation Adjustments on Derivatives ⁽¹⁾

Gains (Losses)	Three Months Ended March 31
	2018						2017
(Dollars in millions)	Gross			Net			Gross			Net
Derivative assets (CVA)	$	(24	)	$	18		$	161		$	26
Derivative assets/liabilities (FVA)	(37		)	(1		)	49			56
Derivative liabilities (DVA)	114			106			(150		)	(93		)


⁽¹⁾	At March 31, 2018 and December 31, 2017, cumulative CVA reduced the derivative assets balance by $701 million and $677 million, cumulative FVA reduced the net derivatives balance by $173 million and $136 million, and cumulative DVA reduced the derivative liabilities balance by $565 million and $450 million, respectively.