10-K: Annual report pursuant to Section 13 and 15(d)
Published on February 20, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31 , 2023
or
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number:
Exact name of registrant as specified in its charter:
State or other jurisdiction of incorporation or organization:
IRS Employer Identification No.:
Address of principal executive offices:
Bank of America Corporate Center
Registrant’s telephone number, including area code:
(704 ) 386-5681
Securities registered pursuant to section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| of Floating Rate Non-Cumulative Preferred Stock, Series E | ||||||||
| of 6.000% Non-Cumulative Preferred Stock, Series GG | ||||||||
| of 5.875% Non-Cumulative Preferred Stock, Series HH | ||||||||
| of Bank of America Corporation Floating Rate | ||||||||
| Non-Cumulative Preferred Stock, Series 1 | ||||||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| of Bank of America Corporation Floating Rate | ||||||||
| Non-Cumulative Preferred Stock, Series 2 | ||||||||
| of Bank of America Corporation Floating Rate | ||||||||
| Non-Cumulative Preferred Stock, Series 4 | ||||||||
| of Bank of America Corporation Floating Rate | ||||||||
| Non-Cumulative Preferred Stock, Series 5 | ||||||||
| Trust XIII (and the guarantee related thereto) | ||||||||
| of BAC Capital Trust XIV (and the guarantee related thereto) | ||||||||
| Bank of America Corporation | ||||||||
| November 28, 2031 of BofA Finance LLC (and the guarantee | ||||||||
| of the Registrant with respect thereto) | ||||||||
| of 5.375% Non-Cumulative Preferred Stock, Series KK | ||||||||
| of 5.000% Non-Cumulative Preferred Stock, Series LL | ||||||||
| of 4.375% Non-Cumulative Preferred Stock, Series NN | ||||||||
| of 4.125% Non-Cumulative Preferred Stock, Series PP | ||||||||
| of 4.250% Non-Cumulative Preferred Stock, Series QQ | ||||||||
| of 4.750% Non-Cumulative Preferred Stock, Series SS | ||||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | |||||||||||||||||||||||||||
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
As of June 30, 2023, the aggregate market value of the registrant’s common stock (Common Stock) held by non-affiliates was approximately $228,187,725,798 . At February 16, 2024, there were 7,872,657,542 shares of Common Stock outstanding.
Documents incorporated by reference: Portions of the definitive proxy statement relating to the registrant’s 2024 annual meeting of shareholders are incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III.
Table of Contents
Bank of America Corporation and Subsidiaries
| Page | ||||||||
| Item 9C. | ||||||||
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Part I
Bank of America Corporation and Subsidiaries
Item 1. Business
Bank of America Corporation is a Delaware corporation, a bank holding company (BHC) and a financial holding company. When used in this report, “Bank of America,” “the Corporation,” “we,” “us” and “our” may refer to Bank of America Corporation individually, Bank of America Corporation and its subsidiaries, or certain of Bank of America Corporation’s subsidiaries or affiliates. As part of our efforts to streamline the Corporation’s organizational structure and reduce complexity and costs, the Corporation has reduced and intends to continue to reduce the number of its corporate subsidiaries, including through intercompany mergers.
Bank of America is one of the world’s largest financial institutions, serving individual consumers, small- and middle-market businesses, institutional investors, large corporations and governments with a full range of banking, investing, asset management and other financial and risk management products and services. Our principal executive offices are located in the Bank of America Corporate Center, 100 North Tryon Street, Charlotte, North Carolina 28255.
Bank of America’s website is www.bankofamerica.com, and the Investor Relations portion of our website is https://investor.bankofamerica.com. We use our website to distribute company information, including as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. We routinely post and make accessible financial and other information, including environmental, social and governance (ESG) information, regarding the Corporation on our website. Investors should monitor our website, including the Investor Relations portion of our website, in addition to our press releases, U.S. Securities and Exchange Commission (SEC) filings, public conference calls and webcasts. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) are available on the Investor Relations portion of our website as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC and at the SEC’s website, www.sec.gov. Notwithstanding the foregoing, the information contained on our website as referenced in this paragraph, or otherwise in this Annual Report on Form 10-K, is not incorporated by reference into this Annual Report on Form 10-K. Also, we make available on the Investor Relations portion of our website: (i) our Code of Conduct; (ii) our Corporate Governance Guidelines; and (iii) the charter of each active committee of our Board of Directors (the Board). Our Code of Conduct constitutes a “code of ethics” and a “code of business conduct and ethics” that applies to the required individuals associated with the Corporation for purposes of the respective rules of the SEC and the New York Stock Exchange. We also intend to disclose any amendments to our Code of Conduct and waivers of our Code of Conduct required to be disclosed by the rules of the SEC and the New York Stock Exchange on the Investor Relations portion of our website. All of these corporate governance materials are also available free of charge in print to shareholders who request them in writing to: Bank of America Corporation, Attention: Office of the Corporate Secretary, Bank of America Corporate Center, 100 North Tryon Street, NC1-007-56-06, Charlotte, North Carolina 28255.
Segments
Through our various bank and nonbank subsidiaries throughout the U.S. and in international markets, we provide a diversified range of banking and nonbank financial services and products through four business segments: Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking and Global Markets, with the remaining operations recorded in All Other. Additional information related to our business segments and the products and services they provide is included in the information set forth on pages 34 through 43 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and Note 23 – Business Segment Information to the Consolidated Financial Statements.
Competition
We operate in a highly competitive environment. Our competitors include banks, thrifts, credit unions, investment banking firms, investment advisory firms, brokerage firms, investment companies, insurance companies, mortgage banking companies, credit card issuers, mutual fund companies, hedge funds, private equity firms, and e-commerce and other internet-based companies, including merchant banks and companies providing nonbank financial services. We compete with some of these competitors globally and with others on a regional or product-specific basis. We are increasingly competing with firms offering products solely over the internet and with nonfinancial companies, including firms utilizing emerging technologies, such as digital assets, rather than, or in addition to, traditional banking products.
Competition is based on a number of factors including, among others, customer service and convenience, the pricing, quality and range of products and services offered, lending limits, the quality and delivery of our technology and our reputation, experience and relationships in relevant markets. Our ability to continue to compete effectively also depends in large part on our ability to attract new employees and develop, retain and motivate our existing employees, while managing compensation and other costs.
Human Capital Resources
We strive to make Bank of America a great place to work for our employees. We value our employees and seek to establish and maintain human resource policies that are consistent with our core values and help to realize the power of our people. Our Board and its Compensation and Human Capital Committee provide oversight of our human capital management strategies, programs, initiatives and practices. The Corporation’s senior management provides regular briefings on human capital matters to the Board and its Committees to facilitate the Board’s oversight.
At December 31, 2023 and 2022, the Corporation employed approximately 213,000 and 217,000 employees, of which 78 percent and 79 percent were located in the U.S. None of our U.S. employees are subject to a collective bargaining agreement. Additionally, in 2023 and 2022, the Corporation’s compensation and benefits expense was $38.3 billion and $36.4 billion, or 58 percent and 59 percent, of total noninterest expense.
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Diversity and Inclusion
The Corporation’s commitment to diversity and inclusion starts at the top with oversight from our Board and Chief Executive Officer (CEO). The Chief Human Resources Officer and Chief Diversity & Inclusion Officer partner with our CEO and senior management to drive our diversity and inclusion strategy, programs, initiatives and policies. Our Global Diversity and Inclusion Council, which has been in place for over 20 years, is chaired by our CEO and consists of senior executives from every line of business and region. The Council sponsors and supports business, operating unit and regional diversity and inclusion councils to align diversity and inclusion strategies and aspirational goals across the enterprise.
Our practices and policies have resulted in strong representation across the Corporation where our broad employee population mirrors the clients and communities we serve. Our Board and senior management team are 62 percent and 55 percent racially, ethnically and gender diverse. The following table presents diversity metrics for our global employees who self-identified as women and our U.S.-based employees who self-identified as people of color, including those who self-identified as Asian, Black/African American and Hispanic/Latino. These workforce diversity metrics are reported regularly to the senior management team and Board.
| Diversity Metrics as of December 31, 2023 | ||||||||||||||||||||
| Total Employees | Top Three Management Levels | Managers at All Levels | ||||||||||||||||||
| Global employees | ||||||||||||||||||||
| Women | 50 | % | 41 | % | 42 | % | ||||||||||||||
| U.S.-based employees | ||||||||||||||||||||
| People of color | 51 | 27 | 43 | |||||||||||||||||
| Asian | 14 | 11 | 14 | |||||||||||||||||
| Black/African American | 15 | 8 | 10 | |||||||||||||||||
| Hispanic/Latino | 19 | 7 | 16 | |||||||||||||||||
We invest in our talent by offering a range of development programs and resources that are designed to allow all employees to develop and progress in their careers. We reinforce our commitment to diversity and inclusion by investing internally in our employee networks and by facilitating voluntary enterprise-wide learning and conversations about various diversity and inclusion topics. In addition, we have practices in place for attracting diverse talent, including campus recruitment. For example, in 2023, 44 percent of our global campus hires were women and, in the U.S., 62 percent were people of color.
Employee Engagement and Talent Retention
As part of our ongoing efforts to make the Corporation a great place to work, we conduct a confidential annual Employee Engagement Survey (Survey) and have done so for nearly two decades. The Survey results are reviewed by the Board and senior management and used to assist in reviewing the Corporation’s human capital strategies, programs, initiatives and practices. In 2023, 88 percent of the Corporation’s employees participated in the Survey, and our Employee Engagement Index, an overall measure of employee satisfaction with the Corporation, was 87 percent. Our turnover among employees was eight percent in 2023 and 13 percent in 2022.
Additionally, the Corporation provides a variety of resources to help employees grow in their current roles and build new skills, including resources to help employees find new opportunities, re-skill and seek leadership positions. The learning and development strategy is grounded in the
development of horizontal skills delivered throughout the organization. Senior leaders, managers and teammates are onboarded and build both horizontal and role-specific skills, to help drive high performance. This approach also helps facilitate internal mobility and promotion of talent to build a bench of qualified managers and leaders. In 2023, more than 5,000 employees found new roles within the Corporation, and we delivered approximately 6.7 million hours of training and development to our teammates through Bank of America Academy. Additionally, our Board oversees CEO and senior management succession planning, which is formally reviewed at least annually.
Fair and Equitable Compensation
Our compensation philosophy is to pay for performance over the long term, as well as on an annual basis. Our performance considerations encompass both financial and nonfinancial measures, including the manner in which results are achieved. These considerations are designed to reinforce and promote our Responsible Growth strategy and maintain alignment with our Risk Framework.
The Corporation is committed to racial and gender pay equity and strives to compensate all of our employees fairly and equitably. We maintain robust policies and practices that reinforce our commitment, including reviews conducted by a third-party consultant with oversight from our Board and senior management. In 2023, our review showed that compensation received by women globally, on average, was greater than 99 percent of that received by men in comparable positions. In the U.S., compensation received by people of color was, on average, greater than 99 percent of that received by teammates who are not people of color in comparable positions.
We pay our employees fairly based on market rates for their roles, experience and how they perform. We regularly benchmark against other companies both within and outside our industry to confirm our pay is competitive. In 2021, the Corporation announced it would increase its minimum hourly wage for U.S. employees to $25 per hour by 2025. In October 2023, as a next step towards that goal, the Corporation increased its hourly minimum wage for U.S. employees to $23 per hour. In addition, in January 2024, for the seventh year since 2017, we announced that we recognized our teammates with Sharing Success compensation awards for their efforts during 2023. Approximately 97 percent of employees globally will receive an award in the first quarter of 2024.
Health and Wellness – 2023 Focus
The Corporation is also committed to providing employees with access to leading benefits and programs that help promote their physical, emotional and financial wellness. Investments we make in our teammates are designed to help them thrive, both at work and at home, enabling them to better deliver for our clients, communities and each other.
We continued our efforts to provide affordable access to healthcare, including offering no-cost, 24/7 access to virtual general medical and behavioral health resources to help our enrolled U.S. teammates stay healthy. We kept U.S. health insurance premiums unchanged for teammates earning less than $50,000 for the eleventh year in a row and had nominal premium increases for teammates earning from $50,000 up to $100,000 for the seventh year in a row. We provided in-network generic prescription medications at no cost for teammates enrolled in a U.S. bank medical PPO or Consumer Direct plan, and we continue to provide preventative care medications at no cost for all teammates enrolled in U.S. medical plans. We also
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continued to enhance access to care across the Corporation, through near-site health centers, vaccination clinics and wellness screenings in many of our U.S. locations, as we believe primary and preventive care are important to our teammates’ health and safety.
We offer an extensive benefit package and support work-life balance for our teammates, which includes in the U.S., 16 weeks of paid parental leave for both primary and secondary caregivers and 50 days per year of child and adult backup dependent care. Globally, teammates and members of their households can utilize our Employee Assistance Program for 12 free, in-person confidential counseling sessions, and unlimited phone consultations. Beginning in 2023, teammates celebrating at least 15 years of continuous service with the Corporation may participate in its global Sabbatical Program.
For more information about our human capital management, see the Corporation’s website and 2023 Annual Report to shareholders that we expect to be available on the Investor Relations portion of our website in March 2024 (the content of which is not incorporated by reference into this Annual Report on Form 10-K).
Government Supervision and Regulation
The following discussion describes, among other things, elements of an extensive regulatory framework applicable to BHCs, financial holding companies, banks and broker-dealers, including specific information about Bank of America.
We are subject to an extensive regulatory framework applicable to BHCs, financial holding companies and banks and other financial services entities. U.S. federal regulation of banks, BHCs and financial holding companies is intended primarily for the protection of depositors and the Deposit Insurance Fund (DIF) rather than for the protection of shareholders and creditors.
As a registered financial holding company and BHC, the Corporation is subject to the supervision of, and regular inspection by, the Board of Governors of the Federal Reserve System (Federal Reserve). Our U.S. bank subsidiaries (the Banks), organized as national banking associations, are subject to regulation, supervision and examination by the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve. In addition, the Federal Reserve and the OCC have adopted guidelines that establish minimum standards for the design, implementation and board oversight of BHCs’ and national banks’ risk governance frameworks. U.S. financial holding companies, and the companies under their control, are permitted to engage in activities considered “financial in nature” as defined by the Gramm-Leach-Bliley Act and related Federal Reserve interpretations. The Corporation's status as a financial holding company is conditioned upon maintaining certain eligibility requirements for both the Corporation and its U.S. depository institution subsidiaries, including minimum capital ratios, supervisory ratings and, in the case of the depository institutions, at least satisfactory Community Reinvestment Act ratings. Failure to be an eligible financial holding company could result in the Federal Reserve limiting Bank of America's activities, including potential acquisitions. Additionally, we are subject to a significant number of laws, rules and regulations that govern our businesses in the U.S. and in the other jurisdictions in which we operate, including permissible activities, minimum levels of capital and liquidity, compliance risk management, consumer products and sales practices, privacy, data protection and executive compensation, among others.
The scope of the laws and regulations and the intensity of the supervision to which we are subject have increased over the past several years, beginning with the response to the 2008 financial crisis, as well as other factors such as technological and market changes. In addition, the banking and financial services sector is subject to substantial regulatory enforcement and fines. Many of these changes have occurred as a result of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the Financial Reform Act). We cannot assess whether or not there will be any additional major changes in the regulatory environment and expect that our business will remain subject to continuing and extensive regulation and supervision.
We are also subject to various other laws and regulations, as well as supervision and examination by other regulatory agencies, all of which directly or indirectly affect our entities, management and ability to make distributions to shareholders. For instance, our broker-dealer subsidiaries are subject to both U.S. and international regulation, including supervision by the SEC, Financial Industry Regulatory Authority and New York Stock Exchange, among others; our futures commission merchant subsidiary supporting commodities and derivatives businesses in the U.S. is subject to regulation by and supervision of the U.S. Commodity Futures Trading Commission (CFTC), National Futures Association, the Chicago Mercantile Exchange, and in the case of the Banks, certain banking regulators; our insurance activities are subject to licensing and regulation by state insurance regulatory agencies; and our consumer financial products and services are regulated by the Consumer Financial Protection Bureau (CFPB). In addition, certain U.S. and foreign subsidiaries are also registered with the CFTC as swap dealers, and conditionally registered with the SEC as security-based swap dealers.
Our non-U.S. businesses are also subject to extensive regulation by various non-U.S. regulators, including governments, securities exchanges, prudential regulators, central banks and other regulatory bodies, in the jurisdictions in which those businesses operate. For example, our financial services entities in the United Kingdom (U.K.), Ireland and France are subject to regulation by the Prudential Regulatory Authority and Financial Conduct Authority, the European Central Bank and Central Bank of Ireland, and the Autorité de Contrôle Prudentiel et de Résolution and Autorité des Marchés Financiers, respectively.
The Corporation is also subject to extensive laws, rules and regulations in the U.S. and in the other jurisdictions in which it operates regarding bribery and corruption, know-your-customer requirements, anti-money laundering, embargo programs and economic sanctions. For example, we are subject to the U.S. Bank Secrecy Act (BSA), which contains anti-money laundering and financial transparency laws designed to detect and deter money laundering and the financing of terrorism, as well as record-keeping, reporting, due diligence and customer verification requirements, various sanctions programs administered and enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and foreign jurisdictions, which target entities or individuals that are, or are located in countries that are, involved in activities, such as terrorism, hostilities, drug trafficking or human rights violations and the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act, relating to corrupt and illegal payments to government officials and others.
Source of Strength
Under the Financial Reform Act and Federal Reserve policy, BHCs are expected to act as a source of financial strength to
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each subsidiary bank and to commit resources to support each such subsidiary. Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), in the event of a loss suffered or anticipated by the FDIC, either as a result of default of a bank subsidiary or related to FDIC assistance provided to such a subsidiary in danger of default, the affiliate banks of such a subsidiary may be assessed for the FDIC’s loss, subject to certain exceptions.
Transactions with Affiliates
Pursuant to Section 23A and 23B of the Federal Reserve Act, as implemented by the Federal Reserve’s Regulation W, the Banks are subject to restrictions that limit certain types of transactions between the Banks and their nonbank affiliates. In general, U.S. banks are subject to quantitative and qualitative limits on extensions of credit, purchases of assets and certain other transactions involving their nonbank affiliates. Additionally, transactions between U.S. banks and their nonbank affiliates are required to be on arm’s length terms and must be consistent with standards of safety and soundness.
Deposit Insurance
Deposits placed at U.S. domiciled banks are insured by the FDIC, subject to limits and conditions of applicable law and the FDIC’s regulations. Pursuant to the Financial Reform Act, FDIC insurance coverage limits are $250,000 per depositor, per insured bank for each account ownership category. All insured depository institutions are required to pay assessments to the FDIC in order to fund the DIF.
The FDIC is required to maintain a statutory minimum ratio of the DIF to insured deposits in the U.S. of at least 1.35 percent and has established a long-term goal of a two percent DIF ratio. As of the date of this report, the DIF is below the statutory minimum ratio and the FDIC’s long-term goal. In October 2022, the FDIC adopted a restoration plan that includes an increase in deposit insurance assessments across the industry of two basis points (bps). The FDIC has indicated that it intends to maintain such assessment rates for the foreseeable future. Deposit insurance assessment rates are subject to change by the FDIC and will be impacted by the overall economy and the stability of the banking industry as a whole. The FDIC also has the authority to charge special assessments from time to time, including in connection with systemic risk events. For example, on November 16, 2023, the FDIC issued its final rule to impose a special assessment to recover the loss to the DIF resulting from the closure of Silicon Valley Bank and Signature Bank. For more information on the impact to the Corporation of the FDIC special assessment, see Executive Summary – Recent Developments in the MD&A on page 26. For more information regarding deposit insurance, see Item 1A. Risk Factors – Regulatory, Compliance and Legal on page 17.
Capital, Liquidity and Operational Requirements
As a financial holding company, we and our bank subsidiaries are subject to the regulatory capital and liquidity rules issued by the Federal Reserve and other U.S. banking regulators, including the OCC and the FDIC. These rules are complex and are evolving as U.S. and international regulatory authorities propose and enact amendments to these rules. The Corporation seeks to manage its capital position to maintain sufficient capital to satisfy these regulatory rules and to support our business activities. These continually evolving rules are likely to influence our planning processes and may require additional regulatory capital and liquidity, as well as impose additional operational and compliance costs on the Corporation.
For more information on regulatory capital rules, capital composition and pending or proposed regulatory capital changes, see Capital Management on page 47 and Note 16 – Regulatory Requirements and Restrictions to the Consolidated Financial Statements, which are incorporated by reference in this Item 1.
Distributions
We are subject to various regulatory policies and requirements relating to capital actions, including payment of dividends and common stock repurchases. For instance, Federal Reserve regulations require major U.S. BHCs to submit a capital plan as part of an annual Comprehensive Capital Analysis and Review (CCAR).
Our ability to pay dividends and make common stock repurchases depends in part on our ability to maintain regulatory capital levels above minimum requirements plus buffers and non-capital standards established under the FDICIA. To the extent that the Federal Reserve increases our stress capital buffer (SCB), global systemically important bank (G-SIB) surcharge or countercyclical capital buffer, our returns of capital to shareholders, including dividends and common stock repurchases, could decrease. As part of its CCAR, the Federal Reserve conducts stress testing on parts of our business using hypothetical economic scenarios prepared by the Federal Reserve. Those scenarios may affect our CCAR stress test results, which may impact the level of our SCB. For example, based on the results of our 2023 CCAR stress test, the Corporation’s SCB decreased to 2.5 percent. Additionally, the Corporation’s G-SIB surcharge increased to 3.0 percent on January 1, 2024. The Federal Reserve could also impose limitations or prohibitions on taking capital actions such as paying or increasing dividends or repurchasing common stock. For example, as a result of the economic uncertainty resulting from the COVID-19 pandemic, in the second half of 2020, the Federal Reserve introduced certain limitations to capital distributions for all large banks, including the Corporation, which were removed effective July 1, 2021.
If the Federal Reserve finds that any of our Banks are not “well-capitalized” or “well-managed,” we would be required to enter into an agreement with the Federal Reserve to comply with all applicable capital and management requirements, which may contain additional limitations or conditions relating to our activities. Additionally, the applicable federal regulatory authority is authorized to determine, under certain circumstances relating to the financial condition of a bank or BHC, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof.
Many of our subsidiaries, including our bank and broker-dealer subsidiaries, are subject to laws that restrict dividend payments, or authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to the parent company or other subsidiaries. The rights of the Corporation, our shareholders and our creditors to participate in any distribution of the assets or earnings of our subsidiaries are further subject to the prior claims of creditors of the respective subsidiaries.
For more information regarding distributions, including the minimum capital requirements, see Note 13 – Shareholders’ Equity and Note 16 – Regulatory Requirements and Restrictions to the Consolidated Financial Statements.
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Resolution Planning
As a BHC with greater than $250 billion of assets, the Corporation is required by the Federal Reserve and the FDIC to periodically submit a plan for a rapid and orderly resolution in the event of material financial distress or failure.
Such resolution plan is intended to be a detailed roadmap for the orderly resolution of the BHC, including the continued operations or solvent wind down of its material entities, pursuant to the U.S. Bankruptcy Code under one or more hypothetical scenarios assuming no extraordinary government assistance.
If both the Federal Reserve and the FDIC determine that the BHC’s plan is not credible, the Federal Reserve and the FDIC may jointly impose more stringent capital, leverage or liquidity requirements or restrictions on growth, activities or operations. A summary of our plan is available on the Federal Reserve and FDIC websites.
The FDIC also requires the submission of a resolution plan for Bank of America, National Association, which must describe how the insured depository institution would be resolved under the bank resolution provisions of the Federal Deposit Insurance Act. A description of this plan is available on the FDIC’s website.
We continue to make substantial progress to enhance our resolvability, which includes continued improvements to our preparedness capabilities to implement our resolution plan, both from a financial and operational standpoint.
Across international jurisdictions, resolution planning is the responsibility of national resolution authorities (RA) and central resolution authorities (CA). Among those, the jurisdictions with the greatest impact to the Corporation’s subsidiaries are the U.K., Ireland and France, where rules have been issued requiring the submission of significant information about locally incorporated subsidiaries as well as the Corporation’s banking branches located in those jurisdictions that are deemed to be material for resolution planning purposes. As a result of the RA’s and CA's review of the submitted information, we could be required to take certain actions over the next several years that could increase operating costs and potentially result in the restructuring of certain businesses and subsidiaries.
For more information regarding our resolution plan, see Item 1A. Risk Factors – Liquidity on page 9.
Insolvency and the Orderly Liquidation Authority
Under the Federal Deposit Insurance Act, the FDIC may be appointed receiver of an insured depository institution if it is insolvent or in certain other circumstances. In addition, under the Financial Reform Act, when a systemically important financial institution (SIFI) such as the Corporation is in default or danger of default, the FDIC may be appointed receiver in order to conduct an orderly liquidation of such institution. In the event of such appointment, the FDIC could, among other things, invoke the orderly liquidation authority, instead of the U.S. Bankruptcy Code, if the Secretary of the Treasury makes certain financial distress and systemic risk determinations. The orderly liquidation authority is modeled in part on the Federal Deposit Insurance Act, but also adopts certain concepts from the U.S. Bankruptcy Code.
The orderly liquidation authority contains certain differences from the U.S. Bankruptcy Code. For example, in certain circumstances, the FDIC could permit payment of obligations it determines to be systemically significant (e.g., short-term creditors or operating creditors) in lieu of paying other obligations (e.g., long-term creditors) without the need to obtain creditors’ consent or prior court review. The insolvency and resolution process could also lead to a large reduction or total
elimination of the value of a BHC’s outstanding equity, as well as impairment or elimination of certain debt.
Under the FDIC’s “single point of entry” strategy for resolving SIFIs, the FDIC could replace a distressed BHC with a bridge holding company, which could continue operations and result in an orderly resolution of the underlying bank, but whose equity is held solely for the benefit of creditors of the original BHC.
Furthermore, the Federal Reserve requires that BHCs maintain minimum levels of long-term debt required to provide adequate loss absorbing capacity in the event of a resolution.
For more information regarding our resolution, see Item 1A. Risk Factors – Liquidity on page 9.
Limitations on Acquisitions
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 permits a BHC to acquire banks located in states other than its home state without regard to state law, subject to certain conditions, including the condition that the BHC, after and as a result of the acquisition, controls no more than 10 percent of the total amount of deposits of insured depository institutions in the U.S. and no more than 30 percent or such lesser or greater amount set by state law of such deposits in that state. At June 30, 2023, we held greater than 10 percent of the total amount of deposits of insured depository institutions in the U.S.
In addition, the Financial Reform Act restricts acquisitions by a financial institution if, as a result of the acquisition, the total liabilities of the financial institution would exceed 10 percent of the total liabilities of all financial institutions in the U.S. At June 30, 2023, our liabilities did not exceed 10 percent of the total liabilities of all financial institutions in the U.S.
The Volcker Rule
The Volcker Rule prohibits insured depository institutions and companies affiliated with insured depository institutions (collectively, banking entities) from engaging in short-term proprietary trading of certain securities, derivatives, commodity futures and options for their own account. The Volcker Rule also imposes limits on banking entities’ investments in, and other relationships with, hedge funds and private equity funds. The Volcker Rule provides exemptions for certain activities, including market making, underwriting, hedging, trading in government obligations, insurance company activities and organizing and offering hedge funds and private equity funds. The Volcker Rule also clarifies that certain activities are not prohibited, including acting as agent, broker or custodian. A banking entity with significant trading operations, such as the Corporation, is required to maintain a detailed compliance program to comply with the restrictions of the Volcker Rule.
Derivatives
Our derivatives businesses are subject to extensive regulation globally, including under the Financial Reform Act, the European Union (EU) Markets in Financial Instruments Directive and Regulation, the European Market Infrastructure Regulation, analogous U.K. regulatory regimes and similar regulatory regimes in other jurisdictions. These regulations, among other things, require clearing and exchange trading of certain derivatives, establish capital, margin, reporting, registration and business conduct requirements for certain market participants, set position limits on certain derivatives and set out derivatives trading transparency requirements.
In addition, many G-20 jurisdictions, including the U.S., EU, U.K., and Japan, have adopted resolution stay regulations to address concerns that the close-out of derivatives and other
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financial contracts could impede orderly resolution of G-SIBs, and additional jurisdictions are expected to follow suit. Generally, these regulations require amendment of certain financial contracts to provide for contractual recognition of stays of termination rights under various statutory resolution regimes and a stay on the exercise of cross-default rights based on an affiliate’s entry into insolvency proceedings. Resolution regulations may also require contractual recognition by the counterparty that amounts owed to them may be written down or converted into equity as part of a bail in. As resolution stay regulations of a particular jurisdiction applicable to us go into effect, we amend impacted financial contracts in compliance with such regulations either as a regulated entity or as a counterparty facing a regulated entity in such jurisdiction.
Consumer Regulations
Our consumer businesses are subject to extensive regulation and oversight by federal and state regulators. Certain federal consumer finance laws to which we are subject, including the Equal Credit Opportunity Act, Home Mortgage Disclosure Act, Fair Housing Act, Electronic Fund Transfer Act (EFTA), Fair Credit Reporting Act, Real Estate Settlement Procedures Act, prohibitions on unfair, deceptive, or abusive acts or practices, Truth in Lending Act and Truth in Savings Act, are enforced by the CFPB. Other federal consumer finance laws, such as the Servicemembers Civil Relief Act, are enforced by the OCC.
Privacy and Information Security
We are subject to many U.S. federal, state and international laws and regulations governing requirements for maintaining policies and procedures regarding the collection, disclosure, use and protection of the non-public confidential information of our customers and employees. The Gramm-Leach-Bliley Act requires us to periodically disclose Bank of America’s privacy policies and practices relating to sharing such information and enables retail customers to opt out of our ability to share information with unaffiliated third parties, under certain circumstances. The Gramm-Leach-Bliley Act and other laws also require us to
implement a comprehensive information security program that includes administrative, technical and physical safeguards to provide the security and confidentiality of customer records and information. Security and privacy policies and procedures for the protection of personal and confidential information are in effect across all businesses and geographic locations.
Other laws and regulations, at the international, federal and state level, impact our ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or contact customers with marketing offers and establish certain rights of consumers in connection with their personal information. For example, California’s Consumer Privacy Act (CCPA), as modified by the California Privacy Rights Act (CPRA), provides consumers with the right to know what personal data is being collected, know whether their personal data is sold or disclosed and to whom and opt out of the sale of their personal data, among other rights. In addition, in the EU and other countries around the world, similar laws, like the General Data Protection Regulation (GDPR), afford those countries’ residents with certain rights related to their information and may impose additional obligations on financial institutions. These laws’ impact on the Corporation was assessed and addressed through comprehensive compliance implementation programs. These existing and evolving legal requirements in the U.S. and abroad, as well as court proceedings and changing guidance from regulatory bodies, including the validity of cross-border data transfer mechanisms from the EU and other jurisdictions, continue to lend uncertainty to privacy compliance globally.
Additionally, the Corporation is subject to evolving information security (including cybersecurity) laws, rules and regulations enacted by U.S. federal and state governments and non-U.S. jurisdictions, including requirements to develop cybersecurity programs, policies and frameworks, as well as provide disclosure and/or notifications of certain cybersecurity incidents and data breaches.
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Item 1A. Risk Factors
The discussion below addresses our material risk factors of which we are aware. Any risk factor, either by itself or together with other risk factors, could materially and adversely affect our businesses, results of operations, cash flows and/or financial condition. References to third parties may include suppliers, service providers, counterparties, financial market utilities, exchanges and clearing houses, data aggregators and other partners and their upstream and downstream service providers (e.g., fourth parties, fifth parties) who may also contribute to our risks. Other factors not currently known to us or that we currently deem immaterial could also adversely affect our businesses, results of operations, cash flows and/or financial condition. Therefore, the risk factors below should not be considered all of the potential risks that we may face. For more information on how we manage risks, see Managing Risk in the MD&A beginning on page 44. For more information about the risks contained in this section, see Item 1. Business beginning on page 2, MD&A beginning on page 25 and Notes to Consolidated Financial Statements beginning on page 94.
Market
We may be adversely affected by the financial markets, fiscal, monetary, and regulatory policies, and economic conditions.
General economic, political, social and health conditions in the U.S. and abroad affect financial markets and our business. In particular, global markets may be affected by the level and volatility of interest rates, availability and market conditions of financing, changes in gross domestic product (GDP), economic growth or its sustainability, inflation, supply chain disruptions, consumer spending, employment levels, labor shortages, challenging labor market conditions, wage stagnation, federal government shutdowns, energy prices, home prices, commercial property values, bankruptcies and a default by a significant market participant or class of counterparties, including companies in emerging markets. Global markets also may be affected by adverse developments impacting the U.S. or global banking industry, including bank failures and liquidity concerns, fluctuations or other significant changes in both debt and equity capital markets and currencies, the transition of benchmark rates, including the Bloomberg Short-Term Bank Yield Index (BSBY), to alternative reference rates (ARRs), the impact of the volatility of digital assets on the broader market, the rate of growth of global trade and commerce, trade policies, the availability and cost of capital and credit, disruption of communication, transportation or energy infrastructure, recessionary fears, investor sentiment and the U.S. and global election cycles, including resulting changes to policy and the geopolitical environment. Global markets, including energy and commodity markets, may also be adversely affected by the current or anticipated impact of climate change, acute and/or chronic extreme weather events or natural disasters, the emergence or continuation of widespread health emergencies or pandemics, cyberattacks, military conflict, terrorism, or other geopolitical events. Market fluctuations may impact our margin requirements and affect our liquidity. Any sudden or prolonged market downturn, as a result of the above factors or otherwise, could result in a decline in net interest income and noninterest income and adversely affect our results of operations and financial condition, including capital and liquidity levels. Elevated inflation and interest rate levels, monetary tightening by central banks, and geopolitical developments, including the Russia/Ukraine conflict and the conflict in the Middle East, have adversely impacted and may continue to adversely impact
financial markets and macroeconomic conditions and could result in additional market volatility and disruptions.
Global uncertainties regarding fiscal and monetary policies present economic challenges. Actions taken by the Federal Reserve or central banks in other jurisdictions, including changes in target rates, balance sheet management and lending facilities, are beyond our control and difficult to predict, particularly in an elevated inflation environment. This can affect interest rates and the value of financial instruments and other assets, such as debt securities, and impact our borrowers and potentially increase delinquency rates and may also raise government debt levels, adversely affect businesses and household incomes, adversely impact the banking sector generally, and increase uncertainty surrounding monetary policy. Monetary policy in response to high inflation has led to a significant increase in market interest rates and a flattening and/or inversion of the yield curve. This has resulted in and may continue to result in volatility of equity and other markets, further volatility of the U.S. dollar, a widening in credit spreads and higher interest rates and recessionary concerns, and could result in elevated unemployment, which could impact investor risk appetite and our borrowers, potentially increasing delinquency rates. Financial market volatility could also result from uncertainty about the timing and extent of rate cuts by the Federal Reserve in response to moderating inflation and/or weakening economic conditions. Elevated inflation may limit the scope of monetary support, including cuts to the federal funds rate, in the event of an economic downturn, resulting in a more protracted period of a flat and/or inverted yield curve.
Any future change in monetary policy by the Federal Reserve, in an effort to stimulate the economy or otherwise, resulting in lower interest rates would likely result in lower revenue through lower net interest income, which could adversely affect our results of operations. Additionally, changes to existing U.S. laws and regulatory policies and evolving priorities, including those related to financial regulation, taxation, international trade, fiscal policy, climate change (including efforts to transition to a low-carbon economy) and healthcare, may adversely impact U.S. or global economic activity and our customers', our counterparties' and our earnings and operations. Globally, many central banks have simultaneously reduced monetary accommodation through interest rate or balance sheet policy, which has contributed and may continue to contribute to elevated financial and capital market volatility and significant changes to asset values. While higher interest rates have positively impacted our net interest income, higher interest rates have negatively impacted and could continue to negatively impact investment securities, deposits, loan demand and funding costs. In addition to higher interest rates, wider credit spreads can negatively impact capital by reducing the value of debt securities. High and rising federal debt levels and uncertainty about the U.S. budget process could lead to higher interest rates and financial market volatility, potentially impacting broader economic activity. Further, if the U.S. government’s debt ceiling limit is not raised in January 2025, the ramifications could result in market volatility, ratings downgrades and limit fiscal policy responses to recessionary conditions. This could have a negative and potentially severe impact on the U.S. and world economy and financial and capital markets, including higher interest rates, higher volatility, lower asset values, lower liquidity, downgrades to U.S. debt, and a weakened U.S. dollar.
Changes to international trade and investment policies by the U.S. could negatively impact financial markets. Escalation of tensions between the U.S. and the People’s Republic of China
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(China) could lead to further U.S. measures that adversely affect financial markets, disrupt world trade and commerce and lead to trade retaliation, including through the use of tariffs, foreign exchange measures or the large-scale sale of U.S. Treasury bonds. Any restrictions on the activities of businesses, could also negatively affect financial markets.
These developments could adversely affect our businesses, customers, securities and derivatives portfolios, including the risk of lower re-investment rates within those portfolios, our level of charge-offs and provision for credit losses, the carrying value of our deferred tax assets, our capital levels, our liquidity and our results of operations.
Increased market volatility and adverse changes in financial or capital market conditions may increase our market risk.
Our liquidity, competitive position, business, results of operations and financial condition are affected by market risks such as changes in interest and currency exchange rates, fluctuations in equity, commodity and futures prices, trading volumes and prices of securitized products, the implied volatility of interest rates and credit spreads and other economic and business factors. These market risks may adversely affect, among other things, the value of our securities, including our on- and off-balance sheet securities, trading assets and other financial instruments, the cost of debt capital and our access to credit markets, the value of assets under management (AUM), fee income relating to AUM, customer allocation of capital among investment alternatives, the volume of client activity in our trading operations, investment banking, underwriting and other capital market fees, which have already been negatively impacted, the general profitability and risk level of the transactions in which we engage and our competitiveness with respect to deposit pricing. The value of certain of our assets is sensitive to changes in market interest rates. If the Federal Reserve or a non-U.S. central bank changes or signals a change in monetary policy, market interest rates or credit spreads could be affected, which could adversely impact the value of such assets. Changes to fiscal policy, including expansion of U.S. federal deficit spending and resultant debt issuance, could also affect market interest rates. If interest rates decrease, our results of operations could be negatively impacted, including future revenue and earnings growth.
Our models and strategies to assess and control our market risk exposures are subject to inherent limitations. In times of market stress or other unforeseen circumstances, previously uncorrelated indicators may become correlated. Such changes to the relationship between market parameters may limit the effectiveness of our hedging strategies and cause us to incur significant losses. Changes in correlation can be exacerbated where market participants use risk or trading models with assumptions or algorithms similar to ours. In these and other cases, it may be difficult to reduce our risk positions due to activity of other market participants or widespread market dislocations, including circumstances where asset values are declining significantly or no market exists. Where we own securities that do not have an established liquid trading market or are otherwise subject to restrictions on sale or hedging, or where the degree of accessible liquidity declines significantly, we may not be able to reduce our positions and risks associated with such holdings, so we may suffer larger than expected losses when adverse price movements take place. This risk can be exacerbated where we hold a position that is large relative to the available liquidity.
If asset values decline, we may incur losses and negative impacts to capital and liquidity requirements.
We have a large portfolio of financial instruments, including loans and loan commitments, securities financing agreements, asset-backed secured financings, derivative assets and liabilities, debt securities, marketable equity securities and certain other assets and liabilities that we measure at fair value and are subject to valuation and impairment assessments. We determine these values based on applicable accounting guidance, which, for financial instruments measured at fair value, requires an entity to base fair value on exit price and to maximize the use of observable inputs and minimize the use of unobservable inputs in fair value measurements. The fair values of these financial instruments include adjustments for market liquidity, credit quality, funding impact on certain derivatives and other transaction-specific factors, where appropriate.
Gains or losses on these instruments can have a direct impact on our results of operations, unless we have effectively mitigated the risk of our exposures. Increases in interest rates may cause decreases in residential mortgage loan originations and could impact the origination of corporate debt. In addition, increases in interest rates or changes in spreads may continue to adversely impact the fair value of our debt securities and, accordingly, for debt securities classified as available-for-sale (AFS), adversely affect accumulated other comprehensive income and, thus, our capital levels. Increases in interest rates could also adversely impact our regulatory liquidity position and requirements, which include certain AFS debt securities and the use of repurchase agreements against a portion of the held-to-maturity (HTM) debt securities. As our liquidity is dependent on the fair value of these assets, increases in market interest rates, which have adversely impacted and may continue to adversely impact the fair value of debt securities, could adversely affect liquidity levels.
Fair values may be impacted by declining values of the underlying assets or the prices at which observable market transactions occur and the continued availability of these transactions or indices. The financial strength of counterparties, with whom we have economically hedged some of our exposure to these assets, also will affect the fair value of these assets. Sudden declines and volatility in the prices of assets may curtail or eliminate trading activities in these assets, which may make it difficult to sell, hedge or value these assets. The inability to sell or effectively hedge assets reduces our ability to limit losses in such positions, and the difficulty in valuing assets may increase our risk-weighted assets (RWA), which requires us to maintain additional capital and increases our funding costs. Values of AUM also impact revenues in our wealth management and related advisory businesses for asset-based management and performance fees. Declines in values of AUM can result in lower fees earned for managing such assets.
Liquidity
If we are unable to access the capital markets, have prolonged net deposits outflows, or our borrowing costs increase, our liquidity and competitive position will be negatively affected.
Liquidity is essential to our businesses. We fund our assets primarily with globally sourced deposits in our bank entities, as well as secured and unsecured liabilities transacted in the capital markets. We rely on certain secured funding sources, such as repo markets, which are typically short-term and credit-sensitive. We also engage in asset securitization transactions, including with the government-sponsored enterprises (GSEs), to fund consumer lending activities. Our liquidity could be adversely affected by any inability to access the capital markets, illiquidity or volatility in the capital markets, the decrease in value of eligible collateral or increased collateral requirements (including as a result of credit concerns for short-term
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borrowing), changes to our relationships with our funding providers based on real or perceived changes in our risk profile, prolonged federal government shutdowns, or changes in regulations, guidance or GSE status that impact our funding.
Additionally, our liquidity or cost of funds may be negatively impacted by the unwillingness or inability of the Federal Reserve to act as lender of last resort, unexpected simultaneous draws on lines of credit or deposits, slower customer payment rates, restricted access to the assets of prime brokerage clients, the withdrawal of or failure to attract customer deposits or invested funds (which could result from attrition driven by customers seeking higher yielding deposits or securities products, customer desire to utilize an alternative financial institution perceived to be safer, changes in customer spending behavior due to inflation, decline in the economy or other drivers resulting in an increased need for cash), increased regulatory liquidity, capital and margin requirements for our U.S. or international banks and their nonbank subsidiaries, which could result in the inability to transfer liquidity internally and inefficient funding, changes in patterns of intraday liquidity usage resulting from a counterparty or technology failure or other idiosyncratic event or failure or default by a significant market participant or third party (including clearing agents, custodians, central banks or central counterparty clearinghouses (CCPs)). These factors may increase our borrowing costs and negatively impact our liquidity.
Several of these factors may arise due to circumstances beyond our control, such as general market volatility, disruption, shock or stress, the emergence or continuation of widespread health emergencies or pandemics, and military conflicts (including the Russia/Ukraine conflict and the conflict in the Middle East). Federal Reserve policy decisions (including fluctuations in interest rates or Federal Reserve balance sheet composition), negative views or loss of confidence about us or the financial services industry generally or due to a specific news event, changes in the regulatory environment or governmental fiscal or monetary policies, actions by credit rating agencies or an operational problem that affects third parties or us. The impact of these potentially sudden events, whether within our control or not, could include an inability to sell assets or redeem investments, unforeseen outflows of cash, the need to draw on liquidity facilities, the reduction of financing balances and the loss of equity secured funding, debt repurchases to support the secondary market or meet client requests, the need for additional funding for commitments and contingencies and unexpected collateral calls, among other things, the result of which could be increased costs, a liquidity shortfall and/or impact on our liquidity coverage ratio.
Our liquidity and cost of obtaining funding may be directly related to investor behavior and confidence, debt market disruption, firm specific concerns or prevailing market conditions, including changes in interest and currency exchange rates, significant fluctuations in equity and futures prices, lower trading volumes and prices of securitized products and our credit spreads. Increases in interest rates and our credit spreads can increase the cost of our funding and result in mark-to-market or credit valuation adjustment exposures. Changes in our credit spreads are market driven and may be influenced by market perceptions of our creditworthiness, including changes in our credit ratings or changes in broader financial market and macroeconomic conditions. Changes to interest rates and our credit spreads occur continuously and may be unpredictable and highly volatile. We may also experience net interest margin compression as a result of offering higher than expected deposit rates in order to attract and maintain deposits. Concentrations within our funding profile, such as maturities,
currencies or counterparties, can also reduce our funding efficiency.
Reduction in our credit ratings could limit our access to funding or the capital markets, increase borrowing costs or trigger additional collateral or funding requirements.
Our borrowing costs and ability to raise funds are directly impacted by our credit ratings. Credit ratings are also important to investors, customers or counterparties when we compete in certain markets and seek to engage in certain transactions, including over-the-counter (OTC) derivatives. Our credit ratings are subject to ongoing review by rating agencies, which consider a number of financial and nonfinancial factors, including our franchise, financial strength, performance and prospects, management, governance, risk management practices, capital adequacy, asset quality and operations, among other criteria, as well as factors not under our control, such as regulatory developments, the macroeconomic and geopolitical environment and changes to the methodologies used to determine our ratings.
Rating agencies could adjust our credit ratings at any time and there can be no assurance as to whether or when a downgrade could occur. Any reduction could result in a wider credit spread and negatively affect our access to credit markets, the related cost of funds, our businesses and certain trading revenues, particularly in those businesses where counterparty creditworthiness is critical. If the short-term credit ratings of our parent company, bank or broker-dealer subsidiaries were downgraded, we may experience loss of access to short-term funding sources such as repo financing, and/or incur increased cost of funds and increased collateral requirements. Under the terms of certain OTC derivative contracts and other trading agreements, if our or our subsidiaries’ credit ratings are downgraded, the counterparties may require additional collateral or terminate these contracts or agreements.
While certain potential impacts are contractual and quantifiable, the full consequences of a credit rating downgrade are inherently uncertain and depend upon numerous dynamic, complex and inter-related factors and assumptions, including the relationship between long-term and short-term credit ratings and the behaviors of customers, investors and counterparties.
Bank of America Corporation is a holding company, is dependent on its subsidiaries for liquidity and may be restricted from transferring funds from subsidiaries.
Bank of America Corporation, as the parent company, is a separate and distinct legal entity from our bank and nonbank subsidiaries. We evaluate and manage liquidity on a legal entity basis. Legal entity liquidity is an important consideration as there are legal, regulatory, contractual and other limitations on our ability to utilize liquidity from one legal entity to satisfy the liquidity requirements of another, including the parent company, which could result in adverse liquidity events. The parent company depends on dividends, distributions, loans and other payments from our bank and nonbank subsidiaries to fund dividend payments on our preferred stock and common stock and to fund all payments on our other obligations, including debt obligations. Any inability of our subsidiaries to transfer funds, pay dividends or make payments to us may adversely affect our cash flow, liquidity and financial condition.
Many of our subsidiaries, including our bank and broker-dealer subsidiaries, are subject to laws that restrict dividend payments, or authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to the parent company or other subsidiaries. Our bank and broker-dealer subsidiaries are subject to restrictions on their ability to lend or transact with affiliates, minimum regulatory capital and liquidity requirements
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and restrictions on their ability to use funds deposited with them in bank or brokerage accounts to fund their businesses. Intercompany arrangements we entered into in connection with our resolution planning submissions could restrict the amount of funding available to the parent company from our subsidiaries under certain adverse conditions.
Additional restrictions on related party transactions, increased capital and liquidity requirements and additional limitations on the use of funds on deposit in bank or brokerage accounts, as well as lower earnings, can reduce the amount of funds available to meet the obligations of the parent company and even require the parent company to provide additional funding to such subsidiaries. Also, regulatory action that requires additional liquidity at each of our subsidiaries could impede access to funds we need to pay our obligations or pay dividends. In addition, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to prior claims of the subsidiary’s creditors.
Bank of America Corporation’s liquidity and financial condition, and the ability to pay dividends and obligations, could be adversely affected in the event of a resolution.
Bank of America Corporation, our parent holding company, is required to periodically submit a plan to the FDIC and Federal Reserve describing its resolution strategy under the U.S. Bankruptcy Code in the event of material financial distress or failure. Bank of America Corporation’s preferred resolution strategy is a “single point of entry” strategy, whereby only the parent holding company would file for bankruptcy under the U.S. Bankruptcy Code. Certain key operating subsidiaries would be provided with sufficient capital and liquidity to operate through severe stress and to enable such subsidiaries to continue operating or be wound down in a solvent manner following a bankruptcy of the parent holding company. Bank of America Corporation has entered into intercompany arrangements resulting in the contribution of most of its capital and liquidity to key subsidiaries. Pursuant to these arrangements, if Bank of America Corporation’s liquidity resources deteriorate so severely that resolution becomes imminent, it will no longer be able to draw liquidity from its key subsidiaries and will be required to contribute its remaining financial assets to a wholly-owned holding company subsidiary. This could adversely affect our liquidity and financial condition, including the ability to meet our payment obligations and the ability to return capital to shareholders, including through the payment of dividends and repurchase of the Corporation’s common stock.
If the FDIC and Federal Reserve jointly determine that Bank of America Corporation’s resolution plan is not credible, they could impose more stringent capital, leverage or liquidity requirements or restrictions on our growth, activities or operations. We could also be required to take certain actions that could impose operating costs and result in the divestiture of assets or restructuring of businesses and subsidiaries.
When a G-SIB such as Bank of America Corporation is in default or danger of default, the FDIC may be appointed receiver to conduct an orderly liquidation, and could, among other things, invoke the orderly liquidation authority, instead of the U.S. Bankruptcy Code, if the Secretary of the Treasury makes certain financial distress and systemic risk determinations. Additionally, the FDIC could replace Bank of America Corporation with a bridge holding company, which could continue operations and result in an orderly resolution of the underlying bank, but whose equity would be held solely for the benefit of our creditors. The FDIC’s “single point of entry” strategy may result in our security holders suffering greater losses than would have been the case under a bankruptcy proceeding or a different resolution strategy.
If the Corporation is resolved under the U.S. Bankruptcy Code or the FDIC’s orderly liquidation authority, third-party creditors of our subsidiaries may receive significant or full recoveries on their claims, while security holders of Bank of America Corporation could face significant or complete losses.
Credit
Economic or market disruptions and insufficient credit loss reserves may result in a higher provision for credit losses.
A number of our products expose us to credit risk, including loans, letters of credit, derivatives, debt securities, trading account assets and assets held-for-sale. Deterioration in the financial condition of our consumer and commercial borrowers, counterparties or underlying collateral could adversely affect our results of operations and financial condition.
Our credit portfolios may be impacted by U.S. and global macroeconomic and market conditions, events and disruptions, including declines in GDP, consumer spending or property values, asset price corrections, increasing consumer and corporate leverage, increases in corporate bond spreads, government shutdowns or policies such as student loan debt payment resumptions, tax changes, rising or elevated unemployment levels, elevated inflation, fluctuations in foreign exchange or interest rates, as well as the emergence or continuation of widespread health emergencies or pandemics, extreme weather events and the impacts of climate change, including acute and/or chronic extreme weather events and efforts to transition to a low-carbon economy. Significant economic or market stresses and disruptions typically have a negative impact on the business environment and financial markets, which could impact the underlying credit quality of our borrowers, counterparties and assets. Property value declines or asset price corrections could increase the risk of borrowers or counterparties defaulting or becoming delinquent in their obligations to us, and could decrease the value of the collateral we hold, which could increase credit losses. Credit risk could also be magnified by lending to leveraged borrowers or declining asset prices, including property or collateral values, unrelated to macroeconomic stress. Simultaneous drawdowns on lines of credit and/or an increase in a borrower’s leverage in a weakening economic environment, or otherwise, could result in deterioration in our credit portfolio, should borrowers be unable to fulfill competing financial obligations. Increased delinquency and default rates could adversely affect our credit portfolios, including consumer credit card, home equity and residential mortgage portfolios through increased charge-offs and provisions for credit losses.
A recessionary environment and/or a rise in unemployment could adversely impact the ability of our consumer and/or commercial borrowers or counterparties to meet their financial obligations and negatively impact our credit portfolio. Consumers have been and may continue to be negatively impacted by inflation, resulting in drawdowns of savings or increases in household debt. Higher interest rates, which have increased debt servicing costs for some businesses and households, may adversely impact credit quality, particularly in a recessionary environment. Certain sectors also remain at risk (e.g., commercial real estate, particularly office) as a result of shifts in demand and tighter financial and credit conditions. Globally, conditions of slow growth or recession could further contribute to weaker credit conditions. If the macroeconomic environment or certain sectors worsen, our credit portfolio, net charge-offs, provision and allowance for credit losses could be adversely impacted.
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We establish an allowance for credit losses, which includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, based on management's best estimate of lifetime expected credit losses (ECL) inherent in our relevant financial assets. The process to determine the allowance for credit losses uses models and assumptions that require us to make difficult and complex judgments that are often interrelated, including forecasting how borrowers or counterparties may perform in changing economic conditions. The ability of our borrowers or counterparties to repay their obligations may be impacted by changes in future economic conditions, which in turn could impact the accuracy of our loss forecasts and allowance estimates. There is also the possibility that we have failed or will fail to accurately identify the appropriate economic indicators or accurately estimate their impacts to our borrowers or counterparties, which could impact the accuracy of our loss forecasts and allowance estimates.
If the models, estimates and assumptions we use to establish reserves or the judgments we make in extending credit to our borrowers or counterparties, which are more sensitive due to the current uncertain macroeconomic and geopolitical environment, prove inaccurate in predicting future events, we may suffer losses in excess of our ECL. In addition, changes to external factors can negatively impact our recognition of credit losses in our portfolios and allowance for credit losses.
The allowance for credit losses is our best estimate of ECL; however, there is no guarantee that it will be sufficient to address credit losses, particularly if the economic outlook deteriorates significantly, quickly, or unexpectedly. As circumstances change, we may increase our allowance, which would reduce our earnings. If economic conditions worsen, impacting our consumer and commercial borrowers, counterparties or underlying collateral, and credit losses are worse than expected, we may increase our provision for credit losses, which could adversely affect our results of operations and financial condition.
Our concentrations of credit risk could adversely affect our credit losses, results of operations and financial condition.
We may be subject to concentrations of credit risk because of a common characteristic or common sensitivity to economic, financial, public health or business developments. Concentrations of credit risk may reside in a particular industry, geography, product, asset class, counterparty or within any pool of exposures with a common risk characteristic. A deterioration in the financial condition or prospects of a particular industry, geographic location, product or asset class, or a failure or downgrade of, or default by, any particular entity or group of entities could negatively affect our businesses, and it is possible our limits and credit monitoring exposure controls will not function as anticipated.
We execute a high volume of transactions and have significant credit concentrations with respect to the financial services industry, predominantly comprised of broker-dealers, commercial banks, investment banks, insurance companies, mutual funds, hedge funds, CCPs and other institutional clients. Financial services institutions and other counterparties are inter-related because of trading, funding, clearing or other relationships. Defaults by one or more counterparties, or market uncertainty about the financial stability of one or more financial services institutions, or the financial services industry generally, could lead to market-wide liquidity disruptions, losses, defaults and related disputes and litigation.
Our credit risk may also be heightened by market risk when the collateral held by us cannot be liquidated or is liquidated at prices not sufficient to recover the full amount of the loan or
derivatives exposure due to us, which may occur as a result of events that impact the value of the collateral, such as a sudden change in asset price or fraud. Disputes with obligors as to the valuation of collateral could increase in times of significant market stress, volatility or illiquidity, and we could suffer losses during such periods if we are unable to realize the fair value of the collateral or manage declines in the value of collateral.
We have concentrations of credit risk, including with respect to our consumer real estate and consumer credit card exposure, as well as our commercial real estate and asset managers and funds portfolios, which represent a significant percentage of our overall credit portfolio. Declining home price valuations and demand where we have large concentrations could result in increased servicing advances and expenses, defaults, delinquencies or credit losses. The impacts of earthquakes, as well as climate change, such as rising average global temperatures and sea levels, and the increasing frequency and severity of extreme weather events and natural disasters, including droughts, floods, wildfires and hurricanes, could negatively impact collateral, the valuations of home or commercial real estate or our customers’ ability and/or willingness to pay fees, outstanding loans or afford new products. This could also cause insurability risk and/or increased insurance costs to customers.
Economic weaknesses, sustained elevated inflation, adverse business conditions, market disruptions, adverse economic or market events, rising interest or capitalization rates, declining asset prices, greater volatility in areas where we have concentrated credit risk or deterioration in real estate values or household incomes may cause us to experience higher credit losses in our portfolios or write down the value of certain assets. We could also experience continued and long-term negative impacts to our commercial credit exposure and an increase in credit losses within those industries that may be permanently impacted by a change in consumer preferences or other industry disruptions.
We also enter into transactions with sovereign nations, U.S. states and municipalities. Unfavorable economic or political conditions, disruptions to capital markets, currency fluctuations, changes in oil prices, social instability and changes in government or monetary policies could adversely impact the operating budgets or credit ratings of these government entities and expose us to credit and liquidity risk.
Liquidity disruptions in the financial markets may result in our inability to sell, syndicate or realize the value of our positions, increasing concentrations, which could increase RWA and the credit and market risk associated with our positions.
We may be adversely affected by weaknesses in the U.S. housing market.
During 2023, the U.S. housing market continued to be impacted by higher mortgage rates, including 30-year fixed-rate mortgages that more than doubled from 2021. This has negatively impacted the demand in some cases and underlying collateral for many of our products. Additionally, our mortgage loan production volume is generally influenced by the rate of growth in residential mortgage debt outstanding and the size of the residential mortgage market, both of which have slowed due to higher interest rates and reduced affordability. A deeper downturn in the condition of the U.S. housing market could result in significant write-downs of asset values in several asset classes, notably mortgage-backed securities (MBS). If the U.S. housing market were to further weaken, the value of real estate could decline, which could result in increased credit losses and delinquent servicing expenses, negatively affect our
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representations and warranties exposures, and adversely affect our results of operations and financial condition.
Our derivatives businesses may expose us to unexpected risks, which may result in losses and adversely affect liquidity.
We are party to a large number of derivatives transactions that may expose us to unexpected market, credit and operational risks that could cause us to suffer unexpected losses. Fluctuations in asset values or rates or an unanticipated credit event, including unforeseen circumstances that may cause previously uncorrelated factors to become correlated, may lead to losses resulting from risks not taken into account or anticipated in the development, structuring or pricing of a derivative instrument. Certain derivative contracts and other trading agreements provide that upon the occurrence of certain specified events, such as a change to our or our affiliates’ credit ratings, we may be required to provide additional collateral or take other remedial actions, and we could experience increased difficulty obtaining funding or hedging risks. In some cases our counterparties may have the right to terminate or otherwise diminish our rights under these contracts or agreements upon the occurrence of such events.
We are also a member of various CCPs, which results in credit risk exposure to those CCPs. In the event that one or more members of a CCP default on their obligations, we may be required to pay a portion of any losses incurred by the CCP as a result of that default. A CCP may also, at its discretion, modify the margin we are required to post, which could mean unexpected and increased funding costs and exposure to that CCP. As a clearing member, we are exposed to the risk of non-performance by our clients for which we clear transactions, which may not be covered by available collateral. Additionally, default by a significant market participant may result in further risk and potential losses.
Geopolitical
We are subject to numerous political, economic, market, reputational, operational, compliance, legal, regulatory and other risks in the jurisdictions in which we operate.
We do business throughout the world, including in emerging markets. Economic or geopolitical stress in one or more countries could have a negative impact regionally or globally, resulting in, among other things, market volatility, reduced market value and economic output. Our liquidity and credit risk could be adversely impacted by, and our businesses and revenues derived from non-U.S. jurisdictions are subject to, risk of loss from financial, social or judicial instability, economic sanctions, changes in government leadership, including as a result of electoral outcomes or otherwise, changes in governmental policies or policies of central banks, expropriation, nationalization and/or confiscation of assets, price controls, high inflation, natural disasters, the emergence or continuation of widespread health emergencies or pandemics, capital controls, currency re-denomination risk from a country exiting the EU or otherwise, currency fluctuations, foreign exchange controls or movements (caused by devaluation or de-pegging), unfavorable political and diplomatic developments, oil price fluctuations and changes in legislation. These risks are especially elevated in emerging markets.
Continued tensions between the U.S. and important trading partners, particularly China, may result in sanctions, further tariff increases or other restrictive actions on cross-border trade, investment and transfer of information technology, which could reduce trade volumes, result in further supply chain disruptions, increase costs for producers, and adversely affect our
businesses and revenues, as well as our customers and counterparties, including their credit quality.
Slowing growth, recessionary conditions, adverse geopolitical conditions and/or political or civil unrest, labor shortages, wage pressures and elevated inflation in certain countries pose challenges, including in the form of volatility in financial markets. Foreign exchange rates against the U.S. dollar remain an area of uncertainty and potential volatility, and depreciation could increase our financial risks with clients that deal in non-U.S. currencies but have U.S. dollar-denominated debt.
We invest or trade in the securities of corporations and governments located in non-U.S. jurisdictions, including emerging markets. Revenues from the trading of non-U.S. securities may be subject to negative fluctuations as a result of the above factors. Furthermore, the impact of these fluctuations could be magnified because non-U.S. trading markets, particularly in emerging markets, are generally smaller, less liquid and more volatile than U.S. trading markets. Risks in one nation can limit our opportunities for portfolio growth and negatively affect our operations in other nations, including our U.S. operations. Market and economic disruptions may affect consumer confidence levels and spending, corporate investment and job creation, bankruptcy rates, levels of incurrence and default on consumer and corporate debt, economic growth rates and asset values, among other factors.
Elevated government debt levels raise the risk of volatility, significant valuation changes, political tensions among EU members regarding fiscal policy or defaults on or devaluation of sovereign debt, which could expose us to substantial losses. Financial markets have been and may continue to be sensitive to government plans to lower taxes or increase spending.
Our non-U.S. businesses are also subject to extensive regulation by governments, securities exchanges and regulators, central banks and other regulatory bodies. In many countries, the laws and regulations applicable to the financial services and securities industries are less predictable, prone to change and uncertainty, and regularly evolving. Significant resources are spent on determining, understanding and monitoring foreign laws, rules and regulations, as well as managing our relationships with multiple regulators in various jurisdictions. Our inability to remain in compliance with local laws and manage our relationships with regulators could result in increased expenses, changes to our organizational structure and adversely affect our businesses, reputation and results of operations in that market.
We are also subject to complex and extensive U.S. and non-U.S. laws, rules and regulations, which subject us to costs and risks relating to bribery and corruption, know-your-customer requirements, anti-money laundering, embargo programs and economic sanctions, which can vary by jurisdiction and require implementation of complex operational capabilities and compliance programs. Non-compliance, including improper implementation, and/or violations could result in an increase in operational and compliance costs, and enforcement actions and civil and criminal penalties against us and individual employees. The increasing speed and novel ways in which funds circulate could make it more challenging to track the movement of funds and heighten financial crimes risk. Compliance with these evolving regulatory regimes and legal requirements depends on our ability to improve our processes, controls, surveillance, detection and reporting and analytic capabilities.
In the U.S., the government’s debt ceiling and budget deficit concerns have increased the possibility of U.S. government defaults on its debt and/or further downgrades to its credit ratings, and prolonged government shutdowns, which could
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weaken the U.S. dollar, cause market volatility, negatively impact the global economy and banking system and adversely affect our financial condition, including our liquidity. Additionally, changes in fiscal, monetary, regulatory and/or foreign policy, including as a result of the election cycle, labor shortages, wage pressures, supply chain disruptions and higher inflation, could increase our compliance costs and adversely affect our business operations, organizational structure and results of operations. Emerging market currency values and monetary policy settings are particularly sensitive to such changes in U.S. monetary policy. Additionally, further restrictive U.S. monetary policy, potentially including further rate increases, could result in additional currency volatility and recessionary conditions in a number of non-U.S. markets.
We are also subject to geopolitical risks, including economic sanctions, acts or threats of international or domestic terrorism, including responses by the U.S. or other governments thereto, increased state-sponsored cyberattacks or campaigns, civil unrest and/or military conflicts, including the escalation of tensions between China and Taiwan, which could adversely affect business, market trade and general economic conditions abroad and in the U.S. The Russia/Ukraine conflict and the conflict in the Middle East have magnified such risks and resulted in regional instability and adversely impacted commodity and other financial markets, as well as economic conditions, especially in Europe. Widening regional conflicts resulting in the involvement of neighboring countries and/or North Atlantic Treaty Organization member countries could result in additional economic disruptions, financial market volatility, higher inflation and changes to asset valuations, which could disrupt our operations and adversely affect our results of operations.
Business Operations
A failure in or breach of our operations or information systems, or those of third parties or the financial services industry, could cause disruptions, adversely impact our businesses, results of operations and financial condition, and cause legal or reputational harm.
Operational risk exposure exists throughout our organization and as a result of our extensive interactions with, and reliance on, third parties and the financial services industry, including the processing and reporting of a large number of transactions in many currencies and jurisdictions. Our operations and information systems, which comprise the hardware, software, infrastructure, backup systems and other technology which we own or use to collect, process, maintain, use, share, disseminate or dispose of information, are integral to the performance of our businesses.
Our operations and information systems and components thereof, and those of our third parties, have been, and in the future could be, ineffective or fail to operate properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond our or such third party’s control. Such events have adversely affected, and in the future could adversely affect, physical site access of our operations, our ability to process transactions, provide services and perform other operations. Short-term or prolonged disruptions to our critical business operations and customer services are possible due to computer, telecommunications, network, utility, electronic or physical infrastructure outages, including from abuse or failure of our electronic trading and algorithmic platforms, significant unplanned increases in customer transactions, fraudulent transactions, newly identified vulnerabilities in key hardware and software, failure of
infrastructure or manual processes, technology project implementation challenges and supply chain disruptions. Operational disruptions and prolonged operational outages could also result from events arising from natural disasters, including acute and chronic weather events, such as wildfires, tornadoes, hurricanes and floods, some of which are happening with more frequency and severity, and earthquakes, as well as local or larger scale political or social matters, including civil unrest, terrorist acts and military conflict.
We continue to have greater reliance on our and our third parties’ remote access tools and technology, and employees’ personal systems and increased data utilization and dependence upon our information systems to operate our businesses remotely, including as a result of evolving customer preferences, which has led to increased reliance on digital banking and other digital services provided by our businesses. Effective management of our business continuity increasingly depends on the security, reliability and adequacy of such systems.
We also rely on our employees, representatives and third parties in our day-to-day operations, who may, due to illness, unavailability, the emergence or continuation of health emergencies or pandemics, human error, misconduct (including errors in judgment, malice, fraud or illegal activity), malfeasance or a failure or breach of information systems, cause disruptions to our organization and expose us to operational losses, regulatory risk and reputational harm. Our and our third parties’ inability to properly introduce, deploy and manage operational changes, including with regard to internal financial and governance processes, existing products, services and technology, and new product innovations and technology, could also result in additional operational and regulatory risk.
Regardless of the measures we have taken to implement training, procedures, backup systems and other safeguards to support our operations and bolster our operational resilience, our ability to conduct business may be adversely affected by significant disruptions to us or to third parties with whom we interact or upon whom we rely, including localized or systemic cyber events that result in information systems outages and unavailability of part or all of the internet, cloud services and/or the financial services industry infrastructure (including electronic trading and algorithmic platforms and critical banking activities). Our ability to implement backup systems and other safeguards with respect to third-party systems and the financial services industry infrastructure is more limited than with respect to our systems. Weakness in our third parties’ processes or controls could impact our ability to deliver products or services to our clients and expose us to compliance and operational risks.
There can be no assurance that our business continuity and information security response plans will effectively mitigate our operational risks. Any backup systems or manual processes may not process data accurately and/or as quickly or effectively as our primary systems, and some data might not have been backed up. Additionally, the speed in which we are able to remediate any failure or disruption of our operations and/or information systems may vary across jurisdictions. We regularly update the information systems we rely on to support our operations and growth as part of our efforts to comply with all applicable laws, rules and regulations globally. This updating entails significant costs and creates risks associated with implementing new or modified information systems and integrating them with existing information systems, including business interruptions.
A failure or breach of our or our third parties’ operations or information systems resulting in disruption to our critical
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business operations and customer services, a failure to identify or effectively respond to operational risks in a timely manner and/or a failure to continue to deliver our services through an operational disruption could impact the confidentiality, integrity or availability of data and expose us to a number of risks, including market abuse, customer attrition, regulatory, market, privacy and liquidity risk, adversely impact our results of operations and financial condition and cause legal, regulatory or reputational harm.
The Corporation and third parties with whom we interact and/or on whom we rely, are subject to cybersecurity incidents, information and security breaches, and technology failures that have and in the future could adversely affect our ability to conduct our businesses, result in the misuse, destruction or disclosure of information, damage our reputation, increase our regulatory and legal risks, result in additional costs or financial losses and/or otherwise adversely impact our businesses and results of operations.
Our business is highly dependent on the security, controls and efficacy of our information systems, and the information systems of our customers, third parties, the financial services industry and financial data aggregators with whom we interact, on whom we rely or who have access to our customers' personal or account information. We rely on effective access management and the secure collection, processing, maintenance, use, sharing, dissemination and disposition of information in our and our third parties’ information systems. Our cybersecurity risk and exposure remains heightened because of, among other things, our prominent size and scale, high-profile brand, geographic footprint and international presence and role in the financial services industry and the broader economy. The proliferation of third-party financial data aggregators and emerging technologies, including our and our third parties’ use of automation, artificial intelligence (AI) and robotics, increases our cybersecurity risks and exposure.
We, our employees, customers, regulators and third parties are ongoing targets of an increasing number of cybersecurity threats and cyberattacks. The tactics, techniques and procedures used in cyberattacks are pervasive, sophisticated and designed to evade security measures, including computer viruses, malicious or destructive code (such as ransomware), social engineering (including phishing, vishing and smishing), denial of service or information or other security breach tactics that have and in the future could result in disruptions to our businesses and operations and the loss of funds, including from attempts to defraud us and/or our customers, and impact the confidentiality, integrity or availability of our information, including intellectual property, or that of our employees, customers and third parties. Cyberattacks are carried out on a worldwide scale and by a growing number of actors, including organized crime groups, hackers, terrorist organizations, extremist parties, hostile foreign governments, state-sponsored actors, activists, disgruntled employees and other persons or entities, including those involved in corporate espionage.
Cybersecurity threats and the tactics, techniques and procedures used in cyberattacks change, develop and evolve rapidly, including from emerging technologies, such as AI, machine learning and quantum computing. Despite substantial efforts to protect the integrity and resilience of our information systems and implement controls, processes, policies, employee training and other protective measures, we are not able to anticipate and/or detect all cybersecurity threats and incidents and/or develop or implement effective preventive or defensive measures designed to prevent, respond to or mitigate all cybersecurity threats and incidents. Internal access
management failures could impact the confidentiality, integrity or availability of data. Additionally, the failure of our employees to exercise sound judgment and vigilance when targeted with social engineering or other cyberattacks increases our vulnerability.
Our risk from and exposure to cybersecurity threats and incidents, information and security breaches and technology failures continues to increase due to the acceptance and use of digital banking and other digital products and services, including mobile banking products, and reliance on remote access tools and technology, which have increased our reliance on virtual or digital interactions and a larger number of access points to our information systems that must be secured, and results in greater amounts of information being available for access. Greater demand on our information systems and security tools and processes will likely continue.
We also face significant third-party technology, cybersecurity and operational risks relating to the large number of customers and third parties with whom we do business, the financial services industry, upon whom we rely to facilitate or enable our business activities or upon whom our customers rely, including the secure collection, processing, maintenance, use, sharing, dissemination and disposition of customer and other sensitive information, providers of products and/or services, financial counterparties, financial data aggregators, financial intermediaries, such as clearing agents, exchanges and clearing houses, regulators, providers of outsourced infrastructure, such as internet access, cloud service providers and electrical power, and retailers for whom we process transactions. Such third-party information systems extend beyond our security and control systems, and such third parties have varying levels of security and cybersecurity resources, expertise, safeguards, controls and capabilities. Threat actors may actively seek to exploit security and cybersecurity weaknesses at our third parties and the relationships of our third parties with us may increase the risk that they are targeted by the same threats we face, and such third parties may be less prepared for such threats. We are also at additional risk resulting from critical third-party information security and open-source software vulnerabilities. We must rely on our third parties to adequately detect and promptly report cybersecurity incidents, and their failure to do so could adversely affect our ability to report or respond to cybersecurity incidents effectively or timely.
Due to increasing consolidation, interdependence and complexity of financial entities and technology and information systems, a cybersecurity threat or incident, information or security breach or technology failure that significantly exposes, degrades, destroys or compromises the information systems or information of one or more financial entities or third parties could adversely impact us and increase the risk of operational failure and loss, as disparate systems need to be integrated, often on an accelerated basis. Similarly, any cybersecurity threat or incident, information or security breach or technology failure that significantly exposes, degrades, destroys or compromises our information systems or information could adversely impact third parties and the critical infrastructure of the financial services industry, thereby creating additional risk for us.
Cybersecurity incidents or information or security breaches could persist for an extended period of time before being detected, and it often takes additional time to determine the scope, extent, amount and type of impact, including information altered, destroyed or otherwise compromised, following which the measures to recover and restore to a business-as-usual state may be difficult to assess. We have spent and expect to continue to spend significant resources to modify and enhance
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our protective measures, investigate and remediate software and network vulnerabilities, and defend against, detect and respond to cybersecurity threats and incidents whether specific to us, a third party, the industry or businesses in general, and enhance our capabilities to respond and recover.
While we and our third parties have experienced cybersecurity incidents, information and security breaches and technology failures, as well as adverse impacts from such events, including as described in this risk factor, we have not experienced material losses or other material consequences relating to cybersecurity incidents, information or security breaches or technology failures, whether directed at us or our third parties. However, we expect to continue to experience such events and impacts with increased frequency and severity due to the evolving threat environment, and there can be no assurance that future cybersecurity incidents, information and security breaches and technology failures, including as a result of cybersecurity incidents, information and security breaches and technology failures experienced by our third parties, will not have a material adverse impact on us, including our businesses, results of operations and financial condition.
Any future cybersecurity incident, information or security breach or technology failure suffered by us or our third parties could result in disruption to our day-to-day business activities, an inability to effect transactions, execute trades, service our customers, manage our exposure to risk, expand our businesses, detect and prevent fraudulent or unauthorized transactions, including transactions impacting our customers, maintain information systems access and business operations and customer services, in the U.S. and/or globally. Additionally, we could experience the loss of customers and business opportunities, the withdrawal of customer deposits, the misappropriation, alteration or destruction of our or our third parties’ intellectual property or confidential information, the unauthorized access to or temporary or permanent loss or theft of personally identifiable information, including of our employees and customers, significant lost revenue, losses and claims brought by third parties, violations of applicable privacy, cybersecurity and other laws, rules and regulations, litigation exposure, economic sanctions, enforcement actions, government fines, penalties or intervention and other negative consequences. Although we maintain cyber insurance, there can be no assurance that liabilities or losses we may incur will be covered under such policies or that the amount of insurance will be adequate. In addition, in the case of any cybersecurity incident, information or security breach or technology failure arising from third-party systems impacting us, any third-party indemnification may not be applicable or sufficient to address the impact of such cybersecurity incidents, information or security breaches or technology failures, including monetary losses of the Corporation. The occurrence of any of the events described above could adversely impact our businesses, results of operations, liquidity and financial condition, as well as cause reputational harm, whether such events are actual or perceived.
Failure to satisfy our obligations as servicer for residential mortgage securitizations, loans owned by other entities and other related losses could adversely impact our reputation, servicing costs or results of operations.
We service mortgage loans on behalf of third-party securitization vehicles and other investors. If we commit a material breach of our obligations as servicer or master servicer, we may be subject to termination if the breach is not cured within a specified period of time following notice, which could cause us to lose servicing income. We may also have liability for any failure by us, as a servicer or master servicer, for
any act or omission on our part that involves willful misfeasance, bad faith, gross negligence or reckless disregard of our duties. If any such breach was found to have occurred, it may harm our reputation, increase our servicing costs or losses due to potential indemnification obligations, result in litigation or regulatory action or adversely impact our results of operations. Additionally, foreclosures may result in costs, litigation or losses due to irregularities in the underlying documentation, or if the validity of a foreclosure action is challenged by a borrower or overturned by a court because of errors or deficiencies in the foreclosure process. We may also incur costs or losses relating to delays or alleged deficiencies in processing documents necessary to comply with state law governing foreclosure.
Changes in the structure of and relationship among the GSEs could adversely impact our business.
We rely on the GSEs to guarantee or purchase mortgage loans that meet their conforming loan requirements. During 2023, we sold approximately $3.1 billion of loans to GSEs, primarily Freddie Mac (FHLMC). FHLMC and Fannie Mae (FNMA) are currently in conservatorship, with the Federal Housing Finance Agency (FHFA) acting as conservator. In 2019, the Treasury Department published a proposal to recapitalize FHLMC and FNMA and remove them from conservatorship and reduce their role in the marketplace. In January 2021, the Treasury Department further amended the agreement that governs the conservatorship of FHLMC and FNMA and delineated the continued objective to remove the GSEs from conservatorship. However, we cannot predict the future prospects of the GSEs, timing of the recapitalization or release from conservatorship, or content of legislative or rulemaking proposals regarding the future status of the GSEs in the housing market. If the GSEs take a reduced role in the marketplace, including by limiting the mortgage products they offer, we could be required to seek alternative funding sources, retain additional loans on our balance sheet, secure funding through the Federal Home Loan Bank system, or securitize the loans through Private Label Securitization, which could increase our cost of funds related to the origination of new mortgage loans, increase credit risk and/or impact our capacity to originate new mortgage loans. Uncertainty regarding their future and the MBS they guarantee continues to exist for the foreseeable future. These developments could adversely affect our securities portfolios, capital levels, liquidity and results of operations.
Our risk management framework may not be effective in mitigating risk and reducing the potential for losses.
Our risk management framework is designed to minimize risk and loss to us. We seek to effectively and consistently identify, measure, monitor, report and control the key types of risk to which we are subject, including strategic, credit, market, liquidity, compliance, operational and reputational risks. Risks also may span across multiple key risk types, including cybersecurity risk, climate risk and legal risk. While we employ a broad and diversified set of controls and risk mitigation techniques, including modeling and forecasting, hedging strategies and techniques that seek to balance our ability to profit from trading positions with our exposure to potential losses, our ability to control and mitigate risks that result in losses is inherently limited by our ability to identify and measure all risks, including emerging and unknown risks, anticipate the timing and impact of risks, apply effective hedging strategies, make correct assumptions, manage and aggregate data correctly and efficiently, identify changes in markets or client behaviors not yet inherent in historical data and develop risk management models and forecasts to assess and control risk.
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Our ability to manage risk is dependent on our ability to consistently execute all elements of our risk management program, develop and maintain a culture of managing risk well throughout the Corporation and manage risks associated with third parties, including providers of products and/or services, to allow for effective risk management and help confirm that risks are appropriately considered, evaluated and responded to in a timely manner. Uncertain economic and geopolitical conditions, health emergencies and pandemics, heightened legislative and regulatory scrutiny of and change within the financial services industry, the pace of technological changes, accounting, tax and market developments, the failure of employees, representatives and third parties to comply with our policies and Risk Framework and the overall complexity of our operations, among other developments, have in the past and may in the future result in a heightened level of risk, including operational, reputational and compliance risk. Our failure to manage evolving risks or properly anticipate, manage, control or mitigate risks could result in additional losses and adversely affect our results of operations.
Regulatory, Compliance and Legal
We are highly regulated and subject to evolving government legislation and regulations and certain settlements, orders and agreements with government authorities from time to time.
Our businesses are highly regulated and we are subject to evolving and comprehensive regulation under federal and state laws in the U.S. and the laws of the various foreign jurisdictions in which we operate, including increasing and complex economic sanctions regimes. These laws and regulations significantly affect and have the potential to restrict the scope of our existing businesses, require changes to our business strategies, limit our ability to pursue certain business opportunities, including the products and services we offer, reduce certain fees and rates and/or make our products and services more expensive for our clients. We are also required to file various financial and nonfinancial regulatory reports to comply with laws, rules and regulations in the jurisdictions in which we operate, which results in additional compliance risk.
We continue to adjust our business and operations, legal entity structure, disclosure and policies, processes, procedures and controls, including with regard to capital and liquidity management, risk management and data management, in an effort to comply with laws, rules and regulations, as well as evolving expectations, guidance and interpretation by regulatory authorities, including the Department of Treasury (including the Internal Revenue Service (IRS) and OFAC), Federal Reserve, OCC, CFPB, Financial Stability Oversight Council, FDIC, Department of Labor, SEC and CFTC in the U.S., foreign regulators, other government authorities and self-regulatory organizations. Further, we expect to become subject to future laws, rules and regulations beyond those currently proposed, adopted or contemplated in the U.S. or abroad, as well as evolving interpretations of existing and future laws, rules and regulations, which may include policies and rulemaking related to FDIC assessments, loss allocations between financial institutions and customers with regard to the use of our products and services, including electronic payments, emerging technologies, such as the development and use of AI and machine learning, cybersecurity and data, and further climate risk management and ESG reporting, including emissions and sustainability disclosure. The cumulative effect of all of the current and possible future legislation and regulations, as well as related interpretations, on our litigation and regulatory exposure, businesses, operations and profitability remains uncertain and necessitates that we make certain assumptions
with respect to the scope and requirements of existing, prospective and proposed laws, rules and regulations in our business planning and strategies. If these assumptions prove incorrect, we could be subject to increased regulatory, legal and compliance risks and costs, as well as potential reputational harm. Also, U.S. and regulatory initiatives abroad may overlap, and non-U.S. regulation and initiatives may be inconsistent or may conflict with current or proposed U.S. regulations, which could lead to compliance risks and increased costs.
Our regulators’ prudential and supervisory authority gives them broad power and discretion to direct our actions, and they have assumed an active oversight, inspection and investigatory role across the financial services industry. Regulatory focus is not limited to laws, rules and regulations applicable to the financial services industry, but includes other significant laws, rules and regulations that apply across industries and jurisdictions, including those related to anti-money laundering, anti-bribery, anti-corruption know-your-customer requirements, embargo programs and economic sanctions.
We are also subject to laws, rules and regulations in the U.S. and abroad, including the GDPR and CCPA as modified by the CPRA, and a number of additional jurisdictions enacting or considering similar laws or amendments to existing laws, regarding privacy and the disclosure, collection, use, sharing and safeguarding of personally identifiable information, including our employees, customers, suppliers, counterparties and other third parties, the violation of which could result in litigation, regulatory fines, enforcement actions and operational loss. Additionally, we are and will continue to be subject to new and evolving data privacy laws in the U.S. and abroad, which could result in additional costs of compliance, litigation, regulatory fines and enforcement actions. There remains complexity and uncertainty, including potential suspension or prohibition, regarding data transfer because of concerns over compliance with laws, rules and regulations for cross-border flows and transfers of personal data from the European Economic Area (EEA) to the U.S. and other jurisdictions outside of the EEA, resulting from judicial and regulatory guidance. To the extent that a new EU-U.S. Data Privacy Framework leads to a relaxation of applicable legislation and regulations, regardless of transfer mechanism, challenges are expected from consumer advocacy groups. Other jurisdictions, including China and India, have commenced consultation efforts or enacted new legislation or regulations to establish standards for personal data transfers. If cross-border personal data transfers are suspended or restricted or we are required to implement distinct processes for each jurisdiction’s standards, this could result in operational disruptions to our businesses, additional costs, increased enforcement activity, new contract negotiations with third parties, and/or modification of such data management.
As part of their enforcement authority, our regulators and other government authorities have the authority to, among other things, conduct investigations and assess significant civil or criminal monetary fines, penalties or restitution, issue cease and desist orders, suspend or withdraw licenses and authorizations, initiate injunctive action, apply regulatory sanctions or cause us to enter into consent orders. The amounts paid by us and other financial institutions to settle proceedings or investigations have, in some instances, been substantial and may increase. In some cases, governmental authorities have required criminal pleas or other extraordinary terms as part of such resolutions, which could have significant consequences, including reputational harm, loss of customers, restrictions on the ability to access capital markets, and the inability to operate certain businesses or offer certain products.
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Our response to regulators and other government authorities may be time-consuming, expensive and divert management attention from our business. The outcome of any matter, which may last years, may be difficult to predict or estimate.
The terms of settlements, orders and agreements that we have entered into with government entities and regulatory authorities have also imposed, or could impose, significant operational and compliance costs on us with respect to enhancements to our procedures and controls, losses with respect to fraudulent transactions perpetrated against our customers, expansion of our risk and control functions within our lines of business, investment in technology and the hiring of significant numbers of additional risk, control and compliance personnel. If we fail to meet the requirements of the regulatory settlements, orders or agreements to which we are subject, or, more generally, fail to maintain risk and control procedures and processes that meet the heightened standards established by our regulators and other government authorities, we could be required to enter into further settlements, orders or agreements and pay additional fines, penalties or judgments, or accept material regulatory restrictions on our businesses.
Improper actions, behaviors or practices by us, our employees or representatives that are illegal, unethical or contrary to our core values could harm us, our shareholders or customers or damage the integrity of the financial markets, and are subject to regulatory scrutiny across jurisdictions. The complexity of the regulatory and enforcement regimes in the U.S., coupled with the global scope of our operations and the regulatory environment worldwide, also means that a single event or practice or a series of related events or practices may give rise to a significant number of overlapping investigations and regulatory proceedings, either by multiple federal and state agencies in the U.S. or by multiple regulators and other governmental entities in different jurisdictions. Actions by other members of the financial services industry related to business activities in which we participate may result in investigations by regulators or other government authorities.
While we believe that we have adopted appropriate risk management and compliance programs, compliance risks will continue to exist, particularly as we anticipate and adapt to new and evolving laws, rules and regulations and evolving interpretations. We also rely upon third parties who may expose us to compliance and legal risk. Future legislative or regulatory actions, and any required changes to our business or operations or strategy, or those of third parties upon whom we rely, resulting from such developments and actions could result in a significant loss of revenue, impose additional compliance and other costs or otherwise reduce our profitability, limit the products and services that we offer or our ability to pursue certain business opportunities, require us to dispose of certain businesses or assets, require us to curtail certain businesses, affect the value of assets that we hold, necessitate changes in our compensation practices, require us to increase our prices and therefore reduce demand for our products, or otherwise adversely affect our businesses.
We are subject to significant financial and reputational risks from potential liability arising from lawsuits and regulatory and government action.
We face significant legal risks in our business, with a high volume of claims against us and other financial institutions. The amount of damages, penalties and fines that litigants and regulators seek from us and other financial institutions continues to be significant. This includes disputes with consumers, customers and other counterparties.
Financial institutions, including us, continue to be the subject of claims alleging anti-competitive conduct with respect to various products and markets, including U.S. antitrust class actions claiming joint and several liability for treble damages. As disclosed in Note 12 – Commitments and Contingencies to the Consolidated Financial Statements, we also face contractual indemnification and loan-repurchase claims arising from alleged breaches of representations and warranties in the sale of residential mortgages by legacy companies, which may result in a requirement that we repurchase the mortgage loans, or make whole or provide other remedies to counterparties.
U.S. regulators and government agencies regularly pursue enforcement claims against financial institutions, including us, for alleged violations of law and customer harm, including under the Financial Institutions Reform, Recovery, and Enforcement Act, the federal securities laws, the False Claims Act, fair lending laws and regulations (including the Equal Credit Opportunity Act and the Fair Housing Act), the FCPA, the BSA, regulations issued by OFAC, Home Mortgage Disclosure Act, antitrust laws, and consumer protection laws and regulations related to products and services such as overdraft and sales practices, including prohibitions on unfair, deceptive, and/or abusive acts and practices (UDAAP) under the Consumer Financial Protection Act and the Federal Trade Commission Act, and EFTA, as well as other enforcement action taken by prudential regulators with respect to safety, soundness and appropriateness of our business practices. Such claims may carry significant penalties, restitution and, in certain cases, treble damages, and the ultimate resolution of regulatory inquiries, investigations and other proceedings which we are subject to from time-to-time is difficult to predict.
There is also an increased focus on information security. This includes cybersecurity incidents perpetrated against us, our customers, providers of products and services, counterparties and other third parties, the collection, use and sharing of data, and safeguarding of personally identifiable information and corporate data, as well as the development, implementation, use and management of emerging technologies, including AI and machine learning. Related litigation or government enforcement, including with regard to compliance with U.S. and global laws, rules and regulations, could subject us to fines, judgments and/or settlements and involve reputational losses. Additionally, misconduct by our employees and representatives, including unethical, fraudulent, improper or illegal conduct, the failure to fulfill fiduciary obligations, unfair, deceptive, abusive or discriminatory business practices, or violations of policies, procedures, laws, rules or regulations, including conduct that affects compliance with books and records requirements, have resulted and could result in further litigation and/or government investigations and enforcement actions, and cause significant reputational harm. In particular, we are the subject of litigation and regulatory and government inquiries regarding our processing of electronic payments, our efforts to detect, prevent and address fraud perpetrated against our customers and/or the handling of fraud-related disputes, which could result in fines, judgments, and/or settlements, as well as adversely affect our businesses and strategies due to the treatment of loss allocations between customers and us, all of which could also have an adverse impact on other similar products and services. We are also subject to increasing scrutiny of sustainability-related policies, goals, targets and disclosure, which could result in litigation, regulatory investigations and actions and reputational harm.
The global environment of extensive investigations, regulation, regulatory compliance burdens, litigation and
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regulatory enforcement, combined with uncertainty related to the continually evolving regulatory environment, have affected and will likely continue to affect operational and compliance costs and risks, including the adaptation of business strategies and/or limitation or cessation of our ability or feasibility to continue providing certain products and services. Lawsuits and regulatory actions have resulted in and will likely continue to result in judgments, orders, settlements, penalties and fines adverse to us. Further, we entered into orders with certain government agencies regarding credit card sales and marketing practices and the representment of non-sufficient fund fees, as well as our participation in implementing government relief measures related to the COVID-19 pandemic and other federal and state government assistance programs, including the processing of unemployment benefits for California and certain other states, and continue to be involved in related litigation that may result in judgments and/or settlements. Litigation and investigation costs, substantial legal liability or significant regulatory or government action against us could adversely affect our businesses, financial condition, including liquidity, and results of operations, and/or cause significant reputational harm.
U.S. federal banking agencies may require us to increase our regulatory capital, total loss-absorbing capacity (TLAC), long-term debt or liquidity requirements.
We are subject to U.S. regulatory capital and liquidity rules. These rules, among other things, establish minimum requirements to qualify as a well-capitalized institution. If any of our subsidiary insured depository institutions fail to maintain their status as well capitalized under the applicable regulatory capital rules, the Federal Reserve will require us to agree to bring the insured depository institution back to well-capitalized status. For the duration of such an agreement, the Federal Reserve may impose restrictions on our activities. If we were to fail to enter into or comply with such an agreement, the Federal Reserve may impose more severe restrictions on our activities, including requiring us to cease and desist activities permitted under the Bank Holding Company Act of 1956.
Capital and liquidity requirements are frequently introduced and amended. Regulators may increase regulatory capital requirements, including TLAC and long-term debt requirements, change how regulatory capital or RWA is calculated or increase liquidity requirements. In 2023, U.S. banking regulators issued proposals to revise the calculation of the G-SIB surcharge and TLAC and long-term debt requirements. Our ability to return capital to our shareholders depends in part on our ability to maintain regulatory capital levels above minimum requirements plus buffers. To the extent that increases occur in our SCB, G-SIB surcharge or countercyclical capital buffer, our returns of capital to shareholders, including common stock dividends and common stock repurchases, could decrease. For example, our G-SIB surcharge increased by 50 bps to 3.0 percent on January 1, 2024. The Federal Reserve could also limit or prohibit capital actions, such as paying or increasing dividends or repurchasing common stock, as a result of economic disruptions or events.
As part of its annual CCAR, we are subject to extensive regulatory evaluation of capital planning practices by the Federal Reserve, including stress testing on parts of our business using hypothetical economic scenarios prepared by the Federal Reserve. Those scenarios may affect our CCAR stress test results, which may impact our SCB level, requiring us to hold additional capital or causing changes in required capital buffers.
A significant component of regulatory capital ratios is calculating our RWA and our leverage exposure. In July 2023, U.S. banking regulators issued a notice of proposed rulemaking to revise several key methodologies for measuring RWA,
including a standardized approach for operational risk, revised market risk and credit risk requirements and removal of the use of certain internal models, which would increase our regulatory capital requirements, if adopted as proposed. Economic disruptions or events may also cause an increase in our balance sheet, RWA or leverage exposures, increasing required regulatory capital and liquidity amounts.
Changes to and compliance with the regulatory capital and liquidity requirements may impact our operations by requiring us to liquidate assets, increase borrowings, issue additional equity or other securities, reduce the amount of common stock repurchases or dividends, cease or alter certain operations, pricing strategies and business activities or hold highly liquid assets, which may adversely affect our results of operations.
Changes in accounting standards or assumptions in applying accounting policies could adversely affect us.
Accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Some of these policies require the use of estimates and assumptions that may affect the reported value of our assets or liabilities and results of operations and are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain. If assumptions, estimates or judgments are erroneously applied, we could be required to correct and restate prior-period financial statements. Accounting standard-setters and those who interpret the accounting standards, including the SEC, banking regulators and our independent registered public accounting firm may also amend or even reverse their previous interpretations or positions on how various standards should be applied. These changes may be difficult to predict and could impact the preparation and reporting of our financial statements, including the application of new or revised standards retrospectively, resulting in revisions to prior-period financial statements.
We may be adversely affected by changes in U.S. and non-U.S. tax laws and regulations.
Governmental authorities in the U.S. and/or other countries could further change tax laws in a way that would materially adversely affect us, including changes to the Tax Cuts and Jobs Act of 2017 and Inflation Reduction Act of 2022. Also, new guidelines issued by the Organization for Economic Cooperation and Development (OECD), which are currently being enacted into law in some OECD countries in which we operate, are expected to impose a 15 percent global minimum tax on a country-by-country basis. Any implementation of and/or change in tax laws and regulations or interpretations of current or future tax laws and regulations could materially adversely affect our effective tax rate, tax liabilities and results of operations. U.S. and foreign tax laws are complex and our judgments, interpretations or applications of such tax laws could differ from that of the relevant governmental authority. This could result in additional tax liabilities and interest, penalties, the reduction of certain tax benefits and/or the requirement to make adjustments to amounts recorded, which could be material.
Additionally, we have U.K. net deferred tax assets (DTA) which consist primarily of net operating losses that are expected to be realized by certain subsidiaries over an extended number of years. Adverse developments with respect to tax laws or to other material factors, such as prolonged worsening of Europe’s capital markets or changes in the ability of our U.K. subsidiaries to conduct business in the EU, could lead our management to reassess and/or change its current conclusion that no valuation allowance is necessary with respect to our U.K. net DTA.
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Reputation
Damage to our reputation could harm our businesses, including our competitive position and business prospects.
Our ability to attract and retain customers, clients, investors and employees is impacted by our reputation. Harm to our reputation can arise from various sources, including actual or perceived activities of our officers, directors, employees, other representatives, customers and third parties, including counterparties, such as fraud, misconduct and unethical behavior (such as employees’ sales practices), adequacy of our ability to detect, prevent and/or respond to fraud perpetrated against our customers, and the handling of related disputes with regard to the use of our products and services, including electronic payments, effectiveness of our internal controls, the fees charged to our customers, including overdraft and non-sufficient fund fees, compensation practices, lending practices, suitability or reasonableness of particular trading or investment strategies, the reliability of our research and models and prohibiting clients from engaging in certain transactions.
Our reputation may also be harmed by actual or perceived failure to deliver the products and standards of service and quality expected by our customers, clients and the community, including the overstatement or mislabeling of the environmental benefits of our products, services or transactions, the failure to protect our customers and/or recognize and address customer complaints, compliance failures, technology changes, the implementation, management and/or use of emerging technologies, including quantum computing, AI and machine learning, the failure to maintain effective data management, cybersecurity incidents and information and security breaches affecting us and our third parties, which have occurred and we expect to continue to experience with increased frequency and severity due to the evolving threat environment, prolonged or repeated system outages, the Corporation’s privacy policies, the unintended disclosure of or failure to safeguard personal, proprietary or confidential information, the breach of the Corporation’s fiduciary obligations and handling of the emergence or continuation of health emergencies and pandemics. Our reputation may be also be harmed by litigation and/or regulatory matters and their outcomes, relating to the topics discussed above or otherwise. For example, we entered into orders with certain government agencies regarding credit card sales and marketing practices and the representment of non-sufficient fund fees, as well as our processing of unemployment benefits for California and certain other states, and continue to be involved in related litigation, which may result in judgments and/or settlements. Challenges to our ESG practices and disclosures, and those of our customers and third parties, including from diverging views regarding ESG-related practices and disclosures may also harm our reputation.
Increases in market interest rates have resulted in increased focus on asset and liability management, including HTM and AFS securities and related unrealized losses. Perceptions of our liquidity and financial condition, actions by the financial services industry generally, or by certain members or individuals in the industry may harm our reputation. Adverse publicity or negative information posted on social media by employees, the media or otherwise, whether or not factually correct, may adversely impact our business prospects and results of operations.
We are subject to complex and evolving laws, regulations and interpretations regarding fair lending activity, UDAAP, electronic funds transfers, know-your-customer requirements, data protection and privacy, including the GDPR and the CCPA as modified by the CPRA, cross-border data movement,
cybersecurity and other matters, as well as evolving and expansive interpretations of these laws and regulations. Principles concerning the appropriate scope of consumer and commercial privacy vary considerably in different jurisdictions, and regulatory and public expectations regarding the definition and scope of consumer and commercial privacy may remain fluid. These laws may be interpreted and applied by various jurisdictions in a manner inconsistent with our current or future practices, or with one another. If personal, confidential or proprietary information of customers in our possession, or in the possession of third parties or financial data aggregators, is mishandled, misused or mismanaged, or if we do not timely or adequately address such information, we may face regulatory, legal and operational risks, which could adversely affect our reputation, financial condition and results of operations.
We could suffer reputational harm if we fail to properly identify and manage potential conflicts of interest. Management of potential conflicts of interest has become increasingly complex as we expand our business activities through more numerous transactions, obligations and interests with and among our clients. The actual or perceived failure to adequately address conflicts of interest could affect the willingness of clients to use our products and services, or result in litigation or enforcement actions, which could adversely affect our business.
Our actual or perceived failure to address these and other issues, such as operational risks, could give rise to reputational risk that could harm us and our business prospects, including the attraction and retention of customers and employees. Failure to appropriately address any of these issues could also give rise to additional regulatory restrictions, legal risks and reputational harm, which could, among other consequences, increase the size and number of litigation claims and damages asserted or subject us to enforcement actions, fines and penalties, and cause us to incur related costs and expenses.
Other
Reforms to benchmarks may adversely affect our reputation, business, financial condition and results of operations.
Risks and challenges associated with reference rate reform, including the potential replacement of benchmark rates with ARRs (e.g., the expected cessation of BSBY), could expose us to various financial, operational, supervisory, conduct and legal risk.
Usage of ARRs for impacted benchmarks may vary across or within categories of contracts, products and services, potentially resulting in market fragmentation, decreased trading volumes and liquidity, increased complexity and modeling and operational risks. ARRs may have compositions and characteristics that differ from replaced benchmarks, including limited liquidity and less predictable performance over time. Any mismatch between the adoption of ARRs in loans, securities and derivatives markets may impact hedging or other financial arrangements we have implemented, resulting in unanticipated market exposures. Transition to ARRs may adversely affect the yield on loans or securities held by us, amounts paid on our securities and received and paid on derivatives we have entered into, the value of such loans, securities or derivative instruments, the trading market for such products and contracts, and our effective use of hedging instruments to manage risk. There is no assurance that impacted benchmarks will transition to ARRs without delay or potential disputes.
The transition of any products using impacted benchmarks (Impacted Products) that do not include fallback provisions or adequate fallback mechanisms may require additional efforts to modify their terms, and may be more challenging to modify if all
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impacted parties are required to consent to such modification. Litigation or other disputes may occur as a result of the interpretation or application of any transition-related legislation or regulations adopted in the U.S. and/or foreign jurisdictions, including if the laws or regulations in jurisdictions overlap.
Impacted Products may contain language giving the Corporation discretion to determine the successor rate (including the applicable spread adjustment) to the existing benchmark. We may face a risk of litigation, disputes or other actions from customers, counterparties, investors or others based on various claims, for example, that we incorrectly interpreted or enforced contract provisions, failed to appropriately communicate the transition effects of ARRs to existing and future products, treated affected parties unfairly or made inappropriate product recommendations to or investments on behalf of our clients, engaged in anti-competitive behavior or unlawfully manipulated markets or benchmarks.
ARR-based products that we develop, launch and/or support may perform differently from Impacted Products during times of economic stress, adverse or volatile market conditions and across the credit and economic cycle, which may impact the value, return on and profitability of our ARR-based assets. New financial products linked to ARRs may have additional legal, financial, accounting, tax, operational, market, compliance, reputational, competitive or other risks to us, our customers and other market participants. Scrutiny by banking regulators in the U.S. and globally on transition plans, preparations and readiness could result in regulatory action, litigation and/or the need to change the products offered by our businesses.
We face significant and increasing competition in the financial services industry.
We operate in a highly competitive environment and experience intense competition from local and global bank and nonbank financial institutions and new entrants in domestic and foreign markets. There is increasing pressure to provide products and services on more attractive terms, including lower fees and higher interest rates on deposits, and lower cost investment strategies, which may impact our ability to effectively compete. The current and changing regulatory environment may also create competitive disadvantages, including from more stringent regulatory requirements applicable to the Corporation.
Emerging technologies and the growth of e-commerce have lowered geographic and monetary barriers of other financial institutions, made it easier for non-depository institutions to offer traditional banking products and services and allowed non-traditional financial service providers and technology companies to compete with traditional financial service companies in providing electronic and internet-based financial solutions and services, including electronic securities trading with low or no fees and commissions, marketplace lending, financial data aggregation and payment processing services, including real-time payment platforms. Further, clients may choose to conduct business with other market participants who engage in business or offer products in areas we deem speculative or risky as an alternative to traditional banking products. Increased competition may reduce our market share, net interest margin and revenues from our fee-based products and services and negatively affect our earnings, including by pressuring us to lower pricing or credit standards, requiring additional investment to improve the quality and delivery of our technology and/or affecting the willingness of our clients to do business with us.
Our inability to adapt our business strategies, products and services could harm our business.
We rely on a diversified mix of businesses that deliver a broad range of financial products and services through multiple
distribution channels. Our success depends on our and our third-party providers’ ability to timely adapt our business strategies, products and services and their respective features, including available payment processing services and technology to rapidly evolving industry standards and consumer preferences. Our strategies could be further impacted by macroeconomic stress, widespread health emergencies or pandemics, cyberattacks, and military conflicts or other significant geopolitical events.
The widespread adoption and rapid evolution of emerging technologies, including analytic capabilities, self-service digital trading platforms and automated trading markets, internet services, and digital assets, such as central bank digital currencies, cryptocurrencies (including stablecoins), tokens and other cryptoassets that utilize distributed ledger technology (DLT), as well as payment, clearing and settlement processes that use DLT, create additional strategic risks, could negatively impact our ability to compete and require substantial expenditures to the extent we were to modify or adapt our existing products and services. As such new technologies evolve and mature, our businesses and results of operations could be adversely impacted, including as a result of the introduction of new competitors to the payment ecosystem and increased volatility in deposits and/or significant long-term reduction in deposits (i.e., financial disintermediation). Also, we may not be as timely or successful in accurately assessing the competitive landscape and developing or introducing new products and services, integrating new products or services into our existing offerings, responding, managing or adapting to changes in consumer behavior, preferences, spending, investing and/or saving habits, achieving market acceptance of our products and services, reducing costs in response to pressures to deliver products and services at lower prices or sufficiently developing and maintaining customers. Our or our third-party providers’ inability or resistance to timely innovate or adapt its operations, products and services to evolving regulatory and market environments, industry standards and consumer preferences could result in service disruptions and harm our business and adversely affect our results of operations and reputation.
We could suffer operational, reputational and financial harm if our models fail to properly anticipate and manage risk.
We use models extensively to forecast losses, project revenue and expenses, assess and control our operations and financial condition, assist in capital planning, manage liquidity and measure, forecast and assess capital and liquidity requirements for credit, market, operational and strategic risks. Under our Enterprise Model Risk Policy, Model Risk Management is required to perform model oversight, including independent validation before initial use, ongoing monitoring reviews through outcomes analysis and benchmarking, and periodic revalidation. However, models are subject to inherent limitations from simplifying assumptions, uncertainty regarding economic and financial outcomes, and emerging risks from applications that rely on AI or machine learning.
Our models may not be sufficiently predictive of future results due to limited historical patterns, extreme or unanticipated market movements or customer behavior and liquidity, especially during severe market downturns or stress events (e.g., geopolitical or pandemic events), which could limit their effectiveness and require timely recalibration. The models that we use to assess and control our market risk exposures also reflect assumptions about the degree of correlation among prices of various asset classes or other market indicators, which may not be representative of the next downturn and would magnify the limitations inherent in using historical data to
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manage risk. Market conditions in recent years have involved unprecedented dislocations and highlight the limitations inherent in using historical data to manage risk. Our models may also be adversely impacted by human error and may not be effective if we fail to properly oversee and review them at regular intervals and detect their flaws during our review and monitoring processes, they contain erroneous data, assumptions, valuations, formulas or algorithms or our applications running the models do not perform as expected. Regardless of the steps we take to help confirm effective controls, governance, monitoring and testing, and implement new technology and automated processes, we could suffer operational, reputational and financial harm, including funding or liquidity shortfalls, if models fail to properly anticipate and manage risks.
Failure to properly manage data may result in our inability to manage risk and business needs, errors in our operations, critical reporting and strategic decision-making, inaccurate reporting and non-compliance with laws, rules and regulations.
We rely on our ability to manage and process data in an accurate, timely and complete manner, including capturing, transporting, aggregating, using, transmitting data externally, and retaining and protecting data appropriately. While we continually update our policies, programs, processes and practices and implement emerging technologies, such as automation, AI, machine learning and robotics, our data management processes may not be effective and are subject to weaknesses and failures, including human error, data limitations, process delays, system failure or failed controls. Failure to properly manage data effectively in an accurate, timely and complete manner may adversely impact its quality and reliability and our ability to manage current and emerging risk, produce accurate financial and/or nonfinancial, regulatory, operational and ESG reporting, detect or surveil potential misconduct or non-compliance with laws, rules and regulations, and to manage changing business needs, strategic decision-making, resolution strategy and operations. The failure to establish and maintain effective, efficient and controlled data management could adversely impact our ability to develop our products and relationships with customers, increase regulatory risk and operational losses, and damage our reputation.
Our operations, businesses and customers could be adversely affected by the impacts related to climate change.
Climate change and related environmental sustainability matters present short-term and long-term risks. The physical risks include an increase in the frequency and severity of extreme weather events and natural disasters, including floods, wildfires, hurricanes and tornados, and chronic longer-term shifts such as rising average global temperatures and sea levels. Such disasters and effects could adversely impact our facilities, employees and customers’ ability to repay outstanding loans, disrupt the operations of us and our customers or third parties, cause supply chain or distribution network disruptions, damage collateral and/or result in market volatility, rapid deposit outflows or drawdowns of credit facilities, the deterioration of the value of collateral or insurance shortfalls.
There is also increasing risk related to the transition to a low-carbon economy. Changes in consumer preferences or financial condition of our customers and counterparties, market pressures, advancements in technology and additional legislation, regulatory, compliance and legal requirements could alter our strategic planning and the scope of our existing businesses, limit our ability to pursue certain business activities and offer certain products and services, amplify credit and market risks, negatively impact asset values, require capital expenditures and changes in technology and markets, including
supply chain and insurance availability and cost, increase expenses, impact capital requirements and adversely impact our results of operations. In particular, there is an increasing global regulatory focus, including state, federal and non-U.S. jurisdictions, on climate change resulting in new or heightened regulatory requirements, with potential jurisdictional divergence, which is expected to increase our legal, compliance and public disclosure risks and costs in the U.S. and globally.
Our climate change strategies, policies, and disclosures, our ability to achieve our climate-related goals, targets and commitments and/or the environmental or climate impacts attributable to our products, services or transactions will likely result in heightened legal and compliance risk and could result in reputational harm as a result of negative public sentiment, regulatory scrutiny, litigation and reduced investor and stakeholder confidence. Due to divergent views of stakeholders, we are at increased risk that any action, or lack thereof, by us concerning our response to climate change will be perceived negatively by some stakeholders, which could adversely impact our reputation and businesses. Our ability to meet our climate-related goals, targets and commitments, including our goal to achieve certain greenhouse gas (GHG) emissions targets by 2030 and net zero GHG emissions in our financing activities, operations and supply chain before 2050, is subject to risks and uncertainties, many of which are outside of our control, such as technological advances, clearly defined roadmaps for industry sectors, public policies and better emissions data reporting, and ongoing engagement with customers, suppliers, investors, government officials and other stakeholders. Due to the evolving nature of climate-related risks, which are expected to increase over time, it is difficult to predict, identify, monitor and effectively mitigate climate-related risks and uncertainties.
Furthermore, there are and will continue to be challenges related to the availability and capturing, measuring, verifying, analyzing and disclosing climate-related data, including data obtained from third parties, which may result in legal, compliance and/or reputational harm.
Our ability to attract, develop and retain qualified employees is critical to our success, business prospects and competitive position.
Our performance and competitive position is heavily dependent on the talents, development and efforts of highly skilled individuals. Competition for qualified personnel is intense from within and outside the financial services industry.
Our competitors include global institutions and institutions subject to different compensation and hiring regulations than those imposed on U.S. institutions and financial institutions. Also, our ability to attract, develop and retain employees could be impacted by changing workforce concerns, expectations, practices and preferences (including remote work), and increasing labor shortages and competition for labor, which could increase labor costs.
In order to attract and retain qualified personnel, we must provide market-level compensation. As a large financial and banking institution, we are and may become subject to additional limitations on compensation practices by the Federal Reserve, the OCC, the FDIC and other regulators globally, which may or may not affect our competitors. Furthermore, because a substantial portion of compensation paid to many of our employees is long-term equity-based awards based on the value of our common stock, declines in our profitability or outlook could adversely affect the ability to attract and retain employees. If we are unable to continue to attract, develop and retain qualified individuals, our business prospects and competitive position could be adversely affected.
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Item 1B. Unresolved Staff Comments
None
Item 1C. Cybersecurity
See Compliance and Operational Risk Management in the MD&A beginning on page 79, which is incorporated herein by reference.
Item 2. Properties
As of December 31, 2023, certain principal offices and other materially important properties consisted of the following:
| Facility Name | Location | General Character of the Physical Property | Primary Business Segment | Property Status |
Property Square Feet (1)
|
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| Bank of America Corporate Center | Charlotte, NC | 60 Story Building | Principal Executive Offices | Owned | 1,212,177 | |||||||||||||||||||||||||||
| Bank of America Tower at One Bryant Park | New York, NY | 55 Story Building |
GWIM, Global Banking and
Global Markets
|
Leased (2)
|
1,939,431 | |||||||||||||||||||||||||||
| Bank of America Financial Centre | London, UK | 3 Building Campus |
Global Banking and Global Markets
|
Leased | 510,171 | |||||||||||||||||||||||||||
| Cheung Kong Center | Hong Kong | 62 Story Building |
Global Banking and Global Markets
|
Leased | 149,790 | |||||||||||||||||||||||||||
(1)For leased properties, property square feet represents the square footage occupied by the Corporation.
(2)The Corporation has a 49.9 percent joint venture interest in this property.
We own or lease approximately 65.9 million square feet in over 20,000 facilities and ATM locations globally, including approximately 60.3 million square feet in the U.S. (all 50 states and the District of Columbia, the U.S. Virgin Islands, Puerto Rico and Guam) and approximately 5.6 million square feet in more than 35 countries.
We believe our owned and leased properties are adequate for our business needs and are well maintained. We continue to evaluate our owned and leased real estate and may determine from time to time that certain of our premises and facilities, or ownership structures, are no longer necessary for our
operations. In connection therewith, we regularly evaluate the sale or sale/leaseback of certain properties, and we may incur costs in connection with any such transactions.
Item 3. Legal Proceedings
See Litigation and Regulatory Matters in Note 12 – Commitments and Contingencies to the Consolidated Financial Statements, which is incorporated herein by reference.
Item 4. Mine Safety Disclosures
None
Part II
Bank of America Corporation and Subsidiaries
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The principal market on which our common stock is traded is the New York Stock Exchange under the symbol “BAC.” As of February 16, 2024, there were 137,369 registered shareholders of common stock.
The table below presents common share repurchase activity for the three months ended December 31, 2023. The primary source of funds for cash distributions by the Corporation to its
shareholders is dividends received from its bank subsidiaries. Each of the bank subsidiaries is subject to various regulatory policies and requirements relating to the payment of dividends, including requirements to maintain capital above regulatory minimums. All of the Corporation’s preferred stock outstanding has preference over the Corporation’s common stock with respect to payment of dividends.
| (Dollars in millions, except per share information; shares in thousands) |
Total Common Shares Purchased (1,2)
|
Weighted-Average Per Share Price |
Total Shares
Purchased as
Part of Publicly
Announced Programs (2)
|
Remaining Buyback Authority Amounts |
|||||||||||||||||||
| October 1 - 31, 2023 | 10,251 | $ | 26.85 | 10,242 | $ | 13,278 | |||||||||||||||||
| November 1 - 30, 2023 | 9,413 | 28.15 | 9,275 | 13,017 | |||||||||||||||||||
| December 1 - 31, 2023 | 8,676 | 31.79 | 8,650 | 12,742 | |||||||||||||||||||
| Three months ended December 31, 2023 | 28,340 | 28.79 | 28,167 | ||||||||||||||||||||
(1)Includes 173 thousand shares of the Corporation's common stock acquired by the Corporation in connection with satisfaction of tax withholding obligations on vested restricted stock or restricted stock units and certain forfeitures and terminations of employment-related awards and for potential re-issuance to certain employees under equity incentive plans.
(2)In October 2021, the Corporation’s Board of Directors (Board) authorized the repurchase of up to $25 billion of common stock over time (October 2021 Authorization). Additionally, the Board authorized repurchases to offset shares awarded under equity-based compensation plans. In September 2023, the Board modified the October 2021 Authorization, effective October 1, 2023, to include repurchases to offset shares awarded under equity-based compensation plans when determining the remaining repurchase authority. During the three months ended December 31, 2023, pursuant to the Board’s authorizations, the Corporation repurchased approximately 28 million shares, or $811 million, of its common stock, including repurchases to offset shares awarded under equity-based compensation plans. For more information, see Capital Management - CCAR and Capital Planning in the MD&A on page 47 and Note 13 – Shareholders’ Equity to the Consolidated Financial Statements.
The Corporation did not have any unregistered sales of equity securities during the three months ended December 31, 2023.
Item 6. [Reserved]
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| Item 7. Bank of America Corporation and Subsidiaries | ||||||||||||||
| Management's Discussion and Analysis of Financial Condition and Results of Operations | ||||||||||||||
| Table of Contents | ||||||||||||||
| Page | ||||||||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
Bank of America Corporation (the Corporation) and its management may make certain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “anticipates,” “targets,” “expects,” “hopes,” “estimates,” “intends,” “plans,” “goals,” “believes,” “continue” and other similar expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and “could.” Forward-looking statements represent the Corporation’s current expectations, plans or forecasts of its future results, revenues, liquidity, net interest income, provision for credit losses, expenses, efficiency ratio, capital measures, strategy, deposits, assets, and future business and economic conditions more generally, and other future matters. These statements are not guarantees of future results or performance and involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict and are often beyond the Corporation’s control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements.
You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties more fully discussed under Item 1A. Risk Factors of this Annual Report on Form 10-K: and in any of the Corporation’s subsequent Securities and Exchange Commission filings: the Corporation’s potential judgments, orders, settlements, penalties, fines and reputational damage resulting from pending or future litigation and regulatory investigations, proceedings and enforcement actions, including as a result of our participation in and execution of government programs related to the Coronavirus Disease 2019 (COVID-19) pandemic, such as the processing of unemployment benefits for California and certain other states; the possibility that the Corporation’s future liabilities may be in excess of its recorded liability and estimated range of possible loss for litigation, and regulatory and government actions; the possibility that the Corporation could face increased claims from one or more parties involved in mortgage securitizations; the Corporation’s ability to resolve representations and warranties repurchase and related claims; the risks related to the discontinuation of reference rates, including increased expenses and litigation and the effectiveness of hedging strategies; uncertainties about the financial stability and growth rates of non-U.S. jurisdictions, the risk that those jurisdictions may face difficulties servicing their sovereign debt, and related stresses on financial markets, currencies and trade, and the Corporation’s exposures to such risks, including direct, indirect and operational; the impact of U.S. and global interest rates, inflation, currency exchange rates, economic conditions, trade policies and tensions, including tariffs, and potential geopolitical instability; the impact of the interest rate, inflationary, macroeconomic, banking and regulatory environment on the Corporation’s assets, business, financial condition and results of operations; the impact of adverse developments affecting the U.S. or global banking industry, including bank failures and liquidity concerns, resulting in worsening economic and market volatility, and regulatory responses thereto; the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions, customer behavior, adverse developments with respect to U.S. or global economic conditions and other uncertainties, including the impact of supply chain disruptions, inflationary pressures and
labor shortages on economic conditions and our business; potential losses related to the Corporation's concentration of credit risk; the Corporation’s ability to achieve its expense targets and expectations regarding revenue, net interest income, provision for credit losses, net charge-offs, effective tax rate, loan growth or other projections; adverse changes to the Corporation’s credit ratings from the major credit rating agencies; an inability to access capital markets or maintain deposits or borrowing costs; estimates of the fair value and other accounting values, subject to impairment assessments, of certain of the Corporation’s assets and liabilities; the estimated or actual impact of changes in accounting standards or assumptions in applying those standards; uncertainty regarding the content, timing and impact of regulatory capital and liquidity requirements; the impact of adverse changes to total loss-absorbing capacity requirements, stress capital buffer requirements and/or global systemically important bank surcharges; the potential impact of actions of the Board of Governors of the Federal Reserve System on the Corporation’s capital plans; the effect of changes in or interpretations of income tax laws and regulations; the impact of implementation and compliance with U.S. and international laws, regulations and regulatory interpretations, including, but not limited to, recovery and resolution planning requirements, Federal Deposit Insurance Corporation assessments, the Volcker Rule, fiduciary standards, derivatives regulations and potential changes to loss allocations between financial institutions and customers, including for losses incurred from the use of our products and services, including electronic payments and payment of checks, that were authorized by the customer but induced by fraud; the impact of failures or disruptions in or breaches of the Corporation’s operations or information systems or those of third parties, including as a result of cybersecurity incidents; the risks related to the development, implementation, use and management of emerging technologies, including artificial intelligence and machine learning; the risks related to the transition and physical impacts of climate change; our ability to achieve environmental, social and governance goals and commitments or the impact of any changes in the Corporation’s sustainability strategy or commitments generally; the impact of any future federal government shutdown and uncertainty regarding the federal government’s debt limit or changes in fiscal, monetary or regulatory policy; the emergence or continuation of widespread health emergencies or pandemics; the impact of natural disasters, extreme weather events, military conflicts (including the Russia/Ukraine conflict, the conflict in the Middle East, the possible expansion of such conflicts and potential geopolitical consequences), terrorism or other geopolitical events; and other matters.
Forward-looking statements speak only as of the date they are made, and the Corporation undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.
Notes to the Consolidated Financial Statements referred to in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) are incorporated by reference into the MD&A. Certain prior-year amounts have been reclassified to conform to current-year presentation. Throughout the MD&A, the Corporation uses certain acronyms and abbreviations which are defined in the Glossary.
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Executive Summary
Business Overview
The Corporation is a Delaware corporation, a bank holding company (BHC) and a financial holding company. When used in this report, “Bank of America,” “the Corporation,” “we,” “us” and “our” may refer to Bank of America Corporation individually, Bank of America Corporation and its subsidiaries, or certain of Bank of America Corporation’s subsidiaries or affiliates. Our principal executive offices are located in Charlotte, North Carolina. Through our various bank and nonbank subsidiaries throughout the U.S. and in international markets, we provide a diversified range of banking and nonbank financial services and products through four business segments: Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking and Global Markets, with the remaining operations recorded in All Other. We operate our banking activities primarily under the Bank of America, National Association (Bank of America, N.A. or BANA) charter. At December 31, 2023, the Corporation had $3.2 trillion in assets and a headcount of approximately 213,000 employees.
As of December 31, 2023, we served clients through operations across the U.S., its territories and more than 35 countries. Our retail banking footprint covers all major markets in the U.S., and we serve approximately 69 million consumer and small business clients with approximately 3,800 retail financial centers, approximately 15,000 ATMs, and leading digital banking platforms (www.bankofamerica.com) with approximately 46 million active users, including approximately 38 million active mobile users. We offer industry-leading support to approximately four million small business households. Our GWIM businesses, with client balances of $3.8 trillion, provide tailored solutions to meet client needs through a full set of investment management, brokerage, banking, trust and retirement products. We are a global leader in corporate and investment banking and trading across a broad range of asset classes serving corporations, governments, institutions and individuals around the world.
Recent Developments
Capital Management
On January 31, 2024, the Corporation’s Board of Directors (the Board) declared a quarterly common stock dividend of $0.24 per share, payable on March 29, 2024 to shareholders of record as of March 1, 2024.
For more information on our capital resources, see Capital Management on page 47.
Impact of BSBY’s Future Cessation
In the fourth quarter of 2023, the Corporation recognized a net non-cash, pretax charge of approximately $1.6 billion in market making and similar activities as a result of the announcement of Bloomberg Short-Term Bank Yield Index’s (BSBY) future cessation. For more information, see Business Segment Operations – All Other on page 43, Note 3 – Derivatives to the Consolidated Financial Statements and the Corporation’s Current Report on Form 8-K filed on January 8, 2024.
FDIC Special Assessment
On November 16, 2023, the Federal Deposit Insurance Corporation (FDIC) issued its final rule to impose a special assessment to recover the loss to the Deposit Insurance Fund resulting from the closure of Silicon Valley Bank and Signature Bank. Accordingly, in the fourth quarter of 2023, the Corporation recorded noninterest expense of $2.1 billion for its estimated assessment amount. For more information, see Note 12 – Commitments and Contingencies to the Consolidated Financial Statements.
Financial Highlights
| Table 1 | Summary Income Statement and Selected Financial Data | |||||||||||||
| (Dollars in millions, except per share information) | 2023 | 2022 | ||||||||||||
| Income statement | ||||||||||||||
| Net interest income | $ | 56,931 | $ | 52,462 | ||||||||||
| Noninterest income | 41,650 | 42,488 | ||||||||||||
| Total revenue, net of interest expense | 98,581 | 94,950 | ||||||||||||
| Provision for credit losses | 4,394 | 2,543 | ||||||||||||
| Noninterest expense | 65,845 | 61,438 | ||||||||||||
| Income before income taxes | 28,342 | 30,969 | ||||||||||||
| Income tax expense | 1,827 | 3,441 | ||||||||||||
| Net income | 26,515 | 27,528 | ||||||||||||
| Preferred stock dividends and other | 1,649 | 1,513 | ||||||||||||
| Net income applicable to common shareholders | $ | 24,866 | $ | 26,015 | ||||||||||
| Per common share information | ||||||||||||||
| Earnings | $ | 3.10 | $ | 3.21 | ||||||||||
| Diluted earnings | 3.08 | 3.19 | ||||||||||||
| Dividends paid | 0.92 | 0.86 | ||||||||||||
| Performance ratios | ||||||||||||||
Return on average assets (1)
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0.84 | % | 0.88 | % | ||||||||||
Return on average common shareholders’ equity (1)
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9.75 | 10.75 | ||||||||||||
Return on average tangible common shareholders’ equity (2)
|
13.46 | 15.15 | ||||||||||||
Efficiency ratio (1)
|
66.79 | 64.71 | ||||||||||||
| Balance sheet at year end | ||||||||||||||
| Total loans and leases | $ | 1,053,732 | $ | 1,045,747 | ||||||||||
| Total assets | 3,180,151 | 3,051,375 | ||||||||||||
| Total deposits | 1,923,827 | 1,930,341 | ||||||||||||
| Total liabilities | 2,888,505 | 2,778,178 | ||||||||||||
| Total common shareholders’ equity | 263,249 | 244,800 | ||||||||||||
| Total shareholders’ equity | 291,646 | 273,197 | ||||||||||||
(1)For definitions, see Key Metrics on page 170.
(2)Return on average tangible common shareholders’ equity is a non-GAAP financial measure. For more information and a corresponding reconciliation to the most closely related financial measures defined by accounting principles generally accepted in the United States of America (GAAP), see Non-GAAP Reconciliations on page 85.
Net income was $26.5 billion, or $3.08 per diluted share in 2023 compared to $27.5 billion, or $3.19 per diluted share in 2022. The decrease in net income was primarily due to higher noninterest expense and provision for credit losses, partially offset by higher net interest income.
For discussion and analysis of our consolidated and business segment results of operations for 2022 compared to 2021, see Financial Highlights and Business Segment Operations sections in the MD&A of the Corporation’s 2022 Annual Report on Form 10-K.
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Net Interest Income
Net interest income increased $4.5 billion to $56.9 billion in 2023 compared to 2022. Net interest yield on a fully taxable-equivalent (FTE) basis increased 12 basis points (bps) to 2.08 percent for 2023. The increases were primarily driven by benefits from higher interest rates and loan growth, partially offset by higher funding costs, lower deposits and net interest income related to Global Markets activity. For more information on net interest yield and FTE basis, see Supplemental Financial Data on page 29, and for more information on interest rate risk management, see Interest Rate Risk Management for the Banking Book on page 77.
Noninterest Income
| Table 2 | Noninterest Income | |||||||||||||
| (Dollars in millions) | 2023 | 2022 | ||||||||||||
| Fees and commissions: | ||||||||||||||
| Card income | $ | 6,054 | $ | 6,083 | ||||||||||
| Service charges | 5,684 | 6,405 | ||||||||||||
| Investment and brokerage services | 15,563 | 15,901 | ||||||||||||
| Investment banking fees | 4,708 | 4,823 | ||||||||||||
| Total fees and commissions | 32,009 | 33,212 | ||||||||||||
| Market making and similar activities | 12,732 | 12,075 | ||||||||||||
| Other income | (3,091) | (2,799) | ||||||||||||
| Total noninterest income | $ | 41,650 | $ | 42,488 | ||||||||||
Noninterest income decreased $838 million to $41.7 billion in 2023 compared to 2022. The following highlights the significant changes.
● Service charges decreased $721 million primarily driven by the impact of non-sufficient funds and overdraft policy changes, as well as lower treasury service charges.
● Investment and brokerage services decreased $338 million primarily due to lower transactional revenue and asset management fees driven by declines in assets under management (AUM) pricing, as well as lower average market valuations, partially offset by the impact of positive AUM flows.
● Investment banking fees decreased $115 million primarily due to lower advisory and debt issuance fees, partially offset by higher equity issuance fees.
● Market making and similar activities increased $657 million primarily driven by improved trading in mortgage products in Fixed Income, Currencies and Commodities (FICC) and by the impact of higher interest rates on client financing activities in Equities, partially offset by the net $1.6 billion impact of BSBY’s future cessation.
● Other income decreased $292 million primarily due to higher partnership losses on tax-advantaged investments and losses on sales of available-for-sale (AFS) debt securities, partially offset by certain negative valuation adjustments in the prior year.
Provision for Credit Losses
The provision for credit losses increased $1.9 billion to $4.4 billion in 2023 compared to 2022. The provision for credit losses for 2023 was driven by our consumer portfolio primarily due to credit card loan growth and asset quality, partially offset by improved macroeconomic conditions that primarily benefited our commercial portfolio. For the same period in the prior year, the provision for credit losses was primarily driven by loan growth and a dampened macroeconomic outlook, partially offset by a reduction in COVID-19 pandemic uncertainties. For more information on the provision for credit losses, see Allowance for Credit Losses on page 71.
Noninterest Expense
| Table 3 | Noninterest Expense | |||||||||||||
| (Dollars in millions) | 2023 | 2022 | ||||||||||||
| Compensation and benefits | $ | 38,330 | $ | 36,447 | ||||||||||
| Occupancy and equipment | 7,164 | 7,071 | ||||||||||||
| Information processing and communications | 6,707 | 6,279 | ||||||||||||
| Product delivery and transaction related | 3,608 | 3,653 | ||||||||||||
| Marketing | 1,927 | 1,825 | ||||||||||||
| Professional fees | 2,159 | 2,142 | ||||||||||||
| Other general operating | 5,950 | 4,021 | ||||||||||||
| Total noninterest expense | $ | 65,845 | $ | 61,438 | ||||||||||
Noninterest expense increased $4.4 billion to $65.8 billion in 2023 compared to 2022 primarily due to higher investments in people and technology and higher FDIC expense, including $2.1 billion for the estimated special assessment amount arising from the closure of Silicon Valley Bank and Signature Bank, partially offset by lower litigation expense and revenue-related compensation.
Income Tax Expense
| Table 4 | Income Tax Expense | |||||||||||||
| (Dollars in millions) | 2023 | 2022 | ||||||||||||
| Income before income taxes | $ | 28,342 | $ | 30,969 | ||||||||||
| Income tax expense | 1,827 | 3,441 | ||||||||||||
| Effective tax rate | 6.4 | % | 11.1 | % | ||||||||||
Income tax expense was $1.8 billion for 2023 compared to $3.4 billion in 2022, resulting in an effective tax rate of 6.4 percent compared to 11.1 percent.
The effective tax rates for 2023 and 2022 were primarily driven by our recurring tax preference benefits, which primarily consisted of tax credits from investments in affordable housing and renewable energy. Also included in the effective tax rate for 2023 were tax impacts from charges recorded in the fourth quarter of 2023 related to the FDIC special assessment and the impact of BSBY’s future cessation. For more information on these charges, see Executive Summary – Recent Developments on page 26. For more information on our recurring tax preference benefits, see Note 19 – Income Taxes to the Consolidated Financial Statements. Absent the tax credits related to tax-advantaged investments and discrete tax benefits, the effective tax rates would have been approximately 25 percent for both periods.
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Balance Sheet Overview
| Table 5 | Selected Balance Sheet Data | |||||||||||||||||||||||||
| December 31 | ||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
Cash and cash equivalents |
$ | 333,073 | $ | 230,203 | $ | 102,870 | 45 | % | ||||||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell |
280,624 | 267,574 | 13,050 | 5 | ||||||||||||||||||||||
| Trading account assets | 277,354 | 296,108 | (18,754) | (6) | ||||||||||||||||||||||
| Debt securities | 871,407 | 862,819 | 8,588 | 1 | ||||||||||||||||||||||
| Loans and leases | 1,053,732 | 1,045,747 | 7,985 | 1 | ||||||||||||||||||||||
| Allowance for loan and lease losses | (13,342) | (12,682) | (660) | 5 | ||||||||||||||||||||||
| All other assets | 377,303 | 361,606 | 15,697 | 4 | ||||||||||||||||||||||
| Total assets | $ | 3,180,151 | $ | 3,051,375 | $ | 128,776 | 4 | |||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Deposits | $ | 1,923,827 | $ | 1,930,341 | $ | (6,514) | — | |||||||||||||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase |
283,887 | 195,635 | 88,252 | 45 | ||||||||||||||||||||||
| Trading account liabilities | 95,530 | 80,399 | 15,131 | 19 | ||||||||||||||||||||||
| Short-term borrowings | 32,098 | 26,932 | 5,166 | 19 | ||||||||||||||||||||||
| Long-term debt | 302,204 | 275,982 | 26,222 | 10 | ||||||||||||||||||||||
| All other liabilities | 250,959 | 268,889 | (17,930) | (7) | ||||||||||||||||||||||
| Total liabilities | 2,888,505 | 2,778,178 | 110,327 | 4 | ||||||||||||||||||||||
| Shareholders’ equity | 291,646 | 273,197 | 18,449 | 7 | ||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 3,180,151 | $ | 3,051,375 | $ | 128,776 | 4 | |||||||||||||||||||
Assets
At December 31, 2023, total assets were approximately $3.2 trillion, up $128.8 billion from December 31, 2022. The increase in assets was primarily due to higher cash and cash equivalents.
Cash and Cash Equivalents
Cash and cash equivalents increased $102.9 billion primarily driven by increased funding to support balance sheet and liquidity positioning.
Federal Funds Sold and Securities Borrowed or Purchased Under Agreements to Resell
Federal funds transactions involve lending reserve balances on a short-term basis. Securities borrowed or purchased under agreements to resell are collateralized lending transactions utilized to accommodate customer transactions, earn interest rate spreads and obtain securities for settlement and for collateral. Federal funds sold and securities borrowed or purchased under agreements to resell increased $13.1 billion primarily due to the investment of excess cash from higher federal funds purchased and securities loaned or sold under agreements to repurchase, short-term borrowings and long-term debt, as well as client activity within Global Markets.
Trading Account Assets
Trading account assets consist primarily of long positions in equity and fixed-income securities including U.S. government and agency securities, corporate securities and non-U.S. sovereign debt. Trading account assets decreased $18.8 billion primarily due to a decline in inventory within Global Markets.
Debt Securities
Debt securities primarily include U.S. Treasury and agency securities, mortgage-backed securities (MBS), principally agency MBS, non-U.S. bonds, corporate bonds and municipal debt. We reinvest cash in the debt securities portfolio primarily to manage interest rate and liquidity risk. Debt securities increased $8.6 billion primarily due to investment of excess cash from higher federal funds purchased and securities loaned or sold under agreements to repurchase, short-term borrowings and long-term
debt. For more information on debt securities, see Note 4 – Securities to the Consolidated Financial Statements.
Loans and Leases
Loans and leases increased $8.0 billion primarily driven by higher credit card spending and growth in commercial loans. For more information on the loan portfolio, see Credit Risk Management on page 57.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses increased $660 million driven by the Corporation’s consumer portfolio primarily due to credit card loan growth and asset quality, partially offset by a reserve release in the Corporation’s commercial portfolio primarily driven by improved macroeconomic conditions applicable to the commercial portfolio. For more information, see Allowance for Credit Losses on page 71.
All Other Assets
All other assets increased $15.7 billion primarily driven by Global Markets activity.
Liabilities
At December 31, 2023, total liabilities were approximately $2.9 trillion, up $110.3 billion from December 31, 2022, primarily due to higher federal funds purchased and securities loaned or sold under agreements to repurchase and long-term debt.
Deposits
Deposits decreased $6.5 billion primarily due to an increase in customer spending and customers’ movement of balances to higher yielding investment alternatives.
Federal Funds Purchased and Securities Loaned or Sold Under Agreements to Repurchase
Federal funds transactions involve borrowing reserve balances on a short-term basis. Securities loaned or sold under agreements to repurchase are collateralized borrowing transactions utilized to accommodate customer transactions, earn interest rate spreads and finance assets on the balance sheet. Federal funds purchased and securities loaned or sold
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under agreements to repurchase increased $88.3 billion primarily driven by an increase in repurchase agreements to support liquidity.
Trading Account Liabilities
Trading account liabilities consist primarily of short positions in equity and fixed-income securities including U.S. Treasury and agency securities, non-U.S. sovereign debt and corporate securities. Trading account liabilities increased $15.1 billion primarily due to higher levels of short positions within Global Markets.
Short-term Borrowings
Short-term borrowings provide an additional funding source and primarily consist of Federal Home Loan Bank (FHLB) short-term borrowings, notes payable and various other borrowings that generally have maturities of one year or less. Short-term borrowings increased $5.2 billion primarily due to an increase in FHLB advances and commercial paper to manage liquidity needs. For more information on short-term borrowings, see Note 10 – Securities Financing Agreements, Short-term Borrowings, Collateral and Restricted Cash to the Consolidated Financial Statements.
Long-term Debt
Long-term debt increased $26.2 billion primarily due to debt issuances and valuation adjustments, partially offset by debt maturities and redemptions. For more information on long-term debt, see Note 11 – Long-term Debt to the Consolidated Financial Statements.
All Other Liabilities
All other liabilities decreased $17.9 billion primarily driven by Global Markets activity.
Shareholders’ Equity
Shareholders’ equity increased $18.4 billion primarily due to net income and market value increases on derivatives, partially offset by returns of capital to shareholders through common and preferred stock dividends and common stock repurchases.
Cash Flows Overview
The Corporation’s operating assets and liabilities support our global markets and lending activities. We believe that cash flows from operations, available cash balances and our ability to generate cash through short- and long-term debt are sufficient to fund our operating liquidity needs. Our investing activities primarily include the debt securities portfolio and loans and leases. Our financing activities reflect cash flows primarily related to customer deposits, securities financing agreements, long-term debt and common and preferred stock. For more information on liquidity, see Liquidity Risk on page 52.
Supplemental Financial Data
Non-GAAP Financial Measures
In this Form 10-K, we present certain non-GAAP financial measures. Non-GAAP financial measures exclude certain items or otherwise include components that differ from the most directly comparable measures calculated in accordance with GAAP. Non-GAAP financial measures are provided as additional useful information to assess our financial condition, results of operations (including period-to-period operating performance) or compliance with prospective regulatory requirements. These non-GAAP financial measures are not intended as a substitute for GAAP financial measures and may not be defined or calculated the same way as non-GAAP financial measures used
by other companies.
When presented on a consolidated basis, net interest income on an FTE basis is a non-GAAP financial measure. To derive the FTE basis, net interest income is adjusted to reflect tax-exempt income on an equivalent before-tax basis with a corresponding increase in income tax expense. For purposes of this calculation, we use the federal statutory tax rate of 21 percent and a representative state tax rate. Net interest yield, which measures the basis points we earn over the cost of funds, utilizes net interest income on an FTE basis. We believe that presentation of these items on an FTE basis allows for comparison of amounts from both taxable and tax-exempt sources and is consistent with industry practices.
We may present certain key performance indicators and ratios excluding certain items (e.g., debit valuation adjustment (DVA) gains (losses)), which result in non-GAAP financial measures. We believe that the presentation of measures that exclude these items is useful because such measures provide additional information to assess the underlying operational performance and trends of our businesses and to allow better comparison of period-to-period operating performance.
We also evaluate our business based on certain ratios that utilize tangible equity, a non-GAAP financial measure. Tangible equity represents shareholders’ equity or common shareholders’ equity reduced by goodwill and intangible assets (excluding mortgage servicing rights (MSRs)), net of related deferred tax liabilities (“adjusted” shareholders’ equity or common shareholders’ equity). These measures are used to evaluate our use of equity. In addition, profitability, relationship and investment models use both return on average tangible common shareholders’ equity and return on average tangible shareholders’ equity as key measures to support our overall growth objectives. These ratios are:
● Return on average tangible common shareholders’ equity measures our net income applicable to common shareholders as a percentage of adjusted average common shareholders’ equity. The tangible common equity ratio represents adjusted ending common shareholders’ equity divided by total tangible assets.
● Return on average tangible shareholders’ equity measures our net income as a percentage of adjusted average total shareholders’ equity. The tangible equity ratio represents adjusted ending shareholders’ equity divided by total tangible assets.
● Tangible book value per common share represents adjusted ending common shareholders’ equity divided by ending common shares outstanding.
We believe ratios utilizing tangible equity provide additional useful information because they present measures of those assets that can generate income. Tangible book value per common share provides additional useful information about the level of tangible assets in relation to outstanding shares of common stock.
The aforementioned supplemental data and performance measures are presented in Tables 6 and 7.
For more information on the reconciliation of these non-GAAP financial measures to the corresponding GAAP financial measures, see Non-GAAP Reconciliations on page 85.
Key Performance Indicators
We present certain key financial and nonfinancial performance indicators (key performance indicators) that management uses when assessing our consolidated and/or segment results. We believe they are useful to investors because they provide additional information about our underlying operational
29 Bank of America
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performance and trends. These key performance indicators (KPIs) may not be defined or calculated in the same way as similar KPIs used by other companies. For information on how these metrics are defined, see Key Metrics on page 170.
Our consolidated key performance indicators, which include
various equity and credit metrics, are presented in Table 1 on page 26, Table 6 on page 30 and Table 7 on page 31.
For information on key segment performance metrics, see Business Segment Operations on page 34.
| Table 6 | Selected Annual Financial Data | |||||||||||||||||||
| (In millions, except per share information) | 2023 | 2022 | 2021 | |||||||||||||||||
| Income statement | ||||||||||||||||||||
| Net interest income | $ | 56,931 | $ | 52,462 | $ | 42,934 | ||||||||||||||
| Noninterest income | 41,650 | 42,488 | 46,179 | |||||||||||||||||
| Total revenue, net of interest expense | 98,581 | 94,950 | 89,113 | |||||||||||||||||
| Provision for credit losses | 4,394 | 2,543 | (4,594) | |||||||||||||||||
| Noninterest expense | 65,845 | 61,438 | 59,731 | |||||||||||||||||
| Income before income taxes | 28,342 | 30,969 | 33,976 | |||||||||||||||||
| Income tax expense | 1,827 | 3,441 | 1,998 | |||||||||||||||||
| Net income | 26,515 | 27,528 | 31,978 | |||||||||||||||||
| Net income applicable to common shareholders | 24,866 | 26,015 | 30,557 | |||||||||||||||||
| Average common shares issued and outstanding | 8,028.6 | 8,113.7 | 8,493.3 | |||||||||||||||||
| Average diluted common shares issued and outstanding | 8,080.5 | 8,167.5 | 8,558.4 | |||||||||||||||||
| Performance ratios | ||||||||||||||||||||
Return on average assets (1)
|
0.84 | % | 0.88 | % | 1.05 | % | ||||||||||||||
Return on average common shareholders’ equity (1)
|
9.75 | 10.75 | 12.23 | |||||||||||||||||
Return on average tangible common shareholders’ equity (1, 2)
|
13.46 | 15.15 | 17.02 | |||||||||||||||||
Return on average shareholders’ equity (1)
|
9.36 | 10.18 | 11.68 | |||||||||||||||||
Return on average tangible shareholders’ equity (1, 2)
|
12.44 | 13.76 | 15.71 | |||||||||||||||||
| Total ending equity to total ending assets | 9.17 | 8.95 | 8.52 | |||||||||||||||||
Common equity ratio (1)
|
8.28 | 8.02 | 7.74 | |||||||||||||||||
| Total average equity to total average assets | 8.99 | 8.62 | 9.02 | |||||||||||||||||
Dividend payout (1)
|
29.65 | 26.77 | 21.51 | |||||||||||||||||
| Per common share data | ||||||||||||||||||||
| Earnings | $ | 3.10 | $ | 3.21 | $ | 3.60 | ||||||||||||||
| Diluted earnings | 3.08 | 3.19 | 3.57 | |||||||||||||||||
| Dividends paid | 0.92 | 0.86 | 0.78 | |||||||||||||||||
Book value (1)
|
33.34 | 30.61 | 30.37 | |||||||||||||||||
Tangible book value (2)
|
24.46 | 21.83 | 21.68 | |||||||||||||||||
| Market capitalization | $ | 265,840 | $ | 264,853 | $ | 359,383 | ||||||||||||||
| Average balance sheet | ||||||||||||||||||||
| Total loans and leases | $ | 1,046,256 | $ | 1,016,782 | $ | 920,401 | ||||||||||||||
| Total assets | 3,153,513 | 3,135,894 | 3,034,623 | |||||||||||||||||
| Total deposits | 1,887,541 | 1,986,158 | 1,914,286 | |||||||||||||||||
| Long-term debt | 248,853 | 246,479 | 237,703 | |||||||||||||||||
| Common shareholders’ equity | 254,956 | 241,981 | 249,787 | |||||||||||||||||
| Total shareholders’ equity | 283,353 | 270,299 | 273,757 | |||||||||||||||||
| Asset quality | ||||||||||||||||||||
Allowance for credit losses (3)
|
$ | 14,551 | $ | 14,222 | $ | 13,843 | ||||||||||||||
Nonperforming loans, leases and foreclosed properties (4)
|
5,630 | 3,978 | 4,697 | |||||||||||||||||
Allowance for loan and lease losses as a percentage of total loans and leases outstanding (4)
|
1.27 | % | 1.22 | % | 1.28 | % | ||||||||||||||
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (4)
|
243 | 333 | 271 | |||||||||||||||||
| Net charge-offs | $ | 3,799 | $ | 2,172 | $ | 2,243 | ||||||||||||||
Net charge-offs as a percentage of average loans and leases outstanding (4)
|
0.36 | % | 0.21 | % | 0.25 | % | ||||||||||||||
Capital ratios at year end (5)
|
||||||||||||||||||||
| Common equity tier 1 capital | 11.8 | % | 11.2 | % | 10.6 | % | ||||||||||||||
| Tier 1 capital | 13.5 | 13.0 | 12.1 | |||||||||||||||||
| Total capital | 15.2 | 14.9 | 14.1 | |||||||||||||||||
| Tier 1 leverage | 7.1 | 7.0 | 6.4 | |||||||||||||||||
| Supplementary leverage ratio | 6.1 | 5.9 | 5.5 | |||||||||||||||||
Tangible equity (2)
|
7.1 | 6.8 | 6.4 | |||||||||||||||||
Tangible common equity (2)
|
6.2 | 5.9 | 5.7 | |||||||||||||||||
(1)For definition, see Key Metrics on page 170.
(2)Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. For more information on these ratios and corresponding reconciliations to GAAP financial measures, see Supplemental Financial Data on page 29 and Non-GAAP Reconciliations on page 85.
(3)Includes the allowance for loan and leases losses and the reserve for unfunded lending commitments.
(4)Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 62 and corresponding Table 27 and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 66 and corresponding Table 33.
(5)For more information, including which approach is used to assess capital adequacy, see Capital Management on page 47.
Bank of America 30
|
||||||||
| Table 7 | Selected Quarterly Financial Data | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 Quarters | 2022 Quarters | |||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions, except per share information) | Fourth | Third | Second | First | Fourth | Third | Second | First | ||||||||||||||||||||||||||||||||||||||||||
| Income statement | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income | $ | 13,946 | $ | 14,379 | $ | 14,158 | $ | 14,448 | $ | 14,681 | $ | 13,765 | $ | 12,444 | $ | 11,572 | ||||||||||||||||||||||||||||||||||
| Noninterest income | 8,013 | 10,788 | 11,039 | 11,810 | 9,851 | 10,737 | 10,244 | 11,656 | ||||||||||||||||||||||||||||||||||||||||||
| Total revenue, net of interest expense | 21,959 | 25,167 | 25,197 | 26,258 | 24,532 | 24,502 | 22,688 | 23,228 | ||||||||||||||||||||||||||||||||||||||||||
| Provision for credit losses | 1,104 | 1,234 | 1,125 | 931 | 1,092 | 898 | 523 | 30 | ||||||||||||||||||||||||||||||||||||||||||
| Noninterest expense | 17,731 | 15,838 | 16,038 | 16,238 | 15,543 | 15,303 | 15,273 | 15,319 | ||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 3,124 | 8,095 | 8,034 | 9,089 | 7,897 | 8,301 | 6,892 | 7,879 | ||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | (20) | 293 | 626 | 928 | 765 | 1,219 | 645 | 812 | ||||||||||||||||||||||||||||||||||||||||||
| Net income | 3,144 | 7,802 | 7,408 | 8,161 | 7,132 | 7,082 | 6,247 | 7,067 | ||||||||||||||||||||||||||||||||||||||||||
| Net income applicable to common shareholders | 2,838 | 7,270 | 7,102 | 7,656 | 6,904 | 6,579 | 5,932 | 6,600 | ||||||||||||||||||||||||||||||||||||||||||
Average common shares issued and outstanding |
7,990.9 | 8,017.1 | 8,040.9 | 8,065.9 | 8,088.3 | 8,107.7 | 8,121.6 | 8,136.8 | ||||||||||||||||||||||||||||||||||||||||||
Average diluted common shares issued and outstanding |
8,062.5 | 8,075.9 | 8,080.7 | 8,182.3 | 8,155.7 | 8,160.8 | 8,163.1 | 8,202.1 | ||||||||||||||||||||||||||||||||||||||||||
| Performance ratios | ||||||||||||||||||||||||||||||||||||||||||||||||||
Return on average assets (1)
|
0.39 | % | 0.99 | % | 0.94 | % | 1.07 | % | 0.92 | % | 0.90 | % | 0.79 | % | 0.89 | % | ||||||||||||||||||||||||||||||||||
Four-quarter trailing return on average assets (2)
|
0.84 | 0.98 | 0.96 | 0.92 | 0.88 | 0.87 | 0.89 | 0.99 | ||||||||||||||||||||||||||||||||||||||||||
Return on average common shareholders’ equity (1)
|
4.33 | 11.24 | 11.21 | 12.48 | 11.24 | 10.79 | 9.93 | 11.02 | ||||||||||||||||||||||||||||||||||||||||||
Return on average tangible common shareholders’ equity (3)
|
5.92 | 15.47 | 15.49 | 17.38 | 15.79 | 15.21 | 14.05 | 15.51 | ||||||||||||||||||||||||||||||||||||||||||
Return on average shareholders’ equity (1)
|
4.32 | 10.86 | 10.52 | 11.94 | 10.38 | 10.37 | 9.34 | 10.64 | ||||||||||||||||||||||||||||||||||||||||||
Return on average tangible shareholders’ equity (3)
|
5.71 | 14.41 | 14.00 | 15.98 | 13.98 | 13.99 | 12.66 | 14.40 | ||||||||||||||||||||||||||||||||||||||||||
| Total ending equity to total ending assets | 9.17 | 9.10 | 9.07 | 8.77 | 8.95 | 8.77 | 8.65 | 8.23 | ||||||||||||||||||||||||||||||||||||||||||
Common equity ratio (1)
|
8.28 | 8.20 | 8.16 | 7.88 | 8.02 | 7.82 | 7.71 | 7.40 | ||||||||||||||||||||||||||||||||||||||||||
| Total average equity to total average assets | 8.98 | 9.11 | 8.89 | 8.95 | 8.87 | 8.73 | 8.49 | 8.40 | ||||||||||||||||||||||||||||||||||||||||||
Dividend payout (1)
|
67.42 | 26.39 | 24.88 | 23.17 | 25.71 | 27.06 | 28.68 | 25.86 | ||||||||||||||||||||||||||||||||||||||||||
| Per common share data | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings | $ | 0.36 | $ | 0.91 | $ | 0.88 | $ | 0.95 | $ | 0.85 | $ | 0.81 | $ | 0.73 | $ | 0.81 | ||||||||||||||||||||||||||||||||||
| Diluted earnings | 0.35 | 0.90 | 0.88 | 0.94 | 0.85 | 0.81 | 0.73 | 0.80 | ||||||||||||||||||||||||||||||||||||||||||
| Dividends paid | 0.24 | 0.24 | 0.22 | 0.22 | 0.22 | 0.22 | 0.21 | 0.21 | ||||||||||||||||||||||||||||||||||||||||||
Book value (1)
|
33.34 | 32.65 | 32.05 | 31.58 | 30.61 | 29.96 | 29.87 | 29.70 | ||||||||||||||||||||||||||||||||||||||||||
Tangible book value (3)
|
24.46 | 23.79 | 23.23 | 22.78 | 21.83 | 21.21 | 21.13 | 20.99 | ||||||||||||||||||||||||||||||||||||||||||
| Market capitalization | $ | 265,840 | $ | 216,942 | $ | 228,188 | $ | 228,012 | $ | 264,853 | $ | 242,338 | $ | 250,136 | $ | 332,320 | ||||||||||||||||||||||||||||||||||
| Average balance sheet | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total loans and leases | $ | 1,050,705 | $ | 1,046,254 | $ | 1,046,608 | $ | 1,041,352 | $ | 1,039,247 | $ | 1,034,334 | $ | 1,014,886 | $ | 977,793 | ||||||||||||||||||||||||||||||||||
| Total assets | 3,213,159 | 3,128,466 | 3,175,358 | 3,096,058 | 3,074,289 | 3,105,546 | 3,157,855 | 3,207,702 | ||||||||||||||||||||||||||||||||||||||||||
| Total deposits | 1,905,011 | 1,876,153 | 1,875,353 | 1,893,649 | 1,925,544 | 1,962,775 | 2,012,079 | 2,045,811 | ||||||||||||||||||||||||||||||||||||||||||
| Long-term debt | 256,262 | 245,819 | 248,480 | 244,759 | 243,871 | 250,204 | 245,781 | 246,042 | ||||||||||||||||||||||||||||||||||||||||||
| Common shareholders’ equity | 260,221 | 256,578 | 254,028 | 248,855 | 243,647 | 241,882 | 239,523 | 242,865 | ||||||||||||||||||||||||||||||||||||||||||
| Total shareholders’ equity | 288,618 | 284,975 | 282,425 | 277,252 | 272,629 | 271,017 | 268,197 | 269,309 | ||||||||||||||||||||||||||||||||||||||||||
| Asset quality | ||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses (4)
|
$ | 14,551 | $ | 14,640 | $ | 14,338 | $ | 13,951 | $ | 14,222 | $ | 13,817 | $ | 13,434 | $ | 13,483 | ||||||||||||||||||||||||||||||||||
Nonperforming loans, leases and foreclosed properties (5)
|
5,630 | 4,993 | 4,274 | 4,083 | 3,978 | 4,156 | 4,326 | 4,778 | ||||||||||||||||||||||||||||||||||||||||||
Allowance for loan and lease losses as a percentage of total loans and leases outstanding (5)
|
1.27 | % | 1.27 | % | 1.24 | % | 1.20 | % | 1.22 | % | 1.20 | % | 1.17 | % | 1.23 | % | ||||||||||||||||||||||||||||||||||
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5)
|
243 | 275 | 314 | 319 | 333 | 309 | 288 | 262 | ||||||||||||||||||||||||||||||||||||||||||
| Net charge-offs | $ | 1,192 | $ | 931 | $ | 869 | $ | 807 | $ | 689 | $ | 520 | $ | 571 | $ | 392 | ||||||||||||||||||||||||||||||||||
Annualized net charge-offs as a percentage of average loans and leases outstanding (5)
|
0.45 | % | 0.35 | % | 0.33 | % | 0.32 | % | 0.26 | % | 0.20 | % | 0.23 | % | 0.16 | % | ||||||||||||||||||||||||||||||||||
Capital ratios at period end (6)
|
||||||||||||||||||||||||||||||||||||||||||||||||||
Common equity tier 1 capital |
11.8 | % | 11.9 | % | 11.6 | % | 11.4 | % | 11.2 | % | 11.0 | % | 10.5 | % | 10.4 | % | ||||||||||||||||||||||||||||||||||
Tier 1 capital |
13.5 | 13.6 | 13.3 | 13.1 | 13.0 | 12.8 | 12.3 | 12.0 | ||||||||||||||||||||||||||||||||||||||||||
Total capital |
15.2 | 15.4 | 15.1 | 15.0 | 14.9 | 14.7 | 14.2 | 14.0 | ||||||||||||||||||||||||||||||||||||||||||
Tier 1 leverage |
7.1 | 7.3 | 7.1 | 7.1 | 7.0 | 6.8 | 6.5 | 6.3 | ||||||||||||||||||||||||||||||||||||||||||
Supplementary leverage ratio |
6.1 | 6.2 | 6.0 | 6.0 | 5.9 | 5.8 | 5.5 | 5.4 | ||||||||||||||||||||||||||||||||||||||||||
Tangible equity (3)
|
7.1 | 7.0 | 7.0 | 6.7 | 6.8 | 6.6 | 6.5 | 6.2 | ||||||||||||||||||||||||||||||||||||||||||
Tangible common equity (3)
|
6.2 | 6.1 | 6.1 | 5.8 | 5.9 | 5.7 | 5.6 | 5.3 | ||||||||||||||||||||||||||||||||||||||||||
| Total loss-absorbing capacity and long-term debt metrics | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total loss-absorbing capacity to risk-weighted assets | 29.0 | % | 29.3 | % | 28.8 | % | 28.8 | % | 29.0 | % | 28.9 | % | 27.8 | % | 27.2 | % | ||||||||||||||||||||||||||||||||||
| Total loss-absorbing capacity to supplementary leverage exposure | 13.0 | 13.3 | 13.0 | 13.1 | 13.2 | 13.0 | 12.6 | 12.2 | ||||||||||||||||||||||||||||||||||||||||||
| Eligible long-term debt to risk-weighted assets | 14.5 | 14.8 | 14.6 | 14.8 | 15.2 | 15.2 | 14.7 | 14.4 | ||||||||||||||||||||||||||||||||||||||||||
| Eligible long-term debt to supplementary leverage exposure | 6.5 | 6.7 | 6.6 | 6.7 | 6.9 | 6.8 | 6.6 | 6.5 | ||||||||||||||||||||||||||||||||||||||||||
(1)For definitions, see Key Metrics on page 170.
(2)Calculated as total net income for four consecutive quarters divided by annualized average assets for four consecutive quarters.
(3)Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. For more information on these ratios and corresponding reconciliations to GAAP financial measures, see Supplemental Financial Data on page 29 and Non-GAAP Reconciliations on page 85.
(4)Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments.
(5)Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 62 and corresponding Table 27 and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 66 and corresponding Table 33.
(6)For more information, including which approach is used to assess capital adequacy, see Capital Management on page 47.
31 Bank of America
|
||||||||
| Table 8 | Average Balances and Interest Rates - FTE Basis | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average Balance |
Interest
Income/
Expense (1)
|
Yield/ Rate |
Average Balance |
Interest
Income/
Expense (1)
|
Yield/ Rate |
Average Balance |
Interest
Income/
Expense (1)
|
Yield/ Rate |
||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earning assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks |
$ | 324,389 | $ | 15,965 | 4.92 | % | $ | 195,564 | $ | 2,591 | 1.32 | % | $ | 255,595 | $ | 172 | 0.07 | % | ||||||||||||||||||||||||||||||||||||||
| Time deposits placed and other short-term investments | 9,704 | 465 | 4.79 | 9,209 | 132 | 1.44 | 7,603 | 15 | 0.19 | |||||||||||||||||||||||||||||||||||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell (2)
|
291,669 | 18,679 | 6.40 | 292,799 | 4,560 | 1.56 | 267,257 | (90) | (0.03) | |||||||||||||||||||||||||||||||||||||||||||||||
| Trading account assets | 189,263 | 8,849 | 4.68 | 158,102 | 5,586 | 3.53 | 147,891 | 3,823 | 2.58 | |||||||||||||||||||||||||||||||||||||||||||||||
| Debt securities | 794,192 | 20,332 | 2.55 | 922,730 | 17,207 | 1.86 | 905,169 | 12,433 | 1.38 | |||||||||||||||||||||||||||||||||||||||||||||||
Loans and leases (3):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage | 229,001 | 6,923 | 3.02 | 227,604 | 6,375 | 2.80 | 216,983 | 5,995 | 2.76 | |||||||||||||||||||||||||||||||||||||||||||||||
| Home equity | 25,969 | 1,471 | 5.67 | 27,364 | 959 | 3.50 | 31,014 | 1,066 | 3.44 | |||||||||||||||||||||||||||||||||||||||||||||||
| Credit card | 96,190 | 10,436 | 10.85 | 83,539 | 8,408 | 10.06 | 75,385 | 7,772 | 10.31 | |||||||||||||||||||||||||||||||||||||||||||||||
| Direct/Indirect and other consumer | 104,571 | 5,200 | 4.97 | 107,050 | 3,317 | 3.10 | 96,472 | 2,276 | 2.36 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total consumer | 455,731 | 24,030 | 5.27 | 445,557 | 19,059 | 4.28 | 419,854 | 17,109 | 4.08 | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. commercial | 378,212 | 19,494 | 5.15 | 366,748 | 12,251 | 3.34 | 324,795 | 8,606 | 2.65 | |||||||||||||||||||||||||||||||||||||||||||||||
| Non-U.S. commercial | 125,486 | 8,023 | 6.39 | 125,222 | 3,702 | 2.96 | 99,584 | 1,752 | 1.76 | |||||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate (4)
|
72,981 | 5,162 | 7.07 | 65,421 | 2,595 | 3.97 | 60,303 | 1,496 | 2.48 | |||||||||||||||||||||||||||||||||||||||||||||||
| Commercial lease financing | 13,846 | 646 | 4.67 | 13,834 | 473 | 3.42 | 15,865 | 462 | 2.91 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial | 590,525 | 33,325 | 5.64 | 571,225 | 19,021 | 3.33 | 500,547 | 12,316 | 2.46 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total loans and leases | 1,046,256 | 57,355 | 5.48 | 1,016,782 | 38,080 | 3.75 | 920,401 | 29,425 | 3.20 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other earning assets | 98,127 | 9,184 | 9.36 | 105,674 | 4,847 | 4.59 | 112,512 | 2,321 | 2.06 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total earning assets | 2,753,600 | 130,829 | 4.75 | 2,700,860 | 73,003 | 2.70 | 2,616,428 | 48,099 | 1.84 | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash and due from banks | 26,076 | 28,029 | 31,214 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other assets, less allowance for loan and lease losses | 373,837 | 407,005 | 386,981 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 3,153,513 | $ | 3,135,894 | $ | 3,034,623 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. interest-bearing deposits: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Demand and money market deposits | 952,736 | 15,527 | 1.63 | % | 987,247 | 3,145 | 0.32 | % | 925,970 | 314 | 0.03 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Time and savings deposits | 254,476 | 7,366 | 2.89 | 166,490 | 818 | 0.49 | 161,512 | 170 | 0.11 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total U.S. interest-bearing deposits | 1,207,212 | 22,893 | 1.90 | 1,153,737 | 3,963 | 0.34 | 1,087,482 | 484 | 0.04 | |||||||||||||||||||||||||||||||||||||||||||||||
| Non-U.S. interest-bearing deposits | 96,845 | 3,270 | 3.38 | 80,951 | 755 | 0.93 | 82,769 | 53 | 0.06 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing deposits | 1,304,057 | 26,163 | 2.01 | 1,234,688 | 4,718 | 0.38 | 1,170,251 | 537 | 0.05 | |||||||||||||||||||||||||||||||||||||||||||||||
| Federal funds purchased, securities loaned or sold under agreements to repurchase | 301,015 | 20,583 | 6.84 | 214,369 | 4,117 | 1.92 | 210,848 | 461 | 0.22 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Short-term borrowings and other interest-bearing
liabilities (2)
|
152,548 | 9,970 | 6.54 | 137,277 | 2,861 | 2.08 | 106,975 | (819) | (0.77) | |||||||||||||||||||||||||||||||||||||||||||||||
| Trading account liabilities | 46,083 | 2,043 | 4.43 | 51,208 | 1,538 | 3.00 | 54,107 | 1,128 | 2.08 | |||||||||||||||||||||||||||||||||||||||||||||||
| Long-term debt | 248,853 | 14,572 | 5.86 | 246,479 | 6,869 | 2.79 | 237,703 | 3,431 | 1.44 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 2,052,556 | 73,331 | 3.57 | 1,884,021 | 20,103 | 1.07 | 1,779,884 | 4,738 | 0.27 | |||||||||||||||||||||||||||||||||||||||||||||||
| Noninterest-bearing sources: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noninterest-bearing deposits | 583,484 | 751,470 | 744,035 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other liabilities (5)
|
234,120 | 230,104 | 236,947 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders’ equity | 283,353 | 270,299 | 273,757 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 3,153,513 | $ | 3,135,894 | $ | 3,034,623 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest spread | 1.18 | % | 1.63 | % | 1.57 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Impact of noninterest-bearing sources | 0.90 | 0.33 | 0.09 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income/yield on earning assets (6)
|
$ | 57,498 | 2.08 | % | $ | 52,900 | 1.96 | % | $ | 43,361 | 1.66 | % | ||||||||||||||||||||||||||||||||||||||||||||
(1)Includes the impact of interest rate risk management contracts. For more information, see Interest Rate Risk Management for the Banking Book on page 77.
(2)For more information on negative interest, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
(3)Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis.
(4)Includes U.S. commercial real estate loans of $67.2 billion, $61.1 billion and $56.5 billion, and non-U.S. commercial real estate loans of $5.8 billion, $4.3 billion and $3.8 billion for 2023, 2022 and 2021, respectively.
(5)Includes $40.2 billion, $30.7 billion and $30.4 billion of structured notes and liabilities for 2023, 2022 and 2021, respectively.
(6)Net interest income includes FTE adjustments of $567 million, $438 million and $427 million in 2023, 2022 and 2021, respectively.
Bank of America 32
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| Table 9 | Analysis of Changes in Net Interest Income - FTE Basis | |||||||||||||||||||||||||||||||||||||
Due to Change in (1)
|
Net Change |
Due to Change in (1)
|
Net Change | |||||||||||||||||||||||||||||||||||
| Volume | Rate | Volume | Rate | |||||||||||||||||||||||||||||||||||
| (Dollars in millions) | From 2022 to 2023 | From 2021 to 2022 | ||||||||||||||||||||||||||||||||||||
| Increase (decrease) in interest income | ||||||||||||||||||||||||||||||||||||||
Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks |
$ | 1,691 | $ | 11,683 | $ | 13,374 | $ | (35) | $ | 2,454 | $ | 2,419 | ||||||||||||||||||||||||||
| Time deposits placed and other short-term investments | 8 | 325 | 333 | 2 | 115 | 117 | ||||||||||||||||||||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell |
(10) | 14,129 | 14,119 | 2 | 4,648 | 4,650 | ||||||||||||||||||||||||||||||||
| Trading account assets | 1,095 | 2,168 | 3,263 | 256 | 1,507 | 1,763 | ||||||||||||||||||||||||||||||||
| Debt securities | (2,435) | 5,560 | 3,125 | 301 | 4,473 | 4,774 | ||||||||||||||||||||||||||||||||
| Loans and leases | ||||||||||||||||||||||||||||||||||||||
| Residential mortgage | 37 | 511 | 548 | 287 | 93 | 380 | ||||||||||||||||||||||||||||||||
| Home equity | (50) | 562 | 512 | (125) | 18 | (107) | ||||||||||||||||||||||||||||||||
| Credit card | 1,269 | 759 | 2,028 | 841 | (205) | 636 | ||||||||||||||||||||||||||||||||
| Direct/Indirect and other consumer | (75) | 1,958 | 1,883 | 250 | 791 | 1,041 | ||||||||||||||||||||||||||||||||
| Total consumer | 4,971 | 1,950 | ||||||||||||||||||||||||||||||||||||
| U.S. commercial | 381 | 6,862 | 7,243 | 1,113 | 2,532 | 3,645 | ||||||||||||||||||||||||||||||||
| Non-U.S. commercial | 12 | 4,309 | 4,321 | 452 | 1,498 | 1,950 | ||||||||||||||||||||||||||||||||
| Commercial real estate | 302 | 2,265 | 2,567 | 126 | 973 | 1,099 | ||||||||||||||||||||||||||||||||
| Commercial lease financing | 1 | 172 | 173 | (59) | 70 | 11 | ||||||||||||||||||||||||||||||||
| Total commercial | 14,304 | 6,705 | ||||||||||||||||||||||||||||||||||||
| Total loans and leases | 19,275 | 8,655 | ||||||||||||||||||||||||||||||||||||
| Other earning assets | (343) | 4,680 | 4,337 | (144) | 2,670 | 2,526 | ||||||||||||||||||||||||||||||||
| Net increase (decrease) in interest income | $ | 57,826 | $ | 24,904 | ||||||||||||||||||||||||||||||||||
| Increase (decrease) in interest expense | ||||||||||||||||||||||||||||||||||||||
| U.S. interest-bearing deposits | ||||||||||||||||||||||||||||||||||||||
| Demand and money market deposit accounts | $ | (96) | $ | 12,478 | $ | 12,382 | $ | (18) | $ | 2,849 | $ | 2,831 | ||||||||||||||||||||||||||
| Time and savings deposits | 429 | 6,119 | 6,548 | 13 | 635 | 648 | ||||||||||||||||||||||||||||||||
| Total U.S. interest-bearing deposits | 18,930 | 3,479 | ||||||||||||||||||||||||||||||||||||
| Non-U.S. interest-bearing deposits | 146 | 2,369 | 2,515 | (4) | 706 | 702 | ||||||||||||||||||||||||||||||||
| Total interest-bearing deposits | 21,445 | 4,181 | ||||||||||||||||||||||||||||||||||||
| Federal funds purchased and securities loaned or sold under agreements to repurchase |
1,662 | 14,804 | 16,466 | 11 | 3,645 | 3,656 | ||||||||||||||||||||||||||||||||
| Short-term borrowings and other interest-bearing liabilities | 312 | 6,797 | 7,109 | (238) | 3,918 | 3,680 | ||||||||||||||||||||||||||||||||
| Trading account liabilities | (156) | 661 | 505 | (63) | 473 | 410 | ||||||||||||||||||||||||||||||||
| Long-term debt | 74 | 7,629 | 7,703 | 118 | 3,320 | 3,438 | ||||||||||||||||||||||||||||||||
| Net increase (decrease) in interest expense | 53,228 | 15,365 | ||||||||||||||||||||||||||||||||||||
Net increase (decrease) in net interest income (2)
|
$ | 4,598 | $ | 9,539 | ||||||||||||||||||||||||||||||||||
(1)The changes for each category of interest income and expense are divided between the portion of change attributable to the variance in volume and the portion of change attributable to the variance in rate for that category. The unallocated change in rate or volume variance is allocated between the rate and volume variances.
(2)Includes an increase in FTE basis adjustments of $129 million from 2022 to 2023 and $11 million from 2021 to 2022.
33 Bank of America
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Business Segment Operations
Segment Description and Basis of Presentation
We report our results of operations through the following four business segments: Consumer Banking, GWIM, Global Banking and Global Markets, with the remaining operations recorded in All Other. We manage our segments and report their results on an FTE basis. The primary activities, products and businesses of the business segments and All Other are shown below.
We periodically review capital allocated to our businesses and allocate capital annually during the strategic and capital planning processes. We utilize a methodology that considers the effect of regulatory capital requirements in addition to internal risk-based capital models. Our internal risk-based capital models use a risk-adjusted methodology incorporating each segment’s credit, market, interest rate, business and operational risk components. For more information on the nature of these risks, see Managing Risk on page 44. The capital allocated to the business segments is referred to as allocated capital. Allocated equity in the reporting units is comprised of allocated capital plus capital for the portion of goodwill and intangibles specifically assigned to the reporting unit. For more information, including the definition of a reporting unit, see Note 7 – Goodwill and Intangible Assets to the Consolidated Financial Statements.
For more information on our presentation of financial information on an FTE basis, see Supplemental Financial Data on page 29, and for reconciliations to consolidated total revenue, net income and year-end total assets, see Note 23 – Business Segment Information to the Consolidated Financial Statements.
Key Performance Indicators
We present certain key financial and nonfinancial performance indicators that management uses when evaluating segment results. We believe they are useful to investors because they provide additional information about our segments’ operational performance, customer trends and business growth.
Bank of America 34
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Consumer Banking
| Deposits | Consumer Lending | Total Consumer Banking | |||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | % Change | ||||||||||||||||||||||||||||
| Net interest income | $ | 22,545 | $ | 19,254 | $ | 11,144 | $ | 10,791 | $ | 33,689 | $ | 30,045 | 12 | % | |||||||||||||||||||||
| Noninterest income: | |||||||||||||||||||||||||||||||||||
| Card income | (40) | (36) | 5,304 | 5,205 | 5,264 | 5,169 | 2 | ||||||||||||||||||||||||||||
| Service charges | 2,314 | 2,703 | 3 | 3 | 2,317 | 2,706 | (14) | ||||||||||||||||||||||||||||
| All other income | 607 | 478 | 154 | 237 | 761 | 715 | 6 | ||||||||||||||||||||||||||||
| Total noninterest income | 2,881 | 3,145 | 5,461 | 5,445 | 8,342 | 8,590 | (3) | ||||||||||||||||||||||||||||
Total revenue, net of interest expense |
25,426 | 22,399 | 16,605 | 16,236 | 42,031 | 38,635 | 9 | ||||||||||||||||||||||||||||
| Provision for credit losses | 491 | 564 | 4,667 | 1,416 | 5,158 | 1,980 | n/m | ||||||||||||||||||||||||||||
| Noninterest expense | 13,358 | 12,393 | 8,058 | 7,684 | 21,416 | 20,077 | 7 | ||||||||||||||||||||||||||||
| Income before income taxes | 11,577 | 9,442 | 3,880 | 7,136 | 15,457 | 16,578 | (7) | ||||||||||||||||||||||||||||
| Income tax expense | 2,894 | 2,314 | 970 | 1,748 | 3,864 | 4,062 | (5) | ||||||||||||||||||||||||||||
| Net income | $ | 8,683 | $ | 7,128 | $ | 2,910 | $ | 5,388 | $ | 11,593 | $ | 12,516 | (7) | ||||||||||||||||||||||
Effective tax rate (1)
|
25.0 | % | 24.5 | % | |||||||||||||||||||||||||||||||
| Net interest yield | 2.28 | % | 1.82 | % | 3.66 | % | 3.72 | % | 3.26 | % | 2.73 | % | |||||||||||||||||||||||
| Return on average allocated capital | 63 | 55 | 10 | 20 | 28 | 31 | |||||||||||||||||||||||||||||
| Efficiency ratio | 52.54 | 55.33 | 48.52 | 47.32 | 50.95 | 51.96 | |||||||||||||||||||||||||||||
| Balance Sheet | |||||||||||||||||||||||||||||||||||
| Average | |||||||||||||||||||||||||||||||||||
| Total loans and leases | $ | 4,129 | $ | 4,161 | $ | 304,561 | $ | 288,205 | $ | 308,690 | $ | 292,366 | 6 | % | |||||||||||||||||||||
Total earning assets (2)
|
989,000 | 1,057,531 | 304,838 | 289,719 | 1,032,525 | 1,099,410 | (6) | ||||||||||||||||||||||||||||
Total assets (2)
|
1,022,361 | 1,090,692 | 310,805 | 296,499 | 1,071,853 | 1,139,351 | (6) | ||||||||||||||||||||||||||||
| Total deposits | 987,675 | 1,056,783 | 5,075 | 5,778 | 992,750 | 1,062,561 | (7) | ||||||||||||||||||||||||||||
| Allocated capital | 13,700 | 13,000 | 28,300 | 27,000 | 42,000 | 40,000 | 5 | ||||||||||||||||||||||||||||
| Year End | |||||||||||||||||||||||||||||||||||
| Total loans and leases | $ | 4,218 | $ | 4,148 | $ | 310,901 | $ | 300,613 | $ | 315,119 | $ | 304,761 | 3 | % | |||||||||||||||||||||
Total earning assets (2)
|
965,088 | 1,043,049 | 311,008 | 300,787 | 1,009,360 | 1,085,079 | (7) | ||||||||||||||||||||||||||||
Total assets (2)
|
999,372 | 1,077,203 | 317,194 | 308,007 | 1,049,830 | 1,126,453 | (7) | ||||||||||||||||||||||||||||
| Total deposits | 964,136 | 1,043,194 | 5,436 | 5,605 | 969,572 | 1,048,799 | (8) | ||||||||||||||||||||||||||||
(1)Estimated at the segment level only.
(2)In segments and businesses where the total of liabilities and equity exceeds assets, we allocate assets from All Other to match the segments’ and businesses’ liabilities and allocated shareholders’ equity. As a result, total earning assets and total assets of the businesses may not equal total Consumer Banking.
n/m = not meaningful
Consumer Banking, comprised of Deposits and Consumer Lending, offers a diversified range of credit, banking and investment products and services to consumers and small businesses. Deposits and Consumer Lending include the net impact of migrating customers and their related deposit, brokerage asset and loan balances between Deposits, Consumer Lending and GWIM, as well as other client-managed businesses. Our customers and clients have access to a coast-to-coast network including financial centers in 39 states and the District of Columbia. As of December 31, 2023, our network includes approximately 3,800 financial centers, approximately 15,000 ATMs, nationwide call centers and leading digital banking platforms with more than 46 million active users, including approximately 38 million active mobile users.
Consumer Banking Results
Net income for Consumer Banking decreased $923 million to $11.6 billion due to an increase in provision for credit losses and higher noninterest expense, partially offset by higher revenue. Net interest income increased $3.6 billion to $33.7 billion primarily driven by higher interest rates and loan balances, partially offset by lower deposit balances. Noninterest income decreased $248 million to $8.3 billion primarily driven by the impact of non-sufficient funds and overdraft policy changes.
The provision for credit losses increased $3.2 billion to $5.2 billion primarily driven by credit card loan growth and asset quality. Noninterest expense increased $1.3 billion to $21.4
billion primarily driven by continued investments in the business, including people and technology, higher litigation expense, including consumer regulatory matters, and higher FDIC expense.
The return on average allocated capital was 28 percent, down from 31 percent, due to an increase in allocated capital and lower net income. For more information on capital allocated to the business segments, see Business Segment Operations on page 34.
Deposits
Deposits includes the results of consumer deposit activities that consist of a comprehensive range of products provided to consumers and small businesses. Our deposit products include noninterest- and interest-bearing checking accounts, money market savings accounts, traditional savings accounts, CDs and IRAs, as well as investment accounts and products. Net interest income is allocated to deposit products using our funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Deposits generates fees such as account service fees and ATM fees, as well as investment and brokerage fees from Consumer Investment accounts. Consumer Investments serves investment client relationships through the Merrill Edge integrated investing and banking service platform, providing investment advice and guidance, client brokerage asset services, self-directed online investing and key banking capabilities including access to the Corporation’s network of financial centers and ATMs.
35 Bank of America
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Net income for Deposits increased $1.6 billion to $8.7 billion primarily due to higher revenue, partially offset by higher noninterest expense. Net interest income increased $3.3 billion to $22.5 billion primarily due to higher interest rates, partially offset by lower deposit balances. Noninterest income decreased $264 million to $2.9 billion primarily driven by the impact of non-sufficient funds and overdraft policy changes.
Noninterest expense increased $965 million to $13.4 billion primarily due to continued investments in the business, including people and technology, higher litigation expense, including consumer regulatory matters, and higher FDIC expense.
Average deposits decreased $69.1 billion to $987.7 billion primarily due to net outflows of $51.8 billion in money market savings and $28.6 billion in checking, partially offset by growth in time deposits of $19.9 billion.
The table below provides key performance indicators for Deposits. Management uses these metrics, and we believe they are useful to investors because they provide additional information to evaluate our deposit profitability and digital/ mobile trends.
| Key Statistics – Deposits | |||||||||||
| 2023 | 2022 | ||||||||||
Total deposit spreads (excludes noninterest costs) (1)
|
2.70% | 1.86% | |||||||||
| Year end | |||||||||||
Consumer investment assets (in millions) (2)
|
$ | 424,410 | $ | 319,648 | |||||||
Active digital banking users (in thousands) (3)
|
46,265 | 44,054 | |||||||||
Active mobile banking users (in thousands) (4)
|
37,927 | 35,452 | |||||||||
| Financial centers | 3,845 | 3,913 | |||||||||
| ATMs | 15,168 | 15,528 | |||||||||
(1)Includes deposits held in Consumer Lending.
(2)Includes client brokerage assets, deposit sweep balances, Bank of America, N.A. brokered CDs and AUM in Consumer Banking.
(3)Represents mobile and/or online active users over the past 90 days.
(4)Represents mobile active users over the past 90 days.
Consumer investment assets increased $104.8 billion to $424.4 billion driven by market performance and client flows. Active mobile banking users increased approximately two million, reflecting continuing changes in our clients’ banking preferences. We had a net decrease of 68 financial centers and 360 ATMs as we continue to optimize our consumer banking network.
Consumer Lending
Consumer Lending offers products to consumers and small businesses across the U.S. The products offered include debit and credit cards, residential mortgages and home equity loans, and direct and indirect loans such as automotive, recreational vehicle and consumer personal loans. In addition to earning net interest spread revenue on its lending activities, Consumer Lending generates interchange revenue from debit and credit card transactions, late fees, cash advance fees, annual credit card fees, mortgage banking fee income and other miscellaneous fees. Consumer Lending products are available to our customers through our retail network, direct telephone, and online and mobile channels. Consumer Lending results also include the impact of servicing residential mortgages and home equity loans, including loans held on the balance sheet of Consumer Lending and loans serviced for others.
Net income for Consumer Lending decreased $2.5 billion to $2.9 billion primarily due to an increase in provision for credit losses. Net interest income increased $353 million to $11.1 billion primarily due to higher loan balances. Noninterest income increased $16 million to $5.5 billion, relatively unchanged from the same period a year ago.
The provision for credit losses increased $3.3 billion to $4.7 billion primarily driven by credit card loan growth and asset quality. Noninterest expense increased $374 million to $8.1 billion primarily driven by continued investments in the business, including people and technology.
Average loans increased $16.4 billion to $304.6 billion primarily driven by an increase in credit card loans.
The table below provides key performance indicators for Consumer Lending. Management uses these metrics, and we believe they are useful to investors because they provide additional information about loan growth and profitability.
| Key Statistics – Consumer Lending | |||||||||||
| (Dollars in millions) | 2023 | 2022 | |||||||||
Total credit card (1)
|
|||||||||||
Gross interest yield (2)
|
11.88 | % | 10.42 | % | |||||||
Risk-adjusted margin (3)
|
7.83 | 10.06 | |||||||||
| New accounts (in thousands) | 4,275 | 4,397 | |||||||||
| Purchase volumes | $ | 363,117 | $ | 356,588 | |||||||
Debit card purchase volumes |
$ | 527,074 | $ | 503,583 | |||||||
(1)Includes GWIM's credit card portfolio.
(2)Calculated as the effective annual percentage rate divided by average loans.
(3)Calculated as the difference between total revenue, net of interest expense, and net credit losses divided by average loans.
During 2023, the total risk-adjusted margin decreased 223 bps primarily driven by higher net credit losses, lower net fee income and lower interest margin. Total credit card purchase volumes increased $6.5 billion to $363.1 billion and debit card purchase volumes increased $23.5 billion to $527.1 billion, reflecting higher levels of consumer spending.
Key Statistics – Loan Production (1)
| |||||||||||
| (Dollars in millions) | 2023 | 2022 | |||||||||
| Consumer Banking: | |||||||||||
| First mortgage | $ | 9,145 | $ | 20,981 | |||||||
| Home equity | 8,328 | 7,988 | |||||||||
Total (2):
|
|||||||||||
| First mortgage | $ | 19,405 | $ | 44,765 | |||||||
| Home equity | 9,814 | 9,591 | |||||||||
(1)The loan production amounts represent the unpaid principal balance of loans and, in the case of home equity, the principal amount of the total line of credit.
(2)In addition to loan production in Consumer Banking, there is also first mortgage and home equity loan production in GWIM.
First mortgage loan originations for Consumer Banking and the total Corporation decreased $11.8 billion and $25.4 billion during 2023 primarily driven by higher interest rates, resulting in lower customer demand.
Home equity production in Consumer Banking and the total Corporation increased $340 million and $223 million during 2023 primarily driven by higher demand.
Bank of America 36
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Global Wealth & Investment Management
| (Dollars in millions) | 2023 | 2022 | % Change | |||||||||||||||||
| Net interest income | $ | 7,147 | $ | 7,466 | (4) | % | ||||||||||||||
| Noninterest income: | ||||||||||||||||||||
| Investment and brokerage services | 13,213 | 13,561 | (3) | |||||||||||||||||
| All other income | 745 | 721 | 3 | |||||||||||||||||
| Total noninterest income | 13,958 | 14,282 | (2) | |||||||||||||||||
| Total revenue, net of interest expense | 21,105 | 21,748 | (3) | |||||||||||||||||
| Provision for credit losses | 6 | 66 | (91) | |||||||||||||||||
| Noninterest expense | 15,836 | 15,490 | 2 | |||||||||||||||||
| Income before income taxes | 5,263 | 6,192 | (15) | |||||||||||||||||
| Income tax expense | 1,316 | 1,517 | (13) | |||||||||||||||||
| Net income | $ | 3,947 | $ | 4,675 | (16) | |||||||||||||||
| Effective tax rate | 25.0 | % | 24.5 | % | ||||||||||||||||
| Net interest yield | 2.17 | 1.95 | ||||||||||||||||||
| Return on average allocated capital | 21 | 27 | ||||||||||||||||||
| Efficiency ratio | 75.04 | 71.23 | ||||||||||||||||||
| Balance Sheet | ||||||||||||||||||||
| Average | ||||||||||||||||||||
| Total loans and leases | $ | 219,503 | $ | 219,810 | — | % | ||||||||||||||
| Total earning assets | 329,493 | 383,352 | (14) | |||||||||||||||||
| Total assets | 342,531 | 396,167 | (14) | |||||||||||||||||
| Total deposits | 298,335 | 351,329 | (15) | |||||||||||||||||
| Allocated capital | 18,500 | 17,500 | 6 | |||||||||||||||||
| Year end | ||||||||||||||||||||
| Total loans and leases | $ | 219,657 | $ | 223,910 | (2) | % | ||||||||||||||
| Total earning assets | 330,653 | 355,461 | (7) | |||||||||||||||||
| Total assets | 344,626 | 368,893 | (7) | |||||||||||||||||
| Total deposits | 299,657 | 323,899 | (7) | |||||||||||||||||
GWIM consists of two primary businesses: Merrill Wealth Management and Bank of America Private Bank.
Merrill Wealth Management’s advisory business provides a high-touch client experience through a network of financial advisors focused on clients with over $250,000 in total investable assets. Merrill Wealth Management provides tailored solutions to meet clients’ needs through a full set of investment management, brokerage, banking and retirement products.
Bank of America Private Bank, together with Merrill Wealth Management’s Private Wealth Management business, provides comprehensive wealth management solutions targeted to high net worth and ultra high net worth clients, as well as customized solutions to meet clients’ wealth structuring, investment management, trust and banking needs, including specialty asset management services.
Net income for GWIM decreased $728 million to $3.9 billion primarily due to lower revenue and higher noninterest expense. The operating margin was 25 percent compared to 28 percent a year ago.
Net interest income decreased $319 million to $7.1 billion primarily driven by lower average deposit balances and a portfolio mix shift to higher yielding deposit products.
Noninterest income, which primarily includes investment and brokerage services income, decreased $324 million to $14.0 billion. The decrease was primarily driven by lower transactional revenue and asset management fees driven by declines in AUM
pricing as well as lower average market valuations, partially offset by the impact of positive AUM flows.
Noninterest expense increased $346 million to $15.8 billion primarily due to continued investments in the business, including strategic hiring and technology, as well as higher FDIC expense, partially offset by lower revenue-related incentives.
The return on average allocated capital was 21 percent, down from 27 percent, due to lower net income and, to a lesser extent, a small increase in allocated capital.
Average loans totaled $219.5 billion, relatively unchanged from the same period a year ago. Average deposits decreased $53.0 billion to $298.3 billion primarily driven by clients moving deposits to higher yielding investment cash alternatives, including offerings on our investment and brokerage platforms.
Merrill Wealth Management revenue of $17.5 billion decreased four percent primarily driven by lower net interest income, lower transactional revenue and asset management fees driven by declines in AUM pricing as well as lower average market valuations, partially offset by the impact of positive AUM flows.
Bank of America Private Bank revenue of $3.6 billion increased one percent primarily driven by higher net interest income as well as higher asset management fees driven by the impact of positive AUM flows.
37 Bank of America
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Key Indicators and Metrics |
|||||||||||
| (Dollars in millions) | 2023 | 2022 | |||||||||
| Revenue by Business | |||||||||||
| Merrill Wealth Management | $ | 17,461 | $ | 18,135 | |||||||
| Bank of America Private Bank | 3,644 | 3,613 | |||||||||
| Total revenue, net of interest expense | $ | 21,105 | $ | 21,748 | |||||||
| Client Balances by Business, at year end | |||||||||||
| Merrill Wealth Management | $ | 3,182,735 | $ | 2,822,910 | |||||||
Bank of America Private Bank |
606,639 | 563,931 | |||||||||
| Total client balances | $ | 3,789,374 | $ | 3,386,841 | |||||||
| Client Balances by Type, at year end | |||||||||||
| Assets under management | $ | 1,617,740 | $ | 1,401,474 | |||||||
| Brokerage and other assets | 1,688,923 | 1,482,025 | |||||||||
| Deposits | 299,657 | 323,899 | |||||||||
Loans and leases (1)
|
222,287 | 226,973 | |||||||||
| Less: Managed deposits in assets under management | (39,233) | (47,530) | |||||||||
| Total client balances | $ | 3,789,374 | $ | 3,386,841 | |||||||
| Assets Under Management Rollforward | |||||||||||
| Assets under management, beginning of year | $ | 1,401,474 | $ | 1,638,782 | |||||||
| Net client flows | 52,227 | 20,785 | |||||||||
Market valuation/other
|
164,039 | (258,093) | |||||||||
| Total assets under management, end of year | $ | 1,617,740 | $ | 1,401,474 | |||||||
Total wealth advisors, at year end (2)
|
18,916 | 19,273 | |||||||||
(1)Includes margin receivables which are classified in customer and other receivables on the Consolidated Balance Sheet.
(2)Includes advisors across all wealth management businesses in GWIM and Consumer Banking.
Client Balances
Client balances managed under advisory and/or discretion of GWIM are AUM and are typically held in diversified portfolios. Fees earned on AUM are calculated as a percentage of clients’ AUM balances. The asset management fees charged to clients per year depend on various factors but are commonly driven by the breadth of the client’s relationship. The net client AUM flows represent the net change in clients’ AUM balances over a
specified period of time, excluding market appreciation/depreciation and other adjustments.
Client balances increased $402.5 billion, or 12 percent, to $3.8 trillion at December 31, 2023 compared to December 31, 2022. The increase in client balances was primarily due to the impact of higher end-of-period market valuations and positive net client flows.
Bank of America 38
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Global Banking
| (Dollars in millions) | 2023 | 2022 | % Change | |||||||||||||||||
| Net interest income | $ | 14,645 | $ | 12,184 | 20 | % | ||||||||||||||
| Noninterest income: | ||||||||||||||||||||
| Service charges | 2,952 | 3,293 | (10) | |||||||||||||||||
| Investment banking fees | 2,819 | 3,004 | (6) | |||||||||||||||||
| All other income | 4,380 | 3,748 | 17 | |||||||||||||||||
| Total noninterest income | 10,151 | 10,045 | 1 | |||||||||||||||||
| Total revenue, net of interest expense | 24,796 | 22,229 | 12 | |||||||||||||||||
| Provision for credit losses | (586) | 641 | n/m | |||||||||||||||||
| Noninterest expense | 11,344 | 10,966 | 3 | |||||||||||||||||
| Income before income taxes | 14,038 | 10,622 | 32 | |||||||||||||||||
| Income tax expense | 3,790 | 2,815 | 35 | |||||||||||||||||
| Net income | $ | 10,248 | $ | 7,807 | 31 | |||||||||||||||
| Effective tax rate | 27.0 | % | 26.5 | % | ||||||||||||||||
| Net interest yield | 2.73 | 2.26 | ||||||||||||||||||
| Return on average allocated capital | 21 | 18 | ||||||||||||||||||
| Efficiency ratio | 45.75 | 49.34 | ||||||||||||||||||
| Balance Sheet | ||||||||||||||||||||
| Average | ||||||||||||||||||||
Total loans and leases
|
$ | 378,762 | $ | 375,271 | 1 | % | ||||||||||||||
| Total earning assets | 535,500 | 539,032 | (1) | |||||||||||||||||
| Total assets | 602,579 | 603,273 | — | |||||||||||||||||
| Total deposits | 505,627 | 511,804 | (1) | |||||||||||||||||
| Allocated capital | 49,250 | 44,500 | 11 | |||||||||||||||||
| Year end | ||||||||||||||||||||
| Total loans and leases | $ | 373,891 | $ | 379,107 | (1) | % | ||||||||||||||
| Total earning assets | 552,453 | 522,539 | 6 | |||||||||||||||||
| Total assets | 621,751 | 588,466 | 6 | |||||||||||||||||
| Total deposits | 527,060 | 498,661 | 6 | |||||||||||||||||
Global Banking, which includes Global Corporate Banking, Global Commercial Banking, Business Banking and Global Investment Banking, provides a wide range of lending-related products and services, integrated working capital management and treasury solutions, and underwriting and advisory services through our network of offices and client relationship teams. Our lending products and services include commercial loans, leases, commitment facilities, trade finance, commercial real estate lending and asset-based lending. Our treasury solutions business includes treasury management, foreign exchange, short-term investing options and merchant services. We also provide investment banking services to our clients such as debt and equity underwriting and distribution, and merger-related and other advisory services. Underwriting debt and equity issuances, fixed-income and equity research, and certain market-based activities are executed through our global broker-dealer affiliates, which are our primary dealers in several countries. Within Global Banking, Global Corporate Banking clients generally include large global corporations, financial institutions and leasing clients. Global Commercial Banking clients generally include middle-market companies, commercial real estate firms and not-for-profit companies. Business Banking clients include mid-sized U.S.-based businesses requiring customized and integrated financial advice and solutions.
Net income for Global Banking increased $2.4 billion to $10.2 billion driven by higher revenue and lower provision for credit losses, partially offset by higher noninterest expense.
Net interest income increased $2.5 billion to $14.6 billion primarily due to the benefit of higher interest rates.
Noninterest income increased $106 million to $10.2 billion driven by negative valuation adjustments on leveraged loans in the prior year and higher revenue from tax-advantaged investment activities in the current year, partially offset by lower treasury service charges and lower investment banking fees.
The provision for credit losses improved $1.2 billion to a benefit of $586 million primarily due to an improved macroeconomic outlook.
Noninterest expense increased $378 million to $11.3 billion primarily due to continued investments in the business, including technology and strategic hiring in 2022, and higher FDIC expense, partially offset by expenses recognized for certain regulatory matters in the prior-year period.
The return on average allocated capital was 21 percent, up from 18 percent, due to higher net income, partially offset by higher allocated capital.
Global Corporate, Global Commercial and Business Banking
Global Corporate, Global Commercial and Business Banking each include Business Lending and Global Transaction Services activities. Business Lending includes various lending-related products and services, and related hedging activities, including commercial loans, leases, commitment facilities, trade finance, real estate lending and asset-based lending. Global Transaction Services includes deposits, treasury management, credit card, foreign exchange and short-term investment products.
39 Bank of America
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The following table and discussion present a summary of the results, which exclude certain investment banking and other activities in Global Banking.
| Global Corporate, Global Commercial and Business Banking | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Global Corporate Banking | Global Commercial Banking | Business Banking | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Lending | $ | 4,928 | $ | 4,325 | $ | 5,016 | $ | 4,316 | $ | 253 | $ | 251 | $ | 10,197 | $ | 8,892 | ||||||||||||||||||||||||||||||||||
| Global Transaction Services | 5,746 | 5,002 | 4,139 | 4,166 | 1,531 | 1,213 | 11,416 | 10,381 | ||||||||||||||||||||||||||||||||||||||||||
Total revenue, net of interest expense |
$ | 10,674 | $ | 9,327 | $ | 9,155 | $ | 8,482 | $ | 1,784 | $ | 1,464 | $ | 21,613 | $ | 19,273 | ||||||||||||||||||||||||||||||||||
| Balance Sheet | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Average | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total loans and leases
|
$ | 171,554 | $ | 174,052 | $ | 194,725 | $ | 187,597 | $ | 12,285 | $ | 12,743 | $ | 378,564 | $ | 374,392 | ||||||||||||||||||||||||||||||||||
Total deposits
|
272,964 | 250,648 | 181,905 | 204,893 | 50,759 | 56,263 | 505,628 | 511,804 | ||||||||||||||||||||||||||||||||||||||||||
| Year end | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total loans and leases | $ | 167,055 | $ | 174,905 | $ | 194,565 | $ | 191,051 | $ | 12,129 | $ | 12,683 | $ | 373,749 | $ | 378,639 | ||||||||||||||||||||||||||||||||||
| Total deposits | 289,961 | 262,033 | 188,141 | 186,112 | 48,951 | 50,516 | 527,053 | 498,661 | ||||||||||||||||||||||||||||||||||||||||||
Business Lending revenue increased $1.3 billion in 2023 compared to 2022 primarily driven by higher interest rates, higher revenue from tax-advantaged investment activities and the impact of higher average loan balances.
Global Transaction Services revenue increased $1.0 billion in 2023 compared to 2022 primarily driven by higher interest rates, partially offset by lower treasury service charges and the impact of lower average deposit balances.
Average loans and leases increased one percent in 2023 compared to 2022 due to client demand. Average deposits decreased one percent in 2023 compared to 2022 due to declines in domestic balances.
Global Investment Banking
Client teams and product specialists underwrite and distribute debt, equity and loan products, and provide advisory services and tailored risk management solutions. The economics of certain investment banking and underwriting activities are shared primarily between Global Banking and Global Markets under an internal revenue-sharing arrangement. Global Banking originates certain deal-related transactions with our corporate and commercial clients that are executed and distributed by Global Markets. To provide a complete discussion of our
consolidated investment banking fees, the table below presents total Corporation investment banking fees and the portion attributable to Global Banking.
| Investment Banking Fees | |||||||||||||||||||||||
| Global Banking | Total Corporation | ||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Products | |||||||||||||||||||||||
| Advisory | $ | 1,392 | $ | 1,643 | $ | 1,575 | $ | 1,783 | |||||||||||||||
| Debt issuance | 1,073 | 1,099 | 2,403 | 2,523 | |||||||||||||||||||
| Equity issuance | 354 | 262 | 886 | 709 | |||||||||||||||||||
Gross investment banking fees |
2,819 | 3,004 | 4,864 | 5,015 | |||||||||||||||||||
| Self-led deals | (43) | (78) | (156) | (192) | |||||||||||||||||||
Total investment banking fees |
$ | 2,776 | $ | 2,926 | $ | 4,708 | $ | 4,823 | |||||||||||||||
Total Corporation investment banking fees, which exclude self-led deals and are primarily included within Global Banking and Global Markets, decreased two percent to $4.7 billion primarily due to lower advisory and debt issuance fees, partially offset by higher equity issuance fees.
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Global Markets
| (Dollars in millions) | 2023 | 2022 | % Change | |||||||||||||||||
| Net interest income | $ | 1,678 | $ | 3,088 | (46) | % | ||||||||||||||
| Noninterest income: | ||||||||||||||||||||
| Investment and brokerage services | 1,993 | 2,002 | — | |||||||||||||||||
| Investment banking fees | 1,874 | 1,820 | 3 | |||||||||||||||||
| Market making and similar activities | 13,430 | 11,406 | 18 | |||||||||||||||||
| All other income | 552 | (178) | n/m | |||||||||||||||||
| Total noninterest income | 17,849 | 15,050 | 19 | |||||||||||||||||
| Total revenue, net of interest expense | 19,527 | 18,138 | 8 | |||||||||||||||||
| Provision for credit losses | (131) | 28 | n/m | |||||||||||||||||
| Noninterest expense | 13,206 | 12,420 | 6 | |||||||||||||||||
| Income before income taxes | 6,452 | 5,690 | 13 | |||||||||||||||||
| Income tax expense | 1,774 | 1,508 | 18 | |||||||||||||||||
| Net income | $ | 4,678 | $ | 4,182 | 12 | |||||||||||||||
| Effective tax rate | 27.5 | % | 26.5 | % | ||||||||||||||||
| Return on average allocated capital | 10 | 10 | ||||||||||||||||||
| Efficiency ratio | 67.63 | 68.48 | ||||||||||||||||||
| Balance Sheet | ||||||||||||||||||||
| Average | ||||||||||||||||||||
| Trading-related assets: | ||||||||||||||||||||
| Trading account securities | $ | 318,443 | $ | 303,587 | 5 | % | ||||||||||||||
| Reverse repurchases | 133,735 | 126,324 | 6 | |||||||||||||||||
| Securities borrowed | 121,547 | 116,764 | 4 | |||||||||||||||||
| Derivative assets | 44,303 | 54,128 | (18) | |||||||||||||||||
| Total trading-related assets | 618,028 | 600,803 | 3 | |||||||||||||||||
| Total loans and leases | 129,657 | 116,652 | 11 | |||||||||||||||||
| Total earning assets | 652,352 | 602,889 | 8 | |||||||||||||||||
| Total assets | 869,756 | 857,637 | 1 | |||||||||||||||||
| Total deposits | 33,278 | 40,382 | (18) | |||||||||||||||||
| Allocated capital | 45,500 | 42,500 | 7 | |||||||||||||||||
| Year end | ||||||||||||||||||||
| Total trading-related assets | $ | 542,544 | $ | 564,769 | (4) | % | ||||||||||||||
| Total loans and leases | 136,223 | 127,735 | 7 | |||||||||||||||||
| Total earning assets | 637,955 | 587,772 | 9 | |||||||||||||||||
| Total assets | 817,588 | 812,489 | 1 | |||||||||||||||||
| Total deposits | 34,833 | 39,077 | (11) | |||||||||||||||||
n/m = not meaningful
Global Markets offers sales and trading services and research services to institutional clients across fixed-income, credit, currency, commodity and equity businesses. Global Markets product coverage includes securities and derivative products in both the primary and secondary markets. Global Markets provides market-making, financing, securities clearing, settlement and custody services globally to our institutional investor clients in support of their investing and trading activities. We also work with our commercial and corporate clients to provide risk management products using interest rate, equity, credit, currency and commodity derivatives, foreign exchange, fixed-income and mortgage-related products. As a result of our market-making activities in these products, we may be required to manage risk in a broad range of financial products including government securities, equity and equity-linked securities, high-grade and high-yield corporate debt securities, syndicated loans, MBS, commodities and asset-backed securities. The economics of certain investment banking and underwriting activities are shared primarily between Global Markets and Global Banking under an internal revenue-sharing arrangement. Global Banking originates certain deal-related transactions with our corporate and commercial clients that are executed and distributed by Global Markets. For information on investment banking fees on a consolidated basis, see page 40.
The following explanations for year-over-year changes in results for Global Markets, including those disclosed under Sales and Trading Revenue, are the same for amounts including and excluding net DVA. Amounts excluding net DVA are a non-GAAP financial measure. For more information on net DVA, see Supplemental Financial Data on page 29.
Net income for Global Markets increased $496 million to $4.7 billion in 2023 compared to 2022. Net DVA losses were $236 million compared to gains of $20 million in 2022. Excluding net DVA, net income increased $690 million to $4.9 billion. These increases were primarily driven by an increase in revenue, partially offset by higher noninterest expense.
Revenue increased $1.4 billion to $19.5 billion primarily due to higher sales and trading revenue in the current-year period and negative valuation adjustments on leveraged loans in the prior-year period. Sales and trading revenue increased $887 million, and excluding net DVA, increased $1.1 billion. These increases were primarily driven by higher revenue in FICC. Noninterest expense increased $786 million to $13.2 billion, primarily driven by continued investments in the business, including people and technology, partially offset by expenses recognized for certain regulatory matters in the prior-year period.
Average total assets increased $12.1 billion to $869.8 billion, driven by higher levels of inventory, increased secured
41 Bank of America
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financing activity and loan growth in FICC, partially offset by lower levels of inventory in Equities. Year-end total assets increased $5.1 billion to $817.6 billion driven by the same factors as average assets.
The return on average allocated capital was 10 percent, unchanged from the same period a year ago. For information on capital allocated to the business segments, see Business Segment Operations on page 34.
Sales and Trading Revenue
Sales and trading revenue includes unrealized and realized gains and losses on trading and other assets which are included in market making and similar activities, net interest income, and fees primarily from commissions on equity securities. Sales and trading revenue is segregated into fixed-income (government debt obligations, investment and non-investment grade corporate debt obligations, commercial MBS, residential mortgage-backed securities, collateralized loan obligations, interest rate and credit derivative contracts), currencies (interest rate and foreign exchange contracts), commodities (primarily futures, forwards, swaps and options) and equities (equity-linked derivatives and cash equity activity). The following table and related discussion present sales and trading revenue, substantially all of which is in Global Markets, with the remainder in Global Banking. In addition, the following table and related discussion also present sales and trading revenue, excluding net DVA, which is a non-GAAP financial measure. For more information on net DVA, see Supplemental Financial Data on page 29.
Sales and Trading Revenue (1, 2, 3)
| |||||||||||
| (Dollars in millions) | 2023 | 2022 | |||||||||
Sales and trading revenue (2)
|
|||||||||||
Fixed-income, currencies and commodities |
$ | 10,896 | $ | 9,917 | |||||||
| Equities | 6,480 | 6,572 | |||||||||
| Total sales and trading revenue | $ | 17,376 | $ | 16,489 | |||||||
Sales and trading revenue, excluding net DVA (4)
|
|||||||||||
Fixed-income, currencies and commodities |
$ | 11,122 | $ | 9,898 | |||||||
| Equities | 6,490 | 6,571 | |||||||||
Total sales and trading revenue, excluding net DVA |
$ | 17,612 | $ | 16,469 | |||||||
(1)For more information on sales and trading revenue, see Note 3 – Derivatives to the Consolidated Financial Statements.
(2)Includes FTE adjustments of $546 million and $354 million for 2023 and 2022.
(3)Includes Global Banking sales and trading revenue of $654 million and $1.0 billion for 2023 and 2022.
(4)FICC and Equities sales and trading revenue, excluding net DVA, is a non-GAAP financial measure. FICC net DVA gains (losses) were $(226) million and $19 million for 2023 and 2022. Equities net DVA gains (losses) were $(10) million and $1 million for 2023 and 2022.
Including and excluding net DVA, FICC revenue increased $979 million and $1.2 billion driven by an improved trading environment for credit and mortgage products and an increase in secured financing activity. Including and excluding net DVA, Equities revenue decreased $92 million and $81 million driven by weaker trading performance in derivatives, partially offset by an increase in client financing activities.
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All Other
| (Dollars in millions) | 2023 | 2022 | % Change | |||||||||||||||||
| Net interest income | $ | 339 | $ | 117 | n/m | |||||||||||||||
| Noninterest income (loss) | (8,650) | (5,479) | 58 | % | ||||||||||||||||
| Total revenue, net of interest expense | (8,311) | (5,362) | 55 | |||||||||||||||||
| Provision for credit losses | (53) | (172) | (69) | |||||||||||||||||
| Noninterest expense | 4,043 | 2,485 | 63 | |||||||||||||||||
| Loss before income taxes | (12,301) | (7,675) | 60 | |||||||||||||||||
| Income tax benefit | (8,350) | (6,023) | 39 | |||||||||||||||||
| Net loss | $ | (3,951) | $ | (1,652) | 139 | |||||||||||||||
| Balance Sheet | ||||||||||||||||||||
| Average | ||||||||||||||||||||
| Total loans and leases | $ | 9,644 | $ | 12,683 | (24) | % | ||||||||||||||
Total assets (1)
|
266,794 | 139,466 | 91 | |||||||||||||||||
| Total deposits | 57,551 | 20,082 | n/m | |||||||||||||||||
| Year end | ||||||||||||||||||||
| Total loans and leases | $ | 8,842 | $ | 10,234 | (14) | % | ||||||||||||||
Total assets (1)
|
346,356 | 155,074 | 123 | |||||||||||||||||
| Total deposits | 92,705 | 19,905 | n/m | |||||||||||||||||
(1)In segments where the total of liabilities and equity exceeds assets, which are generally deposit-taking segments, we allocate assets from All Other to those segments to match liabilities (i.e., deposits) and allocated shareholders’ equity. Average allocated assets were $975.9 billion and $1.1 trillion for 2023 and 2022 and year-end allocated assets were $972.9 billion and $1.0 trillion at December 31, 2023 and 2022.
n/m = not meaningful
All Other primarily consists of asset and liability management (ALM) activities, liquidating businesses and certain expenses not otherwise allocated to a business segment. ALM activities encompass interest rate and foreign currency risk management activities for which substantially all of the results are allocated to our business segments. For more information on our ALM activities, see Note 23 – Business Segment Information to the Consolidated Financial Statements.
The net loss in All Other increased $2.3 billion to $4.0 billion primarily due to lower noninterest income and higher noninterest expense, partially offset by a higher income tax benefit.
Noninterest income decreased $3.2 billion primarily due to a net charge incurred as a result of the impact of BSBY’s future cessation, higher partnership losses for tax-advantaged investments and losses on sales of AFS debt securities. The announcement of BSBY’s future cessation resulted in a $1.6 billion net charge due to the Corporation’s determination that certain forecasted BSBY-indexed interest payments, which had been designated in cash flow hedges, were no longer expected to occur beyond November 15, 2024 as they will transition to a new reference rate. Accordingly, during the fourth quarter of 2023, the Corporation reclassified the fair value of the interest
rate swaps used in the cash flow hedges related to these forecasted transactions from accumulated other comprehensive income (OCI) into noninterest income. The Corporation also recognized subsequent fair value changes of the interest rate swaps into noninterest income until they were re-designated into new cash flow hedges.
Noninterest expense increased $1.6 billion primarily due to an accrual of $2.1 billion for the estimated amount of the FDIC special assessment resulting from the closure of Silicon Valley Bank and Signature Bank, as well as higher costs related to a liquidating business activity in the current year, partially offset by higher litigation expense in the prior year.
The income tax benefit was $8.4 billion in 2023 compared to a benefit of $6.0 billion in 2022. The income tax benefit in All Other resulted from both periods having income tax benefit adjustments to allocate the FTE treatment of certain tax credits to Global Banking and Global Markets. The increase in the income tax benefit in 2023 was primarily due to the benefit recorded against pretax charges for the FDIC special assessment and impact of BSBY’s future cessation, as well as higher income tax credits related to tax-advantaged investment activity.
43 Bank of America
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Managing Risk
Risk is inherent in all our business activities. Sound risk management enables us to serve our customers and deliver for our shareholders. If not managed well, risk can result in financial loss, regulatory sanctions and penalties, and damage to our reputation, each of which may adversely impact our ability to execute our business strategies. We take a comprehensive approach to risk management with a defined Risk Framework and an articulated Risk Appetite Statement, which are approved annually by the Enterprise Risk Committee (ERC) and the Board.
The seven key types of risk faced by the Corporation are strategic, credit, market, liquidity, compliance, operational and reputational.
● Strategic risk is the risk to current or projected financial condition arising from incorrect assumptions about external or internal factors, inappropriate business plans, ineffective business strategy execution or failure to respond in a timely manner to changes in the regulatory, macroeconomic or competitive environments in the geographic locations in which we operate.
● Credit risk is the risk of loss arising from the inability or failure of a borrower or counterparty to meet its obligations.
● Market risk is the risk that changes in market conditions adversely impact the value of assets or liabilities or otherwise negatively impact earnings. Market risk is composed of price risk and interest rate risk.
● Liquidity risk is the inability to meet expected or unexpected cash flow and collateral needs while continuing to support our businesses and customers under a range of economic conditions.
● Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to the reputation of the Corporation arising from the failure of the Corporation to comply with the requirements of applicable laws, rules and regulations and our internal policies and procedures.
● Operational risk is the risk of loss resulting from inadequate or failed internal processes or systems, people or external events.
● Reputational risk is the risk that negative perception of the Corporation may adversely impact profitability or operations.
The following sections address in more detail the specific procedures, measures and analyses of the major categories of risk.
As set forth in our Risk Framework, a culture of managing risk well is fundamental to our values and our purpose, and how we drive Responsible Growth. It requires us to focus on risk in all activities and encourages the necessary mindset and behavior to enable effective risk management and promote sound risk-taking within our risk appetite. Sustaining a culture of managing risk well throughout the organization is critical to the success of the Corporation and is a clear expectation of our executive management team and the Board.
Our Risk Framework serves as the foundation for the consistent and effective management of risks facing the Corporation. The Risk Framework sets forth roles and responsibilities for the management of risk and provides a blueprint for how the Board, through delegation of authority to committees and executive officers, establishes risk appetite and associated limits for our activities.
Executive management assesses, with Board oversight, the risk-adjusted returns of each business. Management reviews and approves the strategic and financial operating plans, as well as the capital plan and Risk Appetite Statement, and recommends them annually to the Board for approval. Our strategic plan takes into consideration return objectives and financial resources, which must align with risk capacity and risk appetite. Management sets financial objectives for each business by allocating capital and setting a target for return on capital for each business. Capital allocations are regularly evaluated as part of our overall governance processes as the businesses and the economic environment in which we operate continue to evolve. For more information regarding capital allocations, see Business Segment Operations on page 34.
The Corporation’s risk appetite indicates the amount of capital, earnings or liquidity we are willing to put at risk to achieve our strategic objectives and business plans, consistent with applicable regulatory requirements. Our risk appetite provides a common framework that includes a set of measures to assist senior management and the Board in assessing the Corporation’s risk profile across all risk types against our risk appetite and risk capacity. Our risk appetite is formally articulated in the Risk Appetite Statement, which includes both qualitative statements and quantitative limits.
Our overall capacity to take risk is limited; therefore, we prioritize the risks we take in order to maintain a strong and flexible financial position so we can weather challenging economic times and take advantage of organic growth opportunities. Therefore, we set objectives and targets for capital and liquidity that are intended to permit us to continue to operate in a safe and sound manner at all times, including during periods of stress. We also maintain operational risk management and operational resiliency capabilities designed to permit us to meet the expectations of our customers and clients through a range of operating conditions.
Our lines of business operate with risk limits that align with the Corporation’s risk appetite. Senior management is responsible for tracking and reporting performance measurements as well as any exceptions to risk appetite limits. The Board, and its committees when appropriate, oversee financial performance, execution of the strategic and financial operating plans, adherence to risk appetite limits and the adequacy of internal controls.
For a more detailed discussion of our risk management activities, see the discussion below and pages 47 through 82.
Risk Management Governance
The Risk Framework describes delegations of authority whereby the Board and its committees may delegate authority to management-level committees or executive officers. Such delegations may authorize certain decision-making and approval functions, which may be evidenced in documents such as committee charters, job descriptions, meeting minutes and resolutions.
The chart below illustrates the interrelationship among the Board, Board committees and management committees that have the majority of risk oversight responsibilities for the Corporation.
Bank of America 44
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Board of Directors and Board Committees
The Board is composed of 15 directors, all but one of whom are independent. The Board authorizes management to maintain an effective Risk Framework and oversees compliance with safe and sound banking practices. In addition, the Board or its committees conduct inquiries of, and receive reports from senior management on, risk-related matters to assess scope or resource limitations that could impede the ability of Global Risk Management (GRM) and/or Corporate Audit to execute its responsibilities. The Board committees discussed below have the principal responsibility for enterprise-wide oversight of our risk management activities. Through these activities, the Board and applicable committees are provided with information on our risk profile and oversee senior management addressing key risks we face. Other Board committees, as described below, provide additional oversight of specific risks.
Each of the committees shown on the above chart regularly reports to the Board on risk-related matters within the committee’s responsibilities, which is intended to collectively provide the Board with integrated insight about our management of enterprise-wide risks.
Audit Committee
The Audit Committee oversees the qualifications, performance and independence of the Independent Registered Public Accounting Firm, the performance of our corporate audit function, the integrity of our consolidated financial statements, our compliance with legal and regulatory requirements, and makes inquiries of senior management or the Chief Audit Executive (CAE) to determine whether there are scope or resource limitations that impede the ability of Corporate Audit to execute its responsibilities. The Audit Committee is also responsible for overseeing compliance risks pursuant to the New York Stock Exchange listing standards.
Enterprise Risk Committee
The ERC oversees the Corporation’s Risk Framework, risk appetite and senior management’s responsibilities for the identification, measurement, monitoring and control of key risks facing the Corporation. The ERC may consult with other Board committees on risk-related matters.
Other Board Committees
Our Corporate Governance, ESG, and Sustainability Committee oversees our Board’s governance processes, identifies and reviews the qualifications of potential Board members, leads Board and committee succession planning and their formal self-evaluation, and reviews our ESG activities, shareholder input and shareholder engagement process.
Our Compensation and Human Capital Committee oversees establishing, maintaining and administering our compensation programs and employee benefit plans, including approving and recommending our Chief Executive Officer’s (CEO) compensation to our Board for further approval by all independent directors; reviewing and approving our executive officers’ compensation, as well as compensation for non-management directors; and reviewing certain other human capital management topics, including pay equity.
Management Committees
Management committees receive their authority from the Board, a Board committee, or another management committee. Our primary management risk committee is the MRC. Subject to Board oversight, the MRC is responsible for management oversight of key risks facing the Corporation, including an integrated evaluation of risk, earnings, capital and liquidity.
Lines of Defense
We have clear ownership and accountability for managing risk across three lines of defense: Front Line Units (FLUs), GRM and Corporate Audit. We also have control functions outside of FLUs and GRM (e.g., Legal and Global Human Resources). The three lines of defense are integrated into our management-level governance structure. Each of these functional roles is further described in this section.
Executive Officers
Executive officers lead various functions representing the functional roles. Authority for functional roles may be delegated to executive officers from the Board, Board committees or management-level committees. Executive officers, in turn, may further delegate responsibilities, as appropriate, to management-level committees, management routines or
45 Bank of America
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individuals. Executive officers review our activities for consistency with our Risk Framework, risk appetite, and applicable strategic, capital and financial operating plans, as well as applicable policies and standards. Executive officers and other employees make decisions individually on a day-to-day basis, consistent with the authority they have been delegated. Executive officers and other employees may also serve on committees and participate in committee decisions.
Front Line Units
FLUs, which include the lines of business as well as Global Technology and Global Operations, are responsible for appropriately assessing and effectively managing all of the risks associated with their activities.
Three organizational units that include FLU activities and control function activities, but are not part of GRM are (1) the Chief Financial Officer Group; (2) the Chief Administrative Officer Group; and (3) Global Strategy and Enterprise Platforms.
Global Risk Management
GRM is part of our control functions and operates as our independent risk management function. GRM, led by the Chief Risk Officer (CRO), is responsible for independently assessing and overseeing risks within FLUs and other control functions. GRM establishes written enterprise policies and procedures outlining how aggregate risks are identified, measured, monitored and controlled.
The CRO has the stature, authority and independence needed to develop and implement a meaningful risk management framework and practices to guide the Corporation in managing risk. The CRO has unrestricted access to the Board and reports directly to both the ERC and the CEO. GRM is organized into horizontal risk teams that cover a specific risk area and vertical CRO teams that cover a particular FLU or control function. These teams work collaboratively in executing their respective duties.
Corporate Audit
Corporate Audit and the CAE maintain their independence from the FLUs, GRM and other control functions by reporting directly to the Audit Committee. The CAE administratively reports to the CEO. Corporate Audit provides independent assessment and validation through testing of key processes and controls across the Corporation. Corporate Audit includes Credit Review, which provides an independent assessment of credit lending decisions and the effectiveness of credit processes across the Corporation’s credit platform through examinations and monitoring.
Risk Management Processes
The Risk Framework requires that strong risk management practices are integrated in key strategic, capital and financial planning processes and in day-to-day business processes across the Corporation, thereby ensuring risks are appropriately considered, evaluated and responded to in a timely manner. We employ an effective risk management process, referred to as Identify, Measure, Monitor and Control, as part of our daily activities.
Identify – To be effectively managed, risks must be proactively identified and well understood. Proper risk identification focuses on recognizing and understanding key risks inherent in our business activities or key risks that may arise from external factors. Each employee is expected to identify and escalate risks promptly. Risk identification is an ongoing process that incorporates input from FLUs and control
functions. It is designed to be forward-looking and to capture relevant risk factors across all of our lines of business.
Measure – Once a risk is identified, it must be prioritized and accurately measured through a systematic process including qualitative statements and quantitative limits. Risk is measured at various levels, including, but not limited to, risk type, FLU and legal entity, and also on an aggregate basis. This risk measurement process helps to capture changes in our risk profile due to changes in strategic direction, concentrations, portfolio quality and the overall economic environment. Senior management considers how risk exposures might evolve under a variety of stress scenarios.
Monitor – We monitor risk levels regularly to track adherence to risk appetite, policies and standards. We also regularly update risk assessments and review risk exposures. Through our monitoring, we know our level of risk relative to limits and can take action in a timely manner. We also know when risk limits are breached and have processes to appropriately report and escalate exceptions. This includes timely requests for approval to managers and alerts to executive management, management-level committees or the Board (directly or through an appropriate committee).
Control – We establish and communicate risk limits and controls through policies, standards, procedures and processes. The limits and controls can be adjusted by senior management or the Board when conditions or risk tolerances warrant. These limits may be absolute (e.g., loan amount, trading volume, operational loss) or relative (e.g., percentage of loan book in higher-risk categories). Our FLUs are held accountable for performing within the established limits.
The formal processes used to manage risk represent a part of our overall risk management process. We instill a strong and comprehensive culture of managing risk well through communications, training, policies, procedures and organizational roles and responsibilities. Establishing a culture reflective of our purpose to help make our customers’ financial lives better and delivering on Responsible Growth is also critical to effective risk management. We are committed to the highest principles of ethical and professional conduct. Conduct risk is the risk of improper actions, behaviors or practices by the Corporation, its employees or representatives that are illegal, unethical and/or contrary to our core values that could result in harm to the Corporation, our shareholders or our customers, damage the integrity of the financial markets, or negatively impact our reputation. We have established protocols and structures so that conduct risk is governed and reported across the Corporation appropriately. All employees are held accountable for adhering to the Code of Conduct, operating within our risk appetite and managing risk in their daily business activities. In addition, our performance management and compensation practices encourage responsible risk-taking that is consistent with our Risk Framework and risk appetite.
Corporation-wide Stress Testing
Integral to our Capital Planning, Financial Planning and Strategic Planning processes, we conduct capital scenario management and stress forecasting on a regular basis to better understand balance sheet, earnings and capital sensitivities to a wide range of economic and business scenarios, including economic and market conditions that are more severe than anticipated. These stress forecasts provide an understanding of the potential impacts from our risk profile on the balance sheet, earnings and capital, and serve as a key component of our capital and risk management practices. The intent of stress testing is to
Bank of America 46
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develop a comprehensive understanding of potential impacts of on- and off-balance sheet risks at the Corporation and certain subsidiaries and how they impact financial resiliency, which provides confidence to management, regulators and our investors.
Contingency Planning
We have developed and maintain comprehensive contingency plans that are designed to prepare us in advance to respond in the event of potential adverse economic, operational, financial or market stress conditions. These contingency plans include our Financial Contingency and Recovery Plan, which provides monitoring, escalation, actions and routines designed to enable us to increase capital and/or liquidity, access funding sources and reduce risk through consideration of potential options that include asset sales, business sales, capital or debt issuances, and other risk reducing strategies at various levels of capital or liquidity depletion during a period of stress. We also maintain a Resolution Plan to limit adverse systemic impacts that could be associated with a potential resolution of Bank of America.
Strategic Risk Management
Strategic risk is embedded in every business and is one of the major risk categories along with credit, market, liquidity, compliance, operational and reputational risks. This risk results from incorrect assumptions about external or internal factors, inappropriate business plans, ineffective business strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic or competitive environments in the geographic locations in which we operate, such as competitor actions, changing customer preferences, product obsolescence and technology developments.
An aspect of strategic risk is the risk that the Corporation’s capital levels are not adequate to meet minimum regulatory requirements and support execution of business activities or absorb losses from risks during normal or adverse economic and market conditions. As such, capital risk is managed in parallel to strategic risk.
We manage strategic risk through the Strategic Risk Enterprise Policy and integration into the strategic planning process, among other activities. Our strategic plan is consistent with our risk appetite, capital plan and liquidity requirements, and specifically addresses strategic risks impacting each business.
On an annual basis, the Board reviews and approves the strategic plan, capital plan, financial operating plan and Risk Appetite Statement. With oversight by the Board, senior management directs the lines of business to execute our strategic plan consistent with our core operating principles and risk appetite. The executive management team monitors business performance throughout the year and provides the Board with regular progress reports on whether strategic objectives and timelines are being met, including reports on strategic risks and if additional or alternative actions need to be considered or implemented. The regular executive reviews focus on assessing forecasted earnings and returns on capital, the current risk profile, current capital and liquidity requirements, staffing levels and changes required to support the strategic plan, stress testing results, and other qualitative factors such as market growth rates and peer analysis.
Significant strategic actions, such as capital actions, material acquisitions or divestitures, and resolution plans are reviewed and approved by the Board. At the business level, processes are in place to discuss the strategic risk implications of new, expanded or modified businesses, products or services,
regulatory change and other strategic initiatives, and to provide formal review and approval where required. With oversight by the Board and the ERC, executive management performs similar analyses throughout the year, and evaluates changes to the financial forecast or the risk, capital or liquidity positions as deemed appropriate to balance and optimize achieving the targeted risk appetite, shareholder returns and maintaining the targeted financial strength. Proprietary models are used to measure the capital requirements for credit, country, market, operational and strategic risks. The allocated capital assigned to each business is based on its unique risk profile. With oversight by the Board, executive management assesses the risk-adjusted returns of each business in approving strategic and financial operating plans. The businesses use allocated capital to define business strategies, and price products and transactions.
Capital Management
The Corporation manages its capital position so that its capital is more than adequate to support its business activities and aligns with risk, risk appetite and strategic planning. Additionally, we seek to maintain safety and soundness at all times, even under adverse scenarios, take advantage of organic growth opportunities, meet obligations to creditors and counterparties, maintain ready access to financial markets, continue to serve as a credit intermediary, remain a source of strength for our subsidiaries, and satisfy current and future regulatory capital requirements. Capital management is integrated into our risk and governance processes, as capital is a key consideration in the development of our strategic plan, risk appetite and risk limits.
We conduct an Internal Capital Adequacy Assessment Process (ICAAP) on a periodic basis. The ICAAP is a forward-looking assessment of our projected capital needs and resources, incorporating earnings, balance sheet and risk forecasts under baseline and adverse economic and market conditions. We utilize periodic stress tests to assess the potential impacts to our balance sheet, earnings, regulatory capital and liquidity under a variety of stress scenarios. We perform qualitative risk assessments to identify and assess material risks not fully captured in our forecasts or stress tests. We assess the potential capital impacts of proposed changes to regulatory capital requirements. Management assesses ICAAP results and provides documented quarterly assessments of the adequacy of our capital guidelines and capital position to the Board or its committees.
We periodically review capital allocated to our businesses and allocate capital annually during the strategic and capital planning processes. For more information, see Business Segment Operations on page 34.
CCAR and Capital Planning
The Federal Reserve requires BHCs to submit a capital plan and planned capital actions on an annual basis, consistent with the rules governing the Comprehensive Capital Analysis and Review (CCAR) capital plan, which includes supervisory stress testing by the Federal Reserve. Based on 2023 stress test results, our stress capital buffer (SCB) is 2.5 percent effective October 1, 2023 through September 30, 2024.
In October 2021, the Board authorized the Corporation’s $25 billion common stock repurchase program (October 2021 Authorization). Additionally, the Board authorized common stock repurchases to offset shares awarded under the Corporation’s equity-based compensation plans. In September 2023, the Board modified the October 2021 Authorization, effective
47 Bank of America
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October 1, 2023, to include repurchases to offset shares awarded under equity-based compensation plans when determining the remaining repurchase authority. Pursuant to the Board’s authorizations, during 2023, we repurchased $4.6 billion of common stock, including repurchases to offset shares awarded under equity-based compensation plans. As of December 31, 2023, the remaining repurchase authority was approximately $12.7 billion (including repurchases to offset shares awarded under equity-based compensation plans).
The timing and amount of common stock repurchases are subject to various factors, including the Corporation’s capital position, liquidity, financial performance and alternative uses of capital, stock trading price, regulatory requirements and general market conditions, and may be suspended at any time. Such repurchases may be effected through open market purchases or privately negotiated transactions, including repurchase plans that satisfy the conditions of Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (Exchange Act).
Regulatory Capital
As a BHC, we are subject to regulatory capital rules, including Basel 3, issued by U.S. banking regulators. Basel 3 established minimum capital ratios and buffer requirements and outlined two methods of calculating risk-weighted assets (RWA), the Standardized approach and the Advanced approaches. The Standardized approach relies primarily on supervisory risk weights based on exposure type, and the Advanced approaches determine risk weights based on internal models.
The Corporation's depository institution subsidiaries are also subject to the Prompt Corrective Action (PCA) framework. The Corporation and its primary affiliated banking entity, BANA, are Advanced approaches institutions under Basel 3 and are required to report regulatory risk-based capital ratios and RWA under both the Standardized and Advanced approaches. The lower of the capital ratios under Standardized or Advanced approaches compared to their respective regulatory capital ratio requirements is used to assess capital adequacy, including under the PCA framework. As of December 31, 2023, the common equity tier 1 (CET1) capital, Tier 1 capital and Total capital ratios under the Standardized approach were the binding ratios.
Minimum Capital Requirements
In order to avoid restrictions on capital distributions and discretionary bonus payments to executive officers, the Corporation must meet risk-based capital ratio requirements that include a capital conservation buffer of 2.5 percent (under the Advanced approaches only), an SCB (under the Standardized approach only), plus any applicable countercyclical capital buffer
and a global systemically important bank (G-SIB) surcharge. The buffers and surcharge must be comprised solely of CET1 capital. For the period from October 1, 2022 through September 30, 2023, the Corporation's minimum CET1 capital ratio requirements were 10.4 percent under the Standardized approach and 9.5 percent under the Advanced approaches. Effective October 1, 2023 through December 31, 2023, our CET1 minimum requirement was 9.5 percent under both the Standardized and Advanced approaches.
The Corporation is required to calculate its G-SIB surcharge on an annual basis under two methods and is subject to the higher of the resulting two surcharges. Method 1 is consistent with the approach prescribed by the Basel Committee’s assessment methodology and is calculated using specified indicators of systemic importance. Method 2 modifies the Method 1 approach by, among other factors, including a measure of the Corporation’s reliance on short-term wholesale funding. Effective January 1, 2024, the Corporation’s G-SIB surcharge, which is higher under Method 2, increased 50 bps, resulting in an increase in our minimum CET1 capital ratio requirement to 10.0 percent from 9.5 percent. At December 31, 2023, the Corporation’s CET1 capital ratio of 11.8 percent under the Standardized approach exceeded its CET1 capital ratio requirement as well as the new minimum requirement in place as of January 1, 2024.
The Corporation is also required to maintain a minimum supplementary leverage ratio (SLR) of 3.0 percent plus a leverage buffer of 2.0 percent in order to avoid certain restrictions on capital distributions and discretionary bonus payments to executive officers. At December 31, 2023, our insured depository institution subsidiaries exceeded their requirement to maintain a minimum 6.0 percent SLR to be considered well capitalized under the PCA framework. The numerator of the SLR is quarter-end Basel 3 Tier 1 capital. The denominator is total leverage exposure based on the daily average of the sum of on-balance sheet exposures less permitted deductions and the simple average of certain off-balance sheet exposures, as of the end of each month in a quarter.
Capital Composition and Ratios
Table 10 presents Bank of America Corporation’s capital ratios and related information in accordance with Basel 3 Standardized and Advanced approaches as measured at December 31, 2023 and 2022. For the periods presented herein, the Corporation met the definition of well capitalized under current regulatory requirements.
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| Table 10 | Bank of America Corporation Regulatory Capital under Basel 3 | |||||||||||||||||||
Standardized Approach (1) |
Advanced Approaches (1) |
Regulatory Minimum (2) |
||||||||||||||||||
| (Dollars in millions, except as noted) | December 31, 2023 | |||||||||||||||||||
| Risk-based capital metrics: | ||||||||||||||||||||
| Common equity tier 1 capital | $ | 194,928 | $ | 194,928 | ||||||||||||||||
| Tier 1 capital | 223,323 | 223,323 | ||||||||||||||||||
Total capital (3)
|
251,399 | 241,449 | ||||||||||||||||||
| Risk-weighted assets (in billions) | 1,651 | 1,459 | ||||||||||||||||||
| Common equity tier 1 capital ratio | 11.8 | % | 13.4 | % | 9.5 | % | ||||||||||||||
| Tier 1 capital ratio | 13.5 | 15.3 | 11.0 | |||||||||||||||||
| Total capital ratio | 15.2 | 16.6 | 13.0 | |||||||||||||||||
| Leverage-based metrics: | ||||||||||||||||||||
Adjusted quarterly average assets (in billions) (4)
|
$ | 3,135 | $ | 3,135 | ||||||||||||||||
| Tier 1 leverage ratio | 7.1 | % | 7.1 | % | 4.0 | |||||||||||||||
| Supplementary leverage exposure (in billions) | $ | 3,676 | ||||||||||||||||||
| Supplementary leverage ratio | 6.1 | % | 5.0 | |||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||
| Risk-based capital metrics: | ||||||||||||||||||||
| Common equity tier 1 capital | $ | 180,060 | $ | 180,060 | ||||||||||||||||
| Tier 1 capital | 208,446 | 208,446 | ||||||||||||||||||
Total capital (3)
|
238,773 | 230,916 | ||||||||||||||||||
| Risk-weighted assets (in billions) | 1,605 | 1,411 | ||||||||||||||||||
| Common equity tier 1 capital ratio | 11.2 | % | 12.8 | % | 10.4 | % | ||||||||||||||
| Tier 1 capital ratio | 13.0 | 14.8 | 11.9 | |||||||||||||||||
| Total capital ratio | 14.9 | 16.4 | 13.9 | |||||||||||||||||
| Leverage-based metrics: | ||||||||||||||||||||
Adjusted quarterly average assets (in billions) (4)
|
$ | 2,997 | $ | 2,997 | ||||||||||||||||
| Tier 1 leverage ratio | 7.0 | % | 7.0 | % | 4.0 | |||||||||||||||
| Supplementary leverage exposure (in billions) | $ | 3,523 | ||||||||||||||||||
| Supplementary leverage ratio | 5.9 | % | 5.0 | |||||||||||||||||
(1)Capital ratios as of December 31, 2023 and 2022 are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of the current expected credit losses (CECL) accounting standard on January 1, 2020.
(2)The CET1 capital regulatory minimum is the sum of the CET1 capital ratio minimum of 4.5 percent, our G-SIB surcharge of 2.5 percent and our capital conservation buffer of 2.5 percent (under the Advanced approaches) or the SCB of 2.5 percent at December 31, 2023 and 3.4 percent at December 31, 2022 (under the Standardized approach), as applicable. The countercyclical capital buffer was zero for both periods. The SLR regulatory minimum includes a leverage buffer of 2.0 percent.
(3)Total capital under the Advanced approaches differs from the Standardized approach due to differences in the amount permitted in Tier 2 capital related to the qualifying allowance for credit losses.
(4)Reflects total average assets adjusted for certain Tier 1 capital deductions.
At December 31, 2023, CET1 capital was $194.9 billion, an increase of $14.9 billion from December 31, 2022, primarily due to earnings, partially offset by capital distributions. Tier 1 capital increased $14.9 billion primarily driven by the same factors as CET1 capital. Total capital under the Standardized approach increased $12.6 billion primarily due to the same factors driving the increase in Tier 1 capital and an increase in the adjusted allowance for credit losses included in Tier 2 capital, partially offset by a decrease in subordinated debt. RWA
under the Standardized approach, which yielded the lower CET1 capital ratio at December 31, 2023, increased $46.4 billion during 2023 to $1,651 billion primarily due to higher counterparty and market risk exposures in Global Markets and consumer loan growth. Supplementary leverage exposure at December 31, 2023 increased $152.9 billion primarily due to higher cash held at central banks, partially offset by lower debt securities balances.
49 Bank of America
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Table 11 shows the capital composition at December 31, 2023 and 2022.
| Table 11 | Capital Composition under Basel 3 | |||||||||||||
| December 31 | ||||||||||||||
| (Dollars in millions) | 2023 | 2022 | ||||||||||||
| Total common shareholders’ equity | $ | 263,249 | $ | 244,800 | ||||||||||
CECL transitional amount (1)
|
1,254 | 1,881 | ||||||||||||
| Goodwill, net of related deferred tax liabilities | (68,648) | (68,644) | ||||||||||||
| Deferred tax assets arising from net operating loss and tax credit carryforwards | (7,912) | (7,776) | ||||||||||||
| Intangibles, other than mortgage servicing rights, net of related deferred tax liabilities | (1,496) | (1,554) | ||||||||||||
| Defined benefit pension plan net assets | (764) | (867) | ||||||||||||
| Cumulative unrealized net (gain) loss related to changes in fair value of financial liabilities attributable to own creditworthiness, net-of-tax |
1,342 | 496 | ||||||||||||
Accumulated net (gain) loss on certain cash flow hedges (2)
|
8,025 | 11,925 | ||||||||||||
| Other | (122) | (201) | ||||||||||||
| Common equity tier 1 capital | 194,928 | 180,060 | ||||||||||||
| Qualifying preferred stock, net of issuance cost | 28,396 | 28,396 | ||||||||||||
| Other | (1) | (10) | ||||||||||||
| Tier 1 capital | 223,323 | 208,446 | ||||||||||||
| Tier 2 capital instruments | 15,340 | 18,751 | ||||||||||||
Qualifying allowance for credit losses (3)
|
12,920 | 11,739 | ||||||||||||
| Other | (184) | (163) | ||||||||||||
| Total capital under the Standardized approach | 251,399 | 238,773 | ||||||||||||
Adjustment in qualifying allowance for credit losses under the Advanced approaches (3)
|
(9,950) | (7,857) | ||||||||||||
| Total capital under the Advanced approaches | $ | 241,449 | $ | 230,916 | ||||||||||
(1)December 31, 2023 and 2022 include 50 percent and 75 percent of the CECL transition provision’s impact as of December 31, 2021.
(2)Includes amounts in accumulated OCI related to the hedging of items that are not recognized at fair value on the Consolidated Balance Sheet.
(3)Includes the impact of transition provisions related to the CECL accounting standard.
Table 12 shows the components of RWA as measured under Basel 3 at December 31, 2023 and 2022.
| Table 12 | Risk-weighted Assets under Basel 3 | |||||||||||||||||||||||||
| Standardized Approach | Advanced Approaches | Standardized Approach | Advanced Approaches | |||||||||||||||||||||||
| December 31 | ||||||||||||||||||||||||||
| (Dollars in billions) | 2023 | 2022 | ||||||||||||||||||||||||
| Credit risk | $ | 1,580 | $ | 983 | $ | 1,538 | $ | 939 | ||||||||||||||||||
| Market risk | 71 | 71 | 67 | 67 | ||||||||||||||||||||||
| Operational risk | n/a | 361 | n/a | 364 | ||||||||||||||||||||||
| Risks related to credit valuation adjustments | n/a | 44 | n/a | 41 | ||||||||||||||||||||||
| Total risk-weighted assets | $ | 1,651 | $ | 1,459 | $ | 1,605 | $ | 1,411 | ||||||||||||||||||
n/a = not applicable
Bank of America, N.A. Regulatory Capital
Table 13 presents regulatory capital information for BANA in accordance with Basel 3 Standardized and Advanced approaches as measured at December 31, 2023 and 2022. BANA met the definition of well capitalized under the PCA framework for both periods.
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| Table 13 | Bank of America, N.A. Regulatory Capital under Basel 3 | |||||||||||||||||||
Standardized Approach (1) |
Advanced Approaches (1) |
Regulatory Minimum (2) |
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| (Dollars in millions, except as noted) | December 31, 2023 | |||||||||||||||||||
| Risk-based capital metrics: | ||||||||||||||||||||
| Common equity tier 1 capital | $ | 187,621 | $ | 187,621 | ||||||||||||||||
| Tier 1 capital | 187,621 | 187,621 | ||||||||||||||||||
Total capital (3)
|
201,932 | 192,175 | ||||||||||||||||||
| Risk-weighted assets (in billions) | 1,395 | 1,114 | ||||||||||||||||||
| Common equity tier 1 capital ratio | 13.5 | % | 16.8 | % | 7.0 | % | ||||||||||||||
| Tier 1 capital ratio | 13.5 | 16.8 | 8.5 | |||||||||||||||||
| Total capital ratio | 14.5 | 17.2 | 10.5 | |||||||||||||||||
| Leverage-based metrics: | ||||||||||||||||||||
Adjusted quarterly average assets (in billions) (4)
|
$ | 2,471 | $ | 2,471 | ||||||||||||||||
| Tier 1 leverage ratio | 7.6 | % | 7.6 | % | 5.0 | |||||||||||||||
| Supplementary leverage exposure (in billions) | $ | 2,910 | ||||||||||||||||||
| Supplementary leverage ratio | 6.4 | % | 6.0 | |||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||
| Risk-based capital metrics: | ||||||||||||||||||||
| Common equity tier 1 capital | $ | 181,089 | $ | 181,089 | ||||||||||||||||
| Tier 1 capital | 181,089 | 181,089 | ||||||||||||||||||
Total capital (3)
|
194,254 | 186,648 | ||||||||||||||||||
| Risk-weighted assets (in billions) | 1,386 | 1,087 | ||||||||||||||||||
| Common equity tier 1 capital ratio | 13.1 | % | 16.7 | % | 7.0 | % | ||||||||||||||
| Tier 1 capital ratio | 13.1 | 16.7 | 8.5 | |||||||||||||||||
| Total capital ratio | 14.0 | 17.2 | 10.5 | |||||||||||||||||
| Leverage-based metrics: | ||||||||||||||||||||
Adjusted quarterly average assets (in billions) (4)
|
$ | 2,358 | $ | 2,358 | ||||||||||||||||
| Tier 1 leverage ratio | 7.7 | % | 7.7 | % | 5.0 | |||||||||||||||
| Supplementary leverage exposure (in billions) | $ | 2,785 | ||||||||||||||||||
| Supplementary leverage ratio | 6.5 | % | 6.0 | |||||||||||||||||
(1)Capital ratios as of December 31, 2023 and 2022 are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of the CECL accounting standard on January 1, 2020.
(2)Risk-based capital regulatory minimums at both December 31, 2023 and 2022 are the minimum ratios under Basel 3 including a capital conservation buffer of 2.5 percent. The regulatory minimums for the leverage ratios as of both period ends are the percent required to be considered well capitalized under the PCA framework.
(3)Total capital under the Advanced approaches differs from the Standardized approach due to differences in the amount permitted in Tier 2 capital related to the qualifying allowance for credit losses.
(4)Reflects total average assets adjusted for certain Tier 1 capital deductions.
Total Loss-Absorbing Capacity Requirements
Total loss-absorbing capacity (TLAC) consists of the Corporation’s Tier 1 capital and eligible long-term debt issued directly by the Corporation. Eligible long-term debt for TLAC ratios is comprised of unsecured debt that has a remaining maturity of at least one year and satisfies additional
requirements as prescribed in the TLAC final rule. As with the risk-based capital ratios and SLR, the Corporation is required to maintain TLAC ratios in excess of minimum requirements plus applicable buffers to avoid restrictions on capital distributions and discretionary bonus payments to executive officers. Table 14 presents the Corporation's TLAC and long-term debt ratios and related information as of December 31, 2023 and 2022.
51 Bank of America
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| Table 14 | Bank of America Corporation Total Loss-Absorbing Capacity and Long-Term Debt | |||||||||||||||||||||||||
|
TLAC (1)
|
Regulatory Minimum (2)
|
Long-term Debt |
Regulatory Minimum (3)
|
|||||||||||||||||||||||
| (Dollars in millions) | December 31, 2023 | |||||||||||||||||||||||||
| Total eligible balance | $ | 479,156 | $ | 239,892 | ||||||||||||||||||||||
Percentage of risk-weighted assets (4)
|
29.0 | % | 22.0 | % | 14.5 | % | 8.5 | % | ||||||||||||||||||
| Percentage of supplementary leverage exposure | 13.0 | 9.5 | 6.5 | 4.5 | ||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||
| Total eligible balance | $ | 465,451 | $ | 243,833 | ||||||||||||||||||||||
Percentage of risk-weighted assets (4)
|
29.0 | % | 22.0 | % | 15.2 | % | 8.5 | % | ||||||||||||||||||
| Percentage of supplementary leverage exposure | 13.2 | 9.5 | 6.9 | 4.5 | ||||||||||||||||||||||
(1)As of December 31, 2023 and 2022, TLAC ratios are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of the CECL accounting standard on January 1, 2020.
(2)The TLAC RWA regulatory minimum consists of 18.0 percent plus a TLAC RWA buffer comprised of 2.5 percent plus the Method 1 G-SIB surcharge of 1.5 percent. The countercyclical buffer is zero for both periods. The TLAC supplementary leverage exposure regulatory minimum consists of 7.5 percent plus a 2.0 percent TLAC leverage buffer. The TLAC RWA and leverage buffers must be comprised solely of CET1 capital and Tier 1 capital, respectively.
(3)The long-term debt RWA regulatory minimum is comprised of 6.0 percent plus an additional 2.5 percent requirement based on the Corporation’s Method 2 G-SIB surcharge. The long-term debt leverage exposure regulatory minimum is 4.5 percent. Effective January 1, 2024, the Corporation’s G-SIB surcharge, which is higher under Method 2, increased 50 bps, resulting in an increase in our long-term debt RWA regulatory minimum requirement to 9.0 percent from 8.5 percent.
(4)The approach that yields the higher RWA is used to calculate TLAC and long-term debt ratios, which was the Standardized approach as of December 31, 2023 and 2022.
Regulatory Developments
On July 27, 2023, U.S. banking regulators issued proposed rules that would update future U.S. regulatory capital requirements. Under the capital proposal, the Advanced approaches would be replaced with a new standardized approach, referred to as the expanded risk-based approach, which would be phased in over a three-year period beginning July 1, 2025. U.S. banking regulators also issued proposed rules to revise the risk-based capital surcharge for G-SIBs, which would be effective two calendar quarters after finalization. On August 29, 2023, U.S. banking regulators issued proposed rules that would change the criteria for debt instruments included in the Corporation’s eligible long-term debt and TLAC. Any final rules issued are subject to change from the current proposals. The Corporation is evaluating the potential impact of the proposed rules on its regulatory capital, eligible long-term debt and TLAC requirements.
Regulatory Capital and Securities Regulation
The Corporation’s principal U.S. broker-dealer subsidiaries are BofA Securities, Inc. (BofAS) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). On August 13, 2023, Merrill Lynch Professional Clearing Corp. (MLPCC) merged into its immediate parent, BofAS. Prior to that date, MLPCC was a fully-guaranteed subsidiary of BofAS and provided clearing and settlement services as well as prime brokerage and arranged financing services for institutional clients. Following the merger, client services previously provided by MLPCC are now being provided by or through BofAS.
The Corporation's principal European subsidiaries undertaking broker-dealer activities are Merrill Lynch International (MLI) and BofA Securities Europe SA (BofASE).
The U.S. broker-dealer subsidiaries are subject to the net capital requirements of Rule 15c3-1 under the Exchange Act. BofAS computes its capital requirements as an alternative net capital broker-dealer under Rule 15c3-1e, and MLPF&S computes its capital requirements in accordance with the alternative standard under Rule 15c3-1. BofAS is registered as a futures commission merchant and is subject to Commodity Futures Trading Commission (CFTC) Regulation 1.17. The U.S. broker-dealer subsidiaries are also registered with the Financial Industry Regulatory Authority, Inc. (FINRA). Pursuant to FINRA Rule 4110, FINRA may impose higher net capital requirements than Rule 15c3-1 under the Exchange Act with respect to each of the broker-dealers.
BofAS provides institutional services, and in accordance with the alternative net capital requirements, is required to maintain tentative net capital in excess of $5.0 billion and net capital in excess of the greater of $1.0 billion or a certain percentage of its reserve requirement in addition to a certain percentage of securities-based swap risk margin. BofAS must also notify the SEC in the event its tentative net capital is less than $6.0 billion. BofAS is also required to hold a certain percentage of its customers' and affiliates' risk-based margin in order to meet its CFTC minimum net capital requirement. At December 31, 2023, BofAS had tentative net capital of $21.4 billion. BofAS also had regulatory net capital of $19.4 billion, which exceeded the minimum requirement of $4.6 billion.
MLPF&S provides retail services. At December 31, 2023, MLPF&S' regulatory net capital was $5.8 billion, which exceeded the minimum requirement of $134 million.
Our European broker-dealers are subject to requirements from U.S. and non-U.S. regulators. MLI, a U.K. investment firm, is regulated by the Prudential Regulation Authority and the Financial Conduct Authority and is subject to certain regulatory capital requirements. At December 31, 2023, MLI’s capital resources were $33.9 billion, which exceeded the minimum Pillar 1 requirement of $11.4 billion.
BofASE, an authorized credit institution with its head office located in France, is regulated by the Autorité de Contrôle Prudentiel et de Résolution and the Autorité des Marchés Financiers, and supervised under the Single Supervisory Mechanism by the European Central Bank. At December 31, 2023, BofASE's capital resources were $9.6 billion, which exceeded the minimum Pillar 1 requirement of $3.6 billion.
In addition, MLI and BofASE became conditionally registered with the SEC as security-based swap dealers in the fourth quarter of 2021, and maintained net liquid assets at December 31, 2023 that exceeded the applicable minimum requirements under the Exchange Act.
Liquidity Risk
Funding and Liquidity Risk Management
Our primary liquidity risk management objective is to meet expected or unexpected cash flow and collateral requirements, including payments under long-term debt agreements, commitments to extend credit and customer deposit withdrawals, while continuing to support our businesses and
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customers under a range of economic conditions. To achieve that objective, we analyze and monitor our liquidity risk under expected and stressed conditions, maintain liquidity and access to diverse funding sources, including our stable deposit base, and seek to align liquidity-related incentives and risks. These liquidity risk management practices have allowed us to effectively manage the market stress from increased volatility due to the failure of certain financial institutions in the first half of 2023. Our practices have also allowed us to effectively manage market fluctuations from the rising interest rate environment, inflationary pressures and changes in the macroeconomic environment.
We define liquidity as readily available assets, limited to cash and high-quality, liquid, unencumbered securities that we can use to meet our contractual and contingent financial obligations as they arise. We manage our liquidity position through line-of-business and ALM activities, as well as through our legal entity funding strategy, on both a forward and current (including intraday) basis under both expected and stressed conditions. We believe that a centralized approach to funding and liquidity management enhances our ability to monitor liquidity requirements, maximizes access to funding sources, minimizes borrowing costs and facilitates timely responses to liquidity events.
The Board approves our liquidity risk policy and the Financial Contingency and Recovery Plan. The ERC establishes our liquidity risk tolerance levels. The MRC is responsible for overseeing liquidity risks and directing management to maintain exposures within the established tolerance levels. The MRC reviews and monitors our liquidity position and stress testing results, approves certain liquidity risk limits and reviews the impact of strategic decisions on our liquidity. For more information, see Managing Risk on page 44. Under this governance framework, we developed certain funding and liquidity risk management practices which include: maintaining liquidity at Bank of America Corporation (Parent) and selected subsidiaries, including our bank subsidiaries and other regulated entities; determining what amounts of liquidity are appropriate for these entities based on analysis of debt maturities and other potential cash outflows, including those that we may experience during stressed market conditions; diversifying funding sources, considering our asset profile and legal entity structure; and performing contingency planning.
NB Holdings Corporation
The Parent, which is a separate and distinct legal entity from our bank and nonbank subsidiaries, has an intercompany arrangement with our wholly-owned holding company subsidiary, NB Holdings Corporation (NB Holdings). We have transferred, and agreed to transfer, additional Parent assets not required to satisfy anticipated near-term expenditures to NB Holdings. The Parent is expected to continue to have access to the same flow of dividends, interest and other amounts of cash necessary to service its debt, pay dividends and perform other obligations as it would have had it not entered into these arrangements and transferred any assets. These arrangements support our preferred single point of entry resolution strategy, under which only the Parent would be resolved under the U.S. Bankruptcy Code.
In consideration for the transfer of assets, NB Holdings issued a subordinated note to the Parent in a principal amount equal to the value of the transferred assets. The aggregate principal amount of the note will increase by the amount of any future asset transfers. NB Holdings also provided the Parent with a committed line of credit that allows the Parent to draw
funds necessary to service near-term cash needs. These arrangements support our preferred single point of entry resolution strategy, under which only the Parent would be resolved under the U.S. Bankruptcy Code. These arrangements include provisions to terminate the line of credit, forgive the subordinated note and require the Parent to transfer its remaining financial assets to NB Holdings if our projected liquidity resources deteriorate so severely that resolution of the Parent becomes imminent.
Global Liquidity Sources and Other Unencumbered Assets
We maintain liquidity available to the Corporation, including the Parent and selected subsidiaries, in the form of cash and high-quality, liquid, unencumbered securities. Our liquidity buffer, referred to as Global Liquidity Sources (GLS), is comprised of assets that are readily available to the Parent and selected subsidiaries, including holding company, bank and broker-dealer subsidiaries, even during stressed market conditions. Our cash is primarily on deposit with the Federal Reserve Bank and, to a lesser extent, central banks outside of the U.S. We limit the composition of high-quality, liquid, unencumbered securities to U.S. government securities, U.S. agency securities, U.S. agency MBS and other investment-grade securities, and a select group of non-U.S. government securities. We can obtain cash for these securities, even in stressed conditions, through repurchase agreements or outright sales. We hold our GLS in legal entities that allow us to meet the liquidity requirements of our global businesses, and we consider the impact of potential regulatory, tax, legal and other restrictions that could limit the transferability of funds among entities.
Table 15 presents average GLS for the three months ended December 31, 2023 and 2022.
| Table 15 | Average Global Liquidity Sources | |||||||||||||
| Three Months Ended December 31 | ||||||||||||||
| (Dollars in billions) | 2023 | 2022 | ||||||||||||
| Bank entities | $ | 735 | $ | 694 | ||||||||||
Nonbank and other entities (1)
|
162 | 174 | ||||||||||||
Total Average Global Liquidity Sources |
$ | 897 | $ | 868 | ||||||||||
(1) Nonbank includes Parent, NB Holdings and other regulated entities.
Our bank subsidiaries’ liquidity is primarily driven by deposit and lending activity, as well as securities valuation and net debt activity. Bank subsidiaries can also generate incremental liquidity by pledging a range of unencumbered loans and securities to certain FHLBs and the Federal Reserve Discount Window. The cash we could have obtained by borrowing against this pool of specifically-identified eligible assets was $312 billion and $348 billion at December 31, 2023 and 2022. We have established operational procedures to enable us to borrow against these assets, including regularly monitoring our total pool of eligible loans and securities collateral. Eligibility is defined in guidelines from the FHLBs and the Federal Reserve and is subject to change at their discretion. Due to regulatory restrictions, liquidity generated by the bank subsidiaries can generally be used only to fund obligations within the bank subsidiaries, and transfers to the Parent or nonbank subsidiaries may be subject to prior regulatory approval.
Liquidity is also held in nonbank entities, including the Parent, NB Holdings and other regulated entities. The Parent and NB Holdings liquidity is typically in the form of cash deposited at BANA, which is excluded from the liquidity at bank subsidiaries, and high-quality, liquid, unencumbered securities. Liquidity held in other regulated entities, comprised primarily of
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broker-dealer subsidiaries, is primarily available to meet the obligations of that entity, and transfers to the Parent or to any other subsidiary may be subject to prior regulatory approval due to regulatory restrictions and minimum requirements. Our other regulated entities also hold unencumbered investment-grade securities and equities that we believe could be used to generate additional liquidity.
Table 16 presents the composition of average GLS for the three months ended December 31, 2023 and 2022.
| Table 16 | Average Global Liquidity Sources Composition | |||||||||||||
| Three Months Ended December 31 | ||||||||||||||
| (Dollars in billions) | 2023 | 2022 | ||||||||||||
| Cash on deposit | $ | 380 | $ | 174 | ||||||||||
| U.S. Treasury securities | 197 | 252 | ||||||||||||
U.S. agency securities, mortgage-backed securities, and other investment-grade securities |
299 | 427 | ||||||||||||
| Non-U.S. government securities | 21 | 15 | ||||||||||||
| Total Average Global Liquidity Sources | $ | 897 | $ | 868 | ||||||||||
Our GLS are substantially the same in composition to what qualifies as High Quality Liquid Assets (HQLA) under the final U.S. Liquidity Coverage Ratio (LCR) rules. However, HQLA for purposes of calculating LCR is not reported at market value, but at a lower value that incorporates regulatory deductions and the exclusion of excess liquidity held at certain subsidiaries. The LCR is calculated as the amount of a financial institution’s unencumbered HQLA relative to the estimated net cash outflows the institution could encounter over a 30-day period of significant liquidity stress, expressed as a percentage. Our average consolidated HQLA, on a net basis, was $590 billion and $605 billion for the three months ended December 31, 2023 and 2022. For the same periods, the average consolidated LCR was 115 percent and 120 percent. Our LCR fluctuates due to normal business flows from customer activity.
Liquidity Stress Analysis
We utilize liquidity stress analysis to assist us in determining the appropriate amounts of liquidity to maintain at the Parent and our subsidiaries to meet contractual and contingent cash outflows under a range of scenarios. The scenarios we consider and utilize incorporate market-wide and Corporation-specific events, including potential credit rating downgrades for the Parent and our subsidiaries, and more severe events including potential resolution scenarios. The scenarios are based on our historical experience, experience of distressed and failed financial institutions, regulatory guidance, and both expected and unexpected future events.
The types of potential contractual and contingent cash outflows we consider in our scenarios may include, but are not limited to, upcoming contractual maturities of unsecured debt and reductions in new debt issuances; diminished access to secured financing markets; potential deposit withdrawals; increased draws on loan commitments, liquidity facilities and letters of credit; additional collateral that counterparties could call if our credit ratings were downgraded; collateral and margin requirements arising from market value changes; and potential liquidity required to maintain businesses and finance customer activities. Changes in certain market factors, including, but not limited to, credit rating downgrades, could negatively impact potential contractual and contingent outflows and the related financial instruments, and in some cases these impacts could be material to our financial results.
We consider all sources of funds that we could access during each stress scenario and focus particularly on matching available sources with corresponding liquidity requirements by legal entity. We also use the stress modeling results to manage our asset and liability profile and establish limits and guidelines on certain funding sources and businesses.
Net Stable Funding Ratio
The Net Stable Funding Ratio (NSFR) is a liquidity requirement for large banks to maintain a minimum level of stable funding over a one-year period. The requirement is intended to support the ability of banks to lend to households and businesses in both normal and adverse economic conditions and is complementary to the LCR, which focuses on short-term liquidity risks. The U.S. NSFR applies to the Corporation on a consolidated basis and to our insured depository institutions. For the three months ended September 30, 2023 and December 31, 2023, the average consolidated NSFR was 119 percent and 120 percent.
Diversified Funding Sources
We fund our assets primarily with a mix of deposits, and secured and unsecured liabilities through a centralized, globally coordinated funding approach diversified across products, programs, markets, currencies and investor groups.
The primary benefits of our centralized funding approach include greater control, reduced funding costs, wider name recognition by investors and greater flexibility to meet the variable funding requirements of subsidiaries. Where regulations, time zone differences or other business considerations make Parent funding impractical, certain other subsidiaries may issue their own debt.
We fund a substantial portion of our lending activities through our deposits, which were $1.92 trillion and $1.93 trillion at December 31, 2023 and 2022. Deposits are primarily generated by our Consumer Banking, GWIM and Global Banking segments. These deposits are diversified by clients, product type and geography, and the majority of our U.S. deposits are insured by the FDIC.
At December 31, 2023, 50 percent of our deposits were in Consumer Banking, 16 percent in GWIM and 27 percent in Global Banking. As of the same period, approximately 68 percent of consumer and small business deposits and 79 percent of U.S. deposits in Global Banking were held by clients who have had accounts with us for 10 or more years. In addition, at December 31, 2023 and 2022, 28 percent and 34 percent of our deposits were noninterest-bearing and included operating accounts of our consumer and commercial clients.
We consider a substantial portion of our deposits to be a stable, low-cost and consistent source of funding. We believe this deposit funding is generally less sensitive to interest rate changes, market volatility or changes in our credit ratings than wholesale funding sources. Our lending activities may also be financed through secured borrowings, including credit card securitizations and securitizations with government-sponsored enterprises (GSE), the Federal Housing Administration (FHA) and private-label investors, as well as FHLB loans.
Our trading activities in other regulated entities are primarily funded on a secured basis through securities lending and repurchase agreements, and these amounts will vary based on customer activity and market conditions. We believe funding these activities in the secured financing markets is more cost-efficient and less sensitive to changes in our credit ratings than unsecured financing. Repurchase agreements are generally short-term and often overnight. Disruptions in secured financing
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markets for financial institutions have occurred in prior market cycles which resulted in adverse changes in terms or significant reductions in the availability of such financing. We manage the liquidity risks arising from secured funding by sourcing funding globally from a diverse group of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate. For more information on secured financing agreements, see Note 10 – Securities Financing Agreements, Short-term Borrowings, Collateral and Restricted Cash to the Consolidated Financial Statements.
Total long-term debt increased $26.2 billion to $302.2 billion during 2023, primarily due to debt issuances and valuation adjustments, partially offset by debt maturities and redemptions. We may, from time to time, purchase outstanding debt instruments in various transactions, depending on market conditions, liquidity and other factors. Our other regulated entities may also make markets in our debt instruments to provide liquidity for investors.
During 2023, we issued $62.0 billion of long-term debt consisting of $24.0 billion of notes issued by Bank of America Corporation, substantially all of which were TLAC compliant, $25.1 billion of notes issued by Bank of America, N.A. and $12.9 billion of other debt. During 2022, we issued $66.0 billion of long-term debt consisting of $44.2 billion of notes issued by Bank of America Corporation, substantially all of which were TLAC compliant, $10.0 billion of notes issued by Bank of America, N.A. and $11.8 billion of other debt.
During 2023, we had total long-term debt maturities and redemptions in the aggregate of $42.7 billion consisting of $25.3 billion for Bank of America Corporation, $10.5 billion for Bank of America, N.A. and $6.9 billion of other debt. During 2022, we had total long-term debt maturities and redemptions in the aggregate of $33.3 billion consisting of $19.8 billion for Bank of America Corporation, $9.9 billion for Bank of America, N.A. and $3.6 billion of other debt.
At December 31, 2023, Bank of America Corporation's senior notes of $208.4 billion included $187.7 billion of outstanding notes that are both TLAC eligible and callable at least one year before their stated maturities. Of these senior notes, $22.1 billion will be callable and become TLAC ineligible during 2024, and $22.0 billion, $21.4 billion, $25.0 billion and $19.9 billion will do so during each of 2025 through 2028, respectively, and $77.3 billion thereafter.
We issue long-term unsecured debt in a variety of maturities and currencies to achieve cost-efficient funding and to maintain an appropriate maturity profile. While the cost and availability of unsecured funding may be negatively impacted by general market conditions or by matters specific to the financial services industry or the Corporation, we seek to mitigate refinancing risk by actively managing the amount of our borrowings that we anticipate will mature within any month or quarter. We may issue unsecured debt in the form of structured notes for client purposes, certain of which qualify as TLAC-eligible debt. During 2023, we issued $15.7 billion of structured notes, which are debt obligations that pay investors returns linked to other debt or equity securities, indices, currencies or commodities. We typically hedge the returns we are obligated to pay on these liabilities with derivatives and/or investments in the underlying instruments, so that from a funding perspective, the cost is similar to our other unsecured long-term debt. We could be required to settle certain structured note obligations for cash or other securities prior to maturity under certain circumstances, which we consider for liquidity planning purposes. We believe, however, that a portion of such
borrowings will remain outstanding beyond the earliest put or redemption date.
Substantially all of our senior and subordinated debt obligations contain no provisions that could trigger a requirement for an early repayment, require additional collateral support, result in changes to terms, accelerate maturity or create additional financial obligations upon an adverse change in our credit ratings, financial ratios, earnings, cash flows or stock price. For more information on long-term debt funding, including issuances and maturities and redemptions, see Note 11 – Long-term Debt to the Consolidated Financial Statements.
We use derivative transactions to manage the duration, interest rate and currency risks of our borrowings, considering the characteristics of the assets they are funding. For more information on our ALM activities, see Interest Rate Risk Management for the Banking Book on page 77.
Uninsured Deposits
The FDIC insures the Corporation’s U.S. deposits up to $250,000 per depositor, per insured bank for each account ownership category, and various country-specific funds insure non-U.S. deposits up to specified limits. Deposits that exceed insurance limits are uninsured. At December 31, 2023, the Corporation’s deposits totaled $1.92 trillion, of which total estimated uninsured U.S. and non-U.S. deposits were $606.8 billion and $116.6 billion. At December 31, 2022, the Corporation’s deposits totaled $1.93 trillion, of which total estimated uninsured U.S. and non-U.S. deposits were $617.6 billion and $102.8 billion. Deposit balances exclude $14.8 billion and $15.2 billion of collateral received on certain derivative contracts that are netted against the derivative asset in the Consolidated Balance Sheet at December 31, 2023 and 2022. Estimated uninsured deposits presented in this section reflect amounts disclosed in our regulatory reports, adjusted to exclude related accrued interest and intercompany deposit balances.
Table 17 presents information about the Corporation’s total estimated uninsured time deposits. For more information on our liquidity sources, see Global Liquidity Sources and Other Unencumbered Assets, and for more information on deposits, see Diversified Funding Sources in this section. For more information on contractual time deposit maturities, see Note 9 – Deposits to the Consolidated Financial Statements.
| Table 17 |
Uninsured Time Deposits (1)
|
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| December 31, 2023 | ||||||||||||||||||||
| (Dollars in millions) | U.S. | Non-U.S. | Total | |||||||||||||||||
| Uninsured time deposits with a maturity of: | ||||||||||||||||||||
| 3 months or less | $ | 8,797 | $ | 7,744 | $ | 16,541 | ||||||||||||||
| Over 3 months through 6 months | 6,154 | 1,629 | 7,783 | |||||||||||||||||
| Over 6 months through 12 months | 7,885 | 280 | 8,165 | |||||||||||||||||
| Over 12 months | 848 | 2,985 | 3,833 | |||||||||||||||||
| Total | $ | 23,684 | $ | 12,638 | $ | 36,322 | ||||||||||||||
(1)Amounts are estimated based on the regulatory methodologies defined by each local jurisdiction.
Contingency Planning
We maintain contingency funding plans that outline our potential responses to liquidity stress events at various levels of severity. These policies and plans are based on stress scenarios and include potential funding strategies and communication and notification procedures that we would implement in the event we experienced stressed liquidity conditions. We periodically review and test the contingency funding plans to validate efficacy and
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assess readiness.
Our U.S. bank subsidiaries can access contingency funding through the Federal Reserve Discount Window. Certain non-U.S. subsidiaries have access to central bank facilities in the jurisdictions in which they operate. While we do not rely on these sources in our liquidity modeling, we maintain the policies, procedures and governance processes that would enable us to access these sources if necessary.
Credit Ratings
Our borrowing costs and ability to raise funds are impacted by our credit ratings. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including over-the-counter (OTC) derivatives. Thus, it is our objective to maintain high-quality credit ratings, and management maintains an active dialogue with the major rating agencies.
Credit ratings and outlooks are opinions expressed by rating agencies on our creditworthiness and that of our obligations or securities, including long-term debt, short-term borrowings, preferred stock and other securities, including asset securitizations. Our credit ratings are subject to ongoing review by the rating agencies, and they consider a number of factors, including our own financial strength, performance, prospects and operations as well as factors not under our control. The rating agencies could make adjustments to our ratings at any time, and they provide no assurances that they will maintain our ratings at current levels.
Other factors that influence our credit ratings include changes to the rating agencies’ methodologies for our industry or certain security types; the rating agencies’ assessment of the general operating environment for financial services companies; our relative positions in the markets in which we compete; our various risk exposures and risk management policies and activities; pending litigation and other contingencies or potential tail risks; our reputation; our liquidity position, diversity of
funding sources and funding costs; the current and expected level and volatility of our earnings; our capital position and capital management practices; our corporate governance; the sovereign credit ratings of the U.S. government; current or future regulatory and legislative initiatives; and the agencies’ views on whether the U.S. government would provide meaningful support to the Corporation or its subsidiaries in a crisis.
On May 3, 2023, Moody’s Investors Service (Moody’s) upgraded its long-term senior debt ratings of the Corporation by one notch to A1 from A2, and also upgraded the long-term senior debt ratings of BANA to Aa1 from Aa2. Moody’s concurrently affirmed its Prime-1 short-term ratings of the Corporation and BANA. Moody’s cited the Corporation’s strengthened capital, improved earnings profile and ongoing commitment to maintaining a restrained risk appetite as rationale for the upgrade. These actions concluded the review for upgrade that Moody’s initiated on January 23, 2023. Separately, on November 13, 2023, Moody’s placed its ratings for BANA on negative outlook, reflecting the agency’s recent move to a negative outlook on its ratings for the government of the United States of America and the potentially weaker capacity for the government to support systemically important U.S. banks. The Corporation’s ratings and stable outlook were not affected by this action.
On March 31, 2023, Standard & Poor’s Global Ratings (S&P) affirmed the current ratings of the Corporation and its subsidiaries, while at the same time revising its rating outlook to Stable from Positive. S&P concurrently changed its outlooks on three other large U.S. bank holding companies to Stable from Positive, noting that the agency has reduced its upside expectations for bank ratings in the near term.
The ratings and outlooks from Fitch Ratings for the Corporation and its subsidiaries have not changed during 2023.
Table 18 presents the Corporation’s current long-term/short-term senior debt ratings and outlooks expressed by the rating agencies.
| Table 18 | Senior Debt Ratings | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Moody’s Investors Service | Standard & Poor’s Global Ratings | Fitch Ratings | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term | Short-term | Outlook | Long-term | Short-term | Outlook | Long-term | Short-term | Outlook | ||||||||||||||||||||||||||||||||||||||||||||||||
| Bank of America Corporation | A1 | P-1 | Stable | A- | A-2 | Stable | AA- | F1+ | Stable | |||||||||||||||||||||||||||||||||||||||||||||||
| Bank of America, N.A. | Aa1 | P-1 | Negative | A+ | A-1 | Stable | AA | F1+ | Stable | |||||||||||||||||||||||||||||||||||||||||||||||
| Bank of America Europe Designated Activity Company | NR | NR | NR | A+ | A-1 | Stable | AA | F1+ | Stable | |||||||||||||||||||||||||||||||||||||||||||||||
| Merrill Lynch, Pierce, Fenner & Smith Incorporated | NR | NR | NR | A+ | A-1 | Stable | AA | F1+ | Stable | |||||||||||||||||||||||||||||||||||||||||||||||
| BofA Securities, Inc. | NR | NR | NR | A+ | A-1 | Stable | AA | F1+ | Stable | |||||||||||||||||||||||||||||||||||||||||||||||
| Merrill Lynch International | NR | NR | NR | A+ | A-1 | Stable | AA | F1+ | Stable | |||||||||||||||||||||||||||||||||||||||||||||||
| BofA Securities Europe SA | NR | NR | NR | A+ | A-1 | Stable | AA | F1+ | Stable | |||||||||||||||||||||||||||||||||||||||||||||||
NR = not rated
A reduction in certain of our credit ratings or the ratings of certain asset-backed securitizations may have a material adverse effect on our liquidity, potential loss of access to credit markets, the related cost of funds, our businesses and on certain revenues, particularly in those businesses where counterparty creditworthiness is critical. In addition, under the terms of certain OTC derivative contracts and other trading agreements, in the event of downgrades of our or our rated subsidiaries’ credit ratings, the counterparties to those agreements may require us to provide additional collateral, or to terminate these contracts or agreements, which could cause us to sustain losses and/or adversely impact our liquidity. If the short-term credit ratings of our Parent, bank or broker-dealer
subsidiaries were downgraded by one or more levels, the potential loss of access to short-term funding sources such as repo financing and the effect on our incremental cost of funds could be material.
While certain potential impacts are contractual and quantifiable, the full scope of the consequences of a credit rating downgrade to a financial institution is inherently uncertain, as it depends upon numerous dynamic, complex and inter-related factors and assumptions, including whether any downgrade of a company’s long-term credit ratings precipitates downgrades to its short-term credit ratings, and assumptions about the potential behaviors of various customers, investors and counterparties. For more information on potential impacts
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of credit rating downgrades, see Liquidity Risk – Liquidity Stress Analysis on page 54.
For more information on additional collateral and termination payments that could be required in connection with certain over-the-counter derivative contracts and other trading agreements in the event of a credit rating downgrade, see Note 3 – Derivatives to the Consolidated Financial Statements and Item 1A. Risk Factors.
Common Stock Dividends
For a summary of our declared quarterly cash dividends on common stock during 2023 and through February 20, 2024, see Note 13 – Shareholders’ Equity to the Consolidated Financial Statements.
Finance Subsidiary Issuers and Parent Guarantor
BofA Finance LLC, a Delaware limited liability company (BofA Finance), is a consolidated finance subsidiary of the Corporation that has issued and sold, and is expected to continue to issue and sell, its senior unsecured debt securities (Guaranteed Notes) that are fully and unconditionally guaranteed by the Corporation. The Corporation guarantees the due and punctual payment, on demand, of amounts payable on the Guaranteed Notes if not paid by BofA Finance. In addition, each of BAC Capital Trust XIII, BAC Capital Trust XIV and BAC Capital Trust XV, Delaware statutory trusts (collectively, the Trusts) is a 100 percent owned finance subsidiary of the Corporation that has issued and sold trust preferred securities (the Trust Preferred Securities) or capital securities (the Capital Securities and, together with the Guaranteed Notes and the Trust Preferred Securities, the Guaranteed Securities), as applicable, that remained outstanding at December 31, 2023. The Corporation guarantees the payment of amounts and distributions with respect to the Trust Preferred Securities and Capital Securities if not paid by the Trusts, to the extent of funds held by the Trusts. This guarantee, together with the Corporation’s other obligations with respect to the Trust Preferred Securities and Capital Securities, effectively constitutes a full and unconditional guarantee of the Trusts’ payment obligations on the Trust Preferred Securities or Capital Securities, as applicable. No other subsidiary of the Corporation guarantees the Guaranteed Securities.
BofA Finance and each of the Trusts are finance subsidiaries, have no independent assets, revenues or operations and are dependent upon the Corporation and/or the Corporation’s other subsidiaries to meet their respective obligations under the Guaranteed Securities in the ordinary course. If holders of the Guaranteed Securities make claims on their Guaranteed Securities in a bankruptcy, resolution or similar proceeding, any recoveries on those claims will be limited to those available under the applicable guarantee by the Corporation, as described above.
The Corporation is a holding company and depends upon its subsidiaries for liquidity. Applicable laws and regulations and intercompany arrangements entered into in connection with the Corporation’s resolution plan could restrict the availability of funds from subsidiaries to the Corporation, which could adversely affect the Corporation’s ability to make payments under its guarantees. In addition, the obligations of the Corporation under the guarantees of the Guaranteed Securities will be structurally subordinated to all existing and future liabilities of its subsidiaries, and claimants should look only to assets of the Corporation for payments. If the Corporation, as guarantor of the Guaranteed Notes, transfers all or substantially all of its assets to one or more direct or indirect majority-owned
subsidiaries, under the indenture governing the Guaranteed Notes, the subsidiary or subsidiaries will not be required to assume the Corporation’s obligations under its guarantee of the Guaranteed Notes.
For more information on factors that may affect payments to holders of the Guaranteed Securities, see Liquidity Risk – NB Holdings Corporation in this section, Item 1. Business – Insolvency and the Orderly Liquidation Authority on page 6 and Part I. Item 1A. Risk Factors – Liquidity on page 9.
Representations and Warranties Obligations
For information on representations and warranties obligations in connection with the sale of mortgage loans, see Note 12 – Commitments and Contingencies to the Consolidated Financial Statements.
Credit Risk Management
Credit risk is the risk of loss arising from the inability or failure of a borrower or counterparty to meet its obligations. Credit risk can also arise from operational failures that result in an erroneous advance, commitment or investment of funds. We define the credit exposure to a borrower or counterparty as the loss potential arising from all product classifications including loans and leases, deposit overdrafts, derivatives, assets held-for-sale and unfunded lending commitments, which include loan commitments, letters of credit and financial guarantees. Derivative positions are recorded at fair value, and assets held-for-sale are recorded at either fair value or the lower of cost or fair value. Certain loans and unfunded commitments are accounted for under the fair value option. Credit risk for categories of assets carried at fair value is not accounted for as part of the allowance for credit losses but as part of the fair value adjustments recorded in earnings. For derivative positions, our credit risk is measured as the net cost in the event the counterparties with contracts in which we are in a gain position fail to perform under the terms of those contracts. We use the current fair value to represent credit exposure without giving consideration to future mark-to-market changes. The credit risk amounts take into consideration the effects of legally enforceable master netting agreements and cash collateral. Our consumer and commercial credit extension and review procedures encompass funded and unfunded credit exposures. For more information on derivatives and credit extension commitments, see Note 3 – Derivatives and Note 12 – Commitments and Contingencies to the Consolidated Financial Statements.
We manage credit risk based on the risk profile of the borrower or counterparty, repayment sources, the nature of underlying collateral and other support given current events, conditions and expectations. We classify our portfolios as either consumer or commercial and monitor credit risk in each as discussed below.
We refine our underwriting and credit risk management practices as well as credit standards to meet the changing economic environment. To mitigate losses and enhance customer support in our consumer businesses, we have in place collection programs and loan modification and customer assistance infrastructures. We utilize a number of actions to mitigate losses in the commercial businesses including increasing the frequency and intensity of portfolio monitoring, hedging activity and our practice of transferring management of deteriorating commercial exposures to independent special asset officers as credits enter criticized categories.
For information on our credit risk management activities, see the following: Consumer Portfolio Credit Risk Management on
57 Bank of America
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page 58, Commercial Portfolio Credit Risk Management on page 62, Non-U.S. Portfolio on page 68, Allowance for Credit Losses on page 71, and Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements. For information on the Corporation’s loan modification programs, see Note 1 – Summary of Significant Accounting Principles and Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements. For more information on the Corporation’s credit risks, see the Credit section within Item 1A. Risk Factors of this Annual Report on Form 10-K.
During 2023, our asset quality remained relatively stable. Our net charge-off ratio increased primarily driven by credit card loans, as delinquency trends continued to slowly increase off of historic lows. Nonperforming loans increased compared to 2022 driven by the commercial real estate office property type, while commercial reservable criticized exposure increased driven by both office as well as other industries that have been impacted by the current environment. Uncertainty remains regarding broader economic impacts as a result of inflationary pressures, elevated rates and the current geopolitical environment and could lead to adverse impacts to credit quality metrics in future periods.
Consumer Portfolio Credit Risk Management
Credit risk management for the consumer portfolio begins with initial underwriting and continues throughout a borrower’s credit cycle. Statistical techniques in conjunction with experiential judgment are used in all aspects of portfolio management including underwriting, product pricing, risk appetite, setting
credit limits, and establishing operating processes and metrics to quantify and balance risks and returns. Statistical models are built using detailed behavioral information from external sources, such as credit bureaus, and/or internal historical experience and are a component of our consumer credit risk management process. These models are used in part to assist in making both new and ongoing credit decisions as well as portfolio management strategies, including authorizations and line management, collection practices and strategies, and determination of the allowance for loan and lease losses and allocated capital for credit risk.
Consumer Credit Portfolio
During 2023, the U.S. unemployment rate remained relatively stable and home prices increased compared to 2022. Net charge-offs increased $1.2 billion to $3.1 billion in 2023 primarily due to late-stage delinquent credit card loans that were charged off.
The consumer allowance for loan and lease losses increased $1.3 billion during 2023 to $8.5 billion. For more information, see Allowance for Credit Losses on page 71.
For more information on our accounting policies regarding delinquencies, nonperforming status, charge-offs and loan modifications for the consumer portfolio, see Note 1 – Summary of Significant Accounting Principles and Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements.
Table 19 presents our outstanding consumer loans and leases, consumer nonperforming loans and accruing consumer loans past due 90 days or more.
| Table 19 | Consumer Credit Quality | |||||||||||||||||||||||||||||||||||||
| Outstandings | Nonperforming | Accruing Past Due 90 Days or More |
||||||||||||||||||||||||||||||||||||
| December 31 | ||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
Residential mortgage (1)
|
$ | 228,403 | $ | 229,670 | $ | 2,114 | $ | 2,167 | $ | 252 | $ | 368 | ||||||||||||||||||||||||||
| Home equity | 25,527 | 26,563 | 450 | 510 | — | — | ||||||||||||||||||||||||||||||||
| Credit card | 102,200 | 93,421 | n/a | n/a | 1,224 | 717 | ||||||||||||||||||||||||||||||||
Direct/Indirect consumer (2)
|
103,468 | 106,236 | 148 | 77 | 2 | 2 | ||||||||||||||||||||||||||||||||
| Other consumer | 124 | 156 | — | — | — | — | ||||||||||||||||||||||||||||||||
Consumer loans excluding loans accounted for under the fair value option |
$ | 459,722 | $ | 456,046 | $ | 2,712 | $ | 2,754 | $ | 1,478 | $ | 1,087 | ||||||||||||||||||||||||||
Loans accounted for under the fair value option (3)
|
243 | 339 | ||||||||||||||||||||||||||||||||||||
| Total consumer loans and leases | $ | 459,965 | $ | 456,385 | ||||||||||||||||||||||||||||||||||
Percentage of outstanding consumer loans and leases (4)
|
n/a | n/a | 0.59 | % | 0.60 | % | 0.32 | % | 0.24 | % | ||||||||||||||||||||||||||||
Percentage of outstanding consumer loans and leases, excluding fully-insured loan portfolios (4)
|
n/a | n/a | 0.60 | 0.62 | 0.27 | 0.16 | ||||||||||||||||||||||||||||||||
(1)Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At December 31, 2023 and 2022, residential mortgage included $156 million and $260 million of loans on which interest had been curtailed by the FHA, and therefore were no longer accruing interest, although principal was still insured, and $96 million and $108 million of loans on which interest was still accruing.
(2)Outstandings primarily includes auto and specialty lending loans and leases of $53.9 billion and $51.8 billion, U.S. securities-based lending loans of $46.0 billion and $50.4 billion at December 31, 2023 and 2022, and non-U.S. consumer loans of $2.8 billion and $3.0 billion at December 31, 2023 and 2022.
(3)For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements.
(4)Excludes consumer loans accounted for under the fair value option. At December 31, 2023 and 2022, $4 million and $7 million of loans accounted for under the fair value option were past due 90 days or more and not accruing interest.
n/a = not applicable
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Table 20 presents net charge-offs and related ratios for consumer loans and leases.
| Table 20 | Consumer Net Charge-offs and Related Ratios | |||||||||||||||||||||||||
| Net Charge-offs |
Net Charge-off Ratios (1)
|
|||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Residential mortgage | $ | 16 | $ | 72 | 0.01 | % | 0.03 | % | ||||||||||||||||||
| Home equity | (59) | (90) | (0.23) | (0.33) | ||||||||||||||||||||||
| Credit card | 2,561 | 1,334 | 2.66 | 1.60 | ||||||||||||||||||||||
| Direct/Indirect consumer | 92 | 18 | 0.09 | 0.02 | ||||||||||||||||||||||
| Other consumer | 480 | 521 | n/m | n/m | ||||||||||||||||||||||
| Total | $ | 3,090 | $ | 1,855 | 0.68 | 0.42 | ||||||||||||||||||||
(1)Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans and leases, excluding loans accounted for under the fair value option.
n/m = not meaningful
We believe that the presentation of information adjusted to exclude the impact of the fully-insured loan portfolio and loans accounted for under the fair value option is more representative of the ongoing operations and credit quality of the business. As a result, in the following tables and discussions of the residential mortgage and home equity portfolios, we exclude loans accounted for under the fair value option and provide information that excludes the impact of the fully-insured loan portfolio in certain credit quality statistics.
Residential Mortgage
The residential mortgage portfolio made up the largest percentage of our consumer loan portfolio at 50 percent of consumer loans and leases in 2023. Approximately 51 percent of the residential mortgage portfolio was in Consumer Banking, 46 percent was in GWIM and the remaining portion was in All Other.
Outstanding balances in the residential mortgage portfolio decreased $1.3 billion in 2023, as paydowns and payoffs outpaced new originations.
At December 31, 2023 and 2022, the residential mortgage portfolio included $11.0 billion and $11.7 billion of outstanding fully-insured loans, of which $2.2 billion for both periods had FHA insurance, with the remainder protected by Fannie Mae long-term standby agreements.
Table 21 presents certain residential mortgage key credit statistics on both a reported basis and excluding the fully-insured loan portfolio. The following discussion presents the residential mortgage portfolio excluding the fully-insured loan portfolio.
| Table 21 | Residential Mortgage – Key Credit Statistics | |||||||||||||||||||||||||||||||||||||||||||
Reported Basis (1)
|
Excluding Fully-insured Loans (1)
|
|||||||||||||||||||||||||||||||||||||||||||
| December 31 | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||
| Outstandings | $ | 228,403 | $ | 229,670 | $ | 217,439 | $ | 217,976 | ||||||||||||||||||||||||||||||||||||
| Accruing past due 30 days or more | 1,513 | 1,471 | 986 | 844 | ||||||||||||||||||||||||||||||||||||||||
| Accruing past due 90 days or more | 252 | 368 | — | — | ||||||||||||||||||||||||||||||||||||||||
Nonperforming loans (2)
|
2,114 | 2,167 | 2,114 | 2,167 | ||||||||||||||||||||||||||||||||||||||||
| Percent of portfolio | ||||||||||||||||||||||||||||||||||||||||||||
| Refreshed LTV greater than 90 but less than or equal to 100 | 1 | % | 1 | % | 1 | % | 1 | % | ||||||||||||||||||||||||||||||||||||
| Refreshed LTV greater than 100 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Refreshed FICO below 620 | 1 | 1 | 1 | 1 | ||||||||||||||||||||||||||||||||||||||||
(1)Outstandings, accruing past due, nonperforming loans and percentages of portfolio exclude loans accounted for under the fair value option.
(2)Includes loans that are contractually current that have not yet demonstrated a sustained period of payment performance following a modification.
Nonperforming outstanding balances in the residential mortgage portfolio decreased $53 million in 2023 primarily due to payoffs and paydowns, returns to performing and loan sales outpacing new additions. Of the nonperforming residential mortgage loans at December 31, 2023, $1.3 billion, or 62 percent, were current on contractual payments. Excluding fully-insured loans, loans accruing past due 30 days or more increased $142 million.
Of the $217.4 billion in total residential mortgage loans outstanding at December 31, 2023, $63.1 billion, or 29 percent, of loans were originated as interest-only. The outstanding balance of interest-only residential mortgage loans that had entered the amortization period was $3.6 billion, or six percent, at December 31, 2023. Residential mortgage loans that have entered the amortization period generally experience a higher rate of early stage delinquencies and nonperforming status compared to the residential mortgage portfolio as a
whole. At December 31, 2023, $80 million, or two percent, of outstanding interest-only residential mortgages that had entered the amortization period were accruing past due 30 days or more compared to $986 million, or less than one percent, for the entire residential mortgage portfolio. In addition, at December 31, 2023, $180 million, or five percent, of outstanding interest-only residential mortgage loans that had entered the amortization period were nonperforming, of which $61 million were contractually current. Loans that have yet to enter the amortization period in our interest-only residential mortgage portfolio are primarily well-collateralized loans to our wealth management clients and have an interest-only period of three years to 10 years. Substantially all of these loans that have yet to enter the amortization period will not be required to make a fully-amortizing payment until 2025 or later.
59 Bank of America
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Table 22 presents outstandings, nonperforming loans and net charge-offs by certain state concentrations for the residential mortgage portfolio. In the New York area, the New York-Northern New Jersey-Long Island Metropolitan Statistical Area (MSA) made up 15 percent of outstandings at both December 31, 2023 and 2022. The Los Angeles-Long Beach-Santa Ana MSA within California represented 14 percent of outstandings at both December 31, 2023 and 2022.
| Table 22 | Residential Mortgage State Concentrations | |||||||||||||||||||||||||||||||||||||
Outstandings (1)
|
Nonperforming (1)
|
|||||||||||||||||||||||||||||||||||||
| December 31 | Net Charge-offs | |||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | December 31 2023 |
December 31 2022 |
December 31 2023 |
December 31 2022 |
2023 | 2022 | ||||||||||||||||||||||||||||||||
| California | $ | 81,085 | $ | 80,878 | $ | 641 | $ | 656 | $ | 3 | $ | 37 | ||||||||||||||||||||||||||
| New York | 25,975 | 26,228 | 320 | 328 | 4 | 7 | ||||||||||||||||||||||||||||||||
| Florida | 15,450 | 15,225 | 131 | 145 | (2) | (2) | ||||||||||||||||||||||||||||||||
| Texas | 9,361 | 9,399 | 88 | 88 | 1 | — | ||||||||||||||||||||||||||||||||
| New Jersey | 8,671 | 8,810 | 97 | 96 | — | 3 | ||||||||||||||||||||||||||||||||
| Other | 76,897 | 77,436 | 837 | 854 | 10 | 27 | ||||||||||||||||||||||||||||||||
| Residential mortgage loans | $ | 217,439 | $ | 217,976 | $ | 2,114 | $ | 2,167 | $ | 16 | $ | 72 | ||||||||||||||||||||||||||
| Fully-insured loan portfolio | 10,964 | 11,694 | ||||||||||||||||||||||||||||||||||||
| Total residential mortgage loan portfolio | $ | 228,403 | $ | 229,670 | ||||||||||||||||||||||||||||||||||
(1)Outstandings and nonperforming loans exclude loans accounted for under the fair value option.
Home Equity
At December 31, 2023, the home equity portfolio made up six percent of the consumer portfolio and was comprised of home equity lines of credit (HELOCs), home equity loans and reverse mortgages. HELOCs generally have an initial draw period of 10 years, and after the initial draw period ends, the loans generally convert to 15- or 20-year amortizing loans. We no longer originate home equity loans or reverse mortgages.
At December 31, 2023, 84 percent of the home equity portfolio was in Consumer Banking, seven percent was in All Other and the remainder of the portfolio was primarily in GWIM. Outstanding balances in the home equity portfolio decreased $1.0 billion in 2023 primarily due to paydowns outpacing draws
on existing lines and new originations. Of the total home equity portfolio at December 31, 2023 and 2022, $10.1 billion and $11.1 billion, or 39 percent and 42 percent, were in first-lien positions. At December 31, 2023, outstanding balances in the home equity portfolio that were in a second-lien or more junior-lien position and where we also held the first-lien loan totaled $4.4 billion, or 17 percent, of our total home equity portfolio.
Unused HELOCs totaled $45.1 billion and $42.4 billion at December 31, 2023 and 2022. The HELOC utilization rate was 35 percent and 38 percent at December 31, 2023 and 2022.
Table 23 presents certain home equity portfolio key credit statistics.
| Table 23 |
Home Equity – Key Credit Statistics (1)
|
||||||||||||||||
| December 31 | |||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | |||||||||||||||
| Outstandings | $ | 25,527 | $ | 26,563 | |||||||||||||
| Accruing past due 30 days or more | 95 | 96 | |||||||||||||||
Nonperforming loans (2)
|
450 | 510 | |||||||||||||||
| Percent of portfolio | |||||||||||||||||
| Refreshed CLTV greater than 90 but less than or equal to 100 | — | % | — | % | |||||||||||||
| Refreshed CLTV greater than 100 | — | — | |||||||||||||||
| Refreshed FICO below 620 | 3 | 2 | |||||||||||||||
(1)Outstandings, accruing past due, nonperforming loans and percentages of the portfolio exclude loans accounted for under the fair value option.
(2)Includes loans that are contractually current that have not yet demonstrated a sustained period of payment performance following a modification.
Nonperforming outstanding balances in the home equity portfolio decreased $60 million to $450 million at December 31, 2023, primarily driven by loan sales, payoffs and returns to performing status outpacing new additions. Of the nonperforming home equity loans at December 31, 2023, $256 million, or 57 percent, were current on contractual payments. In addition, $113 million, or 25 percent, were 180 days or more past due and had been written down to the estimated fair value of the collateral, less costs to sell. Accruing loans that were 30 days or more past due remained relatively unchanged in 2023 compared to 2022.
Of the $25.5 billion in total home equity portfolio outstandings at December 31, 2023, as shown in Table 23, 11 percent require interest-only payments. The outstanding balance of HELOCs that had reached the end of their draw period and entered the amortization period was $4.0 billion at
December 31, 2023. The HELOCs that have entered the amortization period have experienced a higher percentage of early stage delinquencies and nonperforming status when compared to the HELOC portfolio as a whole. At December 31, 2023, $41 million, or one percent, of outstanding HELOCs that had entered the amortization period were accruing past due 30 days or more. In addition, at December 31, 2023, $283 million, or seven percent, were nonperforming.
For our interest-only HELOC portfolio, we do not actively track how many of our home equity customers pay only the minimum amount due on their home equity loans and lines; however, we can infer some of this information through a review of our HELOC portfolio that we service and is still in its revolving period. During 2023, 13 percent of these customers with an outstanding balance did not pay any principal on their HELOCs.
Bank of America 60
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Table 24 presents outstandings, nonperforming balances and net recoveries by certain state concentrations for the home equity portfolio. In the New York area, the New York-Northern New Jersey-Long Island MSA made up 11 percent and 12 percent of the outstanding home equity portfolio at December 31, 2023 and 2022. The Los Angeles-Long Beach-Santa Ana MSA within California made up 10 percent and 11 percent of the outstanding home equity portfolio at December 31, 2023 and 2022.
| Table 24 | Home Equity State Concentrations | |||||||||||||||||||||||||||||||||||||
Outstandings (1)
|
Nonperforming (1)
|
|||||||||||||||||||||||||||||||||||||
| December 31 | Net Charge-offs | |||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| California | $ | 6,966 | $ | 7,406 | $ | 109 | $ | 119 | $ | (6) | $ | (20) | ||||||||||||||||||||||||||
| Florida | 2,576 | 2,743 | 53 | 63 | (12) | (21) | ||||||||||||||||||||||||||||||||
| New Jersey | 1,870 | 2,047 | 46 | 53 | (5) | (3) | ||||||||||||||||||||||||||||||||
| New York | 1,590 | 1,806 | 71 | 80 | (10) | (4) | ||||||||||||||||||||||||||||||||
| Texas | 1,410 | 1,284 | 16 | 14 | — | — | ||||||||||||||||||||||||||||||||
| Other | 11,115 | 11,277 | 155 | 181 | (26) | (42) | ||||||||||||||||||||||||||||||||
| Total home equity loan portfolio | $ | 25,527 | $ | 26,563 | $ | 450 | $ | 510 | $ | (59) | $ | (90) | ||||||||||||||||||||||||||
(1)Outstandings and nonperforming loans exclude loans accounted for under the fair value option.
Credit Card
At December 31, 2023, 97 percent of the credit card portfolio was managed in Consumer Banking with the remainder in GWIM. Outstandings in the credit card portfolio increased $8.8 billion during 2023 to $102.2 billion as purchase volume and card transfers more than offset payments. Net charge-offs increased $1.2 billion to $2.6 billion in 2023 compared to 2022, primarily due to late-stage delinquent credit card loans that were charged off. Credit card loans 30 days or more past due and still
accruing interest increased $914 million, and 90 days or more past due and still accruing interest increased $507 million at December 31, 2023.
Unused lines of credit for credit card increased to $390.2 billion at December 31, 2023 from $370.1 billion at December 31, 2022.
Table 25 presents certain state concentrations for the credit card portfolio.
| Table 25 | Credit Card State Concentrations | |||||||||||||||||||||||||||||||||||||
| Outstandings | Accruing Past Due 90 Days or More |
|||||||||||||||||||||||||||||||||||||
| December 31 | Net Charge-offs | |||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| California | $ | 16,952 | $ | 15,363 | $ | 216 | $ | 126 | $ | 457 | $ | 232 | ||||||||||||||||||||||||||
| Florida | 10,521 | 9,512 | 168 | 100 | 343 | 183 | ||||||||||||||||||||||||||||||||
| Texas | 8,978 | 8,125 | 125 | 72 | 245 | 123 | ||||||||||||||||||||||||||||||||
| New York | 5,788 | 5,381 | 84 | 56 | 197 | 99 | ||||||||||||||||||||||||||||||||
| Washington | 5,352 | 4,844 | 41 | 21 | 77 | 36 | ||||||||||||||||||||||||||||||||
| Other | 54,609 | 50,196 | 590 | 342 | 1,242 | 661 | ||||||||||||||||||||||||||||||||
| Total credit card portfolio | $ | 102,200 | $ | 93,421 | $ | 1,224 | $ | 717 | $ | 2,561 | $ | 1,334 | ||||||||||||||||||||||||||
Direct/Indirect Consumer
At December 31, 2023, 52 percent of the direct/indirect portfolio was included in Consumer Banking (consumer auto and recreational vehicle lending) and 48 percent was included in GWIM (principally securities-based lending loans). Outstandings in the direct/indirect portfolio decreased $2.8 billion in 2023 to
$103.5 billion driven by declines in securities-based lending stemming from higher paydown activity due to higher interest rates, partially offset by growth in our auto portfolio.
Table 26 presents certain state concentrations for the direct/indirect consumer loan portfolio.
| Table 26 | Direct/Indirect State Concentrations | |||||||||||||||||||||||||||||||||||||
| Outstandings | Nonperforming | |||||||||||||||||||||||||||||||||||||
| December 31 | Net Charge-offs | |||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| California | $ | 15,416 | $ | 15,516 | $ | 27 | $ | 12 | $ | 21 | $ | 6 | ||||||||||||||||||||||||||
| Florida | 13,550 | 13,783 | 18 | 10 | 14 | 4 | ||||||||||||||||||||||||||||||||
| Texas | 9,668 | 9,837 | 14 | 9 | 12 | 3 | ||||||||||||||||||||||||||||||||
| New York | 7,335 | 7,891 | 11 | 5 | 6 | 2 | ||||||||||||||||||||||||||||||||
| New Jersey | 4,376 | 4,456 | 5 | 3 | 2 | 1 | ||||||||||||||||||||||||||||||||
| Other | 53,123 | 54,753 | 73 | 38 | 37 | 2 | ||||||||||||||||||||||||||||||||
| Total direct/indirect loan portfolio | $ | 103,468 | $ | 106,236 | $ | 148 | $ | 77 | $ | 92 | $ | 18 | ||||||||||||||||||||||||||
61 Bank of America
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Other Consumer
Other consumer primarily consists of deposit overdraft balances. Net charge-offs decreased $41 million in 2023 to $480 million, primarily driven by lower overdraft losses.
Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity
Table 27 presents nonperforming consumer loans, leases and foreclosed properties activity during 2023 and 2022. During 2023, nonperforming consumer loans decreased $42 million to $2.7 billion.
At December 31, 2023, $531 million, or 20 percent, of nonperforming loans were 180 days or more past due and had been written down to their estimated property value less costs to sell. In addition, at December 31, 2023, $1.6 billion, or 60 percent, of nonperforming consumer loans were current and classified as nonperforming loans in accordance with applicable policies.
Foreclosed properties decreased $18 million in 2023 to $103 million.
| Table 27 | Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity | |||||||||||||
| (Dollars in millions) | 2023 | 2022 | ||||||||||||
| Nonperforming loans and leases, January 1 | $ | 2,754 | $ | 2,989 | ||||||||||
| Additions | 1,055 | 1,453 | ||||||||||||
| Reductions: | ||||||||||||||
| Paydowns and payoffs | (480) | (535) | ||||||||||||
| Sales | (63) | (402) | ||||||||||||
Returns to performing status (1)
|
(475) | (661) | ||||||||||||
| Charge-offs | (53) | (56) | ||||||||||||
| Transfers to foreclosed properties | (26) | (34) | ||||||||||||
| Total net reductions to nonperforming loans and leases | (42) | (235) | ||||||||||||
Total nonperforming loans and leases, December 31 |
2,712 | 2,754 | ||||||||||||
Foreclosed properties, December 31 |
103 | 121 | ||||||||||||
Nonperforming consumer loans, leases and foreclosed properties, December 31 (2)
|
$ | 2,815 | $ | 2,875 | ||||||||||
Nonperforming consumer loans and leases as a percentage of outstanding consumer loans and leases (3)
|
0.59 | % | 0.60 | % | ||||||||||
Nonperforming consumer loans, leases and foreclosed properties as a percentage of outstanding consumer loans, leases and foreclosed properties (3)
|
0.61 | 0.63 | ||||||||||||
(1)Consumer loans may be returned to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection.
(2)Includes repossessed non-real estate assets of $20 million and $0 at December 31, 2023 and 2022.
(3)Outstanding consumer loans and leases exclude loans accounted for under the fair value option.
Commercial Portfolio Credit Risk Management
Credit risk management for the commercial portfolio begins with an assessment of the credit risk profile of the borrower or counterparty based on an analysis of its financial position. As part of the overall credit risk assessment, our commercial credit exposures are assigned a risk rating and are subject to approval based on defined credit approval standards. Subsequent to loan origination, risk ratings are monitored on an ongoing basis, and if necessary, adjusted to reflect changes in the financial condition, cash flow, risk profile or outlook of a borrower or counterparty. In making credit decisions, we consider risk rating, collateral, country, industry and single-name concentration limits while also balancing these considerations with the total borrower or counterparty relationship. We use a variety of tools to continuously monitor the ability of a borrower or counterparty to perform under its obligations. We use risk rating aggregations to measure and evaluate concentrations within portfolios. In addition, risk ratings are a factor in determining the level of allocated capital and the allowance for credit losses.
As part of our ongoing risk mitigation initiatives, we attempt to work with clients experiencing financial difficulty to modify their loans to terms that better align with their current ability to pay. For more information on our accounting policies regarding delinquencies, nonperforming status and net charge-offs for the commercial portfolio, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
Management of Commercial Credit Risk Concentrations
Commercial credit risk is evaluated and managed with the goal that concentrations of credit exposure continue to be aligned with our risk appetite. We review, measure and manage
concentrations of credit exposure by industry, product, geography, customer relationship and loan size. We also review, measure and manage commercial real estate loans by geographic location and property type. In addition, within our non-U.S. portfolio, we evaluate exposures by region and by country. Tables 32, 34 and 37 summarize our concentrations. We also utilize syndications of exposure to third parties, loan sales, hedging and other risk mitigation techniques to manage the size and risk profile of the commercial credit portfolio. For more information on our industry concentrations, see Table 34 and Commercial Portfolio Credit Risk Management – Industry Concentrations on page 66.
We account for certain large corporate loans and loan commitments, including issued but unfunded letters of credit which are considered utilized for credit risk management purposes, that exceed our single-name credit risk concentration guidelines under the fair value option. Lending commitments, both funded and unfunded, are actively managed and monitored, and as appropriate, credit risk for these lending relationships may be mitigated through the use of credit derivatives, with our credit view and market perspectives determining the size and timing of the hedging activity. In addition, we purchase credit protection to cover the funded portion as well as the unfunded portion of certain other credit exposures. To lessen the cost of obtaining our desired credit protection levels, credit exposure may be added within an industry, borrower or counterparty group by selling protection. These credit derivatives do not meet the requirements for treatment as accounting hedges. They are carried at fair value with changes in fair value recorded in other income.
In addition, we are a member of various securities and derivative exchanges and clearinghouses, both in the U.S. and
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other countries. As a member, we may be required to pay a pro-rata share of the losses incurred by some of these organizations as a result of another member default and under other loss scenarios. For more information, see Note 12 – Commitments and Contingencies to the Consolidated Financial Statements.
Commercial Credit Portfolio
Outstanding commercial loans and leases increased $4.4 billion during 2023 due to growth in commercial real estate, primarily in Global Banking, and U.S. small business commercial. During 2023, commercial credit quality deteriorated as nonperforming commercial loans and reservable criticized utilized exposure increased primarily driven by the commercial real estate office property type; however, the commercial net charge-off ratio of 0.12 percent during 2023 remained low.
With the exception of the office property type, which is further discussed in the Commercial Real Estate section herein, credit quality of commercial real estate borrowers has remained relatively stable since December 31, 2022; however, we are closely monitoring emerging trends and borrower performance in the increased rate environment and challenging capital markets. Recent demand for office space has been stagnant, and future demand for office space continues to be uncertain as
companies evaluate space needs with employment models that utilize a mix of remote and conventional office use.
The commercial allowance for loan and lease losses decreased $623 million during 2023 to $4.8 billion, primarily driven by improved macroeconomic conditions. For more information, see Allowance for Credit Losses on page 71.
Total commercial utilized credit exposure decreased $8.6 billion during 2023 to $696.3 billion primarily driven by lower derivative assets. The utilization rate for loans and leases, standby letters of credit (SBLCs) and financial guarantees, and commercial letters of credit, in the aggregate, was 55 percent and 56 percent at December 31, 2023 and 2022.
Table 28 presents commercial credit exposure by type for utilized, unfunded and total binding committed credit exposure. Commercial utilized credit exposure includes SBLCs and financial guarantees and commercial letters of credit that have been issued and for which we are legally bound to advance funds under prescribed conditions during a specified time period, and excludes exposure related to trading account assets. Although funds have not yet been advanced, these exposure types are considered utilized for credit risk management purposes.
| Table 28 | Commercial Credit Exposure by Type | |||||||||||||||||||||||||||||||||||||
Commercial Utilized (1)
|
Commercial Unfunded (2, 3, 4)
|
Total Commercial Committed | ||||||||||||||||||||||||||||||||||||
| December 31 | ||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Loans and leases | $ | 593,767 | $ | 589,362 | $ | 507,641 | $ | 487,772 | $ | 1,101,408 | $ | 1,077,134 | ||||||||||||||||||||||||||
Derivative assets (5)
|
39,323 | 48,642 | — | — | 39,323 | 48,642 | ||||||||||||||||||||||||||||||||
| Standby letters of credit and financial guarantees | 31,348 | 33,376 | 1,953 | 1,266 | 33,301 | 34,642 | ||||||||||||||||||||||||||||||||
| Debt securities and other investments | 20,422 | 20,195 | 3,083 | 2,551 | 23,505 | 22,746 | ||||||||||||||||||||||||||||||||
| Loans held-for-sale | 4,338 | 6,112 | 4,904 | 3,729 | 9,242 | 9,841 | ||||||||||||||||||||||||||||||||
| Operating leases | 5,312 | 5,509 | — | — | 5,312 | 5,509 | ||||||||||||||||||||||||||||||||
| Commercial letters of credit | 943 | 973 | 232 | 28 | 1,175 | 1,001 | ||||||||||||||||||||||||||||||||
| Other | 846 | 698 | — | — | 846 | 698 | ||||||||||||||||||||||||||||||||
| Total | $ | 696,299 | $ | 704,867 | $ | 517,813 | $ | 495,346 | $ | 1,214,112 | $ | 1,200,213 | ||||||||||||||||||||||||||
(1)Commercial utilized exposure includes loans of $3.3 billion and $5.4 billion accounted for under the fair value option at December 31, 2023 and 2022.
(2)Commercial unfunded exposure includes commitments accounted for under the fair value option with a notional amount of $2.6 billion and $3.0 billion at December 31, 2023 and 2022.
(3)Excludes unused business card lines, which are not legally binding.
(4)Includes the notional amount of unfunded legally binding lending commitments, net of amounts distributed (i.e., syndicated or participated) to other financial institutions. The distributed amounts were $10.3 billion and $10.4 billion at December 31, 2023 and 2022.
(5)Derivative assets are carried at fair value, reflect the effects of legally enforceable master netting agreements and have been reduced by cash collateral of $29.4 billion and $33.8 billion at December 31, 2023 and 2022. Not reflected in utilized and committed exposure is additional non-cash derivative collateral held of $56.1 billion and $51.6 billion at December 31, 2023 and 2022, which consists primarily of other marketable securities.
Nonperforming commercial loans increased $1.7 billion during 2023, primarily in commercial real estate. Table 29 presents our commercial loans and leases portfolio and related credit quality information at December 31, 2023 and 2022.
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| Table 29 | Commercial Credit Quality | |||||||||||||||||||||||||||||||||||||
| Outstandings | Nonperforming | Accruing Past Due 90 Days or More |
||||||||||||||||||||||||||||||||||||
| December 31 | ||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Commercial and industrial: | ||||||||||||||||||||||||||||||||||||||
| U.S. commercial | $ | 358,931 | $ | 358,481 | $ | 636 | $ | 553 | $ | 51 | $ | 190 | ||||||||||||||||||||||||||
| Non-U.S. commercial | 124,581 | 124,479 | 175 | 212 | 4 | 25 | ||||||||||||||||||||||||||||||||
| Total commercial and industrial | 483,512 | 482,960 | 811 | 765 | 55 | 215 | ||||||||||||||||||||||||||||||||
| Commercial real estate | 72,878 | 69,766 | 1,927 | 271 | 32 | 46 | ||||||||||||||||||||||||||||||||
| Commercial lease financing | 14,854 | 13,644 | 19 | 4 | 7 | 8 | ||||||||||||||||||||||||||||||||
| 571,244 | 566,370 | 2,757 | 1,040 | 94 | 269 | |||||||||||||||||||||||||||||||||
U.S. small business commercial (1)
|
19,197 | 17,560 | 16 | 14 | 184 | 355 | ||||||||||||||||||||||||||||||||
| Commercial loans excluding loans accounted for under the fair value option | $ | 590,441 | $ | 583,930 | $ | 2,773 | $ | 1,054 | $ | 278 | $ | 624 | ||||||||||||||||||||||||||
Loans accounted for under the fair value option (2)
|
3,326 | 5,432 | ||||||||||||||||||||||||||||||||||||
| Total commercial loans and leases | $ | 593,767 | $ | 589,362 | ||||||||||||||||||||||||||||||||||
(1)Includes card-related products.
(2)Commercial loans accounted for under the fair value option includes U.S. commercial of $2.2 billion and $2.9 billion and non-U.S. commercial of $1.2 billion and $2.5 billion at December 31, 2023 and 2022. For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements.
Table 30 presents net charge-offs and related ratios for our commercial loans and leases for 2023 and 2022.
| Table 30 | Commercial Net Charge-offs and Related Ratios | |||||||||||||||||||||||||
| Net Charge-offs |
Net Charge-off Ratios (1)
|
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| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Commercial and industrial: | ||||||||||||||||||||||||||
| U.S. commercial | $ | 124 | $ | 71 | 0.03 | % | 0.02 | % | ||||||||||||||||||
| Non-U.S. commercial | 19 | 21 | 0.02 | 0.02 | ||||||||||||||||||||||
| Total commercial and industrial | 143 | 92 | 0.03 | 0.02 | ||||||||||||||||||||||
| Commercial real estate | 245 | 66 | 0.34 | 0.10 | ||||||||||||||||||||||
| Commercial lease financing | 2 | 5 | 0.02 | 0.03 | ||||||||||||||||||||||
| 390 | 163 | 0.07 | 0.03 | |||||||||||||||||||||||
| U.S. small business commercial | 319 | 154 | 1.71 | 0.86 | ||||||||||||||||||||||
| Total commercial | $ | 709 | $ | 317 | 0.12 | 0.06 | ||||||||||||||||||||
(1)Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans and leases, excluding loans accounted for under the fair value option.
Table 31 presents commercial reservable criticized utilized exposure by loan type. Criticized exposure corresponds to the Special Mention, Substandard and Doubtful asset categories as defined by regulatory authorities. Total commercial reservable criticized utilized exposure increased $4.0 billion during 2023
driven by the commercial real estate office property type and U.S. commercial, partially offset by non-U.S. commercial. At December 31, 2023 and 2022, 89 percent and 88 percent of commercial reservable criticized utilized exposure was secured.
| Table 31 |
Commercial Reservable Criticized Utilized Exposure (1, 2)
|
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| December 31 | ||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | ||||||||||||||||||||||||
| Commercial and industrial: | ||||||||||||||||||||||||||
| U.S. commercial | $ | 12,006 | 3.12 | % | $ | 10,724 | 2.78 | % | ||||||||||||||||||
| Non-U.S. commercial | 1,787 | 1.37 | 2,665 | 2.04 | ||||||||||||||||||||||
| Total commercial and industrial | 13,793 | 2.68 | 13,389 | 2.59 | ||||||||||||||||||||||
| Commercial real estate | 8,749 | 11.80 | 5,201 | 7.30 | ||||||||||||||||||||||
| Commercial lease financing | 166 | 1.12 | 240 | 1.76 | ||||||||||||||||||||||
| 22,708 | 3.76 | 18,830 | 3.13 | |||||||||||||||||||||||
| U.S. small business commercial | 592 | 3.08 | 444 | 2.53 | ||||||||||||||||||||||
| Total commercial reservable criticized utilized exposure | $ | 23,300 | 3.74 | $ | 19,274 | 3.12 | ||||||||||||||||||||
(1)Total commercial reservable criticized utilized exposure includes loans and leases of $22.5 billion and $18.5 billion and commercial letters of credit of $795 million and $817 million at December 31, 2023 and 2022.
(2)Percentages are calculated as commercial reservable criticized utilized exposure divided by total commercial reservable utilized exposure for each exposure category.
Commercial and Industrial
Commercial and industrial loans include U.S. commercial and non-U.S. commercial portfolios.
U.S. Commercial
At December 31, 2023, 62 percent of the U.S. commercial loan portfolio, excluding small business, was managed in Global Banking, 22 percent in Global Markets, 14 percent in GWIM
(loans that provide financing for asset purchases, business investments and other liquidity needs for high net worth clients) and the remainder primarily in Consumer Banking. U.S. commercial loans remained largely unchanged during 2023. Reservable criticized utilized exposure increased $1.3 billion, or 12 percent, driven by a broad range of industries.
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Non-U.S. Commercial
At December 31, 2023, 62 percent of the non-U.S. commercial loan portfolio was managed in Global Banking and 38 percent in Global Markets. Non-U.S. commercial loans remained largely unchanged during 2023. Reservable criticized utilized exposure decreased $878 million, or 33 percent, due to upgrades and sales of Russian exposure. For information on the non-U.S. commercial portfolio, see Non-U.S. Portfolio on page 68.
Commercial Real Estate
Commercial real estate primarily includes commercial loans secured by non-owner-occupied real estate and is dependent on the sale or lease of the real estate as the primary source of repayment. Outstanding loans increased $3.1 billion, or four percent, during 2023 to $72.9 billion with increases across multiple property types. The commercial real estate portfolio is primarily managed in Global Banking and consists of loans made primarily to public and private developers, and commercial real estate firms. The portfolio remains diversified across property types and geographic regions. California represented the largest state concentration at 20 percent and 19 percent of commercial real estate at December 31, 2023 and 2022.
Reservable criticized utilized exposure increased $3.5 billion, or 68 percent, during 2023, primarily driven by office loans.
Office loans represented the largest property type concentration at 25 percent of the commercial real estate portfolio at December 31, 2023, but only represented approximately two percent of total loans for the Corporation. This property type is roughly 75 percent Class A and had an origination loan-to-value of approximately 55 percent. Although we have seen collateral value declines in this property type, the majority of these loans remained adequately secured as of December 31, 2023.
Reservable criticized exposure for the office property type was $5.5 billion at December 31, 2023, and approximately $7.6 billion of office loans are scheduled to mature by the end of 2024.
During 2023 and 2022, we continued to see relatively low default rates. We use a number of proactive risk mitigation initiatives to reduce adversely rated exposure in the commercial real estate portfolio, including transfers of deteriorating exposures for management by independent special asset officers and the pursuit of loan restructurings or asset sales to achieve the best results for our customers and the Corporation.
Table 32 presents outstanding commercial real estate loans by geographic region, based on the geographic location of the collateral, and by property type.
| Table 32 | Outstanding Commercial Real Estate Loans | |||||||||||||
| December 31 | ||||||||||||||
| (Dollars in millions) | 2023 | 2022 | ||||||||||||
| By Geographic Region | ||||||||||||||
| Northeast | $ | 15,920 | $ | 15,601 | ||||||||||
| California | 14,551 | 13,360 | ||||||||||||
| Southwest | 9,318 | 8,723 | ||||||||||||
| Southeast | 8,368 | 7,713 | ||||||||||||
| Florida | 4,986 | 5,374 | ||||||||||||
| Illinois | 3,361 | 3,327 | ||||||||||||
| Midwest | 3,149 | 3,419 | ||||||||||||
| Midsouth | 2,785 | 2,716 | ||||||||||||
| Northwest | 2,095 | 1,959 | ||||||||||||
| Non-U.S. | 6,052 | 5,518 | ||||||||||||
| Other | 2,293 | 2,056 | ||||||||||||
Total outstanding commercial real estate loans |
$ | 72,878 | $ | 69,766 | ||||||||||
| By Property Type | ||||||||||||||
| Non-residential | ||||||||||||||
| Office | $ | 17,976 | $ | 18,230 | ||||||||||
| Industrial / Warehouse | 14,746 | 13,775 | ||||||||||||
| Multi-family rental | 10,606 | 10,412 | ||||||||||||
| Shopping centers / Retail | 5,756 | 5,830 | ||||||||||||
| Hotel / Motels | 5,665 | 5,696 | ||||||||||||
| Multi-use | 2,681 | 2,403 | ||||||||||||
| Other | 14,201 | 12,241 | ||||||||||||
| Total non-residential | 71,631 | 68,587 | ||||||||||||
| Residential | 1,247 | 1,179 | ||||||||||||
Total outstanding commercial real estate loans |
$ | 72,878 | $ | 69,766 | ||||||||||
65 Bank of America
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U.S. Small Business Commercial
The U.S. small business commercial loan portfolio is comprised of small business card loans and small business loans primarily managed in Consumer Banking, and included $329 million and $1.0 billion of Paycheck Protection Program (PPP) loans outstanding at December 31, 2023 and 2022. PPP loans decreased $679 million primarily due to repayment of the loans by the Small Business Administration (SBA) under the terms of the program. Excluding PPP, credit card-related products were 54 percent and 53 percent of the U.S. small business commercial portfolio at December 31, 2023 and 2022 and represented 99 percent of the net charge-offs compared to 100 percent for 2022. Accruing past due 90 days or more decreased $171 million in 2023 driven by the repayment of PPP loans, which are fully guaranteed by the SBA.
Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity
Table 33 presents the nonperforming commercial loans, leases and foreclosed properties activity during 2023 and 2022. Nonperforming loans do not include loans accounted for under the fair value option. During 2023, nonperforming commercial loans and leases increased $1.7 billion to $2.8 billion. At December 31, 2023, 96 percent of commercial nonperforming loans, leases and foreclosed properties were secured, and 62 percent were contractually current. Commercial nonperforming loans were carried at 89 percent of their unpaid principal balance, as the carrying value of these loans has been reduced to the estimated collateral value less costs to sell.
| Table 33 |
Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity (1, 2)
|
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| (Dollars in millions) | 2023 | 2022 | ||||||||||||
| Nonperforming loans and leases, January 1 | $ | 1,054 | $ | 1,578 | ||||||||||
| Additions | 2,863 | 952 | ||||||||||||
| Reductions: | ||||||||||||||
| Paydowns | (517) | (825) | ||||||||||||
| Sales | (4) | (57) | ||||||||||||
Returns to performing status (3)
|
(106) | (334) | ||||||||||||
| Charge-offs | (428) | (221) | ||||||||||||
| Transfers to foreclosed properties | (23) | — | ||||||||||||
| Transfers to loans held-for-sale | (66) | (39) | ||||||||||||
| Total net additions / (reductions) to nonperforming loans and leases | 1,719 | (524) | ||||||||||||
| Total nonperforming loans and leases, December 31 | 2,773 | 1,054 | ||||||||||||
| Foreclosed properties, December 31 | 42 | 49 | ||||||||||||
| Nonperforming commercial loans, leases and foreclosed properties, December 31 | $ | 2,815 | $ | 1,103 | ||||||||||
Nonperforming commercial loans and leases as a percentage of outstanding commercial loans and leases (4)
|
0.47 | % | 0.18 | % | ||||||||||
Nonperforming commercial loans, leases and foreclosed properties as a percentage of outstanding commercial loans, leases and foreclosed properties (4)
|
0.48 | 0.19 | ||||||||||||
(1)Balances do not include nonperforming loans held-for-sale of $161 million and $219 million at December 31, 2023 and 2022.
(2)Includes U.S. small business commercial activity. Small business card loans are excluded as they are not classified as nonperforming.
(3)Commercial loans and leases may be returned to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, when the loan otherwise becomes well-secured and is in the process of collection, or when a modified loan demonstrates a sustained period of payment performance.
(4)Outstanding commercial loans exclude loans accounted for under the fair value option.
Industry Concentrations
Table 34 presents commercial committed and utilized credit exposure by industry. For information on net notional credit protection purchased to hedge funded and unfunded exposures for which we elected the fair value option, as well as certain other credit exposures, see Commercial Portfolio Credit Risk Management – Risk Mitigation.
Commercial credit exposure is diversified across a broad range of industries. Total commercial committed exposure increased $13.9 billion during 2023 to $1.2 trillion. The increase in commercial committed exposure was concentrated in Capital goods, Finance companies and Asset managers and funds.
Industry limits are used internally to manage industry concentrations and are based on committed exposure that is determined on an industry-by-industry basis. A risk management framework is in place to set and approve industry limits as well as to provide ongoing monitoring.
Asset managers and funds, our largest industry concentration with committed exposure of $169.3 billion, increased $4.2 billion, primarily driven by exposure to the Capital markets industry group during 2023.
Real estate, our second largest industry concentration with committed exposure of $100.3 billion remained relatively unchanged during 2023. For more information on the commercial real estate and related portfolios, see Commercial Portfolio Credit Risk Management – Commercial Real Estate on page 65.
Capital goods, our third largest industry concentration with committed exposure of $97.0 billion, increased $9.7 billion, or 11 percent, during 2023. The increase in committed exposure occurred primarily as a result of increases in Trading companies and distributors as well as Machinery, partially offset by a decrease in Industrial conglomerates.
The impact of various macroeconomic challenges, including geopolitical tensions, inflationary pressures and elevated interest rates, may lead to uncertainty in the U.S. and global economies, and may adversely impact a number of industries. We continue to monitor all industries, particularly higher risk industries that are experiencing or could experience a more significant impact to their financial condition.
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| Table 34 |
Commercial Credit Exposure by Industry (1)
|
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| Commercial Utilized |
Total Commercial
Committed (2)
|
|||||||||||||||||||||||||
| December 31 | ||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Asset managers and funds | $ | 103,138 | $ | 106,842 | $ | 169,318 | $ | 165,087 | ||||||||||||||||||
Real estate (3)
|
73,150 | 72,180 | 100,269 | 99,722 | ||||||||||||||||||||||
| Capital goods | 49,698 | 45,580 | 97,044 | 87,314 | ||||||||||||||||||||||
| Finance companies | 62,906 | 55,248 | 89,119 | 79,546 | ||||||||||||||||||||||
| Healthcare equipment and services | 35,037 | 33,554 | 61,766 | 58,761 | ||||||||||||||||||||||
| Materials | 25,223 | 26,304 | 55,296 | 55,589 | ||||||||||||||||||||||
| Retailing | 24,561 | 24,785 | 54,523 | 53,714 | ||||||||||||||||||||||
| Food, beverage and tobacco | 23,865 | 23,232 | 49,426 | 47,486 | ||||||||||||||||||||||
| Consumer services | 27,355 | 26,980 | 49,105 | 47,372 | ||||||||||||||||||||||
| Government and public education | 31,051 | 34,861 | 45,873 | 48,134 | ||||||||||||||||||||||
| Individuals and trusts | 32,481 | 34,897 | 43,938 | 45,572 | ||||||||||||||||||||||
| Commercial services and supplies | 22,642 | 23,628 | 41,473 | 41,596 | ||||||||||||||||||||||
| Utilities | 18,610 | 20,292 | 39,481 | 40,164 | ||||||||||||||||||||||
| Energy | 12,450 | 15,132 | 36,996 | 36,043 | ||||||||||||||||||||||
| Transportation | 24,200 | 22,273 | 36,267 | 33,858 | ||||||||||||||||||||||
| Technology hardware and equipment | 11,951 | 11,441 | 29,160 | 29,825 | ||||||||||||||||||||||
| Global commercial banks | 22,749 | 27,217 | 25,684 | 29,293 | ||||||||||||||||||||||
| Media | 13,033 | 14,781 | 24,908 | 28,216 | ||||||||||||||||||||||
| Vehicle dealers | 16,283 | 12,909 | 22,570 | 20,638 | ||||||||||||||||||||||
| Software and services | 9,830 | 12,961 | 22,381 | 25,633 | ||||||||||||||||||||||
| Pharmaceuticals and biotechnology | 6,852 | 7,547 | 22,169 | 26,208 | ||||||||||||||||||||||
| Consumer durables and apparel | 9,184 | 10,009 | 20,732 | 21,389 | ||||||||||||||||||||||
| Insurance | 9,371 | 10,224 | 19,322 | 19,444 | ||||||||||||||||||||||
| Telecommunication services | 9,224 | 9,679 | 17,269 | 17,349 | ||||||||||||||||||||||
| Automobiles and components | 7,049 | 8,774 | 16,459 | 16,911 | ||||||||||||||||||||||
| Food and staples retailing | 7,423 | 7,157 | 12,496 | 11,908 | ||||||||||||||||||||||
| Financial markets infrastructure (clearinghouses) | 4,229 | 3,913 | 6,503 | 8,752 | ||||||||||||||||||||||
| Religious and social organizations | 2,754 | 2,467 | 4,565 | 4,689 | ||||||||||||||||||||||
| Total commercial credit exposure by industry | $ | 696,299 | $ | 704,867 | $ | 1,214,112 | $ | 1,200,213 | ||||||||||||||||||
(1)Includes U.S. small business commercial exposure.
(2)Includes the notional amount of unfunded legally binding lending commitments, net of amounts distributed (i.e., syndicated or participated) to other financial institutions. The distributed amounts were $10.3 billion and $10.4 billion at December 31, 2023 and 2022.
(3)Industries are viewed from a variety of perspectives to best isolate the perceived risks. For purposes of this table, the real estate industry is defined based on the primary business activity of the borrowers or counterparties using operating cash flows and primary source of repayment as key factors.
Risk Mitigation
We purchase credit protection to cover the funded portion as well as the unfunded portion of certain credit exposures. To lower the cost of obtaining our desired credit protection levels, we may add credit exposure within an industry, borrower or counterparty group by selling protection.
At December 31, 2023 and 2022, net notional credit default protection purchased in our credit derivatives portfolio to hedge our funded and unfunded exposures for which we elected the fair value option, as well as certain other credit exposures, was $10.9 billion and $9.0 billion. We recorded net losses of $185 million in 2023 compared to net losses of $37 million in 2022. The gains and losses on these instruments were largely offset by gains and losses on the related exposures. The Value-at-Risk (VaR) results for these exposures are included in the fair value option portfolio information in Table 41. For more information, see Trading Risk Management on page 74.
Tables 35 and 36 present the maturity profiles and the credit exposure debt ratings of the net credit default protection portfolio at December 31, 2023 and 2022.
| Table 35 | Net Credit Default Protection by Maturity | |||||||||||||
| December 31 | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Less than or equal to one year | 36 | % | 14 | % | ||||||||||
Greater than one year and less than or equal to five years |
64 | 85 | ||||||||||||
| Greater than five years | — | 1 | ||||||||||||
| Total net credit default protection | 100 | % | 100 | % | ||||||||||
67 Bank of America
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| Table 36 | Net Credit Default Protection by Credit Exposure Debt Rating | |||||||||||||||||||||||||
Net Notional (1) |
Percent of Total |
Net Notional (1) |
Percent of Total |
|||||||||||||||||||||||
| December 31 | ||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | ||||||||||||||||||||||||
Ratings (2, 3)
|
||||||||||||||||||||||||||
| AAA | $ | (479) | 4.4 | % | $ | (379) | 4.0 | % | ||||||||||||||||||
| AA | (1,080) | 9.9 | (867) | 10.0 | ||||||||||||||||||||||
| A | (5,237) | 48.2 | (3,257) | 36.0 | ||||||||||||||||||||||
| BBB | (2,912) | 26.8 | (2,476) | 28.0 | ||||||||||||||||||||||
| BB | (698) | 6.4 | (1,049) | 12.0 | ||||||||||||||||||||||
| B | (419) | 3.9 | (676) | 7.0 | ||||||||||||||||||||||
| CCC and below | (52) | 0.5 | (93) | 1.0 | ||||||||||||||||||||||
NR (4)
|
2 | (0.1) | (182) | 2.0 | ||||||||||||||||||||||
|
Total net credit
default protection
|
$ | (10,875) | 100.0 | % | $ | (8,979) | 100.0 | % | ||||||||||||||||||
(1)Represents net credit default protection purchased.
(2)Ratings are refreshed on a quarterly basis.
(3)Ratings of BBB- or higher are considered to meet the definition of investment grade.
(4)NR is comprised of index positions held and any names that have not been rated.
In addition to our net notional credit default protection purchased to cover the funded and unfunded portion of certain credit exposures, credit derivatives are used for market-making activities for clients and establishing positions intended to profit from directional or relative value changes. We execute the majority of our credit derivative trades in the OTC market with large, multinational financial institutions, including broker-dealers and, to a lesser degree, with a variety of other investors. Because these transactions are executed in the OTC market, we are subject to settlement risk. We are also subject to credit risk in the event that these counterparties fail to perform under the terms of these contracts. In order to properly reflect counterparty credit risk, we record counterparty credit risk valuation adjustments on certain derivative assets, including our purchased credit default protection. In most cases, credit derivative transactions are executed on a daily margin basis. Therefore, events such as a credit downgrade, depending on the ultimate rating level, or a breach of credit covenants would typically require an increase in the amount of collateral required by the counterparty, where applicable, and/or allow us to take additional protective measures such as early termination of all
trades. For more information on credit derivatives and counterparty credit risk valuation adjustments, see Note 3 – Derivatives to the Consolidated Financial Statements.
Non-U.S. Portfolio
Our non-U.S. credit and trading portfolios are subject to country risk. We define country risk as the risk of loss from unfavorable economic and political conditions, currency fluctuations, social instability and changes in government policies. A risk management framework is in place to measure, monitor and manage non-U.S. risk and exposures. In addition to the direct risk of doing business in a country, we also are exposed to indirect country risks (e.g., related to the collateral received on secured financing transactions or related to client clearing activities). These indirect exposures are managed in the normal course of business through credit, market and operational risk governance rather than through country risk governance.
Table 37 presents our 20 largest non-U.S. country exposures at December 31, 2023. These exposures accounted for 89 percent of our total non-U.S. exposure at December 31, 2023 and 2022. Net country exposure for these 20 countries decreased $13.1 billion in 2023 primarily driven by decreases in Germany and Japan.
Non-U.S. exposure is presented on an internal risk management basis and includes sovereign and non-sovereign credit exposure, securities and other investments issued by or domiciled in countries other than the U.S.
Funded loans and loan equivalents include loans, leases, and other extensions of credit and funds, including letters of credit and due from placements. Unfunded commitments are the undrawn portion of legally binding commitments related to loans and loan equivalents. Net counterparty exposure includes the fair value of derivatives, including the counterparty risk associated with credit default swaps (CDS), and secured financing transactions. Securities and other investments are carried at fair value and long securities exposures are netted against short exposures with the same underlying issuer to, but not below, zero. Net country exposure represents country exposure less hedges and credit default protection purchased, net of credit default protection sold.
Bank of America 68
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| Table 37 | Top 20 Non-U.S. Countries Exposure | |||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Funded Loans and Loan Equivalents |
Unfunded Loan Commitments |
Net Counterparty Exposure |
Securities/ Other Investments |
Country Exposure at December 31 2023 |
Hedges and Credit Default Protection | Net Country Exposure at December 31 2023 |
Increase (Decrease) from December 31 2022 |
||||||||||||||||||||||||||||||||||||||||||
| United Kingdom | $ | 28,805 | $ | 18,276 | $ | 5,416 | $ | 5,080 | $ | 57,577 | $ | (1,642) | $ | 55,935 | $ | 590 | ||||||||||||||||||||||||||||||||||
| Germany | 24,051 | 10,098 | 2,105 | 2,013 | 38,267 | (2,612) | 35,655 | (10,071) | ||||||||||||||||||||||||||||||||||||||||||
| Canada | 11,653 | 10,079 | 1,280 | 5,490 | 28,502 | (487) | 28,015 | 2,442 | ||||||||||||||||||||||||||||||||||||||||||
| France | 13,997 | 8,429 | 1,111 | 2,585 | 26,122 | (1,264) | 24,858 | (1,735) | ||||||||||||||||||||||||||||||||||||||||||
| Australia | 14,179 | 4,654 | 383 | 2,358 | 21,574 | (252) | 21,322 | 1,105 | ||||||||||||||||||||||||||||||||||||||||||
| Japan | 9,553 | 1,895 | 1,194 | 5,124 | 17,766 | (792) | 16,974 | (6,113) | ||||||||||||||||||||||||||||||||||||||||||
| Brazil | 9,252 | 1,329 | 807 | 3,946 | 15,334 | (51) | 15,283 | 2,783 | ||||||||||||||||||||||||||||||||||||||||||
| India | 6,891 | 231 | 580 | 4,270 | 11,972 | (47) | 11,925 | 1,156 | ||||||||||||||||||||||||||||||||||||||||||
| Singapore | 4,955 | 505 | 125 | 5,303 | 10,888 | (71) | 10,817 | 1,210 | ||||||||||||||||||||||||||||||||||||||||||
| Ireland | 8,464 | 1,322 | 133 | 459 | 10,378 | (45) | 10,333 | 1,243 | ||||||||||||||||||||||||||||||||||||||||||
| Switzerland | 4,867 | 3,786 | 294 | 497 | 9,444 | (215) | 9,229 | (1,459) | ||||||||||||||||||||||||||||||||||||||||||
| Mexico | 5,499 | 1,652 | 489 | 1,332 | 8,972 | (53) | 8,919 | 1,527 | ||||||||||||||||||||||||||||||||||||||||||
| China | 5,299 | 334 | 331 | 2,781 | 8,745 | (233) | 8,512 | (2,296) | ||||||||||||||||||||||||||||||||||||||||||
| South Korea | 5,404 | 880 | 357 | 1,854 | 8,495 | (35) | 8,460 | (666) | ||||||||||||||||||||||||||||||||||||||||||
| Netherlands | 3,188 | 3,312 | 735 | 959 | 8,194 | (1,045) | 7,149 | (2,134) | ||||||||||||||||||||||||||||||||||||||||||
| Italy | 4,121 | 2,184 | 200 | 653 | 7,158 | (543) | 6,615 | 947 | ||||||||||||||||||||||||||||||||||||||||||
| Hong Kong | 3,722 | 556 | 464 | 1,137 | 5,879 | (27) | 5,852 | (1,419) | ||||||||||||||||||||||||||||||||||||||||||
| Spain | 2,893 | 2,035 | 163 | 902 | 5,993 | (397) | 5,596 | (245) | ||||||||||||||||||||||||||||||||||||||||||
| Belgium | 1,648 | 1,328 | 205 | 415 | 3,596 | (149) | 3,447 | (416) | ||||||||||||||||||||||||||||||||||||||||||
| Sweden | 1,223 | 1,857 | 155 | 152 | 3,387 | (373) | 3,014 | 410 | ||||||||||||||||||||||||||||||||||||||||||
Total top 20 non-U.S. countries exposure |
$ | 169,664 | $ | 74,742 | $ | 16,527 | $ | 47,310 | $ | 308,243 | $ | (10,333) | $ | 297,910 | $ | (13,141) | ||||||||||||||||||||||||||||||||||
Our largest non-U.S. country exposure at December 31, 2023 was the United Kingdom with net exposure of $55.9 billion, which represents an increase of $590 million from December 31, 2022. The increase was primarily driven by higher corporate exposure. Our second largest non-U.S. country exposure was Germany with net exposure of $35.7 billion at December 31, 2023, a decrease of $10.1 billion from December 31, 2022. The decrease was primarily driven by lower deposits with the central bank.
69 Bank of America
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Loan and Lease Contractual Maturities
Table 38 disaggregates total outstanding loans and leases by remaining scheduled principal due dates and interest rates. The amounts provided do not reflect prepayment assumptions or hedging activities related to the loan portfolio. For information on the asset sensitivity of our total banking book balance sheet, see Interest Rate Risk Management for the Banking Book on page 77.
| Table 38 |
Loan and Lease Contractual Maturities (1)
|
|||||||||||||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||||||||
| (Dollars in millions) | Due in One Year or Less |
Due After One Year Through Five Years | Due After Five Years Through 15 Years | Due After 15 Years | Total | |||||||||||||||||||||||||||
| Residential mortgage | $ | 5,675 | $ | 32,850 | $ | 95,399 | $ | 94,545 | $ | 228,469 | ||||||||||||||||||||||
| Home equity | 186 | 1,092 | 4,038 | 20,388 | 25,704 | |||||||||||||||||||||||||||
| Credit card | 102,200 | — | — | — | 102,200 | |||||||||||||||||||||||||||
| Direct/Indirect consumer | 61,888 | 35,663 | 4,941 | 976 | 103,468 | |||||||||||||||||||||||||||
| Other consumer | 124 | — | — | — | 124 | |||||||||||||||||||||||||||
| Total consumer loans | 170,073 | 69,605 | 104,378 | 115,909 | 459,965 | |||||||||||||||||||||||||||
| U.S. commercial | 105,690 | 233,802 | 19,659 | 1,935 | 361,086 | |||||||||||||||||||||||||||
| Non-U.S. commercial | 44,473 | 55,782 | 24,255 | 1,242 | 125,752 | |||||||||||||||||||||||||||
| Commercial real estate | 29,335 | 41,819 | 864 | 860 | 72,878 | |||||||||||||||||||||||||||
| Commercial lease financing | 3,234 | 9,112 | 1,052 | 1,456 | 14,854 | |||||||||||||||||||||||||||
| U.S. small business commercial | 11,764 | 4,459 | 2,878 | 96 | 19,197 | |||||||||||||||||||||||||||
| Total commercial loans | 194,496 | 344,974 | 48,708 | 5,589 | 593,767 | |||||||||||||||||||||||||||
| Total loans and leases | $ | 364,569 | $ | 414,579 | $ | 153,086 | $ | 121,498 | $ | 1,053,732 | ||||||||||||||||||||||
| Amount due in one year or less at: | Amount due after one year at: | |||||||||||||||||||||||||||||||
| (Dollars in millions) | Variable Interest Rates | Fixed Interest Rates | Variable Interest Rates | Fixed Interest Rates | Total | |||||||||||||||||||||||||||
| Residential mortgage | $ | 999 | $ | 4,676 | $ | 84,230 | $ | 138,564 | $ | 228,469 | ||||||||||||||||||||||
| Home equity | 161 | 25 | 21,871 | 3,647 | 25,704 | |||||||||||||||||||||||||||
| Credit card | 97,627 | 4,573 | — | — | 102,200 | |||||||||||||||||||||||||||
| Direct/Indirect consumer | 42,832 | 19,056 | 2,321 | 39,259 | 103,468 | |||||||||||||||||||||||||||
| Other consumer | 2 | 122 | — | — | 124 | |||||||||||||||||||||||||||
| Total consumer loans | 141,621 | 28,452 | 108,422 | 181,470 | 459,965 | |||||||||||||||||||||||||||
| U.S. commercial | 81,546 | 24,144 | 209,912 | 45,484 | 361,086 | |||||||||||||||||||||||||||
| Non-U.S. commercial | 34,632 | 9,841 | 79,019 | 2,260 | 125,752 | |||||||||||||||||||||||||||
| Commercial real estate | 26,836 | 2,499 | 42,226 | 1,317 | 72,878 | |||||||||||||||||||||||||||
| Commercial lease financing | 410 | 2,824 | 1,800 | 9,820 | 14,854 | |||||||||||||||||||||||||||
| U.S. small business commercial | 7,089 | 4,675 | 110 | 7,323 | 19,197 | |||||||||||||||||||||||||||
| Total commercial loans | 150,513 | 43,983 | 333,067 | 66,204 | 593,767 | |||||||||||||||||||||||||||
| Total loans and leases | $ | 292,134 | $ | 72,435 | $ | 441,489 | $ | 247,674 | $ | 1,053,732 | ||||||||||||||||||||||
(1)Includes loans accounted for under the fair value option.
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Allowance for Credit Losses
The allowance for credit losses increased $329 million from December 31, 2022 to $14.6 billion at December 31, 2023, which included a $1.3 billion reserve increase related to the consumer portfolio and a $942 million reserve decrease related to the commercial portfolio. The increase in the allowance reflected a reserve build in our consumer portfolio primarily due to credit card loan growth and asset quality, partially offset by a reserve release in our commercial portfolio primarily driven by improved macroeconomic conditions applicable to the
commercial portfolio. The allowance also includes the impact of the accounting change to remove the recognition and measurement guidance on troubled debt restructurings, which reduced the allowance for credit losses by $243 million on January 1, 2023. For more information on this change in accounting guidance, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
Table 39 presents an allocation of the allowance for credit losses by product type at December 31, 2023 and 2022.
| Table 39 | Allocation of the Allowance for Credit Losses by Product Type | |||||||||||||||||||||||||||||||||||||
| Amount | Percent of Total |
Percent of
Loans and Leases
Outstanding (1)
|
Amount | Percent of Total |
Percent of
Loans and Leases
Outstanding (1)
|
|||||||||||||||||||||||||||||||||
| (Dollars in millions) | December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| Allowance for loan and lease losses | ||||||||||||||||||||||||||||||||||||||
| Residential mortgage | $ | 339 | 2.54 | % | 0.15 | % | $ | 328 | 2.59 | % | 0.14 | % | ||||||||||||||||||||||||||
| Home equity | 47 | 0.35 | 0.19 | 92 | 0.73 | 0.35 | ||||||||||||||||||||||||||||||||
| Credit card | 7,346 | 55.06 | 7.19 | 6,136 | 48.38 | 6.57 | ||||||||||||||||||||||||||||||||
| Direct/Indirect consumer | 715 | 5.36 | 0.69 | 585 | 4.61 | 0.55 | ||||||||||||||||||||||||||||||||
| Other consumer | 73 | 0.55 | n/m | 96 | 0.76 | n/m | ||||||||||||||||||||||||||||||||
| Total consumer | 8,520 | 63.86 | 1.85 | 7,237 | 57.07 | 1.59 | ||||||||||||||||||||||||||||||||
U.S. commercial (2)
|
2,600 | 19.49 | 0.69 | 3,007 | 23.71 | 0.80 | ||||||||||||||||||||||||||||||||
| Non-U.S. commercial | 842 | 6.31 | 0.68 | 1,194 | 9.41 | 0.96 | ||||||||||||||||||||||||||||||||
| Commercial real estate | 1,342 | 10.06 | 1.84 | 1,192 | 9.40 | 1.71 | ||||||||||||||||||||||||||||||||
| Commercial lease financing | 38 | 0.28 | 0.26 | 52 | 0.41 | 0.38 | ||||||||||||||||||||||||||||||||
| Total commercial | 4,822 | 36.14 | 0.82 | 5,445 | 42.93 | 0.93 | ||||||||||||||||||||||||||||||||
| Allowance for loan and lease losses | 13,342 | 100.00 | % | 1.27 | 12,682 | 100.00 | % | 1.22 | ||||||||||||||||||||||||||||||
| Reserve for unfunded lending commitments | 1,209 | 1,540 | ||||||||||||||||||||||||||||||||||||
| Allowance for credit losses | $ | 14,551 | $ | 14,222 | ||||||||||||||||||||||||||||||||||
(1)Ratios are calculated as allowance for loan and lease losses as a percentage of loans and leases outstanding excluding loans accounted for under the fair value option.
(2)Includes allowance for loan and lease losses for U.S. small business commercial loans of $1.0 billion and $844 million at December 31, 2023 and 2022.
n/m = not meaningful
Net charge-offs for 2023 were $3.8 billion compared to $2.2 billion in 2022 primarily due to late-stage delinquent credit card loans that were charged off. The provision for credit losses increased $1.9 billion to $4.4 billion during 2023 compared to 2022. The provision for credit losses in 2023 was driven by our consumer portfolio primarily due to credit card loan growth and asset quality, partially offset by improved macroeconomic conditions that primarily benefited our commercial portfolio. The provision for credit losses for the consumer portfolio, including unfunded lending commitments, increased $2.5 billion to $4.5 billion during 2023 compared to 2022. The provision for credit losses for the commercial portfolio, including unfunded lending
commitments, decreased $628 million to a $133 million benefit for 2023 compared to 2022. The decline was due primarily to an improved macroeconomic outlook.
Table 40 presents a rollforward of the allowance for credit losses, including certain loan and allowance ratios for 2023 and 2022. For more information on the Corporation’s credit loss accounting policies and activity related to the allowance for credit losses, see Note 1 – Summary of Significant Accounting Principles and Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements.
71 Bank of America
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| Table 40 | Allowance for Credit Losses | |||||||||||||
| (Dollars in millions) | 2023 | 2022 | ||||||||||||
| Allowance for loan and lease losses, December 31 | $ | 12,682 | $ | 12,387 | ||||||||||
| January 1, 2023 adoption of credit loss standard | (243) | n/a | ||||||||||||
| Allowance for loan and lease losses, January 1 | $ | 12,439 | $ | 12,387 | ||||||||||
| Loans and leases charged off | ||||||||||||||
| Residential mortgage | (67) | (161) | ||||||||||||
| Home equity | (36) | (45) | ||||||||||||
| Credit card | (3,133) | (1,985) | ||||||||||||
| Direct/Indirect consumer | (233) | (232) | ||||||||||||
| Other consumer | (504) | (538) | ||||||||||||
| Total consumer charge-offs | (3,973) | (2,961) | ||||||||||||
U.S. commercial (1)
|
(551) | (354) | ||||||||||||
| Non-U.S. commercial | (37) | (41) | ||||||||||||
| Commercial real estate | (254) | (75) | ||||||||||||
| Commercial lease financing | (2) | (8) | ||||||||||||
| Total commercial charge-offs | (844) | (478) | ||||||||||||
| Total loans and leases charged off | (4,817) | (3,439) | ||||||||||||
| Recoveries of loans and leases previously charged off | ||||||||||||||
| Residential mortgage | 51 | 89 | ||||||||||||
| Home equity | 95 | 135 | ||||||||||||
| Credit card | 572 | 651 | ||||||||||||
| Direct/Indirect consumer | 141 | 214 | ||||||||||||
| Other consumer | 24 | 17 | ||||||||||||
| Total consumer recoveries | 883 | 1,106 | ||||||||||||
U.S. commercial (2)
|
108 | 129 | ||||||||||||
| Non-U.S. commercial | 18 | 20 | ||||||||||||
| Commercial real estate | 9 | 9 | ||||||||||||
| Commercial lease financing | — | 3 | ||||||||||||
| Total commercial recoveries | 135 | 161 | ||||||||||||
| Total recoveries of loans and leases previously charged off | 1,018 | 1,267 | ||||||||||||
| Net charge-offs | (3,799) | (2,172) | ||||||||||||
| Provision for loan and lease losses | 4,725 | 2,460 | ||||||||||||
| Other | (23) | 7 | ||||||||||||
Allowance for loan and lease losses, December 31 |
13,342 | 12,682 | ||||||||||||
| Reserve for unfunded lending commitments, January 1 | 1,540 | 1,456 | ||||||||||||
| Provision for unfunded lending commitments | (331) | 83 | ||||||||||||
| Other | — | 1 | ||||||||||||
Reserve for unfunded lending commitments, December 31 |
1,209 | 1,540 | ||||||||||||
Allowance for credit losses, December 31 |
$ | 14,551 | $ | 14,222 | ||||||||||
Loan and allowance ratios (3) :
|
||||||||||||||
Loans and leases outstanding at December 31 |
$ | 1,050,163 | $ | 1,039,976 | ||||||||||
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 |
1.27 | % | 1.22 | % | ||||||||||
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 |
1.85 | 1.59 | ||||||||||||
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 |
0.82 | 0.93 | ||||||||||||
| Average loans and leases outstanding | $ | 1,041,824 | $ | 1,010,799 | ||||||||||
| Net charge-offs as a percentage of average loans and leases outstanding | 0.36 | % | 0.21 | % | ||||||||||
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 |
243 | 333 | ||||||||||||
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs |
3.51 | 5.84 | ||||||||||||
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (4)
|
$ | 8,357 | $ | 6,998 | ||||||||||
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (4)
|
91 | % | 149 | % | ||||||||||
(1)Includes U.S. small business commercial charge-offs of $360 million in 2023 compared to $203 million in 2022.
(2)Includes U.S. small business commercial recoveries of $41 million in 2023 compared to $49 million in 2022.
(3)Ratios are calculated as allowance for loan and lease losses as a percentage of loans and leases outstanding excluding loans accounted for under the fair value option.
(4)Primarily includes amounts related to credit card and unsecured consumer lending portfolios in Consumer Banking.
Bank of America 72
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Market Risk Management
Market risk is the risk that changes in market conditions may adversely impact the value of assets or liabilities, or otherwise negatively impact earnings. This risk is inherent in the financial instruments associated with our operations, primarily within our Global Markets segment. We are also exposed to these risks in other areas of the Corporation (e.g., our ALM activities). In the event of market stress, these risks could have a material impact on our results. For more information, see Interest Rate Risk Management for the Banking Book on page 77.
Our traditional banking loan and deposit products are non-trading positions and are generally reported at amortized cost for assets or the amount owed for liabilities (historical cost). However, these positions are still subject to changes in economic value based on varying market conditions, with one of the primary risks being changes in the levels of interest rates. The risk of adverse changes in the economic value of our non-trading positions arising from changes in interest rates is managed through our ALM activities. We have elected to account for certain assets and liabilities under the fair value option.
Our trading positions are reported at fair value with changes reflected in income. Trading positions are subject to various changes in market-based risk factors. The majority of this risk is generated by our activities in the interest rate, foreign exchange, credit, equity and commodities markets. In addition, the values of assets and liabilities could change due to market liquidity, correlations across markets and expectations of market volatility. We seek to manage these risk exposures by using a variety of techniques that encompass a broad range of financial instruments. The key risk management techniques are discussed in more detail in the Trading Risk Management section.
GRM is responsible for providing senior management with a clear and comprehensive understanding of the trading risks to which we are exposed. These responsibilities include ownership of market risk policy, developing and maintaining quantitative risk models, calculating aggregated risk measures, establishing and monitoring position limits consistent with risk appetite, conducting daily reviews and analysis of trading inventory, approving material risk exposures and fulfilling regulatory requirements. Market risks that impact businesses outside of Global Markets are monitored and governed by their respective governance functions.
Model risk is the potential for adverse consequences from decisions based on incorrect or misused model outputs and reports. Given that models are used across the Corporation, model risk impacts all risk types including credit, market and operational risks. The Enterprise Model Risk Policy defines model risk standards, consistent with our Risk Framework and risk appetite, prevailing regulatory guidance and industry best practice. All models, including risk management, valuation and regulatory capital models, must meet certain validation criteria, including effective challenge of the conceptual soundness of the model, independent model testing and ongoing monitoring through outcomes analysis and benchmarking. The Enterprise Model Risk Committee, a subcommittee of the MRC, oversees that model standards are consistent with model risk requirements and monitors the effective challenge in the model validation process across the Corporation.
Interest Rate Risk
Interest rate risk represents exposures to instruments whose values vary with the level or volatility of interest rates. These instruments include, but are not limited to, loans, debt
securities, certain trading-related assets and liabilities, deposits, borrowings and derivatives. Hedging instruments used to mitigate these risks include derivatives such as options, futures, forwards and swaps.
Foreign Exchange Risk
Foreign exchange risk represents exposures to changes in the values of current holdings and future cash flows denominated in currencies other than the U.S. dollar. The types of instruments exposed to this risk include investments in non-U.S. subsidiaries, foreign currency-denominated loans and securities, future cash flows in foreign currencies arising from foreign exchange transactions, foreign currency-denominated debt and various foreign exchange derivatives whose values fluctuate with changes in the level or volatility of currency exchange rates or non-U.S. interest rates. Hedging instruments used to mitigate this risk include foreign exchange options, currency swaps, futures, forwards, and foreign currency-denominated debt and deposits.
Mortgage Risk
Mortgage risk represents exposures to changes in the values of mortgage-related instruments. The values of these instruments are sensitive to prepayment rates, mortgage rates, agency debt ratings, default, market liquidity, government participation and interest rate volatility. Our exposure to these instruments takes several forms. For example, we trade and engage in market-making activities in a variety of mortgage securities including whole loans, pass-through certificates, commercial mortgages and collateralized mortgage obligations including collateralized debt obligations using mortgages as underlying collateral. In addition, we originate a variety of MBS, which involves the accumulation of mortgage-related loans in anticipation of eventual securitization, and we may hold positions in mortgage securities and residential mortgage loans as part of the ALM portfolio. We also record MSRs as part of our mortgage origination activities. Hedging instruments used to mitigate this risk include derivatives such as options, swaps, futures and forwards as well as securities including MBS and U.S. Treasury securities. For more information, see Mortgage Banking Risk Management on page 79.
Equity Market Risk
Equity market risk represents exposures to securities that represent an ownership interest in a corporation in the form of domestic and foreign common stock or other equity-linked instruments. Instruments that would lead to this exposure include, but are not limited to, the following: common stock, exchange-traded funds, American Depositary Receipts, convertible bonds, listed equity options (puts and calls), OTC equity options, equity total return swaps, equity index futures and other equity derivative products. Hedging instruments used to mitigate this risk include options, futures, swaps, convertible bonds and cash positions.
Commodity Risk
Commodity risk represents exposures to instruments traded in the petroleum, natural gas, power and metals markets. These instruments consist primarily of futures, forwards, swaps and options. Hedging instruments used to mitigate this risk include options, futures and swaps in the same or similar commodity product, as well as cash positions.
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Issuer Credit Risk
Issuer credit risk represents exposures to changes in the creditworthiness of individual issuers or groups of issuers. Our portfolio is exposed to issuer credit risk where the value of an asset may be adversely impacted by changes in the levels of credit spreads, by credit migration or by defaults. Hedging instruments used to mitigate this risk include bonds, CDS and other credit fixed-income instruments.
Market Liquidity Risk
Market liquidity risk represents the risk that the level of expected market activity changes dramatically and, in certain cases, may even cease. This exposes us to the risk that we will not be able to transact business and execute trades in an orderly manner which may impact our results. This impact could be further exacerbated if expected hedging or pricing correlations are compromised by disproportionate demand or lack of demand for certain instruments. We utilize various risk mitigating techniques as discussed in more detail in Trading Risk Management.
Trading Risk Management
To evaluate risks in our trading activities, we focus on the actual and potential volatility of revenues generated by individual positions as well as portfolios of positions. Various techniques and procedures are utilized to enable the most complete understanding of these risks. Quantitative measures of market risk are evaluated on a daily basis from a single position to the portfolio of the Corporation. These measures include sensitivities of positions to various market risk factors, such as the potential impact on revenue from a one basis point change in interest rates, and statistical measures utilizing both actual and hypothetical market moves, such as VaR and stress testing. Periods of extreme market stress influence the reliability of these techniques to varying degrees. Qualitative evaluations of market risk utilize the suite of quantitative risk measures while understanding each of their respective limitations. Additionally, risk managers independently evaluate the risk of the portfolios under the current market environment and potential future environments.
VaR is a common statistic used to measure market risk as it allows the aggregation of market risk factors, including the effects of portfolio diversification. A VaR model simulates the value of a portfolio under a range of scenarios in order to generate a distribution of potential gains and losses. VaR represents the loss a portfolio is not expected to exceed more than a certain number of times per period, based on a specified holding period, confidence level and window of historical data. We use one VaR model consistently across the trading portfolios and it uses a historical simulation approach based on a three-year window of historical data. Our primary VaR statistic is equivalent to a 99 percent confidence level, which means that for a VaR with a one-day holding period, there should not be losses in excess of VaR, on average, 99 out of 100 trading days.
Within any VaR model, there are significant and numerous assumptions that will differ from company to company. The accuracy of a VaR model depends on the availability and quality of historical data for each of the risk factors in the portfolio. A VaR model may require additional modeling assumptions for new products that do not have the necessary historical market data or for less liquid positions for which accurate daily prices are not consistently available. For positions with insufficient historical data for the VaR calculation, the process for establishing an appropriate proxy is based on fundamental and
statistical analysis of the new product or less liquid position. This analysis identifies reasonable alternatives that replicate both the expected volatility and correlation to other market risk factors that the missing data would be expected to experience.
VaR may not be indicative of realized revenue volatility as changes in market conditions or in the composition of the portfolio can have a material impact on the results. In particular, the historical data used for the VaR calculation might indicate higher or lower levels of portfolio diversification than will be experienced. In order for the VaR model to reflect current market conditions, we update the historical data underlying our VaR model on a weekly basis, or more frequently during periods of market stress, and regularly review the assumptions underlying the model. A minor portion of risks related to our trading positions is not included in VaR. These risks are reviewed as part of our ICAAP. For more information regarding ICAAP, see Capital Management on page 47.
GRM continually reviews, evaluates and enhances our VaR model so that it reflects the material risks in our trading portfolio. Changes to the VaR model are reviewed and approved prior to implementation and any material changes are reported to management through the appropriate management committees.
Trading limits on quantitative risk measures, including VaR, are independently set by Global Markets Risk Management and reviewed on a regular basis so that trading limits remain relevant and within our overall risk appetite for market risks. Trading limits are reviewed in the context of market liquidity, volatility and strategic business priorities. Trading limits are set at both a granular level to allow for extensive coverage of risks as well as at aggregated portfolios to account for correlations among risk factors. All trading limits are approved at least annually. Approved trading limits are stored and tracked in a centralized limits management system. Trading limit excesses are communicated to management for review. Certain quantitative market risk measures and corresponding limits have been identified as critical in the Corporation’s Risk Appetite Statement. These risk appetite limits are reported on a daily basis and are approved at least annually by the ERC and the Board.
In periods of market stress, Global Markets senior leadership communicates daily to discuss losses, key risk positions and any limit excesses. As a result of this process, the businesses may selectively reduce risk.
Table 41 presents the total market-based portfolio VaR, which is the combination of the total covered positions (and less liquid trading positions) portfolio and the fair value option portfolio. Covered positions are defined by regulatory standards as trading assets and liabilities, both on- and off-balance sheet, that meet a defined set of specifications. These specifications identify the most liquid trading positions which are intended to be held for a short-term horizon and where we are able to hedge the material risk elements in a two-way market. Positions in less liquid markets, or where there are restrictions on the ability to trade the positions, typically do not qualify as covered positions. Foreign exchange and commodity positions are always considered covered positions, except for structural foreign currency positions that are excluded with prior regulatory approval.
In addition, Table 41 presents the VaR for the fair value option portfolio, which includes substantially all of the funded and unfunded exposures for which we elect the fair value option, and their corresponding hedges. Market risk VaR for trading activities, as presented in Table 41, differs from VaR used for regulatory capital calculations due to the holding period used.
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The holding period for VaR used for regulatory capital calculations is 10 days, while for the market risk VaR presented below, it is one day. Both measures utilize the same process and methodology.
The total market-based portfolio VaR results in Table 41 include market risk to which we are exposed from all business segments, excluding credit valuation adjustment (CVA), DVA and related hedges. The majority of this portfolio is within the Global Markets segment.
Table 41 presents year-end, average, high and low daily trading VaR for 2023 and 2022 using a 99 percent confidence level. The amounts disclosed in Table 41 and Table 42 align to
the view of covered positions used in the Basel 3 capital calculations. Foreign exchange and commodity positions are always considered covered positions, regardless of trading or banking treatment for the trade, except for structural foreign currency positions that are excluded with prior regulatory approval.
The annual average of total covered positions and less liquid trading positions portfolio VaR for 2023 decreased compared to 2022, primarily due to the roll off of March 2020 market volatility from the window of historical data used in the calibration of the VaR model.
| Table 41 | Market Risk VaR for Trading Activities | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Year End |
Average |
High (1)
|
Low (1)
|
Year End |
Average |
High (1)
|
Low (1)
|
||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange | $ | 29 | $ | 29 | $ | 43 | $ | 12 | $ | 38 | $ | 21 | $ | 39 | $ | 12 | ||||||||||||||||||||||||||||||||||
| Interest rate | 51 | 48 | 86 | 32 | 36 | 36 | 56 | 24 | ||||||||||||||||||||||||||||||||||||||||||
| Credit | 53 | 60 | 108 | 43 | 76 | 71 | 106 | 52 | ||||||||||||||||||||||||||||||||||||||||||
| Equity | 9 | 18 | 56 | 9 | 18 | 20 | 33 | 12 | ||||||||||||||||||||||||||||||||||||||||||
| Commodities | 9 | 9 | 14 | 6 | 8 | 13 | 27 | 7 | ||||||||||||||||||||||||||||||||||||||||||
| Portfolio diversification | (90) | (100) | n/a | n/a | (81) | (91) | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||
| Total covered positions portfolio | 61 | 64 | 92 | 41 | 95 | 70 | 140 | 42 | ||||||||||||||||||||||||||||||||||||||||||
Impact from less liquid exposures (2)
|
12 | 20 | n/a | n/a | 35 | 38 | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||
Total covered positions and less liquid trading positions portfolio |
73 | 84 | 149 | 52 | 130 | 108 | 236 | 61 | ||||||||||||||||||||||||||||||||||||||||||
| Fair value option loans | 16 | 25 | 49 | 14 | 48 | 51 | 65 | 37 | ||||||||||||||||||||||||||||||||||||||||||
| Fair value option hedges | 11 | 14 | 20 | 9 | 16 | 17 | 24 | 13 | ||||||||||||||||||||||||||||||||||||||||||
| Fair value option portfolio diversification | (12) | (23) | n/a | n/a | (38) | (36) | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||
| Total fair value option portfolio | 15 | 16 | 30 | 10 | 26 | 32 | 44 | 23 | ||||||||||||||||||||||||||||||||||||||||||
| Portfolio diversification | (9) | (8) | n/a | n/a | 9 | (11) | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||
| Total market-based portfolio | $ | 79 | $ | 92 | 173 | 58 | $ | 165 | $ | 129 | 287 | 70 | ||||||||||||||||||||||||||||||||||||||
(1)The high and low for each portfolio may have occurred on different trading days than the high and low for the components. Therefore the impact from less liquid exposures and the amount of portfolio diversification, which is the difference between the total portfolio and the sum of the individual components, is not relevant.
(2)Impact is net of diversification effects between the covered positions and less liquid trading positions portfolios.
n/a = not applicable
The following graph presents the daily covered positions and less liquid trading positions portfolio VaR for 2023, corresponding to the data in Table 41.
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Additional VaR statistics produced within our single VaR model are provided in Table 42 at the same level of detail as in Table 41. Evaluating VaR with additional statistics allows for an increased understanding of the risks in the portfolio, as the historical market data used in the VaR calculation does not necessarily follow a predefined statistical distribution. Table 42 presents average trading VaR statistics at 99 percent and 95 percent confidence levels for 2023 and 2022.
| Table 42 | Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics | ||||||||||||||||||||||||||||
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||
| (Dollars in millions) | 99 percent | 95 percent | 99 percent | 95 percent | |||||||||||||||||||||||||
| Foreign exchange | $ | 29 | $ | 19 | $ | 21 | $ | 12 | |||||||||||||||||||||
| Interest rate | 48 | 26 | 36 | 17 | |||||||||||||||||||||||||
| Credit | 60 | 30 | 71 | 28 | |||||||||||||||||||||||||
| Equity | 18 | 8 | 20 | 11 | |||||||||||||||||||||||||
| Commodities | 9 | 5 | 13 | 7 | |||||||||||||||||||||||||
| Portfolio diversification | (100) | (54) | (91) | (46) | |||||||||||||||||||||||||
| Total covered positions portfolio | 64 | 34 | 70 | 29 | |||||||||||||||||||||||||
| Impact from less liquid exposures | 20 | 7 | 38 | 7 | |||||||||||||||||||||||||
Total covered positions and less liquid trading positions portfolio |
84 | 41 | 108 | 36 | |||||||||||||||||||||||||
| Fair value option loans | 25 | 12 | 51 | 14 | |||||||||||||||||||||||||
| Fair value option hedges | 14 | 9 | 17 | 10 | |||||||||||||||||||||||||
| Fair value option portfolio diversification | (23) | (13) | (36) | (13) | |||||||||||||||||||||||||
| Total fair value option portfolio | 16 | 8 | 32 | 11 | |||||||||||||||||||||||||
| Portfolio diversification | (8) | (5) | (11) | (7) | |||||||||||||||||||||||||
| Total market-based portfolio | $ | 92 | $ | 44 | $ | 129 | $ | 40 | |||||||||||||||||||||
Backtesting
The accuracy of the VaR methodology is evaluated by backtesting, which compares the daily VaR results, utilizing a one-day holding period, against a comparable subset of trading revenue. A backtesting excess occurs when a trading loss exceeds the VaR for the corresponding day. These excesses are evaluated to understand the positions and market moves that produced the trading loss with a goal to help confirm that the VaR methodology accurately represents those losses. We expect the frequency of trading losses in excess of VaR to be in line with the confidence level of the VaR statistic being tested. For example, with a 99 percent confidence level, we expect one trading loss in excess of VaR every 100 days or between two to three trading losses in excess of VaR over the course of a year. The number of backtesting excesses observed can differ from the statistically expected number of excesses if the current level of market volatility is materially different than the level of market volatility that existed during the three years of historical data used in the VaR calculation.
The trading revenue used for backtesting is defined by regulatory agencies in order to most closely align with the VaR component of the regulatory capital calculation. This revenue differs from total trading-related revenue in that it excludes revenue from trading activities that either do not generate market risk or the market risk cannot be included in VaR. Some examples of the types of revenue excluded for backtesting are fees, commissions, reserves, net interest income and intra-day trading revenues.
We conduct daily backtesting on the VaR results used for regulatory capital calculations as well as the VaR results for key legal entities, regions and risk factors. These results are
reported to senior market risk management. Senior management regularly reviews and evaluates the results of these tests.
During 2023, there were no days where this subset of trading revenue had losses that exceeded our total covered portfolio VaR, utilizing a one-day holding period.
Total Trading-related Revenue
Total trading-related revenue, excluding brokerage fees, and CVA, DVA and funding valuation adjustment gains (losses), represents the total amount earned from trading positions, including market-based net interest income, which are taken in a diverse range of financial instruments and markets. For more information on fair value, see Note 20 – Fair Value Measurements to the Consolidated Financial Statements. Trading-related revenue can be volatile and is largely driven by general market conditions and customer demand. Also, trading-related revenue is dependent on the volume and type of transactions, the level of risk assumed, and the volatility of price and rate movements at any given time within the ever-changing market environment. Significant daily revenue by business is monitored and the primary drivers of these are reviewed.
The following histogram is a graphic depiction of trading volatility and illustrates the daily level of trading-related revenue for 2023 and 2022. During 2023, positive trading-related revenue was recorded for 100 percent of the trading days, of which 93 percent were daily trading gains of over $25 million. This compares to 2022 where positive trading-related revenue was recorded for 99 percent of the trading days, of which 90 percent were daily trading gains of over $25 million, and the largest loss was $9 million.
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Trading Portfolio Stress Testing
Because the very nature of a VaR model suggests results can exceed our estimates and it is dependent on a limited historical window, we also stress test our portfolio using scenario analysis. This analysis estimates the change in the value of our trading portfolio that may result from abnormal market movements.
A set of scenarios, categorized as either historical or hypothetical, are computed daily for the overall trading portfolio and individual businesses. These scenarios include shocks to underlying market risk factors that may be well beyond the shocks found in the historical data used to calculate VaR. Historical scenarios simulate the impact of the market moves that occurred during a period of extended historical market stress. Generally, a multi-week period representing the most severe point during a crisis is selected for each historical scenario. Hypothetical scenarios provide estimated portfolio impacts from potential future market stress events. Scenarios are reviewed and updated in response to changing positions and new economic or political information. In addition, new or ad hoc scenarios are developed to address specific potential market events or particular vulnerabilities in the portfolio. The stress tests are reviewed on a regular basis and the results are presented to senior management.
Stress testing for the trading portfolio is integrated with enterprise-wide stress testing and incorporated into the limits framework. The macroeconomic scenarios used for enterprise-wide stress testing purposes differ from the typical trading portfolio scenarios in that they have a longer time horizon and the results are forecasted over multiple periods for use in consolidated capital and liquidity planning. For more information, see Managing Risk on page 44.
Interest Rate Risk Management for the Banking Book
The following discussion presents net interest income for banking book activities.
Interest rate risk represents the most significant market risk exposure to our banking book balance sheet. Interest rate risk is measured as the potential change in net interest income caused by movements in market interest rates. Client-facing
activities, primarily lending and deposit-taking, create interest rate sensitive positions on our balance sheet.
We prepare forward-looking forecasts of net interest income. The baseline forecast takes into consideration expected future business growth, ALM positioning and the future direction of interest rate movements as implied by market-based forward curves.
We then measure and evaluate the impact that alternative interest rate scenarios have on the baseline forecast in order to assess interest rate sensitivity under varied conditions. The net interest income forecast is frequently updated for changing assumptions and differing outlooks based on economic trends, market conditions and business strategies. Thus, we continually monitor our banking book balance sheet position in order to maintain an acceptable level of exposure to interest rate changes.
The interest rate scenarios that we analyze incorporate balance sheet assumptions such as loan and deposit growth and pricing, changes in funding mix, product repricing, maturity characteristics and investment securities premium amortization. Our overall goal is to manage interest rate risk so that movements in interest rates do not significantly adversely affect earnings and capital.
Table 43 presents the spot and 12-month forward rates used in our baseline forecasts at December 31, 2023 and 2022.
| Table 43 | Forward Rates | |||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||
| Federal Funds |
SOFR (1)
|
10-Year
SOFR (1)
|
||||||||||||||||||
| Spot rates | 5.50 | % | 5.38 | % | 3.47 | % | ||||||||||||||
| 12-month forward rates | 3.89 | 3.93 | 3.32 | |||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||
| Federal Funds |
Three-month LIBOR |
10-Year Swap |
||||||||||||||||||
| Spot rates | 4.50 | % | 4.77 | % | 3.84 | % | ||||||||||||||
| 12-month forward rates | 4.75 | 4.78 | 3.62 | |||||||||||||||||
(1) The Corporation uses SOFR in its baseline forecast as one of the primary alternative reference rates used as a result of the cessation of LIBOR in 2023.
Table 44 shows the pretax impact to forecasted net interest income over the next 12 months from December 31, 2023 and
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2022 resulting from instantaneous parallel and non-parallel shocks to the market-based forward curve. Periodically, we evaluate the scenarios presented so that they are meaningful in the context of the current rate environment. The interest rate scenarios also assume U.S. dollar interest rates are floored at zero.
During 2023, the overall decrease in asset sensitivity of our balance sheet to higher and lower rate scenarios was primarily due to changes in deposit product mix and ALM portfolio activity. We continue to be asset sensitive to a parallel upward move in interest rates with the majority of that impact coming from the short end of the yield curve. Additionally, higher interest rates negatively impact the fair value of our debt securities classified as available for sale and adversely affect accumulated OCI and thus capital levels under the Basel 3 capital rules. Under instantaneous upward parallel shifts, the near-term adverse impact to Basel 3 capital would be reduced over time by offsetting positive impacts to net interest income generated from the banking book activities. For more information on Basel 3, see Capital Management – Regulatory Capital on page 48.
| Table 44 | Estimated Banking Book Net Interest Income Sensitivity to Curve Changes | |||||||||||||||||||||||||
| Short Rate (bps) |
Long Rate (bps) |
|||||||||||||||||||||||||
| December 31 | ||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | ||||||||||||||||||||||||
| Parallel Shifts | ||||||||||||||||||||||||||
|
+100 bps
instantaneous shift
|
+100 | +100 | $ | 3,476 | $ | 3,829 | ||||||||||||||||||||
| -100 bps instantaneous shift |
-100 | -100 | (3,077) | (4,591) | ||||||||||||||||||||||
| Flatteners | ||||||||||||||||||||||||||
|
Short-end
instantaneous change
|
+100 | — | 3,242 | 3,698 | ||||||||||||||||||||||
|
Long-end
instantaneous change
|
— | -100 | (257) | (157) | ||||||||||||||||||||||
| Steepeners | ||||||||||||||||||||||||||
|
Short-end
instantaneous change
|
-100 | — | (2,773) | (4,420) | ||||||||||||||||||||||
|
Long-end
instantaneous change
|
— | +100 | 272 | 131 | ||||||||||||||||||||||
The sensitivity analysis in Table 44 assumes that we take no action in response to these rate shocks and does not assume any change in other macroeconomic variables normally correlated with changes in interest rates. As part of our ALM activities, we use securities, certain residential mortgages, and interest rate and foreign exchange derivatives in managing interest rate sensitivity.
The behavior of our deposit portfolio in the baseline forecast and in alternate interest rate scenarios is a key assumption in our projected estimates of net interest income. The sensitivity analysis in Table 44 assumes no change in deposit portfolio size or mix from the baseline forecast in alternate rate environments. In higher rate scenarios, the increase in net interest income would be impacted by any customer activity resulting in the replacement of low-cost or noninterest-bearing deposits with higher yielding deposits or market-based funding, as our benefit in those scenarios would be reduced. Conversely, in lower-rate scenarios, any customer activity that results in the replacement of higher yielding deposits or market-based funding with low-cost or noninterest-bearing deposits would reduce our exposure in those scenarios.
For interest rate scenarios larger than 100 bps shifts, it is expected that the interest rate sensitivity will illustrate non-linear behaviors as there are numerous estimates and
assumptions, which require a high degree of judgment and are often interrelated, that could impact the outcome. Pertaining to the mortgage-backed securities and residential mortgage portfolio, if long-end interest rates were to significantly decrease over the next twelve months, for example over 200 bps, there would generally be an increase in customer prepayment behaviors with an incremental reduction to net interest income, noting that the extent of changes in customer prepayment activity can be impacted by multiple factors and is not necessarily limited to long-end interest rates. Conversely, if long-end interest rates were to significantly increase over the next twelve months, for example, over 200 bps, customer prepayments would likely modestly decrease and result in an incremental increase to net interest income. In addition, deposit pricing will have non-linear impacts to larger short-end rate movements. In decreasing interest rate scenarios, and particularly where interest rates have decreased to small amounts, the ability to further reduce rates paid is reduced as customer rates near zero. In higher short-end rate scenarios, deposit pricing will likely increase at a faster rate, leading to incremental interest expense and reducing asset sensitivity. While the impact related to the above assumptions used in the asset sensitivity analysis can provide directional analysis on how net interest income will be impacted in changing environments, the ultimate impact is dependent upon the interrelationship of the assumptions and factors, which vary in different macroeconomic scenarios.
Interest Rate and Foreign Exchange Derivative Contracts
We use interest rate and foreign exchange derivative contracts in our ALM activities to manage our interest rate and foreign exchange risks. Specifically, we use those derivatives to manage both the variability in cash flows and changes in fair value of various assets and liabilities arising from those risks. Our interest rate derivative contracts are generally non-leveraged swaps tied to various benchmark interest rates and foreign exchange basis swaps, options, futures and forwards, and our foreign exchange contracts include cross-currency interest rate swaps, foreign currency futures contracts, foreign currency forward contracts and options.
The derivatives used in our ALM activities can be split into two broad categories: designated accounting hedges and other risk management derivatives. Designated accounting hedges are primarily used to manage our exposure to interest rates as described in the Interest Rate Risk Management for the Banking Book section and are included in the sensitivities presented in Table 44. The Corporation also uses foreign currency derivatives in accounting hedges to manage substantially all of the foreign exchange risk of our foreign operations. By hedging the foreign exchange risk of our foreign operations, the Corporation's market risk exposure in this area is not significant.
Risk management derivatives are predominantly used to hedge foreign exchange risks related to various foreign currency-denominated assets and liabilities and eliminate substantially all foreign currency exposures in the cash flows of the Corporation’s non-trading foreign currency-denominated financial instruments. These foreign exchange derivatives are sensitive to other market risk exposures such as cross-currency basis spreads and interest rate risk. However, as these features are not a significant component of these foreign exchange derivatives, the market risk related to this exposure is not significant. For more information on the accounting for derivatives, see Note 3 – Derivatives to the Consolidated Financial Statements.
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Mortgage Banking Risk Management
We originate, fund and service mortgage loans, which subject us to credit, liquidity and interest rate risks, among others. We determine whether loans will be held for investment or held for sale at the time of commitment and manage credit and liquidity risks by selling or securitizing a portion of the loans we originate.
Interest rate risk and market risk can be substantial in the mortgage business. Changes in interest rates and other market factors impact the volume of mortgage originations. Changes in interest rates also impact the value of interest rate lock commitments (IRLCs) and the related residential first mortgage loans held-for-sale between the date of the IRLC and the date the loans are sold to the secondary market. An increase in mortgage interest rates typically leads to a decrease in the value of these instruments. Conversely, when there is an increase in interest rates, the value of the MSRs will increase driven by lower prepayment expectations. Because the interest rate risks of these hedged items offset, we combine them into one overall hedged item with one combined economic hedge portfolio consisting of derivative contracts and securities.
During 2023, 2022, and 2021 we recorded gains of $127 million, $78 million and $39 million. For more information on MSRs, see Note 20 – Fair Value Measurements to the Consolidated Financial Statements.
Compliance and Operational Risk Management
Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to the reputation of the Corporation arising from the failure of the Corporation to comply with the requirements of applicable laws, rules, regulations and our internal policies and procedures (collectively, applicable laws, rules and regulations). We are subject to comprehensive regulation under federal and state laws, rules and regulations in the U.S. and the laws of the various jurisdictions in which we operate, including those related to financial crimes and anti-money laundering, market conduct, trading activities, fair lending, privacy, data protection and unfair, deceptive or abusive acts or practices.
Operational risk is the risk of loss resulting from inadequate or failed processes or systems, people or external events, and includes legal risk. Operational risk may occur anywhere in the Corporation, including third-party business processes, and is not limited to operations functions. The Corporation faces a number of key operational risks including third-party risk, model risk, conduct risk, technology risk, information security risk and data risk. Operational risk can result in financial losses and reputational impacts and is a component in the calculation of total RWA used in the Basel 3 capital calculation. For more information on Basel 3 calculations, see Capital Management on page 47.
FLUs and control functions are first and foremost responsible for managing all aspects of their businesses, including their compliance and operational risk. FLUs and control functions are required to understand their business processes and related risks and controls, including third-party dependencies and the related regulatory requirements, and monitor and report on the effectiveness of the control environment. In order to actively monitor and assess the performance of their processes and controls, they must conduct comprehensive quality assurance activities and identify issues and risks to remediate control gaps and weaknesses. FLUs and control functions must also adhere to compliance and operational risk appetite limits to meet strategic, capital and
financial planning objectives. Finally, FLUs and control functions are responsible for the proactive identification, management and escalation of compliance and operational risks across the Corporation. Collectively, these efforts are important to strengthen their compliance and operational resiliency, which is the ability to deliver critical operations through disruption.
Global Compliance and Operational Risk teams independently assess compliance and operational risk, monitor business activities and processes and evaluate FLUs and control functions for adherence to applicable laws, rules and regulations, including identifying issues and risks, and reporting on the state of the control environment. Corporate Audit provides an independent assessment and validation through testing of key compliance and operational risk processes and controls across the Corporation.
The Corporation's Global Compliance – Enterprise Policy and Operational Risk Management – Enterprise Policy set the requirements for reporting compliance and operational risk information to executive management as well as the Board or appropriate Board-level committees and reflect Global Compliance and Operational Risk’s responsibilities for conducting independent oversight of the Corporation’s compliance and operational risk management activities. The Board provides oversight of compliance risk through its Audit Committee and the ERC, and operational risk through its ERC.
Cybersecurity
Risk Management and Strategy
Cybersecurity is a key operational risk facing the Corporation. We, our employees, customers, regulators and third parties are ongoing targets of an increasing number of cybersecurity threats and cyberattacks and, accordingly, the Corporation devotes considerable resources to the establishment and maintenance of processes for assessing, identifying and managing cybersecurity risk through its global workforce and 24/7 cyber operations centers around the world. The Corporation takes a cross-functional approach to addressing cybersecurity risk, with our Global Technology, Global Risk Management, Legal and Corporate Audit functions playing key roles. In addition, the Corporation’s processes related to cybersecurity risk are an element of and integrated with the Corporation’s comprehensive risk program, including our risk framework. For more information on the Corporation’s Cybersecurity risk, see Item 1A. Risk Factors – Business Operations beginning on page 14. For more information on our approach to risk management, including our risk management governance framework, see Managing Risk on page 44.
As part of the Corporation’s overall risk management program, the Corporation’s Global Information Security (GIS) Program is supported by three lines of defense. As the first line of defense, the GIS team is responsible for the day-to-day management of the GIS Program, which includes defining policies and procedures designed to safeguard the Corporation’s information systems and the information those systems collect, process, maintain, use, share, disseminate and dispose of. As the second line of defense, Global Compliance and Operational Risk independently assesses, monitors and tests cybersecurity risk across the Corporation, as well as the effectiveness of the GIS Program. As the third line of defense, Corporate Audit conducts additional independent review and validation of the first-line and second-line processes and functions.
The Corporation seeks to mitigate cybersecurity risk and associated legal, financial, reputational, operational and/or regulatory risks by employing a multi-faceted GIS Program,
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through various policies, procedures and playbooks, that are focused on governing, preparing for, identifying, preventing, detecting, mitigating, responding to and recovering from cybersecurity threats and cybersecurity incidents suffered by the Corporation and its third-party service providers, as well as effectively operating the Corporation’s processes. Our business continuity policy, standards and procedures are designed to maintain the availability of business functions and enable impacted units within the Corporation and its third-party service providers to achieve strategic objectives in the event of a cybersecurity incident. In accordance with the Corporation’s cyber incident response framework, GIS, including its incident response team, tracks, documents, responds to and analyzes cybersecurity threats and cybersecurity incidents, including those experienced by the Corporation’s third-party service providers that may impact the Corporation. Additionally, the Corporation has a process for assembling multi-stakeholder executive response teams to monitor and coordinate cross-functional responses to certain cybersecurity incidents.
As part of the GIS Program, the Corporation leverages both internal and external assessments and partnerships with industry leaders. The Corporation engages third-party assessors, consultants, auditors and other third-party professionals to evaluate and test its cybersecurity program and provide guidance on operating and improving the GIS Program, including the design and operational effectiveness of the security and resiliency of our information systems.
The Corporation focuses on and has processes to oversee cybersecurity risk associated with its third-party service providers. As part of its cybersecurity risk management processes, the Corporation maintains an enterprise-wide program that defines standards for the planning, sourcing, management, and oversight of third-party relationships and third-party access to its information system, facilities, and/or confidential or proprietary data. The Corporation has established security requirements applicable to third-party service providers, and where permitted by contract, cybersecurity diligence is conducted to assess the alignment of third-party service providers’ cybersecurity programs with the Corporation’s cybersecurity requirements.
While we and our third parties have experienced cybersecurity incidents, as well as adverse impacts from such incidents, we have not experienced material losses or other material consequences relating to cybersecurity incidents experienced by us or our third parties. However, we expect to continue to experience cybersecurity incidents resulting in adverse impacts with increased frequency and severity due to the evolving threat environment, and there can be no assurance that future cybersecurity incidents, including incidents experienced by our third parties, will not have a material adverse impact on the Corporation, including its business strategy, results of operations and/or financial condition.
Governance
Through established governance structures, the Corporation has policies, processes and practices to help facilitate oversight of cybersecurity risk. In accordance with these policies, processes and practices, the Corporation’s three lines of defense, and management, strive to prepare for, identify, prevent, detect, mitigate, respond to and recover from cybersecurity threats and incidents, monitor performance, and escalate to executive management, the committees of the Corporation’s Board and/or to the Board, as appropriate. Additionally, GIS reports cybersecurity incidents that meet certain criteria to the Legal Department for further escalation and evaluation for materiality
and potential disclosure, which includes the consideration of relevant quantitative and qualitative factors.
The Board is actively engaged in the oversight of the GIS Program and devotes considerable time and attention to the oversight and mitigation of cybersecurity risk. The Board, which includes members with technology and cybersecurity experience, oversees management’s approach to staffing, policies, processes and practices to address cybersecurity risk. The Board and its ERC, which is responsible for reviewing cybersecurity risk, each receive regular presentations, memoranda and reports throughout the year from our Chief Technology and Information Officer (CTIO) and our Chief Information Security Officer (CISO) on internal and external cybersecurity developments, threats and risks. On a quarterly basis, GIS sends the Board a memorandum highlighting relevant cybersecurity developments and a document detailing the performance metrics for the GIS Program.
The Board receives prompt and timely information from management on cybersecurity incidents, including cybersecurity incidents experienced by the Corporation’s third-party service providers, that may pose significant risk to the Corporation, and continues to receive regular reports on any such incidents until their conclusion. Additionally, the Board receives quarterly reports on the performance of the Corporation’s cybersecurity risk appetite metrics, including metrics on vulnerabilities and third-party cybersecurity risks and incidents and is notified promptly if a Board-level cybersecurity risk limit is breached.
Our ERC also annually reviews and approves our GIS Program and our Information Security Policy, which establish administrative, technical, and physical safeguards designed to protect the security, confidentiality and integrity of customer records and information in accordance with the Gramm-Leach-Bliley Act and the interagency guidelines issued thereunder, and applicable laws globally.
Under the Board’s oversight, management works closely with key stakeholders, including regulators, government agencies, law enforcement, peer institutions and industry groups, and develops and invests in talent and innovative technology in order to better manage cybersecurity risk.
Our most senior cybersecurity employees are the CTIO and CISO, who are primarily responsible for managing and assessing cybersecurity risk. The CISO oversees a team of more than 3,000 information security professionals spanning the globe. The CISO and the GIS senior leadership team of ten individuals have deep cybersecurity expertise, with over 100 years of collective experience working in the cybersecurity field, both at the Corporation and other companies in various industries. Additionally, certain members of the GIS leadership team hold leadership roles in sector-specific information and infrastructure security organizations, including the Financial Services Information Sharing and Analysis Center and the Financial Services Sector Coordinating Council. Employees across the Corporation also play a role in protecting the Corporation from cybersecurity threats and receive periodic training and education on cybersecurity-related topics.
Reputational Risk Management
Reputational risk is the risk that negative perception of the Corporation may adversely impact profitability or operations. Reputational risk may result from many of the Corporation’s activities, including those related to the management of strategic, operational, compliance, liquidity, market (price and interest rate) and credit risks.
The Corporation manages reputational risk through established policies and controls embedded throughout its
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business and risk management processes. We proactively monitor and identify potential reputational risk events and have processes established to mitigate reputational risks in a timely manner. If reputational risk events occur, we focus on remediating the underlying issue and taking action to minimize damage to the Corporation’s reputation. The Corporation has processes and procedures in place to respond to events that give rise to reputational risk, including educating individuals and organizations that influence public opinion, and implementing communication strategies to mitigate the risk. The Corporation’s organization and governance structure provides oversight of reputational risks. Reputational risk reporting is provided regularly and directly to senior management and the ERC, which provides primary oversight of reputational risk. In addition, each FLU has a committee, which includes representatives from Legal and Risk, that is responsible for the oversight of reputational risk, including approval for business activities that present elevated levels of reputational risks.
Climate Risk
Climate Risk Management
Climate risk is the risk that climate change or actions taken to mitigate climate change expose the Corporation to economic, operational or reputational harm. Climate-related risks are divided into two major categories, both of which span across the seven key risk types discussed in Managing Risk on page 44: (1) Physical Risk: risks related to the physical impacts of climate change, driven by extreme weather events such as hurricanes and floods, as well as chronic longer-term shifts such as rising average global temperatures and sea levels, and (2) Transition Risk: risks related to the transition to a low-carbon economy, which may entail extensive policy, legal, technology and market changes.
Physical risks of climate change, such as more frequent and severe extreme weather events, can increase the Corporation’s risks, including credit risk by diminishing borrowers’ repayment capacity or collateral values, and operational risk by negatively impacting the Corporation’s facilities, employees, or vendors. Transition risks of climate change may amplify credit risks through the financial impacts of changes in policy, technology or the market on the Corporation or our counterparties. Unanticipated market changes can lead to sudden price adjustments and give rise to heightened market risk. Reputational risk can arise if we do not meet our climate-related commitments and/or goals, or are perceived to be inadequately responsive to climate change or otherwise.
Our approach to managing climate risk is consistent with our risk management governance structure, from senior management to our Board and its committees, including the ERC and the Corporate Governance, ESG and Sustainability Committee (CGESC) of the Board, which regularly discuss climate-related topics. The ERC oversees climate risk as set forth in our Risk Framework and Risk Appetite Statement. The CGESC is responsible for overseeing the Corporation’s environmental and social sustainability-related activities and practices, and regularly reviews the Corporation’s climate-related work and policies. The Climate Risk Council consists of leaders across risk, FLU and control functions, and meets routinely to discuss our approach to managing climate-related risks.
Our climate risk management efforts are overseen by an officer who reports to the CRO. The Corporation has a Climate and Environmental Risk Management function that is responsible for overseeing climate risk management. They are
responsible for establishing the Climate Risk Framework and governance structure, and providing independent assessment and challenge of enterprise-wide climate risks.
Based on the Corporation’s Risk Framework, in 2023 we created our internal Climate Risk Framework, which addresses how the Corporation identifies, measures, monitors and controls climate risk by enhancing existing risk management processes and also includes examples of how it manifests across the seven risk types. It details the roles and responsibilities for climate risk management across our three lines of defense as noted above.
For more information on our governance framework, see Managing Risk on page 44. For more information on climate risk, see Item 1A. Risk Factors on page 8.
Climate-related Goals and Targets
In 2021, the Corporation committed to achieving net zero greenhouse gas emissions before 2050 in our financing activities, operations and supply chain (Net Zero goal), and in 2022, we released our Approach to ZeroTM, a framework for how we plan to achieve our Net Zero goal. In line with this approach, we have set interim 2030 targets across our financing activities (2030 Financing Activity Emissions Targets), operations and supply chain, all of which are further supported and complemented by our $1.5 trillion sustainable finance goal (which is aligned with the 17 UN Sustainable Development Goals) of which $1 trillion is dedicated to supporting the transition toward a low-carbon economy, including capital mobilized across clean energy sectors and tailored financial solutions for emerging areas of the low-carbon economy. In particular, we announced 2030 Financing Activity Emissions Targets for auto manufacturing, aviation, cement, energy, and power generation sectors and expect to continue to set targets for other sectors that are significant contributors to global greenhouse gas emissions and therefore prioritized by us.
Achieving our climate--related goals and targets, including our Net Zero goal and 2030 Financing Activity Emissions Targets, may require technological advances, clearly defined roadmaps for industry sectors, better emissions data reporting, new standards and public policies, including those that improve the cost of capital for the transition to a low-carbon economy, as well as strong and active engagement with customers, suppliers, investors, government officials and other stakeholders. Given the extended period of these and other climate-related goals we have established, our initiatives have not resulted in a significant effect on our results of operations or financial position in the relevant periods presented herein.
For more information on climate-related matters and the Corporation’s climate-related goals and commitments, including plans to achieve its Net Zero goal and 2030 Financing Activity Emissions Targets and progress on its sustainable finance goals, see the Corporation’s website, including its 2023 Task Force on Climate-related Financial Disclosures (TCFD) Report. The contents of the Corporation’s website, including the 2023 TCFD Report is not incorporated by reference into this Annual Report on Form 10-K.
The foregoing discussion and the statements on the Corporations’ website, including in the 2023 TCFD Report regarding its goals and commitments with respect to climate risk management, such as environmental transition considerations, contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future results or performance and involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict and
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are often beyond the Corporation’s control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements.
Complex Accounting Estimates
Our significant accounting principles, as described in Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements, are essential in understanding the MD&A. Many of our significant accounting principles require complex judgments to estimate the values of assets and liabilities. We have procedures and processes in place to facilitate making these judgments.
The more judgmental estimates are summarized in the following discussion. We have identified and described the development of the variables most important in the estimation processes that involve mathematical models to derive the estimates. In many cases, there are numerous alternative judgments that could be used in the process of determining the inputs to the models. Where alternatives exist, we have used the factors that we believe represent the most reasonable value in developing the inputs. Actual performance that differs from our estimates of the key variables could materially impact our results of operations. Separate from the possible future impact to our results of operations from input and model variables, the value of our lending portfolio and market-sensitive assets and liabilities may change subsequent to the balance sheet date, often significantly, due to the nature and magnitude of future credit and market conditions. Such credit and market conditions may change quickly and in unforeseen ways and the resulting volatility could have a significant, negative effect on future operating results. These fluctuations would not be indicative of deficiencies in our models or inputs.
Allowance for Credit Losses
The allowance for credit losses includes the allowance for loan and lease losses and the reserve for unfunded lending commitments. Our process for determining the allowance for credit losses is discussed in Note 1 – Summary of Significant Accounting Principles and Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements.
The determination of the allowance for credit losses is based on numerous estimates and assumptions, which require a high degree of judgment and are often interrelated. A critical judgment in the process is the weighting of our forward-looking macroeconomic scenarios that are incorporated into our quantitative models. As any one economic outlook is inherently uncertain, the Corporation uses multiple macroeconomic scenarios in its ECL calculation, which have included a baseline
scenario derived from consensus estimates, an adverse scenario reflecting an extended moderate recession, a downside scenario reflecting persistent inflation and interest rates above the baseline scenario, a tail risk scenario similar to the severely adverse scenario used in stress testing and an upside scenario that considers the potential for improvement above the baseline scenario. The overall economic outlook is weighted towards a recessionary environment in the first half of 2024, with lower gross domestic product (GDP) growth and higher unemployment rate expectations as compared to what we experienced in the prior year. Generally, as the consensus estimates improve or deteriorate, the allowance for credit losses will change in a similar direction. There are multiple variables that drive the macroeconomic scenarios with the key variables including, but not limited to, U.S. GDP and unemployment rates. As of December 31, 2022, the weighted macroeconomic outlook for the U.S. average unemployment rate was forecasted at 5.6 percent, 5.0 percent and 4.5 percent in the fourth quarters of 2023, 2024 and 2025, respectively, and the weighted macroeconomic outlook for U.S. GDP was forecasted to contract 0.4 percent and grow 1.2 percent and 1.9 percent year-over-year in the fourth quarters of 2023, 2024 and 2025, respectively. As of December 31, 2023, the latest consensus estimates for the U.S. average unemployment rate for the fourth quarter of 2023 was 3.9 percent and U.S. GDP was forecasted to grow 2.6 percent year-over-year in the fourth quarter of 2023, reflecting a tighter labor market and healthy growth compared to our macroeconomic outlook as of December 31, 2022, and were factored into our allowance for credit losses estimate as of December 31, 2023. In addition, as of December 31, 2023, the weighted macroeconomic outlook for the U.S. average unemployment rate was forecasted at 4.9 percent in the fourth quarters of both 2024 and 2025, and the weighted macroeconomic outlook for U.S. GDP was forecasted to grow 0.3 percent and 1.4 percent year-over-year in the fourth quarters of 2024 and 2025.
In addition to the above judgments and estimates, the allowance for credit losses can also be impacted by unanticipated changes in asset quality of the portfolio, such as increases or decreases in credit and/or internal risk ratings in our commercial portfolio, improvement or deterioration in borrower delinquencies or credit scores in our credit card portfolio and increases or decreases in home prices, which is a primary driver of LTVs, in our consumer real estate portfolio, all of which have some degree of uncertainty. The allowance for credit losses increased to $14.6 billion from $14.2 billion at December 31, 2022, primarily due to a reserve build in our
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consumer portfolio driven by credit card loan growth and asset quality, partially offset by a reserve release in our commercial portfolio primarily driven by improved macroeconomic conditions applicable to the commercial portfolio.
To provide an illustration of the sensitivity of the macroeconomic scenarios and other assumptions on the estimate of our allowance for credit losses, the Corporation compared the December 31, 2023 modeled ECL from the baseline scenario and our adverse scenario. Relative to the baseline scenario, the adverse scenario assumed a peak U.S. unemployment rate of over two percentage points higher than the baseline scenario, a decline in U.S. GDP followed by a prolonged recovery and a lower home price outlook with a difference of approximately 16 percent at the trough. This sensitivity analysis resulted in a hypothetical increase in the allowance for credit losses of approximately $3.8 billion.
While the sensitivity analysis may be useful to understand how changes in macroeconomic assumptions could impact our modeled ECLs, it is not meant to forecast how our allowance for credit losses is expected to change in a different macroeconomic outlook. Importantly, the analysis does not incorporate a variety of factors, including qualitative reserves and the weighting of alternate scenarios, which could have offsetting effects on the estimate. Considering the variety of factors contemplated when developing and weighting macroeconomic outlooks such as recent economic events, leading economic indicators, views of internal and third-party economists and industry trends, in addition to other qualitative factors, the Corporation believes the allowance for credit losses at December 31, 2023 is appropriate.
Fair Value of Financial Instruments
Under applicable accounting standards, we are required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. We classify fair value measurements of financial instruments and MSRs based on the three-level fair value hierarchy in the accounting standards.
The fair values of assets and liabilities may include adjustments, such as market liquidity and credit quality, where appropriate. Valuations of products using models or other techniques are sensitive to assumptions used for the significant inputs. Where market data is available, the inputs used for valuation reflect that information as of our valuation date. Inputs to valuation models are considered unobservable if they are supported by little or no market activity. In periods of extreme
volatility, lessened liquidity or in illiquid markets, there may be more variability in market pricing or a lack of market data to use in the valuation process. In keeping with the prudent application of estimates and management judgment in determining the fair value of assets and liabilities, we have in place various processes and controls that include: a model validation policy that requires review and approval of quantitative models used for deal pricing, financial statement fair value determination and risk quantification; a trading product valuation policy that requires verification of all traded product valuations; and a periodic review and substantiation of daily profit and loss reporting for all traded products. Primarily through validation controls, we utilize both broker and pricing service inputs which can and do include both market-observable and internally-modeled values and/or valuation inputs. Our reliance on this information is affected by our understanding of how the broker and/or pricing service develops its data with a higher degree of reliance applied to those that are more directly observable and lesser reliance applied to those developed through their own internal modeling. For example, broker quotes in less active markets may only be indicative and therefore less reliable. These processes and controls are performed independently of the business. For more information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value Option to the Consolidated Financial Statements.
Level 3 Assets and Liabilities
Financial assets and liabilities, and MSRs, where values are based on valuation techniques that require inputs that are both unobservable and are significant to the overall fair value measurement are classified as Level 3 under the fair value hierarchy established in applicable accounting standards. The fair value of these Level 3 financial assets and liabilities and MSRs is determined using pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value requires significant management judgment or estimation.
Level 3 financial instruments may be hedged with derivatives classified as Level 1 or 2; therefore, gains or losses associated with Level 3 financial instruments may be offset by gains or losses associated with financial instruments classified in other levels of the fair value hierarchy. The Level 3 gains and losses recorded in earnings did not have a significant impact on our liquidity or capital. We conduct a review of our fair value hierarchy classifications on a quarterly basis. Transfers into or out of Level 3 are made if the significant inputs used in the
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financial models measuring the fair values of the assets and liabilities became unobservable or observable, respectively, in the current marketplace. For more information on transfers into and out of Level 3 during 2023, 2022 and 2021, see Note 20 – Fair Value Measurements to the Consolidated Financial Statements.
Accrued Income Taxes and Deferred Tax Assets
Accrued income taxes, reported as a component of either other assets or accrued expenses and other liabilities on the Consolidated Balance Sheet, represent the net amount of current income taxes we expect to pay to or receive from various taxing jurisdictions attributable to our operations to date. We currently file income tax returns in more than 100 jurisdictions and consider many factors, including statutory, judicial and regulatory guidance, in estimating the appropriate accrued income taxes for each jurisdiction.
Net deferred tax assets, reported as a component of other assets on the Consolidated Balance Sheet, represent the net decrease in taxes expected to be paid in the future because of net operating loss (NOL) and tax credit carryforwards and because of future reversals of temporary differences in the bases of assets and liabilities as measured by tax laws and their bases as reported in the financial statements. NOL and tax credit carryforwards result in reductions to future tax liabilities, and many of these attributes can expire if not utilized within certain periods. We consider the need for valuation allowances to reduce net deferred tax assets to the amounts that we estimate are more likely than not to be realized.
Consistent with the applicable accounting guidance, we monitor relevant tax authorities and change our estimates of accrued income taxes and/or net deferred tax assets due to changes in income tax laws and their interpretation by the courts and regulatory authorities. These revisions of our estimates, which also may result from our income tax planning and from the resolution of income tax audit matters, may be material to our operating results for any given period.
See Note 19 – Income Taxes to the Consolidated Financial Statements for a table of significant tax attributes and additional information. For more information, see page 17 under Item 1A. Risk Factors – Regulatory, Compliance and Legal.
Goodwill and Intangible Assets
The nature of and accounting for goodwill and intangible assets are discussed in Note 1 – Summary of Significant Accounting Principles and Note 7 – Goodwill and Intangible Assets to the Consolidated Financial Statements.
The Corporation tests its goodwill for impairment on June 30 of each year or more frequently if events or circumstances indicate a potential impairment. We completed our annual goodwill impairment test as of June 30, 2023, by performing a quantitative assessment to compare the fair value of each reporting unit to its carrying value as measured by allocated equity. Based on our assessment, we have concluded that goodwill was not impaired.
The Corporation chose to perform the quantitative assessment as compared to a qualitative assessment that was performed in the prior year due to the level of interest rates and other market conditions existing at June 30, 2023. The quantitative assessment used a combination of an income approach (which utilizes the present value of cash flows to estimate fair value) and a market multiplier approach (which utilizes observable market prices and metrics of peer companies to estimate fair value). The main assumptions used in the income approach are the Corporation’s three-year internal forecasts along with long-term terminal growth values. The main assumptions used in the market multiplier approach are primarily enterprise value and equity multiples from comparable publicly traded companies in industries similar to the reporting unit.
Certain Contingent Liabilities
For more information on the complex judgments associated with certain contingent liabilities, see Note 12 – Commitments and Contingencies to the Consolidated Financial Statements.
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Non-GAAP Reconciliations
Tables 45 and 46 provide reconciliations of certain non-GAAP financial measures to GAAP financial measures.
| Table 45 |
Annual Reconciliations to GAAP Financial Measures (1)
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| (Dollars in millions, shares in thousands) | 2023 | 2022 | 2021 | |||||||||||||||||
Reconciliation of average shareholders’ equity to average tangible shareholders’ equity and average tangible common shareholders’ equity |
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| Shareholders’ equity | $ | 283,353 | $ | 270,299 | $ | 273,757 | ||||||||||||||
| Goodwill | (69,022) | (69,022) | (69,005) | |||||||||||||||||
| Intangible assets (excluding MSRs) | (2,039) | (2,117) | (2,177) | |||||||||||||||||
| Related deferred tax liabilities | 893 | 922 | 916 | |||||||||||||||||
| Tangible shareholders’ equity | $ | 213,185 | $ | 200,082 | $ | 203,491 | ||||||||||||||
| Preferred stock | (28,397) | (28,318) | (23,970) | |||||||||||||||||
| Tangible common shareholders’ equity | $ | 184,788 | $ | 171,764 | $ | 179,521 | ||||||||||||||
Reconciliation of year-end shareholders’ equity to year-end tangible shareholders’ equity and year-end tangible common shareholders’ equity |
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| Shareholders’ equity | $ | 291,646 | $ | 273,197 | $ | 270,066 | ||||||||||||||
| Goodwill | (69,021) | (69,022) | (69,022) | |||||||||||||||||
| Intangible assets (excluding MSRs) | (1,997) | (2,075) | (2,153) | |||||||||||||||||
| Related deferred tax liabilities | 874 | 899 | 929 | |||||||||||||||||
| Tangible shareholders’ equity | $ | 221,502 | $ | 202,999 | $ | 199,820 | ||||||||||||||
| Preferred stock | (28,397) | (28,397) | (24,708) | |||||||||||||||||
| Tangible common shareholders’ equity | $ | 193,105 | $ | 174,602 | $ | 175,112 | ||||||||||||||
Reconciliation of year-end assets to year-end tangible assets |
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| Assets | $ | 3,180,151 | $ | 3,051,375 | $ | 3,169,495 | ||||||||||||||
| Goodwill | (69,021) | (69,022) | (69,022) | |||||||||||||||||
| Intangible assets (excluding MSRs) | (1,997) | (2,075) | (2,153) | |||||||||||||||||
| Related deferred tax liabilities | 874 | 899 | 929 | |||||||||||||||||
| Tangible assets | $ | 3,110,007 | $ | 2,981,177 | $ | 3,099,249 | ||||||||||||||
(1)Presents reconciliations of non-GAAP financial measures to GAAP financial measures. For more information on non-GAAP financial measures and ratios we use in assessing the results of the Corporation, see Supplemental Financial Data on page 29.
| Table 46 |
Quarterly Reconciliations to GAAP Financial Measures (1)
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| 2023 Quarters | 2022 Quarters | |||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Fourth | Third | Second | First | Fourth | Third | Second | First | ||||||||||||||||||||||||||||||||||||||||||
| Reconciliation of average shareholders’ equity to average tangible shareholders’ equity and average tangible common shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders’ equity | $ | 288,618 | $ | 284,975 | $ | 282,425 | $ | 277,252 | $ | 272,629 | $ | 271,017 | $ | 268,197 | $ | 269,309 | ||||||||||||||||||||||||||||||||||
| Goodwill | (69,021) | (69,021) | (69,022) | (69,022) | (69,022) | (69,022) | (69,022) | (69,022) | ||||||||||||||||||||||||||||||||||||||||||
| Intangible assets (excluding MSRs) | (2,010) | (2,029) | (2,049) | (2,068) | (2,088) | (2,107) | (2,127) | (2,146) | ||||||||||||||||||||||||||||||||||||||||||
| Related deferred tax liabilities | 886 | 890 | 895 | 899 | 914 | 920 | 926 | 929 | ||||||||||||||||||||||||||||||||||||||||||
| Tangible shareholders’ equity | $ | 218,473 | $ | 214,815 | $ | 212,249 | $ | 207,061 | $ | 202,433 | $ | 200,808 | $ | 197,974 | $ | 199,070 | ||||||||||||||||||||||||||||||||||
| Preferred stock | (28,397) | (28,397) | (28,397) | (28,397) | (28,982) | (29,134) | (28,674) | (26,444) | ||||||||||||||||||||||||||||||||||||||||||
| Tangible common shareholders’ equity | $ | 190,076 | $ | 186,418 | $ | 183,852 | $ | 178,664 | $ | 173,451 | $ | 171,674 | $ | 169,300 | $ | 172,626 | ||||||||||||||||||||||||||||||||||
| Reconciliation of period-end shareholders’ equity to period-end tangible shareholders’ equity and period-end tangible common shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders’ equity | $ | 291,646 | $ | 287,064 | $ | 283,319 | $ | 280,196 | $ | 273,197 | $ | 269,524 | $ | 269,118 | $ | 266,617 | ||||||||||||||||||||||||||||||||||
| Goodwill | (69,021) | (69,021) | (69,021) | (69,022) | (69,022) | (69,022) | (69,022) | (69,022) | ||||||||||||||||||||||||||||||||||||||||||
| Intangible assets (excluding MSRs) | (1,997) | (2,016) | (2,036) | (2,055) | (2,075) | (2,094) | (2,114) | (2,133) | ||||||||||||||||||||||||||||||||||||||||||
| Related deferred tax liabilities | 874 | 886 | 890 | 895 | 899 | 915 | 920 | 926 | ||||||||||||||||||||||||||||||||||||||||||
| Tangible shareholders’ equity | $ | 221,502 | $ | 216,913 | $ | 213,152 | $ | 210,014 | $ | 202,999 | $ | 199,323 | $ | 198,902 | $ | 196,388 | ||||||||||||||||||||||||||||||||||
| Preferred stock | (28,397) | (28,397) | (28,397) | (28,397) | (28,397) | (29,134) | (29,134) | (27,137) | ||||||||||||||||||||||||||||||||||||||||||
| Tangible common shareholders’ equity | $ | 193,105 | $ | 188,516 | $ | 184,755 | $ | 181,617 | $ | 174,602 | $ | 170,189 | $ | 169,768 | $ | 169,251 | ||||||||||||||||||||||||||||||||||
| Reconciliation of period-end assets to period-end tangible assets | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets | $ | 3,180,151 | $ | 3,153,090 | $ | 3,123,198 | $ | 3,194,657 | $ | 3,051,375 | $ | 3,072,953 | $ | 3,111,606 | $ | 3,238,223 | ||||||||||||||||||||||||||||||||||
| Goodwill | (69,021) | (69,021) | (69,021) | (69,022) | (69,022) | (69,022) | (69,022) | (69,022) | ||||||||||||||||||||||||||||||||||||||||||
| Intangible assets (excluding MSRs) | (1,997) | (2,016) | (2,036) | (2,055) | (2,075) | (2,094) | (2,114) | (2,133) | ||||||||||||||||||||||||||||||||||||||||||
| Related deferred tax liabilities | 874 | 886 | 890 | 895 | 899 | 915 | 920 | 926 | ||||||||||||||||||||||||||||||||||||||||||
| Tangible assets | $ | 3,110,007 | $ | 3,082,939 | $ | 3,053,031 | $ | 3,124,475 | $ | 2,981,177 | $ | 3,002,752 | $ | 3,041,390 | $ | 3,167,994 | ||||||||||||||||||||||||||||||||||
(1)Presents reconciliations of non-GAAP financial measures to GAAP financial measures. For more information on non-GAAP financial measures and ratios we use in assessing the results of the Corporation, see Supplemental Financial Data on page 29.
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Item 7A. Quantitative and Qualitative Disclosures about Market Risk
See Market Risk Management on page 73 in the MD&A and the sections referenced therein for Quantitative and Qualitative Disclosures about Market Risk.
| Item 8. Financial Statements and Supplementary Data | ||||||||||||||
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Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses |
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Report of Management on Internal Control Over Financial Reporting
The management of Bank of America Corporation is responsible for establishing and maintaining adequate internal control over financial reporting.
The Corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Corporation’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Corporation are being made only in accordance with authorizations of management and directors of the Corporation; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Corporation’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2023 based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). Based on that assessment, management concluded that, as of December 31, 2023, the Corporation’s internal control over financial reporting is effective.
The Corporation’s internal control over financial reporting as of December 31, 2023 has been audited by PricewaterhouseCoopers , LLP , an independent registered public accounting firm, as stated in their accompanying report which expresses an unqualified opinion on the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2023.
Brian T. Moynihan
Chair, Chief Executive Officer and President
Alastair M. Borthwick
Chief Financial Officer
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Bank of America Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Bank of America Corporation and its subsidiaries (the “Corporation”) as of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Corporation's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Corporation’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Corporation’s consolidated financial statements and on the Corporation's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Allowance for Loan and Lease Losses - Commercial and Consumer Card Loans
As described in Notes 1 and 5 to the consolidated financial statements, the allowance for loan and lease losses represents management’s estimate of the expected credit losses in the Corporation’s loan and lease portfolio, excluding loans and unfunded lending commitments accounted for under the fair value option. As of December 31, 2023, the allowance for loan and lease losses was $13.3 billion on total loans and leases of $1,050.2 billion, which excludes loans accounted for under the fair value option. For commercial and consumer card loans, the expected credit loss is typically estimated using quantitative methods that consider a variety of factors such as historical
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loss experience, the current credit quality of the portfolio as well as an economic outlook over the life of the loan. In its loss forecasting framework, the Corporation incorporates forward looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets. These macroeconomic scenarios include variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to, unemployment rates, real estate prices, gross domestic product levels and corporate bond spreads. The scenarios that are chosen and the weighting given to each scenario depend on a variety of factors including recent economic events, leading economic indicators, views of internal as well as third-party economists and industry trends. Also included in the allowance for loan and lease losses are qualitative reserves to cover losses that are expected but, in the Corporation's assessment, may not be adequately reflected in the quantitative methods or the economic assumptions. Factors that the Corporation considers include changes in lending policies and procedures, business conditions, the nature and size of the portfolio, portfolio concentrations, the volume and severity of past due loans and nonaccrual loans, the effect of external factors such as competition, and legal and regulatory requirements, among others. Further, the Corporation considers the inherent uncertainty in quantitative models that are built on historical data.
The principal considerations for our determination that performing procedures relating to the allowance for loan and lease losses for the commercial and consumer card portfolios is a critical audit matter are (i) the significant judgment and estimation by management in developing lifetime economic forecast scenarios and related weightings to each scenario, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence obtained, and (ii) the audit effort involved professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the allowance for loan and lease losses, including controls over the evaluation and approval of models, forecast scenarios and related weightings, and qualitative reserves. These procedures also included, among others, testing management’s process for estimating the allowance for loan and lease losses, including (i) evaluating the appropriateness of the loss forecast models and methodology, (ii) evaluating the reasonableness of certain macroeconomic variables, (iii) evaluating the reasonableness of management’s development, selection and weighting of lifetime economic forecast scenarios used in the loss forecast models, (iv) testing the completeness and accuracy of data used in the estimate, and (v) evaluating the reasonableness of certain qualitative reserves made to the model output results to determine the overall allowance for loan and lease losses. The procedures also included the involvement of professionals with specialized skill and knowledge to assist in evaluating the appropriateness of certain loss forecast models, the reasonableness of economic forecast scenarios
and related weightings and the reasonableness of certain qualitative reserves.
Valuation of Certain Level 3 Financial Instruments
As described in Notes 1 and 20 to the consolidated financial statements, the Corporation carries certain financial instruments at fair value, which includes $9.3 billion of assets and $6.6 billion of liabilities classified as Level 3 fair value measurements that are valued on a recurring basis and $3.9 billion of assets classified as Level 3 fair value measurements that are valued on a nonrecurring basis, for which the determination of fair value requires significant management judgment or estimation. The Corporation determines the fair value of Level 3 financial instruments using pricing models, discounted cash flow methodologies, or similar techniques that require inputs that are both unobservable and are significant to the overall fair value measurement. Unobservable inputs, such as volatility or implied yield, may be determined using quantitative-based extrapolations, pricing models or other internal methodologies which incorporate management estimates and available market information.
The principal considerations for our determination that performing procedures relating to the valuation of certain Level 3 financial instruments is a critical audit matter are the significant judgment and estimation used by management to determine the fair value of these financial instruments, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence obtained, including the involvement of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of financial instruments, including controls related to valuation models, significant unobservable inputs, and data. These procedures also included, among others, the involvement of professionals with specialized skill and knowledge to assist in developing an independent estimate of fair value for a sample of these certain financial instruments and comparison of management’s estimate to the independently developed estimate of fair value. Developing the independent estimate involved testing the completeness and accuracy of data provided by management and evaluating the reasonableness of management’s significant unobservable inputs.
February 20, 2024
We have served as the Corporation’s auditor since 1958.
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Bank of America Corporation and Subsidiaries
Consolidated Statement of Income | |||||||||||||||||
| (In millions, except per share information) | 2023 | 2022 | 2021 | ||||||||||||||
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| Interest income | $ |
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| Other income | ( |
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