UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ü] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 20172018
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number:
1-6523
Exact name of registrant as specified in its charter:
Bank of America Corporation
State or other jurisdiction of incorporation or organization:
Delaware
IRS Employer Identification No.:
56-0906609
Address of principal executive offices:
Bank of America Corporate Center
100 N. Tryon Street
Charlotte, North Carolina 28255
Registrant'sRegistrant’s telephone number, including area code:
(704) 386-5681
Former name, former address and former fiscal year, if changed since last report:
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 ü☑No Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes ü☑No Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company,"” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act (check one).Act.
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Large accelerated filer ü☑ | | Accelerated filero | | Non-accelerated filero (do not check if a smaller reporting company) | | Smaller reporting companyo |
Emerging growth companyo
YesNo ü
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.o
YesNo
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yeso No ü☑
On May 1, 2017,April 27, 2018, there were 9,951,898,90410,139,354,414 shares of Bank of America Corporation Common Stock outstanding.
Bank of America Corporation and Subsidiaries
March 31, 20172018
Form 10-Q
INDEX
Part I. Financial Information
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| Item 1. Financial Statements | | Page |
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Note 3 – Securities | | |
Note 4 – Outstanding Loans and Leases | | |
Note 56 – Allowance for Credit Losses | | |
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Note 7 – Representations and Warranties Obligations and Corporate Guarantees | | |
| Note 8 – Goodwill and Intangible Assets | | |
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Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations | | |
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Part II. Other Information
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Bank of America Corporation (the "Corporation"“Corporation”) and its management may make certain statements that constitute "forward-looking statements"“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,” "suggests"“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'sCorporation’s current expectations, plans or forecasts of its future results, revenues, expenses, efficiency ratio, capital measures, strategy 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'sCorporation’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 our 20162017 Annual Report on Form 10-K and in any of the Corporation’sCorporation’s subsequent Securities and Exchange Commission filings: the Corporation’s potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, and regulatory proceedings and enforcement actions, including inquiries into our retail sales practices, and the possibility that amounts may be in excess of the Corporation’s recorded liability and estimated range of possible loss for litigation exposures; the possibility that the Corporation could face increased servicing, securities, fraud, indemnity, contribution or other claims from one or more counterparties, including trustees, purchasers of loans, underwriters, issuers, other parties involved in securitizations, monolines or private-label and other investors; the possibility that future representations and warranties losses may occur in excess of the Corporation’sCorporation’s recorded liability and estimated range of possible loss for its representations and warranties exposures; the Corporation’s ability to resolve representations and warranties repurchase and related claims, including claims brought by investors or trustees seeking to avoid the statute of limitations for repurchase claims; 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’sCorporation’s exposures to such risks, including direct, indirect and operational;
the impact of U.S. and global interest rates, currency
exchange rates, economic conditions, trade policies and economic conditions;potential geopolitical instability; the impact on the Corporation'sCorporation’s business, financial condition and results of operations of a potential higher interest rate environment; 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; the impact on the Corporation’s business, financial condition and results of operations from a protracted period of lower oil prices or ongoing volatility with respect to oil prices; the Corporation'sCorporation’s ability to achieve its expense targets, or net interest income expectations, or other projections; adverse changes to the Corporation’sCorporation’s credit ratings from the major credit rating agencies; estimates of the fair value of certain of the Corporation’sCorporation’s assets and liabilities;liabilities, which may change; uncertainty regarding the content, timing and impact of regulatory capital and liquidity requirements, including the approval of our internal models methodology for calculating counterparty credit risk for derivatives;requirements; the potential impact of total loss-absorbing capacity requirements; potential adverse changes to our global systemically important bank (G-SIB) surcharge; the potential impact of Federal Reserve actions on the Corporation’s capital plans; the possible impact of the Corporation'sCorporation’s failure to remediate shortcomingsa shortcoming identified by banking regulators in the Corporation'sCorporation’s Resolution Plan; the effect of regulations, other guidance or additional information on our estimated impact of the Tax Cuts and Jobs Act; 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 (FDIC) assessments, the Volcker Rule, fiduciary standards and derivatives regulations; a failure in or breach of the Corporation’s operational or security systems or infrastructure, or those of third parties, including as a result of cyberattacks;cyber attacks; the impact on the Corporation'sCorporation’s business, financial condition and results of operations from the planned exit of the United Kingdom (U.K.) from the European Union (EU);Union; and other similar 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-yearprior-period amounts have been reclassified to conform to current-yearcurrent-period presentation. Throughout the MD&A, the Corporation uses certain acronyms and abbreviations which are defined in the Glossary.
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, “the Corporation” 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 banking and various 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 March 31, 2017,2018, the Corporation had approximately $2.2$2.3 trillion in assets and a headcount of approximately 209,000 full-time equivalent208,000 employees. Headcount has remained relatively unchanged since December 31, 2017.
As of March 31, 2017,2018, we operated in all 50 states,served clients through operations across the District of Columbia, the U.S. Virgin Islands, Puerto RicoUnited States, its territories and more than 35 countries. Our retail banking footprint covers approximately 8385 percent of the U.S. population, and we serve approximately 47 million consumer and small business relationships with approximately 4,6004,400 retail financial centers, approximately 15,90016,000 ATMs, and leading digital banking platforms (www.bankofamerica.com) with approximately 3536 million active users, including more than 22approximately 25 million active mobile active users. We offer industry-leading support to approximately three million small business owners. Our wealth management businesses, with client balances of approximately $2.6over $2.7 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.
First Quarter 20172018 Economic and Business Environment
MacroeconomicU.S. macroeconomic trends in the U.S.first quarter were largely stablecharacterized by moderate economic growth, low inflation and a strong labor market. Gross domestic product (GDP) growth for the first quarter of 2018 was moderate and lower than previously estimated, with actual GDP growth of 2.3 percent, well below the fourth quarter’s 2.9 percent annualized pace. Notably, retail sales slowed in the first quarter compared to the fourth quarter. Nevertheless, economic fundamentals point to a second-quarter pickup. Consumer confidence remains near cyclical highs, which along with the robust labor market, point to the likelihood of a household spending rebound in the second quarter. Business investment in equipment and software accelerated over 2017. Both manufacturing and non-manufacturing investments are near their highs of the current economic expansion.
Housing activity showed some signs of growth during the first quarter. Following a pronounced deceleration in economic growth inquarter, with continued solid price appreciation when compared to the fourth quarter of 2016, there2017. Selling rates are near year-ago levels with continued persistent supply shortages.
Labor market conditions remain strong. Nonfarm payroll growth has been volatile month-to-month but solid on a trend basis. Initial jobless claims are near historic lows. The unemployment rate was little sign4.1 percent at the end of athe quarter, unchanged for six consecutive months, as strong employment gains have been met with solid increases in labor force growth. Wage growth, however, has been relatively muted.
Inflation strengthened in the first quarter, acceleration to start 2017. Consumer spending softened, as vehicle sales flattened at high levels and utility consumption was restrainedled by warmer than normal temperatures. Partially offsetting slower consumer spending, business investment (including energy-related equipment and infrastructure) strengthened on stabilizing energy costs and a lift in business confidence. Domestic final sales growth may have declined slightly below two percent on an annualized basis despite solid growth in housing construction. The labor market remained healthy, with sustained strong non-farm payroll gains in excessapparel, health care and energy. The core Consumer Price Index increased at a three-percent annualized rate, the fastest quarterly rise of 200,000the current business expansion, although the less volatile year-on-year rate remained at 2.1 percent.
Equity markets increased substantially through the end of 2017 and into early 2018, with anticipation and enactment of corporate tax reform being the main catalysts, as well as a synchronous global economic expansion. However, equity volatility increased sharply in both Januaryearly February and February. With signsperiodically in March. The S&P 500 finished the first quarter down 1.2 percent from the year end. The 10-year Treasury yield finished the first quarter at 2.76 percent, up from 2.41 percent at the end of gradually firming inflation,2017. Although the Treasury yield curve steepened during the equity sell-off, the curve subsequently flattened back to levels that prevailed at the end of 2017. The U.S. dollar index trended lower through most of the first quarter.
The Federal Reserve raised the federalits target Federal funds rate target range by 25 basis points (bps)corridor to 1.5 to 1.75 percent, the sixth 25-basis point (bp) rate increase of the current cycle. Current Federal Reserve baseline forecasts suggest gradual rate increases will continue into 2018 against a rangebackdrop of 0.75 percentsolid economic expansion and a tightening labor market. The Federal Open Market Committee also upgraded their economic forecasts, with somewhat faster GDP growth expected this year and in 2019, and a lower trough anticipated for the unemployment rate. Federal Reserve balance sheet normalization is continuing as initially scheduled.
International trade tensions escalated in the first quarter. The U.S. Administration announced plans for broad-based tariffs on steel and aluminum, although subsequently gave exemptions to one percent in March, in line with market expectations.
Consumer and business attitudesvarious trading partners. The Administration also announced plans for tariffs on the economy improved markedly, continuing trends that began with the Presidential election last November. Financial markets also responded to several ongoing developments: first, in response to the March rate hikeimports from China, and the potential for several additional hikes overChinese government announced retaliatory measures. Full enactment of the tariffs remains subject to negotiation and further review by the Administration.
After posting its strongest annual GDP growth in 10 years in 2017, economic activity in the treasury yield curve flattened as short-term yields rose while longer term rates remained relatively unchanged. Second, with expectations of more expansionary fiscal policy and regulatory relief from the new Presidential Administration, equity markets rallied, with the S&P 500 index gaining over five percenteurozone lost some momentum in the first quarter of 2017. Meanwhile, the U.S. Dollar weakened, erasing some ofyear. Despite the previous quarter’s gains. Forward markets captured the shiftpositive trend in financial market expectations and risks with federal fund futures falling and equity volatility remaining stable at historically low levels throughout the quarter.
Abroad, the impact of the U.K. vote to exit the EU (Brexit) has been muted to date, even as the British government approached and then triggered Article 50 of the Treaty on EU in late March. The resilient economic outlook, combined with a stronger than expected pickup in inflation, has shifted the Bank of England from a loosening to a tightening bias. Recent indicators suggest that the recovery in the eurozone has continued to gain momentum and move closer to historical trends. Inflationarygrowth, underlying inflationary pressures showed signs of building, as headline inflation moved closer to the European Central Bank’s inflation target. However, the pickup was mainly driven by food and energy prices; core inflationhave remained at historical low levels. As a result, althoughdormant. In this context, the European Central Bank keptcontinued with the tapering of its policy rate unchanged, it adopted a slightly more hawkish tone.
quantitative easing program. The upward revisionimpact of the fourth quarter GDP indicated that2016 U.K. referendum vote in favor of leaving the European Union (EU) continues to weigh on the U.K. economy which, in line with the eurozone, has also showed some signs of slowing in the first three months of the year.
Supported by a very accommodative monetary policy stance and sustained growth in external demand, the Japanese recoveryeconomy has gathered momentum, drivencontinued to expand with headline inflation reaching its highest level since 2015. Across emerging nations, economic activity was supported by China’s continued transition towards a strengthening of domestic demand. The new monetary policy regime of yield curve targeting has kept the Japanese yield curve in check against the global rise in long-term interest rates. Underlying inflation also showed signs of bottoming and turning positive over the quarter. In China, the service sector remained a key driver of economicmore consumption-based growth amid signs that activity in the industrial sector could pick up steam in the coming months. The Yuan was stable against the dollar during the quarter as efforts to stem capital outflows by the government started to show improvements.model.
Recent Events
Capital Management
During the first quarter of 2017,2018, we repurchased approximately $2.7$4.9 billion of common stock pursuant to the Board of Directors’ (the Board) June 2017 repurchase authorization ofunder our 20162017 Comprehensive Capital Analysis and Review (CCAR) capital plan, andincluding repurchases to offset equity-based compensation awards. This also included repurchases related to the January 13, 2017 announcement of our plan to repurchaseawards, and an additional $1.8 billion of common stock during the first half ofshare repurchase authorization in December 2017. For additionalmore information, see Capital Management on page 21.18.
Trust Preferred Securities Redemption
On April 30, 2018, the Corporation announced that it has submitted redemption notices for 11 series of trust preferred securities, which will result in the redemption of such trust
3Bankpreferred securities, along with the trust common securities (held by the Corporation or its affiliates), on June 6, 2018. The Corporation has received all necessary approvals for these redemptions. Upon the redemption of Americathe trust preferred securities and the extinguishment of the related junior subordinated notes issued by the Corporation, expected to occur in the second quarter of 2018, the Corporation will record a charge to other income and pretax income estimated to be approximately $800 million, subject to certain redemption price calculations at that time. For additional information, see the Corporation’s Current Report on Form 8-K filed on April 30, 2018.
Selected Financial Data
Table 1 provides selected consolidated financial data for the three months ended March 31, 20172018 and 2016,2017, and at March 31, 20172018 and December 31, 2016.2017.
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| Table 1 | Selected Financial Data | | Selected Financial Data | | | |
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| | | Three Months Ended March 31 | | Three Months Ended March 31 |
| (Dollars in millions, except per share information) | (Dollars in millions, except per share information) | 2017 | 2016 | (Dollars in millions, except per share information) | 2018 | | 2017 |
| Income statement | Income statement | |
| |
| Income statement | | | |
| Revenue, net of interest expense | Revenue, net of interest expense | $ | 22,248 |
| $ | 20,790 |
| Revenue, net of interest expense | $ | 23,125 |
| | $ | 22,248 |
|
| Net income | Net income | 4,856 |
| 3,472 |
| Net income | 6,918 |
| | 5,337 |
|
| Diluted earnings per common share | Diluted earnings per common share | 0.41 |
| 0.28 |
| Diluted earnings per common share | 0.62 |
| | 0.45 |
|
| Dividends paid per common share | Dividends paid per common share | 0.075 |
| 0.05 |
| Dividends paid per common share | 0.12 |
| | 0.075 |
|
| Performance ratios | Performance ratios | |
| |
| Performance ratios | | | |
| Return on average assets | Return on average assets | 0.88 | % | 0.64 | % | Return on average assets | 1.21 | % | | 0.97 | % |
| Return on average common shareholders' equity | 7.27 |
| 5.11 |
| |
| Return on average common shareholders’ equity | | Return on average common shareholders’ equity | 10.85 |
| | 8.09 |
|
Return on average tangible common shareholders’ equity (1) | Return on average tangible common shareholders’ equity (1) | 10.28 |
| 7.33 |
| Return on average tangible common shareholders’ equity (1) | 15.26 |
| | 11.44 |
|
| Efficiency ratio | Efficiency ratio | 66.74 |
| 71.27 |
| Efficiency ratio | 60.09 |
| | 63.34 |
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| | | March 31
2017 | December 31
2016 | | March 31
2018 | | December 31
2017 |
| Balance sheet | Balance sheet | |
| |
| Balance sheet | |
| | |
|
| Total loans and leases | Total loans and leases | $ | 906,242 |
| $ | 906,683 |
| Total loans and leases | $ | 934,078 |
| | $ | 936,749 |
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| Total assets | Total assets | 2,247,701 |
| 2,187,702 |
| Total assets | 2,328,478 |
| | 2,281,234 |
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| Total deposits | Total deposits | 1,272,141 |
| 1,260,934 |
| Total deposits | 1,328,664 |
| | 1,309,545 |
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| Total common shareholders’ equity | Total common shareholders’ equity | 242,933 |
| 241,620 |
| Total common shareholders’ equity | 241,552 |
| | 244,823 |
|
| Total shareholders’ equity | Total shareholders’ equity | 268,153 |
| 266,840 |
| Total shareholders’ equity | 266,224 |
| | 267,146 |
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(1) | Return on average tangible common shareholders'shareholders’ equity is a non-GAAP financial measure. For additionalmore information and a corresponding reconciliation to accounting principles generally accepted in the United States of America (GAAP) financial measures, see Non-GAAP Reconciliations on page 6148. |
Financial Highlights
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| Table 2 | Summary Income Statement |
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| | | Three Months Ended March 31 |
| (Dollars in millions) | 2018 | | 2017 |
| Net interest income | $ | 11,608 |
| | $ | 11,058 |
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| Noninterest income | 11,517 |
| | 11,190 |
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| Total revenue, net of interest expense | 23,125 |
| | 22,248 |
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| Provision for credit losses | 834 |
| | 835 |
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| Noninterest expense | 13,897 |
| | 14,093 |
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| Income before income taxes | 8,394 |
| | 7,320 |
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| Income tax expense | 1,476 |
| | 1,983 |
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| Net income | $ | 6,918 |
| | $ | 5,337 |
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| Preferred stock dividends | 428 |
| | 502 |
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| Net income applicable to common shareholders | $ | 6,490 |
| | $ | 4,835 |
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| Per common share information | | | |
| Earnings | $ | 0.63 |
| | $ | 0.48 |
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| Diluted earnings | 0.62 |
| | 0.45 |
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Net income was $4.9$6.9 billion, or $0.41$0.62 per diluted share for the three months ended March 31, 20172018 compared to $3.5$5.3 billion, or $0.28$0.45 per diluted share for the same period in 2016.2017. The results for the three months ended March 31, 20172018 compared to the same period in 20162017 were driven by higher revenuean increase in net interest income and noninterest income, and a decline in noninterest expense as well as lower provisionincome tax expense due to the impacts of the Tax Cuts and Jobs Act (the Tax Act). These impacts include a reduction in the federal tax rate to 21 percent from 35 percent, an increase in U.S. taxes related to our non-U.S. operations and the elimination of tax deductions for credit losses.Federal Deposit Insurance Corporation (FDIC) premiums. These changes resulted in a net reduction to our estimated annual effective tax rate of approximately nine percentage points.
Total assets increased $60.0$47.2 billion from December 31, 20162017 to $2.2$2.3 trillion at March 31, 2017 primarily2018 driven by higher cash and cash equivalents from seasonal increases inseasonally higher deposits and higher short-term bank funding as well as seasonal increasesan increase in trading account assets due to increased client financing activities and securities borrowed or purchased under agreements to resell. Total liabilities increased $58.7 billion from December 31, 2016resell to $2.0 trillion at March 31, 2017 primarily drivensupport Global Markets client activity. These increases were partially offset by highera decrease in debt securities loaned or sold under agreements to repurchase and short-term borrowings due to increased Federal Home Loan Bank (FHLB) advances for liquidity purposeslower reinvestment-related purchases as well as increases in trading account liabilities and a seasonal increase in deposits. Shareholders' equity increased $1.3 billion from December 31, 2016 primarily due to net income, partially offset by $2.7 billion of common stock repurchases.
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| Table 2 | Summary Income Statement | | | |
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| | | Three Months Ended March 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Net interest income | $ | 11,058 |
| | $ | 10,485 |
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| Noninterest income | 11,190 |
| | 10,305 |
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| Total revenue, net of interest expense | 22,248 |
| | 20,790 |
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| Provision for credit losses | 835 |
| | 997 |
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| Noninterest expense | 14,848 |
| | 14,816 |
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| Income before income taxes | 6,565 |
| | 4,977 |
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| Income tax expense | 1,709 |
| | 1,505 |
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| Net income | 4,856 |
| | 3,472 |
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| Preferred stock dividends | 502 |
| | 457 |
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| Net income applicable to common shareholders | $ | 4,354 |
| | $ | 3,015 |
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| Per common share information | | | |
| Earnings | $ | 0.43 |
| | $ | 0.29 |
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| Diluted earnings | 0.41 |
| | 0.28 |
|
Net Interest Income
Net interest income increased $573 million to $11.1 billion for the three months ended March 31, 2017 compared to the same period in 2016, and the net interest yield increased six bps to 2.35 percent. Among other factors, these increases were primarily driven by the higher interest rate environment, primarily short-end rates, and growth in loans and deposits. For information regarding interest rate risk management, see Interest Rate Risk Management for the Banking Book on page 58.market value declines.
NoninterestTotal liabilities increased $48.2 billion from December 31, 2017 to $2.1 trillion at March 31, 2018 primarily driven by seasonally higher deposits and an increase in trading account liabilities from increased activity in Global Markets. Shareholders’ equity decreased $922 million from December 31, 2017 primarily due to returns of capital to shareholders through common stock repurchases and common and preferred stock dividends, and market value declines on debt securities, largely offset by net income and issuances of preferred stock.
Net Interest Income
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| Table 3 | Noninterest Income | | | |
| | | | | |
| | | Three Months Ended March 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Card income | $ | 1,449 |
| | $ | 1,430 |
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| Service charges | 1,918 |
| | 1,837 |
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| Investment and brokerage services | 3,262 |
| | 3,182 |
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| Investment banking income | 1,584 |
| | 1,153 |
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| Trading account profits | 2,331 |
| | 1,662 |
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| Mortgage banking income | 122 |
| | 433 |
|
| Gains on sales of debt securities | 52 |
| | 190 |
|
| Other income | 472 |
| | 418 |
|
| Total noninterest income | $ | 11,190 |
| | $ | 10,305 |
|
NoninterestNet interest income increased $885$550 million to $11.2$11.6 billion for the three months ended March 31, 20172018 compared to the same period in 2016.2017, and the net interest yield increased one bp to 2.36 percent. These increases were primarily driven by the benefits from higher interest rates along with loan and deposit growth, partially offset by the sale of the non-U.S. consumer credit card business in the second quarter of 2017 and higher funding costs in Global Markets. For more information regarding interest rate risk management, see Interest Rate Risk Management for the Banking Book on page 45.
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| Table 3 | Noninterest Income | | | |
| | | | | |
| | | Three Months Ended March 31 |
| (Dollars in millions) | 2018 | | 2017 |
| Card income | $ | 1,457 |
| | $ | 1,449 |
|
| Service charges | 1,921 |
| | 1,918 |
|
| Investment and brokerage services | 3,664 |
| | 3,417 |
|
| Investment banking income | 1,353 |
| | 1,584 |
|
| Trading account profits | 2,699 |
| | 2,331 |
|
| Other income | 423 |
| | 491 |
|
| Total noninterest income | $ | 11,517 |
| | $ | 11,190 |
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Noninterest income increased $327 million to $11.5 billion for the three months ended March 31, 2018 compared to the same period in 2017. The following highlights the more significant changes.
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| ● | Investment and brokerage services income increased$247 million primarily driven by higher market valuations and the impact of assets under management (AUM) flows, partially offset by the impact of changing market dynamics on transactional revenue and AUM pricing. |
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| ● | Investment banking income increased $431decreased $231 million driven by higher debtprimarily due to declines in advisory fees and equity and debt issuance fees, and advisory fees driven by an increase in overall client activity and market fee pools.fees. |
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| ● | Trading account profits increased $669$368 million primarily due to increased client activity and a stronger performance across credit products led by mortgages, improvedstrong trading performance in equity derivatives, partially offset by lower activity and increased client financing activityless favorable markets in equities.credit products. |
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| ● | Mortgage bankingOther income decreased $311$68 million primarily driven by lower net servicing income and a decline in production income. Net servicing income decreased primarily due to lower mortgage servicing rights (MSR) results, net of the related hedge performance and lower servicing fees driven by a smaller servicing portfolio. Production income declined primarily due to lower volume.equity investment gains. |
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● | Gains on sales of debt securities decreased $138 million primarily driven by lower sales volume. |
Provision for Credit Losses
The provision for credit losses decreased $162 million to $835 millionremained relatively unchanged for the three months ended March 31, 20172018 compared to the same period in 2016 primarily driven by credit quality improvements in energy exposures2017 with continued improvement in the commercial portfolio. We expectconsumer real estate portfolio and the provision forimpact of the sale of the non-U.S. credit losses will approximate net charge-offs forcard business during the second quarter of 2017.2017, largely offset by an increase in U.S. credit card due to portfolio seasoning and loan growth. For more information on the provision for credit losses, see Provision for Credit Losses on page 51. For more information on our energy sector exposure, see Commercial Portfolio Credit Risk Management – Industry Concentrations on page 47.41.
Noninterest Expense
| | | | | | | | | | | |
| Table 4 | Noninterest Expense | | | | Noninterest Expense | | | |
| | | | | | | | | |
| | | Three Months Ended March 31 | | Three Months Ended March 31 |
| (Dollars in millions) | (Dollars in millions) | 2017 | | 2016 | (Dollars in millions) | 2018 | | 2017 |
| Personnel | Personnel | $ | 9,158 |
| | $ | 8,852 |
| Personnel | $ | 8,480 |
| | $ | 8,475 |
|
| Occupancy | Occupancy | 1,000 |
| | 1,028 |
| Occupancy | 1,014 |
| | 1,000 |
|
| Equipment | Equipment | 438 |
| | 463 |
| Equipment | 442 |
| | 438 |
|
| Marketing | Marketing | 332 |
| | 419 |
| Marketing | 345 |
| | 332 |
|
| Professional fees | Professional fees | 456 |
| | 425 |
| Professional fees | 381 |
| | 456 |
|
| Amortization of intangibles | 162 |
| | 187 |
| |
| Data processing | Data processing | 794 |
| | 838 |
| Data processing | 810 |
| | 794 |
|
| Telecommunications | Telecommunications | 191 |
| | 173 |
| Telecommunications | 183 |
| | 191 |
|
| Other general operating | Other general operating | 2,317 |
| | 2,431 |
| Other general operating | 2,242 |
| | 2,407 |
|
| Total noninterest expense | Total noninterest expense | $ | 14,848 |
| | $ | 14,816 |
| Total noninterest expense | $ | 13,897 |
| | $ | 14,093 |
|
Noninterest expense of $14.8decreased $196 million to $13.9 billion remained relatively unchanged for the three months ended March 31, 20172018 compared to the same period in 2016 reflecting broad-based reductions in operating and support costs, offset by higher personnel and FDIC expenses. Personnel expense increased $306 million and included retirement-eligible incentive costs of $964 million compared to $850 million as well as seasonally elevated payroll tax costs. Also impacting the increase were higher incentive costs due to the impact of changes in share price on employee stock awards, and higher revenue-related incentive costs. Other general operating expense decreased $114 million largely2017 driven by lower non-personnel costs, primarily litigation expense.expense and professional fees.
Income Tax Expense
| | | | | | | | | | | |
| Table 5 | Income Tax Expense | | | | Income Tax Expense | | | |
| | | | | | | | | |
| | | Three Months Ended March 31 | | Three Months Ended March 31 |
| (Dollars in millions) | (Dollars in millions) | 2017 | | 2016 | (Dollars in millions) | 2018 | | 2017 |
| Income before income taxes | Income before income taxes | $ | 6,565 |
| | $ | 4,977 |
| Income before income taxes | $ | 8,394 |
| | $ | 7,320 |
|
| Income tax expense | Income tax expense | 1,709 |
| | 1,505 |
| Income tax expense | 1,476 |
| | 1,983 |
|
| Effective tax rate | Effective tax rate | 26.0 | % | | 30.2 | % | Effective tax rate | 17.6 | % | | 27.1 | % |
The effective tax rate for 2018 reflects the new 21 percent federal tax rate and the other provisions of the Tax Act. Further, the effective tax rates for the three months ended March 31, 2018 and 2017 were lower than the applicable federal and 2016 were driven by the impact ofstate statutory rates due to our recurring tax preference benefits. Thebenefits and tax benefits related to stock-based compensation. We expect the effective tax rate for the three months ended March 31, 2017 also included a tax benefit of $222 million related to new accounting guidance for the tax impact associated with share-based compensation. For additional information, see Note 11 – Shareholders’ Equityto the Consolidated Financial Statements. We expect our effective tax rate2018 to be approximately 3020 percent, for the remainder of 2017, absent unusual items.
| | | | | | | | | | | | | | | | | | | | | | | |
| Table 6 | Selected Quarterly Financial Data | | | | | | | | | | Selected Quarterly Financial Data | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | 2017 Quarter | | 2016 Quarters | | 2018 Quarter Quarter | | 2017 Quarters |
| (Dollars in millions, except per share information) | First | | Fourth | | Third | | Second | | First | |
| (In millions, except per share information) | | (In millions, except per share information) | First | | Fourth | | Third | | Second | | First |
| Income statement | Income statement | |
| | |
| | |
| | |
| | |
| Income statement | | | | | |
| | |
| | |
|
| Net interest income | Net interest income | $ | 11,058 |
| | $ | 10,292 |
| | $ | 10,201 |
| | $ | 10,118 |
| | $ | 10,485 |
| Net interest income | $ | 11,608 |
| | $ | 11,462 |
| | $ | 11,161 |
| | $ | 10,986 |
| | $ | 11,058 |
|
Noninterest income | Noninterest income | 11,190 |
| | 9,698 |
| | 11,434 |
| | 11,168 |
| | 10,305 |
| Noninterest income | 11,517 |
| | 8,974 |
| | 10,678 |
| | 11,843 |
| | 11,190 |
|
| Total revenue, net of interest expense | Total revenue, net of interest expense | 22,248 |
| | 19,990 |
| | 21,635 |
| | 21,286 |
| | 20,790 |
| Total revenue, net of interest expense | 23,125 |
| | 20,436 |
| | 21,839 |
| | 22,829 |
| | 22,248 |
|
| Provision for credit losses | Provision for credit losses | 835 |
| | 774 |
| | 850 |
| | 976 |
| | 997 |
| Provision for credit losses | 834 |
| | 1,001 |
| | 834 |
| | 726 |
| | 835 |
|
| Noninterest expense | Noninterest expense | 14,848 |
| | 13,161 |
| | 13,481 |
| | 13,493 |
| | 14,816 |
| Noninterest expense | 13,897 |
| | 13,274 |
| | 13,394 |
| | 13,982 |
| | 14,093 |
|
| Income before income taxes | Income before income taxes | 6,565 |
| | 6,055 |
| | 7,304 |
| | 6,817 |
| | 4,977 |
| Income before income taxes | 8,394 |
| | 6,161 |
| | 7,611 |
| | 8,121 |
| | 7,320 |
|
Income tax expense | Income tax expense | 1,709 |
| | 1,359 |
| | 2,349 |
| | 2,034 |
| | 1,505 |
| Income tax expense | 1,476 |
| | 3,796 |
| | 2,187 |
| | 3,015 |
| | 1,983 |
|
Net income | Net income | 4,856 |
| | 4,696 |
| | 4,955 |
| | 4,783 |
| | 3,472 |
| Net income | 6,918 |
| | 2,365 |
| | 5,424 |
| | 5,106 |
| | 5,337 |
|
| Net income applicable to common shareholders | Net income applicable to common shareholders | 4,354 |
| | 4,335 |
| | 4,452 |
| | 4,422 |
| | 3,015 |
| Net income applicable to common shareholders | 6,490 |
| | 2,079 |
| | 4,959 |
| | 4,745 |
| | 4,835 |
|
| Average common shares issued and outstanding | Average common shares issued and outstanding | 10,100 |
| | 10,170 |
| | 10,250 |
| | 10,328 |
| | 10,370 |
| Average common shares issued and outstanding | 10,322.4 |
| | 10,470.7 |
| | 10,197.9 |
| | 10,013.5 |
| | 10,099.6 |
|
| Average diluted common shares issued and outstanding | Average diluted common shares issued and outstanding | 10,915 |
| | 10,959 |
| | 11,000 |
| | 11,059 |
| | 11,100 |
| Average diluted common shares issued and outstanding | 10,472.7 |
| | 10,621.8 |
| | 10,746.7 |
| | 10,834.8 |
| | 10,919.7 |
|
| Performance ratios | Performance ratios | |
| | |
| | |
| | |
| | |
| Performance ratios | |
| | |
| | |
| | |
| | |
|
| Return on average assets | Return on average assets | 0.88 | % | | 0.85 | % | | 0.90 | % | | 0.88 | % | | 0.64 | % | Return on average assets | 1.21 | % | | 0.41 | % | | 0.95 | % | | 0.90 | % | | 0.97 | % |
Four quarter trailing return on average assets (1)(2) | Four quarter trailing return on average assets (1)(2) | 0.88 |
| | 0.82 |
| | 0.76 |
| | 0.74 |
| | 0.73 |
| Four quarter trailing return on average assets (1)(2) | 0.86 |
| | 0.80 |
| | 0.91 |
| | 0.89 |
| | 0.88 |
|
| Return on average common shareholders’ equity | Return on average common shareholders’ equity | 7.27 |
| | 7.04 |
| | 7.27 |
| | 7.40 |
| | 5.11 |
| Return on average common shareholders’ equity | 10.85 |
| | 3.29 |
| | 7.89 |
| | 7.75 |
| | 8.09 |
|
Return on average tangible common shareholders’ equity (2)(3) | Return on average tangible common shareholders’ equity (2)(3) | 10.28 |
| | 9.92 |
| | 10.28 |
| | 10.54 |
| | 7.33 |
| Return on average tangible common shareholders’ equity (2)(3) | 15.26 |
| | 4.56 |
| | 10.98 |
| | 10.87 |
| | 11.44 |
|
| Return on average shareholders' equity | 7.35 |
| | 6.91 |
| | 7.33 |
| | 7.25 |
| | 5.36 |
| |
| Return on average shareholders’ equity | | Return on average shareholders’ equity | 10.57 |
| | 3.43 |
| | 7.88 |
| | 7.56 |
| | 8.09 |
|
Return on average tangible shareholders’ equity (2)(3) | Return on average tangible shareholders’ equity (2)(3) | 10.00 |
| | 9.38 |
| | 9.98 |
| | 9.93 |
| | 7.40 |
| Return on average tangible shareholders’ equity (2)(3) | 14.37 |
| | 4.62 |
| | 10.59 |
| | 10.23 |
| | 11.01 |
|
| Total ending equity to total ending assets | Total ending equity to total ending assets | 11.93 |
| | 12.20 |
| | 12.30 |
| | 12.23 |
| | 12.03 |
| Total ending equity to total ending assets | 11.43 |
| | 11.71 |
| | 11.91 |
| | 12.00 |
| | 11.92 |
|
| Total average equity to total average assets | Total average equity to total average assets | 12.01 |
| | 12.24 |
| | 12.28 |
| | 12.13 |
| | 11.98 |
| Total average equity to total average assets | 11.41 |
| | 11.87 |
| | 12.03 |
| | 11.94 |
| | 12.00 |
|
| Dividend payout | Dividend payout | 17.37 |
| | 17.68 |
| | 17.32 |
| | 11.73 |
| | 17.13 |
| Dividend payout | 19.06 |
| | 60.35 |
| | 25.59 |
| | 15.78 |
| | 15.64 |
|
| Per common share data | Per common share data | |
| | |
| | |
| | |
| | |
| Per common share data | |
| | |
| | |
| | |
| | |
|
| Earnings | Earnings | $ | 0.43 |
| | $ | 0.43 |
| | $ | 0.43 |
| | $ | 0.43 |
| | $ | 0.29 |
| Earnings | $ | 0.63 |
| | $ | 0.20 |
| | $ | 0.49 |
| | $ | 0.47 |
| | $ | 0.48 |
|
| Diluted earnings | Diluted earnings | 0.41 |
| | 0.40 |
| | 0.41 |
| | 0.41 |
| | 0.28 |
| Diluted earnings | 0.62 |
| | 0.20 |
| | 0.46 |
| | 0.44 |
| | 0.45 |
|
| Dividends paid | Dividends paid | 0.075 |
| | 0.075 |
| | 0.075 |
| | 0.05 |
| | 0.05 |
| Dividends paid | 0.12 |
| | 0.12 |
| | 0.12 |
| | 0.075 |
| | 0.075 |
|
| Book value | Book value | 24.36 |
| | 24.04 |
| | 24.19 |
| | 23.71 |
| | 23.14 |
| Book value | 23.74 |
| | 23.80 |
| | 23.87 |
| | 24.85 |
| | 24.34 |
|
Tangible book value (2)(3) | Tangible book value (2)(3) | 17.23 |
| | 16.95 |
| | 17.14 |
| | 16.71 |
| | 16.19 |
| Tangible book value (2)(3) | 16.84 |
| | 16.96 |
| | 17.18 |
| | 17.75 |
| | 17.22 |
|
| Market price per share of common stock | Market price per share of common stock | |
| | |
| | |
| | |
| | |
| Market price per share of common stock | |
| | |
| | | | | | |
|
| Closing | Closing | $ | 23.59 |
| | $ | 22.10 |
| | $ | 15.65 |
| | $ | 13.27 |
| | $ | 13.52 |
| Closing | $ | 29.99 |
| | $ | 29.52 |
| | $ | 25.34 |
| | $ | 24.26 |
| | $ | 23.59 |
|
| High closing | High closing | 25.50 |
| | 23.16 |
| | 16.19 |
| | 15.11 |
| | 16.43 |
| High closing | 32.84 |
| | 29.88 |
| | 25.45 |
| | 24.32 |
| | 25.50 |
|
| Low closing | Low closing | 22.05 |
| | 15.63 |
| | 12.74 |
| | 12.18 |
| | 11.16 |
| Low closing | 29.17 |
| | 25.45 |
| | 22.89 |
| | 22.23 |
| | 22.05 |
|
| Market capitalization | Market capitalization | $ | 235,291 |
| | $ | 222,163 |
| | $ | 158,438 |
| | $ | 135,577 |
| | $ | 139,427 |
| Market capitalization | $ | 305,176 |
| | $ | 303,681 |
| | $ | 264,992 |
| | $ | 239,643 |
| | $ | 235,291 |
|
| Average balance sheet | | Average balance sheet | |
| | |
| | |
| | |
| | |
|
| Total loans and leases | | Total loans and leases | $ | 931,915 |
| | $ | 927,790 |
| | $ | 918,129 |
| | $ | 914,717 |
| | $ | 914,144 |
|
| Total assets | | Total assets | 2,325,878 |
| | 2,301,687 |
| | 2,271,104 |
| | 2,269,293 |
| | 2,231,649 |
|
| Total deposits | | Total deposits | 1,297,268 |
| | 1,293,572 |
| | 1,271,711 |
| | 1,256,838 |
| | 1,256,632 |
|
| Long-term debt | | Long-term debt | 229,603 |
| | 227,644 |
| | 227,309 |
| | 224,019 |
| | 221,468 |
|
| Common shareholders’ equity | | Common shareholders’ equity | 242,713 |
| | 250,838 |
| | 249,214 |
| | 245,756 |
| | 242,480 |
|
| Total shareholders’ equity | | Total shareholders’ equity | 265,480 |
| | 273,162 |
| | 273,238 |
| | 270,977 |
| | 267,700 |
|
| Asset quality | | Asset quality | |
| | |
| | |
| | |
| | |
|
Allowance for credit losses (4) | | Allowance for credit losses (4) | $ | 11,042 |
| | $ | 11,170 |
| | $ | 11,455 |
| | $ | 11,632 |
| | $ | 11,869 |
|
Nonperforming loans, leases and foreclosed properties (5) | | Nonperforming loans, leases and foreclosed properties (5) | 6,694 |
| | 6,758 |
| | 6,869 |
| | 7,127 |
| | 7,637 |
|
Allowance for loan and lease losses as a percentage of total loans and leases outstanding (6, 7) | | Allowance for loan and lease losses as a percentage of total loans and leases outstanding (6, 7) | 1.11 | % | | 1.12 | % | | 1.16 | % | | 1.20 | % | | 1.25 | % |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5, 6) | | Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5, 6) | 161 |
| | 161 |
| | 163 |
| | 160 |
| | 156 |
|
Net charge-offs (7, 8) | | Net charge-offs (7, 8) | $ | 911 |
| | $ | 1,237 |
| | $ | 900 |
| | $ | 908 |
| | $ | 934 |
|
Annualized net charge-offs as a percentage of average loans and leases outstanding (6, 8) | | Annualized net charge-offs as a percentage of average loans and leases outstanding (6, 8) | 0.40 | % | | 0.53 | % | | 0.39 | % | | 0.40 | % | | 0.42 | % |
Capital ratios at period end (9) | | Capital ratios at period end (9) | |
| | |
| | |
| | |
| | |
|
| Common equity tier 1 capital | | Common equity tier 1 capital | 11.3 | % | | 11.5 | % | | 11.9 | % | | 11.5 | % | | 11.0 | % |
| Tier 1 capital | | Tier 1 capital | 13.0 |
| | 13.0 |
| | 13.4 |
| | 13.2 |
| | 12.6 |
|
| Total capital | | Total capital | 14.8 |
| | 14.8 |
| | 15.1 |
| | 15.0 |
| | 14.3 |
|
| Tier 1 leverage | | Tier 1 leverage | 8.4 |
| | 8.6 |
| | 8.9 |
| | 8.8 |
| | 8.8 |
|
| Supplementary leverage ratio | | Supplementary leverage ratio | 6.8 |
| | n/a |
| | n/a |
| | n/a |
| | n/a |
|
Tangible equity (3) | | Tangible equity (3) | 8.7 |
| | 8.9 |
| | 9.1 |
| | 9.2 |
| | 9.1 |
|
Tangible common equity (3) | | Tangible common equity (3) | 7.6 |
| | 7.9 |
| | 8.1 |
| | 8.0 |
| | 7.9 |
|
| |
(1) | Net income for the fourth quarter of 2017 included an estimated charge of $2.9 billion related to the Tax Act effects which consisted of $946 million in noninterest income and $1.9 billion in income tax expense. |
| |
(2) | Calculated as total net income for four consecutive quarters divided by annualized average assets for four consecutive quarters. |
| |
(2)(3)
| Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. For more information on these ratios, see Supplemental Financial Data on page 7, and for corresponding reconciliations to GAAP financial measures, see Non-GAAP Reconciliations on page 61. |
| |
(3)
| For more information on the impact of the purchased credit-impaired (PCI) loan portfolio on asset quality, see Consumer Portfolio Credit Risk Management on page 3148.
|
| |
(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 4133 and corresponding Table 3128, and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 4637 and corresponding Table 3835. |
| |
(6) | Asset quality metrics for the first quarter of 2017 include $242 million and $243 million of non-U.S. credit card allowance for loan and lease losses and $9.5$9.5 billion and $9.2 billion of non-U.S. credit card loans, in the first quarter of 2017 and in the fourth quarter of 2016, which are included in assets of business held for sale on the Consolidated Balance Sheet. |
| |
(7)
| Primarily includes amounts allocated to the U.S. credit card and unsecured consumer lending portfolios in Consumer Banking, PCI loans and the non-U.S. credit card portfolio in All Other.
|
| |
(8)
| Net charge-offs exclude $33 million, $70 million, $83 million, $82 million, and $105 million of write-offs in the PCI loan portfolio in the first quarter of 2017 and in the fourth, third, second and first quarters of 2016, respectively. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 39.
|
| |
(9)
| Includes net charge-offs of $44 million and $41 million on non-U.S. credit card loans, which arewere included in assets of business held for sale on the Consolidated Balance Sheet at March 31, 2017 and December 31, 2016.2017. The Corporation sold its non-U.S. consumer credit card business in the second quarter of 2017. |
| |
(10)(7)
| Risk-based capital ratios are reported under Net charge-offs exclude $35 million, $46 million, $73 million, $55 million and $33 million of write-offs in the purchased credit-impaired (PCI) loan portfolio in the first quarter of 2018, and in the fourth, third, second and first quarters of 2017, respectively. For more information, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 31.
|
| |
(8) | Includes net charge-offs of $31 million and $44 million on non-U.S. credit card loans in the second and first quarters of 2017, which were included in assets of business held for sale on the Consolidated Balance Sheet at March 31, 2017. |
| |
(9) | Basel 3 Advanced - Transition.transition provisions for regulatory capital adjustments and deductions were fully phased-in as of January 1, 2018. Prior periods are presented on a fully phased-in basis. For additionalmore information, see Capital Management on page 2118. |
n/a = not applicable
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Table 6 | Selected Quarterly Financial Data (continued) | | | | | | | | | |
| | | | | | | | | | | |
| | | 2017 Quarter | | 2016 Quarters |
| (Dollars in millions) | First | | Fourth | | Third | | Second | | First |
| Average balance sheet | |
| | |
| | |
| | |
| | |
|
| Total loans and leases | $ | 914,144 |
| | $ | 908,396 |
| | $ | 900,594 |
| | $ | 899,670 |
| | $ | 892,984 |
|
| Total assets | 2,231,420 |
| | 2,208,039 |
| | 2,189,490 |
| | 2,188,241 |
| | 2,173,922 |
|
| Total deposits | 1,256,632 |
| | 1,250,948 |
| | 1,227,186 |
| | 1,213,291 |
| | 1,198,455 |
|
| Long-term debt | 221,468 |
| | 220,587 |
| | 227,269 |
| | 233,061 |
| | 233,654 |
|
| Common shareholders’ equity | 242,883 |
| | 245,139 |
| | 243,679 |
| | 240,376 |
| | 237,229 |
|
| Total shareholders’ equity | 268,103 |
| | 270,360 |
| | 268,899 |
| | 265,354 |
| | 260,423 |
|
Asset quality (3) | |
| | |
| | |
| | |
| | |
|
Allowance for credit losses (4) | $ | 11,869 |
| | $ | 11,999 |
| | $ | 12,459 |
| | $ | 12,587 |
| | $ | 12,696 |
|
Nonperforming loans, leases and foreclosed properties (5) | 7,637 |
| | 8,084 |
| | 8,737 |
| | 8,799 |
| | 9,281 |
|
Allowance for loan and lease losses as a percentage of total loans and leases outstanding (5, 6) | 1.25 | % | | 1.26 | % | | 1.30 | % | | 1.32 | % | | 1.35 | % |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5, 6) | 156 |
| | 149 |
| | 140 |
| | 142 |
| | 136 |
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the PCI loan portfolio (5, 6) | 150 |
| | 144 |
| | 135 |
| | 135 |
| | 129 |
|
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases (7) | $ | 4,047 |
| | $ | 3,951 |
| | $ | 4,068 |
| | $ | 4,087 |
| | $ | 4,138 |
|
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 (5, 7) | 100 | % | | 98 | % | | 91 | % | | 93 | % | | 90 | % |
Net charge-offs (8, 9) | $ | 934 |
| | $ | 880 |
| | $ | 888 |
| | $ | 985 |
| | $ | 1,068 |
|
Annualized net charge-offs as a percentage of average loans and leases outstanding (5, 8) | 0.42 | % | | 0.39 | % | | 0.40 | % | | 0.44 | % | | 0.48 | % |
Annualized net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio (5) | 0.42 |
| | 0.39 |
| | 0.40 |
| | 0.45 |
| | 0.49 |
|
Annualized net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (5) | 0.43 |
| | 0.42 |
| | 0.43 |
| | 0.48 |
| | 0.53 |
|
Nonperforming loans and leases as a percentage of total loans and leases outstanding (5, 6) | 0.80 |
| | 0.85 |
| | 0.93 |
| | 0.94 |
| | 0.99 |
|
Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties (5, 6) | 0.84 |
| | 0.89 |
| | 0.97 |
| | 0.98 |
| | 1.04 |
|
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs (6, 8) | 3.00 |
| | 3.28 |
| | 3.31 |
| | 2.99 |
| | 2.81 |
|
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs, excluding the PCI loan portfolio (6) | 2.88 |
| | 3.16 |
| | 3.18 |
| | 2.85 |
| | 2.67 |
|
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs and PCI write-offs (6) | 2.90 |
| | 3.04 |
| | 3.03 |
| | 2.76 |
| | 2.56 |
|
Capital ratios at period end (10) | |
| | |
| | |
| | |
| | |
|
| Risk-based capital: | |
| | |
| | |
| | |
| | |
|
| Common equity tier 1 capital | 11.0 | % | | 11.0 | % | | 11.0 | % | | 10.6 | % | | 10.3 | % |
| Tier 1 capital | 12.5 |
| | 12.4 |
| | 12.4 |
| | 12.0 |
| | 11.5 |
|
| Total capital | 14.4 |
| | 14.3 |
| | 14.2 |
| | 13.9 |
| | 13.4 |
|
| Tier 1 leverage | 8.8 |
| | 8.9 |
| | 9.1 |
| | 8.9 |
| | 8.7 |
|
Tangible equity (2) | 9.1 |
| | 9.2 |
| | 9.4 |
| | 9.3 |
| | 9.1 |
|
Tangible common equity (2) | 7.9 |
| | 8.1 |
| | 8.2 |
| | 8.1 |
| | 7.9 |
|
For footnotes see page 6.
Supplemental Financial Data
In this Form 10-Q, 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.
We view net interest income and related ratios and analyses on ana fully taxable-equivalent (FTE) basis, which when presented on a consolidated basis, are non-GAAP financial measures. 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 3521 percent for 2018 (35 percent for all prior periods) and a representative state tax rate. In addition, certain performance measures, including the efficiency ratio and net interest yield, utilize net interest income (and thus total revenue) on an FTE basis. The efficiency ratio measures the costs expended to generate a dollar of revenue, and net interest yield measures the bps we earn over the cost of funds. 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 areis useful because theysuch 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 an adjusted shareholders’ equity or common shareholders’ equity amount which has been reduced by goodwill and certain acquired intangible assets (excluding MSRs)mortgage servicing rights (MSRs)), net of related deferred tax liabilities. 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 goals. These ratios are as follows:
| |
| ● | Return on average tangible common shareholders’ equity measures our earnings contribution as a percentage of adjusted common shareholders’ equity. The tangible common equity ratio represents adjusted ending common shareholders’ equity divided by total assets less goodwill and certain acquired intangible assets (excluding MSRs), net of related deferred tax liabilities. |
| |
| ● | Return on average tangible shareholders’ equity measures our earnings contribution as a percentage of adjusted average total shareholders’ equity. The tangible equity ratio represents adjusted ending shareholders’ equity divided by total assets less goodwill and certain acquired intangible assets (excluding MSRs), net of related deferred tax liabilities. |
| |
| ● | Tangible book value per common share represents adjusted ending common shareholders’ equity divided by ending common shares outstanding. |
We believe that the use of ratios that utilize tangible equity provides additional useful information because they present measures of those assets that can generate income. Tangible book value per 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 Table 6.
Table 7 presents certainFor more information on the reconciliation of these non-GAAP financial measures and performance measurementsto GAAP financial measures, see Non-GAAP Reconciliations on an FTE basis.page 48.
|
| | | | | | | | |
| | | | | |
| Table 7 | Supplemental Financial Data | | | |
| | | | | |
| | | Three Months Ended March 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Fully taxable-equivalent basis data | |
| | |
|
| Net interest income | $ | 11,255 |
| | $ | 10,700 |
|
| Total revenue, net of interest expense | 22,445 |
| | 21,005 |
|
| Net interest yield | 2.39 | % | | 2.33 | % |
| Efficiency ratio | 66.15 |
| | 70.54 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 8 | Quarterly Average Balances and Interest Rates – FTE Basis | |
| Table 7 | | Quarterly Average Balances and Interest Rates - FTE Basis | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | First Quarter 2017 | | First Quarter 2016 | | Average Balance | | Interest
Income/ Expense | | Yield/ Rate | | Average
Balance | | Interest
Income/
Expense | | Yield/
Rate |
| (Dollars in millions) | (Dollars in millions) | Average Balance | | Interest
Income/ Expense | | Yield/ Rate | | Average
Balance | | Interest
Income/
Expense | | Yield/
Rate | (Dollars in millions) | First Quarter 2018 | | First Quarter 2017 |
| Earning assets | Earning assets | |
| | |
| | |
| | |
| | |
| | |
| Earning assets | |
| | |
| | |
| | |
| | |
| | |
|
| Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks | Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks | $ | 123,921 |
| | $ | 202 |
| | 0.66 | % | | $ | 138,574 |
| | $ | 155 |
| | 0.45 | % | Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks | $ | 140,247 |
| | $ | 422 |
| | 1.22 | % | | $ | 123,921 |
| | $ | 202 |
| | 0.66 | % |
| Time deposits placed and other short-term investments | Time deposits placed and other short-term investments | 11,497 |
| | 47 |
| | 1.65 |
| | 9,156 |
| | 32 |
| | 1.41 |
| Time deposits placed and other short-term investments | 10,786 |
| | 61 |
| | 2.31 |
| | 11,497 |
| | 47 |
| | 1.65 |
|
Federal funds sold and securities borrowed or purchased under agreements to resell | Federal funds sold and securities borrowed or purchased under agreements to resell | 216,402 |
| | 439 |
| | 0.82 |
| | 209,183 |
| | 276 |
| | 0.53 |
| Federal funds sold and securities borrowed or purchased under agreements to resell | 248,320 |
| | 622 |
| | 1.02 |
| | 216,402 |
| | 356 |
| | 0.67 |
|
| Trading account assets | Trading account assets | 125,661 |
| | 1,111 |
| | 3.58 |
| | 136,306 |
| | 1,212 |
| | 3.57 |
| Trading account assets | 131,123 |
| | 1,147 |
| | 3.54 |
| | 125,661 |
| | 1,111 |
| | 3.58 |
|
Debt securities (1) | Debt securities (1) | 430,234 |
| | 2,573 |
| | 2.39 |
| | 399,978 |
| | 2,537 |
| | 2.56 |
| Debt securities (1) | 433,096 |
| | 2,830 |
| | 2.58 |
| | 430,234 |
| | 2,573 |
| | 2.38 |
|
Loans and leases (2): | Loans and leases (2): | | | | | | | | | | | | Loans and leases (2): | | | | | | | | | | | |
| Residential mortgage | Residential mortgage | 193,627 |
| | 1,661 |
| | 3.44 |
| | 186,980 |
| | 1,629 |
| | 3.49 |
| Residential mortgage | 204,830 |
| | 1,782 |
| | 3.48 |
| | 193,627 |
| | 1,661 |
| | 3.44 |
|
| Home equity | Home equity | 65,508 |
| | 639 |
| | 3.94 |
| | 75,328 |
| | 711 |
| | 3.79 |
| Home equity | 56,952 |
| | 643 |
| | 4.56 |
| | 65,508 |
| | 639 |
| | 3.94 |
|
| U.S. credit card | U.S. credit card | 89,628 |
| | 2,111 |
| | 9.55 |
| | 87,163 |
| | 2,021 |
| | 9.32 |
| U.S. credit card | 94,423 |
| | 2,313 |
| | 9.93 |
| | 89,628 |
| | 2,111 |
| | 9.55 |
|
Non-U.S. credit card | Non-U.S. credit card | 9,367 |
| | 211 |
| | 9.15 |
| | 9,822 |
| | 253 |
| | 10.36 |
| Non-U.S. credit card | — |
| | — |
| | — |
| | 9,367 |
| | 211 |
| | 9.15 |
|
Direct/Indirect consumer (3)(4) | Direct/Indirect consumer (3)(4) | 93,291 |
| | 608 |
| | 2.65 |
| | 89,342 |
| | 550 |
| | 2.48 |
| Direct/Indirect consumer (3)(4) | 92,478 |
| | 701 |
| | 3.07 |
| | 93,291 |
| | 608 |
| | 2.65 |
|
Other consumer (4)(5) | Other consumer (4)(5) | 2,547 |
| | 27 |
| | 4.07 |
| | 2,138 |
| | 16 |
| | 3.03 |
| Other consumer (4)(5) | 2,814 |
| | 27 |
| | 4.00 |
| | 2,547 |
| | 27 |
| | 4.07 |
|
| Total consumer | Total consumer | 453,968 |
| | 5,257 |
| | 4.68 |
| | 450,773 |
| | 5,180 |
| | 4.61 |
| Total consumer | 451,497 |
| | 5,466 |
| | 4.89 |
| | 453,968 |
| | 5,257 |
| | 4.68 |
|
| U.S. commercial | U.S. commercial | 287,468 |
| | 2,222 |
| | 3.14 |
| | 270,511 |
| | 1,936 |
| | 2.88 |
| U.S. commercial | 299,850 |
| | 2,717 |
| | 3.68 |
| | 287,468 |
| | 2,222 |
| | 3.14 |
|
Commercial real estate (5) | 57,764 |
| | 479 |
| | 3.36 |
| | 57,271 |
| | 434 |
| | 3.05 |
| |
| Non-U.S. commercial | | Non-U.S. commercial | 99,504 |
| | 738 |
| | 3.01 |
| | 92,821 |
| | 595 |
| | 2.60 |
|
Commercial real estate (6) | | Commercial real estate (6) | 59,231 |
| | 587 |
| | 4.02 |
| | 57,764 |
| | 479 |
| | 3.36 |
|
| Commercial lease financing | Commercial lease financing | 22,123 |
| | 231 |
| | 4.17 |
| | 21,077 |
| | 182 |
| | 3.46 |
| Commercial lease financing | 21,833 |
| | 175 |
| | 3.20 |
| | 22,123 |
| | 231 |
| | 4.17 |
|
| Non-U.S. commercial | 92,821 |
| | 595 |
| | 2.60 |
| | 93,352 |
| | 585 |
| | 2.52 |
| |
| Total commercial | Total commercial | 460,176 |
| | 3,527 |
| | 3.11 |
| | 442,211 |
| | 3,137 |
| | 2.85 |
| Total commercial | 480,418 |
| | 4,217 |
| | 3.56 |
| | 460,176 |
| | 3,527 |
| | 3.11 |
|
Total loans and leases (1)(3) | Total loans and leases (1)(3) | 914,144 |
| | 8,784 |
| | 3.88 |
| | 892,984 |
| | 8,317 |
| | 3.74 |
| Total loans and leases (1)(3) | 931,915 |
| | 9,683 |
| | 4.20 |
| | 914,144 |
| | 8,784 |
| | 3.88 |
|
Other earning assets | Other earning assets | 73,514 |
| | 751 |
| | 4.13 |
| | 58,641 |
| | 694 |
| | 4.75 |
| Other earning assets | 84,345 |
| | 984 |
| | 4.72 |
| | 73,514 |
| | 760 |
| | 4.19 |
|
Total earning assets (6) | 1,895,373 |
| | 13,907 |
| | 2.96 |
| | 1,844,822 |
| | 13,223 |
| | 2.88 |
| |
Total earning assets (1,7) | | Total earning assets (1,7) | 1,979,832 |
| | 15,749 |
| | 3.21 |
| | 1,895,373 |
| | 13,833 |
| | 2.96 |
|
Cash and due from banks (1) | Cash and due from banks (1) | 27,196 |
| | | | | | 28,844 |
| | | | | Cash and due from banks (1) | 26,275 |
| | | | | | 27,196 |
| | | | |
Other assets, less allowance for loan and lease losses (1) | Other assets, less allowance for loan and lease losses (1) | 308,851 |
| | | | | | 300,256 |
| | | | | Other assets, less allowance for loan and lease losses (1) | 319,771 |
| | | | | | 309,080 |
| | | | |
| Total assets | Total assets | $ | 2,231,420 |
| | | | | | $ | 2,173,922 |
| | | | | Total assets | $ | 2,325,878 |
| | | | | | $ | 2,231,649 |
| | | | |
| Interest-bearing liabilities | Interest-bearing liabilities | |
| | |
| | |
| | |
| | |
| | |
| Interest-bearing liabilities | |
| | |
| | |
| | |
| | |
| | |
|
| U.S. interest-bearing deposits: | U.S. interest-bearing deposits: | |
| | |
| | |
| | |
| | |
| | |
| U.S. interest-bearing deposits: | |
| | |
| | |
| | |
| | |
| | |
|
| Savings | Savings | $ | 52,193 |
| | $ | 1 |
| | 0.01 | % | | $ | 47,845 |
| | $ | 1 |
| | 0.01 | % | Savings | $ | 54,747 |
| | $ | 1 |
| | 0.01 | % | | $ | 52,193 |
| | $ | 1 |
| | 0.01 | % |
| NOW and money market deposit accounts | NOW and money market deposit accounts | 617,749 |
| | 74 |
| | 0.05 |
| | 577,779 |
| | 71 |
| | 0.05 |
| NOW and money market deposit accounts | 659,033 |
| | 406 |
| | 0.25 |
| | 617,749 |
| | 74 |
| | 0.05 |
|
| Consumer CDs and IRAs | Consumer CDs and IRAs | 46,711 |
| | 31 |
| | 0.27 |
| | 49,617 |
| | 35 |
| | 0.28 |
| Consumer CDs and IRAs | 41,313 |
| | 33 |
| | 0.33 |
| | 46,711 |
| | 31 |
| | 0.27 |
|
| Negotiable CDs, public funds and other deposits | Negotiable CDs, public funds and other deposits | 33,695 |
| | 52 |
| | 0.63 |
| | 31,739 |
| | 29 |
| | 0.37 |
| Negotiable CDs, public funds and other deposits | 40,639 |
| | 157 |
| | 1.56 |
| | 33,695 |
| | 52 |
| | 0.63 |
|
| Total U.S. interest-bearing deposits | Total U.S. interest-bearing deposits | 750,348 |
| | 158 |
| | 0.09 |
| | 706,980 |
| | 136 |
| | 0.08 |
| Total U.S. interest-bearing deposits | 795,732 |
| | 597 |
| | 0.30 |
| | 750,348 |
| | 158 |
| | 0.09 |
|
| Non-U.S. interest-bearing deposits: | Non-U.S. interest-bearing deposits: | | | | | | | | | | | | Non-U.S. interest-bearing deposits: | | | | | | | | | | | |
| Banks located in non-U.S. countries | Banks located in non-U.S. countries | 2,616 |
| | 5 |
| | 0.76 |
| | 4,123 |
| | 9 |
| | 0.84 |
| Banks located in non-U.S. countries | 2,243 |
| | 9 |
| | 1.67 |
| | 2,616 |
| | 5 |
| | 0.76 |
|
| Governments and official institutions | Governments and official institutions | 1,013 |
| | 2 |
| | 0.81 |
| | 1,472 |
| | 2 |
| | 0.53 |
| Governments and official institutions | 1,154 |
| | — |
| | 0.02 |
| | 1,013 |
| | 2 |
| | 0.81 |
|
| Time, savings and other | Time, savings and other | 58,418 |
| | 117 |
| | 0.81 |
| | 56,943 |
| | 78 |
| | 0.55 |
| Time, savings and other | 67,334 |
| | 154 |
| | 0.92 |
| | 58,418 |
| | 117 |
| | 0.81 |
|
| Total non-U.S. interest-bearing deposits | Total non-U.S. interest-bearing deposits | 62,047 |
| | 124 |
| | 0.81 |
| | 62,538 |
| | 89 |
| | 0.57 |
| Total non-U.S. interest-bearing deposits | 70,731 |
| | 163 |
| | 0.93 |
| | 62,047 |
| | 124 |
| | 0.81 |
|
| Total interest-bearing deposits | Total interest-bearing deposits | 812,395 |
| | 282 |
| | 0.14 |
| | 769,518 |
| | 225 |
| | 0.12 |
| Total interest-bearing deposits | 866,463 |
| | 760 |
| | 0.36 |
| | 812,395 |
| | 282 |
| | 0.14 |
|
| Federal funds purchased, securities loaned or sold under agreements to repurchase and short-term borrowings | 231,717 |
| | 647 |
| | 1.13 |
| | 221,990 |
| | 613 |
| | 1.11 |
| |
Federal funds purchased, securities loaned or sold under agreements to repurchase, short-term borrowings and other interest-bearing liabilities (1) | | Federal funds purchased, securities loaned or sold under agreements to repurchase, short-term borrowings and other interest-bearing liabilities (1) | 278,931 |
| | 1,135 |
| | 1.65 |
| | 266,837 |
| | 573 |
| | 0.87 |
|
| Trading account liabilities | Trading account liabilities | 69,695 |
| | 264 |
| | 1.53 |
| | 72,299 |
| | 292 |
| | 1.63 |
| Trading account liabilities | 55,362 |
| | 357 |
| | 2.62 |
| | 38,731 |
| | 264 |
| | 2.76 |
|
| Long-term debt | Long-term debt | 221,468 |
| | 1,459 |
| | 2.65 |
| | 233,654 |
| | 1,393 |
| | 2.39 |
| Long-term debt | 229,603 |
| | 1,739 |
| | 3.06 |
| | 221,468 |
| | 1,459 |
| | 2.65 |
|
Total interest-bearing liabilities (6) | 1,335,275 |
| | 2,652 |
| | 0.80 |
| | 1,297,461 |
| | 2,523 |
| | 0.78 |
| |
Total interest-bearing liabilities (1,7) | | Total interest-bearing liabilities (1,7) | 1,430,359 |
| | 3,991 |
| | 1.13 |
| | 1,339,431 |
| | 2,578 |
| | 0.78 |
|
| Noninterest-bearing sources: | Noninterest-bearing sources: | | | | | | | | | | | | Noninterest-bearing sources: | | | | | | | | | | | |
| Noninterest-bearing deposits | Noninterest-bearing deposits | 444,237 |
| | | | | | 428,937 |
| | | | | Noninterest-bearing deposits | 430,805 |
| | | | | | 444,237 |
| | | | |
Other liabilities | Other liabilities | 183,805 |
| | | | | | 187,101 |
| | | | | Other liabilities | 199,234 |
| | | | | | 180,281 |
| | | | |
| Shareholders’ equity | Shareholders’ equity | 268,103 |
| | | | | | 260,423 |
| | | | | Shareholders’ equity | 265,480 |
| | | | | | 267,700 |
| | | | |
| Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 2,231,420 |
| | | | | | $ | 2,173,922 |
| | | | | Total liabilities and shareholders’ equity | $ | 2,325,878 |
| | | | | | $ | 2,231,649 |
| | | | |
| Net interest spread | Net interest spread | | | | | 2.16 | % | | | | | | 2.10 | % | Net interest spread | | | | | 2.08 | % | | | | | | 2.18 | % |
| Impact of noninterest-bearing sources | Impact of noninterest-bearing sources | | | | | 0.23 |
| | | | | | 0.23 |
| Impact of noninterest-bearing sources | | | | | 0.31 |
| | | | | | 0.21 |
|
| Net interest income/yield on earning assets | Net interest income/yield on earning assets | | | $ | 11,255 |
| | 2.39 | % | | | | $ | 10,700 |
| | 2.33 | % | Net interest income/yield on earning assets | | | $ | 11,758 |
| | 2.39 | % | | | | $ | 11,255 |
| | 2.39 | % |
| |
(1) | Includes assets of the Corporation's non-U.S. consumer credit card business, which are included in assets of business held for sale on the Consolidated Balance Sheet at March 31, 2017. The impact on net interest yield of the earning assets included in assets of business held for sale is not significant.
Certain prior-period amounts have been reclassified to conform to current period presentation. |
| |
(2) | Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis. PCI loans wereare recorded at fair value upon acquisition and accrete interest income over the estimated life of the loan. |
| |
(3) | Includes assets of the Corporation’s non-U.S. consumer loans of $2.9 billion and $3.8 billion incredit card business, which was sold during the firstsecond quarter of 2017 and 2016. 2017. |
| |
(4) | Includes non-U.S. consumer finance loans of $454 million and $551 million; consumer leases of $1.92.9 billion and $1.4 billion, and consumer overdrafts of $170 million and $161 millionin both the first quarter of 20172018 and 20162017, respectively.. |
| |
(5) | Includes consumer finance loans of $0 and $454 million; consumer leases of $2.6 billion and $1.9 billion, and consumer overdrafts of $167 million and $170 million in the first quarter of 2018 and 2017, respectively. |
| |
(6) | Includes U.S. commercial real estate loans of $54.755.3 billion and $53.854.7 billion, and non-U.S. commercial real estate loans of $3.13.9 billion and $3.43.1 billion in the first quarter of 20172018 and 20162017, respectively. |
| |
(6)(7)
| Interest income includes the impact of interest rate risk management contracts, which decreased interest income on the underlying assets by $177 million and $3517 million in the first quarter of 20172018 and 20162017. Interest expense includes the impact of interest rate risk management contracts, which decreased interest expense on the underlying liabilities by $424204 million and $565424 million in the first quarter of 20172018 and 20162017. For additionalmore information, see Interest Rate Risk Management for the Banking Book on page 5845. |
9 |
| | |
| | Bank of America8Bank of America
|
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 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-
basedrisk-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 17. 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, see 21Note 8 – Goodwill and Intangible Assets. to the Consolidated Financial Statements.
For more information on the basis of presentation for business segments and reconciliations to consolidated total revenue, net income and period-end total assets, see Note 17 – Business Segment Informationto the Consolidated Financial Statements.Statements.
Consumer Banking
| | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 | | | | Deposits | | Consumer Lending | | Total Consumer Banking | | |
| | | Deposits | | Consumer Lending | | Total Consumer Banking | | | | Three Months Ended March 31 | | |
| (Dollars in millions) | (Dollars in millions) | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 | | % Change |
| (Dollars in millions) | 2018 | 2017 | | 2018 | 2017 | | 2018 | 2017 | | % Change |
|
| Net interest income (FTE basis) | Net interest income (FTE basis) | $ | 3,063 |
| $ | 2,692 |
| | $ | 2,718 |
| $ | 2,636 |
| | $ | 5,781 |
| $ | 5,328 |
| | 9 | % | Net interest income (FTE basis) | $ | 3,741 |
| $ | 3,063 |
| | $ | 2,769 |
| $ | 2,718 |
| | $ | 6,510 |
| $ | 5,781 |
| | 13 | % |
| Noninterest income: | Noninterest income: | | | | | | | | Noninterest income: | | | | | | | |
| Card income | Card income | 2 |
| 3 |
| | 1,222 |
| 1,208 |
| | 1,224 |
| 1,211 |
| | 1 |
| Card income | 2 |
| 2 |
| | 1,277 |
| 1,222 |
| | 1,279 |
| 1,224 |
| | 4 |
|
| Service charges | Service charges | 1,050 |
| 997 |
| | — |
| — |
| | 1,050 |
| 997 |
| | 5 |
| Service charges | 1,044 |
| 1,050 |
| | — |
| — |
| | 1,044 |
| 1,050 |
| | (1 | ) |
Mortgage banking income (1) | — |
| — |
| | 119 |
| 190 |
| | 119 |
| 190 |
| | (37 | ) | |
| All other income | All other income | 102 |
| 115 |
| | 8 |
| 16 |
| | 110 |
| 131 |
| | (16 | ) | All other income | 108 |
| 102 |
| | 91 |
| 127 |
| | 199 |
| 229 |
| | (13 | ) |
| Total noninterest income | Total noninterest income | 1,154 |
| 1,115 |
| | 1,349 |
| 1,414 |
| | 2,503 |
| 2,529 |
| | (1 | ) | Total noninterest income | 1,154 |
| 1,154 |
| | 1,368 |
| 1,349 |
| | 2,522 |
| 2,503 |
| | 1 |
|
| Total revenue, net of interest expense (FTE basis) | Total revenue, net of interest expense (FTE basis) | 4,217 |
| 3,807 |
| | 4,067 |
| 4,050 |
| | 8,284 |
| 7,857 |
| | 5 |
| Total revenue, net of interest expense (FTE basis) | 4,895 |
| 4,217 |
| | 4,137 |
| 4,067 |
| | 9,032 |
| 8,284 |
| | 9 |
|
| | | | | | | | | | | | | | | | | |
| Provision for credit losses | Provision for credit losses | 55 |
| 48 |
| | 783 |
| 483 |
| | 838 |
| 531 |
| | 58 |
| Provision for credit losses | 41 |
| 55 |
| | 894 |
| 783 |
| | 935 |
| 838 |
| | 12 |
|
| Noninterest expense | Noninterest expense | 2,523 |
| 2,455 |
| | 1,883 |
| 2,083 |
| | 4,406 |
| 4,538 |
| | (3 | ) | Noninterest expense | 2,651 |
| 2,527 |
| | 1,829 |
| 1,883 |
| | 4,480 |
| 4,410 |
| | 2 |
|
| Income before income taxes (FTE basis) | Income before income taxes (FTE basis) | 1,639 |
| 1,304 |
| | 1,401 |
| 1,484 |
| | 3,040 |
| 2,788 |
| | 9 |
| Income before income taxes (FTE basis) | 2,203 |
| 1,635 |
| | 1,414 |
| 1,401 |
| | 3,617 |
| 3,036 |
| | 19 |
|
| Income tax expense (FTE basis) | Income tax expense (FTE basis) | 618 |
| 479 |
| | 528 |
| 545 |
| | 1,146 |
| 1,024 |
| | 12 |
| Income tax expense (FTE basis) | 561 |
| 616 |
| | 361 |
| 528 |
| | 922 |
| 1,144 |
| | (19 | ) |
| Net income | Net income | $ | 1,021 |
| $ | 825 |
| | $ | 873 |
| $ | 939 |
| | $ | 1,894 |
| $ | 1,764 |
| | 7 |
| Net income | $ | 1,642 |
| $ | 1,019 |
| | $ | 1,053 |
| $ | 873 |
| | $ | 2,695 |
| $ | 1,892 |
| | 42 |
|
| | | | | | | | | | |
Effective tax rate (1) | | Effective tax rate (1) | | | | | 25.5 | % | 37.7 | % | | |
| | | | | | | | | | | | | | | | | |
| Net interest yield (FTE basis) | Net interest yield (FTE basis) | 1.96 | % | 1.88 | % | | 4.34 | % | 4.52 | % | | 3.50 | % | 3.53 | % | | | Net interest yield (FTE basis) | 2.25 | % | 1.96 | % | | 4.09 | % | 4.34 | % | | 3.73 |
| 3.50 |
| | |
| Return on average allocated capital | Return on average allocated capital | 35 |
| 28 |
| | 14 |
| 17 |
| | 21 |
| 21 |
| | | Return on average allocated capital | 55 |
| 34 |
| | 17 |
| 14 |
| | 30 |
| 21 |
| | |
| Efficiency ratio (FTE basis) | Efficiency ratio (FTE basis) | 59.85 |
| 64.50 |
| | 46.29 |
| 51.43 |
| | 53.19 |
| 57.77 |
| | | Efficiency ratio (FTE basis) | 54.15 |
| 59.94 |
| | 44.21 |
| 46.29 |
| | 49.60 |
| 53.24 |
| | |
| | | | | | | | | | | | | | | | | |
| Balance Sheet | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 | | | | Three Months Ended March 31 | | |
| Average | | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 | | % Change |
| | 2018 | 2017 | | 2018 | 2017 | | 2018 | 2017 | | % Change |
|
| Total loans and leases | Total loans and leases | $ | 4,979 |
| $ | 4,732 |
| | $ | 252,966 |
| $ | 233,176 |
| | $ | 257,945 |
| $ | 237,908 |
| | 8 | % | Total loans and leases | $ | 5,170 |
| $ | 4,979 |
| | $ | 274,387 |
| $ | 252,966 |
| | $ | 279,557 |
| $ | 257,945 |
| | 8 | % |
Total earning assets (2) | Total earning assets (2) | 634,704 |
| 576,634 |
| | 254,066 |
| 234,362 |
| | 668,865 |
| 607,302 |
| | 10 |
| Total earning assets (2) | 673,641 |
| 634,704 |
| | 274,748 |
| 254,066 |
| | 707,754 |
| 668,865 |
| | 6 |
|
Total assets (2) | Total assets (2) | 661,769 |
| 603,429 |
| | 265,783 |
| 246,781 |
| | 707,647 |
| 646,516 |
| | 9 |
| Total assets (2) | 701,418 |
| 661,769 |
| | 285,864 |
| 265,783 |
| | 746,647 |
| 707,647 |
| | 6 |
|
| Total deposits | Total deposits | 629,337 |
| 571,462 |
| | 6,257 |
| 6,731 |
| | 635,594 |
| 578,193 |
| | 10 |
| Total deposits | 668,983 |
| 629,337 |
| | 5,368 |
| 6,257 |
| | 674,351 |
| 635,594 |
| | 6 |
|
| Allocated capital | Allocated capital | 12,000 |
| 12,000 |
| | 25,000 |
| 22,000 |
| | 37,000 |
| 34,000 |
| | 9 |
| Allocated capital | 12,000 |
| 12,000 |
| | 25,000 |
| 25,000 |
| | 37,000 |
| 37,000 |
| | — |
|
| | | | | | | | | | | | | | | | | |
| Period end | | March 31
2017 | December 31
2016 | | March 31
2017 | December 31
2016 | | March 31
2017 | December 31
2016 | | % Change |
| | March 31
2018 | December 31
2017 | | March 31
2018 | December 31
2017 | | March 31
2018 | December 31
2017 | | % Change |
|
| Total loans and leases | Total loans and leases | $ | 4,938 |
| $ | 4,938 |
| | $ | 253,483 |
| $ | 254,053 |
| | $ | 258,421 |
| $ | 258,991 |
| | — | % | Total loans and leases | $ | 5,111 |
| $ | 5,143 |
| | $ | 273,944 |
| $ | 275,330 |
| | $ | 279,055 |
| $ | 280,473 |
| | (1 | )% |
Total earning assets (2) | Total earning assets (2) | 660,888 |
| 631,172 |
| | 254,291 |
| 255,511 |
| | 694,883 |
| 662,698 |
| | 5 |
| Total earning assets (2) | 700,420 |
| 675,485 |
| | 274,977 |
| 275,742 |
| | 735,247 |
| 709,832 |
| | 4 |
|
Total assets (2) | Total assets (2) | 688,277 |
| 658,316 |
| | 266,106 |
| 268,002 |
| | 734,087 |
| 702,333 |
| | 5 |
| Total assets (2) | 728,063 |
| 703,330 |
| | 286,343 |
| 287,390 |
| | 774,256 |
| 749,325 |
| | 3 |
|
| Total deposits | Total deposits | 655,714 |
| 625,727 |
| | 5,893 |
| 7,059 |
| | 661,607 |
| 632,786 |
| | 5 |
| Total deposits | 695,514 |
| 670,802 |
| | 5,974 |
| 5,728 |
| | 701,488 |
| 676,530 |
| | 4 |
|
| | | | | | | | | | |
| |
(1) | Total consolidated mortgage banking income of $122 million and $433 million forEstimated at the three months ended March 31, 2017 and 2016 was recorded primarily in Consumer Lending and All Other.
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. |
Consumer Banking, which is comprised of Deposits and Consumer Lending, offers a diversified range of credit, banking and investment products and services to consumers and small businesses. Our customersFor more information about Consumer Banking, including our Deposits and clients have access to a coast toConsumer Lending businesses, see Business Segment Operations in the MD&A of the Corporation’s 2017 Annual Report on Form 10-K.
coast network including financial centers in 33 states and the District of Columbia. Our network includes approximately 4,600 financial centers, 15,900 ATMs, nationwide call centers, and online and mobile platforms.
Consumer Banking Results
Net income for Consumer Banking increased $130$803 million to $1.9$2.7 billion for the three months ended March 31, 20172018 compared to the same period in 20162017 primarily driven by higher net interestpretax income, and lower noninterest expense,tax expense. The impact of the reduction in the federal tax rate was somewhat offset by the elimination of tax deductions for FDIC premiums under the Tax Act. The increase in pretax income
was driven by an increase in revenue partially offset by higher provision for credit losses.losses and an increase in noninterest expense. Net interest income increased $453$729 million to $5.8$6.5 billion primarily due to the beneficial impact of an increase in investable assets as a result of higher deposits.deposits and higher interest rates, as well as pricing discipline and loan growth. Noninterest income decreased $26increased $19 million to $2.5 billion.billion driven by higher card income, partially offset by lower mortgage banking income.
The provision for credit losses increased $307$97 million to $838$935 million due to portfolio seasoning and loan growth and portfolio seasoning in the U.S. credit card portfolio. The three months ended March 31, 2017 included a net reserve increase of $66 million compared to a $208 million release for the same period in 2016. Noninterest expense decreased $132increased $70 million to $4.4$4.5 billion driven by investments in digital capabilities and business growth, including increased primary sales professionals, combined with investments in new financial centers and renovations, as well as higher personnel expense. These increases were largely offset by improved operating efficiencies partially offset by higher FDICand lower litigation expense.
The return on average allocated capital remained unchanged atwas 30 percent, up from 21 percent.percent, driven by higher net income. For moreadditional information on capital allocations, see Business Segment Operations on page 10.
Deposits
Deposits includes the results of consumer deposit activities which consist of a comprehensive range of products provided to consumers and small businesses. Our deposit products include traditional savings accounts, money market savings accounts, CDs and IRAs, noninterest- and interest-bearing checking accounts, as well as investment accounts and products. Net interest income is allocated to the 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, non-sufficient funds fees, overdraft charges and ATM fees, as well as investment and brokerage fees from Merrill Edge accounts. Merrill Edge is an integrated investing and banking service targeted at customers with less than $250,000 in investable assets. Merrill Edge provides investment advice and guidance, client brokerage asset services, a self-directed online investing platform and key banking capabilities including access to the Corporation’s network of financial centers and ATMs.9.
Deposits includesand Consumer Lending include the net impact of migrating customers and their related deposit, and brokerage asset and loan balances between Deposits, Consumer Lending and GWIM, as well as other client-managed businesses.business. For more information on the migration of customer balances to or from GWIM, see GWIM – Net Migration Summary on page 14.12.
Deposits
Net income for Deposits increased $196$623 million to $1.0$1.6 billion for the three months ended March 31, 20172018 compared to the same period in 20162017 driven by higher revenue,net interest income and lower income taxes, partially offset by higher noninterest expense. Net interest income increased $371$678 million to $3.1$3.7 billion primarily due to the beneficial impact of an increase in investable assets as a result of higher deposits.deposits, and pricing discipline. Noninterest income increased $39 million toof $1.2 billion primarily due to higher service charges. The prior-year period also included gains on certain divestitures.remained unchanged.
The provision for credit losses increased $7decreased $14 million to $55$41 million. Noninterest expense increased $68$124 million to $2.5$2.7 billion primarily driven by investments in digital capabilities and business growth, including increased primary sales professionals, combined with investments in new financial centers and renovations, as well as higher FDICpersonnel expense.
Average deposits increased $57.9$39.6 billion to $629.3$669.0 billion driven by strong organic growth. Growth in checking, traditional
savings and money market savings and traditional savings of $61.4$44.0 billion was partially offset by a decline in time deposits of $3.5$4.6 billion.
| | | | | | | | | |
Key Statistics – Deposits | | | | | | |
| | | | | | | |
| | Three Months Ended March 31 | Three Months Ended March 31 |
| | 2017 | | 2016 | 2018 | | 2017 |
Total deposit spreads (excludes noninterest costs) (1) | 1.67 | % | | 1.65 | % | 2.00 | % | | 1.67 | % |
| | | | | | | |
| Period end | | | | |
| Period End | | | | |
| Client brokerage assets (in millions) | $ | 153,786 |
| | $ | 126,921 |
| $ | 182,110 |
| | $ | 153,786 |
|
| Digital banking active users (units in thousands) | 34,527 |
| | 32,647 |
| |
| Mobile banking active users (units in thousands) | 22,217 |
| | 19,595 |
| |
Active digital banking users (units in thousands) (2) | | 35,518 |
| | 33,702 |
|
| Active mobile banking users (units in thousands) | | 24,801 |
| | 22,217 |
|
| Financial centers | 4,559 |
| | 4,689 |
| 4,435 |
| | 4,559 |
|
| ATMs | 15,939 |
| | 16,003 |
| 16,011 |
| | 15,939 |
|
| |
(1) | Includes deposits held in Consumer Lending. |
| |
(2) | Digital users represents mobile and/or online users across consumer businesses; historical information has been reclassified primarily due to the sale of the Corporation’s non-U.S. consumer credit card business in the second quarter of 2017. |
Client brokerage assets increased $26.9$28.3 billion driven by strong client flows and market performance. MobileActive mobile banking active users increased 2.6 million reflecting continuing changes in our customers’ banking preferences. The number of financial centers declined 130 driven by a net 124 reflecting changes in customer preferences to self-service options as we continue to optimize our consumer banking network and improve our cost-to-serve.
Consumer Lending
Consumer Lending offers products to consumers and small businesses across the U.S. The products offered include credit and debit 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 credit and debit 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 in the core portfolio, including loans held on the balance sheet of Consumer Lending and loans serviced for others.
We classify consumer real estate loans as core or non-core based on loan and customer characteristics such as origination date, product type, loan-to-value (LTV), Fair Isaac Corporation (FICO) score and delinquency status. For more information on the core and non-core portfolios, see Consumer Portfolio Credit Risk Management on page 31.25. At March 31, 2017,2018, total owned loans in the core portfolio held in Consumer Lending were $103.7$117.9 billion, an increase of $11.3$14.2 billion from March 31, 2016,2017, primarily driven by higher residential mortgage balances, based on a decision to retain certain loans on the balance sheet, partially offset by a decline in home equity.equity balances.
Consumer Lending includes the net impact of migrating customers and their related loan balances between Consumer Lending and GWIM. For more information on the migration of customer balances to or from GWIM, see GWIM – Net Migration Summary on page 14.
Net income for Consumer Lending decreased $66increased $180 million to $873 million$1.1 billion for the three months ended March 31, 20172018 compared to the same period in 20162017 driven by lower income taxes, higher revenue and lower noninterest expense, partially offset by higher provision for credit losses and lower noninterest income, partially offset by lower noninterest expense and higher net interest income.losses. Net interest income increased $82$51 million to $2.7$2.8 billion primarily driven by the impact of an increase in loan balances. Noninterest income decreased $65increased $19 million to $1.3$1.4 billion driven by lower mortgage bankinghigher card income, partially offset by higher cardlower mortgage banking income.
The provision for credit losses increased $300$111 million to $783$894 million due to portfolio seasoning and loan growth and portfolio seasoning in the U.S. credit card portfolio. The three months ended March 31, 2017 included a net reserve increase of $62 million compared to a $204 million release for the same period in 2016. Noninterest expense decreased $200$54 million to $1.9$1.8 billion primarily driven by lower litigation expense and improved operating efficiencies.
Average loans increased $19.8$21.4 billion to $253.0$274.4 billion primarily driven by increases in residential mortgages, as well as U.S credit card and consumer vehicle loans, partially offset by lower home equity loan balances.
| | | | | | | | | |
Key Statistics – Consumer Lending | Key Statistics – Consumer Lending | Key Statistics – Consumer Lending |
| | | | | |
| | Three Months Ended March 31 | Three Months Ended March 31 |
| (Dollars in millions) | 2017 | | 2016 | 2018 | | 2017 |
Total U.S. credit card (1) | | | | | | |
| Gross interest yield | 9.55 | % | | 9.32 | % | 9.93 | % | | 9.55 | % |
| Risk-adjusted margin | 8.89 |
| | 9.05 |
| 8.32 |
| | 8.89 |
|
| New accounts (in thousands) | 1,184 |
| | 1,208 |
| 1,194 |
| | 1,184 |
|
| Purchase volumes | $ | 55,321 |
| | $ | 51,154 |
| $ | 61,347 |
| | $ | 55,321 |
|
| Debit card purchase volumes | $ | 70,611 |
| | $ | 69,147 |
| $ | 76,052 |
| | $ | 70,611 |
|
| |
(1) | In addition to the U.S. credit card portfolio in Consumer Banking, the remaining U.S. credit card portfolio is in GWIM. |
During the three months ended March 31, 2017,2018, the total U.S. credit card risk-adjusted margin decreased 1657 bps primarily driven by increased net charge-offs and higher credit card rewards costs.
Total U.S. credit card purchase volumes increased $4.2$6.0 billion to $55.3$61.3 billion, and debit card purchase volumes increased $1.5$5.4 billion to $70.6$76.1 billion, reflecting higher levels of consumer spending.
Mortgage Banking Income
Mortgage banking income in Consumer Banking includes production income and net servicing income. Production income is comprised primarily of revenue from the fair value gains and losses recognized on our interest rate lock commitments (IRLCs) and loans held-for-sale (LHFS), the related secondary market execution, and costs related to representations and warranties made in the sales transactions along with other obligations
incurred in the sales of mortgage loans. Production income decreased $84 million to $54 million for the three months ended March 31, 2017 compared to the same period in 2016 due to a decision to retain a higher percentage of residential mortgage production in Consumer Banking, as well as the impact of a higher interest rate environment driving lower refinances.
Net servicing income within Consumer Banking includes income earned in connection with servicing activities and MSR valuation adjustments for the core portfolio, net of results from risk management activities used to hedge certain market risks of the MSRs. Net servicing income increased $13 million to $65 million for the three months ended March 31, 2017 compared to the same period in 2016.
Mortgage Servicing Rights
At March 31, 2017, the core MSR portfolio, held within Consumer Lending, was $1.9 billion compared to $1.8 billion at March 31, 2016. The increase was primarily driven by changes in fair value as well as new additions, which exceeded the amortization of expected cash flows. For more information on MSRs, see Note 14 – Fair Value Measurements to the Consolidated Financial Statements.
|
| | | | | | | |
| | | | |
| Key Statistics | | | |
| | | | |
| | Three Months Ended March 31 |
| (Dollars in millions) | 2017 | | 2016 |
Loan production (1): | |
| | |
|
Total (2): | | | |
| First mortgage | $ | 11,442 |
| | $ | 12,623 |
|
| Home equity | 4,053 |
| | 3,805 |
|
| Consumer Banking: | | | |
| First mortgage | $ | 7,629 |
| | $ | 9,078 |
|
| Home equity | 3,667 |
| | 3,515 |
|
|
| | | | | | | |
| | | | |
Key Statistics - Loan Production (1) |
| | | | |
| | Three Months Ended March 31 |
| (Dollars in millions) | 2018 | | 2017 |
Total (2): | | | |
| First mortgage | $ | 9,424 |
| | $ | 11,442 |
|
| Home equity | 3,749 |
| | 4,053 |
|
| Consumer Banking: | | | |
| First mortgage | $ | 5,964 |
| | $ | 7,629 |
|
| Home equity | 3,345 |
| | 3,667 |
|
| |
(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 in Consumer Banking and for the total Corporation decreased $1.4$1.7 billion and $1.2$2.0 billion in the three months ended March 31, 20172018 compared to the same period in 20162017 primarily driven by athe higher interest rate environment driving lower first-lien mortgage refinances.
Home equity production in Consumer Banking and for the total Corporation increased $152decreased $322 million and $248$304 million for the three months ended March 31, 20172018 compared to the same period in 2016 due to2017 driven by a higher demand in the market based on improving housing trends.smaller market.
Global Wealth & Investment Management | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 | | | | Three Months Ended March 31 | | |
| (Dollars in millions) | (Dollars in millions) | | 2017 | | 2016 | | % Change | (Dollars in millions) | 2018 | | 2017 | | % Change |
|
| Net interest income (FTE basis) | Net interest income (FTE basis) | | $ | 1,560 |
| | $ | 1,513 |
| | 3 | % | Net interest income (FTE basis) | $ | 1,594 |
| | $ | 1,560 |
| | 2 | % |
| Noninterest income: | Noninterest income: | | | | | | | Noninterest income: | | | | | |
| Investment and brokerage services | Investment and brokerage services | | 2,648 |
| | 2,536 |
| | 4 |
| Investment and brokerage services | 3,040 |
| | 2,791 |
| | 9 |
|
| All other income | All other income | | 384 |
| | 420 |
| | (9 | ) | All other income | 222 |
| | 241 |
| | (8 | ) |
| Total noninterest income | Total noninterest income | | 3,032 |
| | 2,956 |
| | 3 |
| Total noninterest income | 3,262 |
| | 3,032 |
| | 8 |
|
| Total revenue, net of interest expense (FTE basis) | Total revenue, net of interest expense (FTE basis) | | 4,592 |
| | 4,469 |
| | 3 |
| Total revenue, net of interest expense (FTE basis) | 4,856 |
| | 4,592 |
| | 6 |
|
| | | | | | | | | | | | | | |
| Provision for credit losses | Provision for credit losses | | 23 |
| | 25 |
| | (8 | ) | Provision for credit losses | 38 |
| | 23 |
| | 65 |
|
| Noninterest expense | Noninterest expense | | 3,333 |
| | 3,273 |
| | 2 |
| Noninterest expense | 3,428 |
| | 3,329 |
| | 3 |
|
| Income before income taxes (FTE basis) | Income before income taxes (FTE basis) | | 1,236 |
| | 1,171 |
| | 6 |
| Income before income taxes (FTE basis) | 1,390 |
| | 1,240 |
| | 12 |
|
| Income tax expense (FTE basis) | Income tax expense (FTE basis) | | 466 |
| | 430 |
| | 8 |
| Income tax expense (FTE basis) | 355 |
| | 467 |
| | (24 | ) |
| Net income | Net income | | $ | 770 |
| | $ | 741 |
| | 4 |
| Net income | $ | 1,035 |
| | $ | 773 |
| | 34 |
|
| | | | | | | | |
| Effective tax rate | | Effective tax rate | 25.5 | % | | 37.7 | % | | |
| | | | | | | | | | | | | | |
| Net interest yield (FTE basis) | Net interest yield (FTE basis) | | 2.28 | % | | 2.18 | % | | | Net interest yield (FTE basis) | 2.46 |
| | 2.28 |
| | |
| Return on average allocated capital | Return on average allocated capital | | 22 |
| | 23 |
| | | Return on average allocated capital | 29 |
| | 22 |
| | |
| Efficiency ratio (FTE basis) | Efficiency ratio (FTE basis) | | 72.58 |
| | 73.25 |
| | | Efficiency ratio (FTE basis) | 70.60 |
| | 72.51 |
| | |
| | | | | | | | | | | | | | |
| Balance Sheet | | | | | | | | | | | | |
| | | | Three Months Ended March 31 | | | | Three Months Ended March 31 | | |
| Average | Average | | 2017 | | 2016 | | % Change | Average | 2018 | | 2017 | | % Change |
|
| Total loans and leases | Total loans and leases | | $ | 148,405 |
| | $ | 139,098 |
| | 7 | % | Total loans and leases | $ | 159,095 |
| | $ | 148,405 |
| | 7 | % |
| Total earning assets | Total earning assets | | 277,989 |
| | 279,605 |
| | (1 | ) | Total earning assets | 262,775 |
| | 277,989 |
| | (5 | ) |
| Total assets | Total assets | | 293,432 |
| | 295,710 |
| | (1 | ) | Total assets | 279,716 |
| | 293,432 |
| | (5 | ) |
| Total deposits | Total deposits | | 257,386 |
| | 260,482 |
| | (1 | ) | Total deposits | 243,077 |
| | 257,386 |
| | (6 | ) |
| Allocated capital | Allocated capital | | 14,000 |
| | 13,000 |
| | 8 |
| Allocated capital | 14,500 |
| | 14,000 |
| | 4 |
|
| | | | | | | | | | | | | | |
| Period end | Period end | | March 31
2017 | | December 31
2016 | | % Change | Period end | March 31
2018 | | December 31
2017 | | % Change |
|
| Total loans and leases | Total loans and leases | | $ | 149,110 |
| | $ | 148,179 |
| | 1 | % | Total loans and leases | $ | 159,636 |
| | $ | 159,378 |
| | — | % |
| Total earning assets | Total earning assets | | 275,214 |
| | 283,151 |
| | (3 | ) | Total earning assets | 262,430 |
| | 267,026 |
| | (2 | ) |
| Total assets | Total assets | | 291,177 |
| | 298,931 |
| | (3 | ) | Total assets | 279,331 |
| | 284,321 |
| | (2 | ) |
| Total deposits | Total deposits | | 254,595 |
| | 262,530 |
| | (3 | ) | Total deposits | 241,531 |
| | 246,994 |
| | (2 | ) |
GWIM consists of two primary businesses: Merrill Lynch Global Wealth Management (MLGWM) and U.S. Trust, Bank of America Private Wealth Management (U.S. Trust).
MLGWM’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. MLGWM provides tailored solutions to meet our clients’ needs through a full set of investment management, brokerage, banking and retirement products.
U.S. Trust, together with MLGWM’s Private Banking & Investments Group, 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.
Client assets managed under advisory and/or discretion of For more information about GWIM are assets under management (AUM) and are typically held, see Business Segment Operations in diversified portfolios. The majority of client AUM have an investment strategy with a duration of greater than one year and are, therefore, considered long-term AUM. Fees earned on long-term AUM are calculated as a percentage of total AUM. The asset management fees charged to clients per year depend on various factors, but are generally driven by the breadthMD&A of the client’s
relationship and generally range from 50 to 150 bpsCorporation’s 2017 Annual Report on their total AUM. The net client long-term AUM flows represent the net change in clients’ long-term AUM balances over a specified period of time, excluding market appreciation/depreciation and other adjustments.Form 10-K.
Net income for GWIM increased $29$262 million to $770 million$1.0 billion for the three months ended March 31, 20172018 compared to the same period in 2016 due to2017 reflecting higher pretax income, and lower tax expense. The impact of the reduction in the federal tax rate was somewhat offset by the elimination of tax deductions for FDIC premiums under the Tax Act. Pretax results were driven by higher revenue, partially offset by an increase in noninterest expense. The operating margin was 2729 percent compared to 2627 percent a year ago.
Net interest income increased $47$34 million to $1.6 billion driven by the impact of growth inprimarily due to higher interest rates and higher loan balances. Noninterest income, which primarily includes investment and brokerage services income, increased $76$230 million to $3.0$3.3 billion. The increase in noninterest income was driven by higher market valuations and AUM flows, partially offset by the impact of changing market dynamics on transactional revenue and AUM pricing. Noninterest expense increased $99 million to $3.4 billion primarily due to higher revenue-related incentive costs.
Return on average allocated capital was 29 percent, up from 22 percent a year ago, primarily due to higher net income, somewhat offset by an increase in allocated capital.
During the three months ended March 31, 2018, revenue from MLGWM of $4.0 billion increased six percent compared to the same period in 2017 due to higher net interest income and asset management fees driven by higher market valuations and AUM
flows, partially offset by lower transactional revenue and AUM pricing. U.S. Trust revenue of $860 million increased six percent reflecting higher net interest income and asset management fees primarily due to higher market valuations and long-term AUM flows, partially offset by lower transactional revenue. Noninterest expense increased $60 million to $3.3 billion primarily due to higher revenue-related incentives and FDIC expense.
Return on average allocated capital was 22 percent, down from 23 percent a year ago as the impact of higher net income was more than offset by higher allocated capital.
flows.
| | | | | | | | | | |
| Key Indicators and Metrics | | | | | | | |
| | | Three Months Ended March 31 | | | |
| | | Three Months Ended March 31 |
| (Dollars in millions, except as noted) | | 2017 | | 2016 | 2018 | | 2017 |
| Revenue by Business | | | | | | | |
| Merrill Lynch Global Wealth Management | | $ | 3,782 |
| | $ | 3,667 |
| $ | 3,996 |
| | $ | 3,782 |
|
| U.S. Trust | | 809 |
| | 777 |
| 860 |
| | 809 |
|
Other (1) | | 1 |
| | 25 |
| |
| Other | | — |
| | 1 |
|
| Total revenue, net of interest expense (FTE basis) | | $ | 4,592 |
| | $ | 4,469 |
| $ | 4,856 |
| | $ | 4,592 |
|
| | | | | | | | |
| Client Balances by Business, at period end | | | | | | | |
| Merrill Lynch Global Wealth Management | | $ | 2,167,536 |
| | $ | 1,998,145 |
| $ | 2,284,803 |
| | $ | 2,167,536 |
|
| U.S. Trust | | 417,841 |
| | 390,262 |
| 440,683 |
| | 417,841 |
|
Other (1) | | — |
| | 77,751 |
| |
| Total client balances | | $ | 2,585,377 |
| | $ | 2,466,158 |
| $ | 2,725,486 |
| | $ | 2,585,377 |
|
| | | | | | | | |
| Client Balances by Type, at period end | | | | | | | |
| Long-term assets under management | | $ | 946,778 |
| | $ | 812,916 |
| |
Liquidity assets under management (1) | | — |
| | 77,747 |
| |
| Assets under management | | 946,778 |
| | 890,663 |
| $ | 1,084,717 |
| | $ | 946,778 |
|
| Brokerage assets | | 1,106,109 |
| | 1,056,752 |
| |
| Assets in custody | | 126,086 |
| | 115,537 |
| |
| Brokerage and other assets | | 1,236,799 |
| | 1,232,195 |
|
| Deposits | | 254,595 |
| | 260,565 |
| 241,531 |
| | 254,595 |
|
Loans and leases (2) | | 151,809 |
| | 142,641 |
| |
Loans and leases (1) | | 162,439 |
| | 151,809 |
|
| Total client balances | | $ | 2,585,377 |
| | $ | 2,466,158 |
| $ | 2,725,486 |
| | $ | 2,585,377 |
|
| | | | | | | | |
| Assets Under Management Rollforward | | | | | | | |
| Assets under management, beginning of period | | $ | 886,148 |
| | $ | 900,863 |
| $ | 1,080,747 |
| | $ | 886,148 |
|
| Net long-term client flows | | 29,214 |
| | (599 | ) | |
| Net liquidity client flows | | — |
| | (3,820 | ) | |
Market valuation/other (1) | | 31,416 |
| | (5,781 | ) | |
| Net client flows | | 24,240 |
| | 29,214 |
|
Market valuation/other | | (20,270 | ) | | 31,416 |
|
| Total assets under management, end of period | | $ | 946,778 |
| | $ | 890,663 |
| $ | 1,084,717 |
| | $ | 946,778 |
|
| | | | | | | | |
Associates, at period end (3, 4) | | | | | |
Associates, at period end (2) | | | | |
| Number of financial advisors | | 16,576 |
| | 16,671 |
| 17,367 |
| | 16,678 |
|
| Total wealth advisors, including financial advisors | | 18,435 |
| | 18,486 |
| 19,276 |
| | 18,538 |
|
| Total primary sales professionals, including financial advisors and wealth advisors | | 19,431 |
| | 19,366 |
| 20,398 |
| | 19,536 |
|
| | | | | | | | |
Merrill Lynch Global Wealth Management Metric (4) | | | | | |
Financial advisor productivity (5) (in thousands) | | $ | 999 |
| | $ | 984 |
| |
| Merrill Lynch Global Wealth Management Metric | | | | |
Financial advisor productivity (3) (in thousands) | | $ | 1,038 |
| | $ | 993 |
|
| | | | | | | | |
U.S. Trust Metric, at period end (4) | | | | | |
| U.S. Trust Metric, at period end | | | | |
| Primary sales professionals | | 1,671 |
| | 1,595 |
| 1,737 |
| | 1,657 |
|
| |
(1) | Includes the results of BofA Global Capital Management, the cash management division of Bank of America, and certain administrative items. Also reflects the sale to a third party of approximately $80 billion of BofA Global Capital Management's AUM during the three months ended June 30, 2016. |
| |
(2)
| Includes margin receivables which are classified in customer and other receivables on the Consolidated Balance Sheet. |
| |
(3)(2)
| Includes financial advisors in the Consumer Banking segment of 2,0922,538 and 2,2592,121 at March 31, 20172018 and 2016.2017. |
| |
(4)
| Associate headcount computation is based upon full-time equivalents. |
| |
(5)(3)
| Financial advisor productivity is defined as annualized MLGWM total revenue, excluding the allocation of certain asset and liability management (ALM) activities, divided by the total average number of financial advisors (excluding financial advisors in the Consumer Banking segment). |
AUMClient Balances
Client balances increased $56.1$140.1 billion, or sixfive percent, to $946.8 billion during the three months ended$2.7 trillion at March 31, 20172018 compared to the same period in 2016.March 31, 2017. The increase in AUMclient balances was primarily due to higher market valuations and positive net flows, which reflected client activity and a shift from brokerage assets to long-term AUM, partially offset by the sale of BofA Global Capital Management's liquidity AUM in the second quarter of 2016.
Client balances increased $119.2 billion, or five percent, to nearly $2.6 trillion at March 31, 2017 driven by higher market valuations and positive net flows, partially offset by the impact of the sale of liquidity AUM in 2016.
During the three months ended March 31, 2017, revenue from MLGWM of $3.8 billion increased three percent due to higher net interest income and asset management fees driven by higher market valuations and long-term AUM flows, partially offset by lower transactional revenue. U.S. Trust revenue of $809 million increased four percent reflecting higher net interest income and
asset management fees driven by higher market valuations and long-term AUM flows.
Net Migration Summary
GWIM results are impacted by the net migration of clients and their corresponding deposit, loan and brokerage balances primarily to or from Consumer Banking, as presented in the table below.following table. Migrations of client balances primarily result from the periodic
movement of clients and/or accounts between business segments to better align withbased on changes in the nature of client needs.relationships.
|
| | | | | | | |
| | | | |
Net Migration Summary (1) | | | |
| | Three Months Ended March 31 |
| (Dollars in millions) | 2017 | | 2016 |
Total deposits, net – to (from) GWIM | $ | (97 | ) | | $ | (391 | ) |
Total loans, net – to (from) GWIM | (127 | ) | | 9 |
|
Total brokerage, net – to (from) GWIM | 94 |
| | (240 | ) |
| |
(1)
| Migration occurs primarily between GWIM and Consumer Banking.
|
|
| | | | | | | |
| | | | |
| Net Migration Summary | | | |
| | | | |
| | Three Months Ended March 31 |
| (Dollars in millions) | 2018 | | 2017 |
Total deposits, net – to (from) GWIM | $ | 1,135 |
| | $ | (97 | ) |
Total loans, net – from GWIM | (3 | ) | | (126 | ) |
Total brokerage, net – to (from) GWIM | (48 | ) | | 94 |
|
Global Banking
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 | | | | | | | | |
| (Dollars in millions) | (Dollars in millions) | 2017 | | 2016 | | % Change | (Dollars in millions) | Three Months Ended March 31 | | |
| | | | 2018 | | 2017 | | % Change |
| Net interest income (FTE basis) | Net interest income (FTE basis) | $ | 2,774 |
| | $ | 2,545 |
| | 9 | % | Net interest income (FTE basis) | $ | 2,640 |
| | $ | 2,602 |
| | 1 | % |
| Noninterest income: | Noninterest income: | | | | | | Noninterest income: | | | | | |
| Service charges | Service charges | 765 |
| | 745 |
| | 3 |
| Service charges | 763 |
| | 765 |
| | — |
|
| Investment banking fees | Investment banking fees | 925 |
| | 636 |
| | 45 |
| Investment banking fees | 744 |
| | 925 |
| | (20 | ) |
| All other income | All other income | 491 |
| | 528 |
| | (7 | ) | All other income | 787 |
| | 663 |
| | 19 |
|
| Total noninterest income | Total noninterest income | 2,181 |
| | 1,909 |
| | 14 |
| Total noninterest income | 2,294 |
| | 2,353 |
| | (3 | ) |
| Total revenue, net of interest expense (FTE basis) | Total revenue, net of interest expense (FTE basis) | 4,955 |
| | 4,454 |
| | 11 |
| Total revenue, net of interest expense (FTE basis) | 4,934 |
| | 4,955 |
| | — |
|
| | | | | | | | | | | | | |
| Provision for credit losses | Provision for credit losses | 17 |
| | 553 |
| | (97 | ) | Provision for credit losses | 16 |
| | 17 |
| | (6 | ) |
| Noninterest expense | Noninterest expense | 2,163 |
| | 2,174 |
| | (1 | ) | Noninterest expense | 2,195 |
| | 2,163 |
| | 1 |
|
| Income before income taxes (FTE basis) | Income before income taxes (FTE basis) | 2,775 |
| | 1,727 |
| | 61 |
| Income before income taxes (FTE basis) | 2,723 |
| | 2,775 |
| | (2 | ) |
| Income tax expense (FTE basis) | Income tax expense (FTE basis) | 1,046 |
| | 635 |
| | 65 |
| Income tax expense (FTE basis) | 707 |
| | 1,046 |
| | (32 | ) |
| Net income | Net income | $ | 1,729 |
| | $ | 1,092 |
| | 58 |
| Net income | $ | 2,016 |
| | $ | 1,729 |
| | 17 |
|
| | | | | | | | |
| Effective tax rate | | Effective tax rate | 26.0 | % | | 37.7 | % | | |
| | | | | | | | | | | | | |
| Net interest yield (FTE basis) | Net interest yield (FTE basis) | 3.08 | % | | 3.00 | % | | | Net interest yield (FTE basis) | 2.96 |
| | 2.93 |
| | |
| Return on average allocated capital | Return on average allocated capital | 18 |
| | 12 |
| | | Return on average allocated capital | 20 |
| | 18 |
| | |
| Efficiency ratio (FTE basis) | Efficiency ratio (FTE basis) | 43.66 |
| | 48.80 |
| | | Efficiency ratio (FTE basis) | 44.47 |
| | 43.66 |
| | |
| | | | | | | | | | | | | |
| Balance Sheet | | | | | | | | | | | | |
| | | Three Months Ended March 31 | | | | Three Months Ended March 31 | | |
| Average | Average | 2017 | | 2016 | | % Change | Average | 2018 | | 2017 | | % Change |
| Total loans and leases | Total loans and leases | $ | 342,857 |
| | $ | 328,643 |
| | 4 | % | Total loans and leases | $ | 351,689 |
| | $ | 342,857 |
| | 3 | % |
| Total earning assets | Total earning assets | 365,775 |
| | 341,387 |
| | 7 |
| Total earning assets | 361,822 |
| | 359,605 |
| | 1 |
|
| Total assets | Total assets | 415,856 |
| | 391,775 |
| | 6 |
| Total assets | 420,594 |
| | 415,908 |
| | 1 |
|
| Total deposits | Total deposits | 304,137 |
| | 297,134 |
| | 2 |
| Total deposits | 324,405 |
| | 305,197 |
| | 6 |
|
| Allocated capital | Allocated capital | 40,000 |
| | 37,000 |
| | 8 |
| Allocated capital | 41,000 |
| | 40,000 |
| | 3 |
|
| | | | | | | | | | | | | |
| Period end | Period end | March 31
2017 | | December 31
2016 | | % Change | Period end | March 31
2018 | | December 31
2017 | | % Change |
| Total loans and leases | Total loans and leases | $ | 344,451 |
| | $ | 339,271 |
| | 2 | % | Total loans and leases | $ | 355,165 |
| | $ | 350,668 |
| | 1 | % |
| Total earning assets | Total earning assets | 366,567 |
| | 356,241 |
| | 3 |
| Total earning assets | 365,895 |
| | 365,560 |
| | — |
|
| Total assets | Total assets | 416,710 |
| | 408,268 |
| | 2 |
| Total assets | 424,134 |
| | 424,533 |
| | — |
|
| Total deposits | Total deposits | 296,178 |
| | 306,430 |
| | (3 | ) | Total deposits | 331,238 |
| | 329,273 |
| | 1 |
|
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, real estate lending and asset-based lending. Our treasury solutions business includes treasury management, foreign exchange and short-term investing options. We also provide investment banking products 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. WithinFor more information about Global BankingGlobal Commercial Banking clients generally include middle-market companies, commercial real estate firms and not-for-profit companies. Global Corporate Banking clients generally include large global corporations, financial institutions and leasing clients., see Business Banking clients include mid-sized U.S.-based businesses requiring customized and integrated financial advice and solutions.Segment Operations in the MD&A of the Corporation’s 2017 Annual Report on Form 10-K.
Net income for Global Banking increased $637$287 million to $1.7$2.0 billion for the three months ended March 31, 20172018 compared to the same period in 20162017 primarily driven by lower tax expense, partially offset by modestly lower pretax income as discussed below. The impact of the reduction in the federal tax rate was somewhat offset by an increase in U.S. taxes related to our non-U.S. operations and the elimination of tax deductions for FDIC premiums under the Tax Act.
Pretax results were driven by higher revenuenoninterest expense and lower provision for credit losses.
revenue. Revenue increased $501decreased $21 million to $5.0$4.9 billion for the three months ended March 31, 20172018 compared to the same period in 20162017 driven by lower noninterest income, partially offset by higher net interest income and noninterest income. Net interest income increased $229$38 million to $2.8$2.6 billion driven byprimarily due to the impact of growth in loanshigher interest rates on increased deposits, and leases,loan growth. Noninterest income decreased $59 million to $2.3 billion primarily due to lower investment banking fees and the impact of tax reform on certain tax-advantaged investments, partially offset by loan spread compression. higher leasing-related revenues.
Noninterest incomeexpense increased $272$32 million to $2.2 billion largelyprimarily due to higher investment banking fees.
The provision for credit losses decreased $536 million to $17 million driven by improvements in energy exposures. For additional information, see Commercial Portfolio Credit Risk Management – Industry Concentrations on page 47. Noninterest expense of $2.2 billion remained relatively unchanged as higher revenue-related incentives and FDIC expense were offset by lower other personnel and operating expense.
The return on average allocated capital was 1820 percent, up from 1218 percent, as higher net income was partially offset by an increased capital allocation. For more information on capital allocated to the business segments, see Business Segment Operations on page 10.9.
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.
The table below and following discussion presentspresent a summary of the results, which exclude certain investment banking activities in Global Banking.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Global Corporate, Global Commercial and Business Banking | Global Corporate, Global Commercial and Business Banking | | | | | | | | | | | | | Global Corporate, Global Commercial and Business Banking | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 | | Global Corporate Banking | | Global Commercial Banking | | Business Banking | | Total |
| | | Global Corporate Banking | | Global Commercial Banking | | Business Banking | | Total | | Three Months Ended March 31 |
| (Dollars in millions) | (Dollars in millions) | 2017 | | 2016 | | 2017 |
| 2016 | | 2017 | | 2016 | | 2017 | | 2016 | (Dollars in millions) | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| Revenue | Revenue | | | | | | | | | | | | | | | | Revenue | | | | | | | | | | | | | | | |
| Business Lending | Business Lending | $ | 1,102 |
| | $ | 1,054 |
| | $ | 1,044 |
| | $ | 1,009 |
| | $ | 101 |
| | $ | 97 |
| | $ | 2,247 |
| | $ | 2,160 |
| Business Lending | $ | 1,050 |
| | $ | 1,102 |
| | $ | 975 |
| | $ | 1,044 |
| | $ | 99 |
| | $ | 101 |
| | $ | 2,124 |
| | $ | 2,247 |
|
| Global Transaction Services | Global Transaction Services | 797 |
| | 715 |
| | 707 |
| | 702 |
| | 197 |
| | 187 |
| | 1,701 |
| | 1,604 |
| Global Transaction Services | 882 |
| | 797 |
| | 816 |
| | 707 |
| | 232 |
| | 197 |
| | 1,930 |
| | 1,701 |
|
| Total revenue, net of interest expense | Total revenue, net of interest expense | $ | 1,899 |
| | $ | 1,769 |
| | $ | 1,751 |
| | $ | 1,711 |
| | $ | 298 |
| | $ | 284 |
| | $ | 3,948 |
| | $ | 3,764 |
| Total revenue, net of interest expense | $ | 1,932 |
| | $ | 1,899 |
| | $ | 1,791 |
| | $ | 1,751 |
| | $ | 331 |
| | $ | 298 |
| | $ | 4,054 |
| | $ | 3,948 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance Sheet | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Average | Average | | | | | | | | | | | | | | | | Average | | | | | | | | | | | | | | | |
| Total loans and leases | Total loans and leases | $ | 155,358 |
| | $ | 150,921 |
| | $ | 169,818 |
| | $ | 160,498 |
| | $ | 17,696 |
| | $ | 17,196 |
| | $ | 342,872 |
| | $ | 328,615 |
| Total loans and leases | $ | 162,073 |
| | $ | 155,358 |
| | $ | 172,360 |
| | $ | 169,728 |
| | $ | 17,259 |
| | $ | 17,785 |
| | $ | 351,692 |
| | $ | 342,871 |
|
| Total deposits | Total deposits | 145,377 |
| | 137,637 |
| | 122,904 |
| | 125,321 |
| | 35,861 |
| | 34,182 |
| | 304,142 |
| | 297,140 |
| Total deposits | 155,644 |
| | 146,437 |
| | 132,357 |
| | 122,904 |
| | 36,410 |
| | 35,861 |
| | 324,411 |
| | 305,202 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period end | Period end | | | | | | | | | | | | | | | | Period end | | | | | | | | | | | | | | | |
| Total loans and leases | Total loans and leases | $ | 155,801 |
| | $ | 154,398 |
| | $ | 171,074 |
| | $ | 161,816 |
| | $ | 17,599 |
| | $ | 17,274 |
| | $ | 344,474 |
| | $ | 333,488 |
| Total loans and leases | $ | 163,563 |
| | $ | 155,801 |
| | $ | 174,580 |
| | $ | 170,897 |
| | $ | 17,008 |
| | $ | 17,775 |
| | $ | 355,151 |
| | $ | 344,473 |
|
| Total deposits | Total deposits | 142,094 |
| | 139,691 |
| | 118,435 |
| | 124,010 |
| | 35,653 |
| | 34,376 |
| | 296,182 |
| | 298,077 |
| Total deposits | 165,040 |
| | 143,080 |
| | 129,895 |
| | 118,435 |
| | 36,326 |
| | 35,653 |
| | 331,261 |
| | 297,168 |
|
Business Lending revenue increased $87decreased $123 million for the three months ended March 31, 20172018 compared to the same period in 20162017 primarily driven by the impact of loan growth,tax reform on certain tax-advantaged investments, partially offset by loan spread compression.
higher leasing-related revenues. Global Transaction Services revenue increased $97$229 million for the three months ended March 31, 20172018 compared to the same period in 20162017 driven by growththe impact of higher interest rates and an increase in treasury-related revenue.the deposit base.
Average loans and leases increased fourthree percent for the three months ended March 31, 20172018 compared to the same period in 20162017 driven by growth in the commercial and industrial and leasing portfolios.loans. Average deposits increased twosix percent due to continued portfolio growth with new and existing clients.
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 following table presents total Corporation investment banking fees and the portion attributable to Global Banking.
| | | | | | | | | | | | | | | | | |
| Investment Banking Fees | Investment Banking Fees | | | | | Investment Banking Fees | | | | | | |
| | | |
| | Three Months Ended March 31 | Global Banking | | Total Corporation |
| | Global Banking | | Total Corporation | Three Months Ended March 31 |
| (Dollars in millions) | 2017 |
| 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
| Products | | | | | | | | | | | | | | |
| Advisory | $ | 390 |
| | $ | 305 |
| | $ | 405 |
| | $ | 346 |
| $ | 276 |
| | $ | 390 |
| | $ | 296 |
| | $ | 405 |
|
| Debt issuance | 412 |
| | 265 |
| | 926 |
| | 669 |
| 356 |
| | 412 |
| | 827 |
| | 926 |
|
| Equity issuance | 123 |
| | 66 |
| | 312 |
| | 188 |
| 112 |
| | 123 |
| | 314 |
| | 312 |
|
| Gross investment banking fees | 925 |
| | 636 |
| | 1,643 |
| | 1,203 |
| 744 |
| | 925 |
| | 1,437 |
| | 1,643 |
|
| Self-led deals | (23 | ) | | (11 | ) | | (59 | ) | | (50 | ) | (34 | ) | | (23 | ) | | (84 | ) | | (59 | ) |
| Total investment banking fees | $ | 902 |
| | $ | 625 |
| | $ | 1,584 |
| | $ | 1,153 |
| $ | 710 |
| | $ | 902 |
| | $ | 1,353 |
| | $ | 1,584 |
|
Total Corporation investment banking fees, of $1.6 billion, excluding self-led deals, of $1.4 billion, which are primarily included within Global Banking and Global Markets, increased 37decreased 15 percent for the three months ended March 31, 20172018 compared to the same period in 2016 driven by higher debt and equity issuance fees and higher advisory fees driven by an increase2017 due to a decrease in overall client activity and market fee pools.
Global Markets
|
| | | | | | | | | | | |
| | | | | | | |
| | | Three Months Ended March 31 | | |
| (Dollars in millions) | 2017 | | 2016 | | % Change |
| Net interest income (FTE basis) | $ | 1,049 |
| | $ | 1,184 |
| | (11 | )% |
| Noninterest income: | | | | | |
| Investment and brokerage services | 531 |
| | 568 |
| | (7 | ) |
| Investment banking fees | 666 |
| | 494 |
| | 35 |
|
| Trading account profits | 2,177 |
| | 1,595 |
| | 36 |
|
| All other income | 285 |
| | 110 |
| | 159 |
|
| Total noninterest income | 3,659 |
| | 2,767 |
| | 32 |
|
| Total revenue, net of interest expense (FTE basis) | 4,708 |
| | 3,951 |
| | 19 |
|
| | | | | | |
| Provision for credit losses | (17 | ) | | 9 |
| | n/m |
|
| Noninterest expense | 2,757 |
| | 2,449 |
| | 13 |
|
| Income before income taxes (FTE basis) | 1,968 |
| | 1,493 |
| | 32 |
|
| Income tax expense (FTE basis) | 671 |
| | 520 |
| | 29 |
|
| Net income | $ | 1,297 |
| | $ | 973 |
| | 33 |
|
| | | | | | |
| Return on average allocated capital | 15 | % | | 11 | % | | |
| Efficiency ratio (FTE basis) | 58.56 |
| | 62.01 |
| | |
| | | | | | |
| Balance Sheet | | | | | | |
| | Three Months Ended March 31 | | |
| Average | 2017 | | 2016 | | % Change |
| Trading-related assets: | | | | | |
| Trading account securities | $ | 203,866 |
| | $ | 187,931 |
| | 8 | % |
| Reverse repurchases | 96,835 |
| | 85,411 |
| | 13 |
|
| Securities borrowed | 81,312 |
| | 80,807 |
| | 1 |
|
| Derivative assets | 40,346 |
| | 53,512 |
| | (25 | ) |
Total trading-related assets (1) | 422,359 |
| | 407,661 |
| | 4 |
|
| Total loans and leases | 70,064 |
| | 69,283 |
| | 1 |
|
Total earning assets (1) | 429,906 |
| | 418,198 |
| | 3 |
|
| Total assets | 607,010 |
| | 581,226 |
| | 4 |
|
| Total deposits | 33,158 |
| | 35,886 |
| | (8 | ) |
| Allocated capital | 35,000 |
| | 37,000 |
| | (5 | ) |
| | | | | | |
| Period end | March 31
2017 | | December 31
2016 | | % Change |
Total trading-related assets (1) | $ | 418,259 |
| | $ | 380,562 |
| | 10 | % |
| Total loans and leases | 71,053 |
| | 72,743 |
| | (2 | ) |
Total earning assets (1) | 425,582 |
| | 397,023 |
| | 7 |
|
| Total assets | 604,015 |
| | 566,060 |
| | 7 |
|
| Total deposits | 33,629 |
| | 34,927 |
| | (4 | ) |
| |
(1)
| Trading-related assets include derivative assets, which are considered non-earning assets. |
n/m = not meaningful |
| | | | | | | | | | | |
| | | | | | | |
| | | Three Months Ended March 31 | | |
| (Dollars in millions) | 2018 | | 2017 | | % Change |
| Net interest income (FTE basis) | $ | 870 |
| | $ | 1,049 |
| | (17 | )% |
| Noninterest income: | | | | | |
| Investment and brokerage services | 488 |
| | 531 |
| | (8 | ) |
| Investment banking fees | 609 |
| | 666 |
| | (9 | ) |
| Trading account profits | 2,703 |
| | 2,177 |
| | 24 |
|
| All other income | 116 |
| | 285 |
| | (59 | ) |
| Total noninterest income | 3,916 |
| | 3,659 |
| | 7 |
|
| Total revenue, net of interest expense (FTE basis) | 4,786 |
| | 4,708 |
| | 2 |
|
| | | | | | |
| Provision for credit losses | (3 | ) | | (17 | ) | | (82 | ) |
| Noninterest expense | 2,818 |
| | 2,757 |
| | 2 |
|
| Income before income taxes (FTE basis) | 1,971 |
| | 1,968 |
| | — |
|
| Income tax expense (FTE basis) | 513 |
| | 671 |
| | (24 | ) |
| Net income | $ | 1,458 |
| | $ | 1,297 |
| | 12 |
|
| | | | | | |
| Effective tax rate | 26.0 | % | | 34.1 | % | | |
| | | | | | |
| Return on average allocated capital | 17 |
| | 15 |
| | |
| Efficiency ratio (FTE basis) | 58.87 |
| | 58.56 |
| | |
| | | | | | |
| Balance Sheet | | | | | | |
| | Three Months Ended March 31 | | |
| Average | 2018 | | 2017 | | % Change |
| Trading-related assets: | | | | | |
| Trading account securities | $ | 210,278 |
| | $ | 203,866 |
| | 3 | % |
| Reverse repurchases | 123,948 |
| | 96,835 |
| | 28 |
|
| Securities borrowed | 82,376 |
| | 81,312 |
| | 1 |
|
| Derivative assets | 46,567 |
| | 40,346 |
| | 15 |
|
| Total trading-related assets | 463,169 |
| | 422,359 |
| | 10 |
|
| Total loans and leases | 73,763 |
| | 70,064 |
| | 5 |
|
| Total earning assets | 486,107 |
| | 429,906 |
| | 13 |
|
| Total assets | 678,368 |
| | 607,010 |
| | 12 |
|
| Total deposits | 32,320 |
| | 33,158 |
| | (3 | ) |
| Allocated capital | 35,000 |
| | 35,000 |
| | — |
|
| | | | | | |
| Period end | March 31
2018 | | December 31
2017 | | % Change |
| Total trading-related assets | $ | 450,512 |
| | $ | 419,375 |
| | 7 | % |
| Total loans and leases | 75,638 |
| | 76,778 |
| | (1 | ) |
| Total earning assets | 478,857 |
| | 449,314 |
| | 7 |
|
| Total assets | 648,605 |
| | 629,007 |
| | 3 |
|
| Total deposits | 32,301 |
| | 34,029 |
| | (5 | ) |
Global Markets offers sales and trading services includingand 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. For more information about Global Markets provides market-making, financing, securities clearing, settlement and custody services globally to our institutional investor clients, see Business Segment Operations in supportthe MD&A 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, mortgage-backed securities (MBS), commodities and asset-backed securities (ABS). 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 informationthe Corporation’s 2017 Annual Report on investment banking fees on a consolidated basis, see page 16.Form 10-K.
Net income for Global Markets increased $324$161 million to $1.3$1.5 billion for the three months ended March 31, 20172018 compared to the same period in 2016 primarily2017 driven by lower tax expense. The impact of the reduction in the federal tax rate was somewhat offset by an increase in U.S. taxes related to our non-U.S. operations under the Tax Act. Pretax results, which remained relatively unchanged, reflected higher sales and trading revenue, and investment banking fees, partiallylargely offset by higher noninterest expense. Net DVA lossesgains were $130$64 million compared to gainslosses of $154$130 million induring the same period in 2016.2017. Excluding net DVA,
net income increased $500$31 million to $1.4 billion primarily driven by the same factors as described above. impact of the Tax Act.
Sales and trading revenue, excluding net DVA, increased $741$24 million primarily due to a stronger performance across credithigher Equities revenue partially offset by lower Fixed-income, currencies and mortgage products.commodities (FICC) revenue. Noninterest expense increased $308$61 million to $2.8 billion primarily due to litigation expensecontinued investments in technology.
Average assets increased $71.4 billion to $678.4 billion for the three
months ended March 31, 2017 compared to a litigation recovery in the same period in 2016 and higher revenue-related expenses, partially offset by lower operating and support costs.
Average earning assets increased $11.7 billion to $429.9 billion and period-end trading-related assets increased $37.7 billion to $418.3 billion both2018 primarily driven by increasedgrowth in client financing activities in the global equities business.Equities business and increased levels of inventory across the FICC business to facilitate client demand. Total assets increased $19.6 billion in the three months ended March 31, 2018 to $648.6 billion due to increased levels of inventory across the FICC business to facilitate client demand.
The return on average allocated capital was 1517 percent, up from 1115 percent, reflecting an increase inhigher net income and a decrease in allocated capital.income.
Sales and Trading Revenue
SalesRevenue from sales and trading revenueservices includes unrealized and realized gains and losses on trading and other assets, net interest income, and fees primarily from commissions on equity securities. SalesRevenue from research services is also included in 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 (RMBS), collateralized loan obligations (CLOs), 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).revenue. 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 present sales and trading revenue excluding the impact of net DVA, which is a non-GAAP financial measure. We believe the use of this non-GAAP financial measure provides additional useful information to assess the underlying performance of these businesses and to allow better comparison of period-to-periodperiod-over-period operating performance.
| | | | | | | | | |
Sales and Trading Revenue (1, 2) | Sales and Trading Revenue (1, 2) | Sales and Trading Revenue (1, 2) |
| | | | | |
| | Three Months Ended March 31 | Three Months Ended March 31 |
| (Dollars in millions) | 2017 | | 2016 | 2018 | | 2017 |
| Sales and trading revenue | | | | | | |
| Fixed-income, currencies and commodities | $ | 2,810 |
| | $ | 2,405 |
| $ | 2,614 |
| | $ | 2,810 |
|
| Equities | 1,089 |
| | 1,037 |
| 1,503 |
| | 1,089 |
|
| Total sales and trading revenue | $ | 3,899 |
| | $ | 3,442 |
| $ | 4,117 |
| | $ | 3,899 |
|
| | | | | | | |
Sales and trading revenue, excluding net DVA (3) | | | | | | |
| Fixed-income, currencies and commodities | $ | 2,930 |
| | $ | 2,265 |
| $ | 2,536 |
| | $ | 2,930 |
|
| Equities | 1,099 |
| | 1,023 |
| 1,517 |
| | 1,099 |
|
| Total sales and trading revenue, excluding net DVA | $ | 4,029 |
| | $ | 3,288 |
| $ | 4,053 |
| | $ | 4,029 |
|
| |
(1) | Includes FTE adjustments of $4767 million and $4549 million for the three months ended March 31, 20172018 and 20162017. For more information on sales and trading revenue, see Note 23 – Derivativesto the Consolidated Financial Statements.Statements. |
| |
(2) | Includes Global Banking sales and trading revenue of $58166 million and $15958 million for the three months ended March 31, 20172018 and 20162017. |
| |
(3) | Fixed-income, currencies and commodities (FICC)FICC and Equities sales and trading revenue, excluding net DVA, is a non-GAAP financial measure. FICC net DVA gains were $78 million and losses were $120 million for the three months ended March 31, 20172018 compared to net DVAand gains of $140 million for the same period in 20162017. Equities net DVA losses were$14 million and $10 million for the three months ended March 31, 20172018 compared to net DVAand gains of $14 million for the same period in 20162017.
|
The following explanations for period-over-period changes in sales and trading, FICC and Equities revenue as set forth below, would be the same ifwhether net DVA was included.
included or excluded. FICC revenue, excluding net DVA, increased $665decreased $394 million in the three months ended March 31, 2018 compared to the same period in 2017, primarily due to lower activity and a moreless favorable market environment in credit and mortgagecredit-related products with increased client activity combining for a stronger financial performance.compared to the same period in 2017. The decline in FICC revenue
was also impacted by higher funding costs, which were driven by increases in market interest rates. Equities revenue, excluding net DVA, increased $76$418 million primarily duein the three months ended March 31, 2018 compared to strongerthe same period in 2017, driven by increased client activity and a strong trading performance internationally in derivatives and client financing on improved investor sentiment. Forin the more information on sales and trading revenue, see Note 2 – Derivatives to the Consolidated Financial Statements.
volatile market environment.
All Other
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 | | | | Three Months Ended March 31 | | |
| (Dollars in millions) | (Dollars in millions) | 2017 | | 2016 | | % Change | (Dollars in millions) | 2018 | | 2017 | | % Change |
| Net interest income (FTE basis) | Net interest income (FTE basis) | $ | 91 |
| | $ | 130 |
| | (30 | )% | Net interest income (FTE basis) | $ | 144 |
| | $ | 263 |
| | (45 | )% |
| Noninterest income: | | | | | | |
| Card income | 42 |
| | 44 |
| | (5 | ) | |
| Mortgage banking income | 2 |
| | 242 |
| | (99 | ) | |
| Gains on sales of debt securities | 52 |
| | 190 |
| | (73 | ) | |
| All other loss | (281 | ) | | (332 | ) | | (15 | ) | |
| Total noninterest income | (185 | ) | | 144 |
| | n/m |
| |
| Noninterest loss | | Noninterest loss | (477 | ) | | (357 | ) | | 34 |
|
| Total revenue, net of interest expense (FTE basis) | Total revenue, net of interest expense (FTE basis) | (94 | ) | | 274 |
| | n/m |
| Total revenue, net of interest expense (FTE basis) | (333 | ) | | (94 | ) | | n/m |
|
| | | | | | | | | | | | | |
| Provision for credit losses | Provision for credit losses | (26 | ) | | (121 | ) | | (79 | ) | Provision for credit losses | (152 | ) | | (26 | ) | | n/m |
|
| Noninterest expense | Noninterest expense | 2,189 |
| | 2,382 |
| | (8 | ) | Noninterest expense | 976 |
| | 1,434 |
| | (32 | ) |
| Loss before income taxes (FTE basis) | Loss before income taxes (FTE basis) | (2,257 | ) | | (1,987 | ) | | 14 |
| Loss before income taxes (FTE basis) | (1,157 | ) | | (1,502 | ) | | (23 | ) |
| Income tax benefit (FTE basis) | Income tax benefit (FTE basis) | (1,423 | ) | | (889 | ) | | 60 |
| Income tax benefit (FTE basis) | (871 | ) | | (1,148 | ) | | (24 | ) |
| Net loss | Net loss | $ | (834 | ) | | $ | (1,098 | ) | | (24 | ) | Net loss | $ | (286 | ) | | $ | (354 | ) | | (19 | ) |
| | | | | | | | | | | | | |
Balance Sheet (1) | | | | | | |
| Balance Sheet | | | | | | | |
| | | Three Months Ended March 31 | | | | Three Months Ended March 31 | | |
| Average | Average | 2017 | | 2016 | | % Change | | 2018 | | 2017 | | % Change |
| Total loans and leases | Total loans and leases | $ | 94,873 |
| | $ | 118,052 |
| | (20 | )% | Total loans and leases | $ | 67,811 |
| | $ | 94,873 |
| | (29 | )% |
Total assets (1) | | Total assets (1) | 200,553 |
| | 207,652 |
| | (3 | ) |
| Total deposits | Total deposits | 26,357 |
| | 26,760 |
| | (2 | ) | Total deposits | 23,115 |
| | 25,297 |
| | (9 | ) |
| | | | | | | | | | | | | |
| Period end | Period end | March 31
2017 | | December 31
2016 | | % Change | | March 31
2018 | | December 31
2017 | | % Change |
Total loans and leases (2) | $ | 92,712 |
| | $ | 96,713 |
| | (4 | )% | |
| Total loans and leases | | Total loans and leases | $ | 64,584 |
| | $ | 69,452 |
| | (7 | )% |
Total assets (1) | | Total assets (1) | 202,152 |
| | 194,048 |
| | 4 |
|
| Total deposits | Total deposits | 26,132 |
| | 24,261 |
| | 8 |
| Total deposits | 22,106 |
| | 22,719 |
| | (3 | ) |
| |
(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. SuchAverage allocated assets were $522.0514.6 billion and $493.5522.0 billion for the three months ended March 31, 20172018 and 20162017, and period-end allocated assets were $543.4543.3 billion and $518.7520.4 billion at March 31, 20172018 and December 31, 2016. |
| |
(2)
| Includes $9.5 billion and $9.2 billion of non-U.S. credit card, which are included in assets of business held for sale on the Consolidated Balance Sheet at March 31, 2017 and December 31, 2016.
|
n/m = not meaningful
All Other consists of ALM activities, equity investments, the non-U.S. consumer credit card business, non-core mortgage loans and servicing activities, the net impact of periodic revisions to the MSR valuation model for both core and non-core MSRs and the related economic hedge results, and ineffectiveness, other liquidating businesses and residual expense allocations and other. ALM activities encompass certain residential mortgages, debt securities, interest rate and foreign currency risk management activities, the impact of certain allocation methodologies and accounting hedge ineffectiveness. The results of certain ALM activities are allocated to our business segments.allocations. For more information on our ALM activities,about All Other, seeNote 17 – Business Segment Information toOperations in the Consolidated Financial Statements. Equity investments include our merchant services joint venture as well as Global Principal Investments (GPI) which is comprisedMD&A of a portfolio of equity, real estate and other alternative investments. For more informationthe Corporation’s 2017 Annual Report on our merchant services joint venture, see Note 10 – Commitments and Contingencies to the Consolidated Financial Statements.Form 10-K.
On December 20, 2016, we entered into an agreement to sell our non-U.S. consumer credit card business to a third party. Subject to regulatory approval, this transaction is expected to close by mid-2017. For more information on the sale of our non-U.S. consumer credit card business, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
The Corporation classifies consumer real estate loans as core or non-core based on loan and customer characteristics such as
origination date, product type, LTV, FICO score and delinquency status. For more information on the core and non-core portfolios, see Consumer Portfolio Credit Risk Management on page 31.25. Residential mortgage loans that are held for ALM purposes, including interest rate or liquidity risk management, are classified as core and are presented on the balance sheet of All Other. For more information on our interest rate and liquidity risk management activities, see Liquidity Risk on page 2822 and Interest Rate Risk Management for the Banking Book on page 58.45. During the three months ended March 31, 2017,2018, residential mortgage loans held for ALM activities decreased $1.9$1.3 billion to $32.8$27.2 billion at March 31, 20172018 primarily as a result of payoffs paydowns and loan sales outpacing new originations.paydowns. Non-core residential mortgage and home equity loans, which are principally run-off portfolios, including certain loans accounted for under the fair value option and MSRs pertaining to non-core loans serviced for others, are also held in All Other. During the three months ended March 31, 2017,2018, total non-core loans decreased $2.7$3.5 billion to $50.4$37.8 billion at March 31, 20172018 due largelyprimarily to payoffs and paydowns, as well as transfers to loans held-for-sale (LHFS) of $1.1 billion and loan sales.sales of $700 million.
The net loss for All Other decreased $264improved $68 million to $834$286 million for the three months ended March 31, 20172018 compared to the same period in 20162017, driven by a lower pretax loss, partially offset by a lower income tax benefit due to the impact of the reduction in the federal income tax rate. Pretax results were driven by lower noninterest expense and a higher income tax benefit, partially offset by lower mortgage banking income, lower gains on sales of debt securities and a decrease in the benefit in the provision for credit losses.
19Bank of Americalosses, partially offset by a decline in revenue.
Mortgage banking income in All OtherRevenue decreased $240$239 million primarily driven by lower MSR results, netdue to the impact of the related hedge performance, and lower servicing fees driven by a smaller servicing portfolio.sale of the non-U.S. consumer credit card business in the second quarter of 2017. Gains on sales of loans included in noninterest loss, including nonperforming and other delinquent loans, were $17$37 million for the three months ended March 31, 2018 compared to gains of $157$17 million in the same period in 2016.2017.
The benefit in the provision for credit losses decreased $95improved $126 million to a benefit of $26$152 million resulting in lower reserve releases inprimarily driven by continued runoff of the non-core consumer real estate loan portfolio as it continues to run-off. portfolio.
Noninterest expense decreased $193$458 million to $2.2 billion$976 million driven by lower litigation expense, lower operating costs due to the sale of the non-U.S. consumer credit card business and a decline in non-core mortgage servicing costs. Annual retirement-eligible incentive costs of $964
The income tax benefit was $871 million and $850 million were recorded on a consolidated basis for the three months ended March 31, 2017 and 2016. These costs are allocated to the business segments throughout the year.
The income tax benefit was $1.4 billion for the three months ended March 31, 20172018 compared to a benefit of $889 million$1.1 billion in the same period in 2016.2017. The increasechange was driven by a $222 millionthe lower federal tax benefit related to new accounting guidance effective this quarter for the tax impact associated with share-based compensation,rate in effect in 2018 and the change in the pretax loss. Both periods include income tax benefit adjustments to eliminate the FTE treatment of certain tax credits recorded in Global Banking.
Off-Balance Sheet Arrangements and Contractual Obligations
We have contractual obligations to make future payments on debt and lease agreements. Additionally, in the normal course of business, we enter into contractual arrangements whereby we commit to future purchases of products or services from unaffiliated parties. For more information on obligations and commitments, see Note 10 – Commitments and Contingencies to
the Consolidated Financial Statements herein, Off-Balance Sheet Arrangements and Contractual Obligations in the MD&A of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K, as well as Note 11 – Long-term Debt and Note 12 – Commitments and Contingencies to the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
Representations and Warranties
We securitize first-lien residential mortgage loans generally in the form of RMBS guaranteed by the government-sponsored enterprises (GSEs), which include Freddie Mac (FHLMC) and Fannie Mae (FNMA), or by the Government National Mortgage Association (GNMA) in the case of Federal Housing Administration (FHA)-insured, U.S. Department of Veterans Affairs (VA)-guaranteed and Rural Housing Service-guaranteed mortgage loans, and sell pools of first-lien residential mortgage loans in the form of whole loans. In addition, in prior years, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations or in the form of whole loans. In connection with these transactions, we or certain of our subsidiaries or legacy companies make and have made various representations and warranties. Breaches of these representations and warranties have resulted in and may continue to result in the requirement to repurchase mortgage loans or to otherwise make whole or provide other remedies to investors, securitization trusts, guarantors, insurers or other parties (collectively, repurchases).
At both March 31, 2017 and December 31, 2016, we had $18.3 billion of unresolved repurchase claims, predominately
related to subprime and pay option first-lien loans and home equity loans. Outstanding repurchase claims remain unresolved primarily due to (1) the level of detail, support and analysis accompanying such claims, which impact overall claim quality and, therefore, claim resolution and (2) the lack of an established process to resolve disputes related to these claims.
In addition to unresolved repurchase claims, we have received notifications from sponsors of third-party securitizations with whom we engaged in whole-loan transactions indicating that we may have indemnity obligations with respect to loans for which we have not received a repurchase request. These outstanding notifications totaled $1.3 billion at both March 31, 2017 and December 31, 2016. There were no new notifications received during the three months ended March 31, 2017.
The liability for representations and warranties and corporate guarantees is included in accrued expenses and other liabilities on the Consolidated Balance Sheet and the related provision is included in mortgage banking income. At March 31, 2017 and 2016, the liability for representations and warranties was $2.3 billion and $2.8 billion. The representations and warranties provision was a benefit of $3 million for the three months ended March 31, 2017 compared to a provision of $42 million for the same period in 2016.
In addition, we currently estimate that the range of possible loss for representations and warranties exposures could be up to $2 billion over existing accruals at March 31, 2017. The estimated range of possible loss represents a reasonably possible loss, but does not represent a probable loss, and is based on currently available information, significant judgment and a number of assumptions that are subject to change.
Future provisions and/or ranges of possible loss associated with obligations under representations and warranties may be significantly impacted if future experiences are different from historical experience or our understandings, interpretations or assumptions. Adverse developments, with respect to one or more of the assumptions underlying the liability for representations and warranties and the corresponding estimated range of possible loss, such as counterparties successfully challenging or avoiding the application of the relevant statute of limitations, could result in significant increases to future provisions and/or the estimated range of possible loss. For more information on representations and warranties, see Note 7 – Representations and Warranties Obligations and Corporate Guaranteesto the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K and Representations and Warranties in Note 10 – Commitments and Contingencies to the Consolidated Financial Statements and, forherein. For more information related to the sensitivity of the assumptions used to estimate our liabilityreserve for representations and warranties, see Complex Accounting Estimates – Representations and Warranties Liability in the MD&A of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
Other Mortgage-related Matters
We continue to be subject to additional mortgage-related litigation and disputes, as well as governmental and regulatory scrutiny and investigations, related to our past and current origination, servicing, transfer of servicing and servicing rights, servicing compliance obligations, foreclosure activities, indemnification obligations, and mortgage insurance and captive reinsurance practices with mortgage insurers. The ongoing environment of additional regulation, increased regulatory compliance obligations, and enhanced regulatory enforcement, combined with ongoing uncertainty related to the continuing evolution of the regulatory environment, has resulted in increased operational and compliance costs and may limit our ability to continue providing
certain products and services. For more information on management’s estimateother mortgage-related matters, see Off-Balance Sheet Arrangements and Contractual Obligations – Other Mortgage-related Matters in the MD&A of the aggregate range of possible loss for certain litigation matters andCorporation’s 2017 Annual Report on regulatory investigations, see Note 10 – Commitments and Contingencies to the Consolidated Financial Statements.Form 10-K.
Managing Risk
Risk is inherent in all our business activities. The seven key types of risk faced by the Corporation are strategic, credit, market, liquidity, compliance, operational and reputational risks. Sound risk management enables us to serve our customers and deliver for our shareholders. If not managed well, risks 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. The Corporation takes 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.
Our Risk Framework is the foundation for comprehensive management of the risks facing the Corporation. The Risk Framework sets forth clear roles, responsibilities and accountability 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.
Our Risk Appetite Statement is intended to ensure that the Corporation maintains an acceptable risk profile by providing a common framework and a comparable set of measures for senior management and the Board to clearly indicate the level of risk the Corporation is willing to accept. Risk appetite is set at least annually in conjunctionand is aligned with the Corporation’s strategic, capital and financial operating plans to align risk appetite with the Corporation's strategy and financial resources.plans. Our line of business strategies and risk appetite are also similarly aligned.
For more information on our risk management activities, including our Risk Framework, and the key types of risk faced by the Corporation, see the Managing Risk through Reputational Risk sections in the MD&Aof the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.10-K.
Capital Management
The Corporation manages its capital position so its capital is more than adequate to support its business activities and to maintain capital, risk and risk appetite commensurate with one another. 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 periodically review capital allocated to our businesses and allocate capital annually during the strategic and capital planning processes. For additionalmore information, see Business Segment Operations on page 10.9.
CCAR and Capital Planning
The Federal Reserve requires BHCs to submit a capital plan and requests for capital actions on an annual basis, consistent with the rules governing the CCAR capital plan.
Our 2016On June 28, 2017, following the Federal Reserve’s non-objection to our 2017 CCAR capital plan, included requests: (i)the Board authorized the repurchase of $12.0 billion in common stock from July 1, 2017 through June 30, 2018, plus repurchases expected to be approximately $900 million to offset the effect of equity-based compensation plans during the same period. On December 5, 2017, following approval by the Federal Reserve, the Board authorized the repurchase of an additional $5.0 billion of common stock over four quarters beginning in the third quarter of 2016, (ii) to repurchase common stock to offset the dilution resulting from certain equity-based compensation awards, and (iii) to increase the quarterly common stock dividend from $0.05 per share to $0.075 per share.
On January 13, 2017, we announced a plan to repurchase an additional $1.8 billion of common stock during the first half of 2017, outside of the scope of the 2016 CCAR capital plan, to which the Federal Reserve did not object.through June 30, 2018. The common stock repurchase authorization includesauthorizations include both common stock and warrants. As ofAt March 31, 2017, we have repurchased $5.5 billion in connection with2018, our 2016 CCAR capital plan and this additional authorization.remaining stock repurchase authorization was $5.2 billion.
The timing and amount of common stock repurchases will be subject to various factors, including the Corporation’s capital position, liquidity, financial performance and alternative uses of capital, stock trading price, and general market conditions, and may be suspended at any time. The common stock 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 a “well-capitalized” BHC, we may notify the Federal Reserve of our intention to make additional capital distributions not to exceed one0.25 percent of Tier 1 capital, (0.25 percent of Tier 1 capital beginning April 1, 2017), and which were not contemplated in our capital plan, subject to the Federal Reserve'sReserve’s non-objection.
In April 2017,2018, we submitted our 20172018 CCAR capital plan and related supervisory stress tests. The Federal Reserve has announced that it will release CCAR capital plan summary results, including supervisory projections of capital ratios, losses and revenues under stress scenarios, and publish the results of stress tests conducted under the supervisory adverse and supervisory severely adverse scenarios by June 30, 2017.
2018.
Regulatory Capital
As a financial services holding company, we are subject to regulatory capital rules issued by U.S. banking regulators including Basel 3, which includes certain transition provisions through January 1, 2019. The Corporation and its primary affiliated banking entity, BANA, are Basel 3 Advanced approaches institutions.
Basel 3 Overview
Basel 3 updated the composition of capital and established a Common equity tier 1 capital ratio. Common equity tier 1 capital primarily includes common stock, retained earnings and accumulated other comprehensive income (OCI), net of deductions and adjustments primarily related to goodwill, deferred tax assets, intangibles, MSRs and defined benefit pension assets. Under the Basel 3 regulatory capital transition provisions, certain deductions and adjustments to Common equity tier 1 capital arewere phased in through January 1, 2018. As of January 1, 2017, under the transition provisions, 80 percent of these deductionsThe Corporation and adjustments was recognized.its primary affiliated banking entity, BANA, are Basel 3 also revised minimum capital ratios and buffer requirements, added a supplementary leverage ratio (SLR), and addressed the adequately capitalized minimum requirements under the Prompt Corrective Action (PCA) framework. Finally, Basel 3 established two methods of calculating risk-weighted assets, 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.
As an Advanced approaches institution, weinstitutions and are required to report regulatory risk-based capital ratios and risk-weighted assets under both the Standardized and Advanced approaches. The approach that yields the lower ratio is used to assess capital adequacy including under the PCA framework.Prompt Corrective Action (PCA) framework and for the Corporation was the Advanced approaches method for both periods presented. For more information on Basel 3, see Capital Management in the MD&A of the Corporation’s 2017 Annual Report on Form 10-K.
Minimum Capital Requirements
Minimum capital requirements and related buffers are being phased in from January 1, 2014 through January 1, 2019. The PCA framework establishes categories of capitalization including “well capitalized,” based on the Basel 3 regulatory ratio
requirements. U.S. banking regulators are required to take certain mandatory actions depending on the category of capitalization, with no mandatory actions required for “well-capitalized” banking organizations, which included BANA at March 31, 2017.2018.
We are subject to a capital conservation buffer, a countercyclical capital buffer and a global systemically important bank (G-SIB) surcharge that are being phased in over a three-year period ending January 1, 2019. Once fully phased in,phased-in, the Corporation’s risk-based capital ratio requirements will include a capital conservation buffer greater than 2.5 percent, plus any applicable countercyclical capital buffer and a G-SIB surcharge in order to avoid restrictions on capital distributions and discretionary bonus payments. The buffers and surcharge must be comprised solely of Common equity tier 1 capital. Under the phase-in provisions, we wereare required to maintain a capital conservation buffer greater than 1.251.875 percent plus a G-SIB surcharge of 1.51.875 percent at March 31, 2017.in 2018. The countercyclical capital buffer is currently set at zero. We estimate that our fully phased-in G-SIB surcharge will
be 2.5 percent. The G-SIB surcharge may differ from this estimate over time. For more information on the Corporation's transition and fully phased-inCorporation’s capital ratios and regulatory requirements, see Table 9.8.
Supplementary Leverage Ratio
Basel 3 also requires Advanced approaches institutionsEffective January 1, 2018, the Corporation is required to disclose an SLR.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. Insured depository institution subsidiaries of BHCs are required 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 Tier 1 deductions, as well as the simple average of certain off-balance sheet exposures, as of the end of each month in a quarter. Effective January 1, 2018, the Corporation will be required to maintain a minimum 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. Insured depository institution subsidiaries of BHCs will be required to maintain a minimum 6.0 percent SLR to be considered "well capitalized" under the PCA framework.
Capital Composition and Ratios
Table 98 presents Bank of America Corporation’s transition and fully phased-in capital ratios and related information in accordance with Basel 3 Standardized and Advanced approaches as measured at March 31, 20172018 and December 31, 2016. Fully phased-in estimates are non-GAAP financial measures that the Corporation
considers to be useful measures in evaluating compliance with new regulatory capital requirements that are not yet effective. For reconciliations to GAAP financial measures, see Table 12.2017. As of March 31, 20172018 and December 31, 2016,2017, the Corporation meetsmet the definition of “well capitalized” under current regulatory requirements.
| | | | | | | | | | | | | | | | | | | | | | | |
| Table 9 | Bank of America Corporation Regulatory Capital under Basel 3 (1) | | | | | |
| Table 8 | | Bank of America Corporation Regulatory Capital under Basel 3 (1) | | | | |
| | | | | |
| | | March 31, 2017 | | Standardized
Approach | | Advanced
Approaches | | Current Regulatory Minimum (2) | | 2019 Regulatory Minimum (3) |
| | | Transition | | Fully Phased-in | |
| (Dollars in millions) | Standardized Approach | | Advanced Approaches | | Regulatory Minimum (2) | | Standardized Approach | | Advanced Approaches (3) | | Regulatory Minimum (4) | |
| (Dollars in millions, except as noted) | | (Dollars in millions, except as noted) | March 31, 2018 |
| Risk-based capital metrics: | Risk-based capital metrics: | | | | | | | | | | | | Risk-based capital metrics: | | | | | | | |
| Common equity tier 1 capital | Common equity tier 1 capital | $ | 167,351 |
| | $ | 167,351 |
| | | | $ | 164,333 |
| | $ | 164,333 |
| | | Common equity tier 1 capital | $ | 164,828 |
| | $ | 164,828 |
| | | | |
| Tier 1 capital | Tier 1 capital | 190,332 |
| | 190,332 |
| | | | 188,954 |
| | 188,954 |
| | | Tier 1 capital | 188,900 |
| | 188,900 |
| | | | |
Total capital (5) | 227,250 |
| | 218,112 |
| | | | 223,955 |
| | 214,817 |
| | | |
Total capital (4) | | Total capital (4) | 223,772 |
| | 215,261 |
| | | | |
| Risk-weighted assets (in billions) | Risk-weighted assets (in billions) | 1,398 |
| | 1,517 |
| | | | 1,416 |
| | 1,498 |
| | | Risk-weighted assets (in billions) | 1,452 |
| | 1,458 |
| | | | |
| Common equity tier 1 capital ratio | Common equity tier 1 capital ratio | 12.0 | % | | 11.0 | % | | 7.25 | % | | 11.6 | % | | 11.0 | % | | 9.5 | % | Common equity tier 1 capital ratio | 11.4 | % | | 11.3 | % | | 8.25 | % | | 9.5 | % |
| Tier 1 capital ratio | Tier 1 capital ratio | 13.6 |
| | 12.5 |
| | 8.75 |
| | 13.3 |
| | 12.6 |
| | 11.0 |
| Tier 1 capital ratio | 13.0 |
| | 13.0 |
| | 9.75 |
| | 11.0 |
|
| Total capital ratio | Total capital ratio | 16.3 |
| | 14.4 |
| | 10.75 |
| | 15.8 |
| | 14.3 |
| | 13.0 |
| Total capital ratio | 15.4 |
| | 14.8 |
| | 11.75 |
| | 13.0 |
|
| | | | | | | | | | | | | | | | | | | | | |
| Leverage-based metrics: | Leverage-based metrics: | | | | | | | | | | | | Leverage-based metrics: | | | | | | | |
Adjusted quarterly average assets (in billions) (6) | $ | 2,153 |
| | $ | 2,153 |
| | | | $ | 2,152 |
| | $ | 2,152 |
| | | |
Adjusted quarterly average assets (in billions) (5) | | Adjusted quarterly average assets (in billions) (5) | $ | 2,247 |
| | $ | 2,247 |
| | | | |
| Tier 1 leverage ratio | Tier 1 leverage ratio | 8.8 | % | | 8.8 | % | | 4.0 |
| | 8.8 | % | | 8.8 | % | | 4.0 |
| Tier 1 leverage ratio | 8.4 | % | | 8.4 | % | | 4.0 |
| | 4.0 |
|
| | | | | | | | | | | | | | | | | | | | | |
| SLR leverage exposure (in billions) | SLR leverage exposure (in billions) | | | | | | | | | $ | 2,716 |
| | | SLR leverage exposure (in billions) | | | $ | 2,794 |
| | | | |
| SLR | SLR | | | | | | | | | 7.0 | % | | 5.0 |
| SLR | | | 6.8 | % | | 5.0 |
| | 5.0 |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2016 | | December 31, 2017 |
| Risk-based capital metrics: | Risk-based capital metrics: | | | | | | | | | | | | Risk-based capital metrics: | | | | | | | |
| Common equity tier 1 capital | Common equity tier 1 capital | $ | 168,866 |
| | $ | 168,866 |
| | | | $ | 162,729 |
| | $ | 162,729 |
| | | Common equity tier 1 capital | $ | 168,461 |
| | $ | 168,461 |
| | | | |
| Tier 1 capital | Tier 1 capital | 190,315 |
| | 190,315 |
| | | | 187,559 |
| | 187,559 |
| | | Tier 1 capital | 190,189 |
| | 190,189 |
| | | | |
Total capital (5) | 228,187 |
| | 218,981 |
| | | | 223,130 |
| | 213,924 |
| | | |
Total capital (4) | | Total capital (4) | 224,209 |
| | 215,311 |
| | | | |
| Risk-weighted assets (in billions) | Risk-weighted assets (in billions) | 1,399 |
| | 1,530 |
| | | | 1,417 |
| | 1,512 |
| | | Risk-weighted assets (in billions) | 1,443 |
| | 1,459 |
| | | | |
| Common equity tier 1 capital ratio | Common equity tier 1 capital ratio | 12.1 | % | | 11.0 | % | | 5.875 | % | | 11.5 | % | | 10.8 | % | | 9.5 | % | Common equity tier 1 capital ratio | 11.7 | % | | 11.5 | % | | 7.25 | % | | 9.5 | % |
| Tier 1 capital ratio | Tier 1 capital ratio | 13.6 |
| | 12.4 |
| | 7.375 |
| | 13.2 |
| | 12.4 |
| | 11.0 |
| Tier 1 capital ratio | 13.2 |
| | 13.0 |
| | 8.75 |
| | 11.0 |
|
| Total capital ratio | Total capital ratio | 16.3 |
| | 14.3 |
| | 9.375 |
| | 15.8 |
| | 14.2 |
| | 13.0 |
| Total capital ratio | 15.5 |
| | 14.8 |
| | 10.75 |
| | 13.0 |
|
| | | | | | | | | | | | | | | | | | | | | |
| Leverage-based metrics: | Leverage-based metrics: | | | | | | | | | | | | Leverage-based metrics: | | | | | | | |
Adjusted quarterly average assets (in billions) (6) | $ | 2,131 |
| | $ | 2,131 |
| | | | $ | 2,131 |
| | $ | 2,131 |
| | | |
Adjusted quarterly average assets (in billions) (5) | | Adjusted quarterly average assets (in billions) (5) | $ | 2,223 |
| | $ | 2,223 |
| | | | |
| Tier 1 leverage ratio | Tier 1 leverage ratio | 8.9 | % | | 8.9 | % | | 4.0 |
| | 8.8 | % | | 8.8 | % | | 4.0 |
| Tier 1 leverage ratio | 8.6 | % | | 8.6 | % | | 4.0 |
| | 4.0 |
|
| | | | | | | | | | | | | | | | | | | | | |
| SLR leverage exposure (in billions) | SLR leverage exposure (in billions) | | | | | | | | | $ | 2,702 |
| | | SLR leverage exposure (in billions) | | | $ | 2,756 |
| | | | |
| SLR | SLR | | | | | | | | | 6.9 | % | | 5.0 |
| SLR | | | 6.9 | % | | | | 5.0 |
|
| |
(1) | As an Advanced approaches institution, we are required to reportBasel 3 transition provisions for regulatory capital risk-weighted assetsadjustments and ratios under both the Standardized and Advanced approaches. The approach that yields the lower ratio is to be used to assess capital adequacy and was the Advanced approaches method at March 31, 2017 and December 31, 2016.
deductions were fully phased-in as of January 1, 2018. Prior periods are presented on a fully phased-in basis. |
| |
(2) | The March 31, 20172018 and December 31, 20162017 amounts include a transition capital conservation buffer of 1.875 percent and 1.25 percent and 0.625 percent, and a transition G-SIB surcharge of 1.875 percent and 1.5 percent and 0.75 percent.. The countercyclical capital buffer for both periods is zero.zero. |
| |
(3) | Basel 3 fully phased-in Advanced approaches estimates assume approval by U.S. banking regulators of our internal analytical models, including approval of the internal models methodology (IMM) for calculating counterparty credit risk regulatory capital for derivatives. Basel 3 fully phased-in Common equity tier 1 capital ratio would be reduced by approximately 25 bps if IMM is not used. |
| |
(4)
| Fully phased-inThe 2019 regulatory minimums assume a capital conservation buffer of 2.5 percent and estimated G-SIB surcharge of 2.5 percent. The estimated fully phased-in countercyclical capital buffer is currently set at zero. We will be subject to fully phased-in regulatory minimums on January 1, 2019. The fully phased-in SLR minimum assumesincludes a leverage buffer of 2.0 percent and is applicable beginning on January 1, 2018.
|
| |
(5)(4)
| 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. |
| |
(6)(5)
| Reflects adjusted average total assets for the three months ended March 31, 20172018 and December 31, 20162017. |
Common equity tier 1 capital under Basel 3 Advanced – Transitionapproaches was $167.4$164.8 billion at March 31, 2017,2018, a decrease of $1.5$3.6 billion compared to December 31, 20162017 driven by the phase-in under Basel 3 transition provisions of deductions, primarily related to deferred tax assets, common stock repurchases, market value declines included in accumulated other comprehensive income (OCI) and dividends, partially offset by earnings. During the three months ended March 31, 2017, Total2018, total capital decreased $869 million primarily driven by the same factors as the decrease in Common
equity tier 1 capital, along with maturities of subordinated debt and phase-out under the Basel 3 transition provisions of trust preferred securities.
Risk-weightedrisk-weighted assets decreased $13 billion during the three months ended March 31, 2017 to $1,517 billion primarily due to lower credit card exposures, lower market risk, and lower exposures and improved credit quality on legacy retail products.
remained relatively unchanged. Table 10 presents9 shows the capital composition as measured under Basel 3 – TransitionAdvanced approaches at March 31, 20172018 and December 31, 2016.2017.
| | | | | | | | | | | |
| Table 10 | Capital Composition under Basel 3 – Transition (1, 2) | | | | |
| Table 9 | | Capital Composition under Basel 3 (1) | | | |
| | | | | | | | | |
| (Dollars in millions) | (Dollars in millions) | March 31
2017 | | December 31
2016 | (Dollars in millions) | March 31
2018 | | December 31
2017 |
| Total common shareholders’ equity | Total common shareholders’ equity | $ | 242,933 |
| | $ | 241,620 |
| Total common shareholders’ equity | $ | 241,552 |
| | $ | 244,823 |
|
| Goodwill | Goodwill | (69,187 | ) | | (69,191 | ) | Goodwill | (68,576 | ) | | (68,576 | ) |
| Deferred tax assets arising from net operating loss and tax credit carryforwards | Deferred tax assets arising from net operating loss and tax credit carryforwards | (6,375 | ) | | (4,976 | ) | Deferred tax assets arising from net operating loss and tax credit carryforwards | (6,755 | ) | | (6,555 | ) |
| Adjustments for amounts recorded in accumulated OCI attributed to defined benefit postretirement plans | 691 |
| | 1,392 |
| |
| Net unrealized (gains) losses on debt and equity securities and net (gains) losses on derivatives recorded in accumulated OCI, net-of-tax | 1,130 |
| | 1,402 |
| |
| Adjustments for amounts recorded in accumulated OCI attributed to certain cash flow hedges | | Adjustments for amounts recorded in accumulated OCI attributed to certain cash flow hedges | 1,260 |
| | 831 |
|
| Intangibles, other than mortgage servicing rights and goodwill | Intangibles, other than mortgage servicing rights and goodwill | (1,497 | ) | | (1,198 | ) | Intangibles, other than mortgage servicing rights and goodwill | (1,632 | ) | | (1,743 | ) |
| Defined benefit pension fund assets | | Defined benefit pension fund assets | (1,189 | ) | | (1,138 | ) |
| DVA related to liabilities and derivatives | DVA related to liabilities and derivatives | 513 |
| | 413 |
| DVA related to liabilities and derivatives | 580 |
| | 1,196 |
|
| Other | Other | (857 | ) | | (596 | ) | Other | (412 | ) | | (377 | ) |
| Common equity tier 1 capital | Common equity tier 1 capital | 167,351 |
| | 168,866 |
| Common equity tier 1 capital | 164,828 |
| | 168,461 |
|
| Qualifying preferred stock, net of issuance cost | Qualifying preferred stock, net of issuance cost | 25,220 |
| | 25,220 |
| Qualifying preferred stock, net of issuance cost | 24,672 |
| | 22,323 |
|
| Deferred tax assets arising from net operating loss and tax credit carryforwards | (1,594 | ) | | (3,318 | ) | |
| Defined benefit pension fund assets | (175 | ) | | (341 | ) | |
| DVA related to liabilities and derivatives under transition | 128 |
| | 276 |
| |
| Other | Other | (598 | ) | | (388 | ) | Other | (600 | ) | | (595 | ) |
| Total Tier 1 capital | Total Tier 1 capital | 190,332 |
| | 190,315 |
| Total Tier 1 capital | 188,900 |
| | 190,189 |
|
| Long-term debt qualifying as Tier 2 capital | 22,952 |
| | 23,365 |
| |
| Tier 2 capital instruments | | Tier 2 capital instruments | 23,914 |
| | 22,938 |
|
| Eligible credit reserves included in Tier 2 capital | Eligible credit reserves included in Tier 2 capital | 2,973 |
| | 3,035 |
| Eligible credit reserves included in Tier 2 capital | 2,531 |
| | 2,272 |
|
| Nonqualifying capital instruments subject to phase out from Tier 2 capital | 1,893 |
| | 2,271 |
| |
| Other | Other | (38 | ) | | (5 | ) | Other | (84 | ) | | (88 | ) |
| Total Basel 3 Capital | Total Basel 3 Capital | $ | 218,112 |
| | $ | 218,981 |
| Total Basel 3 Capital | $ | 215,261 |
| | $ | 215,311 |
|
| |
(1) | See Table 9, footnote 1.
|
| |
(2)
| Deductions from and adjustments toBasel 3 transition provisions for regulatory capital subject to transition provisions under Basel 3 are generally recognized in 20 percent annual increments,adjustments and will bedeductions were fully recognizedphased-in as of January 1, 2018. Any assets thatPrior periods are presented on a direct deduction from the computation of capital are excluded from risk-weighted assets and adjusted average total assets.fully phased-in basis. |
Table 11 presents10 shows the components of our risk-weighted assets as measured under Basel 3 – Transition at March 31, 20172018 and December 31, 2016.2017.
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 11 | Risk-weighted assets under Basel 3 – Transition | | | | | | | |
| | | | | | | | | |
| | March 31, 2017 | | December 31, 2016 |
| (Dollars in billions) | Standardized Approach | | Advanced Approaches | | Standardized Approach | | Advanced Approaches |
| Credit risk | $ | 1,337 |
| | $ | 896 |
| | $ | 1,334 |
| | $ | 903 |
|
| Market risk | 61 |
| | 60 |
| | 65 |
| | 63 |
|
| Operational risk | n/a |
| | 500 |
| | n/a |
| | 500 |
|
| Risks related to CVA | n/a |
| | 61 |
| | n/a |
| | 64 |
|
| Total risk-weighted assets | $ | 1,398 |
| | $ | 1,517 |
| | $ | 1,399 |
| | $ | 1,530 |
|
n/a = not applicable
Table 12 presents a reconciliation of regulatory capital in accordance with Basel 3 Standardized – Transition to the Basel 3 Standardized approach fully phased-in estimates and Basel 3 Advanced approaches fully phased-in estimates at March 31, 2017 and December 31, 2016.
|
| | | | | | | | |
| | | | | |
| Table 12 | Regulatory Capital Reconciliations between Basel 3 Transition to Fully Phased-in (1) |
| | | | |
| (Dollars in millions) | March 31
2017 | | December 31
2016 |
| Common equity tier 1 capital (transition) | $ | 167,351 |
| | $ | 168,866 |
|
| Deferred tax assets arising from net operating loss and tax credit carryforwards phased in during transition | (1,594 | ) | | (3,318 | ) |
| Accumulated OCI phased in during transition | (964 | ) | | (1,899 | ) |
| Intangibles phased in during transition | (375 | ) | | (798 | ) |
| Defined benefit pension fund assets phased in during transition | (175 | ) | | (341 | ) |
| DVA related to liabilities and derivatives phased in during transition | 128 |
| | 276 |
|
| Other adjustments and deductions phased in during transition | (38 | ) | | (57 | ) |
| Common equity tier 1 capital (fully phased-in) | 164,333 |
| | 162,729 |
|
| Additional Tier 1 capital (transition) | 22,981 |
| | 21,449 |
|
| Deferred tax assets arising from net operating loss and tax credit carryforwards phased out during transition | 1,594 |
| | 3,318 |
|
| Defined benefit pension fund assets phased out during transition | 175 |
| | 341 |
|
| DVA related to liabilities and derivatives phased out during transition | (128 | ) | | (276 | ) |
| Other transition adjustments to additional Tier 1 capital | (1 | ) | | (2 | ) |
| Additional Tier 1 capital (fully phased-in) | 24,621 |
| | 24,830 |
|
| Tier 1 capital (fully phased-in) | 188,954 |
| | 187,559 |
|
| Tier 2 capital (transition) | 27,780 |
| | 28,666 |
|
| Nonqualifying capital instruments phased out during transition | (1,893 | ) | | (2,271 | ) |
| Other adjustments to Tier 2 capital | 9,114 |
| | 9,176 |
|
| Tier 2 capital (fully phased-in) | 35,001 |
| | 35,571 |
|
| Basel 3 Standardized approach Total capital (fully phased-in) | 223,955 |
| | 223,130 |
|
| Change in Tier 2 qualifying allowance for credit losses | (9,138 | ) | | (9,206 | ) |
| Basel 3 Advanced approaches Total capital (fully phased-in) | $ | 214,817 |
| | $ | 213,924 |
|
| | | | |
| Risk-weighted assets – As reported to Basel 3 (fully phased-in) | | | |
| Basel 3 Standardized approach risk-weighted assets as reported | $ | 1,398,343 |
| | $ | 1,399,477 |
|
| Changes in risk-weighted assets from reported to fully phased-in | 17,784 |
| | 17,638 |
|
| Basel 3 Standardized approach risk-weighted assets (fully phased-in) | $ | 1,416,127 |
| | $ | 1,417,115 |
|
| | | | |
| Basel 3 Advanced approaches risk-weighted assets as reported | $ | 1,516,686 |
| | $ | 1,529,903 |
|
| Changes in risk-weighted assets from reported to fully phased-in | (19,133 | ) | | (18,113 | ) |
Basel 3 Advanced approaches risk-weighted assets (fully phased-in) (2) | $ | 1,497,553 |
| | $ | 1,511,790 |
|
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 10 | Risk-weighted Assets under Basel 3 (1) | | | | | | | |
| | | | | | | | | |
| | Standardized Approach | | Advanced Approaches | | Standardized Approach | | Advanced Approaches |
(Dollars in billions)
| March 31, 2018 | | December 31, 2017 |
| Credit risk | $ | 1,391 |
| | $ | 862 |
| | $ | 1,384 |
| | $ | 867 |
|
| Market risk | 61 |
| | 61 |
| | 59 |
| | 58 |
|
| Operational risk | n/a |
| | 500 |
| | n/a |
| | 500 |
|
| Risks related to credit valuation adjustments | n/a |
| | 35 |
| | n/a |
| | 34 |
|
| Total risk-weighted assets | $ | 1,452 |
| | $ | 1,458 |
| | $ | 1,443 |
| | $ | 1,459 |
|
| |
(1) | See Table 9, footnote 1.
|
| |
(2)
| Basel 3 transition provisions for regulatory capital adjustments and deductions were fully phased-in Advanced approaches estimates assume approval by U.S. banking regulatorsas of our internal analytical models, including approval of the IMM for calculating counterparty credit risk regulatory capital for derivatives. Basel 3January 1, 2018. Prior periods are presented on a fully phased-in Common equity tier 1 capital ratio would be reduced by approximately 25 bps if IMM is not used.basis. |
n/a = not applicable
Bank of America, N.A. Regulatory Capital
Table 1311 presents transition regulatory capital information for BANA in accordance with Basel 3 Standardized and Advanced approaches as measured at March 31, 20172018 and December 31, 2016. As of March 31, 2017,2017. BANA met the definition of “well capitalized” under the PCA framework.framework for both periods.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 13 | Bank of America, N.A. Regulatory Capital under Basel 3 | | | |
| Table 11 | | Bank of America, N.A. Regulatory Capital under Basel 3 | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2017 | | Standardized Approach | | Advanced Approaches | | |
| | | Standardized Approach | | Advanced Approaches | | Ratio | | Amount | | Ratio | | Amount | | Minimum
Required (1) |
| (Dollars in millions) | (Dollars in millions) | Ratio | | Amount | | Minimum
Required (1) | | Ratio | | Amount | | Minimum
Required (1) | (Dollars in millions)
| March 31, 2018 |
| Common equity tier 1 capital | Common equity tier 1 capital | 12.6 | % | | $ | 147,808 |
| | 6.5 | % | | 14.3 | % | | $ | 147,808 |
| | 6.5 | % | Common equity tier 1 capital | 12.2 | % | | $ | 147,645 |
| | 14.7 | % | | $ | 147,645 |
| | 6.5 | % |
| Tier 1 capital | Tier 1 capital | 12.6 |
| | 147,808 |
| | 8.0 |
| | 14.3 |
| | 147,808 |
| | 8.0 |
| Tier 1 capital | 12.2 |
| | 147,645 |
| | 14.7 |
| | 147,645 |
| | 8.0 |
|
| Total capital | Total capital | 13.7 |
| | 161,375 |
| | 10.0 |
| | 14.7 |
| | 152,689 |
| | 10.0 |
| Total capital | 13.3 |
| | 160,158 |
| | 15.1 |
| | 151,968 |
| | 10.0 |
|
| Tier 1 leverage | Tier 1 leverage | 9.1 |
| | 147,808 |
| | 5.0 |
| | 9.1 |
| | 147,808 |
| | 5.0 |
| Tier 1 leverage | 8.8 |
| | 147,645 |
| | 8.8 |
| | 147,645 |
| | 5.0 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| SLR leverage exposure (in billions) | | SLR leverage exposure (in billions) | | | | | | | $ | 2,088 |
| | |
| SLR | | SLR | | | | | | | 7.1 | % | | 6.0 |
|
| | | | | | | | | | | | |
| | | December 31, 2016 | | December 31, 2017 |
| Common equity tier 1 capital | Common equity tier 1 capital | 12.7 | % | | $ | 149,755 |
| | 6.5 | % | | 14.3 | % | | $ | 149,755 |
| | 6.5 | % | Common equity tier 1 capital | 12.5 | % | | $ | 150,552 |
| | 14.9 | % | | $ | 150,552 |
| | 6.5 | % |
| Tier 1 capital | Tier 1 capital | 12.7 |
| | 149,755 |
| | 8.0 |
| | 14.3 |
| | 149,755 |
| | 8.0 |
| Tier 1 capital | 12.5 |
| | 150,552 |
| | 14.9 |
| | 150,552 |
| | 8.0 |
|
| Total capital | Total capital | 13.9 |
| | 163,471 |
| | 10.0 |
| | 14.8 |
| | 154,697 |
| | 10.0 |
| Total capital | 13.6 |
| | 163,243 |
| | 15.4 |
| | 154,675 |
| | 10.0 |
|
| Tier 1 leverage | Tier 1 leverage | 9.3 |
| | 149,755 |
| | 5.0 |
| | 9.3 |
| | 149,755 |
| | 5.0 |
| Tier 1 leverage | 9.0 |
| | 150,552 |
| | 9.0 |
| | 150,552 |
| | 5.0 |
|
| |
(1) | Percent required to meet guidelines to be considered “well capitalized” under the PCA framework. |
Regulatory Developments
The following supplements the disclosure in Capital Management – Regulatory Developments in the MD&A of the Corporation’s 2017 Annual Report on Form 10-K.
Minimum Total Loss-Absorbing Capacity
The Federal Reserve has established aReserve’s final rule, which is effective January 1, 2019, which includes minimum external total loss-absorbing capacity (TLAC) and long-term debt requirements to improve the resolvability and resiliency of large, interconnected BHCs. We estimateAs of March 31, 2018, the Corporation’s TLAC and long-term debt exceeded our estimated 2019 minimum requiredrequirements.
Stress Buffer Requirements
On April 10, 2018, the Federal Reserve announced a proposal to integrate the annual quantitative assessment of the CCAR program with the buffer requirements in the Basel 3 capital rule by introducing stress buffer requirements as a replacement of the CCAR quantitative objection. Under the Standardized approach, the proposal replaces the existing static 2.5 percent capital conservation buffer with a stress capital buffer, calculated as the decrease in the Common equity tier 1 capital ratio in the supervisory severely adverse scenario of the modified CCAR stress test plus four quarters of planned common stock dividend payments, floored at 2.5 percent. The static 2.5 percent capital conservation buffer would be retained under the Advanced approaches. The proposal also introduces a stress leverage buffer requirement which would be calculated as the decrease in the Tier 1 leverage ratio in the supervisory severely adverse scenario of the modified CCAR stress test plus four quarters of planned common stock dividends, with no floor. The SLR would not incorporate a stress buffer requirement. The proposal also updates the capital distribution assumptions used in the CCAR stress test to better align with a firm’s expected actions in stress, notably removing the assumption that a BHC will carry out all of its planned capital actions under stress. If finalized, the proposal would be effective December 31, 2018, with the first stress buffer requirements generally becoming effective on October 1, 2019.
Enhanced Supplementary Leverage Ratio Requirements
On April 11, 2018, the Federal Reserve and OCC announced a proposal to modify the enhanced SLR standards applicable to U.S. G-SIBs and their insured depository institution subsidiaries. The proposal replaces the existing 2.0 percent leverage buffer with a leverage buffer tailored to each G-SIB, set at 50 percent of the applicable GSIB surcharge. This proposal also replaces the current 6.0 percent threshold at which a G-SIB’s insured depository institution subsidiaries are considered “well capitalized” under the PCA framework with a threshold set at 3.0 percent plus 50 percent of the G-SIB surcharge applicable to the subsidiary’s G-SIB holding company. Correspondingly, the proposal updates the external TLAC would be the greater of 22.5leverage buffer for each G-SIB to 50 percent of risk-weighted assets or 9.5 percentthe applicable G-SIB surcharge and revises the leverage component of SLR leverage exposure. In addition, U.S. G-SIBs must meet athe minimum long-term debt requirement. Our minimum required long-term debt is estimatedrequirements to be the greater of 8.52.5 percent plus 50 percent of risk-weighted assets or 4.5 percent of SLR leverage exposure. The impact of the TLAC rule is not expected to be material to our results of operations.applicable G-SIB surcharge.
Revisions to Approaches for Measuring Risk-weighted AssetsBasel 3 to Address Current Expected Credit Loss Accounting
The Basel Committee has several open proposals to revise key methodologies for measuring risk-weighted assets. The proposals include a standardized approach for credit risk, standardized approach for operational risk, revisions toOn April 13, 2018, the credit valuation adjustment (CVA) risk framework and constraints on the use of internal models. The Basel Committee has also finalized a revised standardized model for counterparty credit risk, revisions to the securitization framework and its fundamental review of the trading book, which updates both modeled and standardized approaches for market risk measurement. These revisions are to be coupled with a proposed capital floor framework to limit the extent to which banks can reduce risk-weighted asset levels through the use of internal models, both at the input parameter and aggregate risk-weighted asset level. The Basel Committee expects to finalize the outstanding proposals in 2017. U.S. banking regulators may updateannounced a proposal to address the U.S. Basel 3 rulesregulatory capital impact of using the current expected credit loss methodology to incorporate the Basel Committee revisions.
Revisions to the G-SIB Assessment Framework
On March 30, 2017, the Basel Committee issued a consultative document with proposed revisions to the G-SIB surcharge assessment framework. The proposed revisions would include removing the cap on the substitutability category, expanding the scope of consolidation to include insurance subsidiaries in three categories (size, interconnectedness and complexity) and modifying the substitutability category weights with the
introduction ofmeasure credit reserves under a new trading volume indicator. The Basel Committee has also requested feedbackaccounting standard which is effective on a new short-term wholesale funding indicator, which would be included in the interconnectedness category. The U.S. banking regulators may update the U.S. G-SIB surcharge rule to incorporate the Basel Committee revisions.
January 1, 2020. For more information on our Regulatory Developmentsthis standard, see Capital ManagementNote 1 – Regulatory DevelopmentsSummary of Significant Accounting Principles to the Consolidated Financial Statements. The proposal provides an option to phase-in the impact to regulatory capital over a three-year period on a straight-line basis. It also updates the existing regulatory capital framework by creating a new defined term, allowance for credit losses (ACL), which would include credit losses on all financial instruments measured at amortized cost with the exception of purchased credit-impaired assets. The proposal continues to allow a limited amount of credit losses to be recognized in Tier 2 capital and maintains the MD&A ofexisting limits under the Corporation's 2016 Annual Report on Form 10-K.Standardized and Advanced approaches.
Broker-dealer Regulatory Capital and Securities Regulation
The Corporation’s principal U.S. broker-dealer subsidiaries are Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S) and Merrill Lynch Professional Clearing Corp (MLPCC). MLPCC is a fully-guaranteed subsidiary of MLPF&S and provides clearing and settlement services. Both entities are subject to the net capital requirements of Securities and Exchange Commission (SEC) Rule 15c3-1. Both entities are also registered as futures commission merchants and are subject to the Commodity Futures Trading Commission Regulation 1.17.
MLPF&S has elected to compute the minimum capital requirement in accordance with the Alternative Net Capital Requirement as permitted by SEC Rule 15c3-1. At March 31, 2017,2018, MLPF&S’s regulatory net capital as defined by Rule 15c3-1 was $12.5$12.3 billion and exceeded the minimum requirement of $1.7 billion by $10.8$10.6 billion. MLPCC’s net capital of $3.4$4.5 billion exceeded the minimum requirement of $518$539 million by $2.9$4.0 billion.
In accordance with the Alternative Net Capital Requirements, MLPF&S is required to maintain tentative net capital in excess of $1.0 billion, net capital in excess of $500 million and notify the SEC in the event its tentative net capital is less than $5.0 billion. At March 31, 2017,2018, MLPF&S had tentative net capital and net capital in excess of the minimum and notification requirements.
Merrill Lynch International (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 March 31, 2017,2018, MLI’s capital resources were $35.4$35.1 billion, which exceeded the minimum Pillar 1 requirement of $16.5$17.7 billion.
Common and Preferred Stock Dividends
Table 1412 is a summary of our cash dividend declarations on preferred stock during the first quarter of 20172018 and through May 2, 2017.April 30, 2018. During the first quarter of 2017,2018, we declared $502$428 million
of cash dividends on preferred stock. For more information on preferred stock and a summary of our declared quarterly cash dividends on common stock, see Note 11 – Shareholders’ Equity to the Consolidated Financial Statements.
| | | | | | | | | | | | | | | |
| Table 14 | Preferred Stock Cash Dividend Summary | |
| Table 12 | | Preferred Stock Cash Dividend Summary | | | | |
| | | | | | | | | | | | | | |
| | | March 31, 2017 | | | | | | March 31, 2018 | | | | |
| Preferred Stock | Preferred Stock | | Outstanding
Notional
Amount (in millions) | | Declaration Date | | Record Date | | Payment Date | | Per Annum Dividend Rate | | Dividend Per Share | Preferred Stock | | Outstanding
Notional
Amount (in millions) | | Declaration Date | | Record Date | | Payment Date | | Per Annum Dividend Rate | | Dividend Per Share |
Series B (1) | Series B (1) | | $ | 1 |
| | January 26, 2017 | | April 11, 2017 | | April 25, 2017 | | 7.00 | % | | $ | 1.75 |
| | $ | 1 |
| | April 25, 2018 | | July 11, 2018 | | July 25, 2018 | | 7.00 | % | | $ | 1.75 |
|
| | | | |
| | April 26, 2017 | | July 11, 2017 | | July 25, 2017 | | 7.00 |
| | 1.75 |
| | | | January 31, 2018 | | April 11, 2018 | | April 25, 2018 | | 7.00 |
| | 1.75 |
|
Series D (2) | Series D (2) | | $ | 654 |
| | January 9, 2017 | | February 28, 2017 | | March 14, 2017 | | 6.204 | % | | $ | 0.38775 |
| | $ | 654 |
| | April 13, 2018 | | May 31, 2018 | | June 14, 2018 | | 6.204 | % | | $ | 0.38775 |
|
| | | | | | April 14, 2017 | | May 31, 2017 | | June 14, 2017 | | 6.204 |
| | 0.38775 |
| | | | January 8, 2018 | | February 28, 2018 | | March 14, 2018 | | 6.204 |
| | 0.38775 |
|
Series E (2) | Series E (2) | | $ | 317 |
| | January 9, 2017 | | January 31, 2017 | | February 15, 2017 | | Floating |
| | $ | 0.25556 |
| | $ | 317 |
| | April 13, 2018 | | April 30, 2018 | | May 15, 2018 | | Floating |
| | $ | 0.24722 |
|
| | | | | | April 14, 2017 | | April 28, 2017 | | May 15, 2017 | | Floating |
| | 0.24722 |
| | | | January 8, 2018 | | January 31, 2018 | | February 15, 2018 | | Floating |
| | 0.25556 |
|
| Series F | Series F | | $ | 141 |
| | January 9, 2017 | | February 28, 2017 | | March 15, 2017 | | Floating |
| | $ | 1,000.00 |
| | $ | 141 |
| | April 13, 2018 | | May 31, 2018 | | June 15, 2018 | | Floating |
| | $ | 1,022.22222 |
|
| | | | | | April 14, 2017 | | May 31, 2017 | | June 15, 2017 | | Floating |
| | 1,022.22222 |
| | | | January 8, 2018 | | February 28, 2018 | | March 15, 2018 | | Floating |
| | 1,000.00 |
|
| Series G | Series G | | $ | 493 |
| | January 9, 2017 | | February 28, 2017 | | March 15, 2017 | | Adjustable |
| | $ | 1,000.00 |
| | $ | 493 |
| | April 13, 2018 | | May 31, 2018 | | June 15, 2018 | | Adjustable |
| | $ | 1,022.22222 |
|
| | | | | | April 14, 2017 | | May 31, 2017 | | June 15, 2017 | | Adjustable |
| | 1,022.22222 |
| | | | January 8, 2018 | | February 28, 2018 | | March 15, 2018 | | Adjustable |
| | 1,000.00 |
|
Series I (2) | Series I (2) | | $ | 365 |
| | January 9, 2017 | | March 15, 2017 | | April 3, 2017 | | 6.625 | % | | $ | 0.4140625 |
| | $ | 365 |
| | April 13, 2018 | | June 15, 2018 | | July 2, 2018 | | 6.625 | % | | $ | 0.4140625 |
|
| | | | |
| | April 14, 2017 | | June 15, 2017 | | July 3, 2017 | | 6.625 |
| | 0.4140625 |
| | | | January 8, 2018 | | March 15, 2018 | | April 2, 2018 | | 6.625 |
| | 0.4140625 |
|
Series K (3, 4) | Series K (3, 4) | | $ | 1,544 |
| | January 9, 2017 | | January 15, 2017 | | January 30, 2017 | | Fixed-to-floating |
| | $ | 40.00 |
| | $ | 1,544 |
| | April 13, 2018 | | April 15, 2018 | | April 30, 2018 | | Fixed-to-floating |
| | $ | 13.49225 |
|
| | | | | | January 8, 2018 | | January 15, 2018 | | January 30, 2018 | | Fixed-to-floating |
| | 40.00 |
|
| Series L | Series L | | $ | 3,080 |
| | March 17, 2017 | | April 1, 2017 | | May 1, 2017 | | 7.25 | % | | $ | 18.125 |
| | $ | 3,080 |
| | March 20, 2018 | | April 1, 2018 | | April 30, 2018 | | 7.25 | % | | $ | 18.125 |
|
Series M (3, 4) | Series M (3, 4) | | $ | 1,310 |
| | April 14, 2017 | | April 30, 2017 | | May 15, 2017 | | Fixed-to-floating |
| | $ | 40.625 |
| | $ | 1,310 |
| | April 13, 2018 | | April 30, 2018 | | May 15, 2018 | | Fixed-to-floating |
| | $ | 40.625 |
|
| Series T | | $ | 5,000 |
| | January 26, 2017 | | March 26, 2017 | | April 10, 2017 | | 6.00 | % | | $ | 1,500.00 |
| |
Series T (5) | | | $ | 35 |
| | April 25, 2018 | | June 25, 2018 | | July 10, 2018 | | 6.00 | % | | $ | 1,500.00 |
|
| | | | | | April 26, 2017 | | June 25, 2017 | | July 10, 2017 | | 6.00 |
| | 1,500.00 |
| | | | January 31, 2018 | | March 26, 2018 | | April 10, 2018 | | 6.00 |
| | 1,500.00 |
|
Series U (3, 4) | Series U (3, 4) | | $ | 1,000 |
| | April 14, 2017 | | May 15, 2017 | | June 1, 2017 | | Fixed-to-floating |
| | $ | 26.00 |
| | $ | 1,000 |
| | April 13, 2018 | | May 15, 2018 | | June 1, 2018 | | Fixed-to-floating |
| | $ | 26.00 |
|
Series V (3, 4) | Series V (3, 4) | | $ | 1,500 |
| | April 14, 2017 | | June 1, 2017 | | June 19, 2017 | | Fixed-to-floating |
| | $ | 25.625 |
| | $ | 1,500 |
| | April 13, 2018 | | June 1, 2018 | | June 18, 2018 | | Fixed-to-floating |
| | $ | 25.625 |
|
Series W (2) | Series W (2) | | $ | 1,100 |
| | January 9, 2017 | | February 15, 2017 | | March 9, 2017 | | 6.625 | % | | $ | 0.4140625 |
| | $ | 1,100 |
| | April 13, 2018 | | May 15, 2018 | | June 11, 2018 | | 6.625 | % | | $ | 0.4140625 |
|
| | | | | | April 14, 2017 | | May 15, 2017 | | June 9, 2017 | | 6.625 |
| | 0.4140625 |
| | | | January 8, 2018 | | February 15, 2018 | | March 9, 2018 | | 6.625 |
| | 0.4140625 |
|
Series X (3, 4) | Series X (3, 4) | | $ | 2,000 |
| | January 9, 2017 | | February 15, 2017 | | March 6, 2017 | | Fixed-to-floating |
| | $ | 31.25 |
| | $ | 2,000 |
| | January 8, 2018 | | February 15, 2018 | | March 5, 2018 | | Fixed-to-floating |
| | $ | 31.25 |
|
Series Y (2) | Series Y (2) | | $ | 1,100 |
| | March 17, 2017 | | April 1, 2017 | | April 27, 2017 | | 6.50 | % | | $ | 0.40625 |
| | $ | 1,100 |
| | March 20, 2018 | | April 1, 2018 | | April 27, 2018 | | 6.50 | % | | $ | 0.40625 |
|
Series Z (3, 4) | | $ | 1,400 |
| | March 17, 2017 | | April 1, 2017 | | April 24, 2017 | | Fixed-to-floating |
| | $ | 32.50 |
| |
Series Z (3,4) | | | $ | 1,400 |
| | March 20, 2018 | | April 1, 2018 | | April 23, 2018 | | Fixed-to-floating |
| | $ | 32.50 |
|
Series AA (3, 4) | Series AA (3, 4) | | $ | 1,900 |
| | January 9, 2017 | | March 1, 2017 | | March 17, 2017 | | Fixed-to-floating |
| | $ | 30.50 |
| | $ | 1,900 |
| | January 8, 2018 | | March 1, 2018 | | March 19, 2018 | | Fixed-to-floating |
| | $ | 30.50 |
|
Series CC (2) | Series CC (2) | | $ | 1,100 |
| | March 17, 2017 | | April 1, 2017 | | May 1, 2017 | | 6.20 | % | | $ | 0.3875 |
| | $ | 1,100 |
| | March 20, 2018 | | April 1, 2018 | | April 30, 2018 | | 6.20 | % | | $ | 0.3875 |
|
Series DD (3,4) | | $ | 1,000 |
| | January 9, 2017 | | February 15, 2017 | | March 10, 2017 | | Fixed-to-floating |
| | $ | 31.50 |
| |
Series DD (3, 4) | | | $ | 1,000 |
| | January 8, 2018 | | February 15, 2018 | | March 12, 2018 | | Fixed-to-floating |
| | $ | 31.50 |
|
Series EE (2) | Series EE (2) | | $ | 900 |
| | March 17, 2017 | | April 1, 2017 | | April 25, 2017 | | 6.00 | % | | $ | 0.375 |
| | $ | 900 |
| | March 20, 2018 | | April 1, 2018 | | April 25, 2018 | | 6.00 | % | | $ | 0.375 |
|
Series 1 (5) | | $ | 98 |
| | January 9, 2017 | | February 15, 2017 | | February 28, 2017 | | Floating |
| | $ | 0.18750 |
| |
Series 1 (6) | | | $ | 98 |
| | April 13, 2018 | | May 15, 2018 | | May 29, 2018 | | Floating |
| | $ | 0.18750 |
|
| | | | | | April 14, 2017 | | May 15, 2017 | | May 30, 2017 | | Floating |
| | 0.18750 |
| | | | January 8, 2018 | | February 15, 2018 | | February 28, 2018 | | Floating |
| | 0.18750 |
|
Series 2 (5) | | $ | 299 |
| | January 9, 2017 | | February 15, 2017 | | February 28, 2017 | | Floating |
| | $ | 0.19167 |
| |
Series 2 (6) | | | $ | 299 |
| | April 13, 2018 | | May 15, 2018 | | May 29, 2018 | | Floating |
| | $ | 0.18542 |
|
| | | | | | April 14, 2017 | | May 15, 2017 | | May 30, 2017 | | Floating |
| | 0.18542 |
| | | | January 8, 2018 | | February 15, 2018 | | February 28, 2018 | | Floating |
| | 0.19167 |
|
Series 3 (5) | | $ | 653 |
| | January 9, 2017 | | February 15, 2017 | | February 28, 2017 | | 6.375 | % | | $ | 0.3984375 |
| |
Series 3 (6) | | | $ | 653 |
| | April 13, 2018 | | May 15, 2018 | | May 29, 2018 | | 6.375 | % | | $ | 0.3984375 |
|
| | | | |
| | April 14, 2017 | | May 15, 2017 | | May 30, 2017 | | 6.375 |
| | 0.3984375 |
| | |
| | January 8, 2018 | | February 15, 2018 | | February 28, 2018 | | 6.375 |
| | 0.3984375 |
|
Series 4 (5) | | $ | 210 |
| | January 9, 2017 | | February 15, 2017 | | February 28, 2017 | | Floating |
| | $ | 0.25556 |
| |
Series 4 (6) | | | $ | 210 |
| | April 13, 2018 | | May 15, 2018 | | May 29, 2018 | | Floating |
| | $ | 0.24722 |
|
| | | | | | April 14, 2017 | | May 15, 2017 | | May 30, 2017 | | Floating |
| | 0.24722 |
| | | | January 8, 2018 | | February 15, 2018 | | February 28, 2018 | | Floating |
| | 0.25556 |
|
Series 5 (5) | | $ | 422 |
| | January 9, 2017 | | February 1, 2017 | | February 21, 2017 | | Floating |
| | $ | 0.25556 |
| |
Series 5 (6) | | | $ | 422 |
| | April 13, 2018 | | May 1, 2018 | | May 21, 2018 | | Floating |
| | $ | 0.24722 |
|
| | | | | | April 14, 2017 | | May 1, 2017 | | May 22, 2017 | | Floating |
| | 0.24722 |
| | | | January 8, 2018 | | February 1, 2018 | | February 21, 2018 | | Floating |
| | 0.25556 |
|
| |
(1) | Dividends are cumulative. |
| |
(2) | Dividends per depositary share, each representing a 1/1,000th interest in a share of preferred stock. |
| |
(3) | Initially pays dividends semi-annually. |
| |
(4) | Dividends per depositary share, each representing a 1/25th interest in a share of preferred stock. |
| |
(5) | Represents shares that were not surrendered when the holders of Series T preferred stock exercised warrants to acquire common stock in the third quarter of 2017. |
| |
(6) | Dividends per depositary share, each representing a 1/1,200th interest in a share of preferred stock. |
Liquidity Risk
Funding and Liquidity Risk Management
Our primary liquidity risk management objective is to meet expected or unexpected cash flow and collateral needs while continuing to support our businesses and 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.
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 those obligations 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 within Corporate Treasury enhances our ability to monitor liquidity requirements, maximizes access to funding sources, minimizes borrowing costs and facilitates timely responses to liquidity events. For more information regarding global funding and liquidity risk management, see Liquidity Risk – Time-to-required Funding and Stress ModelingLiquidity Risk Management in the MD&A of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
NB Holdings Inc.Corporation
We have intercompany arrangements with certain key subsidiaries under which we transferred certain of our parent company assets, and agreed to transfer certain additional parent company assets not needed to satisfy anticipated near-term expenditures, to NB Holdings Inc.,Corporation, a wholly-owned holding company subsidiary (NB Holdings). The parent company 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 if it had not entered into these arrangements and transferred any assets.
In consideration for the transfer of assets, NB Holdings issued a subordinated note to the parent company 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 company with a committed line of credit that allows the parent company 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 company would be resolved under the U.SU.S. Bankruptcy Code. TheseFor more information on these arrangements, include provisions to terminate the line of credit, forgive the subordinated note and require the parent company to transfer its remaining financial assets tosee Liquidity Risk – NB Holdings if our projected liquidity resources deteriorate so severely that resolutionCorporation in the MD&A of the parent company becomes imminent.Corporation’s 2017 Annual Report on Form 10-K.
Global Liquidity Sources and Other Unencumbered Assets
We maintain liquidity available to the Corporation, including the parent company 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 company 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 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 a select group of non-U.S. government securities. We believe we can quickly 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.
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. For more information on the final LCR rules,our liquidity sources, see Liquidity Risk – Basel 3Global Liquidity StandardsSources and Other Unencumbered Assets in the MD&A of the Corporation’s 2017 Annual Report on page 29.
Our GLS were $519 billion and $499 billion at March 31, 2017 and December 31, 2016 and were as shown in Table 15.Form 10-K.
| | | | | | | | | | | | | |
| Table 15 | Global Liquidity Sources | | | |
| Table 13 | | Average Global Liquidity Sources |
| | | | | | | | | | | |
| | | | | | | Average Three Months Ended
March 31
2017 | | Three Months Ended |
| (Dollars in billions) | (Dollars in billions) | March 31
2017 | | December 31
2016 | | (Dollars in billions) | March 31
2018 | | December 31
2017 |
| Parent company and NB Holdings | Parent company and NB Holdings | $ | 79 |
| | $ | 76 |
| | $ | 78 |
| Parent company and NB Holdings | $ | 77 |
| | $ | 79 |
|
| Bank subsidiaries | Bank subsidiaries | 392 |
| | 372 |
| | 381 |
| Bank subsidiaries | 396 |
| | 394 |
|
| Other regulated entities | Other regulated entities | 48 |
| | 51 |
| | 48 |
| Other regulated entities | 49 |
| | 49 |
|
| Total Global Liquidity Sources | $ | 519 |
| | $ | 499 |
| | $ | 507 |
| |
| Total Average Global Liquidity Sources | | Total Average Global Liquidity Sources | $ | 522 |
| | $ | 522 |
|
As shown in Table 15, parentParent company and NB Holdings average liquidity totaled $79was $77 billion and $76$79 billion at for the three months ended March 31, 20172018 and December 31, 2016. The increase in parent company and NB Holdings liquidity was primarily due to net debt issuance during the quarter.2017. Typically, parent company and NB Holdings liquidity is in the form of cash deposited with BANA.
LiquidityAverage liquidity held at our bank subsidiaries totaled $392was $396 billion and $372$394 billion at for the three months ended March 31, 20172018 and December 31, 2016. The increase in2017. Our bank subsidiaries’ liquidity wasis primarily due todriven by deposit and lending activity, as well as securities valuation and net FHLB advances and deposit growth.debt activity. Liquidity at bank subsidiaries excludes the cash deposited by the parent company and NB Holdings. Our bank subsidiaries can also generate incremental liquidity by pledging a range of unencumbered loans and securities to certain FHLBsFederal Home Loan Banks (FHLBs) and the Federal Reserve Discount Window. The cash we could have obtained by borrowing against this pool of specifically-identified eligible assets was $292 billion and $310$308 billion at both March 31, 20172018 and December 31, 2016.2017. 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 can only be transferredtransfers to the parent company or nonbank subsidiaries withmay be subject to prior regulatory approval.
LiquidityAverage liquidity held at our other regulated entities, comprised primarily of broker-dealer subsidiaries, totaled $48was $49 billion and $51 billion at for both the three months ended March 31, 20172018 and December 31, 2016. The decrease in other regulated entities’ liquidity was primarily due to broker-dealer funding requirements.2017. Our other regulated entities also held unencumbered investment-gradeinvestment-
grade securities and equities that we
believe could be used to generate additional liquidity. Liquidity held in an other regulated entity is primarily available to meet the obligations of that entity and transfers to the parent company or to any other subsidiary may be subject to prior regulatory approval due to regulatory restrictions and minimum requirements.
Table 1614 presents the composition of GLS ataverage global liquidity sources (GLS) for the three months ended March 31, 20172018 and December 31, 2016.2017.
| | | | | | | | | | | |
| Table 16 | Global Liquidity Sources Composition | |
| Table 14 | | Average Global Liquidity Sources Composition |
| | | | |
| | | | | Three Months Ended |
| (Dollars in billions) | (Dollars in billions) | March 31
2017 | | December 31
2016 | (Dollars in billions) | March 31
2018 | | December 31
2017 |
| Cash on deposit | Cash on deposit | $ | 132 |
| | $ | 106 |
| Cash on deposit | $ | 128 |
| | $ | 118 |
|
| U.S. Treasury securities | U.S. Treasury securities | 59 |
| | 58 |
| U.S. Treasury securities | 64 |
| | 62 |
|
| U.S. agency securities and mortgage-backed securities | U.S. agency securities and mortgage-backed securities | 317 |
| | 318 |
| U.S. agency securities and mortgage-backed securities | 320 |
| | 330 |
|
| Non-U.S. government securities | Non-U.S. government securities | 11 |
| | 17 |
| Non-U.S. government securities | 10 |
| | 12 |
|
| Total Global Liquidity Sources | $ | 519 |
| | $ | 499 |
| |
| Total Average Global Liquidity Sources | | Total Average Global Liquidity Sources | $ | 522 |
| | $ | 522 |
|
Time-to-required FundingOur 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 $444 billion and $439 billion for the three months ended March 31, 2018 and December 31, 2017. For the same periods, the average consolidated LCR was 124 percent and 125 percent. Our LCR will fluctuate due to normal business flows from customer activity.
Liquidity Stress Analysis and Time-to-required Funding
We utilize liquidity stress analysis to assist us in determining the appropriate amounts of liquidity to maintain at the parent company and our subsidiaries to meet contractual and contingent cash outflows under a range of scenarios. For more information on our liquidity stress analysis, see Liquidity Risk – Liquidity Stress Analysis and Time-to-required Funding in the MD&A of the Corporation’s 2017 Annual Report on Form 10-K.
We use a variety of metrics to determine the appropriate amounts of liquidity to maintain at the parent company and our subsidiaries. One metric we use to evaluate the appropriate level of liquidity at the parent company and NB Holdings is “time-to-required fundingfunding” (TTF).” This debt coverage measure indicates the number of months the parent company can continue to meet its unsecured contractual obligations as they come due using only the parent company and NB Holdings'Holdings’ liquidity sources without issuing any new debt or accessing any additional liquidity sources. We define unsecured contractual obligations for purposes of this metric as maturities of senior or subordinated debt issued or guaranteed by Bank of America Corporation. These include certain unsecured debt instruments, primarily structured liabilities, which we may be required to settle for cash prior to maturity. TTF was 4056 months at March 31, 20172018 compared to 3549 months at December 31, 2016.2017. The increase in TTF was driven by debt issuances outpacing maturities.
We also utilize liquidity stress analysis to assist us in determining the appropriate amounts of liquidity to maintain at thehigher parent company and our subsidiaries. The liquidity stress testing process is an integral part of analyzing our potential contractual and contingent cash outflows. We evaluate the liquidity requirements under a range of scenarios with varying levels of severity and time horizons. The scenarios we consider and utilize incorporate market-wide and Corporation-specific events, including potential credit rating downgrades for the parent company 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.NB Holdings liquidity.
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 issuance; 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.
Basel 3 Liquidity Standards
Basel 3 has two liquidity risk-related standards: the LCR and the Net Stable Funding Ratio (NSFR).
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. The LCR regulatory requirement of 100 percent as of January 1, 2017 is applicable to the Corporation on a consolidated basis and to our insured depository institutions. As of March 31, 2017, the consolidated Corporation and its insured depository institutions were above the 2017 LCR requirements. Our LCR may fluctuate from period to period due to normal business flows from customer activity. Beginning with the second quarter 2017 results, we will be required to disclose publicly, on a quarterly basis, quantitative information about our LCR calculation and a discussion of the factors that have a significant effect on our LCR. We plan on disclosing this information in a Pillar 3 Liquidity Disclosure report on our Investor Relations website.
U.S. banking regulators have issued a proposal for an NSFR requirement applicable to U.S. financial institutions following the Basel Committee's final standard. While not finalized, the U.S. NSFR would apply to the Corporation on a consolidated basis and to our insured depository institutions beginning on January 1, 2018. We expect to meet the NSFR requirement within the regulatory timeline. The standard is intended to reduce funding risk over a longer time horizon. The NSFR is designed to ensure an appropriate amount of stable funding, generally capital and liabilities maturing beyond one year, given the mix of assets and off-balance sheet items.
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 company funding impractical, certain other subsidiaries may issue their own debt.
We fund a substantial portion of our lending activities through our deposits, which were $1.27$1.33 trillion and $1.26$1.31 trillion at March 31, 20172018 and December 31, 2016. 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. We consider a substantial portion of our deposits to be a stable, low-cost and consistent source of funding. We believe
2017.
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 GSEs, the 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 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 9 – Federal Funds Sold or Purchased, Securities Financing Agreements
and Short-term Borrowingsto the Consolidated Financial Statements.
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.
During the three months ended March 31, 2017,2018, we issued $17.1$20.9 billion of long-term debt consisting of $12.7$14.4 billion for Bank of America Corporation, substantially all of which was TLAC compliant, $2.0$4.1 billion for Bank of America, N.A. and $2.4 billion of other debt.
Table 1715 presents the carrying value of aggregate annual contractual maturities of long-term debt as of March 31, 2017.2018. During the three months ended March 31, 2017,2018, we had total long-term debt maturities and purchases of $13.5$13.4 billion consisting of $6.0$8.0 billion for Bank of America Corporation, $4.3$2.9 billion for Bank of America, N.A. and $3.2$2.5 billion of other debt.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 17 | Long-term Debt by Maturity | | | | | | | | | | | | | | |
| Table 15 | | Long-term Debt by Maturity | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | (Dollars in millions) | Remainder of 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total | (Dollars in millions) | Remainder of 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total |
| Bank of America Corporation | Bank of America Corporation | | | | | | | | | | | | | | Bank of America Corporation | | | | | | | | | | | | | |
| Senior notes | Senior notes | $ | 15,068 |
| | $ | 19,705 |
| | $ | 17,849 |
| | $ | 12,188 |
| | $ | 10,468 |
| | $ | 56,050 |
| | $ | 131,328 |
| Senior notes | $ | 13,996 |
| | $ | 15,235 |
| | $ | 10,561 |
| | $ | 16,225 |
| | $ | 11,813 |
| | $ | 80,166 |
| | $ | 147,996 |
|
| Senior structured notes | Senior structured notes | 3,054 |
| | 3,088 |
| | 1,356 |
| | 989 |
| | 410 |
| | 7,617 |
| | 16,514 |
| Senior structured notes | 1,768 |
| | 1,485 |
| | 923 |
| | 430 |
| | 2,048 |
| | 8,081 |
| | 14,735 |
|
| Subordinated notes | Subordinated notes | 2,968 |
| | 2,636 |
| | 1,441 |
| | — |
| | 352 |
| | 21,148 |
| | 28,545 |
| Subordinated notes | 1,606 |
| | 1,576 |
| | — |
| | 382 |
| | 469 |
| | 20,188 |
| | 24,221 |
|
| Junior subordinated notes | Junior subordinated notes | — |
| | — |
| | — |
| | — |
| | — |
| | 3,834 |
| | 3,834 |
| Junior subordinated notes | — |
| | — |
| | — |
| | — |
| | — |
| | 3,829 |
| | 3,829 |
|
| Total Bank of America Corporation | Total Bank of America Corporation | 21,090 |
| | 25,429 |
| | 20,646 |
| | 13,177 |
| | 11,230 |
| | 88,649 |
| | 180,221 |
| Total Bank of America Corporation | 17,370 |
| | 18,296 |
| | 11,484 |
| | 17,037 |
| | 14,330 |
| | 112,264 |
| | 190,781 |
|
| Bank of America, N.A. | Bank of America, N.A. |
|
| | | | | | | | | | | | | Bank of America, N.A. | | | | | | | | | | | | | |
| Senior notes | Senior notes | 1,900 |
| | 5,763 |
| | — |
| | — |
| | — |
| | 20 |
| | 7,683 |
| Senior notes | 3,990 |
| | — |
| | — |
| | — |
| | — |
| | 21 |
| | 4,011 |
|
| Subordinated notes | Subordinated notes | 1,300 |
| | — |
| | 1 |
| | — |
| | — |
| | 1,672 |
| | 2,973 |
| Subordinated notes | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1,626 |
| | 1,627 |
|
| Advances from Federal Home Loan Banks | Advances from Federal Home Loan Banks | 8 |
| | 9 |
| | 14 |
| | 11 |
| | 2 |
| | 115 |
| | 159 |
| Advances from Federal Home Loan Banks | 3,005 |
| | 4,513 |
| | 11 |
| | 2 |
| | 3 |
| | 106 |
| | 7,640 |
|
Securitizations and other Bank VIEs (1) | Securitizations and other Bank VIEs (1) | 3,049 |
| | 2,284 |
| | 3,195 |
| | 1,999 |
| | — |
| | 163 |
| | 10,690 |
| Securitizations and other Bank VIEs (1) | 1,199 |
| | 3,200 |
| | 3,072 |
| | 1,572 |
| | — |
| | 47 |
| | 9,090 |
|
| Other | Other | 2,961 |
| | 104 |
| | 111 |
| | 7 |
| | — |
| | 57 |
| | 3,240 |
| Other | 53 |
| | 166 |
| | 11 |
| | — |
| | 1 |
| | 97 |
| | 328 |
|
| Total Bank of America, N.A. | Total Bank of America, N.A. | 9,218 |
| | 8,160 |
| | 3,321 |
| | 2,017 |
| | 2 |
| | 2,027 |
| | 24,745 |
| Total Bank of America, N.A. | 8,247 |
| | 7,880 |
| | 3,094 |
| | 1,574 |
| | 4 |
| | 1,897 |
| | 22,696 |
|
| Other debt | Other debt | | | | | | | | | | | | | | Other debt | | | | | | | | | | | | | |
| Senior notes | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| |
| Structured liabilities | Structured liabilities | 1,737 |
| | 2,337 |
| | 1,533 |
| | 1,272 |
| | 894 |
| | 7,357 |
| | 15,130 |
| Structured liabilities | 4,009 |
| | 3,199 |
| | 1,887 |
| | 821 |
| | 746 |
| | 7,138 |
| | 17,800 |
|
Nonbank VIEs (1) | Nonbank VIEs (1) | 214 |
| | 22 |
| | 4 |
| | — |
| | — |
| | 1,014 |
| | 1,254 |
| Nonbank VIEs (1) | 20 |
| | 52 |
| | — |
| | — |
| | — |
| | 889 |
| | 961 |
|
| Other | Other | — |
| | — |
| | — |
| | — |
| | — |
| | 34 |
| | 34 |
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | 18 |
| | 18 |
|
| Total other debt | Total other debt | 1,952 |
| | 2,359 |
| | 1,537 |
| | 1,272 |
| | 894 |
| | 8,405 |
| | 16,419 |
| Total other debt | 4,029 |
| | 3,251 |
| | 1,887 |
| | 821 |
| | 746 |
| | 8,045 |
| | 18,779 |
|
| Total long-term debt | Total long-term debt | $ | 32,260 |
| | $ | 35,948 |
| | $ | 25,504 |
| | $ | 16,466 |
| | $ | 12,126 |
| | $ | 99,081 |
| | $ | 221,385 |
| Total long-term debt | $ | 29,646 |
| | $ | 29,427 |
| | $ | 16,465 |
| | $ | 19,432 |
| | $ | 15,080 |
| | $ | 122,206 |
| | $ | 232,256 |
|
| |
(1) | Represents the total long-term debt included in the liabilities of consolidated variable interest entities (VIEs) on the Consolidated Balance Sheet. |
Table 1816 presents our long-term debt by major currency at March 31, 20172018 and December 31, 2016.2017.
|
| | | | | | | | |
| | | | | |
| Table 18 | Long-term Debt by Major Currency |
| | | |
| | | March 31
2017 | | December 31
2016 |
| (Dollars in millions) | |
| U.S. Dollar | $ | 171,957 |
| | $ | 172,082 |
|
| Euro | 32,041 |
| | 28,236 |
|
| British Pound | 6,625 |
| | 6,588 |
|
| Japanese Yen | 4,195 |
| | 3,919 |
|
| Australian Dollar | 2,936 |
| | 2,900 |
|
| Canadian Dollar | 1,761 |
| | 1,049 |
|
| Other | 1,870 |
| | 2,049 |
|
| Total long-term debt | $ | 221,385 |
| | $ | 216,823 |
|
|
| | | | | | | | |
| | | | | |
| Table 16 | Long-term Debt by Major Currency |
| | | |
| (Dollars in millions) | March 31
2018 | | December 31
2017 |
| U.S. dollar | $ | 181,398 |
| | $ | 175,623 |
|
| Euro | 34,487 |
| | 35,481 |
|
| British pound | 7,127 |
| | 7,016 |
|
| Japanese yen | 3,035 |
| | 2,993 |
|
| Australian dollar | 3,015 |
| | 3,046 |
|
| Canadian dollar | 1,915 |
| | 1,966 |
|
| Other | 1,279 |
| | 1,277 |
|
| Total long-term debt | $ | 232,256 |
| | $ | 227,402 |
|
Total long-term debt increased $4.6$4.9 billion, or two percent, induring the three months ended March 31, 2017,2018, primarily due to issuances outpacing maturities. We may, from time to time, purchase outstanding debt instruments in various transactions, depending on prevailing market conditions, liquidity and other factors. In addition, our other regulated entities may make markets in our debt instruments to provide liquidity for investors. For information on funding and liquidity risk management, see Liquidity Risk – Liquidity Stress Analysis and Time-to-required Funding on page 23, and for more information regarding long-term debt funding, see Note 11 – Long-term Debtto the Consolidated
Financial Statements of the Corporation's 2016 Annual Report on Form 10-Kand for more information regarding funding and liquidity risk management, see Liquidity Risk – Time-to-required Funding and Stress Modelingin the MD&A of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
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 58.45.
We may also issue unsecured debt in the form of structured notes for client purposes, certain of which qualify as TLAC eligible debt. During the three months ended March 31, 2017,2018, we issued $682 million$1.4 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.
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 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
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. Table 1917 presents the Corporation'sCorporation’s current long-term/short-term senior debt ratings and outlooks expressed by the rating agencies. These ratings have not changed from those disclosed in the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.10–K. For more information on credit ratings, see Liquidity Risk – Credit
Ratings in the MD&A of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
For more information on the additional collateral and termination payments that could be required in connection with certain over-the-counter (OTC) derivative contracts and other trading agreements as a result of such a credit rating downgrade, see Note 23 – Derivatives to the Consolidated Financial Statements herein and Item 1A. Risk factorsFactors of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Table 1917 | Senior Debt Ratings | | | | | | | | | | | | | | |
| | | |
| | | Moody’sMoody’s Investors Service
| | Standard & Poor’sPoor’s Global Ratings | | Fitch Ratings |
| | Long-term | | Short-term | | Outlook | | Long-term | | Short-term | | Outlook | | Long-term | | Short-term | | Outlook |
| Bank of America Corporation | Baa1A3 | | P-2 | | PositiveStable | | BBB+A- | | A-2 | | Stable | | A | | F1 | | Stable |
| Bank of America, N.A. | A1Aa3 | | P-1 | | PositiveStable | | A+ | | A-1 | | Stable | | A+ | | F1 | | Stable |
| Merrill Lynch, Pierce, Fenner & Smith Incorporated | NR | | NR | | NR | | A+ | | A-1 | | Stable | | A+ | | F1 | | Stable |
| Merrill Lynch International | NR | | NR | | NR | | A+ | | A-1 | | Stable | | A | | F1 | | Stable |
NR = not rated
Credit Risk Management
For more information on our credit risk management activities, see Consumer Portfolio Credit Risk Management below, Commercial Portfolio Credit Risk Management on page 4234, Non-U.S. Portfolio on page 5040, Provision for Credit Losses on page 51,41, Allowance for Credit Losses on page 5141, and Note 45 – Outstanding Loans and Leases and Note 56 – Allowance for Credit Lossesto the Consolidated Financial Statements.Statements.
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. These modelsexperience and are a component of our consumer credit risk management process andprocess. 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
Improvement in the U.S. unemployment rate and home prices continued during the three months ended March 31, 20172018 resulting in improved credit quality and lower credit losses in the consumer real estate portfolio, partially offset by seasoning and loan growth in the U.S. credit card portfolio compared to the same period in 2016. The 30 and 90 days or more past due balances declined across most consumer loan portfolios during the three months ended March 31, 2017 as a result of improved delinquency trends.2017.
Improved credit quality and continued loan balance run-off and sales in the consumer real estate portfolio, partially offset by seasoning
within the U.S. credit card portfolio, drove an $86a $133 million decrease in the consumer allowance for loan and lease losses induring the three months ended March 31, 20172018 to $6.1$5.3 billion at March 31, 2017.2018. For additionalmore information, see Allowance for Credit Losses on page 51.41.
For more information on our accounting policies regarding delinquencies, nonperforming status, charge-offs and troubled debt restructurings (TDRs) for the consumer portfolio, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
In connection with an agreement to sell our non-U.S. consumer credit card business, this business, which includes $9.5 billion and $9.2 billion of non-U.S. credit card loans and related allowance
for loan and lease losses of $242 million and $243 million, is presented in assets of business held for sale on the Consolidated Balance Sheet as of March 31, 2017 and December 31, 2016. In this section, all applicable amounts and ratios include these balances, unless otherwise noted.
Table 2018 presents our outstanding consumer loans and leases, and the PCI loan portfolio. In addition to being included in the “Outstandings” columns in Table 20, PCI loans are also shown separately in the “Purchased Credit-impaired Loan Portfolio” columns. The impact of the PCI loan portfolio on certain credit statistics is reported where appropriate. For more information on PCI loans, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 39 and Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements.
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| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 20 | Consumer Loans and Leases | | | | | | | |
| | | | | | | | | |
| | | Outstandings | | Purchased Credit-impaired Loan Portfolio |
| (Dollars in millions) | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 |
Residential mortgage (1) | $ | 193,843 |
| | $ | 191,797 |
| | $ | 9,831 |
| | $ | 10,127 |
|
| Home equity | 63,915 |
| | 66,443 |
| | 3,396 |
| | 3,611 |
|
| U.S. credit card | 88,552 |
| | 92,278 |
| | n/a |
| | n/a |
|
| Non-U.S. credit card | 9,505 |
| | 9,214 |
| | n/a |
| | n/a |
|
Direct/Indirect consumer (2) | 92,794 |
| | 94,089 |
| | n/a |
| | n/a |
|
Other consumer (3) | 2,539 |
| | 2,499 |
| | n/a |
| | n/a |
|
| Consumer loans excluding loans accounted for under the fair value option | 451,148 |
| | 456,320 |
| | 13,227 |
| | 13,738 |
|
Loans accounted for under the fair value option (4) | 1,032 |
| | 1,051 |
| | n/a |
| | n/a |
|
Total consumer loans and leases (5) | $ | 452,180 |
| | $ | 457,371 |
| | $ | 13,227 |
| | $ | 13,738 |
|
| |
(1)
| Outstandings include pay option loans of $1.8 billion at both March 31, 2017 and December 31, 2016. We no longer originate pay option loans.
|
| |
(2)
| Outstandings include auto and specialty lending loans of $48.7 billion and $48.9 billion, unsecured consumer lending loans of $530 million and $585 million, U.S. securities-based lending loans of $39.5 billion and $40.1 billion, non-U.S. consumer loans of $2.9 billion and $3.0 billion, student loans of $479 million and $497 million and other consumer loans of $644 million and $1.1 billion at March 31, 2017 and December 31, 2016.
|
| |
(3)
| Outstandings include consumer finance loans of $441 million and $465 million, consumer leases of $2.0 billion and $1.9 billion and consumer overdrafts of $124 million and $157 million at March 31, 2017 and December 31, 2016.
|
| |
(4)
| Consumer loans accounted for under the fair value option include residential mortgage loans of $694 million and $710 million and home equity loans of $338 million and $341 million at March 31, 2017 and December 31, 2016. For more information on the fair value option, see Note 15 – Fair Value Option to the Consolidated Financial Statements.
|
| |
(5)
| Includes $9.5 billion and $9.2 billion of non-U.S. credit card, which are included in assets of business held for sale on the Consolidated Balance Sheet at March 31, 2017 and December 31, 2016. |
n/a = not applicable
Table 21 presents consumer nonperforming loans and accruing consumer loans past due 90 days or more. Nonperforming loans do not include past due consumer credit card loans, other unsecured loans and in general, consumer loans not secured by real estate (loans discharged in Chapter 7 bankruptcy(bankruptcy loans are included) as these loans are typically charged off no later than the end of the month in which the loan becomes 180 days past due. Real estate-secured past due consumer loans that are insured by the FHAFederal Housing Administration (FHA) or individually insured under long-term standby agreements
with FNMAFannie Mae and FHLMCFreddie Mac (collectively, the fully-insured loan portfolio) are reported as accruing as opposed to nonperforming since the principal repayment is insured. Fully-insured loans included in accruing past due 90 days or more are primarily from our repurchases of delinquent FHA loans pursuant to our servicing agreements with GNMA.the Government National Mortgage Association (GNMA). Additionally, nonperforming loans and accruing balances past due 90 days or more do not include the PCI loan portfolio or loans accounted for under the fair value option even though the customer may be contractually past due.
For more information on PCI loans, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 31 and Note 5 – Outstanding Loans and Leases to the Consolidated Financial Statements.
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 21 | Consumer Credit Quality | | | | | | | |
| | | | | | | | | |
| | Nonperforming | | Accruing Past Due 90 Days or More |
| (Dollars in millions) | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 |
Residential mortgage (1) | $ | 2,729 |
| | $ | 3,056 |
| | $ | 4,226 |
| | $ | 4,793 |
|
| Home equity | 2,796 |
| | 2,918 |
| | — |
| | — |
|
| U.S. credit card | n/a |
| | n/a |
| | 801 |
| | 782 |
|
| Non-U.S. credit card | n/a |
| | n/a |
| | 71 |
| | 66 |
|
| Direct/Indirect consumer | 19 |
| | 28 |
| | 31 |
| | 34 |
|
| Other consumer | 2 |
| | 2 |
| | 4 |
| | 4 |
|
Total (2) | $ | 5,546 |
| | $ | 6,004 |
| | $ | 5,133 |
| | $ | 5,679 |
|
Consumer loans and leases as a percentage of outstanding consumer loans and leases (2) | 1.23 | % | | 1.32 | % | | 1.14 | % | | 1.24 | % |
Consumer loans and leases as a percentage of outstanding loans and leases, excluding PCI and fully-insured loan portfolios (2) | 1.35 |
| | 1.45 |
| | 0.22 |
| | 0.21 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Table 18 | Consumer Credit Quality | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | Outstandings | | Nonperforming | | Accruing Past Due 90 Days or More |
| (Dollars in millions) | March 31
2018 | | December 31
2017 | | March 31
2018 | | December 31
2017 | | March 31
2018 | | December 31
2017 |
Residential mortgage (1) | $ | 204,112 |
| | $ | 203,811 |
| | $ | 2,262 |
| | $ | 2,476 |
| | $ | 2,885 |
| | $ | 3,230 |
|
| Home equity | 55,308 |
| | 57,744 |
| | 2,598 |
| | 2,644 |
| | — |
| | — |
|
| U.S. credit card | 93,014 |
| | 96,285 |
| | n/a |
| | n/a |
| | 925 |
| | 900 |
|
Direct/Indirect consumer (2) | 91,213 |
| | 93,830 |
| | 46 |
| | 46 |
| | 38 |
| | 40 |
|
Other consumer (3) | 2,860 |
| | 2,678 |
| | — |
| | — |
| | 1 |
| | — |
|
| Consumer loans excluding loans accounted for under the fair value option | $ | 446,507 |
| | $ | 454,348 |
| | $ | 4,906 |
| | $ | 5,166 |
| | $ | 3,849 |
| | $ | 4,170 |
|
Loans accounted for under the fair value option (4) | 894 |
| | 928 |
| | | | | | | | |
| Total consumer loans and leases | $ | 447,401 |
| | $ | 455,276 |
| | | | | | | | |
Percentage of outstanding consumer loans and leases (5) | n/a |
| | n/a |
| | 1.10 | % | | 1.14 | % | | 0.86 | % | | 0.92 | % |
Percentage of outstanding consumer loans and leases, excluding PCI and fully-insured loan portfolios (5) | n/a |
| | n/a |
| | 1.19 |
| | 1.23 |
| | 0.23 |
| | 0.22 |
|
| |
(1) | Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At March 31, 20172018 and December 31, 20162017, residential mortgage includedincludes $2.72.0 billion and $3.02.2 billion of loans on which interest hashad been curtailed by the FHA, and therefore arewere no longer accruing interest, although principal iswas still insured, and $1.5 billion885 million and $1.81.0 billion of loans on which interest was still accruing. |
| |
(2) | Balances excludeOutstandings include auto and specialty lending loans of $49.1 billion and $49.9 billion, unsecured consumer lending loans of $428 million and $469 million, U.S. securities-based lending loans of $38.1 billion and $39.8 billion, non-U.S. consumer loans of $2.9 billion and $3.0 billion and other consumer loans of $676 million and $684 million at March 31, 2018 and December 31, 2017.
|
| |
(3) | Outstandings include consumer leases of $2.7 billion and $2.5 billion and consumer overdrafts of $129 million and $163 million at March 31, 2018 and December 31, 2017. |
| |
(4) | Consumer loans accounted for under the fair value option include residential mortgage loans of $523 million and $567 million and home equity loans of $371 million and $361 million at March 31, 2018 and December 31, 2017. For more information on the fair value option, see Note 15 – Fair Value Option to the Consolidated Financial Statements. |
| |
(5) | Excludes consumer loans accounted for under the fair value option. At March 31, 20172018 and December 31, 20162017, $4325 million and $4826 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
Table 2219 presents net charge-offs and related ratios for consumer loans and leases.
| | | | | | | | | | | | | | | | | | | |
| Table 22 | Consumer Net Charge-offs and Related Ratios | | | | | | | | |
| Table 19 | | Consumer Net Charge-offs and Related Ratios | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 | | Net Charge-offs (1) | | Net Charge-off Ratios (1, 2) |
| | | Net Charge-offs (1) | | Net Charge-off Ratios (1, 2) | | Three Months Ended March 31 |
| (Dollars in millions) | (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 | (Dollars in millions) | 2018 | | 2017 | | 2018 | | 2017 |
| Residential mortgage | Residential mortgage | $ | 17 |
| | $ | 91 |
| | 0.04 | % | | 0.20 | % | Residential mortgage | $ | (6 | ) | | $ | 17 |
| | (0.01 | )% | | 0.04 | % |
| Home equity | Home equity | 64 |
| | 112 |
| | 0.40 |
| | 0.60 |
| Home equity | 33 |
| | 64 |
| | 0.23 |
| | 0.40 |
|
| U.S. credit card | U.S. credit card | 606 |
| | 587 |
| | 2.74 |
| | 2.71 |
| U.S. credit card | 701 |
| | 606 |
| | 3.01 |
| | 2.74 |
|
Non-U.S. credit card | Non-U.S. credit card | 44 |
| | 45 |
| | 1.91 |
| | 1.85 |
| Non-U.S. credit card | — |
| | 44 |
| | — |
| | 1.91 |
|
| Direct/Indirect consumer | Direct/Indirect consumer | 48 |
| | 34 |
| | 0.21 |
| | 0.15 |
| Direct/Indirect consumer | 58 |
| | 48 |
| | 0.26 |
| | 0.21 |
|
| Other consumer | Other consumer | 48 |
| | 48 |
| | 7.61 |
| | 9.07 |
| Other consumer | 44 |
| | 48 |
| | 6.34 |
| | 7.61 |
|
| Total | Total | $ | 827 |
| | $ | 917 |
| | 0.74 |
| | 0.82 |
| Total | $ | 830 |
| | $ | 827 |
| | 0.75 |
| | 0.74 |
|
| |
(1) | Net charge-offs exclude write-offs in the PCI loan portfolio. For more information, on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 3931. |
| |
(2) | Net charge-off ratios are calculated as annualized net charge-offs divided by average outstanding loans and leases excluding loans accounted for under the fair value option. |
| |
(3) | Represents net charge-offs related to the non-U.S. credit card loan portfolio, which was sold during the second quarter of 2017. |
Net charge-off ratios, excluding the PCI and fully-insured loan portfolios, were 0.05 percent and 0.26 percent for residential mortgage, 0.42 percent and 0.64 percent for home equity and 0.82 percent and 0.93 percent for the total consumer portfolio for the three months ended March 31, 2017 and 2016, respectively. These are the only product classifications that include PCI and fully-insured loans.
Net charge-offs, as shown in Tables 2219 and 23,20, exclude write-offs in the PCI loan portfolio of $17 million and $9 million and $39 million in
residential mortgage and $24$18 million and $66$24 million in home equity for the three months ended March 31, 20172018 and 2016.2017. Net charge-off ratios including the PCI write-offs were 0.060.02 percent and 0.280.06 percent for residential mortgage and 0.550.36 percent and 0.950.55 percent for home equity for the three months ended March 31, 20172018 and 2016.2017. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 39.31.
Table 2320 presents outstandings, nonperforming balances, net charge-offs, allowance for loan and lease losses and provision for loan and lease losses for the core and non-core portfolios within the consumer real estate portfolio. We categorize consumer real estate loans as core and non-core based on loan and customer characteristics such as origination date, product type, LTV, FICO
score and delinquency status consistent with our current consumer and mortgage servicing strategy. Generally, loans that were originated after January 1, 2010, qualified under government-sponsored enterprise underwriting guidelines, or otherwise met our underwriting guidelines in place in 2015 are characterized as core loans. Loans held in legacy private-label securitizations, government-insuredAll other loans originated prior to 2010, loan products no longer originated, and loans originated prior to 2010 and classified as nonperforming or modified in a TDR prior to 2016
are generally characterized as non-core loans and are principallyrepresent run-off portfolios. Core loans as reported in Table 2320 include loans held in the Consumer Banking and GWIM segments, as well as loans held for ALM activities in All Other. For more information, on core and non-core loans, see Note 45 – Outstanding Loans and Leases to the Consolidated Financial Statements.
As shown in Table 23,20, outstanding core consumer real estate loans increased $2.2$1.3 billion during the three months ended March 31, 20172018 driven by an increase of $3.9$3.0 billion in residential mortgage, partially offset by a $1.6$1.7 billion decrease in home equity. The increase in residential mortgage was due to a decision to retain a higher percentage of residential mortgage production in Consumer Banking and GWIM. The decrease in home equity was driven by paydowns outpacing new originations and draws on existing lines.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 23 | Consumer Real Estate Portfolio (1) | | | | | |
| Table 20 | | Consumer Real Estate Portfolio (1) | | | | |
| | | | | | | | | | | | | |
| | | Outstandings | | Nonperforming | | Net Charge-offs (2) | | Outstandings | | Nonperforming | | Net Charge-offs (2) |
| | | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 | | Three Months Ended March 31 | | March 31
2018 | | December 31
2017 | | March 31
2018 | | December 31
2017 | | Three Months Ended March 31 |
| (Dollars in millions) | (Dollars in millions) | | 2017 | | 2016 | (Dollars in millions) | | 2018 | | 2017 |
| Core portfolio | Core portfolio | |
| | |
| | |
| | |
| | |
| | | Core portfolio | |
| | |
| | |
| | |
| | | | |
| Residential mortgage | Residential mortgage | $ | 160,359 |
| | $ | 156,497 |
| | $ | 1,099 |
| | $ | 1,274 |
| | $ | 4 |
| | $ | 19 |
| Residential mortgage | $ | 179,578 |
| | $ | 176,618 |
| | $ | 1,073 |
| | $ | 1,087 |
| | $ | 9 |
| | $ | 4 |
|
| Home equity | Home equity | 47,730 |
| | 49,373 |
| | 939 |
| | 969 |
| | 31 |
| | 45 |
| Home equity | 42,568 |
| | 44,245 |
| | 1,118 |
| | 1,079 |
| | 23 |
| | 31 |
|
| Total core portfolio | Total core portfolio | 208,089 |
| | 205,870 |
| | 2,038 |
| | 2,243 |
| | 35 |
| | 64 |
| Total core portfolio | 222,146 |
| | 220,863 |
| | 2,191 |
| | 2,166 |
| | 32 |
| | 35 |
|
| Non-core portfolio | Non-core portfolio | | | |
| | |
| | |
| | | | | Non-core portfolio | | | |
| | |
| | |
| | | | |
| Residential mortgage | Residential mortgage | 33,484 |
| | 35,300 |
| | 1,630 |
| | 1,782 |
| | 13 |
| | 72 |
| Residential mortgage | 24,534 |
| | 27,193 |
| | 1,189 |
| | 1,389 |
| | (15 | ) | | 13 |
|
| Home equity | Home equity | 16,185 |
| | 17,070 |
| | 1,857 |
| | 1,949 |
| | 33 |
| | 67 |
| Home equity | 12,740 |
| | 13,499 |
| | 1,480 |
| | 1,565 |
| | 10 |
| | 33 |
|
| Total non-core portfolio | Total non-core portfolio | 49,669 |
| | 52,370 |
| | 3,487 |
| | 3,731 |
| | 46 |
| | 139 |
| Total non-core portfolio | 37,274 |
| | 40,692 |
| | 2,669 |
| | 2,954 |
| | (5 | ) | | 46 |
|
| Consumer real estate portfolio | Consumer real estate portfolio | |
| | |
| | |
| | |
| | |
| | |
| Consumer real estate portfolio | |
| | |
| | |
| | |
| | | | |
| Residential mortgage | Residential mortgage | 193,843 |
| | 191,797 |
| | 2,729 |
| | 3,056 |
| | 17 |
| | 91 |
| Residential mortgage | 204,112 |
| | 203,811 |
| | 2,262 |
| | 2,476 |
| | (6 | ) | | 17 |
|
| Home equity | Home equity | 63,915 |
| | 66,443 |
| | 2,796 |
| | 2,918 |
| | 64 |
| | 112 |
| Home equity | 55,308 |
| | 57,744 |
| | 2,598 |
| | 2,644 |
| | 33 |
| | 64 |
|
| Total consumer real estate portfolio | Total consumer real estate portfolio | $ | 257,758 |
| | $ | 258,240 |
| | $ | 5,525 |
| | $ | 5,974 |
| | $ | 81 |
| | $ | 203 |
| Total consumer real estate portfolio | $ | 259,420 |
| | $ | 261,555 |
| | $ | 4,860 |
| | $ | 5,120 |
| | $ | 27 |
| | $ | 81 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Allowance for Loan and Lease Losses | | Provision for Loan and Lease Losses | | | | | | Allowance for Loan and Lease Losses | | Provision for Loan and Lease Losses |
| | | | | | | March 31
2017 | | December 31
2016 | | Three Months Ended March 31 | | | | | | March 31
2018 | | December 31
2017 | | Three Months Ended March 31 |
| | | | | | | | 2017 | | 2016 | | | | | | | 2018 | | 2017 |
| Core portfolio | Core portfolio | | | | | | | | | | | | Core portfolio | | | | | | | | | | | |
| Residential mortgage | Residential mortgage | | | | | $ | 247 |
| | $ | 252 |
| | $ | (1 | ) | | $ | (14 | ) | Residential mortgage | | | | | $ | 216 |
| | $ | 218 |
| | $ | 8 |
| | $ | (1 | ) |
| Home equity | Home equity | | | | | 518 |
| | 560 |
| | (11 | ) | | 25 |
| Home equity | | | | | 343 |
| | 367 |
| | (1 | ) | | (11 | ) |
| Total core portfolio | Total core portfolio | | | | | 765 |
| | 812 |
| | (12 | ) | | 11 |
| Total core portfolio | | | | | 559 |
| | 585 |
| | 7 |
| | (12 | ) |
| Non-core portfolio | Non-core portfolio | | | | | |
| | |
| | | | |
| Non-core portfolio | | | | | |
| | |
| | | | |
| Residential mortgage | Residential mortgage | | | | | 771 |
| | 760 |
| | 33 |
| | (43 | ) | Residential mortgage | | | | | 395 |
| | 483 |
| | (86 | ) | | 33 |
|
| Home equity | Home equity | | | | | 1,029 |
| | 1,178 |
| | (92 | ) | | (118 | ) | Home equity | | | | | 576 |
| | 652 |
| | (49 | ) | | (92 | ) |
| Total non-core portfolio | Total non-core portfolio | | | | | 1,800 |
| | 1,938 |
| | (59 | ) | | (161 | ) | Total non-core portfolio | | | | | 971 |
| | 1,135 |
| | (135 | ) | | (59 | ) |
| Consumer real estate portfolio | Consumer real estate portfolio | | | | | |
| | |
| | |
| | |
| Consumer real estate portfolio | | | | | |
| | |
| | | | |
| Residential mortgage | Residential mortgage | | | | | 1,018 |
| | 1,012 |
| | 32 |
| | (57 | ) | Residential mortgage | | | | | 611 |
| | 701 |
| | (78 | ) | | 32 |
|
| Home equity | Home equity | | | | | 1,547 |
| | 1,738 |
| | (103 | ) | | (93 | ) | Home equity | | | | | 919 |
| | 1,019 |
| | (50 | ) | | (103 | ) |
| Total consumer real estate portfolio | Total consumer real estate portfolio | | | | | $ | 2,565 |
| | $ | 2,750 |
| | $ | (71 | ) | | $ | (150 | ) | Total consumer real estate portfolio | | | | | $ | 1,530 |
| | $ | 1,720 |
| | $ | (128 | ) | | $ | (71 | ) |
| |
(1) | Outstandings and nonperforming loans exclude loans accounted for under the fair value option. Consumer loans accounted for under the fair value option includeincluded residential mortgage loans of $694523 million and $710567 million and home equity loans of $338371 million and $341361 million at March 31, 20172018 and December 31, 20162017. For more information, on the fair value option, see Note 15 – Fair Value Option to the Consolidated Financial Statements. |
| |
(2) | Net charge-offs exclude write-offs in the PCI loan portfolio. For more information, on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 3931. |
We believe that the presentation of information adjusted to exclude the impact of the PCI loan portfolio, 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 discussions of the
residential mortgage and home equity portfolios, we provide information that excludes the impact of the PCI loan portfolio, the fully-insured loan portfolio and loans accounted for under the fair value option in certain credit quality statistics. We separately disclose information on the PCI loan portfolio on page 39.31.
Residential Mortgage
The residential mortgage portfolio makes up the largest percentage of our consumer loan portfolio at 4346 percent of consumer loans and leases at March 31, 2017.2018. Approximately 3539 percent of the residential mortgage portfolio is in GWIMConsumer Banking and represents residential mortgages originated for the home purchase and refinancing needs of our wealth management clients. Approximately 34approximately 36 percent of the residential mortgage portfoliois in GWIM. The remaining portion is in All Other and is comprised of originated loans, purchased loans used in our overall ALM activities, delinquent FHA
loans repurchased pursuant to our servicing agreements with GNMA as well as loans repurchased related to our representations and warranties. The remaining portion of the portfolio is primarily in Consumer Banking.
Outstanding balances in the residential mortgage portfolio, excluding loans accounted for under the fair value option, increased $2.0 billion$301 million during the three months ended March 31, 20172018 as retention of new originations was partially offset by loan transfers to held for sale of $1.3 billion, loan sales of $687$812 million and run-off.
At March 31, 20172018 and December 31, 2016,2017, the residential mortgage portfolio included $27.6$22.7 billion and $28.7$23.7 billion of outstanding fully-insured loans. On this portion of the residential
mortgage portfolio, we are protected against principal loss as a result of either FHA insurance or long-term standby agreements that provide for the transfer of credit risk to FNMA and FHLMC. At March 31, 20172018 and December 31, 2016, $21.02017, $16.5 billion and $22.3$17.4 billion had FHA insurance with the remainder protected by long-term standby agreements. At March 31, 20172018 and December 31, 2016, $6.82017, $4.8 billion and $7.4$5.2 billion of the FHA-insured loan population were repurchases of delinquent FHA loans pursuant to our servicing agreements with GNMA.
Table 2421 presents certain residential mortgage key credit statistics on both a reported basis excluding loans accounted for under the fair value option, and excluding the PCI loan portfolio, ourthe fully-insured loan portfolio and loans accounted for under the fair value option. Additionally, in the “Reported Basis” columns in the following table, below, accruing balances past due and nonperforming loans do not include the PCI loan portfolio, in accordance with our
accounting policies, even though the customer may be contractually past due. As such, the following discussion presents the residential mortgage portfolio excluding the PCI loan portfolio, the fully-insured loan portfolio and loans accounted for under the fair value option. For more information on the PCI loan portfolio, see page 39.31.
| | | | | | | | | | | | | | | | | | | |
| Table 24 | Residential Mortgage – Key Credit Statistics | |
| Table 21 | | Residential Mortgage – Key Credit Statistics | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | Reported Basis (1) | | Excluding Purchased
Credit-impaired and
Fully-insured Loans | | Reported Basis (1) | | Excluding Purchased
Credit-impaired and
Fully-insured Loans (1) |
| (Dollars in millions) | (Dollars in millions) | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 | (Dollars in millions) | | March 31
2018 | | December 31
2017 | | March 31
2018 | | December 31
2017 |
| Outstandings | Outstandings | $ | 193,843 |
| | $ | 191,797 |
| | $ | 156,452 |
| | $ | 152,941 |
| Outstandings | | $ | 204,112 |
| | $ | 203,811 |
| | $ | 173,813 |
| | $ | 172,069 |
|
| Accruing past due 30 days or more | Accruing past due 30 days or more | 6,862 |
| | 8,232 |
| | 1,331 |
| | 1,835 |
| Accruing past due 30 days or more | | 5,192 |
| | 5,987 |
| | 1,277 |
| | 1,521 |
|
| Accruing past due 90 days or more | Accruing past due 90 days or more | 4,226 |
| | 4,793 |
| | — |
| | — |
| Accruing past due 90 days or more | | 2,885 |
| | 3,230 |
| | — |
| | — |
|
| Nonperforming loans | Nonperforming loans | 2,729 |
| | 3,056 |
| | 2,729 |
| | 3,056 |
| Nonperforming loans | | 2,262 |
| | 2,476 |
| | 2,262 |
| | 2,476 |
|
| Percent of portfolio | Percent of portfolio | |
| | |
| | |
| | |
| Percent of portfolio | | |
| | |
| | |
| | |
|
| Refreshed LTV greater than 90 but less than or equal to 100 | Refreshed LTV greater than 90 but less than or equal to 100 | 4 | % | | 5 | % | | 3 | % | | 3 | % | Refreshed LTV greater than 90 but less than or equal to 100 | | 3 | % | | 3 | % | | 2 | % | | 2 | % |
| Refreshed LTV greater than 100 | Refreshed LTV greater than 100 | 4 |
| | 4 |
| | 2 |
| | 3 |
| Refreshed LTV greater than 100 | | 2 |
| | 2 |
| | 1 |
| | 1 |
|
| Refreshed FICO below 620 | Refreshed FICO below 620 | 8 |
| | 9 |
| | 3 |
| | 4 |
| Refreshed FICO below 620 | | 6 |
| | 6 |
| | 2 |
| | 3 |
|
2006 and 2007 vintages (2) | 2006 and 2007 vintages (2) | 13 |
| | 13 |
| | 11 |
| | 12 |
| 2006 and 2007 vintages (2) | | 9 |
| | 10 |
| | 7 |
| | 8 |
|
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 | | Three Months Ended March 31 |
| | | 2017 | | 2016 | | 2017 | | 2016 | | 2018 | | 2017 | | 2018 | | 2017 |
Net charge-off ratio (3) | Net charge-off ratio (3) | 0.04 | % | | 0.20 | % | | 0.05 | % | | 0.26 | % | Net charge-off ratio (3) | | (0.01 | )% | | 0.04 | % | | (0.01 | )% | | 0.05 | % |
| |
(1) | Outstandings, accruing past due, nonperforming loans and percentages of portfolio exclude loans accounted for under the fair value option. |
| |
(2) | These vintages of loans accountaccounted for $880$729 million, or 32 percent, and $931$825 million, or 3133 percent, of nonperforming residential mortgage loans at March 31, 20172018 and December 31, 20162017. For the three months ended March 31, 2017 and 2016, these vintages accounted for $5 million, or 30 percent, and $7 million, or eight percent of total residential mortgage net charge-offs. |
| |
(3) | Net charge-off ratios are calculated as annualized net charge-offs divided by average outstanding loans excluding loans accounted for under the fair value option. |
Nonperforming residential mortgage loans decreased $327$214 million during the three months ended March 31, 20172018 as outflows, including a transfer to held-for-sale of $143 million and sales of $142$257 million, outpaced new inflows. Of the nonperforming residential mortgage loans at March 31, 2017, $8692018, $789 million, or 3235 percent, were current on contractual payments. Loans accruing past due 30 days or more decreased $504$244 million primarily due to an improvement in collections associated with the consumer real estate servicer conversion that occurred during the fourth quarter of 2016.from seasonal declines.
Net charge-offs decreased $74$23 million to $17a net recovery of $6 million for the three months ended March 31, 2017,2018 compared to $91$17 million of net charge-offs for the same period in 2016.2017. This decreasechange was driven in part by net charge-offs was primarily driven by recoveries of $11$18 million related to nonperforming loan sales during the three months ended March 31, 20172018 compared to nonperforming loan sale-related charge-offsnet recoveries of $42$11 million for the same period in 2016.2017. Additionally, net
charge-offs declined driven bydue to favorable portfolio trends and decreased write-downs on loans greater than 180 days past due which were written down to the estimated fair value of the collateral, less costs to sell, due in part todriven by improvement in home prices and the U.S. economy.
Loans with a refreshed LTV greater than 100 percent represented two percent and threeone percent of the residential mortgage loan portfolio at both March 31, 20172018 and December 31, 2016.2017. Of the loans with a refreshed LTV greater than 100 percent, 99 percent and 98 percent were performing at March 31, 2017 and2018 compared to 98 percent at December 31, 2016.2017. Loans with a refreshed LTV greater than 100 percent reflect loans where the outstanding carrying value of the loan is greater than the most recent valuation of the property securing the loan. The majority of these loans have a refreshed LTV greater than 100 percent primarily due to home price deterioration since 2006, partially offset by subsequent appreciation.
Of the $156.5$173.8 billion in total residential mortgage loans outstanding at March 31, 2017,2018, as shown in Table 25, 3622, 32 percent were originated as interest-only loans. The outstanding balance of
interest-only residential mortgage loans that have entered the amortization period was $11.0$9.9 billion, or 1918 percent, at March 31, 2017.2018. Residential mortgage loans that have entered the amortization period generally have experienced a higher rate of early stage delinquencies and nonperforming status compared to the residential mortgage portfolio as a whole. At March 31, 2017, $2722018, $251 million, or twothree percent, of outstanding interest-only residential mortgages that had entered the amortization period were accruing past due 30 days or more compared to $1.3 billion, or one percent, for the entire residential mortgage portfolio. In addition, at March 31, 2017, $4562018, $432 million, or four percent, of outstanding interest-only residential mortgage loans that had entered the amortization period were nonperforming, of which $239$166 million were contractually current, compared to $2.7$2.3 billion, or twoone percent, for the entire residential mortgage portfolio, of which $869$789 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 to ten years. More than 8090 percent of these loans that have yet to enter the amortization period will not be required to make a fully-amortizing payment until 2020 or later.
Table 2522 presents outstandings, nonperforming loans and net charge-offs by certain state concentrations for the residential mortgage portfolio. The Los Angeles-Long Beach-Santa Ana Metropolitan Statistical Area (MSA) within California represented 16 percent and 15 percent of outstandings at both March 31, 20172018 and December 31, 2016. For the three months ended March 31, 2017 and 2016, loans within this MSA contributed net charge-offs of $5 million and net recoveries of $3 million within the residential mortgage portfolio.2017. In the New York area, the New York-Northern New Jersey-Long Island MSA made up 1213 percent of outstandings at both March 31, 20172018 and December 31, 2016. For the three months ended March 31, 2017 and 2016, loans within this MSA contributed a net recovery of $1 million and net charge-offs of $22 million within the residential mortgage portfolio.2017.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 25 | Residential Mortgage State Concentrations | |
| Table 22 | | Residential Mortgage State Concentrations |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Outstandings (1) | | Nonperforming (1) | | Net Charge-offs (2) | | Outstandings (1) | | Nonperforming (1) | | Net Charge-offs (2) |
| | | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 | | Three Months Ended March 31 | | March 31
2018 | | December 31
2017 | | March 31
2018 | | December 31
2017 | | Three Months Ended March 31 |
| (Dollars in millions) | (Dollars in millions) | | 2017 | | 2016 | (Dollars in millions) | | 2018 | | 2017 |
| California | California | $ | 60,188 |
| | $ | 58,295 |
| | $ | 468 |
| | $ | 554 |
| | $ | (4 | ) | | $ | (23 | ) | California | $ | 69,368 |
| | $ | 68,455 |
| | $ | 384 |
| | $ | 433 |
| | $ | (10 | ) | | $ | (4 | ) |
New York (3) | New York (3) | 15,339 |
| | 14,476 |
| | 262 |
| | 290 |
| | (2 | ) | | 14 |
| New York (3) | 17,613 |
| | 17,239 |
| | 221 |
| | 227 |
| | 4 |
| | (2 | ) |
Florida (3) | Florida (3) | 10,328 |
| | 10,213 |
| | 306 |
| | 322 |
| | 1 |
| | 15 |
| Florida (3) | 10,887 |
| | 10,880 |
| | 281 |
| | 280 |
| | (5 | ) | | 1 |
|
| Texas | Texas | 6,728 |
| | 6,607 |
| | 124 |
| | 132 |
| | 1 |
| | 6 |
| Texas | 7,298 |
| | 7,237 |
| | 127 |
| | 126 |
| | 1 |
| | 1 |
|
| Massachusetts | 5,411 |
| | 5,344 |
| | 69 |
| | 77 |
| | — |
| | 3 |
| |
| Other U.S./Non-U.S. | 58,458 |
| | 58,006 |
| | 1,500 |
| | 1,681 |
| | 21 |
| | 76 |
| |
New Jersey (3) | | New Jersey (3) | 6,202 |
| | 6,099 |
| | 118 |
| | 130 |
| | 2 |
| | 1 |
|
| Other | | Other | 62,445 |
| | 62,159 |
| | 1,131 |
| | 1,280 |
| | 2 |
| | 20 |
|
Residential mortgage loans (4) | Residential mortgage loans (4) | $ | 156,452 |
| | $ | 152,941 |
| | $ | 2,729 |
| | $ | 3,056 |
| | $ | 17 |
| | $ | 91 |
| Residential mortgage loans (4) | $ | 173,813 |
| | $ | 172,069 |
| | $ | 2,262 |
| | $ | 2,476 |
| | $ | (6 | ) | | $ | 17 |
|
| Fully-insured loan portfolio | Fully-insured loan portfolio | 27,560 |
| | 28,729 |
| | |
| | |
| | |
| | |
| Fully-insured loan portfolio | 22,709 |
| | 23,741 |
| | |
| | |
| | |
| | |
|
Purchased credit-impaired residential mortgage loan portfolio (5) | Purchased credit-impaired residential mortgage loan portfolio (5) | 9,831 |
| | 10,127 |
| | |
| | |
| | |
| | |
| Purchased credit-impaired residential mortgage loan portfolio (5) | 7,590 |
| | 8,001 |
| | |
| | |
| | |
| | |
|
| Total residential mortgage loan portfolio | Total residential mortgage loan portfolio | $ | 193,843 |
| | $ | 191,797 |
| | |
| | |
| | |
| | |
| Total residential mortgage loan portfolio | $ | 204,112 |
| | $ | 203,811 |
| | |
| | |
| | |
| | |
|
| |
(1) | Outstandings and nonperforming loans exclude loans accounted for under the fair value option. |
| |
(2) | Net charge-offs excludeexcluded $917 million and $$399 million of write-offs in the residential mortgage PCI loan portfolio for the three months ended March 31, 20172018 and 20162017. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 3931. |
| |
(3) | In these states, foreclosure requires a court order following a legal proceeding (judicial states). |
| |
(4) | Amounts exclude the PCI residential mortgage and fully-insured loan portfolios. |
| |
(5) | At both March 31, 20172018 and December 31, 20162017, 47 percent and 48 percent of PCI residential mortgage loans were in California. There were no other significant single state concentrations. |
Home Equity
At March 31, 2017,2018, the home equity portfolio made up 1412 percent of the consumer portfolio and is comprised of home equity lines of credit (HELOCs), home equity loans and reverse mortgages.
At March 31, 2017,2018, our HELOC portfolio had an outstanding balance of $56.4$49.0 billion, or 8889 percent of the total home equity portfolio, compared to $58.6$51.2 billion, or 8889 percent, at December 31, 2016.2017. HELOCs generally have an initial draw period of 10 years, and the borrowers typically are only required to pay the interest due on the loans on a monthly basis. Afterafter the initial draw period ends, the loans generally convert to 15-year amortizing loans.
At March 31, 2017,2018, our home equity loan portfolio had an outstanding balance of $5.5$4.1 billion, or nineseven percent of the total home equity portfolio, compared to $5.9$4.4 billion, or nineseven percent, at December 31, 2016.2017. Home equity loans are almost all fixed-rate loans with amortizing payment terms of 10 to 30 years, and of the $5.5$4.1 billion at March 31, 2017, 562018, 58 percent have 25- to 30-year terms. At March 31, 2017,2018, our reverse mortgage portfolio had an outstanding balance, excluding loans accounted for under the fair value option, of $2.0$2.2 billion, or threefour percent of the total
home equity portfolio, compared to $1.9$2.1 billion, or threealso four percent, at December 31, 2016.2017. We no longer originate reverse mortgages.
At March 31, 2017,2018, approximately 6770 percent of the home equity portfolio was in Consumer Banking, 2523 percent was in All Other and the remainder of the portfolio was primarily in GWIM. Outstanding balances in the home equity portfolio, excluding loans accounted for under the fair value option, decreased $2.5$2.4 billion during the three months ended March 31, 20172018 primarily due to paydowns and charge-offs outpacing new originations and draws on existing lines. Of the total home equity portfolio at March 31, 2017
2018 and December 31, 2016, $19.32017, $18.2 billion and $19.6$18.7 billion, or 3033 percent and 2932 percent, were in first-lien positions (32(34 percent and 31 percentfor both periods excluding the PCI home equity portfolio). At March 31, 2017,2018, 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 $10.5$8.9 billion, or 17 percent of our total home equity portfolio excluding the PCI loan portfolio.
Unused HELOCs totaled $46.9$43.9 billion at March 31, 20172018 compared to $47.2$44.2 billion at December 31, 2016.2017. The decrease was primarily due to accounts reaching the end of their draw period,
which automatically eliminates open line exposure, and customers choosing to close accounts. Both of these more than offset the impact of new production. The HELOC utilization rate was 5553 percent and 54 percent at both March 31, 20172018 and December 31, 2016.2017.
Table 2623 presents certain home equity portfolio key credit statistics on both a reported basis excluding loans accounted for under the fair value option, and excluding the PCI loan portfolio and loans accounted for under the fair value option. Additionally,
in the “Reported Basis” columns in the following table, below, accruing balances past due 30 days or more and nonperforming loans do not include the PCI loan portfolio, in accordance with our accounting policies, even though the customer may be contractually past due. As such, the following discussion presents the home equity portfolio excluding the PCI loan portfolio and loans accounted for under the fair value option. For more information on the PCI loan portfolio, see page 39.31.
| | | | | | | | | | | | | | | | | | | |
| Table 26 | Home Equity – Key Credit Statistics | |
| Table 23 | | Home Equity – Key Credit Statistics |
| | | | | | | | | | | | | | | | | |
| | | Reported Basis (1) | | Excluding Purchased
Credit-impaired Loans | | Reported Basis (1) | | Excluding Purchased
Credit-impaired Loans (1) |
| (Dollars in millions) | (Dollars in millions) | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 | (Dollars in millions) | March 31
2018 | | December 31
2017 | | March 31
2018 | | December 31
2017 |
| Outstandings | Outstandings | $ | 63,915 |
| | $ | 66,443 |
| | $ | 60,519 |
| | $ | 62,832 |
| Outstandings | $ | 55,308 |
| | $ | 57,744 |
| | $ | 52,763 |
| | $ | 55,028 |
|
Accruing past due 30 days or more (2) | Accruing past due 30 days or more (2) | 533 |
| | 566 |
| | 533 |
| | 566 |
| Accruing past due 30 days or more (2) | 460 |
| | 502 |
| | 460 |
| | 502 |
|
Nonperforming loans (2) | Nonperforming loans (2) | 2,796 |
| | 2,918 |
| | 2,796 |
| | 2,918 |
| Nonperforming loans (2) | 2,598 |
| | 2,644 |
| | 2,598 |
| | 2,644 |
|
| Percent of portfolio | Percent of portfolio | |
| | |
| | |
| | |
| Percent of portfolio | | | | | | | |
| Refreshed CLTV greater than 90 but less than or equal to 100 | Refreshed CLTV greater than 90 but less than or equal to 100 | 5 | % | | 5 | % | | 4 | % | | 4 | % | Refreshed CLTV greater than 90 but less than or equal to 100 | 3 | % | | 3 | % | | 3 | % | | 3 | % |
| Refreshed CLTV greater than 100 | Refreshed CLTV greater than 100 | 8 |
| | 8 |
| | 7 |
| | 7 |
| Refreshed CLTV greater than 100 | 5 |
| | 5 |
| | 4 |
| | 4 |
|
| Refreshed FICO below 620 | Refreshed FICO below 620 | 7 |
| | 7 |
| | 6 |
| | 6 |
| Refreshed FICO below 620 | 6 |
| | 6 |
| | 6 |
| | 6 |
|
2006 and 2007 vintages (3) | 2006 and 2007 vintages (3) | 35 |
| | 37 |
| | 32 |
| | 34 |
| 2006 and 2007 vintages (3) | 28 |
| | 29 |
| | 26 |
| | 27 |
|
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 | | Three Months Ended March 31 |
| | | 2017 | | 2016 | | 2017 | | 2016 | | 2018 | | 2017 | | 2018 | | 2017 |
Net charge-off ratio (4) | Net charge-off ratio (4) | 0.40 | % | | 0.60 | % | | 0.42 | % | | 0.64 | % | Net charge-off ratio (4) | 0.23 | % | | 0.40 | % | | 0.24 | % | | 0.42 | % |
| |
(1) | Outstandings, accruing past due, nonperforming loans and percentages of the portfolio exclude loans accounted for under the fair value option. |
| |
(2) | Accruing past due 30 days or more includesincluded $7253 million and $8167 million and nonperforming loans includeincluded $344325 million and $340344 million of loans where we serviced the underlying first-lien at March 31, 20172018 and December 31, 20162017. |
| |
(3) | These vintages of loans have higher refreshed combined LTVloan-to-value (CLTV) ratios and accounted for 5253 percent and 5052 percent of nonperforming home equity loans at March 31, 20172018 and December 31, 20162017, and 89 percent and 41 percentof net charge-offs forin both the three months ended March 31, 20172018 and 20162017. |
| |
(4) | Net charge-off ratios are calculated as annualized net charge-offs divided by average outstanding loans excluding loans accounted for under the fair value option. |
Nonperforming outstanding balances in the home equity portfolio decreased $122$46 million during the three months ended March 31, 20172018 as outflows, including $78$12 million of transfers to held-for-sale,sales, outpaced new inflows. Of the nonperforming home equity portfolio at March 31, 2017, $1.52018, $1.4 billion, or 5254 percent, were current on contractual payments. Nonperforming loans that are contractually current primarily consist of collateral-dependent TDRs, including those that have been discharged in Chapter 7 bankruptcy, junior-lien loans where the underlying first-lien is 90 days or more past due, as well as loans that have not yet demonstrated a sustained period of payment performance following a TDR. In addition, $820$690 million, or 2927 percent, of nonperforming home equity loans 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 decreased $33$42 million during the three months ended March 31, 2017, primarily due to the improvement in collections associated with a consumer real estate servicer conversion that occurred during the fourth quarter of 2016.2018.
In some cases, the junior-lien home equity outstanding balance that we hold is performing, but the underlying first-lien is not. For outstanding balances in the home equity portfolio on which we service the first-lien loan, we are able to track whether the first-lien loan is in default. For loans where the first-lien is serviced by a third party, we utilize credit bureau data to estimate the delinquency status of the first-lien. Given that the credit bureau database we use does not include a property address for the mortgages, we are unable to identify with certainty whether a reported delinquent first-lien mortgage pertains to the same property for which we hold a junior-lien loan. For certain loans, we utilize a third-party vendor to combine credit bureau and public
record data to better link a junior-lien loan with the underlying first-lien mortgage.loan. At March 31, 2017,2018, we estimate that $966$776 million of current and $143$121 million of 30 to 89 days past due junior-lien loans were behind a delinquent first-lien loan. We service the first-lien loans on $156$152 million of these combined amounts, with the remaining $953$745 million serviced by third parties. Of the $1.1 billion$897 million of current to 89 days past due junior-lien loans, based on available credit bureau data and our own internal servicing data, we estimate that approximately $412$294 million had first-lien loans that were 90 days or more past due.
Net charge-offs decreased $48$31 million to $64$33 million for the three months ended March 31, 2017,2018 compared to $112$64 million for the same period in 20162017 driven by favorable portfolio trends due in part to improvement in home prices and the U.S. economy.
Outstanding balances with a refreshed combined loan-to-value (CLTV)CLTV greater than 100 percent comprised sevenfour percent of the home equity portfolio at both March 31, 20172018 and December 31, 2016.2017. Outstanding balances in the home equity portfolio with a refreshed CLTV greater than 100 percent reflect
loans where our loan and available line of credit combined with any outstanding senior liens against the property are equal to or greater than the most recent valuation of the property securing the loan. Depending on the value of the property, there may be collateral in excess of the first-lien that is available to reduce the severity of loss on the second-lien. Of those outstanding balances with a refreshed CLTV greater than 100 percent, 95 percent of the customers were current on their home equity loan and 8991 percent of second-lien loans with a refreshed CLTV greater than 100 percent were current on both their second-lien and underlying first-lien loans at March 31, 2017.2018.
Of the $60.5$52.8 billion in total home equity portfolio outstandings at March 31, 2017,2018, as shown in Table 27, 4724, 26 percent require interest-only payments. The outstanding balance of HELOCs that have reached the end of their draw period and have entered the amortization period was $15.7$18.6 billion at March 31, 2017.2018. 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 March 31, 2017, $3002018, $341 million, or two percent, of outstanding HELOCs that had entered the amortization period were accruing past due 30 days or more. In addition, at March 31, 2017, $1.82018, $2.1 billion, or 12 percent, of outstanding HELOCs that had entered the amortization period were nonperforming, of which $931 million$1.2 billion were contractually current. Loans in our HELOC portfolio generally have an initial draw period of 10 years and 17six percent of these loans will enter the amortization period induring the remainder of 20172018 and will be required to make fully-amortizing payments. We communicate to contractually current customers more than a year prior to the end of their draw period to inform them of the potential change to the payment structure before entering the amortization period, and provide payment options to customers prior to the end of the draw period.
Although 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, we can infer some of this information through a review of our HELOC portfolio that we service and that is still in its revolving period (i.e., customers may draw on and repay their line of credit, but are generally only required to pay interest on a monthly basis). During the three months ended March 31, 2017,2018, approximately 3827 percent of these customers with an outstanding balance did not pay any principal on their HELOCs.
Table 2724 presents outstandings, nonperforming balances and net charge-offs 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 13 percent of the outstanding home equity portfolio at both March 31, 20172018 and December 31, 2016. For the three months ended March 31, 2017 and 2016, loans2017. Loans within this MSA contributed 2032 percent and 1320 percent of net charge-offs within the home equity portfolio.portfolio for the three
months ended March 31, 2018 and 2017. The Los Angeles-Long Beach-Santa Ana MSA within California made up 11 percent of the outstanding home equity portfolio at both March 31, 20172018 and December 31, 2016. For the three months ended March 31, 2017 and 2016, loans2017. Loans within this MSA contributed net recoveries of $4$5 million and net charge-offs of $2$4 million within the home equity portfolio.portfolio for the three months ended March 31, 2018 and 2017.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 27 | Home Equity State Concentrations | |
| Table 24 | | Home Equity State Concentrations |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Outstandings (1) | | Nonperforming (1) | | Net Charge-offs (2) | | Outstandings (1) | | Nonperforming (1) | | Net Charge-offs (2) |
| | | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 | | Three Months Ended March 31 | | March 31
2018 | | December 31
2017 | | March 31
2018 | | December 31
2017 | | Three Months Ended March 31 |
| (Dollars in millions) | (Dollars in millions) | | 2017 | | 2016 | (Dollars in millions) | | 2018 | | 2017 |
| California | California | $ | 16,837 |
| | $ | 17,563 |
| | $ | 806 |
| | $ | 829 |
| | $ | (7 | ) | | $ | 10 |
| California | $ | 14,506 |
| | $ | 15,145 |
| | $ | 740 |
| | $ | 766 |
| | $ | (7 | ) | | $ | (7 | ) |
Florida (3) | Florida (3) | 7,026 |
| | 7,319 |
| | 422 |
| | 442 |
| | 11 |
| | 17 |
| Florida (3) | 6,033 |
| | 6,308 |
| | 432 |
| | 411 |
| | 10 |
| | 11 |
|
New Jersey (3) | New Jersey (3) | 4,935 |
| | 5,102 |
| | 194 |
| | 201 |
| | 10 |
| | 11 |
| New Jersey (3) | 4,333 |
| | 4,546 |
| | 190 |
| | 191 |
| | 9 |
| | 10 |
|
New York (3) | New York (3) | 4,577 |
| | 4,720 |
| | 264 |
| | 271 |
| | 8 |
| | 10 |
| New York (3) | 4,024 |
| | 4,195 |
| | 250 |
| | 252 |
| | 6 |
| | 8 |
|
| Massachusetts | Massachusetts | 2,979 |
| | 3,078 |
| | 100 |
| | 100 |
| | 1 |
| | 3 |
| Massachusetts | 2,645 |
| | 2,751 |
| | 90 |
| | 92 |
| | 2 |
| | 1 |
|
| Other U.S./Non-U.S. | 24,165 |
| | 25,050 |
| | 1,010 |
| | 1,075 |
| | 41 |
| | 61 |
| |
| Other | | Other | 21,222 |
| | 22,083 |
| | 896 |
| | 932 |
| | 13 |
| | 41 |
|
Home equity loans (4) | Home equity loans (4) | $ | 60,519 |
| | $ | 62,832 |
| | $ | 2,796 |
| | $ | 2,918 |
| | $ | 64 |
| | $ | 112 |
| Home equity loans (4) | $ | 52,763 |
| | $ | 55,028 |
| | $ | 2,598 |
| | $ | 2,644 |
| | $ | 33 |
| | $ | 64 |
|
Purchased credit-impaired home equity portfolio (5) | Purchased credit-impaired home equity portfolio (5) | 3,396 |
| | 3,611 |
| | |
| | |
| | |
| | |
| Purchased credit-impaired home equity portfolio (5) | 2,545 |
| | 2,716 |
| | |
| | |
| | |
| | |
|
| Total home equity loan portfolio | Total home equity loan portfolio | $ | 63,915 |
| | $ | 66,443 |
| | |
| | |
| | |
| | |
| Total home equity loan portfolio | $ | 55,308 |
| | $ | 57,744 |
| | |
| | |
| | |
| | |
|
| |
(1) | Outstandings and nonperforming loans exclude loans accounted for under the fair value option. |
| |
(2) | Net charge-offs excludeexcluded $2418 million and $6624 million of write-offs in the home equity PCI loan portfolio for the three months ended March 31, 20172018 and 20162017. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 39. |
| |
(3) | In these states, foreclosure requires a court order following a legal proceeding (judicial states). |
| |
(4) | Amount excludes the PCI home equity portfolio. |
| |
(5) | At both March 31, 20172018 and December 31, 20162017, 2928 percent of PCI home equity loans were in California. There were no other significant single state concentrations. |
Purchased Credit-impaired Loan Portfolio
Loans acquired with evidence of credit quality deterioration since origination and for which it is probable at purchase that we will be unable to collect all contractually required payments are accounted for under the accounting guidancestandards for PCI loans. For more information, on PCI loans, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the
the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K and Note 45 – Outstanding Loans and Leases to the Consolidated Financial Statements.
Table 2825 presents the unpaid principal balance, carrying value, related valuation allowance and the net carrying value as a percentage of the unpaid principal balance for the PCI loan portfolio.
| | | | | | | | | | | | | | | | | | | | | | | |
| Table 28 | Purchased Credit-impaired Loan Portfolio | |
| Table 25 | | Purchased Credit-impaired Loan Portfolio |
| | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2017 | | Unpaid
Principal
Balance | | Gross Carrying
Value | | Related
Valuation
Allowance | | Carrying Value Net of Valuation Allowance | | Percent of Unpaid Principal Balance |
| (Dollars in millions) | (Dollars in millions) | Unpaid
Principal
Balance | | Gross Carrying
Value | | Related
Valuation
Allowance | | Carrying
Value Net of
Valuation
Allowance | | Percent of Unpaid
Principal
Balance | (Dollars in millions) | March 31, 2018 |
Residential mortgage (1) | Residential mortgage (1) | $ | 10,026 |
| | $ | 9,831 |
| | $ | 219 |
| | $ | 9,612 |
| | 95.87 | % | Residential mortgage (1) | $ | 7,698 |
| | $ | 7,590 |
| | $ | 84 |
| | $ | 7,506 |
| | 97.51 | % |
| Home equity | Home equity | 3,470 |
| | 3,396 |
| | 235 |
| | 3,161 |
| | 91.10 |
| Home equity | 2,614 |
| | 2,545 |
| | 158 |
| | 2,387 |
| | 91.32 |
|
| Total purchased credit-impaired loan portfolio | Total purchased credit-impaired loan portfolio | $ | 13,496 |
| | $ | 13,227 |
| | $ | 454 |
| | $ | 12,773 |
| | 94.64 |
| Total purchased credit-impaired loan portfolio | $ | 10,312 |
| | $ | 10,135 |
| | $ | 242 |
| | $ | 9,893 |
| | 95.94 |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2016 | | December 31, 2017 |
Residential mortgage (1) | Residential mortgage (1) | $ | 10,330 |
| | $ | 10,127 |
| | $ | 169 |
| | $ | 9,958 |
| | 96.40 | % | Residential mortgage (1) | $ | 8,117 |
| | $ | 8,001 |
| | $ | 117 |
| | $ | 7,884 |
| | 97.13 | % |
| Home equity | Home equity | 3,689 |
| | 3,611 |
| | 250 |
| | 3,361 |
| | 91.11 |
| Home equity | 2,787 |
| | 2,716 |
| | 172 |
| | 2,544 |
| | 91.28 |
|
| Total purchased credit-impaired loan portfolio | Total purchased credit-impaired loan portfolio | $ | 14,019 |
| | $ | 13,738 |
| | $ | 419 |
| | $ | 13,319 |
| | 95.01 |
| Total purchased credit-impaired loan portfolio | $ | 10,904 |
| | $ | 10,717 |
| �� | $ | 289 |
| | $ | 10,428 |
| | 95.63 |
|
| |
(1) | At March 31, 20172018 and December 31, 20162017, pay option loans had an unpaid principal balance of $1.8$1.3 billion and $1.9$1.4 billion and a carrying value of $1.8$1.3 billion for both periods. and $1.4 billion. This includes $1.5$1.1 billion and $1.6$1.2 billion of loans that were credit-impaired upon acquisition and $189$119 million and $226$141 million of loans that arewere 90 days or more past due at March 31, 20172018 and December 31, 20162017. The total unpaid principal balance of pay option loans with accumulated negative amortization was $278$134 million and $303$160 million, including $15$7 million and $16$9 million of negative amortization at March 31, 20172018 and December 31, 20162017. |
The total PCI unpaid principal balance decreased $523$592 million, or fourfive percent, during the three months ended March 31, 20172018 primarily driven by payoffs, paydowns, write-offs and write-offs. During the three months ended March 31, 2017, we had no PCI loan sales with a carrying value of $109 million compared to no sales of $174 million forduring the same period in 2016.2017.
Of the unpaid principal balance of $13.5$10.3 billion at March 31, 2017, $12.02018, $9.3 billion, or 8990 percent, was current based on the contractual terms, $795$608 million, or six percent, was in early stage delinquency, and $534$314 million was 180 days or more past due, including $465$253 million of first-lien mortgages and $69$61 million of home equity loans.
During the three months ended March 31, 2017, we recorded a provision expense of $68 million for the PCI loan portfolio which included $59 million for residential mortgage and $9 million for home equity. This compared to a total provision benefit of $77 million for the three months ended March 31, 2016. The provision expense for the three months ended March 31, 2017 was primarily driven by lower expected cash flows.
The PCI valuation allowance increased $35 million during the three months ended March 31, 2017 due to a provision expense of $68 million, partially offset by write-offs in the PCI loan portfolio of $9 million in residential mortgage and $24 million in home equity.
The PCI residential mortgage loan portfolioand home equity portfolios represented 7475 percent and 25 percent of the total PCI loan portfolio at March 31, 2017.2018. Those loans to borrowers with a refreshed FICO score below 620 represented 2724 percent and 17 percent of the PCI residential mortgage loan portfolioand home equity portfolios at March 31, 2017. Loans2018. Residential mortgage and home equity loans with a refreshed LTV greater than 90 percent, after consideration of purchase accounting adjustments and the related valuation allowance, represented 21 percent of the PCI residential mortgage loan portfolio and 24 percent based on the unpaid principal balance at March 31, 2017.
The PCI home equity portfolio represented 26 percent of the total PCI loan portfolio at March 31, 2017. Those loans with a refreshed FICO score below 620 represented 16 percent of the PCI home equity portfolio at March 31, 2017. Loans with a refreshedor CLTV greater than 90 percent, after consideration of purchase accounting adjustments and the related valuation allowance, represented 4514 percent and 34 percent of thetheir respective PCI home equity portfolioloan portfolios and 4815 percent and 36 percent based on the unpaid principal balance at March 31, 2017.2018.
U.S. Credit Card
At March 31, 2017,2018, 97 percent of the U.S. credit card portfolio was managed in Consumer Banking with the remainder in GWIM. Outstandings in the U.S. credit card portfolio decreased $3.7$3.3 billion to $93.0 billion during the three months ended March 31, 20172018 due to paydowns and a seasonal decline in purchase volume.volumes. Net charge-offs increased $19$95 million to $606$701 million induring the three months ended March 31, 20172018 compared to the same period in 20162017 due to portfolio seasoning and loan growth and portfolio seasoning.growth. U.S. credit card loans 30 days or more past due and still accruing interest decreased $15$52 million during the three months ended March 31, 2018 from seasonal declines while loans 90 days or more past due and still accruing interest increased $19$25 million, during the three months ended March 31, 2017, driven by the same factors as described for net charge-offs.
Unused lines of credit for U.S. credit card totaled $327.4$334.1 billion and $321.6$326.3 billion at March 31, 20172018 and December 31, 2016.2017. The increase was driven by a seasonal decrease in line utilization due to a decrease in transaction volume as well as account growth and lines of credit increases.
Table 2926 presents certain state concentrations for the U.S. credit card portfolio.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 29 | U.S. Credit Card State Concentrations | |
| Table 26 | | U.S. Credit Card State Concentrations |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Outstandings | | Accruing Past Due
90 Days or More | | Net Charge-offs | | Outstandings | | Accruing Past Due 90 Days or More | | Net Charge-Offs |
| | | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 | | Three Months Ended March 31 | | March 31
2018 | | December 31
2017 | | March 31
2018 | | December 31
2017 | | Three Months Ended March 31 |
| (Dollars in millions) | (Dollars in millions) | | 2017 | | 2016 | (Dollars in millions) | | 2018 | | 2017 |
| California | California | $ | 13,800 |
| | $ | 14,251 |
| | $ | 120 |
| | $ | 115 |
| | $ | 96 |
| | $ | 92 |
| California | $ | 14,841 |
| | $ | 15,254 |
| | $ | 141 |
| | $ | 136 |
| | $ | 116 |
| | $ | 96 |
|
| Florida | Florida | 7,606 |
| | 7,864 |
| | 87 |
| | 85 |
| | 67 |
| | 64 |
| Florida | 8,174 |
| | 8,359 |
| | 116 |
| | 94 |
| | 77 |
| | 67 |
|
| Texas | Texas | 6,864 |
| | 7,037 |
| | 67 |
| | 65 |
| | 47 |
| | 41 |
| Texas | 7,303 |
| | 7,451 |
| | 79 |
| | 76 |
| | 56 |
| | 47 |
|
| New York | New York | 5,473 |
| | 5,683 |
| | 63 |
| | 60 |
| | 45 |
| | 40 |
| New York | 5,796 |
| | 5,977 |
| | 91 |
| | 91 |
| | 70 |
| | 45 |
|
| Washington | Washington | 3,931 |
| | 4,128 |
| | 18 |
| | 18 |
| | 14 |
| | 14 |
| Washington | 4,153 |
| | 4,350 |
| | 22 |
| | 20 |
| | 15 |
| | 14 |
|
| Other U.S. | 50,878 |
| | 53,315 |
| | 446 |
| | 439 |
| | 337 |
| | 336 |
| |
| Other | | Other | 52,747 |
| | 54,894 |
| | 476 |
| | 483 |
| | 367 |
| | 337 |
|
| Total U.S. credit card portfolio | Total U.S. credit card portfolio | $ | 88,552 |
| | $ | 92,278 |
| | $ | 801 |
| | $ | 782 |
| | $ | 606 |
| | $ | 587 |
| Total U.S. credit card portfolio | $ | 93,014 |
| | $ | 96,285 |
| | $ | 925 |
| | $ | 900 |
| | $ | 701 |
| | $ | 606 |
|
Non-U.S. Credit Card
On December 20, 2016, we entered into an agreement to sell our non-U.S. consumer credit card business to a third party. Subject to regulatory approval, this transaction is expected to close by mid-2017. For more information on the sale of our non-U.S. consumer credit card business, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
Outstandings in the non-U.S. credit card portfolio, which are recorded in AllDirect/Indirect and Other, increased $291 million during the three months ended March 31, 2017 primarily driven by higher cash and purchase volumes as well as strengthening of the British Pound against the U.S. Dollar. For the three months ended March 31, 2017, net charge-offs decreased $1 million to $44 million compared to the same period in 2016.
Unused lines of credit for non-U.S. credit card totaled $25.2 billion and $24.4 billion at March 31, 2017 and December 31,
2016. The $784 million increase was driven by account growth and line of credit increases coupled with strengthening of the British Pound against the U.S. Dollar.
Direct/Indirect Consumer
At March 31, 2017,2018, approximately 5354 percent of the direct/indirect portfolio was included in Consumer Banking (consumer auto and specialty lending – automotive, marine, aircraft, recreational vehicle loans and consumer personal loans) and 46 percent was included in GWIM (principally securities-based lending loans). At March 31, 2018, approximately 95 percent of the $2.9 billion other consumer portfolio was consumer auto leases included in Consumer Banking.
Outstandings in the direct/indirect portfolio decreased $1.3$2.6 billion to $91.2 billion during the three months ended March 31, 20172018 primarily driven bydue to lower draws and seasonal utilization in the securities-based lending portfolio. Net charge-offs increased $10 million to $58 million during the three months ended March 31, 2018 compared to the same period in 2017 due largely to portfolio seasoning.
Table 3027 presents certain state concentrations for the direct/indirect consumer loan portfolio.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 30 | Direct/Indirect State Concentrations | |
| Table 27 | | Direct/Indirect State Concentrations |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Outstandings | | Accruing Past Due
90 Days or More | | Net Charge-offs | | Outstandings | | Accruing Past Due
90 Days or More | | Net Charge-Offs |
| | | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 | | Three Months Ended March 31 | | March 31
2018 | | December 31
2017 | | March 31
2018 | | December 31
2017 | | Three Months Ended March 31 |
| (Dollars in millions) | (Dollars in millions) | | 2017 | | 2016 | (Dollars in millions) | | 2018 | | 2017 |
| California | California | $ | 11,218 |
| | $ | 11,300 |
| | $ | 2 |
| | $ | 3 |
| | $ | 5 |
| | $ | 4 |
| California | $ | 11,659 |
| | $ | 12,502 |
| | $ | 3 |
| | $ | 3 |
| | $ | 6 |
| | $ | 5 |
|
| Florida | Florida | 9,406 |
| | 9,418 |
| | 4 |
| | 3 |
| | 9 |
| | 7 |
| Florida | 10,612 |
| | 10,946 |
| | 5 |
| | 5 |
| | 9 |
| | 9 |
|
| Texas | Texas | 9,391 |
| | 9,406 |
| | 4 |
| | 5 |
| | 10 |
| | 4 |
| Texas | 10,338 |
| | 10,623 |
| | 4 |
| | 5 |
| | 9 |
| | 10 |
|
| New York | New York | 5,107 |
| | 5,253 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| New York | 5,907 |
| | 6,058 |
| | 2 |
| | 2 |
| | 3 |
| | 1 |
|
| Georgia | Georgia | 3,249 |
| | 3,255 |
| | 3 |
| | 4 |
| | 3 |
| | 3 |
| Georgia | 3,483 |
| | 3,502 |
| | 4 |
| | 4 |
| | 4 |
| | 3 |
|
| Other U.S./Non-U.S. | 54,423 |
| | 55,457 |
| | 17 |
| | 18 |
| | 20 |
| | 15 |
| |
| Other | | Other | 49,214 |
| | 50,199 |
| | 20 |
| | 21 |
| | 27 |
| | 20 |
|
| Total direct/indirect loan portfolio | Total direct/indirect loan portfolio | $ | 92,794 |
| | $ | 94,089 |
| | $ | 31 |
| | $ | 34 |
| | $ | 48 |
| | $ | 34 |
| Total direct/indirect loan portfolio | $ | 91,213 |
| | $ | 93,830 |
| | $ | 38 |
| | $ | 40 |
| | $ | 58 |
| | $ | 48 |
|
At March 31, 2017, approximately 78 percent of the $2.5 billion other consumer portfolio was consumer auto leases included in Consumer Banking. The remainder is primarily associated with certain consumer finance businesses that we previously exited.
Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity
Table 3128 presents nonperforming consumer loans, leases and foreclosed properties activity forduring the three months ended March 31, 20172018 and 2016.2017. For more information on nonperforming loans, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2016
Corporation’s 2017 Annual Report on Form 10-K and Note 45 – Outstanding Loans and Leases to the Consolidated Financial Statements. During the three months ended March 31, 2017,2018, nonperforming consumer loans declined $458$260 million to $5.5$4.9 billion primarily driven by net transfers of loans to held-for-sale of $221 million and loan sales of $142$269 million. Additionally, nonperforming loans declined as outflows outpaced new inflows.
The outstanding balance of a real estate-secured loan that is in excess of the estimated property value less costs to sell is charged off no later than the end of the month in which the loan becomes 180 days past due unless repayment of the loan is fully insured. At March 31, 2017, $2.32018, $1.5 billion, or 4031 percent, of nonperforming consumer real estate loans were 180 days or more past due and foreclosed
properties had been written down to their estimated property value less costs to sell, including $2.0 billion of nonperforming loans 180 days or more past due and $328 million of foreclosed properties.sell. In addition, at March 31, 2017, $2.32018, $2.2 billion, or 4245 percent, of nonperforming consumer loans were modified and are now current after successful trial periods, or are current loans classified as nonperforming loans in accordance with applicable policies.
Foreclosed properties decreased $35increased $28 million to $264 million during the three months ended March 31, 20172018 as liquidations additions
outpaced additions.liquidations. PCI loans are excluded from nonperforming loans as these loans were written down to fair value at the acquisition date; however, once we acquire the underlying real estate upon foreclosure of the delinquent PCI loan, it is included in foreclosed properties. PCI-related foreclosed properties decreased $10 million during the three months ended March 31, 2017. Not included in foreclosed properties at March 31, 2017 was $1.1 billion of real estate that was acquired upon foreclosure of certainCertain delinquent government-
guaranteedgovernment-guaranteed loans (principally FHA-insured loans). We exclude these amounts are excluded from our nonperforming loans and foreclosed properties activity as we expect we will be reimbursed once the property is conveyed to the guarantor for principal and, up to certain limits, costs incurred during the foreclosure process and interest incurredaccrued during the holding period.
We classify junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. At March 31, 2018 and December 31, 2017, $294 million and $330 million of such junior-lien home equity loans were included in nonperforming loans and leases.
Nonperforming loans also include certain loans that have been modified in TDRs where economic concessions have been granted to borrowers experiencing financial difficulties. These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructuring and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. Nonperforming TDRs, excluding those modified loans in the PCI loan portfolio, are included in Table 31.28.
|
| | | | | | | | |
| | | | | |
| Table 31 | Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity (1) |
| | | | | |
| | | Three Months Ended March 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Nonperforming loans and leases, January 1 | $ | 6,004 |
| | $ | 8,165 |
|
| Additions to nonperforming loans and leases: | | | |
| New nonperforming loans and leases | 818 |
| | 951 |
|
| Reductions to nonperforming loans and leases: | | | |
| Paydowns and payoffs | (230 | ) | | (133 | ) |
| Sales | (142 | ) | | (823 | ) |
Returns to performing status (2) | (386 | ) | | (441 | ) |
| Charge-offs | (240 | ) | | (395 | ) |
Transfers to foreclosed properties (3) | (57 | ) | | (77 | ) |
| Transfers to loans held-for-sale | (221 | ) | | — |
|
| Total net reductions to nonperforming loans and leases | (458 | ) | | (918 | ) |
Total nonperforming loans and leases, March 31 (4) | 5,546 |
| | 7,247 |
|
| Foreclosed properties, January 1 | 363 |
| | 444 |
|
| Additions to foreclosed properties: | | | |
New foreclosed properties (3) | 99 |
| | 110 |
|
| Reductions to foreclosed properties: | | | |
| Sales | (110 | ) | | (119 | ) |
| Write-downs | (24 | ) | | (14 | ) |
| Total net reductions to foreclosed properties | (35 | ) | | (23 | ) |
Total foreclosed properties, March 31 (5) | 328 |
| | 421 |
|
| Nonperforming consumer loans, leases and foreclosed properties, March 31 | $ | 5,874 |
| | $ | 7,668 |
|
Nonperforming consumer loans and leases as a percentage of outstanding consumer loans and leases (6) | 1.23 | % | | 1.62 | % |
Nonperforming consumer loans, leases and foreclosed properties as a percentage of outstanding consumer loans, leases and foreclosed properties (6) | 1.30 |
| | 1.71 |
|
|
| | | | | | | | |
| | | | | |
| Table 28 | Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity (1) | | | |
| | | | | |
| | | Three Months Ended March 31 |
| (Dollars in millions) | 2018 | | 2017 |
| Nonperforming loans and leases, January 1 | $ | 5,166 |
| | $ | 6,004 |
|
| Additions | 812 |
| | 818 |
|
| Reductions: | | | |
| Paydowns and payoffs | (245 | ) | | (296 | ) |
| Sales | (269 | ) | | (142 | ) |
Returns to performing status (2) | (364 | ) | | (386 | ) |
| Charge-offs | (147 | ) | | (174 | ) |
| Transfers to foreclosed properties | (45 | ) | | (57 | ) |
| Transfers to loans held-for-sale | (2 | ) | | (221 | ) |
| Total net reductions to nonperforming loans and leases | (260 | ) | | (458 | ) |
Total nonperforming loans and leases, March 31 (3) | 4,906 |
| | 5,546 |
|
Foreclosed properties, March 31 (4) | 264 |
| | 328 |
|
| Nonperforming consumer loans, leases and foreclosed properties, March 31 | $ | 5,170 |
| | $ | 5,874 |
|
Nonperforming consumer loans and leases as a percentage of outstanding consumer loans and leases (5) | 1.10 | % | | 1.23 | % |
Nonperforming consumer loans, leases and foreclosed properties as a percentage of outstanding consumer loans, leases and foreclosed properties (5) | 1.16 |
| | 1.30 |
|
| |
(1) | Balances do not include nonperforming LHFS of $1794 million and $5179 million and nonaccruing TDRs removed from the PCI loan portfolio prior to January 1, 2010 of $2824 million and $3628 million at March 31, 20172018 and 20162017 as well as loans accruing past due 90 days or more as presented in Table 2118 and Note 45 – Outstanding Loans and Leases to the Consolidated Financial Statements. |
| |
(2) | 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. |
| |
(3) | New foreclosed properties represents transfers of nonperforming loans to foreclosed properties net of charge-offs taken during the first 90 days after transfer of a loan to foreclosed properties. New foreclosed properties also includes properties obtained upon foreclosure of delinquent PCI loans, properties repurchased due to representations and warranties exposure and properties acquired with newly consolidated subsidiaries. |
| |
(4)
| At March 31, 2017, 362018, 31 percent of nonperforming loans were 180 days or more past due. |
| |
(5)(4)
| Foreclosed property balances do not include properties insured by certain government-guaranteed loans, principally FHA-insured, loans, of $680 million and $1.1 billion and $1.4 billion at March 31, 20172018 and 20162017. |
| |
(6)(5)
| Outstanding consumer loans and leases exclude loans accounted for under the fair value option. |
Our policy is to record any losses in the value of foreclosed properties as a reduction in the allowance for loan and lease losses during the first 90 days after transfer of a loan to foreclosed properties. Thereafter, further losses in value as well as gains and losses on sale are recorded in noninterest expense. New foreclosed properties included in Table 31 are net of $19 million and $18 million of charge-offs and write-offs of PCI loans for the three months ended March 31, 2017 and 2016, recorded during the first 90 days after transfer.
We classify junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. At March 31, 2017 and December 31, 2016, $412 million and $428 million of such junior-lien home equity loans were included in nonperforming loans and leases.
Table 3229 presents TDRs for the consumer real estate portfolio. Performing TDR balances are excluded from nonperforming loans and leases in Table 31.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 32 | Consumer Real Estate Troubled Debt Restructurings | |
| Table 29 | | Consumer Real Estate Troubled Debt Restructurings |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2017 | | December 31, 2016 | | March 31, 2018 | | December 31, 2017 |
| (Dollars in millions) | (Dollars in millions) | Total | | Nonperforming | | Performing | | Total | | Nonperforming | | Performing | (Dollars in millions) | Nonperforming | | Performing | | Total | | Nonperforming | | Performing | | Total |
Residential mortgage (1, 2) | $ | 11,880 |
| | $ | 1,779 |
| | $ | 10,101 |
| | $ | 12,631 |
| | $ | 1,992 |
| | $ | 10,639 |
| |
Residential mortgage (1, 2, 3) | | Residential mortgage (1, 2, 3) | $ | 1,425 |
| | $ | 6,594 |
| | $ | 8,019 |
| | $ | 1,535 |
| | $ | 8,163 |
| | $ | 9,698 |
|
Home equity (3)(4) | Home equity (3)(4) | 2,842 |
| | 1,563 |
| | 1,279 |
| | 2,777 |
| | 1,566 |
| | 1,211 |
| Home equity (3)(4) | 1,444 |
| | 1,409 |
| | 2,853 |
| | 1,457 |
| | 1,399 |
| | 2,856 |
|
| Total consumer real estate troubled debt restructurings | Total consumer real estate troubled debt restructurings | $ | 14,722 |
| | $ | 3,342 |
| | $ | 11,380 |
| | $ | 15,408 |
| | $ | 3,558 |
| | $ | 11,850 |
| Total consumer real estate troubled debt restructurings | $ | 2,869 |
| | $ | 8,003 |
| | $ | 10,872 |
| | $ | 2,992 |
| | $ | 9,562 |
| | $ | 12,554 |
|
| |
(1) | At March 31, 20172018 and December 31, 20162017, residential mortgage TDRs deemed collateral dependent totaled $3.31.8 billion and $3.52.8 billion, and included $1.41.1 billion and $1.2 billion of loans classified as nonperforming and $709 million and $1.6 billion of loans classified as nonperforming and $1.9 billion of loans classified as performing for both periods.performing. |
| |
(2) | Residential mortgage performing TDRs included $4.93.5 billion and $5.33.7 billion of loans that were fully-insured at March 31, 20172018 and December 31, 20162017. |
| |
(3) | During the three months ended March 31, 2018, the Corporation transferred impaired residential mortgage loans with a carrying value of $1.2 billion to held for sale. |
| |
(4) | Home equity TDRs deemed collateral dependent totaled $1.71.6 billion and $1.6 billion,for both periods and included $1.31.2 billion for both periods of loans classified as nonperforming, for both periods, and $337389 million and $301388 million of loans classified as performing at March 31, 20172018 and December 31, 20162017, respectively.. |
In addition to modifying consumer real estate loans, we work with customers who are experiencing financial difficulty by modifying credit card and other consumer loans. Credit card and other consumer loan modifications generally involve a reduction in the customer’s interest rate on the account and placing the customer on a fixed payment plan not exceeding 60 months, all of which are considered TDRs (the renegotiated TDR portfolio). In addition, the accounts of non-U.S. credit card customers who do not qualify for a fixed payment plan may have their interest rates reduced, as required by certain local jurisdictions. These modifications, which are also TDRs, tend to experience higher payment default rates given that the borrowers may lack the ability to repay even with the interest rate reduction. In all cases, the customer’s available line of credit is canceled.
Modifications of credit card and other consumer loans are made through renegotiation programs utilizing direct customer contact, but may also utilize external renegotiation programs. The renegotiated TDR portfolio is excluded in large part from Table 3128 as substantially all of the loans remain on accrual status until either charged off or paid in full. At March 31, 20172018 and December 31, 2016,2017, our renegotiated TDR portfolio was $594$501 million and $610$490 million,, of which $474$433 million and $493$426 million were current or less than 30 days past due under the modified terms. The declineincrease in the renegotiated TDR portfolio was primarily driven by paydowns and charge-offs as well as lower program enrollments.new renegotiated enrollments outpacing the run off of existing portfolios. For more information on the renegotiated TDR portfolio, see Note 45 – Outstanding Loans and Leasesto the Consolidated Financial Statements.Statements.
Commercial Portfolio Credit Risk Management
Commercial credit risk is evaluated and managed with the goal that concentrations of credit exposure do not result in undesirable levels of risk. 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 34, 37 40 and 4542 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, including our utilized exposure to the energy sector, which was three percent of total commercial utilized exposure at both March 31, 2017 and December 31, 2016, see Commercial Portfolio Credit Risk Management – Industry Concentrations on page 4737 and Table 40.37.
For more information on our accounting policies regarding delinquencies, nonperforming status, and net charge-offs and delinquencies for the commercial portfolio, see Note 1 – Summary of Significant Accounting Principlesto the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
Commercial Credit Portfolio
During the three months ended March 31, 2017, other than in the higher risk energy sub-sectors,2018, credit quality among large corporate borrowers was strong. We saw furtherstrong and there was continued improvement in the energy sector in the three months ended March 31, 2017, with continued stability in oil prices.portfolio. Credit quality of commercial real estate borrowers continued to be strong with conservative LTV ratios, stable market rents in most sectors and vacancy rates remainingthat remain low.
OutstandingTotal commercial loans and leasesutilized credit exposure increased $5.0$8.9 billion during the three months ended March 31, 20172018 primarily driven by increases in U.S. commercial. Nonperforming commercialderivative assets and loans and leases, decreased $7 million to $1.8 billion during the three months ended
March 31, 2017. Nonperforming commercialpartially offset by decreases in LHFS. The utilization rate for loans and leases, as a percentagestandby letters of outstandingcredit (SBLCs) and financial guarantees, and commercial loansletters of credit, in the aggregate, was 58 percent and leases, excluding loans accounted for under the fair value option, was 0.3859 percent at both March 31, 20172018 and December 31, 2016. Reservable criticized balances decreased $252 million to $16.1 billion during the three months ended March 31, 2017 driven by improvements in the energy sector. The allowance for loan and lease losses for the commercial portfolio decreased $40 million to $5.2 billion at March 31, 2017. For additional information, see Allowance for Credit Losses on page 51.
Table 33 presents our commercial loans and leases portfolio and related credit quality information at March 31, 2017 and December 31, 2016.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Table 33 | Commercial Loans and Leases |
| | | |
| | | Outstandings | | Nonperforming | | Accruing Past Due 90 Days or More |
| (Dollars in millions) | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 |
| U.S. commercial | $ | 274,868 |
| | $ | 270,372 |
| | $ | 1,246 |
| | $ | 1,256 |
| | $ | 112 |
| | $ | 106 |
|
Commercial real estate (1) | 57,849 |
| | 57,355 |
| | 74 |
| | 72 |
| | — |
| | 7 |
|
| Commercial lease financing | 21,873 |
| | 22,375 |
| | 37 |
| | 36 |
| | 9 |
| | 19 |
|
| Non-U.S. commercial | 89,179 |
| | 89,397 |
| | 311 |
| | 279 |
| | 45 |
| | 5 |
|
| | | 443,769 |
| | 439,499 |
| | 1,668 |
| | 1,643 |
| | 166 |
| | 137 |
|
U.S. small business commercial (2) | 13,302 |
| | 12,993 |
| | 60 |
| | 60 |
| | 69 |
| | 71 |
|
| Commercial loans excluding loans accounted for under the fair value option | 457,071 |
| | 452,492 |
| | 1,728 |
| | 1,703 |
| | 235 |
| | 208 |
|
Loans accounted for under the fair value option (3) | 6,496 |
| | 6,034 |
| | 52 |
| | 84 |
| | — |
| | — |
|
| Total commercial loans and leases | $ | 463,567 |
| | $ | 458,526 |
| | $ | 1,780 |
| | $ | 1,787 |
| | $ | 235 |
| | $ | 208 |
|
| |
(1)
| Includes U.S. commercial real estate loans of $54.7 billion and $54.3 billion at March 31, 2017 and December 31, 2016 and includes $3.1 billion of non-U.S. commercial real estate loans for both periods.
|
| |
(2)
| Includes card-related products. |
| |
(3)
| Commercial loans accounted for under the fair value option include U.S. commercial loans of $3.5 billion and $2.9 billion and non-U.S. commercial loans of $3.0 billion and $3.1 billion at March 31, 2017 and December 31, 2016. For more information on the fair value option, see Note 15 – Fair Value Option to the Consolidated Financial Statements.
|
Table 34 presents net charge-offs and related ratios for our commercial loans and leases for the three months ended March 31, 2017 and 2016. The decrease in net charge-offs of $44 million for the three months ended March 31, 2017 compared to the same period in 2016 was primarily due to lower energy sector related losses.
|
| | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 34 | Commercial Net Charge-offs and Related Ratios |
| | | Three Months Ended March 31 |
| | | Net Charge-offs | | Net Charge-off Ratios (1) |
| (Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| U.S. commercial | $ | 44 |
| | $ | 65 |
| | 0.06 | % | | 0.10 | % |
| Commercial real estate | (4 | ) | | (6 | ) | | (0.03 | ) | | (0.04 | ) |
| Commercial lease financing | — |
| | (2 | ) | | — |
| | (0.05 | ) |
| Non-U.S. commercial | 15 |
| | 42 |
| | 0.07 |
| | 0.19 |
|
| | | 55 |
| | 99 |
| | 0.05 |
| | 0.09 |
|
| U.S. small business commercial | 52 |
| | 52 |
| | 1.61 |
| | 1.64 |
|
| Total commercial | $ | 107 |
| | $ | 151 |
| | 0.10 |
| | 0.14 |
|
| |
(1)
| Net charge-off ratios are calculated as annualized net charge-offs divided by average outstanding loans and leases excluding loans accounted for under the fair value option. |
Table 3530 presents commercial credit exposure by type for utilized, unfunded and total binding committed credit exposure. Commercial utilized credit exposure includes standby letters of credit (SBLCs)SBLCs and financial guarantees bankers’ acceptances 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.
Total commercial utilized credit exposure increased$9.3 billion during the three months ended March 31, 2017 primarily driven by increases in loans and leases and LHFS. The utilization rate for loans and leases, SBLCs and financial guarantees, commercial letters of credit and bankers acceptances, in the aggregate, was 58 percent at March 31, 2017 and December 31, 2016.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 35 | Commercial Credit Exposure by Type | |
| Table 30 | | Commercial Credit Exposure by Type |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Commercial Utilized (1) | | Commercial Unfunded (2, 3, 4) | | Total Commercial Committed | | Commercial Utilized (1) | | Commercial Unfunded (2, 3, 4) | | Total Commercial Committed |
| (Dollars in millions) | (Dollars in millions) | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 | (Dollars in millions) | March 31
2018 | | December 31
2017 | | March 31
2018 | | December 31
2017 | | March 31
2018 | | December 31
2017 |
Loans and leases (5) | Loans and leases (5) | $ | 469,329 |
| | $ | 464,260 |
| | $ | 359,969 |
| | $ | 366,106 |
| | $ | 829,298 |
| | $ | 830,366 |
| Loans and leases (5) | $ | 492,900 |
| | $ | 487,748 |
| | $ | 375,888 |
| | $ | 364,743 |
| | $ | 868,788 |
| | $ | 852,491 |
|
Derivative assets (6) | Derivative assets (6) | 40,078 |
| | 42,512 |
| | — |
| | — |
| | 40,078 |
| | 42,512 |
| Derivative assets (6) | 47,869 |
| | 37,762 |
| | — |
| | — |
| | 47,869 |
| | 37,762 |
|
| Standby letters of credit and financial guarantees | Standby letters of credit and financial guarantees | 33,465 |
| | 33,135 |
| | 596 |
| | 660 |
| | 34,061 |
| | 33,795 |
| Standby letters of credit and financial guarantees | 33,969 |
| | 34,517 |
| | 583 |
| | 863 |
| | 34,552 |
| | 35,380 |
|
| Debt securities and other investments | Debt securities and other investments | 26,318 |
| | 26,244 |
| | 5,618 |
| | 5,474 |
| | 31,936 |
| | 31,718 |
| Debt securities and other investments | 26,998 |
| | 28,161 |
| | 4,461 |
| | 4,864 |
| | 31,459 |
| | 33,025 |
|
| Loans held-for-sale | Loans held-for-sale | 12,964 |
| | 6,510 |
| | 2,433 |
| | 3,824 |
| | 15,397 |
| | 10,334 |
| Loans held-for-sale | 5,653 |
| | 10,257 |
| | 16,887 |
| | 9,742 |
| | 22,540 |
| | 19,999 |
|
| Commercial letters of credit | Commercial letters of credit | 1,313 |
| | 1,464 |
| | 121 |
| | 112 |
| | 1,434 |
| | 1,576 |
| Commercial letters of credit | 1,351 |
| | 1,467 |
| | 117 |
| | 155 |
| | 1,468 |
| | 1,622 |
|
| Bankers’ acceptances | 364 |
| | 395 |
| | — |
| | 13 |
| | 364 |
| | 408 |
| |
| Other | Other | 391 |
| | 372 |
| | — |
| | — |
| | 391 |
| | 372 |
| Other | 948 |
| | 888 |
| | — |
| | — |
| | 948 |
| | 888 |
|
| Total | | $ | 584,222 |
| | $ | 574,892 |
| | $ | 368,737 |
| | $ | 376,189 |
| | $ | 952,959 |
| | $ | 951,081 |
| | $ | 609,688 |
| | $ | 600,800 |
| | $ | 397,936 |
| | $ | 380,367 |
| | $ | 1,007,624 |
| | $ | 981,167 |
|
| |
(1) | Commercial utilized exposure includes loans of $6.55.1 billion and $6.04.8 billion and issued letters of credit with a notional amount of $308193 million and $284232 million accounted for under the fair value option at March 31, 20172018 and December 31, 20162017. |
| |
(2) | Commercial unfunded exposure includes commitments accounted for under the fair value option with a notional amount of $5.64.2 billion and $6.74.6 billion at March 31, 20172018 and December 31, 20162017. |
| |
(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 (e.g.(i.e., syndicated or participated) to other financial institutions. The distributed amounts were $11.910.9 billion and $12.111.0 billion at March 31, 20172018 and December 31, 20162017. |
| |
(5) | Includes credit risk exposure associated with assets under operating lease arrangements of $5.8$6.2 billion and $5.7$6.3 billion at March 31, 20172018 and December 31, 20162017. |
| |
(6) | Derivative assets are carried at fair value, reflect the effects of legally enforceable master netting agreements and have been reduced by cash collateral of $35.536.5 billion and $43.334.6 billion at March 31, 20172018 and December 31, 20162017. Not reflected in utilized and committed exposure is additional non-cash derivative collateral held of $24.836.9 billion and $25.326.2 billion at March 31, 20172018 and December 31, 20162017, which consists primarily of other marketable securities. |
Outstanding commercial loans and leases increased $5.2 billion during the three months ended March 31, 2018 primarily due to growth in commercial and industrial loans. During the three months ended March 31, 2018, reservable criticized balances decreased $197 million to $13.4 billion primarily driven by improvements in the energy sector, while nonperforming commercial loans and leases, excluding loans accounted for under
the fair value option, increased $168 million to $1.5 billion. The allowance for loan and lease losses for the commercial portfolio was unchanged at $5.0 billion at March 31, 2018. For more information, see Allowance for Credit Losses on page 41. Table 3631 presents our commercial loans and leases portfolio and related credit quality information at March 31, 2018 and December 31, 2017.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Table 31 | Commercial Credit Quality |
| | | |
| | | Outstandings | | Nonperforming | | Accruing Past Due 90 Days or More |
| (Dollars in millions) | March 31
2018 | | December 31
2017 | | March 31
2018 | | December 31
2017 | | March 31
2018 | | December 31
2017 |
| Commercial and industrial: | | | | | | | | | | | |
| U.S. commercial | $ | 288,476 |
| | $ | 284,836 |
| | $ | 1,059 |
| | $ | 814 |
| | $ | 98 |
| | $ | 144 |
|
| Non-U.S. commercial | 97,365 |
| | 97,792 |
| | 255 |
| | 299 |
| | — |
| | 3 |
|
| Total commercial and industrial | 385,841 |
| | 382,628 |
| | 1,314 |
| | 1,113 |
| | 98 |
| | 147 |
|
Commercial real estate (1) | 60,085 |
| | 58,298 |
| | 73 |
| | 112 |
| | 13 |
| | 4 |
|
| Commercial lease financing | 21,764 |
| | 22,116 |
| | 27 |
| | 24 |
| | 8 |
| | 19 |
|
| | 467,690 |
| | 463,042 |
| | 1,414 |
| | 1,249 |
| | 119 |
| | 170 |
|
U.S. small business commercial (2) | 13,892 |
| | 13,649 |
| | 58 |
| | 55 |
| | 76 |
| | 75 |
|
| Commercial loans excluding loans accounted for under the fair value option | 481,582 |
| | 476,691 |
| | 1,472 |
| | 1,304 |
| | 195 |
| | 245 |
|
Loans accounted for under the fair value option (3) | 5,095 |
| | 4,782 |
| | 12 |
| | 43 |
| | — |
| | — |
|
| Total commercial loans and leases | $ | 486,677 |
| | $ | 481,473 |
| | $ | 1,484 |
| | $ | 1,347 |
| | $ | 195 |
| | $ | 245 |
|
| |
(1) | Includes U.S. commercial real estate of $55.6 billion and $54.8 billion and non-U.S. commercial real estate of $4.5 billion and $3.5 billion at March 31, 2018 and December 31, 2017. |
| |
(2) | Includes card-related products. |
| |
(3) | Commercial loans accounted for under the fair value option include U.S. commercial of $3.2 billion and $2.6 billion and non-U.S. commercial of $1.9 billion and $2.2 billion at March 31, 2018 and December 31, 2017. For more information on the fair value option, see Note 15 – Fair Value Option to the Consolidated Financial Statements. |
Table 32 presents net charge-offs and related ratios for our commercial loans and leases for the three months ended March 31, 2018 and 2017. Net charge-offs declined $26 million for the three months ended March 31, 2018 compared to the same period in 2017.
|
| | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 32 | Commercial Net Charge-offs and Related Ratios |
| | | | | | |
| | | Net Charge-offs | | Net Charge-off Ratios (1) |
| | | Three Months Ended March 31 |
| (Dollars in millions) | 2018 | | 2017 | | 2018 | | 2017 |
| Commercial and industrial: | | | | | | | |
| U.S. commercial | $ | 24 |
| | $ | 44 |
| | 0.03 | % | | 0.06 | % |
| Non-U.S. commercial | 4 |
| | 15 |
| | 0.02 |
| | 0.07 |
|
| Total commercial and industrial | 28 |
| | 59 |
| | 0.03 |
| | 0.07 |
|
| Commercial real estate | (3 | ) | | (4 | ) | | (0.02 | ) | | (0.03 | ) |
| Commercial lease financing | (1 | ) | | — |
| | (0.01 | ) | | — |
|
| | | 24 |
| | 55 |
| | 0.02 |
| | 0.05 |
|
| U.S. small business commercial | 57 |
| | 52 |
| | 1.67 |
| | 1.61 |
|
| Total commercial | $ | 81 |
| | $ | 107 |
| | 0.07 |
| | 0.10 |
|
| |
(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 33 presents commercial utilized reservable criticized exposure by loan type. Criticized exposure corresponds to the Special Mention, Substandard and Doubtful asset categories as defined by regulatory authorities. Total commercial utilized reservable criticized exposure decreased$252 $197 million,, or two
one percent,, during the three months ended March 31, 20172018 primarily driven by paydownsupgrades and net upgradespaydowns in the energy portfolio. Approximately 7686 percent and 84 percent of commercial utilized reservable criticized exposure was secured at both March 31, 20172018 and December 31, 2016.
| | | | | | | | | | | | | | | | | | | |
| Table 36 | Commercial Utilized Reservable Criticized Exposure | |
| Table 33 | | Commercial Utilized Reservable Criticized Exposure |
| | | | | | | | | | | | | | | | | |
| | | March 31, 2017 | | December 31, 2016 | | Amount (1) | | Percent (2) | | Amount (1) | | Percent (2) |
| (Dollars in millions) | (Dollars in millions) | Amount (1) | | Percent (2) | | Amount (1) | | Percent (2) | (Dollars in millions) | March 31, 2018 | | December 31, 2017 |
| Commercial and industrial: | | Commercial and industrial: |
| U.S. commercial | U.S. commercial | $ | 10,337 |
| | 3.42 | % | | $ | 10,311 |
| | 3.46 | % | U.S. commercial | $ | 9,874 |
| | 3.12 | % | | $ | 9,891 |
| | 3.15 | % |
| Non-U.S. commercial | | Non-U.S. commercial | 1,719 |
| | 1.66 |
| | 1,766 |
| | 1.70 |
|
| Total commercial and industrial | | Total commercial and industrial | 11,593 |
| | 2.76 |
| | 11,657 |
| | 2.79 |
|
| Commercial real estate | Commercial real estate | 387 |
| | 0.65 |
| | 399 |
| | 0.68 |
| Commercial real estate | 523 |
| | 0.85 |
| | 566 |
| | 0.95 |
|
| Commercial lease financing | Commercial lease financing | 828 |
| | 3.78 |
| | 810 |
| | 3.62 |
| Commercial lease financing | 489 |
| | 2.25 |
| | 581 |
| | 2.63 |
|
| Non-U.S. commercial | 3,668 |
| | 3.86 |
| | 3,974 |
| | 4.17 |
| |
| | | 15,220 |
| | 3.18 |
| | 15,494 |
| | 3.27 |
| | 12,605 |
| | 2.50 |
| | 12,804 |
| | 2.57 |
|
| U.S. small business commercial | U.S. small business commercial | 848 |
| | 6.37 |
| | 826 |
| | 6.36 |
| U.S. small business commercial | 761 |
| | 5.48 |
| | 759 |
| | 5.56 |
|
| Total commercial utilized reservable criticized exposure | Total commercial utilized reservable criticized exposure | $ | 16,068 |
| | 3.27 |
| | $ | 16,320 |
| | 3.35 |
| Total commercial utilized reservable criticized exposure | $ | 13,366 |
| | 2.58 |
| | $ | 13,563 |
| | 2.65 |
|
| |
(1) | Total commercial utilized reservable criticized exposure includes loans and leases of $14.812.3 billion and $14.912.5 billion and commercial letters of credit of $1.3 billion and $1.41.1 billion at both March 31, 20172018 and December 31, 20162017. |
| |
(2) | Percentages are calculated as commercial utilized reservable criticized exposure divided by total commercial utilized reservable 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 March 31, 2017, 722018, 70 percent of the U.S. commercial loan portfolio, excluding small business, was managed in Global Banking,16 17 percent in Global Markets, 1012 percent in GWIM (generally business-purpose loans for high net worth clients) and the remainder primarily in Consumer Banking. U.S. commercial loans, excluding loans accounted for under the fair value option, increased $4.5$3.6 billion, or twoone percent, during the three months ended March 31, 20172018 due to growth across most of the commercial businesses. Reservable criticized balances increased and nonperformingNonperforming loans and leases decreased inincreased $245 million, or 30 percent, during the three months ended March 31, 2017, each with changes2018 driven by a small number of client downgrades across industries. Reservable criticized balances decreased $17 million, or less than
one percent. Net charge-offs decreased $21$20 million for the three months ended March 31, 20172018 compared to the same period in 2016 due2017.
Non-U.S. Commercial
At March 31, 2018, 79 percent of the non-U.S. commercial loan portfolio was managed in Global Banking and 21 percent in Global Markets. Outstanding loans, excluding loans accounted for under the fair value option, decreased $427 million during the three months ended March 31, 2018. Nonperforming loans and leases decreased $44 million, or 15 percent, and reservable criticized balances decreased $47 million, or three percent. Net charge-offs decreased $11 million for the three months ended March 31, 2018 to lower energy sector related losses.$4 million. For more information on the non-U.S. commercial portfolio, see Non-U.S. Portfolio on page 40.
Commercial Real Estate
Commercial real estate primarily includes commercial loans and leases 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. The portfolio remains diversified across property types and geographic regions. California represented the largest state concentration at 23 percent of the commercial real estate loans and leases portfolio at both March 31, 20172018 and December 31, 2016.2017. The commercial real estate portfolio is
predominantly managed in Global Banking and consists of loans made primarily to public and private developers, and commercial real estate firms. Outstanding loans increased $494 million,$1.8 billion, or onethree percent, during the three months ended March 31, 20172018 to $60.1 billion due to new originations slightly outpacing paydowns.
For the three months ended March 31, 2017,2018, we continued to see low default rates and solid credit quality in both the residential and non-residential portfolios. 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 to 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.
Nonperforming commercial real estate loans and foreclosed properties increased $23decreased $39 million, or 27 percent, due to higher foreclosed properties. Reservable criticized balances decreased $12 million, or three24 percent, during the three months ended March 31, 20172018 to $125 million at March 31, 2018 and reservable criticized balances decreased $43 million, or eight percent, to $523 million primarily due to loan resolutions.paydowns. Net recoveries were $4 million and $6$3 million for the three months ended March 31, 2017 and 2016. 2018 compared to $4 million for the same period in 2017.
Table 3734 presents outstanding commercial real estate loans by geographic region, based on the geographic location of the collateral, and by property type.
| | | | | | | | | | | |
| Table 37 | Outstanding Commercial Real Estate Loans | |
| Table 34 | | Outstanding Commercial Real Estate Loans |
| | | | | | | | | |
| (Dollars in millions) | (Dollars in millions) | March 31
2017 | | December 31
2016 | (Dollars in millions) | March 31
2018 | | December 31
2017 |
| By Geographic Region | By Geographic Region | |
| | |
| By Geographic Region | |
| | |
|
| California | California | $ | 13,158 |
| | $ | 13,450 |
| California | $ | 14,059 |
| | $ | 13,607 |
|
| Northeast | Northeast | 9,939 |
| | 10,329 |
| Northeast | 9,898 |
| | 10,072 |
|
| Southwest | Southwest | 7,559 |
| | 7,567 |
| Southwest | 7,092 |
| | 6,970 |
|
| Southeast | Southeast | 5,915 |
| | 5,630 |
| Southeast | 5,708 |
| | 5,487 |
|
| Midwest | Midwest | 4,412 |
| | 4,380 |
| Midwest | 3,883 |
| | 3,769 |
|
| Florida | Florida | 3,380 |
| | 3,213 |
| Florida | 3,425 |
| | 3,170 |
|
| Northwest | 2,684 |
| | 2,430 |
| |
| Midsouth | Midsouth | 2,605 |
| | 2,346 |
| Midsouth | 3,386 |
| | 2,962 |
|
| Illinois | Illinois | 2,452 |
| | 2,408 |
| Illinois | 2,838 |
| | 3,263 |
|
| Northwest | | Northwest | 2,487 |
| | 2,657 |
|
| Non-U.S. | Non-U.S. | 3,118 |
| | 3,103 |
| Non-U.S. | 4,506 |
| | 3,538 |
|
Other (1) | Other (1) | 2,627 |
| | 2,499 |
| Other (1) | 2,803 |
| | 2,803 |
|
| Total outstanding commercial real estate loans | Total outstanding commercial real estate loans | $ | 57,849 |
| | $ | 57,355 |
| Total outstanding commercial real estate loans | $ | 60,085 |
| | $ | 58,298 |
|
| By Property Type | By Property Type | |
| | |
| By Property Type | |
| | |
|
| Non-residential | Non-residential | | | | Non-residential | | | |
| Office | Office | $ | 17,207 |
| | $ | 16,643 |
| Office | $ | 17,442 |
| | $ | 16,718 |
|
| Shopping centers/retail | 8,908 |
| | 8,794 |
| |
| Shopping centers / Retail | | Shopping centers / Retail | 8,927 |
| | 8,825 |
|
| Multi-family rental | Multi-family rental | 8,472 |
| | 8,817 |
| Multi-family rental | 8,401 |
| | 8,280 |
|
| Hotels / Motels | Hotels / Motels | 5,819 |
| | 5,550 |
| Hotels / Motels | 6,410 |
| | 6,344 |
|
| Industrial / Warehouse | Industrial / Warehouse | 5,162 |
| | 5,357 |
| Industrial / Warehouse | 5,948 |
| | 6,070 |
|
| Multi-Use | 2,935 |
| | 2,822 |
| |
| Unsecured | Unsecured | 1,967 |
| | 1,730 |
| Unsecured | 3,039 |
| | 2,187 |
|
| Multi-use | | Multi-use | 2,445 |
| | 2,771 |
|
| Land and land development | Land and land development | 315 |
| | 357 |
| Land and land development | 149 |
| | 160 |
|
| Other | Other | 5,428 |
| | 5,595 |
| Other | 6,101 |
| | 5,485 |
|
| Total non-residential | Total non-residential | 56,213 |
| | 55,665 |
| Total non-residential | 58,862 |
| | 56,840 |
|
| Residential | Residential | 1,636 |
| | 1,690 |
| Residential | 1,223 |
| | 1,458 |
|
| Total outstanding commercial real estate loans | Total outstanding commercial real estate loans | $ | 57,849 |
| | $ | 57,355 |
| Total outstanding commercial real estate loans | $ | 60,085 |
| | $ | 58,298 |
|
| |
(1) | Includes unsecured loans to real estate investment trusts and national home builders whose portfolios of properties span multiple geographic regions and properties in the states of Colorado, Utah, Hawaii, Wyoming and Montana. |
At March 31, 2017, total committed non-residential exposure was $78.4 billion compared to $76.9 billion at December 31, 2016, of which $56.2 billion and $55.7 billion were funded loans. Non-residential nonperforming loans and foreclosed properties increased $24 million, or 30 percent, to $104 million at March 31, 2017 due to higher foreclosed properties. The non-residential nonperforming loans and foreclosed properties represented 0.18 percent and 0.14 percent of total non-residential loans and foreclosed properties at March 31, 2017 and December 31, 2016. Non-residential utilized reservable criticized exposure decreased $12 million, or three percent, to $385 million at March 31, 2017 compared to $397 million at December 31, 2016, which represented 0.67 percent and 0.70 percent of non-residential utilized reservable exposure, related to strong commercial real estate fundamentals in most sectors. For the non-residential portfolio, net recoveries decreased $2 million to $4 million for the three months ended March 31, 2017 compared to the same period in 2016.
At March 31, 2017, total committed residential exposure was $3.3 billion compared to $3.7 billion at December 31, 2016, of which $1.6 billion and $1.7 billion were funded secured loans. The nonperforming loans, leases and foreclosed properties and the utilized reservable criticized ratios for the residential portfolio were 0.32 percent and 0.13 percent at March 31, 2017 compared to 0.35 percent and 0.16 percent at December 31, 2016.
At March 31, 2017 and December 31, 2016, the commercial real estate loan portfolio included $7.0 billion and $6.8 billion of funded construction and land development loans that were originated to fund the construction and/or rehabilitation of commercial properties. Reservable criticized construction and land development loans totaled $122 million and $107 million, and nonperforming construction and land development loans and foreclosed properties totaled $56 million and $44 million at March 31, 2017 and December 31, 2016. During a property’s construction phase, interest income is typically paid from interest reserves that are established at the inception of the loan. As construction is completed and the property is put into service,
45 |
| | |
| | Bank of America36Bank of America
|
these interest reserves are depleted and interest payments from operating cash flows begin. We do not recognize interest income on nonperforming loans regardless of the existence of an interest reserve.
Non-U.S. Commercial
At March 31, 2017, 78 percent of the non-U.S. commercial loan portfolio was managed in Global Banking and 22 percent in Global Markets. Outstanding loans, excluding loans accounted for under the fair value option, decreased $218 million during the three months ended March 31, 2017 primarily due to payoffs. Net charge-offs decreased$27 million to $15 million for the three months ended March 31, 2017 compared to the same period in 2016, primarily due to a decline in energy sector related losses. For more information on the non-U.S. commercial portfolio, see Non-U.S. Portfolio on page 50.
U.S. Small Business Commercial
The U.S. small business commercial loan portfolio is comprised of small business card loans and small business loans managed in Consumer Banking. Credit card-related products were 50 percent and 48 percent of the U.S. small business commercial portfolio at both March 31, 20172018 and December 31, 2016.2017. Net charge-offs were
unchanged at $52 $57 million for the three months ended March 31, 20172018 compared to $52 million for the same period in 2016.2017. Of the U.S. small business commercial net charge-offs, 8895 percent were credit card-related products for the three months ended March 31, 20172018 compared to 8988 percent for the same period in 2016.2017.
Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity
Table 3835 presents the nonperforming commercial loans, leases and foreclosed properties activity during the three months ended March 31, 20172018 and 2016.2017. Nonperforming loans do not include loans accounted for under the fair value option. During the three months ended March 31, 2017,2018, nonperforming commercial loans and leases increased $25$168 million to $1.7$1.5 billion. Approximately 7683 percent of commercial nonperforming loans, leases and foreclosed properties were secured and approximately 6755 percent were contractually current. Commercial nonperforming loans were carried at approximately 89 percent of their unpaid principal balance before consideration of the allowance for loan and lease losses as the carrying value of these loans has been reduced to the estimated property value less costs to sell.
|
| | | | | | | | |
| | | | | |
| Table 38 | Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity (1, 2) |
| | | Three Months Ended March 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Nonperforming loans and leases, January 1 | $ | 1,703 |
| | $ | 1,212 |
|
| Additions to nonperforming loans and leases: | |
| | |
|
| New nonperforming loans and leases | 458 |
| | 697 |
|
| Advances | 14 |
| | 9 |
|
| Reductions to nonperforming loans and leases: | |
| | |
|
| Paydowns | (267 | ) | | (120 | ) |
| Sales | (22 | ) | | (6 | ) |
Returns to performing status (3) | (54 | ) | | (47 | ) |
| Charge-offs | (82 | ) | | (142 | ) |
Transfers to foreclosed properties (4) | (22 | ) | | — |
|
| Total net additions to nonperforming loans and leases | 25 |
| | 391 |
|
| Total nonperforming loans and leases, March 31 | 1,728 |
| | 1,603 |
|
| Foreclosed properties, January 1 | 14 |
| | 15 |
|
| Additions to foreclosed properties: | |
| | |
|
New foreclosed properties (4) | 21 |
| | — |
|
| Reductions to foreclosed properties: | |
| | |
|
| Sales | — |
| | (5 | ) |
| Total net additions (reductions) to foreclosed properties | 21 |
| | (5 | ) |
| Total foreclosed properties, March 31 | 35 |
| | 10 |
|
| Nonperforming commercial loans, leases and foreclosed properties, March 31 | $ | 1,763 |
| | $ | 1,613 |
|
Nonperforming commercial loans and leases as a percentage of outstanding commercial loans and leases (5) | 0.38 | % | | 0.36 | % |
Nonperforming commercial loans, leases and foreclosed properties as a percentage of outstanding commercial loans, leases and foreclosed properties (5) | 0.39 |
| | 0.36 |
|
|
| | | | | | | | |
| | | | | |
| Table 35 | Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity (1, 2) |
| | | |
| | | Three Months Ended March 31 |
| (Dollars in millions) | 2018 | | 2017 |
| Nonperforming loans and leases, January 1 | $ | 1,304 |
| | $ | 1,703 |
|
| Additions | 436 |
| | 472 |
|
| Reductions: | | | |
|
| Paydowns | (169 | ) | | (267 | ) |
| Sales | (24 | ) | | (22 | ) |
Returns to performing status (3) | (27 | ) | | (54 | ) |
| Charge-offs | (48 | ) | | (82 | ) |
| Transfers to foreclosed properties | — |
| | (22 | ) |
| Total net additions to nonperforming loans and leases | 168 |
| | 25 |
|
| Total nonperforming loans and leases, March 31 | 1,472 |
| | 1,728 |
|
| Foreclosed properties, March 31 | 52 |
| | 35 |
|
| Nonperforming commercial loans, leases and foreclosed properties, March 31 | $ | 1,524 |
| | $ | 1,763 |
|
Nonperforming commercial loans and leases as a percentage of outstanding commercial loans and leases (4) | 0.31 | % | | 0.38 | % |
Nonperforming commercial loans, leases and foreclosed properties as a percentage of outstanding commercial loans, leases and foreclosed properties (4) | 0.32 |
| | 0.39 |
|
| |
(1) | Balances do not include nonperforming LHFS of $246$228 million and $260$246 million at March 31, 20172018 and 20162017. |
| |
(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, or when the loan otherwise becomes well-secured and is in the process of collection. TDRs are generally classified as performing after a sustained period of demonstrated payment performance. |
| |
(4) | New foreclosed properties represents transfers of nonperforming loans to foreclosed properties net of charge-offs recorded during the first 90 days after transfer of a loan to foreclosed properties. |
| |
(5)
| Outstanding commercial loans exclude loans accounted for under the fair value option. |
Table 3936 presents our commercial TDRs by product type and performing status. U.S. small business commercial TDRs are comprised of renegotiated small business card loans and small business loans. The renegotiated small business card loans are
not classified as nonperforming as they are charged off no later than the end of the month in which the loan becomes 180 days past due. For more information on TDRs, see Note 45 – Outstanding Loans and Leases to the Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 39 | Commercial Troubled Debt Restructurings | |
| Table 36 | | Commercial Troubled Debt Restructurings |
| | | | | |
| | | March 31, 2017 | | December 31, 2016 | | March 31, 2018 | | December 31, 2017 |
| (Dollars in millions) | (Dollars in millions) | Total | | Non-performing | | Performing | | Total | | Non-performing | | Performing | (Dollars in millions) | Nonperforming | | Performing | | Total | | Nonperforming | | Performing | | Total |
| Commercial and industrial: | | Commercial and industrial: |
| U.S. commercial | U.S. commercial | $ | 1,574 |
| | $ | 553 |
| | $ | 1,021 |
| | $ | 1,860 |
| | $ | 720 |
| | $ | 1,140 |
| U.S. commercial | $ | 432 |
| | $ | 919 |
| | $ | 1,351 |
| | $ | 370 |
| | $ | 866 |
| | $ | 1,236 |
|
| Non-U.S. commercial | | Non-U.S. commercial | 224 |
| | 220 |
| | 444 |
| | 11 |
| | 219 |
| | 230 |
|
| Total commercial and industrial | | Total commercial and industrial | 656 |
| | 1,139 |
| | 1,795 |
| | 381 |
| | 1,085 |
| | 1,466 |
|
| Commercial real estate | Commercial real estate | 80 |
| | 41 |
| | 39 |
| | 140 |
| | 45 |
| | 95 |
| Commercial real estate | 18 |
| | 3 |
| | 21 |
| | 38 |
| | 9 |
| | 47 |
|
| Commercial lease financing | Commercial lease financing | 2 |
| | — |
| | 2 |
| | 4 |
| | 2 |
| | 2 |
| Commercial lease financing | 4 |
| | 11 |
| | 15 |
| | 5 |
| | 13 |
| | 18 |
|
| Non-U.S. commercial | 263 |
| | 13 |
| | 250 |
| | 308 |
| | 25 |
| | 283 |
| |
| | | 1,919 |
| | 607 |
| | 1,312 |
| | 2,312 |
| | 792 |
| | 1,520 |
| | 678 |
| | 1,153 |
| | 1,831 |
| | 424 |
| | 1,107 |
| | 1,531 |
|
| U.S. small business commercial | U.S. small business commercial | 13 |
| | — |
| | 13 |
| | 15 |
| | 2 |
| | 13 |
| U.S. small business commercial | 4 |
| | 16 |
| | 20 |
| | 4 |
| | 15 |
| | 19 |
|
| Total commercial troubled debt restructurings | Total commercial troubled debt restructurings | $ | 1,932 |
| | $ | 607 |
| | $ | 1,325 |
| | $ | 2,327 |
| | $ | 794 |
| | $ | 1,533 |
| Total commercial troubled debt restructurings | $ | 682 |
| | $ | 1,169 |
| | $ | 1,851 |
| | $ | 428 |
| | $ | 1,122 |
| | $ | 1,550 |
|
Industry Concentrations
Table 4037 presents commercial committed and utilized credit exposure by industry and the total net credit default protection purchased to cover the funded and unfunded portions of certain credit exposures. Our commercial credit exposure is diversified across a broad range of industries. Total commercial committed exposure increased $1.9$26.5 billion, or less than onethree percent, during the three
months ended March 31, 20172018 to $953.0 billion.$1.0 trillion. The increase in commercial committed exposure was concentrated in the Food, BeverageAsset Managers and Tobacco sectorFunds, Real Estate, Capital Goods, Materials and the Materials sector.Media industry sectors. Increases were partially offset by lowerreduced exposure to the Diversified Financials, Healthcare EquipmentFood and Services,Staples Retailing and BankingRetailing industry sectors.
Industry limits are used internally to manage industry concentrations and are based on committed exposure that is allocated 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. The Management Risk Committee oversees industry limit governance.
Diversified Financials,Asset Managers and Funds, our largest industry concentration with committed exposure of $121.4$103.5 billion, decreased $3.2increased $12.4 billion, or three14 percent, during the three months ended March 31, 2017.The
decrease2018. The increase primarily reflected a declinean increase in exposure to several counterparties.
Real estate,Estate, our second largest industry concentration with committed exposure of $85.3$88.8 billion, increased $1.6$5.0 billion, or twosix percent, during the three months ended March 31, 2017.2018. For more information on the commercial real estate and related portfolios, see Commercial Portfolio Credit Risk Management – Commercial Real Estate on page 44.36.
Retailing
Capital Goods, our third largest industry concentration with committed exposure decreased $1.5of $73.7 billion, increased $3.2 billion, or twofive percent, to $67.0 billion during the three months ended March 31, 2017.2018. The decreaseincrease in committed exposure occurred primarily as a result of increases in the Specialty Retail sector.aerospace and defense and large conglomerates.
Our energy-related committed exposure decreased $1.3$1.2 billion, or three percent, to $37.9 billion during the three months ended March 31, 2017.2018 to $35.6 billion. Energy sector net charge-offs were $11 million for the three months ended March 31, 2018 compared to $3 million for the same period in 2017. Energy sector reservable criticized exposure decreased $228 million during the three months ended March 31, 2017 compared2018 to $102 million for the same period in 2016. Energy sector reservable criticized exposure decreased $725 million to $4.8$1.4 billion during the three months ended March 31, 2017 due to improvement in credit quality of some borrowers coupled with exposure reductions and fewer new criticized exposures.reductions. The energy allowance for credit losses decreased $75 million to $850 million during the three months ended March 31, 2017.2018 to $485 million.
| | | | | | | | | | | | | | | | | | | |
| Table 40 | Commercial Credit Exposure by Industry (1) | |
| Table 37 | | Commercial Credit Exposure by Industry (1) |
| | | | | | | | | | | | | | | | | |
| | | Commercial Utilized | | Total Commercial Committed (2) | | Commercial Utilized | | Total Commercial Committed (2) |
| (Dollars in millions) | (Dollars in millions) | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 | (Dollars in millions) | March 31
2018 | | December 31
2017 | | March 31
2018 | | December 31
2017 |
| Diversified financials | $ | 78,211 |
| | $ | 81,156 |
| | $ | 121,369 |
| | $ | 124,535 |
| |
| Asset managers and funds | | Asset managers and funds | $ | 70,819 |
| | $ | 59,190 |
| | $ | 103,466 |
| | $ | 91,092 |
|
Real estate (3) | Real estate (3) | 63,384 |
| | 61,203 |
| | 85,286 |
| | 83,658 |
| Real estate (3) | 64,507 |
| | 61,940 |
| | 88,750 |
| | 83,773 |
|
| Retailing | 41,548 |
| | 41,630 |
| | 67,003 |
| | 68,507 |
| |
| Capital goods | Capital goods | 34,234 |
| | 34,278 |
| | 64,304 |
| | 64,202 |
| Capital goods | 39,560 |
| | 36,705 |
| | 73,650 |
| | 70,417 |
|
| Healthcare equipment and services | Healthcare equipment and services | 38,737 |
| | 37,656 |
| | 62,117 |
| | 64,663 |
| Healthcare equipment and services | 37,456 |
| | 37,780 |
| | 58,960 |
| | 57,256 |
|
| Government and public education | Government and public education | 45,843 |
| | 45,694 |
| | 54,354 |
| | 54,626 |
| Government and public education | 47,499 |
| | 48,684 |
| | 57,269 |
| | 58,067 |
|
| Finance companies | | Finance companies | 31,984 |
| | 34,050 |
| | 52,392 |
| | 53,107 |
|
| Materials | Materials | 23,645 |
| | 22,578 |
| | 46,485 |
| | 44,357 |
| Materials | 26,213 |
| | 24,001 |
| | 50,569 |
| | 47,386 |
|
| Banking | 38,184 |
| | 39,877 |
| | 45,320 |
| | 47,799 |
| |
| Retailing | | Retailing | 25,679 |
| | 26,117 |
| | 45,241 |
| | 48,796 |
|
| Food, beverage and tobacco | | Food, beverage and tobacco | 22,351 |
| | 23,252 |
| | 44,620 |
| | 42,815 |
|
| Consumer services | Consumer services | 28,994 |
| | 27,413 |
| | 44,141 |
| | 42,523 |
| Consumer services | 27,160 |
| | 27,191 |
| | 43,005 |
| | 43,605 |
|
| Food, beverage and tobacco | 21,205 |
| | 19,669 |
| | 41,273 |
| | 37,145 |
| |
| Media | | Media | 13,089 |
| | 19,155 |
| | 36,778 |
| | 33,955 |
|
| Commercial services and supplies | | Commercial services and supplies | 22,686 |
| | 22,100 |
| | 36,387 |
| | 35,496 |
|
| Energy | Energy | 18,002 |
| | 19,686 |
| | 37,920 |
| | 39,231 |
| Energy | 15,888 |
| | 16,345 |
| | 35,564 |
| | 36,765 |
|
| Commercial services and supplies | 21,372 |
| | 21,241 |
| | 34,164 |
| | 35,360 |
| |
| Global commercial banks | | Global commercial banks | 28,142 |
| | 29,491 |
| | 30,218 |
| | 31,764 |
|
| Transportation | | Transportation | 21,652 |
| | 21,704 |
| | 30,121 |
| | 29,946 |
|
| Utilities | Utilities | 12,805 |
| | 11,349 |
| | 27,925 |
| | 27,140 |
| Utilities | 11,515 |
| | 11,342 |
| | 28,639 |
| | 27,935 |
|
| Transportation | 19,645 |
| | 19,805 |
| | 27,609 |
| | 27,483 |
| |
| Media | 13,156 |
| | 13,419 |
| | 25,492 |
| | 27,116 |
| |
| Individuals and trusts | Individuals and trusts | 16,404 |
| | 16,364 |
| | 22,854 |
| | 21,764 |
| Individuals and trusts | 19,276 |
| | 18,549 |
| | 25,161 |
| | 25,097 |
|
| Technology hardware and equipment | Technology hardware and equipment | 7,822 |
| | 7,793 |
| | 19,104 |
| | 18,429 |
| Technology hardware and equipment | 10,116 |
| | 10,728 |
| | 21,691 |
| | 22,071 |
|
| Software and services | Software and services | 9,540 |
| | 7,991 |
| | 19,084 |
| | 19,790 |
| Software and services | 7,971 |
| | 8,562 |
| | 20,757 |
| | 18,202 |
|
| Vehicle dealers | | Vehicle dealers | 16,621 |
| | 16,896 |
| | 20,409 |
| | 20,361 |
|
| Pharmaceuticals and biotechnology | Pharmaceuticals and biotechnology | 5,943 |
| | 5,539 |
| | 18,858 |
| | 18,910 |
| Pharmaceuticals and biotechnology | 4,785 |
| | 5,653 |
| | 20,116 |
| | 18,623 |
|
| Consumer durables and apparel | | Consumer durables and apparel | 9,286 |
| | 8,859 |
| | 18,535 |
| | 17,296 |
|
| Automobiles and components | | Automobiles and components | 7,097 |
| | 5,988 |
| | 13,993 |
| | 13,318 |
|
| Insurance | | Insurance | 6,230 |
| | 6,411 |
| | 12,853 |
| | 12,990 |
|
| Telecommunication services | Telecommunication services | 7,020 |
| | 6,317 |
| | 17,593 |
| | 16,925 |
| Telecommunication services | 6,234 |
| | 6,389 |
| | 12,823 |
| | 13,108 |
|
| Insurance, including monolines | 6,724 |
| | 7,406 |
| | 13,779 |
| | 13,936 |
| |
| Automobiles and components | 5,744 |
| | 5,459 |
| | 13,111 |
| | 12,969 |
| |
| Consumer durables and apparel | 5,965 |
| | 6,042 |
| | 11,185 |
| | 11,460 |
| |
| Food and staples retailing | Food and staples retailing | 5,724 |
| | 4,795 |
| | 9,565 |
| | 8,869 |
| Food and staples retailing | 5,298 |
| | 4,955 |
| | 11,452 |
| | 15,589 |
|
| Religious and social organizations | Religious and social organizations | 4,732 |
| | 4,423 |
| | 6,419 |
| | 6,252 |
| Religious and social organizations | 3,823 |
| | 4,454 |
| | 5,697 |
| | 6,318 |
|
| Financial markets infrastructure (clearinghouses) | | Financial markets infrastructure (clearinghouses) | 1,499 |
| | 688 |
| | 3,261 |
| | 2,403 |
|
| Other | Other | 9,639 |
| | 6,109 |
| | 16,645 |
| | 13,432 |
| Other | 5,252 |
| | 3,621 |
| | 5,247 |
| | 3,616 |
|
| Total commercial credit exposure by industry | Total commercial credit exposure by industry | $ | 584,222 |
| | $ | 574,892 |
| | $ | 952,959 |
| | $ | 951,081 |
| Total commercial credit exposure by industry | $ | 609,688 |
| | $ | 600,800 |
| | $ | 1,007,624 |
| | $ | 981,167 |
|
Net credit default protection purchased on total commitments (4) | Net credit default protection purchased on total commitments (4) | |
| | |
| | $ | (3,099 | ) | | $ | (3,477 | ) | Net credit default protection purchased on total commitments (4) | |
| | |
| | $ | (2,194 | ) | | $ | (2,129 | ) |
| |
(1) | Includes U.S. small business commercial exposure. |
| |
(2) | Includes the notional amount of unfunded legally binding lending commitments net of amounts distributed (e.g.(i.e., syndicated or participated) to other financial institutions. The distributed amounts were $11.910.9 billion and $12.111.0 billion at March 31, 20172018 and December 31, 20162017. |
| |
(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 borrowers’ or counterparties’ primary business activity using operating cash flows and primary source of repayment as key factors. |
| |
(4) | Represents net notional credit protection purchased. For additionalmore information, see Commercial Portfolio Credit Risk Management – Risk Mitigation below.Mitigation. |
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 March 31, 20172018 and December 31, 2016,2017, 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 $3.1$2.2 billion and $3.5$2.1 billion. We recorded net losses of $31$9 million for the three months ended March 31, 20172018 compared to net losses of $203$31 million for the same period in 20162017 on these positions. The gains and losses on these instruments were 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 48. For additional information, see Trading Risk Management on page 54.
Tables 41 and 42 present the maturity profiles and the credit exposure debt ratings of the net credit default protection portfolio at March 31, 2017 and December 31, 2016.
|
| | | | | | |
| | | | | |
| Table 41 | Net Credit Default Protection by Maturity |
| | | | | |
| | March 31
2017 | | December 31
2016 |
| Less than or equal to one year | 65 | % | | 56 | % |
| Greater than one year and less than or equal to five years | 32 |
| | 41 |
|
| Greater than five years | 3 |
| | 3 |
|
| Total net credit default protection | 100 | % | | 100 | % |
positions. The gains and losses on these instruments were offset by gains and losses on the related exposures. The Value-at-Risk
|
| | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 42 | Net Credit Default Protection by Credit Exposure Debt Rating |
| | | | | | | | | |
| | | March 31, 2017 | | December 31, 2016 |
| (Dollars in millions) | Net Notional (1) | | Percent of Total | | Net Notional (1) | | Percent of Total |
Ratings (2, 3) | |
| | |
| | |
| | |
|
| A | $ | (135 | ) | | 4.4 | % | | $ | (135 | ) | | 3.9 | % |
| BBB | (1,735 | ) | | 56.0 |
| | (1,884 | ) | | 54.2 |
|
| BB | (723 | ) | | 23.3 |
| | (871 | ) | | 25.1 |
|
| B | (416 | ) | | 13.4 |
| | (477 | ) | | 13.7 |
|
| CCC and below | (67 | ) | | 2.2 |
| | (81 | ) | | 2.3 |
|
NR (4) | (23 | ) | | 0.7 |
| | (29 | ) | | 0.8 |
|
| Total net credit default protection | $ | (3,099 | ) | | 100.0 | % | | $ | (3,477 | ) | | 100.0 | % |
Tables 38 and 39 present the maturity profiles and the credit exposure debt ratings of the net credit default protection portfolio at March 31, 2018 and December 31, 2017.
|
| | | | | | |
| | | | | |
| Table 38 | Net Credit Default Protection by Maturity |
| | | | | |
| | March 31
2018 | | December 31
2017 |
| Less than or equal to one year | 40 | % | | 42 | % |
| Greater than one year and less than or equal to five years | 53 |
| | 58 |
|
| Greater than five years | 7 |
| | — |
|
| Total net credit default protection | 100 | % | | 100 | % |
|
| | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 39 | Net Credit Default Protection by Credit Exposure Debt Rating |
| | | | | | | | | |
| | | Net
Notional (1) | | Percent of
Total | | Net
Notional (1) | | Percent of
Total |
| (Dollars in millions) | March 31, 2018 | | December 31, 2017 |
Ratings (2, 3) | |
| | |
| | |
| | |
|
| A | $ | (375 | ) | | 17.1 | % | | $ | (280 | ) | | 13.2 | % |
| BBB | (326 | ) | | 14.9 |
| | (459 | ) | | 21.6 |
|
| BB | (1,152 | ) | | 52.5 |
| | (893 | ) | | 41.9 |
|
| B | (208 | ) | | 9.5 |
| | (403 | ) | | 18.9 |
|
| CCC and below | (118 | ) | | 5.4 |
| | (84 | ) | | 3.9 |
|
NR (4) | (15 | ) | | 0.6 |
| | (10 | ) | | 0.5 |
|
| Total net credit default protection | $ | (2,194 | ) | | 100.0 | % | | $ | (2,129 | ) | | 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 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.
Table 4340 presents the total contract/notional amount of credit derivatives outstanding and includes both purchased and written credit derivatives. The credit risk amounts are measured as net asset exposure by counterparty, taking into consideration all contracts with the counterparty. For more information on our written credit derivatives, see Note 23 – Derivatives to the Consolidated Financial Statements.
The credit risk amounts discussed above and presented in Table 4340 take into consideration the effects of legally enforceable master netting agreements while amounts disclosed in Note 23 – Derivatives to the Consolidated Financial Statements are shown on a gross basis. Credit risk reflects the potential benefit from offsetting exposure to non-credit derivative products with the same counterparties that may be netted upon the occurrence of certain events, thereby reducing our overall exposure.
| | | | | | | | | | | | | | | |
| Table 43 | Credit Derivatives | |
| | | | | | | | | | |
| Table 40 | | Credit Derivatives |
| | | | | | | |
| | | March 31, 2017 | | December 31, 2016 | | Contract/
Notional | | Credit Risk |
| (Dollars in millions) | (Dollars in millions) | Contract/ Notional | | Credit Risk | | Contract/ Notional | | Credit Risk | (Dollars in millions) | March 31, 2018 |
| Purchased credit derivatives: | Purchased credit derivatives: | |
| | |
| | |
| | |
| Purchased credit derivatives: | |
| | |
|
| Credit default swaps | Credit default swaps | $ | 599,908 |
| | $ | 2,522 |
| | $ | 603,979 |
| | $ | 2,732 |
| Credit default swaps | $ | 484,071 |
| | $ | 2,383 |
|
| Total return swaps/other | 34,256 |
| | 291 |
| | 21,165 |
| | 433 |
| |
| Total return swaps/options | | Total return swaps/options | 67,587 |
| | 298 |
|
| Total purchased credit derivatives | Total purchased credit derivatives | $ | 634,164 |
| | $ | 2,813 |
| | $ | 625,144 |
| | $ | 3,165 |
| Total purchased credit derivatives | $ | 551,658 |
| | $ | 2,681 |
|
| Written credit derivatives: | Written credit derivatives: | |
| | |
| | |
| | |
| Written credit derivatives: | |
| | |
|
| Credit default swaps | Credit default swaps | $ | 595,823 |
| | n/a |
| | $ | 614,355 |
| | n/a |
| Credit default swaps | $ | 457,370 |
| | n/a |
|
| Total return swaps/other | 41,476 |
| | n/a |
| | 25,354 |
| | n/a |
| |
| Total return swaps/options | | Total return swaps/options | 65,220 |
| | n/a |
|
| Total written credit derivatives | Total written credit derivatives | $ | 637,299 |
| | n/a |
| | $ | 639,709 |
| | n/a |
| Total written credit derivatives | $ | 522,590 |
| | n/a |
|
| | | | | | |
| | | | December 31, 2017 |
| Purchased credit derivatives: | | Purchased credit derivatives: | |
| | |
|
| Credit default swaps | | Credit default swaps | $ | 470,907 |
| | $ | 2,434 |
|
| Total return swaps/options | | Total return swaps/options | 54,135 |
| | 277 |
|
| Total purchased credit derivatives | | Total purchased credit derivatives | $ | 525,042 |
| | $ | 2,711 |
|
| Written credit derivatives: | | Written credit derivatives: | |
| | |
|
| Credit default swaps | | Credit default swaps | $ | 448,201 |
| | n/a |
|
| Total return swaps/options | | Total return swaps/options | 55,223 |
| | n/a |
|
| Total written credit derivatives | | Total written credit derivatives | $ | 503,424 |
| | n/a |
|
n/a = not applicable
Counterparty Credit Risk Valuation Adjustments
We record counterparty credit risk valuation adjustments on certain derivative assets, including our credit default protection purchased, in order to properly reflect the credit risk of the counterparty, as presented in Table 44.41. We calculate CVAcredit valuation adjustments (CVA) based on a modeled expected exposure that incorporates current market risk factors including changes in market spreads and non-credit related market factors that affect the value of a derivative. The exposure also takes into consideration credit mitigants such as legally enforceable master netting agreements and collateral. For additionalmore information, see Note 23 – Derivatives to the Consolidated Financial Statements.
We enter into risk management activities to offset market driven exposures. We often hedge the counterparty spread risk in CVA with credit default swaps (CDS). We hedge other market risks
in CVA primarily with currency and interest rate swaps. In certain instances, the net-of-hedge amounts in the following table below move in the same direction as the gross amount or may move in the opposite direction. This movement is a consequence of the complex interaction of the risks being hedged, resulting in limitations in the ability to perfectly hedge all of the market exposures at all times.
| | | | | | | | | | | |
| Table 44 | Credit Valuation Gains and Losses | |
| Table 41 | | Credit Valuation Gains and Losses |
| | | | | | | | | |
| | | Three Months Ended March 31 | | Three Months Ended March 31 |
| (Dollars in millions) | | (Dollars in millions) | 2018 | | 2017 |
| Gains (Losses) | Gains (Losses) | 2017 | | 2016 | Gains (Losses) | Gross | Hedge | Net | | Gross | Hedge | Net |
| (Dollars in millions) | Gross | Hedge | Net | | Gross | Hedge | Net | |
| Credit valuation | Credit valuation | $ | 161 |
| $ | (135 | ) | $ | 26 |
| | $ | (209 | ) | $ | 261 |
| $ | 52 |
| Credit valuation | $ | (24 | ) | $ | 42 |
| $ | 18 |
| | $ | 161 |
| $ | (135 | ) | $ | 26 |
|
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 4542 presents our 20 largest non-U.S. country exposures as of March 31, 2017.2018. These exposures accounted for 87 percent and 8886 percent of our total non-U.S. exposure at March 31, 20172018 and December 31, 2016.2017. Net country exposure for these 20 countries increased $2.7$27.4 billion in the three months ended March 31, 20172018, primarily driven by increases in the United Kingdom,U.K., Germany and Australia, partially offset by reductions in Switzerland, Japan and Canada. On a product basis, the increase was driven by an increase in funded loans and loan equivalents in the United Kingdom, Singapore and Japan, and higher unfunded commitments in Australia and Germany.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. The risk assignments by country can be adjusted for external guarantees and certain collateral types. Exposures that are subject to external guarantees are reported under the country of the guarantor. Exposures with tangible collateral are reflected in the country where the collateral is held. For securities received, other than cross-border resale
agreements, outstandings are assigned to the domicile of the issuer of the securities.
Funded loans and loan equivalents include loans, leases, and other extensions of credit and funds, including letters of credit and due from placements, which have not been reduced by collateral, hedges or credit default protection. Funded loans and loan equivalents are reported net of charge-offs but prior to any allowance for loan and lease losses.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 CDS, and secured financing transactions. Derivatives exposures are presented net of collateral, which is predominantly cash, pledged under legally enforceable master netting agreements. Secured financing transaction exposures are presented net of eligible cash or securities pledged as collateral.
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 (i.e., negative issuer exposures are reported as zero).
zero. Net country exposure represents country exposure less hedges and credit default protection purchased, net of credit default protection sold. We hedge certain country exposures withFor more information on our non-U.S. credit default protection primarilyand trading portfolios, see Non-U.S. Portfolio in the formMD&A of single-name, as well as indexed and tranched CDS. The exposures associated with these hedges represent the amount that would be realized upon the isolated default of an individual issuer in the relevant country assuming a zero recovery rate for that individual issuer, and are calculated basedCorporation’s 2017 Annual Report on the CDS notional amount adjusted for any fair value receivable or payable. Changes in the assumption of an isolated default can produce different results in a particular tranche.Form 10-K.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 45 | Top 20 Non-U.S. Countries Exposure | |
| Table 42 | | Top 20 Non-U.S. Countries Exposure |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | (Dollars in millions) | Funded Loans and Loan Equivalents | | Unfunded Loan Commitments | | Net Counterparty Exposure | | Securities/
Other Investments | | Country Exposure at March 31
2017 | | Hedges and Credit Default Protection | | Net Country Exposure at March 31
2017 | | Increase (Decrease) from December 31
2016 | (Dollars in millions) | Funded Loans and Loan Equivalents | | Unfunded Loan Commitments | | Net Counterparty Exposure | | Securities/
Other Investments | | Country Exposure at March 31
2018 | | Hedges and Credit Default Protection | | Net Country Exposure at March 31
2018 | | Increase (Decrease) from December 31
2017 |
| United Kingdom | United Kingdom | $ | 34,566 |
| | $ | 15,773 |
| | $ | 6,235 |
| | $ | 1,431 |
| | $ | 58,005 |
| | $ | (4,947 | ) | | $ | 53,058 |
| | $ | 5,325 |
| United Kingdom | $ | 26,362 |
| | $ | 18,105 |
| | $ | 6,710 |
| | $ | 1,478 |
| | $ | 52,655 |
| | $ | (5,714 | ) | | $ | 46,941 |
| | $ | 9,346 |
|
| Germany | Germany | 13,018 |
| | 9,915 |
| | 1,846 |
| | 3,110 |
| | 27,889 |
| | (4,187 | ) | | 23,702 |
| | 1,324 |
| Germany | 18,749 |
| | 8,751 |
| | 1,590 |
| | 1,766 |
| | 30,856 |
| | (3,250 | ) | | 27,606 |
| | 6,103 |
|
| Canada | Canada | 7,127 |
| | 7,099 |
| | 1,750 |
| | 2,425 |
| | 18,401 |
| | (1,750 | ) | | 16,651 |
| | (2,123 | ) | Canada | 7,262 |
| | 7,373 |
| | 1,838 |
| | 2,020 |
| | 18,493 |
| | (844 | ) | | 17,649 |
| | (1,074 | ) |
| Brazil | 8,787 |
| | 419 |
| | 560 |
| | 3,617 |
| | 13,383 |
| | (273 | ) | | 13,110 |
| | (556 | ) | |
| China | | China | 13,118 |
| | 940 |
| | 1,293 |
| | 1,255 |
| | 16,606 |
| | (282 | ) | | 16,324 |
| | 399 |
|
| Japan | Japan | 13,098 |
| | 586 |
| | 1,272 |
| | 509 |
| | 15,465 |
| | (2,843 | ) | | 12,622 |
| | (2,389 | ) | Japan | 12,992 |
| | 639 |
| | 1,318 |
| | 473 |
| | 15,422 |
| | (1,472 | ) | | 13,950 |
| | 4,860 |
|
| France | France | 3,454 |
| | 5,115 |
| | 1,953 |
| | 5,667 |
| | 16,189 |
| | (4,959 | ) | | 11,230 |
| | 536 |
| France | 5,539 |
| | 5,818 |
| | 2,436 |
| | 3,070 |
| | 16,863 |
| | (5,098 | ) | | 11,765 |
| | 1,222 |
|
| China | 9,139 |
| | 696 |
| | 670 |
| | 1,208 |
| | 11,713 |
| | (552 | ) | | 11,161 |
| | 276 |
| |
| India | | India | 7,332 |
| | 357 |
| | 344 |
| | 3,366 |
| | 11,399 |
| | (78 | ) | | 11,321 |
| | 824 |
|
| Brazil | | Brazil | 7,309 |
| | 1,078 |
| | 606 |
| | 2,796 |
| | 11,789 |
| | (532 | ) | | 11,257 |
| | 541 |
|
| Australia | Australia | 4,951 |
| | 4,286 |
| | 328 |
| | 1,061 |
| | 10,626 |
| | (456 | ) | | 10,170 |
| | 1,247 |
| Australia | 5,422 |
| | 2,879 |
| | 566 |
| | 1,618 |
| | 10,485 |
| | (431 | ) | | 10,054 |
| | (535 | ) |
| India | 6,497 |
| | 205 |
| | 366 |
| | 2,353 |
| | 9,421 |
| | (548 | ) | | 8,873 |
| | (355 | ) | |
| Netherlands | Netherlands | 4,363 |
| | 3,024 |
| | 1,042 |
| | 1,633 |
| | 10,062 |
| | (1,843 | ) | | 8,219 |
| | 821 |
| Netherlands | 6,897 |
| | 2,332 |
| | 769 |
| | 1,287 |
| | 11,285 |
| | (1,785 | ) | | 9,500 |
| | 1,033 |
|
| Hong Kong | Hong Kong | 5,727 |
| | 199 |
| | 438 |
| | 770 |
| | 7,134 |
| | (43 | ) | | 7,091 |
| | (388 | ) | Hong Kong | 7,388 |
| | 188 |
| | 559 |
| | 1,051 |
| | 9,186 |
| | (79 | ) | | 9,107 |
| | 429 |
|
| South Korea | South Korea | 4,377 |
| | 646 |
| | 852 |
| | 1,775 |
| | 7,650 |
| | (585 | ) | | 7,065 |
| | 959 |
| South Korea | 5,054 |
| | 609 |
| | 632 |
| | 2,736 |
| | 9,031 |
| | (357 | ) | | 8,674 |
| | 773 |
|
| Switzerland | Switzerland | 3,965 |
| | 3,951 |
| | 368 |
| | 221 |
| | 8,505 |
| | (1,549 | ) | | 6,956 |
| | (2,690 | ) | Switzerland | 4,951 |
| | 2,966 |
| | 215 |
| | 229 |
| | 8,361 |
| | (1,122 | ) | | 7,239 |
| | 1,442 |
|
| Singapore | Singapore | 3,826 |
| | 278 |
| | 520 |
| | 1,607 |
| | 6,231 |
| | (60 | ) | | 6,171 |
| | 753 |
| Singapore | 3,488 |
| | 153 |
| | 591 |
| | 2,316 |
| | 6,548 |
| | (76 | ) | | 6,472 |
| | 209 |
|
| Mexico | Mexico | 3,073 |
| | 1,416 |
| | 136 |
| | 480 |
| | 5,105 |
| | (383 | ) | | 4,722 |
| | 238 |
| Mexico | 3,088 |
| | 1,954 |
| | 112 |
| | 248 |
| | 5,402 |
| | (485 | ) | | 4,917 |
| | (570 | ) |
| Turkey | 2,727 |
| | 115 |
| | 15 |
| | 133 |
| | 2,990 |
| | (1 | ) | | 2,989 |
| | 299 |
| |
| Spain | | Spain | 2,618 |
| | 1,062 |
| | 193 |
| | 1,440 |
| | 5,313 |
| | (730 | ) | | 4,583 |
| | 1,475 |
|
| Belgium | | Belgium | 2,741 |
| | 968 |
| | 112 |
| | 1,077 |
| | 4,898 |
| | (411 | ) | | 4,487 |
| | 522 |
|
| Italy | Italy | 1,835 |
| | 960 |
| | 532 |
| | 787 |
| | 4,114 |
| | (1,142 | ) | | 2,972 |
| | (1,115 | ) | Italy | 2,947 |
| | 1,491 |
| | 520 |
| | 825 |
| | 5,783 |
| | (1,350 | ) | | 4,433 |
| | 187 |
|
| United Arab Emirates | United Arab Emirates | 2,085 |
| | 139 |
| | 498 |
| | 42 |
| | 2,764 |
| | (89 | ) | | 2,675 |
| | (68 | ) | United Arab Emirates | 2,824 |
| | 349 |
| | 273 |
| | 60 |
| | 3,506 |
| | (42 | ) | | 3,464 |
| | 77 |
|
| Belgium | 1,186 |
| | 683 |
| | 118 |
| | 746 |
| | 2,733 |
| | (363 | ) | | 2,370 |
| | 444 |
| |
| Taiwan | 1,566 |
| | 34 |
| | 341 |
| | 310 |
| | 2,251 |
| | (1 | ) | | 2,250 |
| | 169 |
| |
| Turkey | | Turkey | 2,707 |
| | 83 |
| | 49 |
| | 321 |
| | 3,160 |
| | (12 | ) | | 3,148 |
| | 159 |
|
| Total top 20 non-U.S. countries exposure | Total top 20 non-U.S. countries exposure | $ | 135,367 |
| | $ | 55,539 |
| | $ | 19,840 |
| | $ | 29,885 |
| | $ | 240,631 |
| | $ | (26,574 | ) | | $ | 214,057 |
| | $ | 2,707 |
| Total top 20 non-U.S. countries exposure | $ | 148,788 |
| | $ | 58,095 |
| | $ | 20,726 |
| | $ | 29,432 |
| | $ | 257,041 |
| | $ | (24,150 | ) | | $ | 232,891 |
| | $ | 27,422 |
|
A number of economic conditions and geopolitical events have given rise to risk aversion in certain emerging markets. Our largest emerging market country exposure at March 31, 2018 was China, with net exposure of $16.3 billion, concentrated in large state-owned companies, subsidiaries of multinational corporations and commercial banks. At March 31, 2018, net exposure to Brazil was $11.3 billion, concentrated in sovereign securities, oil and gas companies and commercial banks.
The outlook for policy direction and therefore economic performance in the EU remains uncertain as a consequence of
reduced political cohesion among EU countries. Additionally, we believe that the uncertainty in the U.K.’s ability to negotiate a favorable exit from the EU will further weigh on economic performance. Our largest EU country exposure at March 31, 2018 was the U.K. with net exposure of $46.9 billion, a $9.3 billion increase from December 31, 2017. The increase was driven by corporate loan growth and increased placements with the central bank as part of liquidity management. For more information, see Executive Summary – First Quarter 2018 Economic and Business Environment on page 3.
A number of economic conditions and geopolitical events have driven risk aversion in certain emerging markets. Our two largest emerging market country exposures at March 31, 2017 were Brazil and China. At March 31, 2017, net exposure to Brazil was $13.1 billion, concentrated in sovereign securities, oil and gas companies and commercial banks. At March 31, 2017, net exposure to China was $11.2 billion, concentrated in large state-owned companies, subsidiaries of multinational corporations and commercial banks.
The outlook for policy direction and therefore economic performance in the EU remains uncertain as a consequence of reduced political cohesion among EU countries. Our largest EU country exposure at March 31, 2017 was the United Kingdom. At March 31, 2017, net exposure to the United Kingdom was $53.1 billion, concentrated in multinational corporations and sovereign clients. For additional information, see Executive Summary – First Quarter 2017 Economic and Business Environment on page 3.
Provision for Credit Losses
The provision for credit losses decreased $162 million to $835remained relatively unchanged at $834 million for the three months ended March 31, 20172018 compared to the same period in 2016.2017. The provision for credit losses was $99$77 million lower than net charge-offs for the three months ended March 31, 2017,2018, resulting in a reduction in the allowance for credit losses. This compared to a reduction of $71$99 million in the allowance for credit losses for the three months ended March 31, 2016. We expect the provision for credit losses will approximate net charge-offs for the second quarter of 2017.
The provision for credit losses for the consumer portfolio increased $370decreased $24 million to $772$748 million for the three months ended March 31, 20172018 compared to the same period in 2016 due to loan growth and portfolio seasoning2017. The decrease was primarily driven by improvement in the U.S. credit card portfolio. Included in the provision is an expenseconsumer real estate portfolio, including a benefit of $68$11 million related to the PCI loan portfolio compared to an expense of $68 million for the same period in 2017. Provision related to the credit card and other consumer portfolio increased $33 million for the three months ended March 31, 20172018 compared to a benefit of $77 million for the same period in 2016.2017 due to U.S. credit card portfolio seasoning and loan growth, partially offset by the impact of the sale of the non-U.S. consumer credit card business in the second quarter of 2017.
The provision for credit losses for the commercial portfolio, including unfunded lending commitments, decreased $532increased $23 million to $63$86 million for the three months ended March 31, 20172018 compared to the same period in 20162017 driven by improvements in energy exposures due in part to stabilized oil prices.loan growth.
Allowance for Credit Losses
Allowance for Loan and Lease Losses
The allowance for loan and lease losses is comprised of two components. The first component covers nonperforming commercial loans and TDRs. The second component covers loans and leases on which there are incurred losses that are not yet individually identifiable, as well as incurred losses that may not be represented in the loss forecast models. We evaluate the adequacy of the allowance for loan and lease losses based on the total of these two components. The allowance for loan and lease losses excludes LHFS and loans accounted for under the fair value option as the fair value reflects a credit risk component. For more information on the allowance for loan and lease losses, see Allowance for Credit Losses in the MD&A of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
During the three months ended March 31, 2017,2018, the factors that impacted the allowance for loan and lease losses included improvements in the credit quality of the consumer real estate
portfolios driven by continuing improvements in the U.S. economy and strong labor markets, proactive credit risk management initiatives and the impact of high credit quality originations. Evidencing the improvements in the U.S. economy and strong labor
markets are downwardlow levels of unemployment trends and increases in home prices. In addition to these improvements, in the consumer portfolio, nonperforming consumer loans decreased $458$260 million in the three months ended March 31, 20172018 as returns to performing status, paydowns, loan sales, paydowns and charge-offs continued to outpace new nonaccrual loans. During the three months ended March 31, 2017,2018, the allowance for loan and lease losses in the commercial portfolio reflected decreased energy reserves dueprimarily driven by reductions in part to stabilized oil prices which contributed to a modest improvement in energy-related exposure.energy exposures including utilized reservable criticized exposures.
The allowance for loan and lease losses for the consumer portfolio, as presented in Table 47,44, was $6.1$5.3 billion at March 31, 2017,2018, a decrease of $86$133 million from December 31, 2016.2017. The decrease was primarily in the home equityconsumer real estate portfolio, partially offset by an increase in the U.S. credit card portfolio. The reductionsreduction in the home equityallowance for the consumer real estate portfolio werewas due to improved home prices, lower nonperforming loans and a decrease in consumer loan balances.balances in our non-core portfolio. The increase in the allowance for the U.S. credit card portfolio was driven by loan growth and the seasoning of newer vintages within the portfolio.portfolio seasoning.
The allowance for loan and lease losses for the commercial portfolio, as presented in Table 47,44, was $5.2$5.0 billion at March 31, 2017, a decrease of $40 million2018, unchanged from December 31, 2016 driven by decreased energy reserves for the higher risk energy sub-sectors due in part to stabilized oil prices.2017. Commercial utilized reservable criticized exposure decreased to $16.1$13.4 billion at March 31, 20172018 from $16.3$13.6 billion (to 3.272.58 percent from 3.352.65 percent of total commercial utilized reservable exposure) at December 31, 2016,2017, largely due to net upgrades and paydownsan improvement in the energy portfolio.exposures. Nonperforming commercial loans were $1.7increased to $1.5 billion (0.38at March 31, 2018 from $1.3 billion (to 0.31 percent from 0.27 percent of outstanding commercial loans excluding loans accounted for under the fair value option) at both MarchDecember 31, 2017 and December 31, 2016.with the increase spread across multiple industries. See Tables 31, 32 and 33 34 and 36 for additionalmore details on key commercial credit statistics.
The allowance for loan and lease losses as a percentage of total loans and leases outstanding was 1.251.11 percent at March 31, 20172018 compared to 1.261.12 percent at December 31, 2016. The March 31, 2017 and December 31, 2016 ratios above include the PCI loan portfolio. Excluding the PCI loan portfolio, the allowance for loan and lease losses as a percentage of total loans and leases outstanding was 1.22 percent and 1.24 percent at March 31, 2017 and December 31, 2016.2017.
Reserve for Unfunded Lending Commitments
In addition to the allowance for loan and lease losses, we also estimate probable losses related to unfunded lending commitments such as letters of credit, financial guarantees, unfunded bankers’ acceptances and binding loan commitments, excluding commitments accounted for under the fair value option. For more information on the reserve for unfunded lending commitments, see Allowance for Credit Losses in the MD&A of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
The reserve for unfunded lending commitments of $757was $782 million at March 31, 2017 remained relatively unchanged from2018 compared to $777 million at December 31, 2016.2017.
Table 4643 presents a rollforward of the allowance for credit losses, which includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, for the three months ended March 31, 20172018 and 2016.2017.
| | | | | | | | | | | |
| Table 46 | Allowance for Credit Losses | | | | |
| Table 43 | | Allowance for Credit Losses | | | |
| | | | | | | | | |
| | | Three Months Ended March 31 | | Three Months Ended March 31 |
| (Dollars in millions) | (Dollars in millions) | 2017 | | 2016 | (Dollars in millions) | 2018 | | 2017 |
Allowance for loan and lease losses, January 1 | Allowance for loan and lease losses, January 1 | $ | 11,237 |
| | $ | 12,234 |
| Allowance for loan and lease losses, January 1 | $ | 10,393 |
| | $ | 11,237 |
|
| Loans and leases charged off | Loans and leases charged off | | | | Loans and leases charged off | | | |
| Residential mortgage | Residential mortgage | (61 | ) | | (185 | ) | Residential mortgage | (56 | ) | | (61 | ) |
| Home equity | Home equity | (143 | ) | | (193 | ) | Home equity | (118 | ) | | (143 | ) |
| U.S. credit card | U.S. credit card | (718 | ) | | (693 | ) | U.S. credit card | (824 | ) | | (718 | ) |
| Non-U.S. credit card | (59 | ) | | (61 | ) | |
Non-U.S. credit card (2) | | Non-U.S. credit card (2) | — |
| | (59 | ) |
| Direct/Indirect consumer | Direct/Indirect consumer | (114 | ) | | (101 | ) | Direct/Indirect consumer | (133 | ) | | (114 | ) |
| Other consumer | Other consumer | (55 | ) | | (57 | ) | Other consumer | (49 | ) | | (55 | ) |
| Total consumer charge-offs | Total consumer charge-offs | (1,150 | ) | | (1,290 | ) | Total consumer charge-offs | (1,180 | ) | | (1,150 | ) |
U.S. commercial (1)(3) | U.S. commercial (1)(3) | (137 | ) | | (158 | ) | U.S. commercial (1)(3) | (108 | ) | | (137 | ) |
| Commercial real estate | — |
| | (5 | ) | |
| Non-U.S. commercial | | Non-U.S. commercial | (7 | ) | | (20 | ) |
| Commercial lease financing | Commercial lease financing | (3 | ) | | — |
| Commercial lease financing | (1 | ) | | (3 | ) |
| Non-U.S. commercial | (20 | ) | | (43 | ) | |
| Total commercial charge-offs | Total commercial charge-offs | (160 | ) | | (206 | ) | Total commercial charge-offs | (116 | ) | | (160 | ) |
| Total loans and leases charged off | Total loans and leases charged off | (1,310 | ) | | (1,496 | ) | Total loans and leases charged off | (1,296 | ) | | (1,310 | ) |
| Recoveries of loans and leases previously charged off | Recoveries of loans and leases previously charged off | | | | Recoveries of loans and leases previously charged off | | | |
| Residential mortgage | Residential mortgage | 44 |
| | 94 |
| Residential mortgage | 62 |
| | 44 |
|
| Home equity | Home equity | 79 |
| | 81 |
| Home equity | 85 |
| | 79 |
|
| U.S. credit card | U.S. credit card | 112 |
| | 106 |
| U.S. credit card | 123 |
| | 112 |
|
| Non-U.S. credit card | 15 |
| | 16 |
| |
Non-U.S. credit card (2) | | Non-U.S. credit card (2) | — |
| | 15 |
|
| Direct/Indirect consumer | Direct/Indirect consumer | 66 |
| | 67 |
| Direct/Indirect consumer | 75 |
| | 66 |
|
| Other consumer | Other consumer | 7 |
| | 9 |
| Other consumer | 5 |
| | 7 |
|
| Total consumer recoveries | Total consumer recoveries | 323 |
| | 373 |
| Total consumer recoveries | 350 |
| | 323 |
|
U.S. commercial (2) | 41 |
| | 41 |
| |
U.S. commercial (4) | | U.S. commercial (4) | 27 |
| | 41 |
|
| Non-U.S. commercial | | Non-U.S. commercial | 3 |
| | 5 |
|
| Commercial real estate | Commercial real estate | 4 |
| | 11 |
| Commercial real estate | 3 |
| | 4 |
|
| Commercial lease financing | Commercial lease financing | 3 |
| | 2 |
| Commercial lease financing | 2 |
| | 3 |
|
| Non-U.S. commercial | 5 |
| | 1 |
| |
| Total commercial recoveries | Total commercial recoveries | 53 |
| | 55 |
| Total commercial recoveries | 35 |
| | 53 |
|
| Total recoveries of loans and leases previously charged off | Total recoveries of loans and leases previously charged off | 376 |
| | 428 |
| Total recoveries of loans and leases previously charged off | 385 |
| | 376 |
|
Net charge-offs (3) | (934 | ) | | (1,068 | ) | |
| Net charge-offs | | Net charge-offs | (911 | ) | | (934 | ) |
| Write-offs of PCI loans | Write-offs of PCI loans | (33 | ) | | (105 | ) | Write-offs of PCI loans | (35 | ) | | (33 | ) |
| Provision for loan and lease losses | Provision for loan and lease losses | 840 |
| | 1,016 |
| Provision for loan and lease losses | 829 |
| | 840 |
|
Other (4) | 1 |
| | (8 | ) | |
| Allowance for loan and lease losses, March 31 | 11,111 |
| | 12,069 |
| |
Less: Change in the allowance included in assets of business held for sale (5) | 1 |
| | — |
| |
| Total allowance for loan and lease losses, March 31 | 11,112 |
| | 12,069 |
| |
Other (5) | | Other (5) | (16 | ) | | 2 |
|
Allowance for loan and lease losses, March 31 (1) | | Allowance for loan and lease losses, March 31 (1) | 10,260 |
| | 11,112 |
|
| Reserve for unfunded lending commitments, January 1 | Reserve for unfunded lending commitments, January 1 | 762 |
| | 646 |
| Reserve for unfunded lending commitments, January 1 | 777 |
| | 762 |
|
| Provision for unfunded lending commitments | Provision for unfunded lending commitments | (5 | ) | | (19 | ) | Provision for unfunded lending commitments | 5 |
| | (5 | ) |
| Reserve for unfunded lending commitments, March 31 | Reserve for unfunded lending commitments, March 31 | 757 |
| | 627 |
| Reserve for unfunded lending commitments, March 31 | 782 |
| | 757 |
|
| Allowance for credit losses, March 31 | $ | 11,869 |
| | $ | 12,696 |
| |
Allowance for credit losses, March 31 (1) | | Allowance for credit losses, March 31 (1) | $ | 11,042 |
| | $ | 11,869 |
|
| |
(1) | Includes U.S. small business commercial charge-offs ofExcludes $64242 million and $62243 million for theat three months ended March 31, 2017 and 2016.January 1, 2017 of allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which was sold in the second quarter of 2017.
|
| |
(2) | Includes U.S. small business commercial recoveries of $12 million and $10 millionRepresents net charge-offs related to the non-U.S. credit card loan portfolio. See footnote 1 for the three months ended March 31, 2017 and 2016.
more information. |
| |
(3) | Includes netU.S. small business commercial charge-offs of $4468 million on non-U.S. credit card loans, which are included in assets of business heldand $64 million for sale on the Consolidated Balance Sheet at three months ended March 31, 2018 and 2017. |
| |
(4) | Includes U.S. small business commercial recoveries of $11 million and $12 million for the three months ended March 31, 2018 and 2017. |
| |
(5) | Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, foreign currency translation adjustments, transfers to held for sale and certain other reclassifications. |
| |
(5)
| Represents the change in the allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which is included in assets of business held for sale on the Consolidated Balance Sheet at March 31, 2017.
|
| | | | | | | | | | | |
| Table 46 | Allowance for Credit Losses (continued) | | | | |
| Table 43 | | Allowance for Credit Losses (continued) | | | |
| | | | | | | | | |
| | | Three Months Ended March 31 | | Three Months Ended March 31 |
| (Dollars in millions) | (Dollars in millions) | 2017 | | 2016 | (Dollars in millions) | 2018 | | 2017 |
Loan and allowance ratios (6): | Loan and allowance ratios (6): | | | | Loan and allowance ratios (6): | | | |
Loans and leases outstanding at March 31 (7) | Loans and leases outstanding at March 31 (7) | $ | 908,219 |
| | $ | 892,901 |
| Loans and leases outstanding at March 31 (7) | $ | 928,089 |
| | $ | 908,219 |
|
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at March 31 (7) | Allowance for loan and lease losses as a percentage of total loans and leases outstanding at March 31 (7) | 1.25 | % | | 1.35 | % | Allowance for loan and lease losses as a percentage of total loans and leases outstanding at March 31 (7) | 1.11 | % | | 1.25 | % |
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at March 31 (8) | Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at March 31 (8) | 1.36 |
| | 1.51 |
| Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at March 31 (8) | 1.18 |
| | 1.36 |
|
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at March 31 (9) | Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at March 31 (9) | 1.14 |
| | 1.19 |
| Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at March 31 (9) | 1.04 |
| | 1.14 |
|
Average loans and leases outstanding (7) | Average loans and leases outstanding (7) | $ | 906,585 |
| | $ | 885,655 |
| Average loans and leases outstanding (7) | $ | 926,297 |
| | $ | 906,585 |
|
Annualized net charge-offs as a percentage of average loans and leases outstanding (7, 10) | Annualized net charge-offs as a percentage of average loans and leases outstanding (7, 10) | 0.42 | % | | 0.48 | % | Annualized net charge-offs as a percentage of average loans and leases outstanding (7, 10) | 0.40 | % | | 0.42 | % |
Annualized net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (7) | Annualized net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (7) | 0.43 |
| | 0.53 |
| Annualized net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (7) | 0.41 |
| | 0.43 |
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at March 31 (7, 11) | Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at March 31 (7, 11) | 156 |
| | 136 |
| Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at March 31 (7, 11) | 161 |
| | 156 |
|
Ratio of the allowance for loan and lease losses at March 31 to annualized net charge-offs (10) | Ratio of the allowance for loan and lease losses at March 31 to annualized net charge-offs (10) | 3.00 |
| | 2.81 |
| Ratio of the allowance for loan and lease losses at March 31 to annualized net charge-offs (10) | 2.78 |
| | 3.00 |
|
| Ratio of the allowance for loan and lease losses at March 31 to annualized net charge-offs and PCI write-offs | Ratio of the allowance for loan and lease losses at March 31 to annualized net charge-offs and PCI write-offs | 2.90 |
| | 2.56 |
| Ratio of the allowance for loan and lease losses at March 31 to annualized net charge-offs and PCI write-offs | 2.67 |
| | 2.90 |
|
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at March 31 (12) | Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at March 31 (12) | $ | 4,047 |
| | $ | 4,138 |
| Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at March 31 (12) | $ | 3,992 |
| | $ | 4,047 |
|
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 March 31 (7, 12) | 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 March 31 (7, 12) | 100 | % | | 90 | % | 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 March 31 (7, 12) | 98 | % | | 100 | % |
Loan and allowance ratios excluding PCI loans and the related valuation allowance: (6, 13) | |
| | | |
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at March 31 (7) | 1.22 | % | | 1.31 | % | |
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at March 31 (8) | 1.30 |
| | 1.42 |
| |
Annualized net charge-offs as a percentage of average loans and leases outstanding (7) | 0.42 |
| | 0.49 |
| |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at March 31 (7, 11) | 150 |
| | 129 |
| |
| Ratio of the allowance for loan and lease losses at March 31 to annualized net charge-offs | 2.88 |
| | 2.67 |
| |
| |
(6) | Loan and allowance ratios for the three months ended March 31, 2017include $242$242 million of non-U.S. credit card allowance for loan and lease losses and $9.5$9.5 billion of ending non-U.S. credit card loans, which are includedwere sold in assetsthe second quarter of business held for sale on the Consolidated Balance Sheet at March 31, 2017.2017. |
| |
(7) | Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $7.56.0 billion and $8.27.5 billion at March 31, 20172018 and 20162017. Average loans accounted for under the fair value option were $7.65.6 billion and $7.37.6 billion for the three months ended March 31, 20172018 and 20162017. |
| |
(8) | Excludes consumer loans accounted for under the fair value option of $1.0 billion894 million and $1.91.0 billion at March 31, 20172018 and 20162017. |
| |
(9) | Excludes commercial loans accounted for under the fair value option of $6.55.1 billion and $6.36.5 billion at March 31, 20172018 and 20162017. |
| |
(10) | Net charge-offs exclude $3335 million and $10533 million of write-offs in the PCI loan portfolio for the three months ended March 31, 20172018 and 20162017. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 3931. |
| |
(11) | For more information on our definition of nonperforming loans, see pagespage 4133 and page 4637. |
| |
(12) | Primarily includes amounts allocated to U.S. credit card and unsecured consumer lending portfolios in Consumer Banking, and PCI loans and the non-U.S. credit card portfolio in All Other. |
| |
(13)
| For more information on the PCI loan portfolio and the valuation allowance for PCI loans, see Note 4 – Outstanding Loans and Leases and Note 5 – Allowance for Credit Losses to the Consolidated Financial Statements.
|
For reporting purposes, we allocate the allowance for credit losses across products as presented in Table 47.44.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 47 | Allocation of the Allowance for Credit Losses by Product Type | | | | | |
| Table 44 | | Allocation of the Allowance for Credit Losses by Product Type | | | | |
| | | | | | | | | | | | | |
| | | March 31, 2017 | | December 31, 2016 | | 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) | (Dollars in millions) | 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) | March 31, 2018 | | December 31, 2017 |
| Allowance for loan and lease losses | Allowance for loan and lease losses | |
| | |
| | |
| | |
| | |
| | |
| Allowance for loan and lease losses | |
| | |
| | |
| | |
| | |
| | |
|
| Residential mortgage | Residential mortgage | $ | 1,018 |
| | 8.97 | % | | 0.53 | % | | $ | 1,012 |
| | 8.82 | % | | 0.53 | % | Residential mortgage | $ | 611 |
| | 5.96 | % | | 0.30 | % | | $ | 701 |
| | 6.74 | % | | 0.34 | % |
| Home equity | Home equity | 1,547 |
| | 13.62 |
| | 2.42 |
| | 1,738 |
| | 15.14 |
| | 2.62 |
| Home equity | 919 |
| | 8.96 |
| | 1.66 |
| | 1,019 |
| | 9.80 |
| | 1.76 |
|
| U.S. credit card | U.S. credit card | 3,003 |
| | 26.45 |
| | 3.39 |
| | 2,934 |
| | 25.56 |
| | 3.18 |
| U.S. credit card | 3,425 |
| | 33.38 |
| | 3.68 |
| | 3,368 |
| | 32.41 |
| | 3.50 |
|
| Non-U.S. credit card | 242 |
| | 2.13 |
| | 2.54 |
| | 243 |
| | 2.12 |
| | 2.64 |
| |
| Direct/Indirect consumer | Direct/Indirect consumer | 276 |
| | 2.43 |
| | 0.30 |
| | 244 |
| | 2.13 |
| | 0.26 |
| Direct/Indirect consumer | 262 |
| | 2.55 |
| | 0.29 |
| | 262 |
| | 2.52 |
| | 0.28 |
|
| Other consumer | Other consumer | 50 |
| | 0.44 |
| | 2.00 |
| | 51 |
| | 0.44 |
| | 2.01 |
| Other consumer | 33 |
| | 0.32 |
| | 1.17 |
| | 33 |
| | 0.32 |
| | 1.22 |
|
| Total consumer | Total consumer | 6,136 |
| | 54.04 |
| | 1.36 |
| | 6,222 |
| | 54.21 |
| | 1.36 |
| Total consumer | 5,250 |
| | 51.17 |
| | 1.18 |
| | 5,383 |
| | 51.79 |
| | 1.18 |
|
U.S. commercial (2) | U.S. commercial (2) | 3,306 |
| | 29.12 |
| | 1.15 |
| | 3,326 |
| | 28.97 |
| | 1.17 |
| U.S. commercial (2) | 3,091 |
| | 30.12 |
| | 1.02 |
| | 3,113 |
| | 29.95 |
| | 1.04 |
|
| Non-U.S. commercial | | Non-U.S. commercial | 801 |
| | 7.81 |
| | 0.82 |
| | 803 |
| | 7.73 |
| | 0.82 |
|
| Commercial real estate | Commercial real estate | 927 |
| | 8.16 |
| | 1.60 |
| | 920 |
| | 8.01 |
| | 1.60 |
| Commercial real estate | 953 |
| | 9.29 |
| | 1.59 |
| | 935 |
| | 9.00 |
| | 1.60 |
|
| Commercial lease financing | Commercial lease financing | 135 |
| | 1.19 |
| | 0.62 |
| | 138 |
| | 1.20 |
| | 0.62 |
| Commercial lease financing | 165 |
| | 1.61 |
| | 0.76 |
| | 159 |
| | 1.53 |
| | 0.72 |
|
| Non-U.S. commercial | 850 |
| | 7.49 |
| | 0.95 |
| | 874 |
| | 7.61 |
| | 0.98 |
| |
Total commercial (3) | 5,218 |
| | 45.96 |
| | 1.14 |
| | 5,258 |
| | 45.79 |
| | 1.16 |
| |
Allowance for loan and lease losses (4) | 11,354 |
| | 100.00 | % | | 1.25 |
| | 11,480 |
| | 100.00 | % | | 1.26 |
| |
Less: Allowance included in assets of business held for sale (5) | (242 | ) | | | | | | (243 | ) | | | | | |
| Total allowance for loan and lease losses | 11,112 |
| | | | | | 11,237 |
| | | | | |
| Total commercial | | Total commercial | 5,010 |
| | 48.83 |
| | 1.04 |
| | 5,010 |
| | 48.21 |
| | 1.05 |
|
Allowance for loan and lease losses (3) | | Allowance for loan and lease losses (3) | 10,260 |
| | 100.00 | % | | 1.11 |
| | 10,393 |
| | 100.00 | % | | 1.12 |
|
| Reserve for unfunded lending commitments | Reserve for unfunded lending commitments | 757 |
| | | | | | 762 |
| | |
| | |
| Reserve for unfunded lending commitments | 782 |
| | | | | | 777 |
| | | | |
|
| Allowance for credit losses | Allowance for credit losses | $ | 11,869 |
| | | | | | $ | 11,999 |
| | |
| | |
| Allowance for credit losses | $ | 11,042 |
| | | | | | $ | 11,170 |
| | | | |
| |
(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. Consumer loans accounted for under the fair value option included residential mortgage loans of $694523 million and $710567 million and home equity loans of $338371 million and $341361 million at March 31, 20172018 and December 31, 20162017. Commercial loans accounted for under the fair value option included U.S. commercial loans of $3.53.2 billion and $2.92.6 billion and non-U.S. commercial loans of $3.01.9 billion and $3.12.2 billion at March 31, 20172018 and December 31, 20162017. |
| |
(2) | Includes allowance for loan and lease losses for U.S. small business commercial loans of $415446 million and $416439 million at March 31, 20172018 and December 31, 20162017. |
| |
(3) | Includes allowance for loan and lease losses for impaired commercial loans of $274242 million and $273 million at March 31, 2017 and December 31, 2016. |
| |
(4)
| Includes $454 million and $419289 million of valuation allowance presented with the allowance for loan and lease losses related to PCI loans at March 31, 20172018 and December 31, 20162017.
|
| |
(5)
| Represents allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which is included in assets of business held for sale on the Consolidated Balance Sheet. |
Market Risk Management
For more information on our market risk management process, see Market Risk Management in the MD&A of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
Trading Risk Management
To evaluate risk in ourarising from trading activities, we focusthe Corporation focuses 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. This 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, Global Risk Management updates 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 relatively minor portion of risks related to our trading positions is not included in VaR. These risks are reviewed as part
of our Internal Capital Adequacy Assessment Process (ICAAP). For more information regarding ICAAP,on our trading risk management process, see Capital Trading Risk
Management in the MD&A of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
Global Risk Management 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.
Given the noted limitations of the VaR statistic, we also consider other quantitative measures of market risk. For example, Maximum Observed Loss is the largest estimated loss using a 10-day holding period over the historical dates since 2007. This statistic is calculated on a daily basis for the Corporation and across lines of businesses. For individual risks and product types, Global Risk Management reviews estimated gains and losses for specific scenarios, such as a 25 percent decrease in equity prices or sudden exchange rate movements. Global Markets Risk Management also has an extensive stress testing program. For more information, see Trading Portfolio Stress Testing on page 57.
Trading limits on quantitative risk measures, such as those described above, are independently set by Global Markets Risk Management and reviewed on a regular basis to ensure the 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 4845 presents the total market-based trading portfolio VaR which is the combination of the covered positions trading portfolio and the impact from less liquid trading exposures. 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 restrictionsFor more information 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 48 presents our 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. The fair value option portfolio combined with the total market-based trading portfolio VaR represents our total market-based portfolio VaR. Additionally, market risk VaR for trading activities, as presentedsee Trading Risk Management in Table 48 differs from VaR used for regulatory capital calculations due to the holding period being used. 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.Corporation’s 2017 Annual Report on Form 10-K.
The total market-based portfolio VaR results in Table 4845 include market risk, excluding CVA and DVA, to which we are exposed from all business segments,
excluding CVA and DVA.all business segments. The majority of this portfolio is within the Global Markets segment. Table 4845 presents period-end, average, high and low daily trading VaR for the three months ended March 31, 2017,2018, December 31, 20162017 and March 31, 2016,2017 using a 99 percent confidence level.
The average total market-based trading portfolio VaR increased for the three months ended March 31, 2018 compared to the previous quarter primarily due to increased exposure in the interest rate and commodities markets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 48 | Market Risk VaR for Trading Activities | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 45 | | Market Risk VaR for Trading Activities | | | | | | | | | | | | |
| | | Three Months Ended | | Three Months Ended |
| | | March 31, 2017 | | December 31, 2016 | | March 31, 2016 | | March 31, 2018 | | December 31, 2017 | | March 31, 2017 |
| (Dollars in millions) | (Dollars in millions) | Period End | | Average | | High (1) | | Low (1) | | Period End | | Average | | High (1) | | Low (1) | | Period End | | Average | | High (1) | | Low (1) | (Dollars in millions) | Period End | | Average | | High (1) | | Low (1) | | Period End | | Average | | High (1) | | Low (1) | | Period End | | Average | | High (1) | | Low (1) |
| Foreign exchange | Foreign exchange | $ | 23 |
| | $ | 12 |
| | $ | 23 |
| | $ | 5 |
| | $ | 8 |
| | $ | 8 |
| | $ | 12 |
| | $ | 5 |
| | $ | 10 |
| | $ | 11 |
| | $ | 16 |
| | $ | 7 |
| Foreign exchange | $ | 8 |
| | $ | 8 |
| | $ | 12 |
| | $ | 6 |
| | $ | 7 |
| | $ | 7 |
| | $ | 9 |
| | $ | 5 |
| | $ | 23 |
| | $ | 12 |
| | $ | 23 |
| | $ | 5 |
|
| Interest rate | Interest rate | 28 |
| | 17 |
| | 28 |
| | 11 |
| | 11 |
| | 13 |
| | 16 |
| | 10 |
| | 18 |
| | 23 |
| | 30 |
| | 16 |
| Interest rate | 33 |
| | 23 |
| | 33 |
| | 18 |
| | 22 |
| | 21 |
| | 28 |
| | 14 |
| | 28 |
| | 17 |
| | 28 |
| | 11 |
|
| Credit | Credit | 26 |
| | 26 |
| | 29 |
| | 22 |
| | 25 |
| | 28 |
| | 33 |
| | 25 |
| | 31 |
| | 31 |
| | 35 |
| | 27 |
| Credit | 28 |
| | 27 |
| | 31 |
| | 23 |
| | 29 |
| | 27 |
| | 33 |
| | 21 |
| | 26 |
| | 26 |
| | 29 |
| | 22 |
|
| Equity | Equity | 24 |
| | 19 |
| | 30 |
| | 14 |
| | 19 |
| | 16 |
| | 28 |
| | 11 |
| | 15 |
| | 19 |
| | 27 |
| | 13 |
| Equity | 16 |
| | 19 |
| | 28 |
| | 14 |
| | 19 |
| | 19 |
| | 24 |
| | 14 |
| | 24 |
| | 19 |
| | 30 |
| | 14 |
|
| Commodity | Commodity | 6 |
| | 4 |
| | 7 |
| | 3 |
| | 4 |
| | 7 |
| | 12 |
| | 4 |
| | 5 |
| | 5 |
| | 7 |
| | 3 |
| Commodity | 10 |
| | 6 |
| | 12 |
| | 3 |
| | 5 |
| | 4 |
| | 6 |
| | 3 |
| | 6 |
| | 4 |
| | 7 |
| | 3 |
|
| Portfolio diversification | Portfolio diversification | (58 | ) | | (45 | ) | | — |
| | — |
| | (39 | ) | | (43 | ) | | — |
| | — |
| | (44 | ) | | (50 | ) | | — |
| | — |
| Portfolio diversification | (57 | ) | | (49 | ) | | — |
| | — |
| | (49 | ) | | (48 | ) | | — |
| | — |
| | (58 | ) | | (45 | ) | | — |
| | — |
|
| Total covered positions trading portfolio | Total covered positions trading portfolio | 49 |
| | 33 |
| | 49 |
| | 25 |
| | 28 |
| | 29 |
| | 41 |
| | 24 |
| | 35 |
| | 39 |
| | 50 |
| | 29 |
| Total covered positions trading portfolio | 38 |
| | 34 |
| | 43 |
| | 25 |
| | 33 |
| | 30 |
| | 38 |
| | 23 |
| | 49 |
| | 33 |
| | 49 |
| | 25 |
|
| Impact from less liquid exposures | Impact from less liquid exposures | 10 |
| | 5 |
| | — |
| | — |
| | 6 |
| | 7 |
| | — |
| | — |
| | 5 |
| | 3 |
| | — |
| | — |
| Impact from less liquid exposures | 4 |
| | 6 |
| | — |
| | — |
| | 5 |
| | 6 |
| | — |
| | — |
| | 10 |
| | 5 |
| | — |
| | — |
|
| Total market-based trading portfolio | Total market-based trading portfolio | 59 |
| | 38 |
| | 59 |
| | 28 |
| | 34 |
| | 36 |
| | 49 |
| | 28 |
| | 40 |
| | 42 |
| | 58 |
| | 34 |
| Total market-based trading portfolio | 42 |
| | 40 |
| | 51 |
| | 29 |
| | 38 |
| | 36 |
| | 47 |
| | 26 |
| | 59 |
| | 38 |
| | 59 |
| | 28 |
|
| Fair value option loans | Fair value option loans | 11 |
| | 12 |
| | 14 |
| | 11 |
| | 14 |
| | 14 |
| | 16 |
| | 12 |
| | 28 |
| | 35 |
| | 40 |
| | 28 |
| Fair value option loans | 12 |
| | 10 |
| | 12 |
| | 8 |
| | 9 |
| | 9 |
| | 11 |
| | 7 |
| | 11 |
| | 12 |
| | 14 |
| | 11 |
|
| Fair value option hedges | Fair value option hedges | 6 |
| | 6 |
| | 7 |
| | 5 |
| | 6 |
| | 7 |
| | 8 |
| | 5 |
| | 15 |
| | 18 |
| | 22 |
| | 14 |
| Fair value option hedges | 9 |
| | 8 |
| | 10 |
| | 6 |
| | 7 |
| | 7 |
| | 11 |
| | 5 |
| | 6 |
| | 6 |
| | 7 |
| | 5 |
|
| Fair value option portfolio diversification | Fair value option portfolio diversification | (7 | ) | | (8 | ) | | — |
| | — |
| | (10 | ) | | (11 | ) | | — |
| | — |
| | (31 | ) | | (38 | ) | | — |
| | — |
| Fair value option portfolio diversification | (11 | ) | | (9 | ) | | — |
| | — |
| | (7 | ) | | (8 | ) | | — |
| | — |
| | (7 | ) | | (8 | ) | | — |
| | — |
|
| Total fair value option portfolio | Total fair value option portfolio | 10 |
| | 10 |
| | 11 |
| | 9 |
| | 10 |
| | 10 |
| | 12 |
| | 8 |
| | 12 |
| | 15 |
| | 20 |
| | 11 |
| Total fair value option portfolio | 10 |
| | 9 |
| | 10 |
| | 7 |
| | 9 |
| | 8 |
| | 11 |
| | 6 |
| | 10 |
| | 10 |
| | 11 |
| | 9 |
|
| Portfolio diversification | Portfolio diversification | (6 | ) | | (4 | ) | | — |
| | — |
| | (4 | ) | | (4 | ) | | — |
| | — |
| | (4 | ) | | (7 | ) | | — |
| | — |
| Portfolio diversification | (3 | ) | | (4 | ) | | — |
| | — |
| | (4 | ) | | (3 | ) | | — |
| | — |
| | (6 | ) | | (4 | ) | | — |
| | — |
|
| Total market-based portfolio | Total market-based portfolio | $ | 63 |
| | $ | 44 |
| | $ | 63 |
| | $ | 32 |
| | $ | 40 |
| | $ | 42 |
| | $ | 55 |
| | $ | 32 |
| | $ | 48 |
| | $ | 50 |
| | $ | 69 |
| | $ | 40 |
| Total market-based portfolio | $ | 49 |
| | $ | 45 |
| | 57 |
| | 33 |
| | $ | 43 |
| | $ | 41 |
| | $ | 53 |
| | $ | 30 |
| | $ | 63 |
| | $ | 44 |
| | 63 |
| | 32 |
|
| |
(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, areis not relevant. |
The average total market-based trading portfolio VaR decreased for the three months ended March 31, 2017 compared to the same period in 2016 primarily due to reduced exposure to the interest rate and credit markets.
The graph below presents the daily total market-based trading portfolio VaR for the previous five quarters, corresponding to the data in Table 48.
Additional VaR statistics produced within our single VaR model are provided in Table 4946 at the same level of detail as in Table 48.45. 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 4946 presents average trading VaR statistics at 99 percent and 95 percent confidence levels for the three months ended March 31, 2017,2018, December 31, 20162017 and March 31, 2016.2017.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 49 | Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics | |
| Table 46 | | Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Three Months Ended |
| | | March 31, 2017 | | December 31, 2016 | | March 31, 2016 | | March 31, 2018 | | December 31, 2017 | | March 31, 2017 |
| (Dollars in millions) | (Dollars in millions) | | 99 percent | | 95 percent | | 99 percent | | 95 percent | | 99 percent | | 95 percent | (Dollars in millions) | | 99 percent | | 95 percent | | 99 percent | | 95 percent | | 99 percent | | 95 percent |
| Foreign exchange | Foreign exchange | | $ | 12 |
| | $ | 8 |
| | $ | 8 |
| | $ | 4 |
| | $ | 11 |
| | $ | 6 |
| Foreign exchange | | $ | 8 |
| | $ | 5 |
| | $ | 7 |
| | $ | 4 |
| | $ | 12 |
| | $ | 8 |
|
| Interest rate | Interest rate | | 17 |
| | 11 |
| | 13 |
| | 8 |
| | 23 |
| | 14 |
| Interest rate | | 23 |
| | 15 |
| | 21 |
| | 14 |
| | 17 |
| | 11 |
|
| Credit | Credit | | 26 |
| | 14 |
| | 28 |
| | 17 |
| | 31 |
| | 18 |
| Credit | | 27 |
| | 16 |
| | 27 |
| | 15 |
| | 26 |
| | 14 |
|
| Equity | Equity | | 19 |
| | 10 |
| | 16 |
| | 10 |
| | 19 |
| | 12 |
| Equity | | 19 |
| | 10 |
| | 19 |
| | 10 |
| | 19 |
| | 10 |
|
| Commodity | Commodity | | 4 |
| | 3 |
| | 7 |
| | 4 |
| | 5 |
| | 2 |
| Commodity | | 6 |
| | 3 |
| | 4 |
| | 2 |
| | 4 |
| | 3 |
|
| Portfolio diversification | Portfolio diversification | | (45 | ) | | (28 | ) | | (43 | ) | | (27 | ) | | (50 | ) | | (31 | ) | Portfolio diversification | | (49 | ) | | (30 | ) | | (48 | ) | | (30 | ) | | (45 | ) | | (28 | ) |
| Total covered positions trading portfolio | Total covered positions trading portfolio | | 33 |
| | 18 |
| | 29 |
| | 16 |
| | 39 |
| | 21 |
| Total covered positions trading portfolio | | 34 |
| | 19 |
| | 30 |
| | 15 |
| | 33 |
| | 18 |
|
| Impact from less liquid exposures | Impact from less liquid exposures | | 5 |
| | 3 |
| | 7 |
| | 3 |
| | 3 |
| | 2 |
| Impact from less liquid exposures | | 6 |
| | 2 |
| | 6 |
| | 2 |
| | 5 |
| | 3 |
|
| Total market-based trading portfolio | Total market-based trading portfolio | | 38 |
| | 21 |
| | 36 |
| | 19 |
| | 42 |
| | 23 |
| Total market-based trading portfolio | | 40 |
| | 21 |
| | 36 |
| | 17 |
| | 38 |
| | 21 |
|
| Fair value option loans | Fair value option loans | | 12 |
| | 7 |
| | 14 |
| | 8 |
| | 35 |
| | 19 |
| Fair value option loans | | 10 |
| | 5 |
| | 9 |
| | 6 |
| | 12 |
| | 7 |
|
| Fair value option hedges | Fair value option hedges | | 6 |
| | 4 |
| | 7 |
| | 5 |
| | 18 |
| | 11 |
| Fair value option hedges | | 8 |
| | 6 |
| | 7 |
| | 5 |
| | 6 |
| | 4 |
|
| Fair value option portfolio diversification | Fair value option portfolio diversification | | (8 | ) | | (5 | ) | | (11 | ) | | (7 | ) | | (38 | ) | | (21 | ) | Fair value option portfolio diversification | | (9 | ) | | (6 | ) | | (8 | ) | | (6 | ) | | (8 | ) | | (5 | ) |
| Total fair value option portfolio | Total fair value option portfolio | | 10 |
| | 6 |
| | 10 |
| | 6 |
| | 15 |
| | 9 |
| Total fair value option portfolio | | 9 |
| | 5 |
| | 8 |
| | 5 |
| | 10 |
| | 6 |
|
| Portfolio diversification | Portfolio diversification | | (4 | ) | | (4 | ) | | (4 | ) | | (3 | ) | | (7 | ) | | (5 | ) | Portfolio diversification | | (4 | ) | | (3 | ) | | (3 | ) | | (3 | ) | | (4 | ) | | (4 | ) |
| Total market-based portfolio | Total market-based portfolio | | $ | 44 |
| | $ | 23 |
| | $ | 42 |
| | $ | 22 |
| | $ | 50 |
| | $ | 27 |
| Total market-based portfolio | | $ | 45 |
| | $ | 23 |
| | $ | 41 |
| | $ | 19 |
| | $ | 44 |
| | $ | 23 |
|
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 and to ensure that the VaR methodology accurately represents those losses. The frequency of trading lossesFor more information on our backtesting process, see Trading Risk Management – Backtesting in excess of VaR are expected to be in line with the confidence levelMD&A of the VaR statistic being tested. For example, with a 99 percent confidence level, one trading loss in excess of VaR is expected 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 intraday trading revenues.
Global Risk Management conducts daily backtestingCorporation’s 2017 Annual Report on our trading portfolios, ranging from the total market-based portfolio to
individual trading areas. Additionally, daily backtesting is conducted 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.Form 10-K.
During the three months ended March 31, 2017,2018, there were no days in which there was a backtesting excess for our total market-based 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 (FVA) 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. Trading account assets and liabilities are reported at fair value. For more information on fair value, see Note 1420 – Fair Value Measurements to the Consolidated Financial Statements.Statementsof the Corporation’s 2017 Annual Report on Form 10-K. 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 below is a graphic depiction of trading volatility and illustrates the daily level of trading-related revenue for the three months ended March 31, 20172018 compared to the three months ended December 31, 2016.2017. During the three months ended March 31, 2017,2018, positive trading-related revenue was recorded for all100 percent of the trading days, of which 8988 percent were daily
trading gains of over $25 million. This compares to the three months ended December 31, 20162017 where positive trading-related revenue was recorded for 97100 percent of the trading days, of which 7563 percent were daily trading gains of over $25 million and the largest loss was $24 million.
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 additional information, see ManagingTrading Risk Management – Trading Portfolio Stress Testing in the MD&A of the Corporation’s 2017 Annual Report on page 21.Form 10-K.
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 direction of interest rate movements as implied by the market-based forward curve. 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 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 5047 presents the spot and 12-month forward rates used in our baseline forecasts at March 31, 20172018 and December 31, 2016.2017.
| | | | | | | | | | | | | | | |
| Table 50 | Forward Rates | | | | | | |
| Table 47 | | Forward Rates |
| | | | | | | | | | | | | |
| | | March 31, 2017 | | March 31, 2018 |
| | | Federal Funds | | Three-month LIBOR | | 10-Year Swap | | Federal Funds | | Three-month LIBOR | | 10-Year Swap |
| Spot rates | Spot rates | 1.00 | % | | 1.15 | % | | 2.38 | % | Spot rates | 1.75 | % | | 2.31 | % | | 2.78 | % |
| 12-month forward rates | 12-month forward rates | 1.50 |
| | 1.64 |
| | 2.54 |
| 12-month forward rates | 2.25 |
| | 2.57 |
| | 2.83 |
|
| | | | | | | | | | | | | |
| | | December 31, 2016 | | December 31, 2017 |
| Spot rates | Spot rates | 0.75 | % | | 1.00 | % | | 2.34 | % | Spot rates | 1.50 | % | | 1.69 | % | | 2.40 | % |
| 12-month forward rates | 12-month forward rates | 1.25 |
| | 1.51 |
| | 2.49 |
| 12-month forward rates | 2.00 |
| | 2.14 |
| | 2.48 |
|
Table 5148 shows the pretax dollar impact to forecasted net interest income over the next 12 months from March 31, 20172018 and December 31, 2016,2017, 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.
In the three months ended March 31, 2017,2018, the asset sensitivity of our balance sheet to rising rates was largely unchanged. We continue to be asset sensitive to a parallel move in interest rates with the majority of that benefitimpact coming from the short end of the yield curve. Additionally, higher interest rates impact the fair value of debt securities and, accordingly, for debt securities classified as available-for-saleavailable for sale (AFS), may 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 is reduced over time by offsetting positive impacts to net interest income. For more
information on the transition provisions of Basel 3, see Capital Management – Regulatory Capital on page 22.18.
|
| | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 48 | Estimated Banking Book Net Interest Income Sensitivity |
| | | | | | | | | |
| | | Short Rate (bps) | | Long Rate (bps) | | | | |
| (Dollars in millions) | | | March 31
2018 | | December 31
2017 |
| Curve Change | | | |
| Parallel Shifts | | | | | | | |
+100 bps instantaneous shift | +100 | | +100 | | $ | 2,964 |
| | $ | 3,317 |
|
-100 bps instantaneous shift | -100 |
| | -100 |
| | (3,717 | ) | | (5,183 | ) |
| Flatteners | |
| | |
| | | | |
Short-end instantaneous change | +100 | | — |
| | 2,188 |
| | 2,182 |
|
Long-end instantaneous change | — |
| | -100 |
| | (1,641 | ) | | (2,765 | ) |
| Steepeners | |
| | |
| | | | |
Short-end instantaneous change | -100 |
| | — |
| | (2,057 | ) | | (2,394 | ) |
Long-end instantaneous change | — |
| | +100 | | 785 |
| | 1,135 |
|
|
| | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 51 | Estimated Banking Book Net Interest Income Sensitivity |
| | | | | | | | | |
| | Short Rate (bps) | | Long Rate (bps) | | | | |
| (Dollars in millions) | | | March 31
2017 | | December 31
2016 |
| Curve Change | | | |
| Parallel Shifts | | | | | | | |
+100 bps instantaneous shift | +100 | | +100 | | $ | 3,337 |
| | $ | 3,370 |
|
-50 bps instantaneous shift | -50 |
| | -50 |
| | (2,237 | ) | | (2,900 | ) |
| Flatteners | |
| | |
| | |
| | |
|
Short-end instantaneous change | +100 | | — |
| | 2,476 |
| | 2,473 |
|
Long-end instantaneous change | — |
| | -50 |
| | (903 | ) | | (961 | ) |
| Steepeners | |
| | |
| | | | |
Short-end instantaneous change | -50 |
| | — |
| | (1,317 | ) | | (1,918 | ) |
Long-end instantaneous change | — |
| | +100 | | 876 |
| | 928 |
|
The sensitivity analysis in Table 5148 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 5148 assumes no change in deposit portfolio size or mix from the baseline forecast in alternate rate environments. In higher rate scenarios, any customer activity resulting in the replacement of low-cost or noninterest-bearing deposits with higher-yielding deposits or market-based funding would reduce our benefit in those scenarios.
Interest Rate and Foreign Exchange Derivative Contracts
Interest rate and foreign exchange derivative contracts are utilized in our ALM activities and serve as an efficient tool to manage our interest rate and foreign exchange risk. We use derivatives to hedge the variability in cash flows or changes in fair value on our balance sheet due to interest rate and foreign exchange components. For more information on our hedging activities, see Note 23 – Derivatives to the Consolidated Financial Statements.
Our For more information on interest rate contracts are generally non-leveraged generic interest rate and foreign exchange basis swaps, options, futures and forwards. In addition, we use foreign exchange contracts, including cross-currency interest rate swaps, foreign currency futures contracts, foreign currency forward contracts and options to mitigaterisk management, see Interest Rate Risk Management for the foreign exchange risk associated with foreign currency-denominated assets and liabilities.
Changes toBanking Book in the compositionMD&A of our derivatives portfolio during the three months ended March 31,Corporation’s 2017 reflect actions taken for interest rate and foreign exchange rate risk management. The decisions to reposition our derivatives portfolio are basedAnnual Report on the current assessment of economic and financial conditions including the interest rate and foreign currency environments, balance sheetForm 10-K.
composition and trends, and the relative mix of our cash and derivative positions.
Table 5249 presents derivatives utilized in our ALM activities including those designated as accounting and economic hedging instruments and shows the notional amount, fair value, weighted-
averageweighted-average receive-fixed and pay-fixed rates, expected maturity and average estimated durations of our open ALM derivatives at March 31, 20172018 and December 31, 2016.2017. These amounts do not include derivative hedges on our MSRs.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 52 | Asset and Liability Management Interest Rate and Foreign Exchange Contracts | |
| Table 49 | | Asset and Liability Management Interest Rate and Foreign Exchange Contracts |
| | | | | | | | | | | | | |
| | | | | March 31, 2017 | | | | | | March 31, 2018 | | |
| | | | | Expected Maturity | | | | | | Expected Maturity | | |
| (Dollars in millions, average estimated duration in years) | (Dollars in millions, average estimated duration in years) | Fair Value | | Total | | Remainder of 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Average
Estimated Duration | (Dollars in millions, average estimated duration in years) | Fair Value | | Total | | Remainder of 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Average
Estimated Duration |
Receive-fixed interest rate swaps (1) | Receive-fixed interest rate swaps (1) | $ | 3,332 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 5.26 |
| Receive-fixed interest rate swaps (1) | $ | (1,096 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 5.23 |
|
| Notional amount | Notional amount | |
| | $ | 130,974 |
| | $ | 14,649 |
| | $ | 25,851 |
| | $ | 10,283 |
| | $ | 9,515 |
| | $ | 5,307 |
| | $ | 65,369 |
| | |
| Notional amount | |
| | $ | 190,804 |
| | $ | 17,211 |
| | $ | 27,176 |
| | $ | 16,347 |
| | $ | 9,548 |
| | $ | 19,120 |
| | $ | 101,402 |
| | |
|
| Weighted-average fixed-rate | Weighted-average fixed-rate | |
| | 2.68 | % | | 3.54 | % | | 2.80 | % | | 2.31 | % | | 1.98 | % | | 3.18 | % | | 2.56 | % | | |
| Weighted-average fixed-rate | |
| | 2.47 | % | | 3.79 | % | | 1.87 | % | | 1.88 | % | | 2.81 | % | | 2.10 | % | | 2.55 | % | | |
|
Pay-fixed interest rate swaps (1) | Pay-fixed interest rate swaps (1) | (48 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 5.39 |
| Pay-fixed interest rate swaps (1) | 827 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 5.27 |
|
| Notional amount | Notional amount | |
| | $ | 27,080 |
| | $ | 75 |
| | $ | 7,120 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 19,885 |
| | |
| Notional amount | |
| | $ | 45,565 |
| | $ | 11,247 |
| | $ | 1,210 |
| | $ | 4,344 |
| | $ | 1,616 |
| | $ | — |
| | $ | 27,148 |
| | |
|
| Weighted-average fixed-rate | Weighted-average fixed-rate | |
| | 2.06 | % | | 1.08 | % | | 1.56 | % | | — | % | | — | % | | — | % | | 2.24 | % | | |
| Weighted-average fixed-rate | |
| | 2.14 | % | | 1.70 | % | | 2.07 | % | | 2.16 | % | | 2.22 | % | | — | % | | 2.32 | % | | |
|
Same-currency basis swaps (2) | Same-currency basis swaps (2) | (38 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Same-currency basis swaps (2) | (20 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Notional amount | Notional amount | |
| | $ | 52,238 |
| | $ | 13,708 |
| | $ | 11,028 |
| | $ | 6,786 |
| | $ | 1,180 |
| | $ | 2,802 |
| | $ | 16,734 |
| | |
| Notional amount | |
| | $ | 41,342 |
| | $ | 6,290 |
| | $ | 6,792 |
| | $ | 8,576 |
| | $ | 2,812 |
| | $ | 955 |
| | $ | 15,917 |
| | |
|
Foreign exchange basis swaps (1, 3, 4) | Foreign exchange basis swaps (1, 3, 4) | (3,920 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Foreign exchange basis swaps (1, 3, 4) | (1,329 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Notional amount | Notional amount | |
| | 120,117 |
| | 17,992 |
| | 22,972 |
| | 12,148 |
| | 12,211 |
| | 8,663 |
| | 46,131 |
| | |
| Notional amount | |
| | 112,409 |
| | 22,898 |
| | 12,449 |
| | 17,550 |
| | 9,527 |
| | 7,169 |
| | 42,816 |
| | |
|
Option products (5) | Option products (5) | (3 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Option products (5) | 3 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Notional amount (6) | Notional amount (6) | |
| | (2,500 | ) | | (2,514 | ) | | — |
| | — |
| | — |
| | — |
| | 14 |
| | |
| Notional amount (6) | |
| | 1,249 |
| | 1,232 |
| | — |
| | — |
| | — |
| | — |
| | 17 |
| | |
|
Foreign exchange contracts (1, 4, 7) | Foreign exchange contracts (1, 4, 7) | 1,278 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Foreign exchange contracts (1, 4, 7) | 1,186 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Notional amount (6) | | | 10,638 |
| | (758 | ) | | (1,932 | ) | | 2,011 |
| | (8 | ) | | 2,232 |
| | 9,093 |
| | |
| |
| Futures and forward rate contracts | 1 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Notional amount (6) | Notional amount (6) | |
| | 32,013 |
| | 32,013 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
| Notional amount (6) | | | (5,905 | ) | | (23,224 | ) | | 2,296 |
| | (20 | ) | | 2,546 |
| | 2,934 |
| | 9,563 |
| | |
|
| Net ALM contracts | Net ALM contracts | $ | 602 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Net ALM contracts | $ | (429 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | December 31, 2016 | | | | | | December 31, 2017 | | |
| | | | | Expected Maturity | | | | | | Expected Maturity | | |
| (Dollars in millions, average estimated duration in years) | (Dollars in millions, average estimated duration in years) | Fair Value | | Total | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Average Estimated Duration | (Dollars in millions, average estimated duration in years) | Fair Value | | Total | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Average Estimated Duration |
Receive-fixed interest rate swaps (1) | Receive-fixed interest rate swaps (1) | $ | 4,055 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 4.81 |
| Receive-fixed interest rate swaps (1) | $ | 2,330 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 5.38 |
|
| Notional amount | Notional amount | |
| | $ | 118,603 |
| | $ | 21,453 |
| | $ | 25,788 |
| | $ | 10,283 |
| | $ | 7,515 |
| | $ | 5,307 |
| | $ | 48,257 |
| | |
| Notional amount | |
| | $ | 176,390 |
| | $ | 21,850 |
| | $ | 27,176 |
| | $ | 16,347 |
| | $ | 6,498 |
| | $ | 19,120 |
| | $ | 85,399 |
| | |
|
| Weighted-average fixed-rate | Weighted-average fixed-rate | |
| | 2.83 | % | | 3.64 | % | | 2.81 | % | | 2.31 | % | | 2.07 | % | | 3.18 | % | | 2.67 | % | | |
| Weighted-average fixed-rate | |
| | 2.42 | % | | 3.20 | % | | 1.87 | % | | 1.88 | % | | 2.99 | % | | 2.10 | % | | 2.52 | % | | |
|
Pay-fixed interest rate swaps (1) | Pay-fixed interest rate swaps (1) | 159 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 2.77 |
| Pay-fixed interest rate swaps (1) | (37 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 5.63 |
|
| Notional amount | Notional amount | |
| | $ | 22,400 |
| | $ | 1,527 |
| | $ | 9,168 |
| | $ | 2,072 |
| | $ | 7,975 |
| | $ | 213 |
| | $ | 1,445 |
| | |
| Notional amount | |
| | $ | 45,873 |
| | $ | 11,555 |
| | $ | 1,210 |
| | $ | 4,344 |
| | $ | 1,616 |
| | $ | — |
| | $ | 27,148 |
| | |
|
| Weighted-average fixed-rate | Weighted-average fixed-rate | |
| | 1.37 | % | | 1.84 | % | | 1.47 | % | | 0.97 | % | | 1.08 | % | | 1.00 | % | | 2.45 | % | | |
| Weighted-average fixed-rate | |
| | 2.15 | % | | 1.73 | % | | 2.07 | % | | 2.16 | % | | 2.22 | % | | — | % | | 2.32 | % | | |
|
Same-currency basis swaps (2) | Same-currency basis swaps (2) | (26 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Same-currency basis swaps (2) | (17 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Notional amount | Notional amount | |
| | $ | 59,274 |
| | $ | 20,775 |
| | $ | 11,027 |
| | $ | 6,784 |
| | $ | 1,180 |
| | $ | 2,799 |
| | $ | 16,709 |
| | |
| Notional amount | |
| | $ | 38,622 |
| | $ | 11,028 |
| | $ | 6,789 |
| | $ | 1,180 |
| | $ | 2,807 |
| | $ | 955 |
| | $ | 15,863 |
| | |
|
Foreign exchange basis swaps (1, 3, 4) | Foreign exchange basis swaps (1, 3, 4) | (4,233 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Foreign exchange basis swaps (1, 3, 4) | (1,616 | ) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Notional amount | Notional amount | |
| | 125,522 |
| | 26,509 |
| | 22,724 |
| | 12,178 |
| | 12,150 |
| | 8,365 |
| | 43,596 |
| | |
| Notional amount | |
| | 107,263 |
| | 24,886 |
| | 11,922 |
| | 13,367 |
| | 9,301 |
| | 6,860 |
| | 40,927 |
| | |
|
Option products (5) | Option products (5) | 5 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Option products (5) | 13 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Notional amount (6) | Notional amount (6) | |
| | 1,687 |
| | 1,673 |
| | — |
| | — |
| | — |
| | — |
| | 14 |
| | |
| Notional amount (6) | |
| | 1,218 |
| | 1,201 |
| | — |
| | — |
| | — |
| | — |
| | 17 |
| | |
|
Foreign exchange contracts (1, 4, 7) | Foreign exchange contracts (1, 4, 7) | 3,180 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Foreign exchange contracts (1, 4, 7) | 1,424 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Notional amount (6) | Notional amount (6) | |
| | (20,285 | ) | | (30,199 | ) | | 197 |
| | 1,961 |
| | (8 | ) | | 881 |
| | 6,883 |
| | |
| Notional amount (6) | |
| | (11,783 | ) | | (28,689 | ) | | 2,231 |
| | (24 | ) | | 2,471 |
| | 2,919 |
| | 9,309 |
| | |
|
| Futures and forward rate contracts | 19 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Notional amount (6) | |
| | 37,896 |
| | 37,896 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
| |
| Net ALM contracts | Net ALM contracts | $ | 3,159 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Net ALM contracts | $ | 2,097 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| |
(1) | Does not include basis adjustments on either fixed-rate debt issued by the Corporation or AFS debt securities, which are hedged using derivatives designated as fair value hedging instruments, that substantially offset the fair values of these derivatives. |
| |
(2) | At March 31, 20172018 and December 31, 20162017, the notional amount of same-currency basis swaps included $52.241.3 billion and $59.338.6 billion in both foreign currency and U.S. Dollar-denominateddollar-denominated basis swaps in which both sides of the swap are in the same currency. |
| |
(3) | Foreign exchange basis swaps consisted of cross-currency variable interest rate swaps used separately or in conjunction with receive-fixed interest rate swaps. |
| |
(4) | Does not include foreign currency translation adjustments on certain non-U.S. debt issued by the Corporation that substantially offset the fair values of these derivatives. |
| |
(5) | The notional amount of option products of $(2.5)1.2 billion at both March 31, 2018 and December 31, 2017 was comprised of $(2.5) billionsubstantially all in foreign exchange options and $14 million in purchased caps/floors. Option products of $1.7 billion at December 31, 2016 were comprised of $1.7 billion in foreign exchange options and $14 million in purchased caps/floors.options. |
| |
(6) | Reflects the net of long and short positions. Amounts shown as negative reflect a net short position. |
| |
(7) | The notional amount of foreign exchange contracts of $10.6(5.9) billion at March 31, 20172018 was comprised of $23.630.0 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(10.0)(30.8) billion in net foreign currency forward rate contracts, $(4.1)(6.4) billion in foreign currency-denominated pay-fixed swaps and $1.11.3 billion in net foreign currency futures contracts. Foreign exchange contracts of $(20.3)(11.8) billion at December 31, 20162017 were comprised of $21.529.1 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(38.5)(35.6) billion in net foreign currency forward rate contracts, $(4.6)(6.2) billion in foreign currency-denominated pay-fixed swaps and $1.3 billion940 million in foreign currency futures contracts. |
We use interest rate derivative instruments to hedge the variability in the cash flows of our assets and liabilities and other forecasted transactions (collectively referred to as cash flow hedges). The net losses on both open and terminated cash flow hedge derivative instruments recorded in accumulated OCI were $1.4$1.6 billion and $1.3 billion, on a pretax basis, at both March 31, 20172018 and December 31, 2016.2017. These net losses are expected to be reclassified into earnings in the same period as the hedged cash flows affect earnings and will decrease income or increase expense on the respective hedged cash flows. Assuming no change in open cash flow derivative hedge positions and no changes in prices or interest rates beyond what is implied in forward yield curves at March 31, 2017,2018, the pretax net losses are expected to be reclassified into earnings as follows: $301$354 million, or 2221 percent, within the next year, 5158 percent in years two through five, and 1613 percent in years six through ten,10, with the remaining 11eight percent thereafter. For more information on derivatives designated as cash flow hedges, see Note 23 – Derivatives to the Consolidated Financial Statements.
We hedge our net investment in non-U.S. operations determined to have functional currencies other than the U.S. Dollardollar using forward foreign exchange contracts that typically settle in less than 180 days, cross-currency basis swaps and foreign exchange options. We recorded net after-tax losses on derivatives in accumulated OCI associated with net investment hedges which were offset by gains on our net investments in consolidated non-U.S. entities at March 31, 2017.2018.
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-investmentheld for investment or held-for-saleheld 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 IRLCsinterest rate lock commitments (IRLCs) and the related residential first mortgage LHFS 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, the value of the MSRs will increase driven by lower prepayment expectations when there is an increase in interest rates. Because the interest rate risks of these two hedged items offset, we combine them into one overall hedged item with one combined economic hedge portfolio consisting of derivative contracts and securities.
For the three months ended March 31, 2018 and 2017, we recorded gains in mortgage banking income of $69 million and $25 million related to the change in fair value of the MSRs, IRLCs and LHFS, net of gains and losses on the hedge portfolio, compared to gains of $131 million for the same period in 2016.portfolio. For more information on MSRs, see Note 14 – Fair Value Measurementsto the Consolidated Financial Statements and for more information on mortgage banking income, see Consumer Banking on page 10.Statements.
Complex Accounting Estimates
Our significant accounting principles 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. For additional information, see Complex Accounting Estimates in the MD&A of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K and Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
Non-GAAP Reconciliations
Tables 50 and 51 provide reconciliations of certain non-GAAP financial measures to GAAP financial measures.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Table 50 | Quarterly Supplemental Financial Data and Reconciliations to GAAP Financial Measures |
| | | | | | | | | | | | | |
| | | Three Months Ended March 31 |
| | 2018 | | 2017 |
| (Dollars in millions) | As Reported | | Fully taxable-equivalent adjustment | | Fully taxable-equivalent basis | | As Reported | | Fully taxable-equivalent adjustment | | Fully taxable-equivalent basis |
| Net interest income | $ | 11,608 |
| | $ | 150 |
| | $ | 11,758 |
| | $ | 11,058 |
| | $ | 197 |
| | $ | 11,255 |
|
| Total revenue, net of interest expense | 23,125 |
| | 150 |
| | 23,275 |
| | 22,248 |
| | 197 |
| | 22,445 |
|
| Income tax expense | 1,476 |
| | 150 |
| | 1,626 |
| | 1,983 |
| | 197 |
| | 2,180 |
|
Tables 53 and 54 provide reconciliations of certain non-GAAP financial measures to GAAP financial measures.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Table 53 | Quarterly Supplemental Financial Data and Reconciliations to GAAP Financial Measures |
| | | | | | | | | | | | | |
| | | Three Months Ended March 31 |
| | 2017 | | 2016 |
| (Dollars in millions) | As Reported | | Fully taxable-equivalent adjustment | | Fully taxable-equivalent basis | | As Reported | | Fully taxable-equivalent adjustment | | Fully taxable-equivalent basis |
| Net interest income | $ | 11,058 |
| | $ | 197 |
| | $ | 11,255 |
| | $ | 10,485 |
| | $ | 215 |
| | $ | 10,700 |
|
| Total revenue, net of interest expense | 22,248 |
| | 197 |
| | 22,445 |
| | 20,790 |
| | 215 |
| | 21,005 |
|
| Income tax expense | 1,709 |
| | 197 |
| | 1,906 |
| | 1,505 |
| | 215 |
| | 1,720 |
|
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 51 | Period-end and Average Supplemental Financial Data and Reconciliations to GAAP Financial Measures |
| | | | | | | |
| | Period-end | | Average |
| | March 31
2018 | | December 31
2017 | | Three Months Ended March 31 |
| (Dollars in millions) | | | 2018 | | 2017 |
| Common shareholders’ equity | $ | 241,552 |
| | $ | 244,823 |
| | $ | 242,713 |
| | $ | 242,480 |
|
| Goodwill | (68,951 | ) | | (68,951 | ) | | (68,951 | ) | | (69,744 | ) |
| Intangible assets (excluding MSRs) | (2,177 | ) | | (2,312 | ) | | (2,261 | ) | | (2,923 | ) |
| Related deferred tax liabilities | 920 |
| | 943 |
| | 939 |
| | 1,539 |
|
| Tangible common shareholders’ equity | $ | 171,344 |
| | $ | 174,503 |
| | $ | 172,440 |
| | $ | 171,352 |
|
| | | | | | | | |
| Shareholders’ equity | $ | 266,224 |
| | $ | 267,146 |
| | $ | 265,480 |
| | $ | 267,700 |
|
| Goodwill | (68,951 | ) | | (68,951 | ) | | (68,951 | ) | | (69,744 | ) |
| Intangible assets (excluding MSRs) | (2,177 | ) | | (2,312 | ) | | (2,261 | ) | | (2,923 | ) |
| Related deferred tax liabilities | 920 |
| | 943 |
| | 939 |
| | 1,539 |
|
| Tangible shareholders’ equity | $ | 196,016 |
| | $ | 196,826 |
| | $ | 195,207 |
| | $ | 196,572 |
|
| | | | | | | | |
| Total assets | $ | 2,328,478 |
| | $ | 2,281,234 |
| | | | |
| Goodwill | (68,951 | ) | | (68,951 | ) | | | | |
| Intangible assets (excluding MSRs) | (2,177 | ) | | (2,312 | ) | | | | |
| Related deferred tax liabilities | 920 |
| | 943 |
| | | | |
| Tangible assets | $ | 2,258,270 |
| | $ | 2,210,914 |
| | | | |
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Table 54 | Period-end and Average Supplemental Financial Data and Reconciliations to GAAP Financial Measures |
| | | | | | | |
| | | | | | | Average |
| | Period-end | | Three Months Ended March 31 |
| (Dollars in millions) | March 31
2017 | | December 31
2016 | | 2017 | | 2016 |
| Common shareholders' equity | $ | 242,933 |
| | $ | 241,620 |
| | $ | 242,883 |
| | $ | 237,229 |
|
| Goodwill | (69,744 | ) | | (69,744 | ) | | (69,744 | ) | | (69,761 | ) |
| Intangible assets (excluding MSRs) | (2,827 | ) | | (2,989 | ) | | (2,923 | ) | | (3,687 | ) |
| Related deferred tax liabilities | 1,513 |
| | 1,545 |
| | 1,539 |
| | 1,707 |
|
| Tangible common shareholders' equity | $ | 171,875 |
| | $ | 170,432 |
| | $ | 171,755 |
| | $ | 165,488 |
|
| | | | | | | | |
| Shareholders' equity | $ | 268,153 |
| | $ | 266,840 |
| | $ | 268,103 |
| | $ | 260,423 |
|
| Goodwill | (69,744 | ) | | (69,744 | ) | | (69,744 | ) | | (69,761 | ) |
| Intangible assets (excluding MSRs) | (2,827 | ) | | (2,989 | ) | | (2,923 | ) | | (3,687 | ) |
| Related deferred tax liabilities | 1,513 |
| | 1,545 |
| | 1,539 |
| | 1,707 |
|
| Tangible shareholders' equity | $ | 197,095 |
| | $ | 195,652 |
| | $ | 196,975 |
| | $ | 188,682 |
|
| | | | | | | | |
| Total assets | $ | 2,247,701 |
| | $ | 2,187,702 |
| | | | |
| Goodwill | (69,744 | ) | | (69,744 | ) | | | | |
| Intangible assets (excluding MSRs) | (2,827 | ) | | (2,989 | ) | | | | |
| Related deferred tax liabilities | 1,513 |
| | 1,545 |
| | | | |
| Tangible assets | $ | 2,176,643 |
| | $ | 2,116,514 |
| | | | |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
See Market Risk Management on page 5443 in the MD&A and the sections referenced therein for Quantitative and Qualitative Disclosures about Market Risk.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, the Corporation'sCorporation’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness and design of the Corporation'sCorporation’s disclosure controls and procedures (as that term is defined in Rule 13a-15(e) of the Exchange Act). Based upon that evaluation, the Corporation'sCorporation’s Chief Executive Officer and Chief Financial Officer concluded that the Corporation'sCorporation’s disclosure controls and procedures were effective, as of the end of the period covered by this report, in recording, processing, summarizing and reporting information required to be disclosed by the Corporation in reports that it files or submits under the Exchange Act, within the time periods specified in the Securities and Exchange Commission’s rules and forms.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Corporation'sCorporation’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended March 31, 2017,2018, that have materially affected, or are reasonably likely to materially affect, the Corporation'sCorporation’s internal control over financial reporting.
Part I. Financial Information
Item 1. Financial Statements
Bank of America Corporation and Subsidiaries
|
| | | | | | | |
| | | | |
| Consolidated Statement of Income |
| | Three Months Ended March 31 |
| (Dollars in millions, except per share information) | 2017 | | 2016 |
| Interest income | |
| | |
|
| Loans and leases | $ | 8,754 |
| | $ | 8,260 |
|
| Debt securities | 2,541 |
| | 2,517 |
|
| Federal funds sold and securities borrowed or purchased under agreements to resell | 439 |
| | 276 |
|
| Trading account assets | 1,076 |
| | 1,179 |
|
| Other interest income | 900 |
| | 776 |
|
| Total interest income | 13,710 |
| | 13,008 |
|
| | | | |
| Interest expense | |
| | |
|
| Deposits | 282 |
| | 225 |
|
| Short-term borrowings | 647 |
| | 613 |
|
| Trading account liabilities | 264 |
| | 292 |
|
| Long-term debt | 1,459 |
| | 1,393 |
|
| Total interest expense | 2,652 |
| | 2,523 |
|
| Net interest income | 11,058 |
| | 10,485 |
|
| | | | |
| Noninterest income | |
| | |
|
| Card income | 1,449 |
| | 1,430 |
|
| Service charges | 1,918 |
| | 1,837 |
|
| Investment and brokerage services | 3,262 |
| | 3,182 |
|
| Investment banking income | 1,584 |
| | 1,153 |
|
| Trading account profits | 2,331 |
| | 1,662 |
|
| Mortgage banking income | 122 |
| | 433 |
|
| Gains on sales of debt securities | 52 |
| | 190 |
|
| Other income | 472 |
| | 418 |
|
| Total noninterest income | 11,190 |
| | 10,305 |
|
| Total revenue, net of interest expense | 22,248 |
| | 20,790 |
|
| | | | |
| Provision for credit losses | 835 |
| | 997 |
|
| | | | |
| Noninterest expense | |
| | |
|
| Personnel | 9,158 |
| | 8,852 |
|
| Occupancy | 1,000 |
| | 1,028 |
|
| Equipment | 438 |
| | 463 |
|
| Marketing | 332 |
| | 419 |
|
| Professional fees | 456 |
| | 425 |
|
| Amortization of intangibles | 162 |
| | 187 |
|
| Data processing | 794 |
| | 838 |
|
| Telecommunications | 191 |
| | 173 |
|
| Other general operating | 2,317 |
| | 2,431 |
|
| Total noninterest expense | 14,848 |
| | 14,816 |
|
| Income before income taxes | 6,565 |
| | 4,977 |
|
| Income tax expense | 1,709 |
| | 1,505 |
|
| Net income | $ | 4,856 |
| | $ | 3,472 |
|
| Preferred stock dividends | 502 |
| | 457 |
|
| Net income applicable to common shareholders | $ | 4,354 |
| | $ | 3,015 |
|
| | | | |
| Per common share information | |
| | |
|
| Earnings | $ | 0.43 |
| | $ | 0.29 |
|
| Diluted earnings | 0.41 |
| | 0.28 |
|
| Dividends paid | 0.075 |
| | 0.05 |
|
| Average common shares issued and outstanding (in thousands) | 10,099,557 |
| | 10,370,094 |
|
| Average diluted common shares issued and outstanding (in thousands) | 10,914,815 |
| | 11,100,067 |
|
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
|
| | | | | | | |
| | | | |
| Consolidated Statement of Comprehensive Income |
| | | | |
| | Three Months Ended March 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Net income | $ | 4,856 |
| | $ | 3,472 |
|
| Other comprehensive income (loss), net-of-tax: | | | |
| Net change in debt and marketable equity securities | (99 | ) | | 2,356 |
|
| Net change in debit valuation adjustments | 9 |
| | 127 |
|
| Net change in derivatives | 38 |
| | 24 |
|
| Employee benefit plan adjustments | 27 |
| | 10 |
|
| Net change in foreign currency translation adjustments | (3 | ) | | 12 |
|
| Other comprehensive income (loss) | (28 | ) | | 2,529 |
|
| Comprehensive income | $ | 4,828 |
| | $ | 6,001 |
|
|
| | | | | | | |
| | | | |
| Consolidated Statement of Income |
| | Three Months Ended March 31 |
| (In millions, except per share information) | 2018 | | 2017 |
| Interest income | |
| | |
|
| Loans and leases | $ | 9,623 |
| | $ | 8,754 |
|
| Debt securities | 2,804 |
| | 2,541 |
|
| Federal funds sold and securities borrowed or purchased under agreements to resell | 622 |
| | 439 |
|
| Trading account assets | 1,136 |
| | 1,076 |
|
| Other interest income | 1,414 |
| | 900 |
|
| Total interest income | 15,599 |
| | 13,710 |
|
| | | | |
| Interest expense | |
| | |
|
| Deposits | 760 |
| | 282 |
|
| Short-term borrowings | 1,135 |
| | 647 |
|
| Trading account liabilities | 357 |
| | 264 |
|
| Long-term debt | 1,739 |
| | 1,459 |
|
| Total interest expense | 3,991 |
| | 2,652 |
|
| Net interest income | 11,608 |
| | 11,058 |
|
| | | | |
| Noninterest income | |
| | |
|
| Card income | 1,457 |
| | 1,449 |
|
| Service charges | 1,921 |
| | 1,918 |
|
| Investment and brokerage services | 3,664 |
| | 3,417 |
|
| Investment banking income | 1,353 |
| | 1,584 |
|
| Trading account profits | 2,699 |
| | 2,331 |
|
| Other income | 423 |
| | 491 |
|
| Total noninterest income | 11,517 |
| | 11,190 |
|
| Total revenue, net of interest expense | 23,125 |
| | 22,248 |
|
| | | | |
| Provision for credit losses | 834 |
| | 835 |
|
| | | | |
| Noninterest expense | |
| | |
|
| Personnel | 8,480 |
| | 8,475 |
|
| Occupancy | 1,014 |
| | 1,000 |
|
| Equipment | 442 |
| | 438 |
|
| Marketing | 345 |
| | 332 |
|
| Professional fees | 381 |
| | 456 |
|
| Data processing | 810 |
| | 794 |
|
| Telecommunications | 183 |
| | 191 |
|
| Other general operating | 2,242 |
| | 2,407 |
|
| Total noninterest expense | 13,897 |
| | 14,093 |
|
| Income before income taxes | 8,394 |
| | 7,320 |
|
| Income tax expense | 1,476 |
| | 1,983 |
|
| Net income | $ | 6,918 |
| | $ | 5,337 |
|
| Preferred stock dividends | 428 |
| | 502 |
|
| Net income applicable to common shareholders | $ | 6,490 |
| | $ | 4,835 |
|
| | | | |
| Per common share information | |
| | |
|
| Earnings | $ | 0.63 |
| | $ | 0.48 |
|
| Diluted earnings | 0.62 |
| | 0.45 |
|
| Dividends paid | 0.12 |
| | 0.075 |
|
| Average common shares issued and outstanding | 10,322.4 |
| | 10,099.6 |
|
| Average diluted common shares issued and outstanding | 10,472.7 |
| | 10,919.7 |
|
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
|
| | | | | | | |
| | | | |
| Consolidated Balance Sheet |
| | |
| (Dollars in millions) | March 31
2017 | | December 31
2016 |
| Assets | |
| | |
|
| Cash and due from banks | $ | 28,955 |
| | $ | 30,719 |
|
| Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks | 139,070 |
| | 117,019 |
|
| Cash and cash equivalents | 168,025 |
| | 147,738 |
|
| Time deposits placed and other short-term investments | 11,967 |
| | 9,861 |
|
Federal funds sold and securities borrowed or purchased under agreements to resell (includes $58,545 and $49,750 measured at fair value) | 210,733 |
| | 198,224 |
|
Trading account assets (includes $119,058 and $106,057 pledged as collateral) | 209,044 |
| | 180,209 |
|
| Derivative assets | 40,078 |
| | 42,512 |
|
| Debt securities: | |
| | |
Carried at fair value (includes $27,870 and $29,804 pledged as collateral) | 312,012 |
| | 313,660 |
|
Held-to-maturity, at cost (fair value – $114,003 and $115,285; $8,244 and $8,233 pledged as collateral) | 116,033 |
| | 117,071 |
|
| Total debt securities | 428,045 |
| | 430,731 |
|
Loans and leases (includes $7,528 and $7,085 measured at fair value and $47,410 and $31,805 pledged as collateral) | 906,242 |
| | 906,683 |
|
| Allowance for loan and lease losses | (11,112 | ) | | (11,237 | ) |
| Loans and leases, net of allowance | 895,130 |
| | 895,446 |
|
| Premises and equipment, net | 9,319 |
| | 9,139 |
|
| Mortgage servicing rights | 2,610 |
| | 2,747 |
|
| Goodwill | 68,969 |
| | 68,969 |
|
| Intangible assets | 2,766 |
| | 2,922 |
|
Loans held-for-sale (includes $3,745 and $4,026 measured at fair value) | 14,751 |
| | 9,066 |
|
Customer and other receivables (includes $250 measured at fair value at March 31, 2017) | 59,534 |
| | 58,759 |
|
Assets of business held for sale (includes $691 and $619 measured at fair value) | 11,025 |
| | 10,670 |
|
Other assets (includes $14,639 and $13,802 measured at fair value) | 115,705 |
| | 120,709 |
|
| Total assets | $ | 2,247,701 |
| | $ | 2,187,702 |
|
| | | | |
| | | | |
| | | | |
| Assets of consolidated variable interest entities included in total assets above (isolated to settle the liabilities of the variable interest entities) |
| Trading account assets | $ | 5,180 |
| | $ | 5,773 |
|
| Loans and leases | 53,187 |
| | 56,001 |
|
| Allowance for loan and lease losses | (1,004 | ) | | (1,032 | ) |
| Loans and leases, net of allowance | 52,183 |
| | 54,969 |
|
| Loans held-for-sale | 128 |
| | 188 |
|
| All other assets | 2,161 |
| | 1,596 |
|
| Total assets of consolidated variable interest entities | $ | 59,652 |
| | $ | 62,526 |
|
|
| | | | | | | |
| | | | |
| Consolidated Statement of Comprehensive Income |
| | | | |
| | Three Months Ended March 31 |
| (Dollars in millions) | 2018 | | 2017 |
| Net income | $ | 6,918 |
| | $ | 5,337 |
|
| Other comprehensive income (loss), net-of-tax: | | | |
| Net change in debt and equity securities | (3,963 | ) | | (99 | ) |
| Net change in debit valuation adjustments | 273 |
| | 9 |
|
| Net change in derivatives | (275 | ) | | 38 |
|
| Employee benefit plan adjustments | 30 |
| | 27 |
|
| Net change in foreign currency translation adjustments | (48 | ) | | (3 | ) |
| Other comprehensive income (loss) | (3,983 | ) | | (28 | ) |
| Comprehensive income | $ | 2,935 |
| | $ | 5,309 |
|
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
|
| | | | | | | |
| | | | |
| Consolidated Balance Sheet (continued) |
| | |
| (Dollars in millions) | March 31
2017 | | December 31
2016 |
| Liabilities | |
| | |
|
| Deposits in U.S. offices: | |
| | |
|
| Noninterest-bearing | $ | 436,972 |
| | $ | 438,125 |
|
Interest-bearing (includes $598 and $731 measured at fair value) | 762,161 |
| | 750,891 |
|
| Deposits in non-U.S. offices: | | | |
| Noninterest-bearing | 13,223 |
| | 12,039 |
|
| Interest-bearing | 59,785 |
| | 59,879 |
|
| Total deposits | 1,272,141 |
| | 1,260,934 |
|
Federal funds purchased and securities loaned or sold under agreements to repurchase (includes $36,663 and $35,766 measured at fair value) | 186,098 |
| | 170,291 |
|
| Trading account liabilities | 77,283 |
| | 63,031 |
|
| Derivative liabilities | 36,428 |
| | 39,480 |
|
Short-term borrowings (includes $1,041 and $2,024 measured at fair value) | 44,162 |
| | 23,944 |
|
Accrued expenses and other liabilities (includes $16,245 and $14,630 measured at fair value and $757 and $762 of reserve for unfunded lending commitments) | 142,051 |
| | 146,359 |
|
Long-term debt (includes $29,617 and $30,037 measured at fair value) | 221,385 |
| | 216,823 |
|
| Total liabilities | 1,979,548 |
| | 1,920,862 |
|
Commitments and contingencies (Note 6 – Securitizations and Other Variable Interest Entities, Note 7 – Representations and Warranties Obligations and Corporate Guarantees and Note 10 – Commitments and Contingencies) |
|
| |
|
|
| Shareholders’ equity | |
| | |
|
Preferred stock, $0.01 par value; authorized – 100,000,000 shares; issued and outstanding – 3,887,329 and 3,887,329 shares | 25,220 |
| | 25,220 |
|
Common stock and additional paid-in capital, $0.01 par value; authorized – 12,800,000,000 shares; issued and outstanding – 9,974,189,863 and 10,052,625,604 shares | 144,782 |
| | 147,038 |
|
| Retained earnings | 105,467 |
| | 101,870 |
|
| Accumulated other comprehensive income (loss) | (7,316 | ) | | (7,288 | ) |
| Total shareholders’ equity | 268,153 |
| | 266,840 |
|
| Total liabilities and shareholders’ equity | $ | 2,247,701 |
| | $ | 2,187,702 |
|
| | | | |
| Liabilities of consolidated variable interest entities included in total liabilities above | |
| | |
|
| Short-term borrowings | $ | 185 |
| | $ | 348 |
|
Long-term debt (includes $11,730 and $10,417 of non-recourse debt) | 11,944 |
| | 10,646 |
|
All other liabilities (includes $34 and $38 of non-recourse liabilities) | 37 |
| | 41 |
|
| Total liabilities of consolidated variable interest entities | $ | 12,166 |
| | $ | 11,035 |
|
|
| | | | | | | |
| | | | |
| Consolidated Balance Sheet |
| | |
| (Dollars in millions) | March 31
2018 | | December 31
2017 |
| Assets | |
| | |
|
| Cash and due from banks | $ | 26,247 |
| | $ | 29,480 |
|
| Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks | 177,994 |
| | 127,954 |
|
| Cash and cash equivalents | 204,241 |
| | 157,434 |
|
| Time deposits placed and other short-term investments | 8,069 |
| | 11,153 |
|
Federal funds sold and securities borrowed or purchased under agreements to resell (includes $68,556 and $52,906 measured at fair value) | 244,630 |
| | 212,747 |
|
Trading account assets (includes $107,906 and $106,274 pledged as collateral) | 198,477 |
| | 209,358 |
|
| Derivative assets | 47,869 |
| | 37,762 |
|
| Debt securities: | |
| | |
| Carried at fair value | 303,298 |
| | 315,117 |
|
Held-to-maturity, at cost (fair value – $119,132 and $123,299) | 123,539 |
| | 125,013 |
|
| Total debt securities | 426,837 |
| | 440,130 |
|
Loans and leases (includes $5,989 and $5,710 measured at fair value) | 934,078 |
| | 936,749 |
|
| Allowance for loan and lease losses | (10,260 | ) | | (10,393 | ) |
| Loans and leases, net of allowance | 923,818 |
| | 926,356 |
|
| Premises and equipment, net | 9,399 |
| | 9,247 |
|
| Goodwill | 68,951 |
| | 68,951 |
|
Loans held-for-sale (includes $3,091 and $2,156 measured at fair value) | 9,227 |
| | 11,430 |
|
| Customer and other receivables | 58,127 |
| | 61,623 |
|
Other assets (includes $20,575 and $22,581 measured at fair value) | 128,833 |
| | 135,043 |
|
| Total assets | $ | 2,328,478 |
| | $ | 2,281,234 |
|
| | | | |
| Assets of consolidated variable interest entities included in total assets above (isolated to settle the liabilities of the variable interest entities) |
| Trading account assets | $ | 6,065 |
| | $ | 6,521 |
|
| Loans and leases | 46,590 |
| | 48,929 |
|
| Allowance for loan and lease losses | (984 | ) | | (1,016 | ) |
| Loans and leases, net of allowance | 45,606 |
| | 47,913 |
|
| Loans held-for-sale | 13 |
| | 27 |
|
| All other assets | 399 |
| | 1,694 |
|
| Total assets of consolidated variable interest entities | $ | 52,083 |
| | $ | 56,155 |
|
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Consolidated Statement of Changes in Shareholders’ Equity |
| | | | | | | | | | | | |
| | Preferred Stock | | Common Stock and Additional Paid-in Capital | | Retained Earnings | | Accumulated
Other Comprehensive Income (Loss) | | Total Shareholders’ Equity |
| (Dollars in millions, shares in thousands) | | Shares | | Amount | | | |
| Balance, December 31, 2015 | $ | 22,273 |
| | 10,380,265 |
| | $ | 151,042 |
| | $ | 88,219 |
| | $ | (5,358 | ) | | $ | 256,176 |
|
| Net income | | | | | | | 3,472 |
| | | | 3,472 |
|
| Net change in debt and marketable equity securities | | | | | | | | | 2,356 |
| | 2,356 |
|
| Net change in debit valuation adjustments | | | | | | | | | 127 |
| | 127 |
|
| Net change in derivatives | | | | | | | | | 24 |
| | 24 |
|
| Employee benefit plan adjustments | | | | | | | | | 10 |
| | 10 |
|
| Net change in foreign currency translation adjustments | | | | | | | | | 12 |
| | 12 |
|
| Dividends declared: | | | | | | | | | | | |
| Common | | | | | | | (517 | ) | | | | (517 | ) |
| Preferred | | | | | | | (457 | ) | | | | (457 | ) |
| Issuance of preferred stock | 2,069 |
| | | | | | | | | | 2,069 |
|
| Common stock issued under employee plans, net, and related tax effects | | | 4,936 |
| | 732 |
| | | | | | 732 |
|
| Common stock repurchased | | | (72,541 | ) | | (1,000 | ) | | | | | | (1,000 | ) |
| Balance, March 31, 2016 | $ | 24,342 |
| | 10,312,660 |
| | $ | 150,774 |
| | $ | 90,717 |
| | $ | (2,829 | ) | | $ | 263,004 |
|
| | | | | | | | | | | | |
| Balance, December 31, 2016 | $ | 25,220 |
| | 10,052,626 |
| | $ | 147,038 |
| | $ | 101,870 |
| | $ | (7,288 | ) | | $ | 266,840 |
|
| Net income | | | | | | | 4,856 |
| | | | 4,856 |
|
| Net change in debt and marketable equity securities | | | | | | | | | (99 | ) | | (99 | ) |
| Net change in debit valuation adjustments | | | | | | | | | 9 |
| | 9 |
|
| Net change in derivatives | | | | | | | | | 38 |
| | 38 |
|
| Employee benefit plan adjustments | | | | | | | | | 27 |
| | 27 |
|
| Net change in foreign currency translation adjustments | | | | | | | | | (3 | ) | | (3 | ) |
| Dividends declared: | | | | | | | | | | | |
| Common | | | | | | | (757 | ) | | | | (757 | ) |
| Preferred | | | | | | | (502 | ) | | | | (502 | ) |
| Common stock issued under employee plans, net | | | 35,949 |
| | 472 |
| | | | | | 472 |
|
| Common stock repurchased | | | (114,385 | ) | | (2,728 | ) | | | | | | (2,728 | ) |
| Balance, March 31, 2017 | $ | 25,220 |
| | 9,974,190 |
| | $ | 144,782 |
| | $ | 105,467 |
| | $ | (7,316 | ) | | $ | 268,153 |
|
|
| | | | | | | |
| | | | |
| Consolidated Balance Sheet (continued) |
| | |
| (Dollars in millions) | March 31
2018 | | December 31
2017 |
| Liabilities | |
| | |
|
| Deposits in U.S. offices: | |
| | |
|
| Noninterest-bearing | $ | 434,709 |
| | $ | 430,650 |
|
Interest-bearing (includes $435 and $449 measured at fair value) | 811,212 |
| | 796,576 |
|
| Deposits in non-U.S. offices: | | | |
| Noninterest-bearing | 13,768 |
| | 14,024 |
|
| Interest-bearing | 68,975 |
| | 68,295 |
|
| Total deposits | 1,328,664 |
| | 1,309,545 |
|
Federal funds purchased and securities loaned or sold under agreements to repurchase (includes $35,116 and $36,182 measured at fair value) | 178,528 |
| | 176,865 |
|
| Trading account liabilities | 100,218 |
| | 81,187 |
|
| Derivative liabilities | 33,900 |
| | 34,300 |
|
Short-term borrowings (includes $2,284 and $1,494 measured at fair value) | 38,073 |
| | 32,666 |
|
Accrued expenses and other liabilities (includes $20,176 and $22,840 measured at fair value and $782 and $777 of reserve for unfunded lending commitments) | 150,615 |
| | 152,123 |
|
Long-term debt (includes $30,062 and $31,786 measured at fair value) | 232,256 |
| | 227,402 |
|
| Total liabilities | 2,062,254 |
| | 2,014,088 |
|
Commitments and contingencies (Note 7 – Securitizations and Other Variable Interest Entities and Note 10 – Commitments and Contingencies) |
|
| |
|
|
| Shareholders’ equity | |
| | |
Preferred stock, $0.01 par value; authorized – 100,000,000 shares; issued and outstanding – 3,931,683 and 3,837,683 shares | 24,672 |
| | 22,323 |
|
Common stock and additional paid-in capital, $0.01 par value; authorized – 12,800,000,000 shares; issued and outstanding – 10,175,910,851 and 10,287,302,431 shares | 133,532 |
| | 138,089 |
|
| Retained earnings | 120,298 |
| | 113,816 |
|
| Accumulated other comprehensive income (loss) | (12,278 | ) | | (7,082 | ) |
| Total shareholders’ equity | 266,224 |
| | 267,146 |
|
| Total liabilities and shareholders’ equity | $ | 2,328,478 |
| | $ | 2,281,234 |
|
| | | | |
| Liabilities of consolidated variable interest entities included in total liabilities above | |
| | |
|
| Short-term borrowings | $ | 286 |
| | $ | 312 |
|
Long-term debt (includes $10,050 and $9,872 of non-recourse debt) | 10,051 |
| | 9,873 |
|
All other liabilities (includes $35 and $34 of non-recourse liabilities) | 38 |
| | 37 |
|
| Total liabilities of consolidated variable interest entities | $ | 10,375 |
| | $ | 10,222 |
|
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
|
| | | | | | | |
| | | | |
| Consolidated Statement of Cash Flows | | | |
| | | | |
| | Three Months Ended March 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Operating activities | | | |
| Net income | $ | 4,856 |
| | $ | 3,472 |
|
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | | |
| Provision for credit losses | 835 |
| | 997 |
|
| Gains on sales of debt securities | (52 | ) | | (190 | ) |
| Realized debit valuation adjustments on structured liabilities | 6 |
| | 7 |
|
| Depreciation and premises improvements amortization | 372 |
| | 379 |
|
| Amortization of intangibles | 162 |
| | 187 |
|
| Net amortization of premium/discount on debt securities | 544 |
| | 528 |
|
| Deferred income taxes | 1,109 |
| | 1,704 |
|
| Stock-based compensation | 1,060 |
| | 831 |
|
| Loans held-for-sale: | | | |
| Originations and purchases | (13,309 | ) | | (5,728 | ) |
| Proceeds from sales and paydowns of loans originally classified as held-for-sale | 7,528 |
| | 6,675 |
|
| Net change in: | | | |
| Trading and derivative instruments | (16,463 | ) | | 8,135 |
|
| Other assets | 3,577 |
| | 2,361 |
|
| Accrued expenses and other liabilities | (4,518 | ) | | (8,556 | ) |
| Other operating activities, net | 1,447 |
| | 95 |
|
| Net cash (used in) provided by operating activities | (12,846 | ) | | 10,897 |
|
| Investing activities | | | |
| Net change in: | | | |
| Time deposits placed and other short-term investments | (2,106 | ) | | 1,853 |
|
| Federal funds sold and securities borrowed or purchased under agreements to resell | (12,509 | ) | | (28,647 | ) |
| Debt securities carried at fair value: | | | |
| Proceeds from sales | 22,087 |
| | 17,384 |
|
| Proceeds from paydowns and maturities | 24,015 |
| | 25,510 |
|
| Purchases | (44,198 | ) | | (30,988 | ) |
| Held-to-maturity debt securities: | | | |
| Proceeds from paydowns and maturities | 3,874 |
| | 2,768 |
|
| Purchases | (3,033 | ) | | (4,334 | ) |
| Loans and leases: | | | |
| Proceeds from sales | 2,557 |
| | 8,021 |
|
| Purchases | (1,648 | ) | | (4,224 | ) |
| Other changes in loans and leases, net | (1,811 | ) | | (9,309 | ) |
| Other investing activities, net | (1,247 | ) | | 592 |
|
| Net cash used in investing activities | (14,019 | ) | | (21,374 | ) |
| Financing activities | | | |
| Net change in: | | | |
| Deposits | 11,207 |
| | 20,002 |
|
| Federal funds purchased and securities loaned or sold under agreements to repurchase | 15,807 |
| | 14,669 |
|
| Short-term borrowings | 20,131 |
| | 2,783 |
|
| Long-term debt: | | | |
| Proceeds from issuance | 17,378 |
| | 6,260 |
|
| Retirement of long-term debt | (13,617 | ) | | (14,404 | ) |
| Preferred stock: Proceeds from issuance | — |
| | 2,069 |
|
| Common stock repurchased | (2,728 | ) | | (1,000 | ) |
| Cash dividends paid | (1,255 | ) | | (974 | ) |
| Other financing activities, net | (584 | ) | | (77 | ) |
| Net cash provided by financing activities | 46,339 |
| | 29,328 |
|
| Effect of exchange rate changes on cash and cash equivalents | 813 |
| | 1,406 |
|
| Net increase in cash and cash equivalents | 20,287 |
| | 20,257 |
|
| Cash and cash equivalents at January 1 | 147,738 |
| | 159,353 |
|
| Cash and cash equivalents at March 31 | $ | 168,025 |
| | $ | 179,610 |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Consolidated Statement of Changes in Shareholders’ Equity |
| | | | | | | | | | | | |
| | Preferred Stock | | Common Stock and Additional Paid-in Capital | | Retained Earnings | | Accumulated
Other Comprehensive Income (Loss) | | Total Shareholders’ Equity |
| (In millions) | | Shares | | Amount | | | |
| Balance, December 31, 2016 | $ | 25,220 |
| | 10,052.6 |
| | $ | 147,038 |
| | $ | 101,225 |
| | $ | (7,288 | ) | | $ | 266,195 |
|
| Net income | | | | | | | 5,337 |
| | | | 5,337 |
|
| Net change in debt and equity securities | | | | | | | | | (99 | ) | | (99 | ) |
| Net change in debit valuation adjustments | | | | | | | | | 9 |
| | 9 |
|
| Net change in derivatives | | | | | | | | | 38 |
| | 38 |
|
| Employee benefit plan adjustments | | | | | | | | | 27 |
| | 27 |
|
| Net change in foreign currency translation adjustments | | | | | | | | | (3 | ) | | (3 | ) |
| Dividends declared: | | | | | | | | | | | |
| Common | | | | | | | (756 | ) | | | | (756 | ) |
| Preferred | | | | | | | (502 | ) | | | | (502 | ) |
| Common stock issued under employee plans, net | | | 36.0 |
| | 472 |
| | | | | | 472 |
|
| Common stock repurchased | | | (114.4 | ) | | (2,728 | ) | | | | | | (2,728 | ) |
| Balance, March 31, 2017 | $ | 25,220 |
| | 9,974.2 |
| | $ | 144,782 |
| | $ | 105,304 |
| | $ | (7,316 | ) | | $ | 267,990 |
|
| | | | | | | | | | | | |
| Balance, December 31, 2017 | $ | 22,323 |
| | 10,287.3 |
| | $ | 138,089 |
| | $ | 113,816 |
| | $ | (7,082 | ) | | $ | 267,146 |
|
| Cumulative adjustment for adoption of new hedge accounting standard | | | | | | | (32 | ) | | 57 |
| | 25 |
|
| Adoption of accounting standard related to certain tax effects stranded in accumulated other comprehensive income (loss) | | | | | | | 1,270 |
| | (1,270 | ) | | — |
|
| Net income | | | | | | | 6,918 |
| | | | 6,918 |
|
| Net change in debt and equity securities | | | | | | | | | (3,963 | ) | | (3,963 | ) |
| Net change in debit valuation adjustments | | | | | | | | | 273 |
| | 273 |
|
| Net change in derivatives | | | | | | | | | (275 | ) | | (275 | ) |
| Employee benefit plan adjustments | | | | | | | | | 30 |
| | 30 |
|
| Net change in foreign currency translation adjustments | | | | | | | | | (48 | ) | | (48 | ) |
| Dividends declared: | | | | | | | | | | | |
| Common | | | | | | | (1,237 | ) | | | | (1,237 | ) |
| Preferred | | | | | | | (428 | ) | | | | (428 | ) |
| Issuance of preferred stock | 2,349 |
| | | | | | | | | | 2,349 |
|
| Common stock issued under employee plans, net and other | | | 41.2 |
| | 301 |
| | (9 | ) | | | | 292 |
|
| Common stock repurchased | | | (152.6 | ) | | (4,858 | ) | | | | | | (4,858 | ) |
| Balance, March 31, 2018 | $ | 24,672 |
| | 10,175.9 |
| | $ | 133,532 |
| | $ | 120,298 |
| | $ | (12,278 | ) | | $ | 266,224 |
|
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
|
| | | | | | | |
| | | | |
| Consolidated Statement of Cash Flows | | | |
| | | | |
| | Three Months Ended March 31 |
| (Dollars in millions) | 2018 | | 2017 |
| Operating activities | | | |
| Net income | $ | 6,918 |
| | $ | 5,337 |
|
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
| Provision for credit losses | 834 |
| | 835 |
|
| Gains on sales of debt securities | (2 | ) | | (52 | ) |
| Depreciation and premises improvements amortization | 376 |
| | 372 |
|
| Amortization of intangibles | 135 |
| | 162 |
|
| Net amortization of premium/discount on debt securities | 475 |
| | 544 |
|
| Deferred income taxes | 804 |
| | 1,382 |
|
| Stock-based compensation | 415 |
| | 306 |
|
| Loans held-for-sale: | | | |
| Originations and purchases | (5,745 | ) | | (13,309 | ) |
Proceeds from sales and paydowns of loans originally classified as held for sale and instruments from related securitization activities | 9,876 |
| | 7,755 |
|
| Net change in: | | | |
| Trading and derivative instruments | 15,807 |
| | (16,723 | ) |
| Other assets | 11,233 |
| | 3,532 |
|
| Accrued expenses and other liabilities | (814 | ) | | (4,518 | ) |
| Other operating activities, net | 42 |
| | 1,388 |
|
| Net cash provided by (used in) operating activities | 40,354 |
| | (12,989 | ) |
| Investing activities | | | |
| Net change in: | | | |
| Time deposits placed and other short-term investments | 3,084 |
| | (2,106 | ) |
| Federal funds sold and securities borrowed or purchased under agreements to resell | (31,883 | ) | | (12,509 | ) |
| Debt securities carried at fair value: | | | |
| Proceeds from sales | 683 |
| | 22,087 |
|
| Proceeds from paydowns and maturities | 19,052 |
| | 24,015 |
|
| Purchases | (14,176 | ) | | (44,198 | ) |
| Held-to-maturity debt securities: | | | |
| Proceeds from paydowns and maturities | 3,764 |
| | 3,874 |
|
| Purchases | (2,453 | ) | | (3,033 | ) |
| Loans and leases: | | | |
Proceeds from sales of loans originally classified as held for investment and instruments from related securitization activities | 2,684 |
| | 2,590 |
|
| Purchases | (1,609 | ) | | (1,648 | ) |
| Other changes in loans and leases, net | (1,190 | ) | | (1,811 | ) |
| Other investing activities, net | (805 | ) | | (1,202 | ) |
| Net cash used in investing activities | (22,849 | ) | | (13,941 | ) |
| Financing activities | | | |
| Net change in: | | | |
| Deposits | 19,119 |
| | 11,207 |
|
| Federal funds purchased and securities loaned or sold under agreements to repurchase | 1,626 |
| | 15,807 |
|
| Short-term borrowings | 5,407 |
| | 20,131 |
|
| Long-term debt: | | | |
| Proceeds from issuance | 20,934 |
| | 17,378 |
|
| Retirement | (13,577 | ) | | (13,552 | ) |
| Proceeds from issuance of preferred stock | 2,349 |
| | — |
|
| Common stock repurchased | (4,858 | ) | | (2,728 | ) |
| Cash dividends paid | (1,674 | ) | | (1,255 | ) |
| Other financing activities, net | (724 | ) | | (584 | ) |
| Net cash provided by financing activities | 28,602 |
| | 46,404 |
|
| Effect of exchange rate changes on cash and cash equivalents | 700 |
| | 813 |
|
| Net increase in cash and cash equivalents | 46,807 |
| | 20,287 |
|
| Cash and cash equivalents at January 1 | 157,434 |
| | 147,738 |
|
| Cash and cash equivalents at March 31 | $ | 204,241 |
| | $ | 168,025 |
|
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1Summary of Significant Accounting Principles
Bank of America Corporation, a bank holding company and a financial holding company, provides a diverse range of financial services and products throughout the U.S. and in certain international markets. The term “the Corporation” as used herein 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.
Principles of Consolidation and Basis of Presentation
The Consolidated Financial Statements include the accounts of the Corporation and its majority-owned subsidiaries and those variable interest entities (VIEs) where the Corporation is the primary beneficiary. Intercompany accounts and transactions have been eliminated. Results of operations of acquired companies are included from the dates of acquisition and for VIEs, from the dates that the Corporation became the primary beneficiary. Assets held in an agency or fiduciary capacity are not included in the Consolidated Financial Statements. The Corporation accounts for investments in companies for which it owns a voting interest and for which it has the ability to exercise significant influence over operating and financing decisions using the equity method of accounting. These investments are included in other assets. Equity method investments are subject to impairment testing, and the Corporation’s proportionate share of income or loss is included in other income.
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect reported amounts and disclosures. Realized results could materially differ from those estimates and assumptions.
These unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
The nature of the Corporation'sCorporation’s business is such that the results of any interim period are not necessarily indicative of results for a full year. In the opinion of management, all adjustments, which consist of normal recurring adjustments necessary for a fair statement of the interim period results, have been made. The Corporation evaluates subsequent events through the date of filing with the Securities and Exchange Commission (SEC). Certain prior-period amounts have been reclassified to conform to current period presentation.
Change in Tax Law
On December 20, 2016,22, 2017, the Corporation enteredPresident signed into an agreementlaw the Tax Cuts and Jobs Act (the Tax Act) which made significant changes to sell itsfederal income tax law including, among other things, reducing the statutory corporate income tax rate to 21 percent from 35 percent and changing the taxation of the Corporation’s non-U.S. consumer credit card business to a third party. Subject to regulatory approval, this transaction is expected to close by mid-2017. After closing,activities. On the Corporation will retain substantially all payment protection insurance (PPI) exposure above existing reserves.same date, the SEC issued Staff Accounting Bulletin No. 118 which specifies, among other things, that
reasonable estimates of the income tax effects of the Tax Act should be used, if determinable. The Corporation has considered this exposureaccounted for the effects of the Tax Act using reasonable estimates based on currently available information and its interpretations thereof. This accounting may change due to, among other things, changes in its estimateinterpretations the Corporation has made and the issuance of new tax or accounting guidance.
Accounting Standards Adopted on January 1, 2018
Effective January 1, 2018, the Corporation adopted the following new accounting standards on a small after-tax gainprospective basis. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.
| |
| ● | Revenue Recognition– The new accounting standard addresses the recognition of revenue from contracts with customers. For additional information, see Revenue Recognition Accounting Policies in this Note, Note 2 – Noninterest Income and Note 17 – Business Segment Information. |
| |
| ● | Hedge Accounting– The new accounting standard simplifies and expands the ability to apply hedge accounting to certain risk management activities. For additional information,see Note 3 – Derivatives. |
| |
| ● | Recognition and Measurement of Financial Assets and Liabilities– The new accounting standard relates to the recognition and measurement of financial instruments, including equity investments. For additional information, see Note 4 – Securities and Note 16 – Fair Value of Financial Instruments. |
| |
| ● | Tax Effects in Accumulated Other Comprehensive Income –The new accounting standard addresses certain tax effects stranded in accumulated other comprehensive income (OCI) related to the Tax Act.For additional information, see Note 12 – Accumulated Other Comprehensive Income (Loss). |
Effective January 1, 2018, the sale. This transaction will reduce risk-weighted assets and goodwill upon closing, benefiting regulatory capital. The assetsCorporation adopted the following new accounting standards on a retrospective basis, resulting in restatement of this business, which areall prior periods presented in the assetsConsolidated Statement of business held for sale line onIncome and the Consolidated Balance Sheet, included consumer credit card receivablesStatement of $9.5 billionCash Flows. The changes in presentation are not material to the individual line items affected.
| |
| ● | Presentation of Pension Costs–The new accounting standard requires separate presentation of the service cost component of pension expense from all other components of net pension benefit/cost in the Consolidated Statement of Income. As a result, the service cost component continues to be presented in personnel expense while other components of net pension benefit/cost (e.g., interest cost, actual return on plan assets, amortization of prior service cost) are now presented in other general operating expense. |
| |
| ● | Classification of Cash Flows and Restricted Cash–The new accounting standards address the classification of certain cash receipts and cash payments in the statement of cash flows as well as the presentation and disclosure of restricted cash. For more information on restricted cash, see Note 9 – Federal Funds Sold or Purchased, Securities Financing Agreements, Short-term Borrowings and Restricted Cash. |
Accounting Standards Issued and $9.2 billion, an allowance for loan
Not Yet Adoptedlosses of $242 million and $243 million, goodwill of $775 million for both periods, available-for-sale (AFS) debt securities of $691 million and $619 million and all other assets of $296 million and $305 million at March 31, 2017 and December 31, 2016, respectively. Liabilities are primarily comprised of intercompany borrowings. This business is includedin All Other for reporting purposes.
NewLease Accounting Pronouncements
Accounting for Financial Instruments -- Credit Losses
The Financial Accounting Standards Board (FASB) issued a new accounting guidance effective on January 1, 2020, with early adoption permitted on January 1, 2019, that will require the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use. The Corporation is in the process of identifying and implementing required changes to loan loss estimation models and processes and evaluating the impact of this new accounting guidance, which at the date of adoption is expected to increase the allowance for credit losses with a resulting negative adjustment to retained earnings.
Revenue Recognition
The FASB issued new accounting guidance effective on January 1, 2018 for recognizing revenue from contracts with customers. While the new guidance does not apply to revenue associated with loans or securities, the Corporation has been working to identify the customer contracts within the scope of the new guidance and assess the related revenues to determine if any accounting or internal control changes will be required for the new provisions. While the assessment is not complete, the timing of the Corporation’s revenue recognition is not expected to materially change. The classification of certain contract costs continues to be evaluated, and the final interpretation may impact the presentation of certain contract costs. Overall, the Corporation does not expect the new guidance to have a material impact on its consolidated financial position or results of operations. The next phase of the Corporation’s implementation work will be to evaluate any changes that may be required to the Corporation’s applicable disclosures.
Lease Accounting
The FASB issued new accounting guidancestandard effective on January 1, 2019 that requires substantially all leases to be recorded as assets and liabilities on the balance sheet. ThisOn January 5, 2018, the FASB issued an exposure draft proposing an amendment to the standard that, if approved, would permit companies the option to apply the provisions of the new accounting guidance useslease standard either prospectively as of the effective date, without adjusting comparative periods presented, or using a modified retrospective transition that will be appliedapplicable to all prior periods presented. The Corporation is in the process of reviewing its existing lease portfolios, as well as otherincluding certain service contracts for embedded leases, to evaluate the impact of the new accounting guidancestandard on the consolidated financial statements, as well as the impact to regulatory capital and risk-weighted assets. The effect of the adoption will depend on itsthe lease portfolio at the time of transition;transition and the transition options ultimately available; however, the Corporation does not expect the new accounting guidancestandard to have a material impact on its consolidated financial position, or results of operations. Upon completionoperations or disclosures in the Notes to the Consolidated Financial Statements.
Accounting for Financial Instruments -- Credit Losses
The FASB issued a new accounting standard effective on January 1, 2020, with early adoption permitted on January 1, 2019, that will replace the existing measurement of the inventory reviewallowance for credit losses with management’s best estimate of probable credit losses inherent in the Corporation’s lending activities. The new standard will reflect management’s best estimate of all expected credit losses for substantially all of the Corporation’s financial assets that are recognized at amortized cost. The standard also requires expanded credit quality disclosures. The Corporation is in the process of identifying and considerationimplementing required changes to credit loss estimation models and processes and evaluating the impact of system requirements,this new accounting standard, which at the date of adoption may increase the allowance for credit losses with a resulting negative adjustment to retained earnings. The change will be dependent on the characteristics of the Corporation’s portfolio at adoption date as well as the macroeconomic conditions and forecast as of that date. While a final decision has not been made, the Corporation will evaluatedoes not expect to early adopt the impactsstandard.
Revenue Recognition Accounting Policies
The following summarizes the Corporation’s revenue recognition accounting policies for certain noninterest income activities.
Card Income
Card income includes annual, late and over-limit fees as well as fees earned from interchange, cash advances and other miscellaneous transactions and is presented net of adoptingdirect costs. Interchange fees are recognized upon settlement of the new accounting guidancecredit and debit card payment transactions and are generally determined on its disclosures.a percentage basis for credit cards and fixed rates for debit cards based on the corresponding payment network’s rates. Substantially all card fees are recognized at the transaction date, except for certain time-based fees such as annual fees, which are recognized over 12 months. Fees charged to cardholders that are
estimated to be uncollectible are reserved in the allowance for loan and lease losses. Rewards paid to cardholders are related to points earned by the cardholder that can be redeemed for a broad range of rewards including cash, travel and gift cards. Based on past redemption behavior, card product type, account transaction activity and other historical card performance, the Corporation estimates a liability based on the amount of earned reward points that are expected to be redeemed. The Corporation also makes payments to credit card partners. The payments are based on revenue-sharing agreements that are generally driven by cardholder transactions and partner sales volumes.
Service Charges
Service charges include deposit and lending-related fees. Deposit-related fees consist of fees earned on consumer and commercial deposit activities and are generally recognized when the transactions occur or as the service is performed. Consumer fees are earned on consumer deposit accounts for account maintenance and various transaction-based services, such as ATM transactions, wire transfer activities, check and money order processing and insufficient funds/overdraft transactions. Commercial deposit-related fees are from the Corporation’s Global Transaction Services business and consist of commercial deposit and treasury management services, including account maintenance and other services, such as payroll, sweep account and other cash management services. Lending-related fees generally represent transactional fees earned from certain loan commitments, financial guarantees and standby letters of credit (SBLCs).
Investment and Brokerage Services
Investment and brokerage services consist of asset management and brokerage fees. Asset management fees are earned from the management of client assets under advisory agreements or the full discretion of the Corporation’s financial advisors (collectively referred to as assets under management (AUM)). Asset management fees are earned as a percentage of the client’s AUM and generally range from 50 basis points (bps) to 150 bps of the AUM. In cases where a third party is used to obtain a client’s investment allocation, the fee remitted to the third party is recorded net and is not reflected in the transaction price, as the Corporation is an agent for those services.
Brokerage fees include income earned from transaction-based services that are performed as part of investment management services and are based on a fixed price per unit or as a percentage of the total transaction amount. Brokerage fees also include distribution fees and sales commissions that are primarily in the Global Wealth & Investment Management (GWIM) segment and are earned over time. In addition, primarily in the Global Markets segment, brokerage fees are earned when the Corporation fills customer orders to buy or sell various financial products or when it acknowledges, affirms, settles and clears transactions and/or submits trade information to the appropriate clearing broker. Certain customers pay brokerage, clearing and/or exchange fees imposed by relevant regulatory bodies or exchanges in order to execute or clear trades. These fees are recorded net and are not reflected in the transaction price, as the Corporation is an agent for those services.
Investment Banking Income
Investment banking income includes underwriting income and financial advisory services income. Underwriting consists of fees earned for the placement of a customer’s debt or equity securities. The revenue is generally earned based on a percentage of the fixed number of shares or principal placed. Once the number of shares or notes is determined and the service is completed, the underwriting fees are recognized. The Corporation incurs certain out-of-pocket expenses, such as legal costs, in performing these services. These expenses are recovered through the revenue the Corporation earns from the customer and are included in operating expenses. Syndication fees represent fees earned as the agent or lead lender responsible for structuring, arranging and administering a loan syndication.
Financial advisory services consist of fees earned for assisting customers with transactions related to mergers and acquisitions
and financial restructurings. Revenue varies depending on the size and number of services performed for each contract and is generally contingent on successful execution of the transaction. Revenue is typically recognized once the transaction is completed and all services have been rendered. Additionally, the Corporation may earn a fixed fee in merger and acquisition transactions to provide a fairness opinion, with the fees recognized when the opinion is delivered to the customer.
Other Revenue Measurement and Recognition and Measurement of Financial Assets and Financial LiabilitiesPolicies
The FASB issued new accounting guidance effective on January 1,Corporation did not disclose the value of any open performance obligations at March 31, 2018, as its contracts with early adoption permitted for thecustomers generally have a fixed term that is less than one year, an open term with a cancellation period that is less than one year, or provisions related to debit valuation adjustment (DVA), on recognition and measurement of financial instruments, including certain equity investments and financial liabilities recorded at fair value under the fair value option. In 2015,that allow the Corporation early adopted, retrospective to January 1, 2015,recognize revenue at the provisions of this new accounting guidance relatedamount it has the right to DVA on financial liabilities accounted for under the fair value option. The Corporation does not expect the remaining provisions of this new accounting guidance to have a material impact on its consolidated financial position or results of operations.invoice.
NOTE 2Noninterest Income
The table below presents the Corporation’s noninterest income disaggregated by revenue source for the three months ended March 31, 2018 and 2017. For more information, see Note 1 – Summary of Significant Accounting Principles. For a disaggregation of noninterest income by business segment and All Other, see Note 17 – Business Segment Information.
|
| | | | | | | |
| | |
| | Three Months Ended March 31 |
| (Dollars in millions) | 2018 | | 2017 |
| Card income | | | |
Interchange fees (1) | $ | 971 |
| | $ | 958 |
|
| Other card income | 486 |
| | 491 |
|
| Total card income | 1,457 |
| | 1,449 |
|
| Service charges | | | |
| Deposit-related fees | 1,646 |
| | 1,653 |
|
| Lending-related fees | 275 |
| | 265 |
|
| Total service charges | 1,921 |
| | 1,918 |
|
| Investment and brokerage services | | | |
| Asset management fees | 2,564 |
| | 2,200 |
|
| Brokerage fees | 1,100 |
| | 1,217 |
|
| Total investment and brokerage services | 3,664 |
| | 3,417 |
|
| Investment banking income | | | |
| Underwriting income | 740 |
| | 779 |
|
| Syndication fees | 316 |
| | 400 |
|
| Financial advisory services | 297 |
| | 405 |
|
| Total investment banking income | 1,353 |
| | 1,584 |
|
| Trading account profits | 2,699 |
| | 2,331 |
|
| Other income | 423 |
| | 491 |
|
| Total noninterest income | $ | 11,517 |
| | $ | 11,190 |
|
| |
(1) | Gross interchange fees were $2.2 billion and $2.0 billion for the three months ended March 31, 2018 and 2017, and are presented net of $1.3 billion and $1.1 billion of expenses for rewards and partner payments. |
NOTE 3 Derivatives
Derivative Balances
Derivatives are entered into on behalf of customers, for trading or to support risk management activities. Derivatives used in risk
management activities include derivatives that may or may not be designated in qualifying hedge accounting relationships. Derivatives that are not designated in qualifying hedge accounting relationships are referred to as other risk management derivatives. For more information on the Corporation’s derivatives and hedging activities, see Note 1 – Summary of Significant Accounting
Principles to the Consolidated Financial Statementsof the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K. 10-K. The following tables present derivative instruments included on the Consolidated Balance Sheet in derivative assets and liabilities at March 31, 20172018 and December 31, 2016.2017. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and have been reduced by the cash collateral received or paid.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | March 31, 2017 | | | March 31, 2018 |
| | | | Gross Derivative Assets | | Gross Derivative Liabilities | | | Gross Derivative Assets | | Gross Derivative Liabilities |
| (Dollars in billions) | Contract/ Notional (1) | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting Hedges | | Total | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting Hedges | | Total | Contract/ Notional (1) | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting Hedges | | Total | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting Hedges | | Total |
| Interest rate contracts | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Swaps | $ | 17,448.7 |
| | $ | 326.3 |
| | $ | 5.1 |
| | $ | 331.4 |
| | $ | 327.9 |
| | $ | 2.1 |
| | $ | 330.0 |
| $ | 17,401.6 |
| | $ | 166.4 |
| | $ | 2.2 |
| | $ | 168.6 |
| | $ | 160.8 |
| | $ | 3.5 |
| | $ | 164.3 |
|
| Futures and forwards | 6,720.2 |
| | 2.1 |
| | — |
| | 2.1 |
| | 2.1 |
| | — |
| | 2.1 |
| 6,470.8 |
| | 1.6 |
| | — |
| | 1.6 |
| | 1.6 |
| | — |
| | 1.6 |
|
| Written options | 1,147.0 |
| | — |
| | — |
| | — |
| | 46.8 |
| | — |
| | 46.8 |
| 1,274.0 |
| | — |
| | — |
| | — |
| | 33.7 |
| | — |
| | 33.7 |
|
| Purchased options | 1,252.2 |
| | 48.0 |
| | — |
| | 48.0 |
| | — |
| | — |
| | — |
| 1,258.0 |
| | 35.4 |
| | — |
| | 35.4 |
| | — |
| | — |
| | — |
|
| Foreign exchange contracts | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | |
| | | | |
| | |
|
| Swaps | 1,866.1 |
| | 39.5 |
| | 2.3 |
| | 41.8 |
| | 42.8 |
| | 4.3 |
| | 47.1 |
| 2,044.4 |
| | 35.8 |
| | 2.0 |
| | 37.8 |
| | 37.3 |
| | 2.5 |
| | 39.8 |
|
| Spot, futures and forwards | 4,441.1 |
| | 47.8 |
| | 1.1 |
| | 48.9 |
| | 48.4 |
| | 0.8 |
| | 49.2 |
| 4,734.3 |
| | 43.4 |
| | 0.8 |
| | 44.2 |
| | 40.5 |
| | 0.7 |
| | 41.2 |
|
| Written options | 346.8 |
| | — |
| | — |
| | — |
| | 5.9 |
| | — |
| | 5.9 |
| 363.3 |
| | — |
| | — |
| | — |
| | 5.1 |
| | — |
| | 5.1 |
|
| Purchased options | 323.4 |
| | 5.4 |
| | — |
| | 5.4 |
| | — |
| | — |
| | — |
| 323.2 |
| | 4.9 |
| | — |
| | 4.9 |
| | — |
| | — |
| | — |
|
| Equity contracts | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | |
| | | | |
| | |
|
| Swaps | 209.9 |
| | 4.0 |
| | — |
| | 4.0 |
| | 4.1 |
| | — |
| | 4.1 |
| 271.1 |
| | 5.7 |
| | — |
| | 5.7 |
| | 5.8 |
| | — |
| | 5.8 |
|
| Futures and forwards | 91.1 |
| | 1.8 |
| | — |
| | 1.8 |
| | 1.1 |
| | — |
| | 1.1 |
| 102.4 |
| | 0.9 |
| | — |
| | 0.9 |
| | 0.7 |
| | — |
| | 0.7 |
|
| Written options | 511.2 |
| | — |
| | — |
| | — |
| | 23.4 |
| | — |
| | 23.4 |
| 521.5 |
| | — |
| | — |
| | — |
| | 25.5 |
| | — |
| | 25.5 |
|
| Purchased options | 449.1 |
| | 25.1 |
| | — |
| | 25.1 |
| | — |
| | — |
| | — |
| 491.0 |
| | 38.3 |
| | — |
| | 38.3 |
| | — |
| | — |
| | — |
|
| Commodity contracts | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | | | | | |
| | | | |
| | |
|
| Swaps | 44.9 |
| | 2.0 |
| | — |
| | 2.0 |
| | 4.3 |
| | — |
| | 4.3 |
| 49.4 |
| | 1.9 |
| | — |
| | 1.9 |
| | 4.6 |
| | — |
| | 4.6 |
|
| Futures and forwards | 49.4 |
| | 3.4 |
| | — |
| | 3.4 |
| | 0.4 |
| | — |
| | 0.4 |
| 52.8 |
| | 3.6 |
| | — |
| | 3.6 |
| | 0.7 |
| | — |
| | 0.7 |
|
| Written options | 29.2 |
| | — |
| | — |
| | — |
| | 1.6 |
| | — |
| | 1.6 |
| 23.1 |
| | — |
| | — |
| | — |
| | 1.5 |
| | — |
| | 1.5 |
|
| Purchased options | 30.2 |
| | 1.6 |
| | — |
| | 1.6 |
| | — |
| | — |
| | — |
| 24.3 |
| | 1.6 |
| | — |
| | 1.6 |
| | — |
| | — |
| | — |
|
Credit derivatives | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | | | |
| | |
| | | | |
| | |
|
| Purchased credit derivatives: | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | | | |
| | |
| | | | |
| | |
|
| Credit default swaps | 599.9 |
| | 6.1 |
| | — |
| | 6.1 |
| | 10.6 |
| | — |
| | 10.6 |
| 484.1 |
| | 3.9 |
| | — |
| | 3.9 |
| | 11.4 |
| | — |
| | 11.4 |
|
| Total return swaps/other | 34.3 |
| | 0.2 |
| | — |
| | 0.2 |
| | 1.5 |
| | — |
| | 1.5 |
| |
| Total return swaps/options | | 67.6 |
| | 0.2 |
| | — |
| | 0.2 |
| | 1.3 |
| | — |
| | 1.3 |
|
| Written credit derivatives: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| | |
| | | | |
| | |
|
| Credit default swaps | 595.8 |
| | 10.7 |
| | — |
| | 10.7 |
| | 5.5 |
| | — |
| | 5.5 |
| 457.4 |
| | 11.0 |
| | — |
| | 11.0 |
| | 3.4 |
| | — |
| | 3.4 |
|
| Total return swaps/other | 41.5 |
| | 1.0 |
| | — |
| | 1.0 |
| | 0.2 |
| | — |
| | 0.2 |
| |
| Total return swaps/options | | 65.2 |
| | 0.8 |
| | — |
| | 0.8 |
| | 0.3 |
| | — |
| | 0.3 |
|
| Gross derivative assets/liabilities | |
| | $ | 525.0 |
| | $ | 8.5 |
| | $ | 533.5 |
| | $ | 526.6 |
| | $ | 7.2 |
| | $ | 533.8 |
| | | $ | 355.4 |
| | $ | 5.0 |
| | $ | 360.4 |
| | $ | 334.2 |
| | $ | 6.7 |
| | $ | 340.9 |
|
| Less: Legally enforceable master netting agreements | |
| | |
| | |
| | (457.9 | ) | | |
| | |
| | (457.9 | ) | |
| | |
| | |
| | (276.0 | ) | — |
| |
| | |
| | (276.0 | ) |
| Less: Cash collateral received/paid | |
| | |
| | |
| | (35.5 | ) | | |
| | |
| | (39.5 | ) | |
| | |
| | |
| | (36.5 | ) | | |
| | |
| | (31.0 | ) |
Total derivative assets/liabilities (2) | |
| | |
| | |
| | $ | 40.1 |
| | |
| | |
| | $ | 36.4 |
| |
| | |
| | |
| | $ | 47.9 |
| | |
| | |
| | $ | 33.9 |
|
| |
(1) | Represents the total contract/notional amount of derivative assets and liabilities outstanding. |
| |
(2) | Derivative assetsThe net derivative asset and liabilities reflect a central clearing counterparty's amendments to legally re-characterize daily cash variation margin from collateral,notional amount of written credit derivatives for which secures an outstanding exposure, to settlement, which discharges an outstanding exposure, effective early in 2017.the Corporation held purchased credit derivatives with identical underlying referenced names were $6.7 billion and $456.5 billion at March 31, 2018. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2016 | | | December 31, 2017 |
| | | | Gross Derivative Assets | | Gross Derivative Liabilities | | | Gross Derivative Assets | | Gross Derivative Liabilities |
| (Dollars in billions) | Contract/ Notional (1) | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting Hedges | | Total | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting Hedges | | Total | Contract/ Notional (1) | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting Hedges | | Total | | Trading and Other Risk Management Derivatives | | Qualifying
Accounting Hedges | | Total |
| Interest rate contracts | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Swaps | $ | 16,977.7 |
| | $ | 385.0 |
| | $ | 5.9 |
| | $ | 390.9 |
| | $ | 386.9 |
| | $ | 2.0 |
| | $ | 388.9 |
| $ | 15,416.4 |
| | $ | 175.1 |
| | $ | 2.9 |
| | $ | 178.0 |
| | $ | 172.5 |
| | $ | 1.7 |
| | $ | 174.2 |
|
| Futures and forwards | 5,609.5 |
| | 2.2 |
| | — |
| | 2.2 |
| | 2.1 |
| | — |
| | 2.1 |
| 4,332.4 |
| | 0.5 |
| | — |
| | 0.5 |
| | 0.5 |
| | — |
| | 0.5 |
|
| Written options | 1,146.2 |
| | — |
| | — |
| | — |
| | 52.2 |
| | — |
| | 52.2 |
| 1,170.5 |
| | — |
| | — |
| | — |
| | 35.5 |
| | — |
| | 35.5 |
|
| Purchased options | 1,178.7 |
| | 53.3 |
| | — |
| | 53.3 |
| | — |
| | — |
| | — |
| 1,184.5 |
| | 37.6 |
| | — |
| | 37.6 |
| | — |
| | — |
| | — |
|
| Foreign exchange contracts | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | |
| | |
| | |
| | |
| | |
| | |
|
| Swaps | 1,828.6 |
| | 54.6 |
| | 4.2 |
| | 58.8 |
| | 58.8 |
| | 6.2 |
| | 65.0 |
| 2,011.1 |
| | 35.6 |
| | 2.2 |
| | 37.8 |
| | 36.1 |
| | 2.7 |
| | 38.8 |
|
| Spot, futures and forwards | 3,410.7 |
| | 58.8 |
| | 1.7 |
| | 60.5 |
| | 56.6 |
| | 0.8 |
| | 57.4 |
| 3,543.3 |
| | 39.1 |
| | 0.7 |
| | 39.8 |
| | 39.1 |
| | 0.8 |
| | 39.9 |
|
| Written options | 356.6 |
| | — |
| | — |
| | — |
| | 9.4 |
| | — |
| | 9.4 |
| 291.8 |
| | — |
| | — |
| | — |
| | 5.1 |
| | — |
| | 5.1 |
|
| Purchased options | 342.4 |
| | 8.9 |
| | — |
| | 8.9 |
| | — |
| | — |
| | — |
| 271.9 |
| | 4.6 |
| | — |
| | 4.6 |
| | — |
| | — |
| | — |
|
| Equity contracts | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Swaps | 189.7 |
| | 3.4 |
| | — |
| | 3.4 |
| | 4.0 |
| | — |
| | 4.0 |
| 265.6 |
| | 4.8 |
| | — |
| | 4.8 |
| | 4.4 |
| | — |
| | 4.4 |
|
| Futures and forwards | 68.7 |
| | 0.9 |
| | — |
| | 0.9 |
| | 0.9 |
| | — |
| | 0.9 |
| 106.9 |
| | 1.5 |
| | — |
| | 1.5 |
| | 0.9 |
| | — |
| | 0.9 |
|
| Written options | 431.5 |
| | — |
| | — |
| | — |
| | 21.4 |
| | — |
| | 21.4 |
| 480.8 |
| | — |
| | — |
| | — |
| | 23.9 |
| | — |
| | 23.9 |
|
| Purchased options | 385.5 |
| | 23.9 |
| | — |
| | 23.9 |
| | — |
| | — |
| | — |
| 428.2 |
| | 24.7 |
| | — |
| | 24.7 |
| | — |
| | — |
| | — |
|
| Commodity contracts | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Swaps | 48.2 |
| | 2.5 |
| | — |
| | 2.5 |
| | 5.1 |
| | — |
| | 5.1 |
| 46.1 |
| | 1.8 |
| | — |
| | 1.8 |
| | 4.6 |
| | — |
| | 4.6 |
|
| Futures and forwards | 49.1 |
| | 3.6 |
| | — |
| | 3.6 |
| | 0.5 |
| | — |
| | 0.5 |
| 47.1 |
| | 3.5 |
| | — |
| | 3.5 |
| | 0.6 |
| | — |
| | 0.6 |
|
| Written options | 29.3 |
| | — |
| | — |
| | — |
| | 1.9 |
| | — |
| | 1.9 |
| 21.7 |
| | — |
| | — |
| | — |
| | 1.4 |
| | — |
| | 1.4 |
|
| Purchased options | 28.9 |
| | 2.0 |
| | — |
| | 2.0 |
| | — |
| | — |
| | — |
| 22.9 |
| | 1.4 |
| | — |
| | 1.4 |
| | — |
| | — |
| | — |
|
Credit derivatives | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Purchased credit derivatives: | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Credit default swaps | 604.0 |
| | 8.1 |
| | — |
| | 8.1 |
| | 10.3 |
| | — |
| | 10.3 |
| 470.9 |
| | 4.1 |
| | — |
| | 4.1 |
| | 11.1 |
| | — |
| | 11.1 |
|
| Total return swaps/other | 21.2 |
| | 0.4 |
| | — |
| | 0.4 |
| | 1.5 |
| | — |
| | 1.5 |
| |
| Total return swaps/options | | 54.1 |
| | 0.1 |
| | — |
| | 0.1 |
| | 1.3 |
| | — |
| | 1.3 |
|
| Written credit derivatives: | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | | | |
| | |
|
| Credit default swaps | 614.4 |
| | 10.7 |
| | — |
| | 10.7 |
| | 7.5 |
| | — |
| | 7.5 |
| 448.2 |
| | 10.6 |
| | — |
| | 10.6 |
| | 3.6 |
| | — |
| | 3.6 |
|
| Total return swaps/other | 25.4 |
| | 1.0 |
| | — |
| | 1.0 |
| | 0.2 |
| | — |
| | 0.2 |
| |
| Total return swaps/options | | 55.2 |
| | 0.8 |
| | — |
| | 0.8 |
| | 0.2 |
| | — |
| | 0.2 |
|
| Gross derivative assets/liabilities | |
| | $ | 619.3 |
| | $ | 11.8 |
| | $ | 631.1 |
| | $ | 619.3 |
| | $ | 9.0 |
| | $ | 628.3 |
| |
| | $ | 345.8 |
| | $ | 5.8 |
| | $ | 351.6 |
| | $ | 340.8 |
| | $ | 5.2 |
| | $ | 346.0 |
|
| Less: Legally enforceable master netting agreements | |
| | |
| | |
| | (545.3 | ) | | |
| | |
| | (545.3 | ) | |
| | |
| | |
| | (279.2 | ) | | |
| | |
| | (279.2 | ) |
| Less: Cash collateral received/paid | |
| | |
| | |
| | (43.3 | ) | | |
| | |
| | (43.5 | ) | |
| | |
| | |
| | (34.6 | ) | | |
| | |
| | (32.5 | ) |
| Total derivative assets/liabilities | |
| | |
| | |
| | $ | 42.5 |
| | |
| | |
| | $ | 39.5 |
| |
| | |
| | |
| | $ | 37.8 |
| | |
| | |
| | $ | 34.3 |
|
| |
(1) | Represents the total contract/notional amount of derivative assets and liabilities outstanding. |
| |
(2) | The net derivative asset and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names were $6.4 billion and $435.1 billion at December 31, 2017. |
Offsetting of Derivatives
The Corporation enters into International Swaps and Derivatives Association, Inc. (ISDA) master netting agreements or similar agreements with substantially all of the Corporation’s derivative counterparties. Where legally enforceable, these master netting agreements give the Corporation, in the event of default by the counterparty, the right to liquidate securities held as collateral and to offset receivables and payables with the same counterparty. For purposes of the Consolidated Balance Sheet, the Corporation offsets derivative assets and liabilities and cash collateral held with the same counterparty where it has such a legally enforceable master netting agreement.
The Offsetting of Derivativesfollowing table presents derivative instruments included in derivative assets and liabilities on the Consolidated Balance
Sheet at March 31, 20172018 and December 31, 20162017 by primary risk (e.g., interest rate risk) and the platform, where applicable, on which these derivatives are transacted. Exchange-traded derivatives include listed options transacted on an exchange. Over-the-counter (OTC) derivatives include bilateral transactions between the Corporation and a particular counterparty. OTC-cleared derivatives include bilateral transactions between the Corporation and a counterparty where the transaction is cleared through a clearinghouse. Balances are
presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total gross derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements which includesinclude reducing the balance for counterparty netting and cash collateral received or paid.
Other gross derivative assets and liabilities in the table represent derivatives entered into under master netting agreements where uncertainty exists as to the enforceability of these agreements under bankruptcy laws in some countries or industries and, accordingly, receivables and payables with counterparties in these countries or industries are reported on a gross basis.
Also included in the table is financial instruments collateral related to legally enforceable master netting agreements that represents securities collateral received or pledged and cash and securities collateral held and posted at third-party custodians. These amounts are not offset on the Consolidated Balance Sheet but are shown as a reduction to total derivative assets and liabilities in the table to derive net derivative assets and liabilities.
For more information on offsetting of securities financing agreements, see Note 9 – Federal Funds Sold or Purchased, Securities Financing Agreements, and Short-term Borrowings and Restricted Cash.
| | | | | | | | | | | | | | | | | |
Offsetting of Derivatives | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | March 31, 2017 | | December 31, 2016 | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities |
| (Dollars in billions) | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities | March 31, 2018 | | December 31, 2017 |
| Interest rate contracts | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Over-the-counter | $ | 251.3 |
| | $ | 241.8 |
| | $ | 267.3 |
| | $ | 258.2 |
| $ | 200.0 |
| | $ | 194.2 |
| | $ | 211.7 |
| | $ | 206.0 |
|
| Over-the-counter cleared | 128.5 |
| | 135.0 |
| | 177.2 |
| | 182.8 |
| 3.4 |
| �� | 2.9 |
| | 1.9 |
| | 1.8 |
|
| Foreign exchange contracts | | | | | | | | | | | | | | |
| Over-the-counter | 92.6 |
| | 98.2 |
| | 124.3 |
| | 126.7 |
| 83.5 |
| | 83.3 |
| | 78.7 |
| | 80.8 |
|
| Over-the-counter cleared | 0.9 |
| | 0.9 |
| | 0.3 |
| | 0.3 |
| 0.5 |
| | 0.5 |
| | 0.9 |
| | 0.7 |
|
| Equity contracts | | | | | | | | | | | | | | |
| Over-the-counter | 17.2 |
| | 14.8 |
| | 15.6 |
| | 13.7 |
| 28.5 |
| | 16.3 |
| | 18.3 |
| | 16.2 |
|
| Exchange-traded | 12.6 |
| | 11.7 |
| | 11.4 |
| | 10.8 |
| 11.7 |
| | 11.3 |
| | 9.1 |
| | 8.5 |
|
| Commodity contracts | | | | | | | | | | | | | | |
| Over-the-counter | 3.0 |
| | 4.1 |
| | 3.7 |
| | 4.9 |
| 3.2 |
| | 4.2 |
| | 2.9 |
| | 4.4 |
|
| Exchange-traded | 0.9 |
| | 0.8 |
| | 1.1 |
| | 1.0 |
| 0.8 |
| | 0.8 |
| | 0.7 |
| | 0.8 |
|
| Credit derivatives | | | | | | | | | | | | | | |
| Over-the-counter | 12.9 |
| | 12.6 |
| | 15.3 |
| | 14.7 |
| 8.7 |
| | 9.3 |
| | 9.1 |
| | 9.6 |
|
| Over-the-counter cleared | 4.5 |
| | 4.6 |
| | 4.3 |
| | 4.3 |
| 6.8 |
| | 6.6 |
| | 6.1 |
| | 6.0 |
|
| Total gross derivative assets/liabilities, before netting | | | | | | | | | | | | | | |
| Over-the-counter | 377.0 |
| | 371.5 |
| | 426.2 |
| | 418.2 |
| 323.9 |
| | 307.3 |
| | 320.7 |
| | 317.0 |
|
| Exchange-traded | 13.5 |
| | 12.5 |
| | 12.5 |
| | 11.8 |
| 12.5 |
| | 12.1 |
| | 9.8 |
| | 9.3 |
|
| Over-the-counter cleared | 133.9 |
| | 140.5 |
| | 181.8 |
| | 187.4 |
| 10.7 |
| | 10.0 |
| | 8.9 |
| | 8.5 |
|
| Less: Legally enforceable master netting agreements and cash collateral received/paid | | | | | | | | | | | | | | |
| Over-the-counter | (350.8 | ) | | (347.9 | ) | | (398.2 | ) | | (392.6 | ) | (291.8 | ) | | (286.0 | ) | | (296.9 | ) | | (294.6 | ) |
| Exchange-traded | (9.1 | ) | | (9.1 | ) | | (8.9 | ) | | (8.9 | ) | (11.0 | ) | | (11.0 | ) | | (8.6 | ) | | (8.6 | ) |
| Over-the-counter cleared | (133.5 | ) | | (140.4 | ) | | (181.5 | ) | | (187.3 | ) | (9.7 | ) | | (10.0 | ) | | (8.3 | ) | | (8.5 | ) |
| Derivative assets/liabilities, after netting | 31.0 |
| | 27.1 |
| | 31.9 |
| | 28.6 |
| 34.6 |
| | 22.4 |
| | 25.6 |
| | 23.1 |
|
Other gross derivative assets/liabilities (1)(2) | 9.1 |
| | 9.3 |
| | 10.6 |
| | 10.9 |
| 13.3 |
| | 11.5 |
| | 12.2 |
| | 11.2 |
|
Total derivative assets/liabilities (2) | 40.1 |
| | 36.4 |
| | 42.5 |
| | 39.5 |
| 47.9 |
| | 33.9 |
| | 37.8 |
| | 34.3 |
|
Less: Financial instruments collateral (3) | (12.5 | ) | | (8.4 | ) | | (13.5 | ) | | (10.5 | ) | (20.1 | ) | | (8.7 | ) | | (11.2 | ) | | (10.4 | ) |
| Total net derivative assets/liabilities | $ | 27.6 |
| | $ | 28.0 |
| | $ | 29.0 |
| | $ | 29.0 |
| $ | 27.8 |
| | $ | 25.2 |
| | $ | 26.6 |
| | $ | 23.9 |
|
| |
(1) | Over-the-counter (OTC) derivatives include bilateral transactions between the Corporation and a particular counterparty. OTC-cleared derivatives include bilateral transactions between the Corporation and a counterparty where the transaction is cleared through a clearinghouse, and exchange-traded derivatives include listed options transacted on an exchange. |
| |
(2) | Consists of derivatives entered into under master netting agreements where the enforceability of these agreements is uncertain. |
| |
(2)
| Derivative assets and liabilities reflect a central clearing counterparty's amendments to legally re-characterize daily cash variation margin from collateral, which secures an outstanding exposure, to settlement of the exposure, which discharges an outstanding exposure, effective earlyuncertain under bankruptcy laws in 2017.some countries or industries. |
| |
(3) | These amountsAmounts are limited to the derivative asset/liability balance and, accordingly, do not include excess collateral received/pledged. Financial instruments collateral includes securities collateral received or pledged and cash securities held and posted at third-party custodians that are not offset on the Consolidated Balance Sheet but shown as a reduction to derive net derivative assets and liabilities. |
ALM and Risk Management Derivatives
The Corporation’s asset and liability management (ALM) and risk management activities include the use of derivatives to mitigate risk to the Corporation including derivatives designated in qualifying hedge accounting relationships and derivatives used in other risk management activities. Interest rate, foreign exchange, equity, commodity and credit contracts are utilized in the Corporation’s ALM and risk management activities.
The Corporation maintains an overall interest rate risk management strategy that incorporates the use of interest rate contracts, which are generally non-leveraged generic interest rate and basis swaps, options, futures and forwards, to minimize significant fluctuations in earnings caused by interest rate volatility. The Corporation’s goal is to manage interest rate sensitivity and volatility so that movements in interest rates do not significantly adversely affect earnings or capital. As a result of interest rate fluctuations, hedged fixed-rate assets and liabilities appreciate or depreciate in fair value. Gains or losses on the derivative instruments that are linked to the hedged fixed-rate assets and liabilities are expected to substantially offset this unrealized appreciation or depreciation.
Market risk, including interest rate risk, can be substantial in the mortgage business. Market risk in the mortgage business is the risk that values of mortgage assets or revenues will be adversely affected by changes in market conditions such as interest rate movements. To mitigate the interest rate risk in mortgage banking production income, the Corporation utilizes
forward loan sale commitments and other derivative instruments, including purchased options, and certain debt securities. The Corporation also utilizes derivatives such as interest rate options, interest rate swaps, forward settlement contracts and eurodollar futures to hedge certain market risks of mortgage servicing rights (MSRs). For moreadditional information, on MSRs, see Note 142 – Fair Value MeasurementsDerivatives.
The Corporation uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities, as well asConsolidated Financial Statements of the Corporation’s investments in non-U.S. subsidiaries. Foreign exchange contracts, which include spot and forward contracts, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price2017 Annual Report on an agreed-upon settlement date. Exposure to loss on these contracts will increase or decrease over their respective lives as currency exchange and interest rates fluctuate.
The Corporation enters into derivative commodity contracts such as futures, swaps, options and forwards as well as non-derivative commodity contracts to provide price risk management services to customers or to manage price risk associated with its physical and financial commodity positions. The non-derivative commodity contracts and physical inventories of commodities expose the Corporation to earnings volatility. Fair value accounting hedges provide a method to mitigate a portion of this earnings volatility.
|
| | |
| | Bank of America72Form 10-K.
|
The Corporation purchases credit derivatives to manage credit risk related to certain funded and unfunded credit exposures. Credit derivatives include credit default swaps (CDS), total return swaps and swaptions. These derivatives are recorded on the Consolidated Balance Sheet at fair value with changes in fair value recorded in other income.
Derivatives Designated as Accounting Hedges
The Corporation uses various types of interest rate commodity and foreign exchange derivative contracts to protect against changes in the fair value of its assets and liabilities due to fluctuations in interest rates commodity prices and exchange rates (fair value hedges). The Corporation also
uses these types of contracts and equity derivatives to protect against changes in the cash flows of its assets and liabilities, and other forecasted transactions (cash flow hedges). The Corporation hedges its net investment in consolidated non-U.S. operations determined to have functional currencies other than the U.S. Dollardollar using forward
exchange contracts and cross-currency basis swaps, and by issuing foreign currency-denominated debt (net investment hedges).
Effective January 1, 2018, the Corporation early adopted the new hedge accounting standard on a prospective basis and, accordingly, prior-period hedge accounting disclosures were not conformed to the current-period presentation. For more information, see Note 1 – Summary of Significant Accounting Principles.
The table below summarizes information related to fair value hedges for the three months ended March 31, 20172018 and 2016, including hedges of interest rate risk on long-term debt that were acquired as part of a business combination and redesignated at that time. At redesignation, the fair value of the derivatives was positive. As the derivatives mature, the fair value will approach zero. As a result, ineffectiveness will occur and the fair value changes in the derivatives and the long-term debt being hedged may be directionally the same in certain scenarios. Based on a regression analysis, the derivatives continue to be highly effective at offsetting changes in the fair value of the long-term debt attributable to interest rate risk.
2017. |
| | | | | | | | | | | |
| | | |
| Derivatives Designated as Fair Value Hedges | | | | | |
| | | | | | |
| Gains (Losses) | Three Months Ended March 31, 2017 |
| (Dollars in millions) | Derivative | | Hedged Item | | Hedge Ineffectiveness |
Interest rate risk on long-term debt (1) | $ | (750 | ) | | $ | 566 |
| | $ | (184 | ) |
Interest rate and foreign currency risk on long-term debt (1) | 123 |
| | (133 | ) | | (10 | ) |
Interest rate risk on available-for-sale securities (2) | 17 |
| | (37 | ) | | (20 | ) |
Price risk on commodity inventory (3) | 6 |
| | (6 | ) | | — |
|
| Total | $ | (604 | ) | | $ | 390 |
| | $ | (214 | ) |
| | | | | | |
| | Three Months Ended March 31, 2016 |
Interest rate risk on long-term debt (1) | $ | 2,661 |
| | $ | (2,854 | ) | | $ | (193 | ) |
Interest rate and foreign currency risk on long-term debt (1) | 839 |
| | (846 | ) | | (7 | ) |
Interest rate risk on available-for-sale securities (2) | (151 | ) | | 132 |
| | (19 | ) |
Price risk on commodity inventory (3) | 2 |
| | (2 | ) | | — |
|
| Total | $ | 3,351 |
| | $ | (3,570 | ) | | $ | (219 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Gains and Losses on Derivatives Designated as Fair Value Hedges |
| | | | | | | | | | |
| | Three Months Ended March 31 |
| | 2018 | | 2017 |
| (Dollars in millions) | Derivative | | Hedged Item | | Derivative | | Hedged Item | | Hedge Ineffectiveness |
Interest rate risk on long-term debt (1) | $ | (2,305 | ) | | $ | 2,236 |
| | $ | (750 | ) | | $ | 566 |
| | $ | (184 | ) |
Interest rate and foreign currency risk on long-term debt (2, 3) | 322 |
| | (346 | ) | | 123 |
| | (133 | ) | | (10 | ) |
Interest rate risk on available-for-sale securities (4) | (31 | ) | | 30 |
| | 17 |
| | (37 | ) | | (20 | ) |
| Total | $ | (2,014 | ) | | $ | 1,920 |
| | $ | (610 | ) | | $ | 396 |
| | $ | (214 | ) |
| |
(1) | Amounts are recorded in interest expense on long-term debt and in other income.the Consolidated Statement of Income. |
| |
(2) | Amounts are recordedFor the three months ended March 31, 2018, the derivative amount includes a gain of $433 million in other income and a loss of $64 million in interest expense. For the three months ended March 31, 2017, the derivative amount includes a gain of $280 million in other income on debt securities.and a loss of $157 million in interest expense. Line item totals are in the Consolidated Statement of Income. |
| |
(3) | Amounts relatingFor the three months ended March 31, 2018, the derivative amount includes a $47 million loss related to commodity inventorycertain changes in the fair value of derivatives that were excluded from effectiveness testing and recognized in accumulated OCI. None of the excluded amounts have been reclassified into earnings. |
| |
(4) | Amounts are recorded in trading account profits.interest income in the Consolidated Statement of Income. |
The table below summarizes the carrying value of hedged assets and liabilities that are designated and qualifying in fair value hedging relationships along with the cumulative amount of fair value hedging adjustments included in the carrying value that have been recorded in the current hedging relationships. These fair value hedging adjustments are open basis adjustments that are not subject to amortization as long as the hedging relationship remains designated.
|
| | | | | | | |
| | | | |
| Designated Fair Value Hedged Assets (Liabilities) |
| | | | |
| | March 31, 2018 |
| (Dollars in millions) | Carrying Value | | Cumulative Fair Value Adjustments (1) |
| Long-term debt | $ | (129,893 | ) | | $ | 1,086 |
|
Available-for-sale securities (2) | 961 |
| | (36 | ) |
| |
(1) | For assets, increase (decrease) to carrying value and for liabilities, (increase) decrease to carrying value. |
| |
(2) | The amortized cost of available-for-sale securities in fair value hedging relationships was $959 million and is included in debt securities carried at fair value on the Consolidated Balance Sheet. |
At March 31, 2018, the cumulative fair value adjustments remaining on long-term debt and available-for-sale (AFS) securities from discontinued hedging relationships were an increase of $1.1 billion and a decrease of $42 million, respectively, which are being amortized over the remaining contractual life of the de-designated hedged items.
Cash Flow and Net Investment Hedges
The table below summarizes certain information related to cash flow hedges and net investment hedges for the three months ended March 31, 20172018 and 2016.2017. Of the $857 million$1.2 billion after-tax net
loss ($1.41.6 billion on a pretax basis)pretax) on derivatives in accumulated other comprehensive income (OCI)OCI at March 31, 2017,2018, $188269 million after-tax ($301354 million on a pretax basis)pretax) is expected to be reclassified into earnings in the next 12 months.
These net losses reclassified into earnings are expected to primarily reduce net interest income related to the respective hedged items. Amounts related to price risk on restricted stock awards reclassified from accumulated OCI are recorded in personnel expense. For terminated cash flow hedges, the time period over which substantially allthe majority of the forecasted transactions are hedged is approximately seven years, with a maximum length of time for certain forecasted transactions of 1918 years.
| | | | | | | | | | | | | | | | |
| Derivatives Designated as Cash Flow and Net Investment Hedges | | | | | | |
| Gains and Losses on Derivatives Designated as Cash Flow and Net Investment Hedges | | Gains and Losses on Derivatives Designated as Cash Flow and Net Investment Hedges |
| | | | | | | | | | |
| | | | | | | | Three Months Ended March 31 |
| | Three Months Ended March 31, 2017 | | 2018 | | 2017 |
| (Dollars in millions, amounts pretax) | Gains (Losses)
Recognized in
Accumulated OCI on Derivatives | | Gains (Losses)
in Income
Reclassified from Accumulated OCI | | Hedge
Ineffectiveness and
Amounts Excluded
from Effectiveness Testing (1) | | Gains (Losses)
Recognized in
Accumulated OCI on Derivatives | | Gains (Losses)
in Income
Reclassified from
Accumulated OCI | | Gains (Losses)
Recognized in
Accumulated OCI on Derivatives | | Gains (Losses)
in Income
Reclassified from
Accumulated OCI |
| Cash flow hedges | |
| | |
| | |
| | | | | | | | |
| Interest rate risk on variable-rate portfolios | $ | (37 | ) | | $ | (112 | ) | | $ | 3 |
| |
Price risk on restricted stock awards (2) | 28 |
| | 42 |
| | — |
| |
Interest rate risk on variable-rate assets (1) | | | $ | (428 | ) | | $ | (50 | ) | | $ | (37 | ) | | $ | (112 | ) |
Price risk on certain restricted stock awards (2) | | | 4 |
| | 27 |
| | 28 |
| | 42 |
|
| Total | $ | (9 | ) | | $ | (70 | ) | | $ | 3 |
| | $ | (424 | ) | | $ | (23 | ) | | $ | (9 | ) | | $ | (70 | ) |
| Net investment hedges | |
| | |
| | |
| | | | | | |
| | |
|
| Foreign exchange risk | $ | (389 | ) | | $ | (130 | ) | | $ | (15 | ) | |
| | | | | | | |
| | Three Months Ended March 31, 2016 | |
| Cash flow hedges | |
| | |
| | |
| |
| Interest rate risk on variable-rate portfolios | $ | 39 |
| | $ | (164 | ) | | $ | 6 |
| |
Price risk on restricted stock awards (2) | (198 | ) | | (34 | ) | | — |
| |
| Total | $ | (159 | ) | | $ | (198 | ) | | $ | 6 |
| |
| Net investment hedges | |
| | |
| | |
| |
| Foreign exchange risk | $ | (633 | ) | | $ | 1 |
| | $ | (143 | ) | |
Foreign exchange risk (3) | | | $ | (244 | ) | | $ | (1 | ) | | $ | (389 | ) | | $ | (130 | ) |
| |
(1) | Amounts related to cash flow hedges represent hedge ineffectiveness and amounts related to net investment hedges represent amounts excludedreclassified from effectiveness testing.accumulated OCI are recorded in interest income in the Consolidated Statement of Income. |
| |
(2) | Gains (losses) recognized inAmounts reclassified from accumulated OCI are primarily related to the changerecorded in personnel expense in the Corporation’s stock price forConsolidated Statement of Income. |
| |
(3) | Amounts reclassified from accumulated OCI are recorded in other income in the period.Consolidated Statement of Income. For the three months ended March 31, 2018 and 2017, amounts excluded from effectiveness testing and recognized in other income were a gain of $4 million and a loss of $15 million. |
Other Risk Management Derivatives
Other risk management derivatives are used by the Corporation to reduce certain risk exposures. Theseexposures by economically hedging various assets and liabilities. The gains and losses on these derivatives are not qualifying accounting hedges because either they did not qualify for or were not designated as accounting hedges.recognized in other income. The table below presents gains (losses) on these derivatives for the three months ended March 31, 20172018 and 2016.2017. These gains (losses) are largely offset by the income or expense that is recorded on the hedged item.
| | | | | | | | | |
| Other Risk Management Derivatives | | | | Other Risk Management Derivatives |
| | | | | | | |
| Gains (Losses) | | | | Three Months Ended March 31 |
| | Three Months Ended March 31 | |
| (Dollars in millions) | 2017 | | 2016 | 2018 | | 2017 |
Interest rate risk on mortgage banking income (1) | $ | (24 | ) | | $ | 546 |
| |
Interest rate risk on mortgage activities (1) | | $ | (135 | ) | | $ | (24 | ) |
Credit risk on loans (2) | (2 | ) | | (65 | ) | (3 | ) | | (2 | ) |
Interest rate and foreign currency risk on ALM activities (3) | (290 | ) | | (884 | ) | (139 | ) | | (290 | ) |
Price risk on restricted stock awards (4) | 104 |
| | (741 | ) | |
| Other | 1 |
| | 26 |
| |
| |
(1) | Net gains (losses) on these derivatives are recorded in mortgage banking income as they are usedPrimarily related to mitigate thehedges of interest rate risk related to MSRs,on mortgage servicing rights (MSRs) and interest rate lock commitments (IRLCs) andto originate mortgage loans held-for-sale, all of which are measured at fair value with changes in fair value recorded in mortgage banking income.that will be held for sale. The net gains on IRLCs, related to the origination of mortgage loans that are held-for-sale, which are not included in the table but are considered derivative instruments, were $5614 million and $15156 million for the three months ended March 31, 20172018 and 20162017.
|
| |
(2) | Primarily related to derivatives that are economic hedges of credit risk on loans. Net gains (losses) on these derivatives are recorded in other income. |
| |
(3) | Primarily related to hedges of debt securities carried at fair value and hedges of foreign currency-denominated debt. Gains (losses) on these derivatives and the related hedged items are recorded in other income. |
| |
(4)
| Gains (losses) on these derivatives are recorded in personnel expense. |
Transfers of Financial Assets with Risk Retained through Derivatives
The Corporation enters into certain transactions involving the transfer of financial assets that are accounted for as sales where substantially all of the economic exposure to the transferred financial assets is retained through derivatives (e.g., interest rate and/or credit), but the Corporation does not retain control over the assets transferred. ThroughAt March 31, 20172018 and December 31, 2016,2017, the Corporation had transferred $6.5$6.2 billion and $6.6$6.0 billion of primarily non-U.S. government-guaranteed mortgage-backed securities (MBS) to a third-party trust and retained economic exposure to the
transferred assets through derivative contracts. In connection with these transfers, the Corporation received gross cash proceeds of $6.5$6.2 billion and $6.6$6.0 billion at the transfer dates. At both March 31, 20172018 and December 31, 2016,2017, the fair value of thesethe transferred securities was $6.2 billion$6.1 billion. At March 31, 2018 and $6.3 billion. DerivativeDecember 31, 2017, derivative assets of $42$48 million and $43$46 million and liabilities of $12$3 million and $10 millionfor both periods were recorded at March 31, 2017 and December 31, 2016,
and are included in credit derivatives in the derivative instruments table on page 70.59.
Sales and Trading Revenue
The Corporation enters into trading derivatives to facilitate client transactions and to manage risk exposures arising from trading account assets and liabilities. It is the Corporation’s policy to include these derivative instruments in its trading activities which include derivatives and non-derivative cash instruments. The resulting risk from these derivatives is managed on a portfolio basis as part of the Corporation’s Global Markets business segment. The relatedFor more information on sales and trading revenue, generated withinsee Global MarketsNote 2 – Derivatives is recorded in various income statement line items including trading account profits and net interest income as well as other revenue categories.
Sales and trading revenue includes changes into the fair value and realized gains and losses on the sales of trading and other assets, net interest income, and fees primarily from commissions on equity securities. Revenue is generated by the difference in the client price for an instrument and the price at which the trading desk can execute the trade in the dealer market. For equity securities, commissions related to purchases and sales are recorded in the “Other” column in the Sales and Trading Revenue table. Changes in the fair value of these securities are included in trading account profits. For debt securities, revenue, with the exception of interest associated with the debt securities, is typically included in trading account profits. Unlike commissions for equity securities, the initial revenue related to broker-dealer services for debt securities is typically included in the pricingConsolidated Financial Statements of the instrument rather than being charged through separate fee arrangements. Therefore, this revenue is recorded in trading account profits as part of the initial mark to fair value. For
derivatives, the majority of revenue is included in trading account profits. In transactions where the Corporation acts as agent, which include exchange-traded futures and options, fees are recorded in other income.Corporation’s 2017 Annual Report on Form 10-K.
The following table, which includes both derivatives and non-derivative cash instruments, identifies the amounts in the respective income statement line items attributable to the Corporation’s sales and trading revenue in Global Markets, categorized by primary risk, for the three months ended March 31, 20172018 and 2016.2017. The difference between total trading account profits in the following table and in the Consolidated Statement of Income represents trading activities in business segments other than Global Markets. This table includes debit valuation adjustment (DVA) and funding valuation adjustment (DVA/FVA)(FVA) gains (losses). Global Markets results in Note 17 – Business Segment Information are presented on a fully taxable-equivalent (FTE) basis. The following table below is not presented on an FTE basis.
| | | | | | | | | | | | | | | | | |
| Sales and Trading Revenue | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| (Dollars in millions) | | Trading Account Profits | | Net Interest Income | | Other (1) | | Total |
| | Three Months Ended March 31, 2017 | Three Months Ended March 31, 2018 |
| (Dollars in millions) | Trading Account Profits | | Net Interest Income | | Other (1) | | Total | |
| Interest rate risk | $ | 348 |
| | $ | 307 |
| | $ | 118 |
| | $ | 773 |
| $ | 620 |
| | $ | 206 |
| | $ | 68 |
| | $ | 894 |
|
| Foreign exchange risk | 368 |
| | (3 | ) | | (41 | ) | | 324 |
| 404 |
| | (5 | ) | | 2 |
| | 401 |
|
| Equity risk | 671 |
| | (75 | ) | | 487 |
| | 1,083 |
| 1,154 |
| | (125 | ) | | 449 |
| | 1,478 |
|
| Credit risk | 686 |
| | 647 |
| | 197 |
| | 1,530 |
| 463 |
| | 591 |
| | 136 |
| | 1,190 |
|
| Other risk | 104 |
| | 5 |
| | 33 |
| | 142 |
| 62 |
| | 9 |
| | 16 |
| | 87 |
|
| Total sales and trading revenue | $ | 2,177 |
| | $ | 881 |
| | $ | 794 |
| | $ | 3,852 |
| $ | 2,703 |
| | $ | 676 |
| | $ | 671 |
| | $ | 4,050 |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2016 | Three Months Ended March 31, 2017 |
| Interest rate risk | $ | 495 |
| | $ | 425 |
| | $ | 52 |
| | $ | 972 |
| $ | 348 |
| | $ | 310 |
| | $ | 76 |
| | $ | 734 |
|
| Foreign exchange risk | 340 |
| | (1 | ) | | (36 | ) | | 303 |
| 368 |
| | (3 | ) | | 1 |
| | 366 |
|
| Equity risk | 431 |
| | 2 |
| | 597 |
| | 1,030 |
| 672 |
| | (75 | ) | | 486 |
| | 1,083 |
|
| Credit risk | 208 |
| | 626 |
| | 138 |
| | 972 |
| 686 |
| | 644 |
| | 197 |
| | 1,527 |
|
| Other risk | 121 |
| | (16 | ) | | 15 |
| | 120 |
| 103 |
| | 4 |
| | 33 |
| | 140 |
|
| Total sales and trading revenue | $ | 1,595 |
| | $ | 1,036 |
| | $ | 766 |
| | $ | 3,397 |
| $ | 2,177 |
| | $ | 880 |
| | $ | 793 |
| | $ | 3,850 |
|
| |
(1) | Represents amounts in investment and brokerage services and other income that are recorded in Global Marketsand included in the definition of sales and trading revenue. Includes investment and brokerage services revenue of $$524476 million and $559524 million for the three months ended March 31, 20172018 and 20162017. |
Credit Derivatives
The Corporation enters into credit derivatives primarily to facilitate client transactions and to manage credit risk exposures. Credit derivatives derive value based on an underlying third-party referenced obligation or a portfolio of referenced obligations and generally require the Corporation, as the seller of credit protection, to make payments to a buyer upon the occurrence of a pre-definedpredefined credit event. Such credit events generally include bankruptcy of the referenced credit entity and failure to pay under the obligation,
as well as acceleration of indebtedness and payment repudiation or moratorium. For credit derivatives based on a portfolio of referenced credits or credit indices, the Corporation may not be required to make payment until a specified amount of loss has
occurred and/or may only be required to make payment up to a specified amount.
Credit derivative instruments where the Corporation is the seller of credit protection and their expiration at March 31, 20172018 and December 31, 20162017 are summarized in the following table. These instrumentstable below.
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Credit Derivative Instruments | | | | | | | | | |
| | | | | | | | | | |
| | Less than One Year | | One to Three Years | | Three to Five Years | | Over Five Years | | Total |
| | March 31, 2018 |
| (Dollars in millions) | Carrying Value |
| Credit default swaps: | |
| | |
| | |
| | |
| | |
|
| Investment grade | $ | 2 |
| | $ | 1 |
| | $ | 30 |
| | $ | 182 |
| | $ | 215 |
|
| Non-investment grade | 219 |
| | 371 |
| | 520 |
| | 2,124 |
| | 3,234 |
|
| Total | 221 |
| | 372 |
| | 550 |
| | 2,306 |
| | 3,449 |
|
| Total return swaps/options: | |
| | |
| | |
| | |
| | |
|
| Investment grade | 41 |
| | — |
| | — |
| | — |
| | 41 |
|
| Non-investment grade | 209 |
| | 17 |
| | — |
| | — |
| | 226 |
|
| Total | 250 |
| | 17 |
| | — |
| | — |
| | 267 |
|
| Total credit derivatives | $ | 471 |
| | $ | 389 |
| | $ | 550 |
| | $ | 2,306 |
| | $ | 3,716 |
|
| Credit-related notes: | |
| | |
| | |
| | |
| | |
|
| Investment grade | $ | — |
| | $ | — |
| | $ | 8 |
| | $ | 634 |
| | $ | 642 |
|
| Non-investment grade | 4 |
| | 3 |
| | 10 |
| | 1,682 |
| | 1,699 |
|
| Total credit-related notes | $ | 4 |
| | $ | 3 |
| | $ | 18 |
| | $ | 2,316 |
| | $ | 2,341 |
|
| | Maximum Payout/Notional |
| Credit default swaps: | |
| | |
| | |
| | |
| | |
|
| Investment grade | $ | 39,988 |
| | $ | 113,263 |
| | $ | 118,991 |
| | $ | 34,167 |
| | $ | 306,409 |
|
| Non-investment grade | 39,210 |
| | 44,802 |
| | 46,083 |
| | 20,866 |
| | 150,961 |
|
| Total | 79,198 |
| | 158,065 |
| | 165,074 |
| | 55,033 |
| | 457,370 |
|
| Total return swaps/options: | |
| | |
| | |
| | |
| | |
|
| Investment grade | 45,484 |
| | 2,089 |
| | — |
| | 139 |
| | 47,712 |
|
| Non-investment grade | 16,844 |
| | 275 |
| | 169 |
| | 220 |
| | 17,508 |
|
| Total | 62,328 |
| | 2,364 |
| | 169 |
| | 359 |
| | 65,220 |
|
| Total credit derivatives | $ | 141,526 |
| | $ | 160,429 |
| | $ | 165,243 |
| | $ | 55,392 |
| | $ | 522,590 |
|
| | | | | | | | | | |
| | December 31, 2017 |
| | Carrying Value |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 4 |
| | $ | 3 |
| | $ | 61 |
| | $ | 245 |
| | $ | 313 |
|
| Non-investment grade | 203 |
| | 453 |
| | 484 |
| | 2,133 |
| | 3,273 |
|
| Total | 207 |
| | 456 |
| | 545 |
| | 2,378 |
| | 3,586 |
|
| Total return swaps/options: | |
| | |
| | |
| | |
| | |
|
| Investment grade | 30 |
| | — |
| | — |
| | — |
| | 30 |
|
| Non-investment grade | 150 |
| | — |
| | — |
| | 3 |
| | 153 |
|
| Total | 180 |
| | — |
| | — |
| | 3 |
| | 183 |
|
| Total credit derivatives | $ | 387 |
| | $ | 456 |
| | $ | 545 |
| | $ | 2,381 |
| | $ | 3,769 |
|
| Credit-related notes: | |
| | |
| | |
| | |
| | |
|
| Investment grade | $ | — |
| | $ | — |
| | $ | 7 |
| | $ | 689 |
| | $ | 696 |
|
| Non-investment grade | 12 |
| | 4 |
| | 34 |
| | 1,548 |
| | 1,598 |
|
| Total credit-related notes | $ | 12 |
| | $ | 4 |
| | $ | 41 |
| | $ | 2,237 |
| | $ | 2,294 |
|
| | Maximum Payout/Notional |
| Credit default swaps: | | | | | | | | | |
| Investment grade | $ | 61,388 |
| | $ | 115,480 |
| | $ | 107,081 |
| | $ | 21,579 |
| | $ | 305,528 |
|
| Non-investment grade | 39,312 |
| | 49,843 |
| | 39,098 |
| | 14,420 |
| | 142,673 |
|
| Total | 100,700 |
| | 165,323 |
| | 146,179 |
| | 35,999 |
| | 448,201 |
|
| Total return swaps/options: | |
| | |
| | |
| | |
| | |
|
| Investment grade | 37,394 |
| | 2,581 |
| | — |
| | 143 |
| | 40,118 |
|
| Non-investment grade | 13,751 |
| | 514 |
| | 143 |
| | 697 |
| | 15,105 |
|
| Total | 51,145 |
| | 3,095 |
| | 143 |
| | 840 |
| | 55,223 |
|
| Total credit derivatives | $ | 151,845 |
| | $ | 168,418 |
| | $ | 146,322 |
| | $ | 36,839 |
| | $ | 503,424 |
|
Credit derivatives are classified as investment and non-investment grade based on the credit quality of the underlying referenced obligation. The Corporation considers ratings of BBB- or higher as investment grade. Non-investment grade includes non-rated credit derivative instruments. The Corporation discloses internal categorizations of investment grade and non-investment grade consistent with how risk is managed for these instruments.
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Credit Derivative Instruments | |
| | |
| | March 31, 2017 |
| | Carrying Value |
| (Dollars in millions) | Less than One Year | | One to Three Years | | Three to Five Years | | Over Five Years | | Total |
| Credit default swaps: | |
| | |
| | |
| | |
| | |
|
| Investment grade | $ | 5 |
| | $ | 36 |
| | $ | 277 |
| | $ | 683 |
| | $ | 1,001 |
|
| Non-investment grade | 237 |
| | 655 |
| | 574 |
| | 3,004 |
| | 4,470 |
|
| Total | 242 |
| | 691 |
| | 851 |
| | 3,687 |
| | 5,471 |
|
| Total return swaps/other: | |
| | |
| | |
| | |
| | |
|
| Investment grade | 24 |
| | — |
| | — |
| | — |
| | 24 |
|
| Non-investment grade | 141 |
| | — |
| | — |
| | — |
| | 141 |
|
| Total | 165 |
| | — |
| | — |
| | — |
| | 165 |
|
| Total credit derivatives | $ | 407 |
| | $ | 691 |
| | $ | 851 |
| | $ | 3,687 |
| | $ | 5,636 |
|
| Credit-related notes: | |
| | |
| | |
| | |
| | |
|
| Investment grade | $ | — |
| | $ | 3 |
| | $ | 546 |
| | $ | 1,000 |
| | $ | 1,549 |
|
| Non-investment grade | 19 |
| | 14 |
| | 30 |
| | 1,382 |
| | 1,445 |
|
| Total credit-related notes | $ | 19 |
| | $ | 17 |
| | $ | 576 |
| | $ | 2,382 |
| | $ | 2,994 |
|
| | Maximum Payout/Notional |
| Credit default swaps: | |
| | |
| | |
| | |
| | |
|
| Investment grade | $ | 111,737 |
| | $ | 136,977 |
| | $ | 110,112 |
| | $ | 34,600 |
| | $ | 393,426 |
|
| Non-investment grade | 80,990 |
| | 62,329 |
| | 37,069 |
| | 22,009 |
| | 202,397 |
|
| Total | 192,727 |
| | 199,306 |
| | 147,181 |
| | 56,609 |
| | 595,823 |
|
| Total return swaps/other: | |
| | |
| | |
| | |
| | |
|
| Investment grade | 27,669 |
| | — |
| | — |
| | — |
| | 27,669 |
|
| Non-investment grade | 8,070 |
| | 4,951 |
| | 500 |
| | 286 |
| | 13,807 |
|
| Total | 35,739 |
| | 4,951 |
| | 500 |
| | 286 |
| | 41,476 |
|
| Total credit derivatives | $ | 228,466 |
| | $ | 204,257 |
| | $ | 147,681 |
| | $ | 56,895 |
| | $ | 637,299 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Carrying Value |
| Credit default swaps: | |
| | |
| | |
| | |
| | |
|
| Investment grade | $ | 10 |
| | $ | 64 |
| | $ | 535 |
| | $ | 783 |
| | $ | 1,392 |
|
| Non-investment grade | 771 |
| | 1,053 |
| | 908 |
| | 3,339 |
| | 6,071 |
|
| Total | 781 |
| | 1,117 |
| | 1,443 |
| | 4,122 |
| | 7,463 |
|
| Total return swaps/other: | |
| | |
| | |
| | |
| | |
|
| Investment grade | 16 |
| | — |
| | — |
| | — |
| | 16 |
|
| Non-investment grade | 127 |
| | 10 |
| | 2 |
| | 1 |
| | 140 |
|
| Total | 143 |
| | 10 |
| | 2 |
| | 1 |
| | 156 |
|
| Total credit derivatives | $ | 924 |
| | $ | 1,127 |
| | $ | 1,445 |
| | $ | 4,123 |
| | $ | 7,619 |
|
| Credit-related notes: | |
| | |
| | |
| | |
| | |
|
| Investment grade | $ | — |
| | $ | 12 |
| | $ | 542 |
| | $ | 1,423 |
| | $ | 1,977 |
|
| Non-investment grade | 70 |
| | 22 |
| | 60 |
| | 1,318 |
| | 1,470 |
|
| Total credit-related notes | $ | 70 |
| | $ | 34 |
| | $ | 602 |
| | $ | 2,741 |
| | $ | 3,447 |
|
| | Maximum Payout/Notional |
| Credit default swaps: | |
| | |
| | |
| | |
| | |
|
| Investment grade | $ | 121,083 |
| | $ | 143,200 |
| | $ | 116,540 |
| | $ | 21,905 |
| | $ | 402,728 |
|
| Non-investment grade | 84,755 |
| | 67,160 |
| | 41,001 |
| | 18,711 |
| | 211,627 |
|
| Total | 205,838 |
| | 210,360 |
| | 157,541 |
| | 40,616 |
| | 614,355 |
|
| Total return swaps/other: | |
| | |
| | |
| | |
| | |
|
| Investment grade | 12,792 |
| | — |
| | — |
| | — |
| | 12,792 |
|
| Non-investment grade | 6,638 |
| | 5,127 |
| | 589 |
| | 208 |
| | 12,562 |
|
| Total | 19,430 |
| | 5,127 |
| | 589 |
| | 208 |
| | 25,354 |
|
| Total credit derivatives | $ | 225,268 |
| | $ | 215,487 |
| | $ | 158,130 |
| | $ | 40,824 |
| | $ | 639,709 |
|
The notional amount represents the maximum amount payable by the Corporation for most credit derivatives. However, the Corporation does not monitor its exposure to credit derivatives based solely on the notional amount because this measure does not take into consideration the probability of occurrence. As such, the notional amount is not a reliable indicator of the Corporation’s exposure to these contracts. Instead, a risk framework is used to define risk tolerances and establish limits to help ensureso that
certain credit risk-related losses occur within acceptable, predefined limits.
The Corporation manages its market risk exposure to credit derivatives by entering into a variety of offsetting derivative contracts and security positions. For example, in certain instances, the Corporation may purchase credit protection with identical underlying referenced names to offset its exposure. The carrying value and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical
underlying referenced names and terms were $2.6 billion and $486.6 billion at March 31, 2017, and $4.7 billion and $490.7 billion at December 31, 2016.
Credit-related notes in the table on page 76above include investments in securities issued by collateralized debt obligation (CDO), collateralized loan obligation (CLO) and credit-linked note vehicles. These instruments are primarily classified as trading securities. The carrying value of these instruments equals the Corporation’s maximum exposure to loss. The Corporation is not obligated to make any payments to the entities under the terms of the securities owned.
Credit-related Contingent Features and Collateral
The Corporation executes the majority of its derivative contracts in the OTC market with large, international financial institutions, including broker-dealers and, to a lesser degree, with a variety of non-financial companies. A significant majority of the derivative transactions are executed on a daily margin basis. Therefore, events such as a credit rating downgrade (depending on the ultimate rating level) or a breach of credit covenants would typically require an increase in the amount of collateral required of the counterparty, where applicable, and/or allow the Corporation to take additional protective measures such as early termination of all trades. Further, as previously discussed on page 71, the Corporation enters into legally enforceable master netting agreements which reduce risk by permitting the closeout and netting of transactions with the same counterparty upon the occurrence of certain events.
A majority of the Corporation’s derivative contracts contain credit risk-related contingent features, primarily in the form of ISDA master netting agreements and credit support documentation that enhance the creditworthiness of these instruments compared to other obligations of the respective counterparty with whom the Corporation has transacted. These contingent features may be for the benefit of the Corporation as well as its counterparties with respect to changes in the Corporation’s creditworthiness and the mark-to-market exposure under the derivative transactions. At March 31, 20172018 and December 31, 2016,2017, the Corporation held cash and securities collateral of $77.1$90.4 billion and $85.5$77.2 billion,, and posted cash and securities collateral of $64.0$58.3 billion and $71.1$59.2 billion in the normal course of business under derivative agreements. This excludesagreements, excluding cross-product margining agreements where clients are permitted to margin on a net basis for both derivative and secured financing arrangements.
In connection with certain OTC derivative contracts and other trading agreements, the Corporation can be required to provide additional collateral or to terminate transactions with certain counterparties in the event of a downgrade of the senior debt ratings of the Corporation or certain subsidiaries. The amount of
additional collateral required depends on the contract and is usually a fixed incremental amount and/or the market value of the exposure. For more information on credit-related contingent features and collateral, see Note 2 – Derivatives to the Consolidated Financial Statementsof the Corporation’s 2017 Annual Report on Form 10-K.
At March 31, 2017,2018, the amount of collateral, calculated based on the terms of the contracts, that the Corporation and certain subsidiaries could be required to post to counterparties but had not yet posted to counterparties was approximately $2.42.2 billion, including $1.21.1 billion for Bank of America, National Association (Bank of America, N.A. (BANA)or BANA).
Some counterparties are currently able to unilaterally terminate certain contracts, or the Corporation or certain
subsidiaries may be required to take other action such as find a suitable replacement or obtain a guarantee. At March 31, 2018 and December 31, 2017, the liability recorded for these derivative contracts was $41 million.not significant.
The table below presents the amount of additional collateral that would have been contractually required by derivative contracts and other trading agreements at March 31, 2017 2018 if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by one incremental notch and by an additional second incremental notch.
| | | | | | | |
| Additional Collateral Required to be Posted Upon Downgrade | |
| | | |
| Additional Collateral Required to be Posted Upon Downgrade at March 31, 2018 | | Additional Collateral Required to be Posted Upon Downgrade at March 31, 2018 |
| | March 31, 2017 | | | |
| (Dollars in millions) | One incremental notch | Second incremental notch | One incremental notch | | Second incremental notch |
| Bank of America Corporation | $ | 520 |
| $ | 819 |
| $ | 647 |
| | $ | 591 |
|
Bank of America, N.A. and subsidiaries (1) | 370 |
| 422 |
| 323 |
| | 207 |
|
| |
(1) | Included in Bank of America Corporation collateral requirements in this table. |
The table below presents the derivative liabilities that would be subject to unilateral termination by counterparties and the amounts of collateral that would have been contractually required at March 31, 2017 2018 if the long-term senior debt ratings for the Corporation or certain subsidiaries had been lower by one incremental notch and by an additional second incremental notch.
| | | | | | | |
| Derivative Liabilities Subject to Unilateral Termination Upon Downgrade | |
| | | |
| Derivative Liabilities Subject to Unilateral Termination Upon Downgrade at March 31, 2018 | | Derivative Liabilities Subject to Unilateral Termination Upon Downgrade at March 31, 2018 |
| | March 31, 2017 | | | |
| (Dollars in millions) | One incremental notch | Second incremental notch | One incremental notch | | Second incremental notch |
| Derivative liabilities | $ | 611 |
| $ | 1,439 |
| $ | 382 |
| | $ | 1,158 |
|
| Collateral posted | 441 |
| 1,053 |
| 311 |
| | 716 |
|
Valuation Adjustments on Derivatives
The table below presents credit valuation adjustment (CVA), DVA and FVA gains (losses) on derivatives, which are recorded in trading account profits, on a gross and net of hedge basis for the three months ended March 31, 20172018 and 2016.2017. For more information on the valuation adjustments on derivatives, see Note 2 – Derivatives to the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
| | | | | | | | | |
Valuation Adjustments on Derivatives | | | | | | | | |
| Gains (Losses) | Three Months Ended March 31 | Three Months Ended March 31 |
| | 2017 | | 2016 | 2018 | | 2017 |
| (Dollars in millions) | Gross | Net | | Gross | Net | Gross | Net | | Gross | Net |
Derivative assets (CVA) (1) | $ | 161 |
| $ | 26 |
| | $ | (209 | ) | $ | 52 |
| $ | (24 | ) | $ | 18 |
| | $ | 161 |
| $ | 26 |
|
Derivative assets/liabilities (FVA) (1) | 49 |
| 56 |
| | (56 | ) | (56 | ) | (37 | ) | (1 | ) | | 49 |
| 56 |
|
Derivative liabilities (DVA) (1) | (150 | ) | (93 | ) | | 306 |
| 184 |
| 114 |
| 106 |
| | (150 | ) | (93 | ) |
| |
(1) | At March 31, 20172018 and December 31, 20162017, cumulative CVA reduced the derivative assets balance by $846701 million and $1.0 billion677 million, cumulative FVA reduced the net derivatives balance by $247173 million and $296136 million, and cumulative DVA reduced the derivative liabilities balance by $624565 million and $774450 million, respectively. |
The table below presents the amortized cost, gross unrealized gains and losses, and fair value of AFS debt securities, other debt securities carried at fair value and held-to-maturity (HTM) debt securities and AFS marketable equity securities at March 31, 20172018 and December 31, 2016.2017.
| | | | | | | | | | | | | | | | | |
| Debt Securities and Available-for-Sale Marketable Equity Securities | | | | | |
| Debt Securities | | Debt Securities | | | | |
| | | |
| | March 31, 2017 | Amortized Cost | | Gross
Unrealized Gains | | Gross
Unrealized Losses | | Fair Value |
| (Dollars in millions) | Amortized Cost | | Gross
Unrealized Gains | | Gross
Unrealized Losses | | Fair Value | March 31, 2018 |
| Available-for-sale debt securities | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
| | | | | | | |
|
| Agency | $ | 190,684 |
| | $ | 553 |
| | $ | (2,194 | ) | | $ | 189,043 |
| $ | 189,426 |
| | $ | 168 |
| | $ | (5,483 | ) | | $ | 184,111 |
|
| Agency-collateralized mortgage obligations | 7,848 |
| | 78 |
| | (49 | ) | | 7,877 |
| 6,525 |
| | 15 |
| | (142 | ) | | 6,398 |
|
| Commercial | 12,809 |
| | 27 |
| | (264 | ) | | 12,572 |
| 13,998 |
| | 1 |
| | (440 | ) | | 13,559 |
|
Non-agency residential (1) | 1,758 |
| | 209 |
| | (24 | ) | | 1,943 |
| 2,354 |
| | 260 |
| | (10 | ) | | 2,604 |
|
| Total mortgage-backed securities | 213,099 |
| | 867 |
| | (2,531 | ) | | 211,435 |
| 212,303 |
| | 444 |
| | (6,075 | ) | | 206,672 |
|
| U.S. Treasury and agency securities | 51,056 |
| | 168 |
| | (666 | ) | | 50,558 |
| 54,753 |
| | 13 |
| | (1,794 | ) | | 52,972 |
|
| Non-U.S. securities | 6,744 |
| | 13 |
| | (4 | ) | | 6,753 |
| 6,918 |
| | 7 |
| | — |
| | 6,925 |
|
| Other taxable securities, substantially all asset-backed securities | 9,754 |
| | 76 |
| | (11 | ) | | 9,819 |
| 4,619 |
| | 100 |
| | (5 | ) | | 4,714 |
|
| Total taxable securities | 280,653 |
| | 1,124 |
| | (3,212 | ) | | 278,565 |
| 278,593 |
| | 564 |
| | (7,874 | ) | | 271,283 |
|
| Tax-exempt securities | 17,443 |
| | 80 |
| | (188 | ) | | 17,335 |
| 19,133 |
| | 58 |
| | (114 | ) | | 19,077 |
|
| Total available-for-sale debt securities | 298,096 |
| | 1,204 |
| | (3,400 | ) | | 295,900 |
| 297,726 |
| | 622 |
| | (7,988 | ) | | 290,360 |
|
Less: Available-for-sale securities of business held for sale (2) | (691 | ) | | — |
| | — |
| | (691 | ) | |
| Other debt securities carried at fair value | 16,714 |
| | 164 |
| | (75 | ) | | 16,803 |
| 12,682 |
| | 291 |
| | (35 | ) | | 12,938 |
|
| Total debt securities carried at fair value | 314,119 |
| | 1,368 |
| | (3,475 | ) | | 312,012 |
| 310,408 |
| | 913 |
| | (8,023 | ) | | 303,298 |
|
| Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities | 116,033 |
| | 166 |
| | (2,196 | ) | | 114,003 |
| 123,539 |
| | 12 |
| | (4,419 | ) | | 119,132 |
|
Total debt securities (3) | $ | 430,152 |
| | $ | 1,534 |
| | $ | (5,671 | ) | | $ | 426,015 |
| |
Available-for-sale marketable equity securities (4) | $ | 8 |
| | $ | 57 |
| | $ | — |
| | $ | 65 |
| |
Total debt securities (2, 3) | | $ | 433,947 |
| | $ | 925 |
| | $ | (12,442 | ) | | $ | 422,430 |
|
| | | | | | | | | | | | | | | |
| | December 31, 2016 | December 31, 2017 |
| Available-for-sale debt securities | | | | | | | | | | | | | | |
| Mortgage-backed securities: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Agency | $ | 190,809 |
| | $ | 640 |
| | $ | (1,963 | ) | | $ | 189,486 |
| $ | 194,119 |
| | $ | 506 |
| | $ | (1,696 | ) | | $ | 192,929 |
|
| Agency-collateralized mortgage obligations | 8,296 |
| | 85 |
| | (51 | ) | | 8,330 |
| 6,846 |
| | 39 |
| | (81 | ) | | 6,804 |
|
| Commercial | 12,594 |
| | 21 |
| | (293 | ) | | 12,322 |
| 13,864 |
| | 28 |
| | (208 | ) | | 13,684 |
|
Non-agency residential (1) | 1,863 |
| | 181 |
| | (31 | ) | | 2,013 |
| 2,410 |
| | 267 |
| | (8 | ) | | 2,669 |
|
| Total mortgage-backed securities | 213,562 |
| | 927 |
| | (2,338 | ) | | 212,151 |
| 217,239 |
| | 840 |
| | (1,993 | ) | | 216,086 |
|
| U.S. Treasury and agency securities | 48,800 |
| | 204 |
| | (752 | ) | | 48,252 |
| 54,523 |
| | 18 |
| | (1,018 | ) | | 53,523 |
|
| Non-U.S. securities | 6,372 |
| | 13 |
| | (3 | ) | | 6,382 |
| 6,669 |
| | 9 |
| | (1 | ) | | 6,677 |
|
| Other taxable securities, substantially all asset-backed securities | 10,573 |
| | 64 |
| | (23 | ) | | 10,614 |
| 5,699 |
| | 73 |
| | (2 | ) | | 5,770 |
|
| Total taxable securities | 279,307 |
| | 1,208 |
| | (3,116 | ) | | 277,399 |
| 284,130 |
| | 940 |
| | (3,014 | ) | | 282,056 |
|
| Tax-exempt securities | 17,272 |
| | 72 |
| | (184 | ) | | 17,160 |
| 20,541 |
| | 138 |
| | (104 | ) | | 20,575 |
|
| Total available-for-sale debt securities | 296,579 |
| | 1,280 |
| | (3,300 | ) | | 294,559 |
| 304,671 |
| | 1,078 |
| | (3,118 | ) | | 302,631 |
|
Less: Available-for-sale securities of business held for sale (2) | (619 | ) | | — |
| | — |
| | (619 | ) | |
| Other debt securities carried at fair value | 19,748 |
| | 121 |
| | (149 | ) | | 19,720 |
| 12,273 |
| | 252 |
| | (39 | ) | | 12,486 |
|
| Total debt securities carried at fair value | 315,708 |
| | 1,401 |
| | (3,449 | ) | | 313,660 |
| 316,944 |
| | 1,330 |
| | (3,157 | ) | | 315,117 |
|
| Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities | 117,071 |
| | 248 |
| | (2,034 | ) | | 115,285 |
| 125,013 |
| | 111 |
| | (1,825 | ) | | 123,299 |
|
Total debt securities (3) | $ | 432,779 |
| | $ | 1,649 |
| | $ | (5,483 | ) | | $ | 428,945 |
| |
Total debt securities (2, 3) | | $ | 441,957 |
| | $ | 1,441 |
| | $ | (4,982 | ) | | $ | 438,416 |
|
Available-for-sale marketable equity securities (4) | $ | 325 |
| | $ | 51 |
| | $ | (1 | ) | | $ | 375 |
| $ | 27 |
| | $ | — |
| | $ | (2 | ) | | $ | 25 |
|
| |
(1) | At both March 31, 20172018 and December 31, 20162017, the underlying collateral type included approximately 6062 percent prime, 1913 percent Alt-A, and 2125 percent subprime. |
| |
(2) | Represents AFS debtIncludes securities pledged as collateral of business held for sale of which there were no$36.9 billion unrealized gains or losses.and $35.8 billion at March 31, 2018 and December 31, 2017.
|
| |
(3) | The Corporation had debt securities from Fannie Mae (FNMA) and Freddie Mac (FHLMC) that each exceeded 10 percent of shareholders’ equity, with an amortized cost of $156.5161.1 billion and $47.949.3 billion, and a fair value of $154.3156.0 billion and $47.448.0 billion at March 31, 20172018. Debt securities from FNMA, and FHLMC that exceeded 10 percent of shareholders’ equity had an amortized cost of $156.4163.6 billion and $48.750.3 billion, and a fair value of $154.4162.1 billion and $48.350.0 billion at December 31, 20162017. |
| |
(4) | Classified in other assets on the Consolidated Balance Sheet. |
At March 31, 2017,2018, the accumulated net unrealized loss on AFS debt securities included in accumulated OCI was $1.4$5.5 billion, net of the related income tax benefit of $838 million.$1.8 billion. The Corporation had nonperforming AFS debt securities of $121$128 million and $99 million at both March 31, 20172018 and December 31, 2016.2017.
Effective January 1, 2018, the Corporation adopted a new accounting standard applicable to equity securities. For more information, see Note 1 – Summary of Significant Accounting Principles. At March 31, 2018, the Corporation held equity securities at an aggregate fair value of $988 million and other
equity securities, as valued under the measurement alternative, at cost of $247 million, both of which are included in other assets.
The following table presents the components of other debt securities carried at fair value where the changes in fair value are
reported in other income. In the three months ended March 31, 2017,2018, the Corporation recorded unrealized mark-to-market net gains of $41 million and realized net losses of $6 million compared to unrealized mark-to-market net gains of $117 million and realized net losses of $103 million compared to unrealized mark-to-market net losses of $95 million and realized net losses of $3 million in the three months ended March 31, 2016.2017. These amounts exclude hedge results.
| | | | | | | | | |
Other Debt Securities Carried at Fair Value | | | | | | |
| (Dollars in millions) | March 31
2017 | | December 31
2016 | March 31
2018 | | December 31
2017 |
| Mortgage-backed securities: | | | | | | |
| Agency-collateralized mortgage obligations | $ | 5 |
| | $ | 5 |
| $ | — |
| | $ | 5 |
|
| Non-agency residential | 3,082 |
| | 3,139 |
| 2,736 |
| | 2,764 |
|
| Total mortgage-backed securities | 3,087 |
| | 3,144 |
| 2,736 |
| | 2,769 |
|
Non-U.S. securities (1) | 13,482 |
| | 16,336 |
| 9,976 |
| | 9,488 |
|
| Other taxable securities, substantially all asset-backed securities | 234 |
| | 240 |
| 226 |
| | 229 |
|
| Total | $ | 16,803 |
| | $ | 19,720 |
| $ | 12,938 |
| | $ | 12,486 |
|
| |
(1) | These securities are primarily used to satisfy certain international regulatory liquidity requirements. |
The gross realized gains and losses on sales of AFS debt securities for the three months ended March 31, 20172018 and 20162017 are presented in the following table.
table below.
| | | | | | | | | |
Gains and Losses on Sales of AFS Debt Securities | | | | | | |
| | Three Months Ended March 31 | Three Months Ended March 31 |
| (Dollars in millions) | 2017 | | 2016 | 2018 | | 2017 |
| Gross gains | $ | 54 |
| | $ | 203 |
| $ | 2 |
| | $ | 54 |
|
| Gross losses | (2 | ) | | (13 | ) | — |
| | (2 | ) |
| Net gains on sales of AFS debt securities | $ | 52 |
| | $ | 190 |
| $ | 2 |
| | $ | 52 |
|
| Income tax expense attributable to realized net gains on sales of AFS debt securities | $ | 20 |
| | $ | 72 |
| $ | — |
| | $ | 20 |
|
The table below presents the fair value and the associated gross unrealized losses on AFS debt securities and whether these securities have had gross unrealized losses for less than 12 months or for 12 months or longer at March 31, 20172018 and December 31, 2016.
2017. | | | | | | | | | | | | | | | | | | | | | | | | | |
| Temporarily Impaired and Other-than-temporarily Impaired AFS Debt Securities | Temporarily Impaired and Other-than-temporarily Impaired AFS Debt Securities | | | | | | | Temporarily Impaired and Other-than-temporarily Impaired AFS Debt Securities | | | | | | |
| | | | | | | | | | | | | |
| | March 31, 2017 | Less than Twelve Months | | Twelve Months or Longer | | Total |
| | Less than Twelve Months | | Twelve Months or Longer | | Total | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
| (Dollars in millions) | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | March 31, 2018 |
| Temporarily impaired AFS debt securities | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | |
| Agency | $ | 142,657 |
| | $ | (2,076 | ) | | $ | 3,603 |
| | $ | (118 | ) | | $ | 146,260 |
| | $ | (2,194 | ) | $ | 109,535 |
| | $ | (2,608 | ) | | $ | 68,632 |
| | $ | (2,875 | ) | | $ | 178,167 |
| | $ | (5,483 | ) |
| Agency-collateralized mortgage obligations | 2,580 |
| | (24 | ) | | 964 |
| | (25 | ) | | 3,544 |
| | (49 | ) | 3,635 |
| | (77 | ) | | 1,579 |
| | (65 | ) | | 5,214 |
| | (142 | ) |
| Commercial | 8,460 |
| | (264 | ) | | — |
| | — |
| | 8,460 |
| | (264 | ) | 8,794 |
| | (182 | ) | | 4,480 |
| | (258 | ) | | 13,274 |
| | (440 | ) |
| Non-agency residential | 201 |
| | (3 | ) | | 162 |
| | (12 | ) | | 363 |
| | (15 | ) | 241 |
| | (8 | ) | | — |
| | — |
| | 241 |
| | (8 | ) |
| Total mortgage-backed securities | 153,898 |
| | (2,367 | ) | | 4,729 |
| | (155 | ) | | 158,627 |
| | (2,522 | ) | 122,205 |
| | (2,875 | ) | | 74,691 |
| | (3,198 | ) | | 196,896 |
| | (6,073 | ) |
| U.S. Treasury and agency securities | 31,304 |
| | (666 | ) | | — |
| | — |
| | 31,304 |
| | (666 | ) | 27,813 |
| | (760 | ) | | 23,792 |
| | (1,034 | ) | | 51,605 |
| | (1,794 | ) |
| Non-U.S. securities | 96 |
| | (3 | ) | | 5 |
| | (1 | ) | | 101 |
| | (4 | ) | |
| Other taxable securities, substantially all asset-backed securities | 273 |
| | (2 | ) | | 1,352 |
| | (9 | ) | | 1,625 |
| | (11 | ) | 135 |
| | (3 | ) | | 102 |
| | (2 | ) | | 237 |
| | (5 | ) |
| Total taxable securities | 185,571 |
| | (3,038 | ) | | 6,086 |
| | (165 | ) | | 191,657 |
| | (3,203 | ) | 150,153 |
| | (3,638 | ) | | 98,585 |
| | (4,234 | ) | | 248,738 |
| | (7,872 | ) |
| Tax-exempt securities | 3,567 |
| | (91 | ) | | 2,865 |
| | (97 | ) | | 6,432 |
| | (188 | ) | 251 |
| | (1 | ) | | 5,667 |
| | (113 | ) | | 5,918 |
| | (114 | ) |
| Total temporarily impaired AFS debt securities | 189,138 |
| | (3,129 | ) | | 8,951 |
| | (262 | ) | | 198,089 |
| | (3,391 | ) | 150,404 |
| | (3,639 | ) | | 104,252 |
| | (4,347 | ) | | 254,656 |
| | (7,986 | ) |
Other-than-temporarily impaired AFS debt securities (1) | | | | | | | | | | | | | | | | | | | | | | |
| Non-agency residential mortgage-backed securities | — |
| | — |
| | 125 |
| | (9 | ) | | 125 |
| | (9 | ) | 103 |
| | (2 | ) | | — |
| | — |
| | 103 |
| | (2 | ) |
Total temporarily impaired and other-than-temporarily impaired AFS debt securities | $ | 189,138 |
| | $ | (3,129 | ) | | $ | 9,076 |
| | $ | (271 | ) | | $ | 198,214 |
| | $ | (3,400 | ) | $ | 150,507 |
| | $ | (3,641 | ) | | $ | 104,252 |
| | $ | (4,347 | ) | | $ | 254,759 |
| | $ | (7,988 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | December 31, 2017 |
| Temporarily impaired AFS debt securities | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | |
| Agency | $ | 135,210 |
| | $ | (1,846 | ) | | $ | 3,770 |
| | $ | (117 | ) | | $ | 138,980 |
| | $ | (1,963 | ) | $ | 73,535 |
| | $ | (352 | ) | | $ | 72,612 |
| | $ | (1,344 | ) | | $ | 146,147 |
| | $ | (1,696 | ) |
| Agency-collateralized mortgage obligations | 3,229 |
| | (25 | ) | | 1,028 |
| | (26 | ) | | 4,257 |
| | (51 | ) | 2,743 |
| | (29 | ) | | 1,684 |
| | (52 | ) | | 4,427 |
| | (81 | ) |
| Commercial | 9,018 |
| | (293 | ) | | — |
| | — |
| | 9,018 |
| | (293 | ) | 5,575 |
| | (50 | ) | | 4,586 |
| | (158 | ) | | 10,161 |
| | (208 | ) |
| Non-agency residential | 212 |
| | (1 | ) | | 204 |
| | (13 | ) | | 416 |
| | (14 | ) | 335 |
| | (7 | ) | | — |
| | — |
| | 335 |
| | (7 | ) |
| Total mortgage-backed securities | 147,669 |
| | (2,165 | ) | | 5,002 |
| | (156 | ) | | 152,671 |
| | (2,321 | ) | 82,188 |
| | (438 | ) | | 78,882 |
| | (1,554 | ) | | 161,070 |
| | (1,992 | ) |
| U.S. Treasury and agency securities | 28,462 |
| | (752 | ) | | — |
| | — |
| | 28,462 |
| | (752 | ) | 27,537 |
| | (251 | ) | | 24,035 |
| | (767 | ) | | 51,572 |
| | (1,018 | ) |
| Non-U.S. securities | 52 |
| | (1 | ) | | 142 |
| | (2 | ) | | 194 |
| | (3 | ) | 772 |
| | (1 | ) | | — |
| | — |
| | 772 |
| | (1 | ) |
| Other taxable securities, substantially all asset-backed securities | 762 |
| | (5 | ) | | 1,438 |
| | (18 | ) | | 2,200 |
| | (23 | ) | — |
| | — |
| | 92 |
| | (2 | ) | | 92 |
| | (2 | ) |
| Total taxable securities | 176,945 |
| | (2,923 | ) | | 6,582 |
| | (176 | ) | | 183,527 |
| | (3,099 | ) | 110,497 |
| | (690 | ) | | 103,009 |
| | (2,323 | ) | | 213,506 |
| | (3,013 | ) |
| Tax-exempt securities | 4,782 |
| | (148 | ) | | 1,873 |
| | (36 | ) | | 6,655 |
| | (184 | ) | 1,090 |
| | (2 | ) | | 7,100 |
| | (102 | ) | | 8,190 |
| | (104 | ) |
| Total temporarily impaired AFS debt securities | 181,727 |
| | (3,071 | ) | | 8,455 |
| | (212 | ) | | 190,182 |
| | (3,283 | ) | 111,587 |
| | (692 | ) | | 110,109 |
| | (2,425 | ) | | 221,696 |
| | (3,117 | ) |
Other-than-temporarily impaired AFS debt securities (1) | | | | | | | | | | | | | | | | | | | | | | |
| Non-agency residential mortgage-backed securities | 94 |
| | (1 | ) | | 401 |
| | (16 | ) | | 495 |
| | (17 | ) | 58 |
| | (1 | ) | | — |
| | — |
| | 58 |
| | (1 | ) |
Total temporarily impaired and other-than-temporarily impaired AFS debt securities | $ | 181,821 |
| | $ | (3,072 | ) | | $ | 8,856 |
| | $ | (228 | ) | | $ | 190,677 |
| | $ | (3,300 | ) | $ | 111,645 |
| | $ | (693 | ) | | $ | 110,109 |
| | $ | (2,425 | ) | | $ | 221,754 |
| | $ | (3,118 | ) |
| |
(1) | Includes other-than-temporary impairmentother-than-temporarily impaired (OTTI) AFS debt securities on which an OTTI loss, primarily related to changes in interest rates, remains in accumulated OCI. |
The Corporation recordedhad $4 million and $27 million of credit-related OTTI losses on AFS debt securities which were recognized in other income for the three months ended March 31, 20172018 and 2016 as presented in the following table. Substantially all2017. The amount of noncredit-related OTTI losses, which is recognized in the three months ended March 31, 2017 and 2016 consisted of credit losses on non-agency residential mortgage-backed securities (RMBS) and were recorded in other income in the Consolidated Statement of Income.
|
| | | | | | | |
| | | | |
| Net Credit-related Impairment Losses Recognized in Earnings |
| | | | |
| | Three Months Ended March 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Total OTTI losses | $ | (35 | ) | | $ | (30 | ) |
| Less: non-credit portion of total OTTI losses recognized in OCI | 8 |
| | 23 |
|
| Net credit-related impairment losses recognized in earnings | $ | (27 | ) | | $ | (7 | ) |
The table below presents a rollforwardcumulative credit loss component of the creditOTTI losses that have been recognized in earnings for the three months ended March 31, 2017 and 2016 onincome related to AFS debt securities that the Corporation does not have the intentintend to sell or will not more-likely-than-not be required to sell.was $278 million and $279 million at March 31, 2018 and 2017.
|
| | | | | | | |
| | | | |
| Rollforward of OTTI Credit Losses Recognized |
| | | | |
| | Three Months Ended March 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Balance, beginning of period | $ | 253 |
| | $ | 266 |
|
| Additions for credit losses recognized on AFS debt securities that had no previous impairment losses | 4 |
| | 1 |
|
| Additions for credit losses recognized on AFS debt securities that had previously incurred impairment losses | 22 |
| | 6 |
|
| Reductions for AFS debt securities matured, sold or intended to be sold | — |
| | (4 | ) |
| Balance, March 31 | $ | 279 |
| | $ | 269 |
|
The Corporation estimates the portion of a loss on a security that is attributable to credit using a discounted cash flow model and estimates the expected cash flows of the underlying collateral using internal credit, interest rate and prepayment risk models that incorporate management’s best estimate of current key assumptions such as default rates, loss severity and prepayment rates. Assumptions used for the underlying loans that support the MBS can vary widely from loan to loan and are influenced by such factors as loan interest rate, geographic location of the borrower, borrower characteristics and collateral type. Based on these assumptions, the Corporation then determines how the underlying collateral cash flows will be distributed to each MBS issued from the applicable special purpose entity. Expected principal and interest cash flows on an impaired AFS debt security are discounted using the effective yield of each individual impaired AFS debt security.
Significant assumptions used in estimating the expected cash flows for measuring credit losses on non-agency RMBSresidential mortgage-backed securities (RMBS) were as follows at March 31, 2017.2018.
|
| | | | | | | | |
| | | | | | |
| Significant Assumptions |
| | | | |
| | | | Range (1) |
| | Weighted
average | | 10th Percentile (2) | | 90th Percentile (2) |
| Prepayment speed | 11.7 | % | | 2.9 | % | | 20.9 | % |
| Loss severity | 21.6 |
| | 9.1 |
| | 40.6 |
|
| Life default rate | 20.1 |
| | 1.3 |
| | 72.3 |
|
|
| | | | | | | | |
| | | | | | |
| Significant Assumptions |
| | | | | | |
| | | | Range (1) |
| | Weighted-
average | | 10th Percentile (2) | | 90th Percentile (2) |
| Prepayment speed | 11.4 | % | | 2.8 | % | | 20.0 | % |
| Loss severity | 21.3 |
| | 9.5 |
| | 39.2 |
|
| Life default rate | 22.9 |
| | 1.3 |
| | 80.4 |
|
| |
(1) | Represents the range of inputs/assumptions based upon the underlying collateral. |
| |
(2) | The value of a variable below which the indicated percentile of observations will fall. |
Annual constant prepayment speed and loss severity rates are projected considering collateral characteristics such as loan-to-value (LTV), creditworthiness of borrowers as measured using Fair Isaac Corporation (FICO) scores, and geographic concentrations. The weighted-average severity by collateral type was 17.816.4 percent for prime, 19.917.6 percent for Alt-A and 31.927.9 percent for subprime at March 31, 2017. Additionally, default2018. Default rates are projected by considering collateral characteristics including, but not limited to, LTV, FICO and geographic concentration. Weighted-average life default rates by collateral type were 16.315.1 percent for prime, 23.920.0 percent for Alt-A and 24.322.4 percent for subprime at March 31, 2017.
2018.
The remaining contractual maturity distribution and yields of the Corporation’s debt securities carried at fair value and HTM debt securities at March 31, 20172018 are summarized in the table below. Actual duration and yields may differ as prepayments on the loans underlying the mortgages or other asset-backed securities (ABS) are passed through to the Corporation.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Maturities of Debt Securities Carried at Fair Value and Held-to-maturity Debt Securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2017 | Due in One Year or Less | | Due after One Year through Five Years | | Due after Five Years through Ten Years | | Due after Ten Years | | Total |
| | Due in One Year or Less | | Due after One Year through Five Years | | Due after Five Years through Ten Years | | Due after Ten Years | | Total | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) |
| (Dollars in millions) | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) | | Amount | | Yield (1) | March 31, 2018 |
| Amortized cost of debt securities carried at fair value | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Mortgage-backed securities: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Agency | $ | 4 |
| | 4.75 | % | | $ | 48 |
| | 3.80 | % | | $ | 347 |
| | 2.63 | % | | $ | 190,285 |
| | 3.23 | % | | $ | 190,684 |
| | 3.25 | % | $ | 2 |
| | 5.50 | % | | $ | 26 |
| | 3.94 | % | | $ | 519 |
| | 2.57 | % | | $ | 188,879 |
| | 3.22 | % | | $ | 189,426 |
| | 3.22 | % |
| Agency-collateralized mortgage obligations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7,852 |
| | 3.18 |
| | 7,852 |
| | 3.18 |
| — |
| | — |
| | — |
| | — |
| | 32 |
| | 2.53 |
| | 6,493 |
| | 3.17 |
| | 6,525 |
| | 3.17 |
|
| Commercial | 48 |
| | 7.92 |
| | 542 |
| | 1.95 |
| | 11,668 |
| | 2.47 |
| | 551 |
| | 2.29 |
| | 12,809 |
| | 2.46 |
| 54 |
| | 9.55 |
| | 1,662 |
| | 2.15 |
| | 11,350 |
| | 2.44 |
| | 932 |
| | 2.61 |
| | 13,998 |
| | 2.44 |
|
| Non-agency residential | — |
| | — |
| | — |
| | — |
| | 30 |
| | 0.01 |
| | 4,729 |
| | 8.29 |
| | 4,759 |
| | 8.24 |
| — |
| | — |
| | — |
| | — |
| | 22 |
| | 0.01 |
| | 4,843 |
| | 9.44 |
| | 4,865 |
| | 9.40 |
|
| Total mortgage-backed securities | 52 |
| | 7.68 |
| | 590 |
| | 2.10 |
| | 12,045 |
| | 2.47 |
| | 203,417 |
| | 3.34 |
| | 216,104 |
| | 3.31 |
| 56 |
| | 9.40 |
| | 1,688 |
| | 2.18 |
| | 11,923 |
| | 2.44 |
| | 201,147 |
| | 3.37 |
| | 214,814 |
| | 3.31 |
|
| U.S. Treasury and agency securities | 695 |
| | 0.71 |
| | 29,457 |
| | 1.59 |
| | 20,790 |
| | 1.87 |
| | 114 |
| | 5.40 |
| | 51,056 |
| | 1.70 |
| 543 |
| | 0.41 |
| | 26,339 |
| | 1.41 |
| | 27,849 |
| | 2.12 |
| | 22 |
| | 2.57 |
| | 54,753 |
| | 1.76 |
|
Non-U.S. securities (2) | 18,719 |
| | 0.29 |
| | 1,259 |
| | 2.03 |
| | 29 |
| | 1.96 |
| | 217 |
| | 6.53 |
| | 20,224 |
| | 0.47 |
| |
| Non-U.S. securities | | 14,405 |
| | 0.95 |
| | 2,110 |
| | 0.92 |
| | 214 |
| | 1.17 |
| | 153 |
| | 6.64 |
| | 16,882 |
| | 1.00 |
|
| Other taxable securities, substantially all asset-backed securities | 2,358 |
| | 2.06 |
| | 4,305 |
| | 2.11 |
| | 1,956 |
| | 2.78 |
| | 1,364 |
| | 2.98 |
| | 9,983 |
| | 2.35 |
| 972 |
| | 3.12 |
| | 2,496 |
| | 3.21 |
| | 1,072 |
| | 3.43 |
| | 286 |
| | 8.13 |
| | 4,826 |
| | 3.54 |
|
| Total taxable securities | 21,824 |
| | 0.51 |
| | 35,611 |
| | 1.68 |
| | 34,820 |
| | 2.13 |
| | 205,112 |
| | 3.35 |
| | 297,367 |
| | 2.81 |
| 15,976 |
| | 1.10 |
| | 32,633 |
| | 1.55 |
| | 41,058 |
| | 2.24 |
| | 201,608 |
| | 3.37 |
| | 291,275 |
| | 2.89 |
|
| Tax-exempt securities | 604 |
| | 1.70 |
| | 6,287 |
| | 1.28 |
| | 8,328 |
| | 1.42 |
| | 2,224 |
| | 1.52 |
| | 17,443 |
| | 1.39 |
| 691 |
| | 1.58 |
| | 6,922 |
| | 2.10 |
| | 8,626 |
| | 2.07 |
| | 2,894 |
| | 1.94 |
| | 19,133 |
| | 2.04 |
|
Total amortized cost of debt securities carried at fair value (2) | $ | 22,428 |
| | 0.54 |
| | $ | 41,898 |
| | 1.62 |
| | $ | 43,148 |
| | 1.99 |
| | $ | 207,336 |
| | 3.33 |
| | $ | 314,810 |
| | 2.73 |
| $ | 16,667 |
| | 1.12 |
| | $ | 39,555 |
| | 1.65 |
| | $ | 49,684 |
| | 2.21 |
| | $ | 204,502 |
| | 3.35 |
| | $ | 310,408 |
| | 2.83 |
|
Amortized cost of HTM debt securities (3)(2) | $ | — |
| | — |
| | $ | 24 |
| | 4.43 |
| | $ | 922 |
| | 2.39 |
| | $ | 115,087 |
| | 3.01 |
| | $ | 116,033 |
| | 3.01 |
| $ | 2 |
| | 4.35 |
| | $ | 67 |
| | 3.84 |
| | $ | 1,358 |
| | 2.74 |
| | $ | 122,112 |
| | 3.04 |
| | $ | 123,539 |
| | 3.04 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Debt securities carried at fair value | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Mortgage-backed securities: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Agency | $ | 4 |
| | |
| | $ | 49 |
| | |
| | $ | 350 |
| | |
| | $ | 188,640 |
| | |
| | $ | 189,043 |
| | |
| $ | 2 |
| | |
| | $ | 27 |
| | |
| | $ | 512 |
| | |
| | $ | 183,570 |
| | |
| | $ | 184,111 |
| | |
|
| Agency-collateralized mortgage obligations | — |
| | |
| | — |
| | |
| | — |
| | |
| | 7,882 |
| | |
| | 7,882 |
| | |
| — |
| | |
| | — |
| | |
| | 31 |
| | |
| | 6,367 |
| | |
| | 6,398 |
| | |
|
| Commercial | 48 |
| | |
| | 543 |
| | |
| | 11,446 |
| | |
| | 535 |
| | |
| | 12,572 |
| | |
| 54 |
| | |
| | 1,635 |
| | |
| | 10,973 |
| | |
| | 897 |
| | |
| | 13,559 |
| | |
|
| Non-agency residential | — |
| | |
| | — |
| | |
| | 40 |
| | |
| | 4,985 |
| | |
| | 5,025 |
| | |
| — |
| | |
| | — |
| | |
| | 32 |
| | |
| | 5,308 |
| | |
| | 5,340 |
| | |
|
| Total mortgage-backed securities | 52 |
| | | | 592 |
| | | | 11,836 |
| | | | 202,042 |
| | | | 214,522 |
| | | 56 |
| | | | 1,662 |
| | | | 11,548 |
| | | | 196,142 |
| | | | 209,408 |
| | |
| U.S. Treasury and agency securities | 697 |
| | | | 29,297 |
| | | | 20,443 |
| | | | 121 |
| | | | 50,558 |
| | | 541 |
| | | | 25,460 |
| | | | 26,950 |
| | | | 21 |
| | | | 52,972 |
| | |
Non-U.S. securities (2) | 18,722 |
| | |
| | 1,261 |
| | |
| | 31 |
| | |
| | 221 |
| | |
| | 20,235 |
| | |
| |
| Non-U.S. securities | | 14,403 |
| | |
| | 2,125 |
| | |
| | 214 |
| | |
| | 159 |
| | |
| | 16,901 |
| | |
|
| Other taxable securities, substantially all asset-backed securities | 2,359 |
| | |
| | 4,307 |
| | |
| | 1,963 |
| | |
| | 1,424 |
| | |
| | 10,053 |
| | |
| 967 |
| | |
| | 2,493 |
| | |
| | 1,122 |
| | |
| | 358 |
| | |
| | 4,940 |
| | |
|
| Total taxable securities | 21,830 |
| | |
| | 35,457 |
| | |
| | 34,273 |
| | |
| | 203,808 |
| | |
| | 295,368 |
| | |
| 15,967 |
| | |
| | 31,740 |
| | |
| | 39,834 |
| | |
| | 196,680 |
| | |
| | 284,221 |
| | |
|
| Tax-exempt securities | 603 |
| | |
| | 6,287 |
| | |
| | 8,234 |
| | |
| | 2,211 |
| | |
| | 17,335 |
| | |
| 691 |
| | |
| | 6,930 |
| | |
| | 8,582 |
| | |
| | 2,874 |
| | |
| | 19,077 |
| | |
|
Total debt securities carried at fair value (2) | $ | 22,433 |
| | |
| | $ | 41,744 |
| | |
| | $ | 42,507 |
| | |
| | $ | 206,019 |
| | |
| | $ | 312,703 |
| | |
| $ | 16,658 |
| | |
| | $ | 38,670 |
| | |
| | $ | 48,416 |
| | |
| | $ | 199,554 |
| | |
| | $ | 303,298 |
| | |
|
Fair value of HTM debt securities (3)(2) | $ | — |
| | | | $ | 24 |
| | | | $ | 885 |
| | | | $ | 113,094 |
| | | | $ | 114,003 |
| | | $ | 2 |
| | | | $ | 67 |
| | | | $ | 1,307 |
| | | | $ | 117,756 |
| | | | $ | 119,132 |
| | |
| |
(1) | The average yield is computed based on a constant effective interest rate over the contractual life of each security. The average yield considers the contractual coupon and the amortization of premiums and accretion of discounts, excluding the effect of related hedging derivatives. |
| |
(2) | Includes $691 million of amortized cost and fair value for AFS debt securities of business held for sale on the Consolidated Balance Sheet at March 31, 2017. These AFS debt securities mature in one year or less and have an average yield of 0.13 percent.
|
| |
(3)
| Substantially all U.S. agency MBS. |
81 |
| | |
| | Bank of America68Bank of America
|
NOTE 45Outstanding Loans and Leases
The following tables present total outstanding loans and leases and an aging analysis for the Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at March 31, 20172018 and December 31, 2016.
In connection with an agreement to sell the Corporation's non-U.S. consumer credit card business, this business, which includes
$9.5 billion and $9.2 billion of non-U.S. credit card loans and related allowance for loan and lease losses of $242 million and $243 million, was reclassified to assets of business held for sale on the Consolidated Balance Sheet as of March 31, 2017 and December 31, 2016. In this Note, all applicable amounts include these balances, unless otherwise noted. For additional information, see Note 1 – Summary of Significant Accounting Principles.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2017 | 30-59 Days Past Due (1) | | 60-89 Days Past Due (1) | | 90 Days or
More Past Due (2) | | Total Past
Due 30 Days or More | | Total Current or Less Than 30 Days Past Due (3) | | Purchased
Credit-impaired (4) | | Loans Accounted for Under the Fair Value Option | | Total Outstandings |
| (Dollars in millions) | 30-59 Days Past Due (1) | | 60-89 Days Past Due (1) | | 90 Days or
More Past Due (2) | | Total Past
Due 30 Days or More | | Total Current or Less Than 30 Days Past Due (3) | | Purchased
Credit-impaired (4) | | Loans Accounted for Under the Fair Value Option | | Total Outstandings | March 31, 2018 |
| Consumer real estate | |
| | | | |
| | |
| | |
| | |
| | |
| | |
| |
| | | | |
| | |
| | |
| | |
| | |
| | |
|
| Core portfolio | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 1,013 |
| | $ | 313 |
| | $ | 1,125 |
| | $ | 2,451 |
| | $ | 157,908 |
| | �� | | | | $ | 160,359 |
| $ | 1,080 |
| | $ | 284 |
| | $ | 962 |
| | $ | 2,326 |
| | $ | 177,252 |
| | | | | | $ | 179,578 |
|
| Home equity | 220 |
| | 109 |
| | 411 |
| | 740 |
| | 46,990 |
| | | | | | 47,730 |
| 202 |
| | 119 |
| | 491 |
| | 812 |
| | 41,756 |
| | | | | | 42,568 |
|
| Non-core portfolio | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential mortgage (5) | 1,077 |
| | 553 |
| | 4,683 |
| | 6,313 |
| | 17,340 |
| | $ | 9,831 |
| | | | 33,484 |
| 852 |
| | 406 |
| | 3,106 |
| | 4,364 |
| | 12,580 |
| | $ | 7,590 |
| | | | 24,534 |
|
| Home equity | 251 |
| | 126 |
| | 763 |
| | 1,140 |
| | 11,649 |
| | 3,396 |
| | | | 16,185 |
| 193 |
| | 114 |
| | 549 |
| | 856 |
| | 9,339 |
| | 2,545 |
| | | | 12,740 |
|
| Credit card and other consumer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. credit card | 459 |
| | 320 |
| | 801 |
| | 1,580 |
| | 86,972 |
| | | | | | 88,552 |
| 515 |
| | 355 |
| | 925 |
| | 1,795 |
| | 91,219 |
| | | | | | 93,014 |
|
| Non-U.S. credit card | 38 |
| | 28 |
| | 71 |
| | 137 |
| | 9,368 |
| | | | | | 9,505 |
| |
Direct/Indirect consumer (6) | 218 |
| | 64 |
| | 32 |
| | 314 |
| | 92,480 |
| | | | | | 92,794 |
| 253 |
| | 73 |
| | 41 |
| | 367 |
| | 90,846 |
| | | | | | 91,213 |
|
Other consumer (7) | 17 |
| | 6 |
| | 5 |
| | 28 |
| | 2,511 |
| | | | | | 2,539 |
| 9 |
| | 2 |
| | 1 |
| | 12 |
| | 2,848 |
| | | | | | 2,860 |
|
| Total consumer | 3,293 |
| | 1,519 |
| | 7,891 |
| | 12,703 |
| | 425,218 |
| | 13,227 |
| | | | 451,148 |
| 3,104 |
| | 1,353 |
| | 6,075 |
| | 10,532 |
| | 425,840 |
| | 10,135 |
| | | | 446,507 |
|
Consumer loans accounted for under the fair value option (8) | |
| | |
| | |
| | |
| | |
| | |
| | $ | 1,032 |
| | 1,032 |
| |
| | |
| | |
| | |
| | |
| | |
| | $ | 894 |
| | 894 |
|
| Total consumer loans and leases | 3,293 |
| | 1,519 |
| | 7,891 |
| | 12,703 |
| | 425,218 |
| | 13,227 |
| | 1,032 |
| | 452,180 |
| 3,104 |
| | 1,353 |
| | 6,075 |
| | 10,532 |
| | 425,840 |
| | 10,135 |
| | 894 |
| | 447,401 |
|
| Commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. commercial | 650 |
| | 639 |
| | 363 |
| | 1,652 |
| | 273,216 |
| | | | | | 274,868 |
| 773 |
| | 173 |
| | 416 |
| | 1,362 |
| | 287,114 |
| | | | | | 288,476 |
|
| Non-U.S. commercial | | 36 |
| | — |
| | — |
| | 36 |
| | 97,329 |
| | | | | | 97,365 |
|
Commercial real estate (9) | 25 |
| | — |
| | 48 |
| | 73 |
| | 57,776 |
| | | | | | 57,849 |
| 159 |
| | — |
| | 37 |
| | 196 |
| | 59,889 |
| | | | | | 60,085 |
|
| Commercial lease financing | 157 |
| | 29 |
| | 10 |
| | 196 |
| | 21,677 |
| | | | | | 21,873 |
| 173 |
| | 29 |
| | 27 |
| | 229 |
| | 21,535 |
| | | | | | 21,764 |
|
| Non-U.S. commercial | 189 |
| | 127 |
| | 45 |
| | 361 |
| | 88,818 |
| | | | | | 89,179 |
| |
| U.S. small business commercial | 72 |
| | 39 |
| | 78 |
| | 189 |
| | 13,113 |
| | | | | | 13,302 |
| 79 |
| | 43 |
| | 87 |
| | 209 |
| | 13,683 |
| | | | | | 13,892 |
|
| Total commercial | 1,093 |
| | 834 |
| | 544 |
| | 2,471 |
| | 454,600 |
| | | | | | 457,071 |
| 1,220 |
| | 245 |
| | 567 |
| | 2,032 |
| | 479,550 |
| | | | | | 481,582 |
|
Commercial loans accounted for under the fair value option (8) | |
| | |
| | |
| | |
| | |
| | |
| | 6,496 |
| | 6,496 |
| |
| | |
| | |
| | |
| | |
| | |
| | 5,095 |
| | 5,095 |
|
| Total commercial loans and leases | 1,093 |
| | 834 |
| | 544 |
| | 2,471 |
| | 454,600 |
| | | | 6,496 |
| | 463,567 |
| 1,220 |
| | 245 |
| | 567 |
| | 2,032 |
| | 479,550 |
| | | | 5,095 |
| | 486,677 |
|
Total consumer and commercial loans and leases (10) | $ | 4,386 |
| | $ | 2,353 |
| | $ | 8,435 |
| | $ | 15,174 |
| | $ | 879,818 |
| | $ | 13,227 |
| | $ | 7,528 |
| | $ | 915,747 |
| |
Less: Loans of business held for sale (10) | | | | | | | | | | | | | | | (9,505 | ) | |
Total loans and leases (11) | | | | | | | | | | | | | | | $ | 906,242 |
| |
Percentage of outstandings (10) | 0.48 | % | | 0.26 | % | | 0.92 | % | | 1.66 | % | | 96.08 | % | | 1.44 | % | | 0.82 | % | | 100.00 | % | |
Total loans and leases (10) | | $ | 4,324 |
| | $ | 1,598 |
| | $ | 6,642 |
| | $ | 12,564 |
| | $ | 905,390 |
| | $ | 10,135 |
| | $ | 5,989 |
| | $ | 934,078 |
|
| Percentage of outstandings | | 0.47 | % | | 0.17 | % | | 0.71 | % | | 1.35 | % | | 96.93 | % | | 1.08 | % | | 0.64 | % | | 100.00 | % |
| |
(1) | Consumer real estate loans 30-59 days past due includes fully-insured loans of $845689 million and nonperforming loans of $259267 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $460341 million and nonperforming loans of $210200 million. |
| |
(2) | Consumer real estate includes fully-insured loans of $4.22.9 billion. |
| |
(3) | Consumer real estate includes $2.32.2 billion and direct/indirect consumer includes $1843 million of nonperforming loans. |
| |
(4) | Purchased credit-impaired (PCI) loan amounts are shown gross of the valuation allowance. |
| |
(5) | Total outstandings includes pay option loans of $1.81.3 billion. The Corporation no longer originates this product. |
| |
(6) | Total outstandings includes auto and specialty lending loans of $48.749.1 billion, unsecured consumer lending loans of $530428 million, U.S. securities-based lending loans of $39.538.1 billion, non-U.S. consumer loans of $2.9 billion, student loans of $479 million and other consumer loans of $644676 million. |
| |
(7) | Total outstandings includes consumer finance loans of $441 million, consumer leases of $2.02.7 billion and consumer overdrafts of $124129 million. |
| |
(8) | Consumer loans accounted for under the fair value option wereincludes residential mortgage loans of $694523 million and home equity loans of $338371 million. Commercial loans accounted for under the fair value option wereincludes U.S. commercial loans of $3.53.2 billion and non-U.S. commercial loans of $3.01.9 billion. For additionalmore information, see Note 14 – Fair Value Measurements and Note 15 – Fair Value Option. |
| |
(9) | Total outstandings includes U.S. commercial real estate loans of $54.755.6 billion and non-U.S. commercial real estate loans of $3.14.5 billion. |
| |
(10) | Total outstandings Includes non-U.S. credit card loans which are included in assetsand leases pledged as collateral of business held for sale on the Consolidated Balance Sheet. |
| |
(11)$47.8 billion
| . The Corporation also pledged $144.4151.4 billion of loans with no related outstanding borrowings to secure potential borrowing capacity with the Federal Reserve Bank and Federal Home Loan Bank (FHLB). This amount is not included in the parenthetical disclosure of loans and leases pledged as collateral on the Consolidated Balance Sheet as there were no related outstanding borrowings. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | 30-59 Days
Past Due (1) | | 60-89 Days Past Due (1) | | 90 Days or
More
Past Due (2) | | Total Past
Due 30 Days
or More | | Total Current or Less Than 30 Days Past Due (3) | | Purchased
Credit-impaired (4) | | Loans Accounted for Under the Fair Value Option | | Total Outstandings |
| (Dollars in millions) | 30-59 Days
Past Due (1) | | 60-89 Days Past Due (1) | | 90 Days or
More
Past Due (2) | | Total Past
Due 30 Days
or More | | Total Current or Less Than 30 Days Past Due (3) | | Purchased
Credit-impaired (4) | | Loans Accounted for Under the Fair Value Option | | Total Outstandings | December 31, 2017 |
| Consumer real estate | |
| | | | |
| | |
| | |
| | |
| | |
| | |
| |
| | | | |
| | |
| | |
| | |
| | |
| | |
|
| Core portfolio | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 1,340 |
| | $ | 425 |
| | $ | 1,213 |
| | $ | 2,978 |
| | $ | 153,519 |
| |
|
| | |
| | $ | 156,497 |
| $ | 1,242 |
| | $ | 321 |
| | $ | 1,040 |
| | $ | 2,603 |
| | $ | 174,015 |
| | | | |
| | $ | 176,618 |
|
| Home equity | 239 |
| | 105 |
| | 451 |
| | 795 |
| | 48,578 |
| |
|
| | |
| | 49,373 |
| 215 |
| | 108 |
| | 473 |
| | 796 |
| | 43,449 |
| | | | |
| | 44,245 |
|
| Non-core portfolio | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Residential mortgage (5) | 1,338 |
| | 674 |
| | 5,343 |
| | 7,355 |
| | 17,818 |
| | $ | 10,127 |
| | |
| | 35,300 |
| 1,028 |
| | 468 |
| | 3,535 |
| | 5,031 |
| | 14,161 |
| | $ | 8,001 |
| | |
| | 27,193 |
|
| Home equity | 260 |
| | 136 |
| | 832 |
| | 1,228 |
| | 12,231 |
| | 3,611 |
| | |
| | 17,070 |
| 224 |
| | 121 |
| | 572 |
| | 917 |
| | 9,866 |
| | 2,716 |
| | |
| | 13,499 |
|
| Credit card and other consumer | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| U.S. credit card | 472 |
| | 341 |
| | 782 |
| | 1,595 |
| | 90,683 |
| | | | |
| | 92,278 |
| 542 |
| | 405 |
| | 900 |
| | 1,847 |
| | 94,438 |
| | | | |
| | 96,285 |
|
| Non-U.S. credit card | 37 |
| | 27 |
| | 66 |
| | 130 |
| | 9,084 |
| | | | |
| | 9,214 |
| |
Direct/Indirect consumer (6) | 272 |
| | 79 |
| | 34 |
| | 385 |
| | 93,704 |
| | | | |
| | 94,089 |
| 320 |
| | 102 |
| | 43 |
| | 465 |
| | 93,365 |
| | | | |
| | 93,830 |
|
Other consumer (7) | 26 |
| | 8 |
| | 6 |
| | 40 |
| | 2,459 |
| | | | |
| | 2,499 |
| 10 |
| | 2 |
| | 1 |
| | 13 |
| | 2,665 |
| | | | |
| | 2,678 |
|
| Total consumer | 3,984 |
| | 1,795 |
| | 8,727 |
| | 14,506 |
| | 428,076 |
| | 13,738 |
| | |
| 456,320 |
| 3,581 |
| | 1,527 |
| | 6,564 |
| | 11,672 |
| | 431,959 |
| | 10,717 |
| | |
| 454,348 |
|
Consumer loans accounted for under the fair value option (8) | | | | | | | | | | | | | $ | 1,051 |
|
| 1,051 |
| | | | | | | | | | | | | $ | 928 |
|
| 928 |
|
| Total consumer loans and leases | 3,984 |
| | 1,795 |
| | 8,727 |
| | 14,506 |
| | 428,076 |
| | 13,738 |
| | 1,051 |
| | 457,371 |
| 3,581 |
| | 1,527 |
| | 6,564 |
| | 11,672 |
| | 431,959 |
| | 10,717 |
| | 928 |
| | 455,276 |
|
| Commercial | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| U.S. commercial | 952 |
| | 263 |
| | 400 |
| | 1,615 |
| | 268,757 |
| | | | |
| | 270,372 |
| 547 |
| | 244 |
| | 425 |
| | 1,216 |
| | 283,620 |
| | | | |
| | 284,836 |
|
| Non-U.S. commercial | | 52 |
| | 1 |
| | 3 |
| | 56 |
| | 97,736 |
| | | | |
| | 97,792 |
|
Commercial real estate (9) | 20 |
| | 10 |
| | 56 |
| | 86 |
| | 57,269 |
| | | | |
| | 57,355 |
| 48 |
| | 10 |
| | 29 |
| | 87 |
| | 58,211 |
| | | | |
| | 58,298 |
|
| Commercial lease financing | 167 |
| | 21 |
| | 27 |
| | 215 |
| | 22,160 |
| | | | |
| | 22,375 |
| 110 |
| | 68 |
| | 26 |
| | 204 |
| | 21,912 |
| | | | |
| | 22,116 |
|
| Non-U.S. commercial | 348 |
| | 4 |
| | 5 |
| | 357 |
| | 89,040 |
| | | | |
| | 89,397 |
| |
| U.S. small business commercial | 96 |
| | 49 |
| | 84 |
| | 229 |
| | 12,764 |
| | | | |
| | 12,993 |
| 95 |
| | 45 |
| | 88 |
| | 228 |
| | 13,421 |
| | | | |
| | 13,649 |
|
| Total commercial | 1,583 |
| | 347 |
| | 572 |
| | 2,502 |
| | 449,990 |
| | | | |
| | 452,492 |
| 852 |
| | 368 |
| | 571 |
| | 1,791 |
| | 474,900 |
| | | | |
| | 476,691 |
|
Commercial loans accounted for under the fair value option (8) | | | | | | | | | | | | | 6,034 |
| | 6,034 |
| | | | | | | | | | | | | 4,782 |
| | 4,782 |
|
| Total commercial loans and leases | 1,583 |
| | 347 |
| | 572 |
| | 2,502 |
| | 449,990 |
| | | | 6,034 |
| | 458,526 |
| 852 |
| | 368 |
| | 571 |
| | 1,791 |
| | 474,900 |
| | | | 4,782 |
| | 481,473 |
|
Total consumer and commercial loans and leases (10) | $ | 5,567 |
| | $ | 2,142 |
| | $ | 9,299 |
| | $ | 17,008 |
| | $ | 878,066 |
| | $ | 13,738 |
| | $ | 7,085 |
| | $ | 915,897 |
| |
Less: Loans of business held for sale (10) | | | | | | | | | | | | | | | (9,214 | ) | |
Total loans and leases (11) | | | | | | | | | | | | | | | $ | 906,683 |
| |
Percentage of outstandings (10) | 0.61 | % | | 0.23 | % | | 1.02 | % | | 1.86 | % | | 95.87 | % | | 1.50 | % | | 0.77 | % | | 100.00 | % | |
Total loans and leases (10) | | $ | 4,433 |
| | $ | 1,895 |
| | $ | 7,135 |
| | $ | 13,463 |
| | $ | 906,859 |
| | $ | 10,717 |
| | $ | 5,710 |
| | $ | 936,749 |
|
| Percentage of outstandings | | 0.48 | % | | 0.20 | % | | 0.76 | % | | 1.44 | % | | 96.81 | % | | 1.14 | % | | 0.61 | % | | 100.00 | % |
| |
(1) | Consumer real estate loans 30-59 days past due includes fully-insured loans of $1.1 billion850 million and nonperforming loans of $266253 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $547386 million and nonperforming loans of $216195 million. |
| |
(2) | Consumer real estate includes fully-insured loans of $4.83.2 billion. |
| |
(3) | Consumer real estate includes $2.52.3 billion and direct/indirect consumer includes $2743 million of nonperforming loans. |
| |
(4) | PCI loan amounts are shown gross of the valuation allowance. |
| |
(5) | Total outstandings includes pay option loans of $1.81.4 billion. The Corporation no longer originates this product. |
| |
(6) | Total outstandings includes auto and specialty lending loans of $48.949.9 billion, unsecured consumer lending loans of $585469 million, U.S. securities-based lending loans of $40.139.8 billion, non-U.S. consumer loans of $3.0 billion, student loans of $497 million and other consumer loans of $1.1 billion684 million. |
| |
(7) | Total outstandings includes consumer finance loans of $465 million, consumer leases of $1.92.5 billion and consumer overdrafts of $157163 million. |
| |
(8) | Consumer loans accounted for under the fair value option wereincludes residential mortgage loans of $710567 million and home equity loans of $341361 million. Commercial loans accounted for under the fair value option wereincludes U.S. commercial loans of $2.92.6 billion and non-U.S. commercial loans of $3.12.2 billion. For more information, see Note 14 – Fair Value Measurements and Note 15 – Fair Value Option. |
| |
(9) | Total outstandings includes U.S. commercial real estate loans of $54.354.8 billion and non-U.S. commercial real estate loans of $3.13.5 billion. |
| |
(10) | Total outstandings Includes non-U.S. credit card loans which are included in assetsand leases pledged as collateral of business held for sale on the Consolidated Balance Sheet. |
| |
(11)$40.1 billion
| . The Corporation also pledged $143.1160.3 billion of loans with no related outstanding borrowings to secure potential borrowing capacity with the Federal Reserve Bank and FHLB. This amount is not included in the parenthetical disclosure of loans and leases pledged as collateral on the Consolidated Balance Sheet as there were no related outstanding borrowings. |
The Corporation categorizes consumer real estate loans as core and non-core based on loan and customer characteristics such as origination date, product type, LTV, FICO score and delinquency status consistent with its current consumer and mortgage servicing strategy. Generally, loans that were originated after January 1, 2010, qualified under government-sponsored enterprise (GSE) underwriting guidelines, or otherwise met the Corporation'sCorporation’s underwriting guidelines in place in 2015 are characterized as core loans. Loans held in legacy private-label securitizations, government-insuredAll other loans originated prior to 2010, loan products no longer originated, and loans originated prior to 2010 and classified as nonperforming or modified in a troubled debt restructuring (TDR) prior to 2016 are generally characterized as non-core loans and are principallyrepresent run-off portfolios.
The Corporation has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling $6.66.2 billion and $6.46.3 billion at March 31, 20172018 and December 31, 2016,2017, providing full credit protection on residential mortgage loans that become severely delinquent. All of these loans are individually insured and therefore the Corporation does not record an allowance for credit losses related to these loans.
Nonperforming Loans and Leases
The Corporation classifies junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. At March 31, 20172018 and
December 31, 2016, $4122017, $294 million and $428$330 million of such junior-lien home equity loans were included in nonperforming loans.
The Corporation classifies consumer real estate loans that have been discharged in Chapter 7 bankruptcy and not reaffirmed by the borrower as TDRs,troubled debt restructurings (TDRs), irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified. The Corporation continues to have a lien on the underlying collateral. At March 31, 2017,2018, nonperforming loans discharged in Chapter 7 bankruptcy with no change in repayment terms were $517$299 million of which $320$165 million were current on their contractual payments, while $166$113 million were 90 days or more past due. Of the contractually current nonperforming loans, approximately 8362 percent were discharged in Chapter 7 bankruptcy over 12 months ago, and approximately 7353 percent were discharged 24 months or more ago.
During the three months ended March 31, 20172018 and 2016,2017, the Corporation sold nonperforming and other delinquent consumer real estate loans with a carrying value of $378 million and $142 million, including $109 million and $1.0 billion, including $0 and $174 million of PCI loans. The Corporation recorded net recoveries of $11$20 million and net charge-offs of $40$11 million related to these sales for the three months
ended March 31, 2017 and 2016.sales. Gains related to these sales of $6$16 million and $31$6 million were recorded in other income in the Consolidated
Statement of Income for the three months ended March 31, 2017 and 2016.Income. During the three months ended March 31, 2018 and 2017, the Corporation transferred consumer nonperforming loans with a net carrying value of $2 million and $221 million to held-for-sale. There were no transfers of nonperforming loans to held-for-saleheld for the same period in 2016.sale.
The table below presents the Corporation’s nonperforming loans and leases including nonperforming TDRs, and loans accruing past due 90 days or more at March 31, 20172018 and
December 31, 2016.2017. Nonperforming loans held-for-sale (LHFS) are excluded from nonperforming loans and leases as they are recorded at either fair value or the lower of cost or fair value. For more information on the criteria for classification as nonperforming, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
| | | | | | | | | | | | | | | | | |
| Credit Quality | Credit Quality | | | Credit Quality | | |
| | | | | | | | | | | | | | | |
| | Nonperforming Loans and Leases | | Accruing Past Due 90 Days or More | Nonperforming Loans and Leases | | Accruing Past Due 90 Days or More |
| (Dollars in millions) | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 | March 31
2018 | | December 31
2017 | | March 31
2018 | | December 31
2017 |
| Consumer real estate | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Core portfolio | | | | | | | | | | | | | | |
Residential mortgage (1) | $ | 1,099 |
| | $ | 1,274 |
| | $ | 443 |
| | $ | 486 |
| $ | 1,073 |
| | $ | 1,087 |
| | $ | 385 |
| | $ | 417 |
|
| Home equity | 939 |
| | 969 |
| | — |
| | — |
| 1,118 |
| | 1,079 |
| | — |
| | — |
|
| Non-core portfolio | |
| | |
| | |
| | | |
| | |
| | |
| | |
Residential mortgage (1) | 1,630 |
| | 1,782 |
| | 3,783 |
| | 4,307 |
| 1,189 |
| | 1,389 |
| | 2,500 |
| | 2,813 |
|
| Home equity | 1,857 |
| | 1,949 |
| | — |
| | — |
| 1,480 |
| | 1,565 |
| | — |
| | — |
|
| Credit card and other consumer | |
| | |
| | | | | |
| | |
| | | | |
| U.S. credit card | n/a |
| | n/a |
| | 801 |
| | 782 |
| n/a |
| | n/a |
| | 925 |
| | 900 |
|
| Non-U.S. credit card | n/a |
| | n/a |
| | 71 |
| | 66 |
| |
| Direct/Indirect consumer | 19 |
| | 28 |
| | 31 |
| | 34 |
| 46 |
| | 46 |
| | 38 |
| | 40 |
|
| Other consumer | 2 |
| | 2 |
| | 4 |
| | 4 |
| — |
| | — |
| | 1 |
| | — |
|
| Total consumer | 5,546 |
| | 6,004 |
| | 5,133 |
| | 5,679 |
| 4,906 |
| | 5,166 |
| | 3,849 |
| | 4,170 |
|
| Commercial | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| U.S. commercial | 1,246 |
| | 1,256 |
| | 112 |
| | 106 |
| 1,059 |
| | 814 |
| | 98 |
| | 144 |
|
| Non-U.S. commercial | | 255 |
| | 299 |
| | — |
| | 3 |
|
| Commercial real estate | 74 |
| | 72 |
| | — |
| | 7 |
| 73 |
| | 112 |
| | 13 |
| | 4 |
|
| Commercial lease financing | 37 |
| | 36 |
| | 9 |
| | 19 |
| 27 |
| | 24 |
| | 8 |
| | 19 |
|
| Non-U.S. commercial | 311 |
| | 279 |
| | 45 |
| | 5 |
| |
| U.S. small business commercial | 60 |
| | 60 |
| | 69 |
| | 71 |
| 58 |
| | 55 |
| | 76 |
| | 75 |
|
| Total commercial | 1,728 |
| | 1,703 |
| | 235 |
| | 208 |
| 1,472 |
| | 1,304 |
| | 195 |
| | 245 |
|
| Total loans and leases | $ | 7,274 |
| | $ | 7,707 |
| | $ | 5,368 |
| | $ | 5,887 |
| $ | 6,378 |
| | $ | 6,470 |
| | $ | 4,044 |
| | $ | 4,415 |
|
| |
(1) | Residential mortgage loans in the core and non-core portfolios accruing past due 90 days or more are fully-insured loans. At March 31, 20172018 and December 31, 20162017, residential mortgage includes $2.72.0 billion and $3.02.2 billion of loans on which interest has been curtailed by the Federal Housing Administration (FHA), and therefore are no longer accruing interest, although principal is still insured, and $1.5 billion885 million and $1.81.0 billion of loans on which interest is still accruing. |
n/a = not applicable
Credit Quality Indicators
The Corporation monitors credit quality within its Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments based on primary credit quality indicators. For more information on the portfolio segments and their related credit quality indicators, see Significant Accounting Principles – Loans and Leases in Note 1 – Summary of Significant Accounting
Principles and Credit Quality Indicators in Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K. Within the Consumer Real Estate portfolio segment, the primary credit quality indicators are refreshed LTV and refreshed FICO score. Refreshed LTV measures the carrying value of the loan as a percentage of the value of the property securing the loan, refreshed quarterly. Home equity loans are evaluated using combined loan-to-value (CLTV) which measures the carrying value
of the Corporation’s loan and available line of credit combined with any outstanding senior liens against the property as a percentage of the value of the property securing the loan, refreshed quarterly. FICO score measures the creditworthiness of the borrower based on the financial obligations of the borrower and the borrower’s credit history. FICO scores are typically refreshed quarterly or more frequently. Certain borrowers (e.g., borrowers that have had debts discharged in a bankruptcy proceeding) may not have their FICO scores updated. FICO scores are also a primary credit quality indicator for the Credit Card and Other Consumer portfolio segment and the business card portfolio within U.S. small business commercial. Within the Commercial portfolio segment, loans are evaluated using the internal classifications of pass rated or
reservable criticized as the primary credit quality indicators. The term reservable criticized refers to those commercial loans that are internally classified or listed by the Corporation as Special Mention, Substandard or Doubtful, which are asset quality categories defined by regulatory authorities. These assets have an elevated level of risk and may have a high probability of default or total loss. Pass rated refers to all loans not considered
reservable criticized. In addition to these primary credit quality indicators, the Corporation uses other credit quality indicators for certain types of loans.
The following tables present certain credit quality indicators for the Corporation’s Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at March 31, 20172018 and December 31, 2016.2017.
| | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer Real Estate – Credit Quality Indicators (1) | Consumer Real Estate – Credit Quality Indicators (1) | Consumer Real Estate – Credit Quality Indicators (1) |
| | | | | | | | | | | | | |
| | March 31, 2017 | Core Residential Mortgage (2) | | Non-core Residential
Mortgage (2) | | Residential Mortgage PCI (3) | | Core Home Equity (2) | | Non-core Home Equity (2) | | Home Equity PCI |
| (Dollars in millions) | Core Portfolio Residential Mortgage (2) | | Non-core Residential
Mortgage (2) | | Residential Mortgage PCI (3) | | Core Portfolio Home Equity (2) | | Non-core Home Equity (2) | | Home Equity PCI | March 31, 2018 |
Refreshed LTV (4) | |
| | |
| | |
| | |
| | | | | |
| | |
| | |
| | |
| | | | |
| Less than or equal to 90 percent | $ | 134,410 |
| | $ | 13,745 |
| | $ | 7,762 |
| | $ | 45,750 |
| | $ | 8,358 |
| | $ | 1,884 |
| $ | 157,236 |
| | $ | 10,484 |
| | $ | 6,535 |
| | $ | 41,498 |
| | $ | 7,629 |
| | $ | 1,691 |
|
| Greater than 90 percent but less than or equal to 100 percent | 3,509 |
| | 1,318 |
| | 944 |
| | 912 |
| | 1,541 |
| | 582 |
| 3,046 |
| | 783 |
| | 530 |
| | 488 |
| | 985 |
| | 379 |
|
| Greater than 100 percent | 1,741 |
| | 1,728 |
| | 1,125 |
| | 1,068 |
| | 2,890 |
| | 930 |
| 1,357 |
| | 907 |
| | 525 |
| | 582 |
| | 1,581 |
| | 475 |
|
Fully-insured loans (5) | 20,699 |
| | 6,862 |
| | — |
| | — |
| | — |
| | — |
| 17,939 |
| | 4,770 |
| | — |
| | — |
| | — |
| | — |
|
| Total consumer real estate | $ | 160,359 |
| | $ | 23,653 |
| | $ | 9,831 |
| | $ | 47,730 |
| | $ | 12,789 |
| | $ | 3,396 |
| $ | 179,578 |
| | $ | 16,944 |
| | $ | 7,590 |
| | $ | 42,568 |
| | $ | 10,195 |
| | $ | 2,545 |
|
| Refreshed FICO score | | | | | | | | | | | | | | | | | | | | | | |
| Less than 620 | $ | 2,403 |
| | $ | 2,987 |
| | $ | 2,643 |
| | $ | 1,214 |
| | $ | 2,566 |
| | $ | 533 |
| $ | 2,183 |
| | $ | 2,060 |
| | $ | 1,790 |
| | $ | 1,165 |
| | $ | 1,976 |
| | $ | 425 |
|
| Greater than or equal to 620 and less than 680 | 5,039 |
| | 2,620 |
| | 2,118 |
| | 2,738 |
| | 2,908 |
| | 597 |
| 4,417 |
| | 1,771 |
| | 1,530 |
| | 2,261 |
| | 2,243 |
| | 425 |
|
| Greater than or equal to 680 and less than 740 | 22,530 |
| | 4,293 |
| | 2,834 |
| | 9,495 |
| | 3,068 |
| | 998 |
| 22,407 |
| | 2,988 |
| | 2,273 |
| | 7,685 |
| | 2,592 |
| | 729 |
|
| Greater than or equal to 740 | 109,688 |
| | 6,891 |
| | 2,236 |
| | 34,283 |
| | 4,247 |
| | 1,268 |
| 132,632 |
| | 5,355 |
| | 1,997 |
| | 31,457 |
| | 3,384 |
| | 966 |
|
Fully-insured loans (5) | 20,699 |
| | 6,862 |
| | — |
| | — |
| | — |
| | — |
| 17,939 |
| | 4,770 |
| | — |
| | — |
| | — |
| | — |
|
| Total consumer real estate | $ | 160,359 |
| | $ | 23,653 |
| | $ | 9,831 |
| | $ | 47,730 |
| | $ | 12,789 |
| | $ | 3,396 |
| $ | 179,578 |
| | $ | 16,944 |
| | $ | 7,590 |
| | $ | 42,568 |
| | $ | 10,195 |
| | $ | 2,545 |
|
| |
(1) | Excludes $1.0 billion894 million of loans accounted for under the fair value option. |
| |
(3) | Includes $1.51.1 billion of pay option loans. The Corporation no longer originates this product. |
| |
(4) | Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance. |
| |
(5) | Credit quality indicators are not reported for fully-insured loans as principal repayment is insured. |
| | | | | | | | | | | | | | | |
Credit Card and Other Consumer – Credit Quality Indicators | | | | | | | | |
| | March 31, 2017 | U.S. Credit Card | | Direct/Indirect Consumer | | Other Consumer |
| (Dollars in millions) | U.S. Credit Card | | Non-U.S. Credit Card | | Direct/Indirect Consumer | | Other Consumer (1) | March 31, 2018 |
| Refreshed FICO score | |
| | |
| | |
| | |
| |
| | |
| | |
|
| Less than 620 | $ | 4,432 |
| | $ | — |
| | $ | 1,572 |
| | $ | 182 |
| $ | 4,704 |
| | $ | 1,635 |
| | $ | 57 |
|
| Greater than or equal to 620 and less than 680 | 12,033 |
| | — |
| | 2,112 |
| | 220 |
| 12,052 |
| | 1,902 |
| | 155 |
|
| Greater than or equal to 680 and less than 740 | 33,708 |
| | — |
| | 12,479 |
| | 414 |
| 34,673 |
| | 11,480 |
| | 429 |
|
| Greater than or equal to 740 | 38,379 |
| | — |
| | 33,051 |
| | 1,595 |
| 41,585 |
| | 34,467 |
| | 2,088 |
|
Other internal credit metrics (2, 3, 4) | — |
| | 9,505 |
| | 43,580 |
| | 128 |
| |
Other internal credit metrics (1, 2) | | — |
| | 41,729 |
| | 131 |
|
| Total credit card and other consumer | $ | 88,552 |
| | $ | 9,505 |
| | $ | 92,794 |
| | $ | 2,539 |
| $ | 93,014 |
| | $ | 91,213 |
| | $ | 2,860 |
|
| |
(1) | At March 31, 2017, 17 percent of the other consumer portfolio is associated with portfolios from certain consumer finance businesses that the Corporation previously exited.
|
| |
(2)
| Other internal credit metrics may include delinquency status, geography or other factors. |
| |
(3)(2)
| Direct/indirect consumer includes $42.541.1 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $481 million of loans the Corporation no longer originates, primarily student loans. |
| |
(4)
| Non-U.S. credit card represents the U.K. credit card portfolio which is evaluated using internal credit metrics, including delinquency status. At March 31, 2017, 98 percent of this portfolio was current or less than 30 days past due, one percent was 30-89 days past due and one percent was 90 days or more past due.risk.
|
| | | | | | | | | | | | | | | | | | | | | |
Commercial – Credit Quality Indicators (1) | Commercial – Credit Quality Indicators (1) | Commercial – Credit Quality Indicators (1) | | | | |
| | | | | | | | | | | |
| | March 31, 2017 | U.S. Commercial | | Non-U.S. Commercial | | Commercial Real Estate | | Commercial
Lease Financing | | U.S. Small
Business Commercial (2) |
| (Dollars in millions) | U.S. Commercial | | Commercial Real Estate | | Commercial
Lease Financing | | Non-U.S. Commercial | | U.S. Small
Business Commercial (2) | March 31, 2018 |
| Risk ratings | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Pass rated | $ | 265,602 |
| | $ | 57,464 |
| | $ | 21,045 |
| | $ | 85,761 |
| | $ | 398 |
| $ | 279,492 |
| | $ | 95,807 |
| | $ | 59,562 |
| | $ | 21,275 |
| | $ | 314 |
|
| Reservable criticized | 9,266 |
| | 385 |
| | 828 |
| | 3,418 |
| | 64 |
| 8,984 |
| | 1,558 |
| | 523 |
| | 489 |
| | 42 |
|
Refreshed FICO score (3) | | | | | | | | | |
| | | | | | | | | |
|
| Less than 620 | |
| | |
| | |
| | |
| | 217 |
| |
| | | | | | | | 238 |
|
| Greater than or equal to 620 and less than 680 | | | | | | | | | 609 |
| | | | | | | | | 648 |
|
| Greater than or equal to 680 and less than 740 | | | | | | | | | 1,802 |
| | | | | | | | | 1,926 |
|
| Greater than or equal to 740 | | | | | | | | | 3,402 |
| | | | | | | | | 3,869 |
|
Other internal credit metrics (3, 4) | | | | | | | | | 6,810 |
| | | | | | | | | 6,855 |
|
| Total commercial | $ | 274,868 |
| | $ | 57,849 |
| | $ | 21,873 |
| | $ | 89,179 |
| | $ | 13,302 |
| $ | 288,476 |
| | $ | 97,365 |
| | $ | 60,085 |
| | $ | 21,764 |
| | $ | 13,892 |
|
| |
(1) | Excludes $6.55.1 billion of loans accounted for under the fair value option. |
| |
(2) | U.S. small business commercial includes $784719 million of criticized business card and small business loans which are evaluated using refreshed FICO scores or internal credit metrics, including delinquency status, rather than risk ratings. At March 31, 20172018, 99 percent of the balances where internal credit metrics are used was current or less than 30 days past due. |
| |
(3) | Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio. |
| |
(4) | Other internal credit metrics may include delinquency status, application scores, geography or other factors. |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer Real Estate – Credit Quality Indicators (1) | Consumer Real Estate – Credit Quality Indicators (1) | Consumer Real Estate – Credit Quality Indicators (1) |
| | | | | | | | | | | | | |
| | December 31, 2016 | Core Residential Mortgage (2) | | Non-core Residential
Mortgage (2) | | Residential Mortgage PCI (3) | | Core Home Equity (2) | | Non-core Home Equity (2) | | Home Equity PCI |
| (Dollars in millions) | Core Portfolio Residential Mortgage (2) | | Non-core Residential
Mortgage (2) | | Residential Mortgage PCI (3) | | Core Portfolio Home Equity (2) | | Non-core Home Equity (2) | | Home Equity PCI | December 31, 2017 |
Refreshed LTV (4) | |
| | |
| | |
| | |
| | | | | |
| | |
| | |
| | |
| | | | |
| Less than or equal to 90 percent | $ | 129,737 |
| | $ | 14,280 |
| | $ | 7,811 |
| | $ | 47,171 |
| | $ | 8,480 |
| | $ | 1,942 |
| $ | 153,669 |
| | $ | 12,135 |
| | $ | 6,872 |
| | $ | 43,048 |
| | $ | 7,944 |
| | $ | 1,781 |
|
| Greater than 90 percent but less than or equal to 100 percent | 3,634 |
| | 1,446 |
| | 1,021 |
| | 1,006 |
| | 1,668 |
| | 630 |
| 3,082 |
| | 850 |
| | 559 |
| | 549 |
| | 1,053 |
| | 412 |
|
| Greater than 100 percent | 1,872 |
| | 1,972 |
| | 1,295 |
| | 1,196 |
| | 3,311 |
| | 1,039 |
| 1,322 |
| | 1,011 |
| | 570 |
| | 648 |
| | 1,786 |
| | 523 |
|
Fully-insured loans (5) | 21,254 |
| | 7,475 |
| | — |
| | — |
| | — |
| | — |
| 18,545 |
| | 5,196 |
| | — |
| | — |
| | — |
| | — |
|
| Total consumer real estate | $ | 156,497 |
| | $ | 25,173 |
| | $ | 10,127 |
| | $ | 49,373 |
| | $ | 13,459 |
| | $ | 3,611 |
| $ | 176,618 |
| | $ | 19,192 |
| | $ | 8,001 |
| | $ | 44,245 |
| | $ | 10,783 |
| | $ | 2,716 |
|
| Refreshed FICO score | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
| Less than 620 | $ | 2,479 |
| | $ | 3,198 |
| | $ | 2,741 |
| | $ | 1,254 |
| | $ | 2,692 |
| | $ | 559 |
| $ | 2,234 |
| | $ | 2,390 |
| | $ | 1,941 |
| | $ | 1,169 |
| | $ | 2,098 |
| | $ | 452 |
|
| Greater than or equal to 620 and less than 680 | 5,094 |
| | 2,807 |
| | 2,241 |
| | 2,853 |
| | 3,094 |
| | 636 |
| 4,531 |
| | 2,086 |
| | 1,657 |
| | 2,371 |
| | 2,393 |
| | 466 |
|
| Greater than or equal to 680 and less than 740 | 22,629 |
| | 4,512 |
| | 2,916 |
| | 10,069 |
| | 3,176 |
| | 1,069 |
| 22,934 |
| | 3,519 |
| | 2,396 |
| | 8,115 |
| | 2,723 |
| | 786 |
|
| Greater than or equal to 740 | 105,041 |
| | 7,181 |
| | 2,229 |
| | 35,197 |
| | 4,497 |
| | 1,347 |
| 128,374 |
| | 6,001 |
| | 2,007 |
| | 32,590 |
| | 3,569 |
| | 1,012 |
|
Fully-insured loans (5) | 21,254 |
| | 7,475 |
| | — |
| | — |
| | — |
| | — |
| 18,545 |
| | 5,196 |
| | — |
| | — |
| | — |
| | — |
|
| Total consumer real estate | $ | 156,497 |
| | $ | 25,173 |
| | $ | 10,127 |
| | $ | 49,373 |
| | $ | 13,459 |
| | $ | 3,611 |
| $ | 176,618 |
| | $ | 19,192 |
| | $ | 8,001 |
| | $ | 44,245 |
| | $ | 10,783 |
| | $ | 2,716 |
|
| |
(1) | Excludes $1.1 billion928 million of loans accounted for under the fair value option. |
| |
(3) | Includes $1.61.2 billion of pay option loans. The Corporation no longer originates this product. |
| |
(4) | Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance. |
| |
(5) | Credit quality indicators are not reported for fully-insured loans as principal repayment is insured. |
| | | | | | | | | | | | | | | |
Credit Card and Other Consumer – Credit Quality Indicators | | | | | | | | |
| | December 31, 2016 | U.S. Credit Card | | Direct/Indirect Consumer | | Other Consumer |
| (Dollars in millions) | U.S. Credit Card | | Non-U.S. Credit Card | | Direct/Indirect Consumer | | Other Consumer (1) | December 31, 2017 |
| Refreshed FICO score | |
| | |
| | |
| | |
| |
| | |
| | |
|
| Less than 620 | $ | 4,431 |
| | $ | — |
| | $ | 1,478 |
| | $ | 187 |
| $ | 4,730 |
| | $ | 1,630 |
| | $ | 49 |
|
| Greater than or equal to 620 and less than 680 | 12,364 |
| | — |
| | 2,070 |
| | 222 |
| 12,422 |
| | 2,000 |
| | 143 |
|
| Greater than or equal to 680 and less than 740 | 34,828 |
| | — |
| | 12,491 |
| | 404 |
| 35,656 |
| | 11,906 |
| | 398 |
|
| Greater than or equal to 740 | 40,655 |
| | — |
| | 33,420 |
| | 1,525 |
| 43,477 |
| | 34,838 |
| | 1,921 |
|
Other internal credit metrics (2, 3, 4) | — |
| | 9,214 |
| | 44,630 |
| | 161 |
| |
Other internal credit metrics (1, 2) | | — |
| | 43,456 |
| | 167 |
|
| Total credit card and other consumer | $ | 92,278 |
| | $ | 9,214 |
| | $ | 94,089 |
| | $ | 2,499 |
| $ | 96,285 |
| | $ | 93,830 |
| | $ | 2,678 |
|
| |
(1) | At December 31, 2016, 19 percent of the other consumer portfolio is associated with portfolios from certain consumer finance businesses that the Corporation previously exited.
|
| |
(2)
| Other internal credit metrics may include delinquency status, geography or other factors. |
| |
(3)(2)
| Direct/indirect consumer includes $43.142.8 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $499 million of loans the Corporation no longer originates, primarily student loans. |
| |
(4)
| Non-U.S. credit card represents the U.K. credit card portfolio which is evaluated using internal credit metrics, including delinquency status. At December 31, 2016, 98 percent of this portfolio was current or less than 30 days past due, one percent was 30-89 days past due and one percent was 90 days or more past due.risk.
|
| | | | | | | | | | | | | | | | | | | | | |
Commercial – Credit Quality Indicators (1) | Commercial – Credit Quality Indicators (1) | Commercial – Credit Quality Indicators (1) | | | | |
| | | | | | | | | | | |
| | December 31, 2016 | U.S. Commercial | | Non-U.S. Commercial | | Commercial Real Estate | | Commercial
Lease Financing | | U.S. Small
Business Commercial (2) |
| (Dollars in millions) | U.S. Commercial | | Commercial Real Estate | | Commercial
Lease Financing | | Non-U.S. Commercial | | U.S. Small
Business Commercial (2) | December 31, 2017 |
| Risk ratings | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Pass rated | $ | 261,214 |
| | $ | 56,957 |
| | $ | 21,565 |
| | $ | 85,689 |
| | $ | 453 |
| $ | 275,904 |
| | $ | 96,199 |
| | $ | 57,732 |
| | $ | 21,535 |
| | $ | 322 |
|
| Reservable criticized | 9,158 |
| | 398 |
| | 810 |
| | 3,708 |
| | 71 |
| 8,932 |
| | 1,593 |
| | 566 |
| | 581 |
| | 50 |
|
Refreshed FICO score (3) | | | | | | | | | | | | | | | | | | |
| Less than 620 | | | | | | | | | 200 |
| | | | | | | | | 223 |
|
| Greater than or equal to 620 and less than 680 | | | | | | | | | 591 |
| | | | | | | | | 625 |
|
| Greater than or equal to 680 and less than 740 | | | | | | | | | 1,741 |
| | | | | | | | | 1,875 |
|
| Greater than or equal to 740 | | | | | | | | | 3,264 |
| | | | | | | | | 3,713 |
|
Other internal credit metrics (3, 4) | | | | | | | | | 6,673 |
| | | | | | | | | 6,841 |
|
| Total commercial | $ | 270,372 |
| | $ | 57,355 |
| | $ | 22,375 |
| | $ | 89,397 |
| | $ | 12,993 |
| $ | 284,836 |
| | $ | 97,792 |
| | $ | 58,298 |
| | $ | 22,116 |
| | $ | 13,649 |
|
| |
(1) | Excludes $6.04.8 billion of loans accounted for under the fair value option. |
| |
(2) | U.S. small business commercial includes $755709 million of criticized business card and small business loans which are evaluated using refreshed FICO scores or internal credit metrics, including delinquency status, rather than risk ratings. At December 31, 20162017, 98 percent of the balances where internal credit metrics are used was current or less than 30 days past due. |
| |
(3) | Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio. |
| |
(4) | Other internal credit metrics may include delinquency status, application scores, geography or other factors. |
Impaired Loans and Troubled Debt Restructurings
A loan is considered impaired when, based on current information, it is probable that the Corporation will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans and all consumer and commercial TDRs. Impaired loans exclude nonperforming consumer loans and nonperforming commercial leases unless they are classified as TDRs. Loans accounted for under the fair value option are also excluded. PCI loans are excluded and reported separately on page 93. For additional information on impaired loans, see Note 1 – Summary of Significant Accounting Principles and Note 4 – Outstanding Loans and Leasesto the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
Consumer Real Estate
Impaired consumer real estate loans within the Consumer Real Estate portfolio segment consist entirely of TDRs. Excluding PCI loans, most modifications of consumer real estate loans meet the definition of TDRs when a binding offer is extended to a borrower. For more information on impaired consumer real estate loans, see Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
Consumer real estate loans that have been discharged in Chapter 7 bankruptcy with no change in repayment terms and not reaffirmed by the borrower of $1.4$1.1 billion were included in TDRs at March 31, 2017,2018, of which $517$299 million were classified as nonperforming and $501$405 million were loans fully-insured by the
FHA. For more information on loans discharged in Chapter 7 bankruptcy, see Nonperforming Loans and Leases in this Note.
At March 31, 20172018 and December 31, 2016,2017, remaining commitments to lend additional funds to debtors whose terms have been modified in a consumer real estate TDR were immaterial. Consumer real estate foreclosed properties totaled $328$264 million and $363$236 million at March 31, 20172018 and December 31, 2016.2017. The carrying value of consumer real estate loans, including fully-insured and PCI loans, for which formal foreclosure proceedings were in process as ofat March 31, 20172018 was $4.3$3.3 billion. During the three months ended March 31, 20172018 and 2016,2017, the Corporation reclassified $200$168 million and $416$200 million of consumer real estate loans to foreclosed properties or, for properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans), to other assets. The reclassifications represent non-cash investing activities and, accordingly, are not reflected onin the Consolidated Statement of Cash Flows.
The table below provides the unpaid principal balance, carrying value and related allowance at March 31, 20172018 and December 31, 2016,2017, and the average carrying value and interest income recognized for the three months ended March 31, 20172018 and 20162017 for impaired loans in the Corporation’s Consumer Real Estate portfolio segment. Certain impaired consumer real estate loans do not have a related allowance as the current valuation of these impaired loans exceeded the carrying value, which is net of previously recorded charge-offs.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Impaired Loans – Consumer Real Estate | Impaired Loans – Consumer Real Estate | | | Impaired Loans – Consumer Real Estate | | |
| | | | | | | | | | | | | | | | | |
| | March 31, 2017 | | December 31, 2016 | Unpaid
Principal Balance | | Carrying Value | | Related Allowance | | Unpaid
Principal Balance | | Carrying Value | | Related Allowance |
| (Dollars in millions) | Unpaid
Principal Balance | | Carrying Value | | Related Allowance | | Unpaid
Principal Balance | | Carrying Value | | Related Allowance | March 31, 2018 | | December 31, 2017 |
| With no recorded allowance | |
| | |
| | |
| | |
| | |
| | | |
| | |
| | |
| | |
| | |
| | |
| Residential mortgage | $ | 10,367 |
| | $ | 8,024 |
| | $ | — |
| | $ | 11,151 |
| | $ | 8,695 |
| | $ | — |
| $ | 6,793 |
| | $ | 5,451 |
| | $ | — |
| | $ | 8,856 |
| | $ | 6,870 |
| | $ | — |
|
| Home equity | 3,701 |
| | 1,962 |
| | — |
| | 3,704 |
| | 1,953 |
| | — |
| 3,583 |
| | 1,943 |
| | — |
| | 3,622 |
| | 1,956 |
| | — |
|
| With an allowance recorded | | | | | |
| | | | | | | | | | | |
| | | | | | |
| Residential mortgage | $ | 3,975 |
| | $ | 3,856 |
| | $ | 241 |
| | $ | 4,041 |
| | $ | 3,936 |
| | $ | 219 |
| $ | 2,634 |
| | $ | 2,568 |
| | $ | 157 |
| | $ | 2,908 |
| | $ | 2,828 |
| | $ | 174 |
|
| Home equity | 971 |
| | 880 |
| | 169 |
| | 910 |
| | 824 |
| | 137 |
| 985 |
| | 910 |
| | 181 |
| | 972 |
| | 900 |
| | 174 |
|
| Total | |
| | |
| | |
| | | | | | | |
| | |
| | |
| | | | | | |
| Residential mortgage | $ | 14,342 |
| | $ | 11,880 |
| | $ | 241 |
| | $ | 15,192 |
| | $ | 12,631 |
| | $ | 219 |
| |
Residential mortgage (1) | | $ | 9,427 |
| | $ | 8,019 |
| | $ | 157 |
| | $ | 11,764 |
| | $ | 9,698 |
| | $ | 174 |
|
| Home equity | 4,672 |
| | 2,842 |
| | 169 |
| | 4,614 |
| | 2,777 |
| | 137 |
| 4,568 |
| | 2,853 |
| | 181 |
| | 4,594 |
| | 2,856 |
| | 174 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31 | | | | | | | | | Average
Carrying
Value | | Interest
Income
Recognized (2) | | Average
Carrying
Value | | Interest
Income
Recognized (2) |
| | 2017 | | 2016 | | | | | | | Three Months Ended March 31 |
| | Average
Carrying
Value | | Interest
Income
Recognized (1) | | Average
Carrying
Value | | Interest
Income
Recognized (1) | | | | | | | 2018 | | 2017 |
| With no recorded allowance | |
| | |
| | | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 8,456 |
| | $ | 79 |
| | $ | 11,418 |
| | $ | 94 |
| | | | | | | | | $ | 6,462 |
| | $ | 65 |
| | $ | 8,456 |
| | $ | 79 |
|
| Home equity | 1,991 |
| | 27 |
| | 1,808 |
| | 13 |
| | | | | | | | | 1,961 |
| | 27 |
| | 1,991 |
| | 27 |
|
| With an allowance recorded | | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 3,832 |
| | $ | 35 |
| | $ | 6,072 |
| | $ | 51 |
| | | | | | | | | $ | 2,705 |
| | $ | 25 |
| | $ | 3,832 |
| | $ | 35 |
|
| Home equity | 825 |
| | 5 |
| | 898 |
| | 6 |
| | | | | | | | | 892 |
| | 6 |
| | 825 |
| | 5 |
|
| Total | |
| | |
| | | | | | | | | | | | | | | | | | | |
| Residential mortgage | $ | 12,288 |
| | $ | 114 |
| | $ | 17,490 |
| | $ | 145 |
| | | | | |
Residential mortgage (1) | | | | | | $ | 9,167 |
| | $ | 90 |
| | $ | 12,288 |
| | $ | 114 |
|
| Home equity | 2,816 |
| | 32 |
| | 2,706 |
| | 19 |
| | | | | | | | | 2,853 |
| | 33 |
| | 2,816 |
| | 32 |
|
| |
(1) | During the three months ended March 31, 2018, the Corporation transferred impaired residential mortgage loans with a carrying value of $1.2 billion to held for sale. |
| |
(2) | Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible. |
The table below presents the March 31, 20172018 and 20162017 unpaid principal balance, carrying value, and average pre- and post-modification interest rates on consumer real estate loans that were modified in TDRs during the three months ended March 31, 20172018 and 2016,2017, and net charge-offs recorded during the period in which the modification occurred. The following Consumer Real Estate portfolio segment tables include loans that were initially classified as TDRs during the period and also loans that had previously been classified as TDRs and were modified again during the period.
| | | | | | | | | | | | | | | | | | | | | |
Consumer Real Estate – TDRs Entered into During the Three Months Ended March 31, 2017 and 2016 (1) | |
| Consumer Real Estate – TDRs Entered into During the Three Months Ended March 31, 2018 and 2017 | | Consumer Real Estate – TDRs Entered into During the Three Months Ended March 31, 2018 and 2017 |
| | | |
| | March 31, 2017 | | Three Months Ended March 31, 2017 | Unpaid Principal Balance | | Carrying Value | | Pre-Modification Interest Rate | | Post-Modification Interest Rate (1) | | Net Charge-offs (2) |
| (Dollars in millions) | Unpaid Principal Balance | | Carrying Value | | Pre-Modification Interest Rate | | Post-Modification Interest Rate (2) | | Net Charge-offs (3) | March 31, 2018 | | Three Months Ended March 31, 2018 |
| Residential mortgage | $ | 382 |
| | $ | 344 |
| | 4.68 | % | | 4.44 | % | | $ | 2 |
| $ | 407 |
| | $ | 358 |
| | 4.39 | % | | 4.36 | % | | $ | 3 |
|
| Home equity | 248 |
| | 189 |
| | 4.90 |
| | 3.80 |
| | 6 |
| 207 |
| | 161 |
| | 4.37 |
| | 4.37 |
| | 6 |
|
| Total | $ | 630 |
| | $ | 533 |
| | 4.77 |
| | 4.19 |
| | $ | 8 |
| $ | 614 |
| | $ | 519 |
| | 4.39 |
| | 4.36 |
| | $ | 9 |
|
| | | | | | | | | | | | | | | | | | | |
| | March 31, 2016 | | Three Months Ended March 31, 2016 | March 31, 2017 | | Three Months Ended March 31, 2017 |
| Residential mortgage | $ | 526 |
| | $ | 488 |
| | 4.72 | % | | 4.61 | % | | $ | 2 |
| $ | 382 |
| | $ | 344 |
| | 4.68 | % | | 4.44 | % | | $ | 2 |
|
| Home equity | 231 |
| | 181 |
| | 3.50 |
| | 3.39 |
| | 10 |
| 248 |
| | 189 |
| | 4.90 |
| | 3.80 |
| | 6 |
|
| Total | $ | 757 |
| | $ | 669 |
| | 4.35 |
| | 4.24 |
| | $ | 12 |
| $ | 630 |
| | $ | 533 |
| | 4.77 |
| | 4.19 |
| | $ | 8 |
|
| |
(1) | During the three months ended March 31, 2017 and 2016, the Corporation forgave principal of $0 and $10 million related to residential mortgage loans in connection with TDRs.
|
| |
(2)
| The post-modification interest rate reflects the interest rate applicable only to permanently completed modifications, which exclude loans that are in a trial modification period. |
| |
(3)(2)
| Net charge-offs include amounts recorded on loans modified during the period that are no longer held by the Corporation at March 31, 20172018 and 20162017 due to sales and other dispositions. |
The table below presents the March 31, 20172018 and 20162017 carrying value for consumer real estate loans that were modified in a TDR during the three months ended March 31, 20172018 and 20162017, by type of modification.
| | | | | | | | | | | | | |
| Consumer Real Estate – Modification Programs | Consumer Real Estate – Modification Programs | | | | | Consumer Real Estate – Modification Programs | | |
| | | | | | |
| | TDRs Entered into During the Three Months Ended March 31 | | | |
| | 2017 | | 2016 | TDRs Entered into During the Three Months Ended March 31 |
| (Dollars in millions) | Residential Mortgage | | Home Equity | | Residential Mortgage | | Home Equity | 2018 | | 2017 |
| Modifications under government programs | | | | | | | | | | |
| Contractual interest rate reduction | $ | 28 |
| | $ | 4 |
| | $ | 22 |
| | $ | 5 |
| $ | 7 |
| | $ | 32 |
|
| Principal and/or interest forbearance | 1 |
| | — |
| | — |
| | 2 |
| — |
| | 1 |
|
Other modifications (1) | 2 |
| | — |
| | 9 |
| | — |
| 6 |
| | 2 |
|
| Total modifications under government programs | 31 |
| | 4 |
| | 31 |
| | 7 |
| 13 |
| | 35 |
|
| Modifications under proprietary programs | | | | | | | | | | |
| Contractual interest rate reduction | 13 |
| | 1 |
| | 12 |
| | 1 |
| 11 |
| | 14 |
|
| Capitalization of past due amounts | 5 |
| | — |
| | 7 |
| | 1 |
| 14 |
| | 5 |
|
| Principal and/or interest forbearance | 2 |
| | 1 |
| | 3 |
| | — |
| 6 |
| | 3 |
|
Other modifications (1) | 1 |
| | 29 |
| | 1 |
| | 1 |
| 169 |
| | 30 |
|
| Total modifications under proprietary programs | 21 |
| | 31 |
| | 23 |
| | 3 |
| 200 |
| | 52 |
|
| Trial modifications | 237 |
| | 135 |
| | 368 |
| | 149 |
| 242 |
| | 372 |
|
Loans discharged in Chapter 7 bankruptcy (2) | 55 |
| | 19 |
| | 66 |
| | 22 |
| 64 |
| | 74 |
|
| Total modifications | $ | 344 |
| | $ | 189 |
| | $ | 488 |
| | $ | 181 |
| $ | 519 |
| | $ | 533 |
|
| |
(1) | Includes other modifications such as term or payment extensions and repayment plans. During the three months ended March 31, 2018, this included $168 million of modifications related to the 2017 hurricanes that met the definition of a TDR. These modifications had been written down to their net realizable value less costs to sell or were fully insured as of March 31, 2018. |
| |
(2) | Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs. |
The table below presents the carrying value of consumer real estate loans that entered into payment default during the three months ended March 31, 20172018 and 20162017 that were modified in a TDR during the 12 months preceding payment default. A payment default for consumer real estate TDRs is recognized when a borrower has missed three monthly payments (not necessarily consecutively) since modification. Payment defaults on a trial modification where the borrower has not yet met the terms of the agreement are included in the table below if the borrower is 90 days or more past due three months after the offer to modify is made.
| | | | | | �� | | | | | | | |
| Consumer Real Estate – TDRs Entering Payment Default That Were Modified During the Preceding 12 Months | |
| | | | | | |
| Consumer Real Estate – TDRs Entering Payment Default that were Modified During the Preceding 12 Months | | Consumer Real Estate – TDRs Entering Payment Default that were Modified During the Preceding 12 Months |
| | Three Months Ended March 31 | | | |
| | 2017 | | 2016 | Three Months Ended March 31 |
| (Dollars in millions) | Residential Mortgage | | Home Equity | | Residential Mortgage | | Home Equity | 2018 | | 2017 |
| Modifications under government programs | $ | 25 |
| | $ | 1 |
| | $ | 93 |
| | $ | — |
| $ | 13 |
| | $ | 26 |
|
| Modifications under proprietary programs | 16 |
| | 18 |
| | 43 |
| | 22 |
| 31 |
| | 34 |
|
Loans discharged in Chapter 7 bankruptcy (1) | 58 |
| | 4 |
| | 40 |
| | 5 |
| 23 |
| | 62 |
|
Trial modifications (2) | 195 |
| | 17 |
| | 237 |
| | 37 |
| 45 |
| | 212 |
|
| Total modifications | $ | 294 |
| | $ | 40 |
| | $ | 413 |
| | $ | 64 |
| $ | 112 |
| | $ | 334 |
|
| |
(1) | Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs. |
| |
(2) | Includes trial modification offers to which the customer did not respond. |
Credit Card and Other Consumer
Impaired loans within the Credit Card and Other Consumer portfolio segment consist entirely of loans that have been modified in TDRs. The Corporation seeks to assist customers that are experiencing financial difficulty by modifying loans while ensuring compliance with federal, local and international laws and guidelines. Credit card and other consumer loan modifications generally involve reducing the interest rate on the account, and placing the customer on a fixed payment plan not exceeding 60 months all of which are considered TDRs. In addition, the accounts of non-U.S. credit card customers who do not qualify for a fixed payment plan may have their interest rates reduced, as required by certain local jurisdictions. These modifications, which are also TDRs, tend to experience higher payment default rates given that the borrowers
may lack the ability to repay even with the interest rate reduction. In substantially all cases,and canceling the customer’s available line of credit, is canceled.all of which are considered TDRs. The Corporation makes loan modifications directly with borrowers for debt held only by the Corporation (internal programs). Additionally, the Corporation makes loan modifications for borrowers working with third-party renegotiation agencies that
provide solutions to customers’ entire unsecured debt structures (external programs). The Corporation classifies other secured consumer loans that have been discharged in Chapter 7 bankruptcy as TDRs which are written down to collateral value and placed on nonaccrual status no later than the time of discharge. For more information on the regulatory guidance on loans discharged in Chapter 7 bankruptcy, see Nonperforming Loans and Leases in this Note.
The table below provides the unpaid principal balance, carrying value and related allowance at March 31, 20172018 and December 31, 2016,2017, and the average carrying value and interest income recognized for the three months ended March 31, 20172018 and 20162017 on TDRs within the Credit Card and Other Consumer portfolio segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Impaired Loans – Credit Card and Other Consumer | Impaired Loans – Credit Card and Other Consumer | | | Impaired Loans – Credit Card and Other Consumer | | |
| | | | | | | | | | | | | | | | | | |
| | March 31, 2017 | | December 31, 2016 | | Unpaid
Principal Balance | | Carrying Value (1) | | Related Allowance | | Unpaid
Principal Balance | | Carrying Value (1) | | Related Allowance |
| (Dollars in millions) | Unpaid
Principal Balance | | Carrying Value (1) | | Related Allowance | | Unpaid
Principal Balance | | Carrying Value (1) | | Related Allowance | | March 31, 2018 | | December 31, 2017 |
| With no recorded allowance | |
| | |
| | |
| | | | | | | | |
| | |
| | |
| | | | | | |
| Direct/Indirect consumer | $ | 43 |
| | $ | 18 |
| | $ | — |
| | $ | 49 |
| | $ | 22 |
| | $ | — |
| | $ | 59 |
| | $ | 28 |
| | $ | — |
| | $ | 58 |
| | $ | 28 |
| | $ | — |
|
| With an allowance recorded | |
| | |
| | |
| | |
| | |
| | | | |
| | |
| | |
| | | | | | |
| U.S. credit card | $ | 464 |
| | $ | 470 |
| | $ | 130 |
| | $ | 479 |
| | $ | 485 |
| | $ | 128 |
| | $ | 465 |
| | $ | 472 |
| | $ | 128 |
| | $ | 454 |
| | $ | 461 |
| | $ | 125 |
|
| Non-U.S. credit card | 90 |
| | 104 |
| | 65 |
| | 88 |
| | 100 |
| | 61 |
| |
| Direct/Indirect consumer | 2 |
| | 2 |
| | — |
| | 3 |
| | 3 |
| | — |
| | 1 |
| | 1 |
| | — |
| | 1 |
| | 1 |
| | — |
|
| Total | |
| | |
| | |
| | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| U.S. credit card | $ | 464 |
| | $ | 470 |
| | $ | 130 |
| | $ | 479 |
| | $ | 485 |
| | $ | 128 |
| | $ | 465 |
| | $ | 472 |
| | $ | 128 |
| | $ | 454 |
| | $ | 461 |
| | $ | 125 |
|
| Non-U.S. credit card | 90 |
| | 104 |
| | 65 |
| | 88 |
| | 100 |
| | 61 |
| |
| Direct/Indirect consumer | 45 |
| | 20 |
| | — |
| | 52 |
| | 25 |
| | — |
| | 60 |
| | 29 |
| | — |
| | 59 |
| | 29 |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31 | | | | | | | | | | Average
Carrying
Value | | Interest
Income
Recognized (2) | | Average
Carrying
Value | | Interest
Income
Recognized (2) |
| | 2017 | | 2016 | | | | | | | | Three Months Ended March 31 |
| | Average
Carrying
Value | | Interest
Income
Recognized (2) | | Average
Carrying
Value | | Interest
Income
Recognized (2) | | | | | | | | 2018 | | 2017 |
| With no recorded allowance | | | | | | | | | | | | | | | | | | | | | | | |
| Direct/Indirect consumer | $ | 19 |
| | $ | — |
| | $ | 21 |
| | $ | — |
| | | | | | | | | | $ | 27 |
| | $ | — |
| | $ | 19 |
| | $ | — |
|
| With an allowance recorded | |
| | |
| | | | | | | | | | | | | | |
| | |
| | | | |
| U.S. credit card | $ | 477 |
| | $ | 6 |
| | $ | 606 |
| | $ | 9 |
| | | | | | | | | | $ | 465 |
| | $ | 6 |
| | $ | 477 |
| | $ | 6 |
|
| Non-U.S. credit card | 102 |
| | 1 |
| | 122 |
| | 1 |
| | | | | |
Non-U.S. credit card (3) | | | | | | | — |
| | — |
| | 102 |
| | 1 |
|
| Direct/Indirect consumer | 3 |
| | — |
| | 18 |
| | — |
| | | | | | | | | | 1 |
| | — |
| | 3 |
| | — |
|
| Total | |
| | |
| | | | | | | | | | | | | | |
| | |
| | | | |
| U.S. credit card | $ | 477 |
| | $ | 6 |
| | $ | 606 |
| | $ | 9 |
| | | | | | | | | | $ | 465 |
| | $ | 6 |
| | $ | 477 |
| | $ | 6 |
|
| Non-U.S. credit card | 102 |
| | 1 |
| | 122 |
| | 1 |
| | | | | |
Non-U.S. credit card (3) | | | | | | | — |
| | — |
| | 102 |
| | 1 |
|
| Direct/Indirect consumer | 22 |
| | — |
| | 39 |
| | — |
| | | | | | | | | | 28 |
| | — |
| | 22 |
| | — |
|
| |
(1) | Includes accrued interest and fees. |
| |
(2) | Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible. |
| |
(3) | In the second quarter of 2017, the Corporation sold its non-U.S. consumer credit card business. |
The table below provides information on the Corporation’s primary modification programs for the Credit Card and Other Consumer TDR portfolio at March 31, 20172018 and December 31, 2016.2017.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Credit Card and Other Consumer – TDRs by Program Type |
| | | | | | | | | | |
| | Internal Programs | | External Programs | | Other (1) | | Total | | Percent of Balances Current or Less Than 30 Days Past Due |
| (Dollars in millions) | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 | | March 31
2017 | | December 31
2016 |
| U.S. credit card | $ | 210 |
| | $ | 220 |
| | $ | 259 |
| | $ | 264 |
| | $ | 1 |
| | $ | 1 |
| | $ | 470 |
| | $ | 485 |
| | 88.55 | % | | 88.99 | % |
| Non-U.S. credit card | 10 |
| | 11 |
| | 7 |
| | 7 |
| | 87 |
| | 82 |
| | 104 |
| | 100 |
| | 37.88 |
| | 38.47 |
|
| Direct/Indirect consumer | 1 |
| | 2 |
| | 1 |
| | 1 |
| | 18 |
| | 22 |
| | 20 |
| | 25 |
| | 91.60 |
| | 90.49 |
|
| Total TDRs by program type | $ | 221 |
| | $ | 233 |
| | $ | 267 |
| | $ | 272 |
| | $ | 106 |
| | $ | 105 |
| | $ | 594 |
| | $ | 610 |
| | 79.80 |
| | 80.79 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Credit Card and Other Consumer – TDRs by Program Type |
| | | | | | |
| | U.S. Credit Card | | Direct/Indirect Consumer | | Total TDRs by Program Type |
| (Dollars in millions) | March 31
2018 | | December 31
2017 | | March 31
2018 | | December 31
2017 | | March 31
2018 | | December 31
2017 |
| Internal programs | $ | 212 |
| | $ | 203 |
| | $ | 1 |
| | $ | 1 |
| | $ | 213 |
| | $ | 204 |
|
| External programs | 259 |
| | 257 |
| | — |
| | — |
| | 259 |
| | 257 |
|
| Other | 1 |
| | 1 |
| | 28 |
| | 28 |
| | 29 |
| | 29 |
|
| Total | $ | 472 |
| | $ | 461 |
| | $ | 29 |
| | $ | 29 |
| | $ | 501 |
| | $ | 490 |
|
| Percent of balances current or less than 30 days past due | 86.27 | % | | 86.92 | % | | 90.66 | % | | 88.16 | % | | 86.50 | % | | 87.00 | % |
The table below provides information on the Corporation’s Credit Card and Other Consumer TDR portfolio including the March 31, 2018 and 2017 unpaid principal balance, carrying value, and average pre- and post-modification interest rates of loans that were modified in TDRs during the three months ended March 31, 2018 and 2017, and net charge-offs recorded during the period in which the modification occurred.
|
| | | | | | | | | | | | | |
| | | | | | | | |
| Credit Card and Other Consumer – TDRs Entered into During the Three Months Ended March 31, 2018 and 2017 |
| | | | | | | | |
| | Unpaid Principal Balance | | Carrying Value (1) | | Pre- Modification Interest Rate | | Post- Modification Interest Rate |
| (Dollars in millions) | March 31, 2018 |
| U.S. credit card | $ | 74 |
| | $ | 80 |
| | 18.83 | % | | 5.20 | % |
| Direct/Indirect consumer | 17 |
| | 10 |
| | 4.98 |
| | 4.67 |
|
Total (2) | $ | 91 |
| | $ | 90 |
| | 17.24 |
| | 5.14 |
|
| | | | | | | | |
| | March 31, 2017 |
| U.S. credit card | $ | 52 |
| | $ | 55 |
| | 18.01 | % | | 5.30 | % |
Non-U.S. credit card (3) | 34 |
| | 40 |
| | 23.89 |
| | 0.34 |
|
| Direct/Indirect consumer | 10 |
| | 6 |
| | 4.08 |
| | 4.04 |
|
Total (2) | $ | 96 |
| | $ | 101 |
| | 19.51 |
| | 3.28 |
|
| |
(1) | Other TDRs for non-U.S. credit card include modifications of accounts that are ineligible for a fixed payment plan.Includes accrued interest and fees. |
|
| | | | | | | |
(2) | | | | | | | Net charge-offs were $8 million and $6 million for the three months ended March 31, 2018 and 2017. |
| |
(3) | In the second quarter of 2017, the Corporation sold its non-U.S. consumer credit card business. |
The table below provides information on the Corporation’s Credit Card and Other Consumer TDR portfolio including the March 31, 2017 and 2016 unpaid principal balance, carrying value, and average pre- and post-modification interest rates of loans that were modified in TDRs during three months ended March 31, 2017 and 2016, and net charge-offs recorded during the period in which the modification occurred.
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Credit Card and Other Consumer – TDRs Entered into During the Three Months Ended March 31, 2017 and 2016 |
| | |
| | March 31, 2017 | | Three Months Ended March 31, 2017 |
| (Dollars in millions) | Unpaid Principal Balance | | Carrying Value (1) | | Pre-Modification Interest Rate | | Post-Modification Interest Rate | | Net Charge-offs |
| U.S. credit card | $ | 52 |
| | $ | 55 |
| | 18.01 | % | | 5.30 | % | | $ | 1 |
|
| Non-U.S. credit card | 34 |
| | 40 |
| | 23.89 |
| | 0.34 |
| | 1 |
|
| Direct/Indirect consumer | 10 |
| | 6 |
| | 4.08 |
| | 4.04 |
| | 4 |
|
| Total | $ | 96 |
| | $ | 101 |
| | 19.51 |
| | 3.28 |
| | $ | 6 |
|
| | | | | | | | | | |
| | March 31, 2016 | | Three Months Ended March 31, 2016 |
| U.S. credit card | $ | 46 |
| | $ | 50 |
| | 17.44 | % | | 5.51 | % | | $ | 1 |
|
| Non-U.S. credit card | 32 |
| | 38 |
| | 24.23 |
| | 0.36 |
| | 1 |
|
| Direct/Indirect consumer | 7 |
| | 4 |
| | 4.27 |
| | 4.08 |
| | 2 |
|
| Total | $ | 85 |
| | $ | 92 |
| | 19.59 |
| | 3.34 |
| | $ | 4 |
|
| |
(1)
| Includes accrued interest and fees. |
Credit card and other consumer loans are deemed to be in payment default during the quarter in which a borrower misses the second of two consecutive payments. Payment defaults are one of the factors considered when projecting future cash flows in the calculation of the allowance for loan and lease losses for impaired credit card and other consumer loans. Based on historical experience, the Corporation estimates that 13 percent of new U.S. credit card TDRs 90 percent of new non-U.S. credit card TDRs and 1318 percent of new direct/indirect consumer TDRs may be in payment default within 12 months after modification. Loans that entered into payment default during the three months ended March 31, 20172018 and 20162017 that had been modified in a TDR during the preceding 12 months were $7$8 million and $9$7 million for U.S. credit card, $32 million$0 and $34$32 million for non-U.S. credit card, and $3 million and $1 million for direct/indirect consumer for both periods.consumer.
Commercial Loans
Impaired commercial loans include nonperforming loans and TDRs (both performing and nonperforming). For more information on
impaired commercial loans, see Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
At March 31, 20172018 and December 31, 2016,2017, remaining commitments to lend additional funds to debtors whose terms have been modified in a commercial loan TDR were $425$199 million and $461$205 million.
Commercial foreclosed properties totaled $35 million and $14$52 million at both March 31, 20172018 and December 31, 2016.
2017.
The table below provides information on impaired loans in the Commercial loan portfolio segment including the unpaid principal balance, carrying value and related allowance at March 31, 20172018 and December 31, 2016,2017, and the average carrying value and interest income recognized for the three months ended March 31, 20172018 and 2016 for impaired loans in the Corporation’s Commercial loan portfolio segment.2017. Certain impaired commercial loans do not have a related allowance as the valuation of these impaired loans exceeded the carrying value, which is net of previously recorded charge-offs.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Impaired Loans – Commercial | Impaired Loans – Commercial | | | Impaired Loans – Commercial | | |
| | | | | | | | | | | | | | | | | |
| | March 31, 2017 | | December 31, 2016 | Unpaid
Principal Balance | | Carrying Value | | Related Allowance | | Unpaid
Principal Balance | | Carrying Value | | Related Allowance |
| (Dollars in millions) | Unpaid
Principal Balance | | Carrying Value | | Related Allowance | | Unpaid
Principal Balance | | Carrying Value | | Related Allowance | March 31, 2018 | | December 31, 2017 |
| With no recorded allowance | |
| | |
| | |
| | |
| | |
| | | |
| | |
| | |
| | |
| | |
| | |
| U.S. commercial | $ | 983 |
| | $ | 937 |
| | $ | — |
| | $ | 860 |
| | $ | 827 |
| | $ | — |
| $ | 814 |
| | $ | 772 |
| | $ | — |
| | $ | 576 |
| | $ | 571 |
| | $ | — |
|
| Non-U.S. commercial | | 113 |
| | 113 |
| | — |
| | 14 |
| | 11 |
| | — |
|
| Commercial real estate | 54 |
| | 48 |
| | — |
| | 77 |
| | 71 |
| | — |
| 62 |
| | 58 |
| | — |
| | 83 |
| | 80 |
| | — |
|
| Non-U.S. commercial | 85 |
| | 85 |
| | — |
| | 130 |
| | 130 |
| | — |
| |
| Commercial lease financing | | 11 |
| | 11 |
| | — |
| | — |
| | — |
| | — |
|
| With an allowance recorded | | | | | | | | | | | |
| | | | | | | | | | | |
|
| U.S. commercial | $ | 1,676 |
| | $ | 1,330 |
| | $ | 131 |
| | $ | 2,018 |
| | $ | 1,569 |
| | $ | 132 |
| $ | 1,448 |
| | $ | 1,206 |
| | $ | 137 |
| | $ | 1,393 |
| | $ | 1,109 |
| | $ | 98 |
|
| Non-U.S. commercial | | 394 |
| | 362 |
| | 72 |
| | 528 |
| | 507 |
| | 58 |
|
| Commercial real estate | 201 |
| | 65 |
| | 12 |
| | 243 |
| | 96 |
| | 10 |
| 102 |
| | 18 |
| | 2 |
| | 133 |
| | 41 |
| | 4 |
|
| Commercial lease financing | 5 |
| | 2 |
| | — |
| | 6 |
| | 4 |
| | — |
| 15 |
| | 4 |
| | — |
| | 20 |
| | 18 |
| | 3 |
|
| Non-U.S. commercial | 568 |
| | 476 |
| | 103 |
| | 545 |
| | 432 |
| | 104 |
| |
U.S. small business commercial (1) | 87 |
| | 73 |
| | 28 |
| | 85 |
| | 73 |
| | 27 |
| 87 |
| | 74 |
| | 29 |
| | 84 |
| | 70 |
| | 27 |
|
| Total | |
| | |
| | |
| | | | | | | |
| | |
| | |
| | | | | | |
| U.S. commercial | $ | 2,659 |
| | $ | 2,267 |
| | $ | 131 |
| | $ | 2,878 |
| | $ | 2,396 |
| | $ | 132 |
| $ | 2,262 |
| | $ | 1,978 |
| | $ | 137 |
| | $ | 1,969 |
| | $ | 1,680 |
| | $ | 98 |
|
| Non-U.S. commercial | | 507 |
| | 475 |
| | 72 |
| | 542 |
| | 518 |
| | 58 |
|
| Commercial real estate | 255 |
| | 113 |
| | 12 |
| | 320 |
| | 167 |
| | 10 |
| 164 |
| | 76 |
| | 2 |
| | 216 |
| | 121 |
| | 4 |
|
| Commercial lease financing | 5 |
| | 2 |
| | — |
| | 6 |
| | 4 |
| | — |
| 26 |
| | 15 |
| | — |
| | 20 |
| | 18 |
| | 3 |
|
| Non-U.S. commercial | 653 |
| | 561 |
| | 103 |
| | 675 |
| | 562 |
| | 104 |
| |
U.S. small business commercial (1) | 87 |
| | 73 |
| | 28 |
| | 85 |
| | 73 |
| | 27 |
| 87 |
| | 74 |
| | 29 |
| | 84 |
| | 70 |
| | 27 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31 | | | | | | | | | Average
Carrying
Value | | Interest
Income
Recognized (2) | | Average
Carrying
Value | | Interest
Income
Recognized (2) |
| | 2017 | | 2016 | | | | | | | Three Months Ended March 31 |
| | Average
Carrying
Value | | Interest
Income
Recognized (2) | | Average
Carrying
Value | | Interest
Income
Recognized (2) | | | | | | | 2018 | | 2017 |
| With no recorded allowance | |
| | |
| | | | | | | | | |
| | |
| | |
| | |
| | | | |
| U.S. commercial | $ | 882 |
| | $ | 3 |
| | $ | 583 |
| | $ | 2 |
| | | | | | | | | $ | 672 |
| | $ | 4 |
| | $ | 882 |
| | $ | 3 |
|
| Non-U.S. commercial | | | | | | 62 |
| | 2 |
| | 108 |
| | — |
|
| Commercial real estate | 60 |
| | — |
| | 77 |
| | — |
| | | | | | | | | 69 |
| | — |
| | 60 |
| | — |
|
| Non-U.S. commercial | 108 |
| | — |
| | 5 |
| | — |
| | | | | |
| Commercial lease financing | | | | | | 6 |
| | — |
| | — |
| | — |
|
| With an allowance recorded | | | | | | | | | | | | | | | | | | | | | | |
| U.S. commercial | $ | 1,487 |
| | $ | 9 |
| | $ | 1,439 |
| | $ | 14 |
| | | | | | | | | $ | 1,105 |
| | $ | 11 |
| | $ | 1,487 |
| | $ | 9 |
|
| Non-U.S. commercial | | | | | | 445 |
| | 2 |
| | 453 |
| | 3 |
|
| Commercial real estate | 76 |
| | 1 |
| | 104 |
| | 1 |
| | | | | | | | | 36 |
| | — |
| | 76 |
| | 1 |
|
| Commercial lease financing | 3 |
| | — |
| | — |
| | — |
| | | | | | | | | 11 |
| | — |
| | 3 |
| | — |
|
| Non-U.S. commercial | 453 |
| | 3 |
| | 368 |
| | 3 |
| | | | | |
U.S. small business commercial (1) | 74 |
| | — |
| | 102 |
| | — |
| | | | | | | | | 75 |
| | — |
| | 74 |
| | — |
|
| Total | |
| | |
| | | | | | | | | | | | | |
| | |
| | |
| | |
|
| U.S. commercial | $ | 2,369 |
| | $ | 12 |
| | $ | 2,022 |
| | $ | 16 |
| | | | | | | | | $ | 1,777 |
| | $ | 15 |
| | $ | 2,369 |
| | $ | 12 |
|
| Non-U.S. commercial | | | | | | 507 |
| | 4 |
| | 561 |
| | 3 |
|
| Commercial real estate | 136 |
| | 1 |
| | 181 |
| | 1 |
| | | | | | | | | 105 |
| | — |
| | 136 |
| | 1 |
|
| Commercial lease financing | 3 |
| | — |
| | — |
| | — |
| | | | | | | | | 17 |
| | — |
| | 3 |
| | — |
|
| Non-U.S. commercial | 561 |
| | 3 |
| | 373 |
| | 3 |
| | | | | |
U.S. small business commercial (1) | 74 |
| | — |
| | 102 |
| | — |
| | | | | | | | | 75 |
| | — |
| | 74 |
| | — |
|
| |
(1) | Includes U.S. small business commercial renegotiated TDR loans and related allowance. |
| |
(2) | Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible. |
The table below presents the March 31, 20172018 and 20162017 unpaid principal balance and carrying value of commercial loans that were modified as TDRs during the three months ended March 31, 20172018 and 2016,2017, and net charge-offs that were recorded during the period in which the modification occurred. The table below includes loans that were initially classified as TDRs during the period and also loans that had previously been classified as TDRs and were modified again during the period.
| | | | | | | | | | | |
| Commercial – TDRs Entered into During the Three Months Ended March 31, 2017 and 2016 | |
| Commercial – TDRs Entered into During the Three Months Ended March 31, 2018 and 2017 | | Commercial – TDRs Entered into During the Three Months Ended March 31, 2018 and 2017 |
| | | |
| | March 31, 2017 | | Three Months Ended March 31, 2017 | Unpaid Principal Balance | | Carrying Value |
| (Dollars in millions) | Unpaid Principal Balance | | Carrying Value | | Net Charge-offs | March 31, 2018 |
| U.S. commercial | $ | 468 |
| | $ | 440 |
| | $ | 41 |
| $ | 618 |
| | $ | 550 |
|
| Commercial real estate | 15 |
| | 9 |
| | — |
| |
| Non-U.S. commercial | | 331 |
| | 331 |
|
| Commercial lease financing | — |
| | — |
| | — |
| 2 |
| | 1 |
|
| Non-U.S. commercial | — |
| | — |
| | — |
| |
U.S. small business commercial (1) | 2 |
| | 2 |
| | — |
| 3 |
| | 3 |
|
| Total | $ | 485 |
| | $ | 451 |
| | $ | 41 |
| |
Total (2) | | $ | 954 |
| | $ | 885 |
|
| | | | | | | | | |
| | March 31, 2016 | | Three Months Ended March 31, 2016 | March 31, 2017 |
| U.S. commercial | $ | 642 |
| | $ | 625 |
| | $ | 5 |
| $ | 468 |
| | $ | 440 |
|
| Commercial real estate | 13 |
| | 12 |
| | 1 |
| 15 |
| | 9 |
|
| Non-U.S. commercial | 199 |
| | 163 |
| | 36 |
| |
U.S. small business commercial (1) | 3 |
| | 4 |
| | — |
| 2 |
| | 2 |
|
| Total | $ | 857 |
| | $ | 804 |
| | $ | 42 |
| |
Total (2) | | $ | 485 |
| | $ | 451 |
|
| |
(1) | U.S. small business commercial TDRs are comprised of renegotiated small business card loans. |
| |
(2) | Net charge-offs were $17 million and $41 million for the three months ended March 31, 2018 and 2017. |
A commercial TDR is generally deemed to be in payment default when the loan is 90 days or more past due, including delinquencies that were not resolved as part of the modification. U.S. small business commercial TDRs are deemed to be in payment default during the quarter in which a borrower misses the second of two consecutive payments. Payment defaults are one of the factors considered when projecting future cash flows, along with observable market prices or fair value of collateral when measuring the allowance for loan and lease losses. TDRs that were in payment default had a carrying value of $139 million and $111 million for
U.S. commercial, for both periods$18 million and $33 million and $17 million for commercial real estate and $4 million and $0 for commercial lease financing at March 31, 20172018 and 2016.2017.
Purchased Credit-impaired Loans
The table below shows activity for the accretable yield on PCI loans, which includeloans. The reclassifications from nonaccretable difference in the Countrywide Financial Corporation (Countrywide) portfoliothree months ended March 31, 2018 were primarily due to an increase in the expected principal and loans repurchased in connection with the 2013 settlement with FNMA. The amount of accretable yield is affected by changes in credit outlooks, including metrics such asinterest cash flows due to lower default rates and loss severities, prepayment speeds, which can change the amount and period of time over which interest payments are expected to be received,estimates and the rising interest rates on variable rate loans.environment.
| | | | |
| | |
| Rollforward of Accretable Yield | | | |
| | | | |
| (Dollars in millions) | Three Months Ended March 31, 2017 | | Three Months Ended March 31, 2018 |
| Accretable yield, January 1, 2017 | $ | 3,805 |
| |
| Accretable yield, January 1, 2018 | | | $ | 2,789 |
|
| Accretion | (163 | ) | | (130 | ) |
| Disposals/transfers | (91 | ) | | (107 | ) |
| Reclassifications to nonaccretable difference | (1 | ) | |
| Accretable yield, March 31, 2017 | $ | 3,550 |
| |
| Reclassifications from nonaccretable difference | | | 178 |
|
| Accretable yield, March 31, 2018 | | | $ | 2,730 |
|
During the three months ended March 31, 2016,2018, the Corporation sold PCI loans with a carrying value of $174 million, which excludes the related allowance of $20$109 million. There were no sales in the three months ended March 31, 2017. For more information on PCI loans, see Note 1 – Summary of Significant Accounting Principles and Note 4 – Outstanding Loans and Leasesto the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K, and for the carrying value and valuation allowance for PCI loans, see Note 56 – Allowance for Credit Losses.
Loans Held-for-sale
The Corporation had LHFS of $14.8$9.2 billion and $9.1$11.4 billion at March 31, 20172018 and December 31, 2016.2017. Cash and non-cash proceeds from sales and paydowns of loans originally classified as LHFS were $7.7$9.8 billion and $7.3$7.7 billion for the three months ended March 31, 20172018 and 2016.2017. Cash used for originations and purchases of LHFS totaled $13.3$5.7 billion and $5.7$13.3 billion for the three months ended March 31, 20172018 and 2016.2017.
NOTE 56 Allowance for Credit Losses
The table below summarizes the changes in the allowance for credit losses by portfolio segment for the three months ended March 31, 20172018 and 2016.2017.
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| | Three Months Ended March 31, 2017 |
| (Dollars in millions) | Consumer Real Estate | | Credit Card and Other Consumer | | Commercial | | Total Allowance |
Allowance for loan and lease losses, January 1 (1) | $ | 2,750 |
| | $ | 3,229 |
| | $ | 5,258 |
| | $ | 11,237 |
|
| Loans and leases charged off | (204 | ) | | (946 | ) | | (160 | ) | | (1,310 | ) |
| Recoveries of loans and leases previously charged off | 123 |
| | 200 |
| | 53 |
| | 376 |
|
Net charge-offs (2) | (81 | ) | | (746 | ) | | (107 | ) | | (934 | ) |
| Write-offs of PCI loans | (33 | ) | | — |
| | — |
| | (33 | ) |
| Provision for loan and lease losses | (71 | ) | | 843 |
| | 68 |
| | 840 |
|
Other (3) | — |
| | 2 |
| | (1 | ) | | 1 |
|
| Allowance for loan and lease losses, March 31 | 2,565 |
| | 3,328 |
| | 5,218 |
| | 11,111 |
|
Less: Change in allowance included in assets of business held for sale (4) | — |
| | 1 |
| | — |
| | 1 |
|
Total allowance for loan and lease losses, March 31 (1) | 2,565 |
| | 3,329 |
| | 5,218 |
| | 11,112 |
|
| Reserve for unfunded lending commitments, January 1 | — |
| | — |
| | 762 |
| | 762 |
|
| Provision for unfunded lending commitments | — |
| | — |
| | (5 | ) | | (5 | ) |
| Reserve for unfunded lending commitments, March 31 | — |
| | — |
| | 757 |
| | 757 |
|
Allowance for credit losses, March 31 (1) | $ | 2,565 |
| | $ | 3,329 |
| | $ | 5,975 |
| | $ | 11,869 |
|
| | | | Three Months Ended March 31, 2016 | | | | | | | |
| | | Consumer
Real Estate (1) | | Credit Card and Other Consumer | | Commercial | | Total
Allowance |
| (Dollars in millions) | | Three Months Ended March 31, 2018 |
| Allowance for loan and lease losses, January 1 | $ | 3,914 |
| | $ | 3,471 |
| | $ | 4,849 |
| | $ | 12,234 |
| $ | 1,720 |
| | $ | 3,663 |
| | $ | 5,010 |
| | $ | 10,393 |
|
| Loans and leases charged off | (378 | ) | | (912 | ) | | (206 | ) | | (1,496 | ) | (174 | ) | | (1,006 | ) | | (116 | ) | | (1,296 | ) |
| Recoveries of loans and leases previously charged off | 175 |
| | 198 |
| | 55 |
| | 428 |
| 147 |
| | 203 |
| | 35 |
| | 385 |
|
| Net charge-offs | (203 | ) | | (714 | ) | | (151 | ) | | (1,068 | ) | (27 | ) | | (803 | ) | | (81 | ) | | (911 | ) |
| Write-offs of PCI loans | (105 | ) | | — |
| | — |
| | (105 | ) | |
| Provision for loan and lease losses | (150 | ) | | 552 |
| | 614 |
| | 1,016 |
| |
Other (3) | — |
| | (7 | ) | | (1 | ) | | (8 | ) | |
Write-offs of PCI loans (2) | | (35 | ) | | — |
| | — |
| | (35 | ) |
Provision for loan and lease losses (3) | | (128 | ) | | 876 |
| | 81 |
| | 829 |
|
Other (4) | | — |
| | (16 | ) | | — |
| | (16 | ) |
| Allowance for loan and lease losses, March 31 | 3,456 |
| | 3,302 |
| | 5,311 |
| | 12,069 |
| 1,530 |
| | 3,720 |
| | 5,010 |
| | 10,260 |
|
| Reserve for unfunded lending commitments, January 1 | — |
| | — |
| | 646 |
| | 646 |
| — |
| | — |
| | 777 |
| | 777 |
|
| Provision for unfunded lending commitments | — |
| | — |
| | (19 | ) | | (19 | ) | — |
| | — |
| | 5 |
| | 5 |
|
| Reserve for unfunded lending commitments, March 31 | — |
| | — |
| | 627 |
| | 627 |
| — |
| | — |
| | 782 |
| | 782 |
|
| Allowance for credit losses, March 31 | $ | 3,456 |
| | $ | 3,302 |
| | $ | 5,938 |
| | $ | 12,696 |
| $ | 1,530 |
| | $ | 3,720 |
| | $ | 5,792 |
| | $ | 11,042 |
|
| | | | | | | | | |
| | | Three Months Ended March 31, 2017 |
Allowance for loan and lease losses, January 1 (5) | | $ | 2,750 |
| | $ | 3,229 |
| | $ | 5,258 |
| | $ | 11,237 |
|
| Loans and leases charged off | | (204 | ) | | (946 | ) | | (160 | ) | | (1,310 | ) |
| Recoveries of loans and leases previously charged off | | 123 |
| | 200 |
| | 53 |
| | 376 |
|
Net charge-offs (6) | | (81 | ) | | (746 | ) | | (107 | ) | | (934 | ) |
Write-offs of PCI loans (2) | | (33 | ) | | — |
| | — |
| | (33 | ) |
Provision for loan and lease losses (3) | | (71 | ) | | 843 |
| | 68 |
| | 840 |
|
Other (4) | | — |
| | 3 |
| | (1 | ) | | 2 |
|
Allowance for loan and lease losses, March 31 (5) | | 2,565 |
| | 3,329 |
| | 5,218 |
| | 11,112 |
|
| Reserve for unfunded lending commitments, January 1 | | — |
| | — |
| | 762 |
| | 762 |
|
| Provision for unfunded lending commitments | | — |
| | — |
| | (5 | ) | | (5 | ) |
| Reserve for unfunded lending commitments, March 31 | | — |
| | — |
| | 757 |
| | 757 |
|
Allowance for credit losses, March 31 (5) | | $ | 2,565 |
| | $ | 3,329 |
| | $ | 5,975 |
| | $ | 11,869 |
|
| |
(1) | Excludes $242 million and $243 million ofIncludes valuation allowance forassociated with the PCI loan and lease losses related to non-U.S. credit card loans, which is included in assets of business held for sale on the Consolidated Balance Sheet at March 31, 2017 and December 31, 2016.
portfolio. |
| |
(2) | Includes net charge-offswrite-offs associated with the sale of PCI loans of $4416 million on non-U.S. credit card loans, which are included in assets of business held for sale onand $0 during the Consolidated Balance Sheet at three months ended March 31, 2018 and 2017. |
| |
(3) | Includes provision benefit associated with the PCI loan portfolio of $11 million and provision expense of $68 million during the three months ended March 31, 2018 and 2017. |
| |
(4) | Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, foreign currency translation adjustments, transfers to held for sale and certain other reclassifications. |
| |
(4)(5)
| Represents the change in theExcludes $242 million and $243 million at March 31, 2017 and January 1, 2017 of allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which is includedwas sold in assetsthe second quarter of business held for sale on the Consolidated Balance Sheet at March 31, 2017.2017.
|
During the three months ended March 31, 2017, for the PCI loan portfolio, the Corporation recorded a provision expense of $68 million compared to a provision benefit of $77 million for the same period in 2016. Write-offs in the PCI loan portfolio totaled $33 million during the three months ended March 31, 2017
compared to $105 million for the same period in 2016. The valuation allowance associated with the PCI loan portfolio was $454 million and $419 million at March 31, 2017 and December 31, 2016.
|
| | | | | | | |
(6) | | | | | | | Includes net charge-offs of $44 million related to the non-U.S. credit card loan portfolio. See footnote 5 for more information. |
The table below presents the allowance and the carrying value of outstanding loans and leases by portfolio segment at March 31, 20172018 and December 31, 2016.2017.
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| Allowance and Carrying Value by Portfolio Segment | | | | | | | |
| | | | | | | | |
| | March 31, 2017 |
| (Dollars in millions) | Consumer Real Estate | | Credit Card
and Other Consumer | | Commercial | | Total |
Impaired loans and troubled debt restructurings (1) | |
| | |
| | |
| | |
|
Allowance for loan and lease losses (2) | $ | 410 |
| | $ | 195 |
| | $ | 274 |
| | $ | 879 |
|
Carrying value (3) | 14,722 |
| | 594 |
| | 3,016 |
| | 18,332 |
|
| Allowance as a percentage of carrying value | 2.78 | % | | 32.83 | % | | 9.08 | % | | 4.79 | % |
| Loans collectively evaluated for impairment | |
| | |
| | |
| | |
|
| Allowance for loan and lease losses | $ | 1,701 |
| | $ | 3,376 |
| | $ | 4,944 |
| | $ | 10,021 |
|
Carrying value (3, 4) | 229,809 |
| | 192,796 |
| | 454,055 |
| | 876,660 |
|
Allowance as a percentage of carrying value (4) | 0.74 | % | | 1.75 | % | | 1.09 | % | | 1.14 | % |
| Purchased credit-impaired loans | |
| | | | |
| | |
|
| Valuation allowance | $ | 454 |
| | n/a |
| | n/a |
| | $ | 454 |
|
| Carrying value gross of valuation allowance | 13,227 |
| | n/a |
| | n/a |
| | 13,227 |
|
| Valuation allowance as a percentage of carrying value | 3.43 | % | | n/a |
| | n/a |
| | 3.43 | % |
Less: Assets of business held for sale (5) | | | | | | | |
Allowance for loan and lease losses (6) | n/a |
| | $ | (242 | ) | | n/a |
| | $ | (242 | ) |
Carrying value (3) | n/a |
| | (9,505 | ) | | n/a |
| | (9,505 | ) |
| Total | |
| | |
| | |
| | |
|
| Total allowance for loan and lease losses | $ | 2,565 |
| | $ | 3,329 |
| | $ | 5,218 |
| | $ | 11,112 |
|
Carrying value (3, 4) | 257,758 |
| | 183,885 |
| | 457,071 |
| | 898,714 |
|
Total allowance as a percentage of carrying value (4) | 1.00 | % | | 1.81 | % | | 1.14 | % | | 1.24 | % |
| | | | December 31, 2016 | | | | | | | |
| Allowance and Carrying Value by Portfolio Segment | | Allowance and Carrying Value by Portfolio Segment | | | | | | |
| | | | | | | | | |
| | | Consumer
Real Estate | | Credit Card and Other Consumer | | Commercial | | Total |
| (Dollars in millions) | | March 31, 2018 |
Impaired loans and troubled debt restructurings (1) | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
Allowance for loan and lease losses (2) | $ | 356 |
| | $ | 189 |
| | $ | 273 |
| | $ | 818 |
| |
Carrying value (3) | 15,408 |
| | 610 |
| | 3,202 |
| | 19,220 |
| |
| Allowance for loan and lease losses | | $ | 338 |
| | $ | 128 |
| | $ | 240 |
| | $ | 706 |
|
Carrying value (2) | | 10,872 |
| | 501 |
| | 2,618 |
| | 13,991 |
|
| Allowance as a percentage of carrying value | 2.31 | % | | 30.98 | % | | 8.53 | % | | 4.26 | % | 3.11 | % | | 25.55 | % | | 9.17 | % | | 5.05 | % |
| Loans collectively evaluated for impairment | |
| | |
| | |
| | | |
| | |
| | |
| | |
|
| Allowance for loan and lease losses | $ | 1,975 |
| | $ | 3,283 |
| | $ | 4,985 |
| | $ | 10,243 |
| $ | 950 |
| | $ | 3,592 |
| | $ | 4,770 |
| | $ | 9,312 |
|
Carrying value (3, 4) | 229,094 |
| | 197,470 |
| | 449,290 |
| | 875,854 |
| |
Allowance as a percentage of carrying value (4) | 0.86 | % | | 1.66 | % | | 1.11 | % | | 1.17 | % | |
Carrying value (2, 3) | | 238,413 |
| | 186,586 |
| | 478,964 |
| | 903,963 |
|
Allowance as a percentage of carrying value (3) | | 0.40 | % | | 1.93 | % | | 1.00 | % | | 1.03 | % |
| Purchased credit-impaired loans | |
| | |
| | |
| | | |
| | | | |
| | |
|
| Valuation allowance | $ | 419 |
| | n/a |
| | n/a |
| | $ | 419 |
| $ | 242 |
| | n/a |
| | n/a |
| | $ | 242 |
|
| Carrying value gross of valuation allowance | 13,738 |
| | n/a |
| | n/a |
| | 13,738 |
| 10,135 |
| | n/a |
| | n/a |
| | 10,135 |
|
| Valuation allowance as a percentage of carrying value | 3.05 | % | | n/a |
| | n/a |
| | 3.05 | % | 2.39 | % | | n/a |
| | n/a |
| | 2.39 | % |
Less: Assets of business held for sale (5) | | | | | | | | |
Allowance for loan and lease losses (6) | n/a |
| | $ | (243 | ) | | n/a |
| | $ | (243 | ) | |
Carrying value (3) | n/a |
| | (9,214 | ) | | n/a |
| | (9,214 | ) | |
| Total | |
| | |
| | |
| | | |
| | |
| | |
| | |
|
| Allowance for loan and lease losses | $ | 2,750 |
| | $ | 3,229 |
| | $ | 5,258 |
| | $ | 11,237 |
| $ | 1,530 |
| | $ | 3,720 |
| | $ | 5,010 |
| | $ | 10,260 |
|
Carrying value (3, 4) | 258,240 |
| | 188,866 |
| | 452,492 |
| | 899,598 |
| |
Allowance as a percentage of carrying value (4) | 1.06 | % | | 1.71 | % | | 1.16 | % | | 1.25 | % | |
Carrying value (2, 3) | | 259,420 |
| | 187,087 |
| | 481,582 |
| | 928,089 |
|
Allowance as a percentage of carrying value (3) | | 0.59 | % | | 1.99 | % | | 1.04 | % | | 1.11 | % |
| | | | | | | | | |
| | | December 31, 2017 |
Impaired loans and troubled debt restructurings (1) | | |
| | |
| | |
| | |
|
| Allowance for loan and lease losses | | $ | 348 |
| | $ | 125 |
| | $ | 190 |
| | $ | 663 |
|
Carrying value (2) | | 12,554 |
| | 490 |
| | 2,407 |
| | 15,451 |
|
| Allowance as a percentage of carrying value | | 2.77 | % | | 25.51 | % | | 7.89 | % | | 4.29 | % |
| Loans collectively evaluated for impairment | | |
| | |
| | |
| | |
| Allowance for loan and lease losses | | $ | 1,083 |
| | $ | 3,538 |
| | $ | 4,820 |
| | $ | 9,441 |
|
Carrying value (2, 3) | | 238,284 |
| | 192,303 |
| | 474,284 |
| | 904,871 |
|
Allowance as a percentage of carrying value (3) | | 0.45 | % | | 1.84 | % | | 1.02 | % | | 1.04 | % |
| Purchased credit-impaired loans | | |
| | | | |
| | |
| Valuation allowance | | $ | 289 |
| | n/a |
| | n/a |
| | $ | 289 |
|
| Carrying value gross of valuation allowance | | 10,717 |
| | n/a |
| | n/a |
| | 10,717 |
|
| Valuation allowance as a percentage of carrying value | | 2.70 | % | | n/a |
| | n/a |
| | 2.70 | % |
| Total | | |
| | |
| | |
| | |
| Allowance for loan and lease losses | | $ | 1,720 |
| | $ | 3,663 |
| | $ | 5,010 |
| | $ | 10,393 |
|
Carrying value (2, 3) | | 261,555 |
| | 192,793 |
| | 476,691 |
| | 931,039 |
|
Allowance as a percentage of carrying value (3) | | 0.66 | % | | 1.90 | % | | 1.05 | % | | 1.12 | % |
| |
(1) | Impaired loans include nonperforming commercial loans and all TDRs, including both commercial and consumer TDRs. Impaired loans exclude nonperforming consumer loans unless they are TDRs, and all consumer and commercial loans accounted for under the fair value option. |
| |
(2) | Allowance for loan and lease losses includes $28 million and $27 million related to impaired U.S. small business commercial at March 31, 2017 and December 31, 2016.
|
| |
(3)
| Amounts are presented gross of the allowance for loan and lease losses. |
| |
(4)(3)
| Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $7.56.0 billion and $7.15.7 billion at March 31, 20172018 and December 31, 2016. |
| |
(5)
| Represents allowance for loan and lease losses and loans related to the non-U.S. credit card loan portfolio, which is included in assets of business held for sale on the Consolidated Balance Sheet at March 31, 2017 and December 31, 2016.
|
| |
(6)
| Includes $65 million and $61 million of allowance for loan and lease losses related to impaired loans and TDRs and $177 million and $182 million related to loans collectively evaluated for impairment at March 31, 2017 and December 31, 2016.
|
n/a = not applicable
NOTE 67Securitizations and Other Variable Interest Entities
The Corporation utilizes VIEs in the ordinary course of business to support its own and its customers’ financing and investing needs. The Corporation routinely securitizes loans and debt securities using VIEs as a source of funding for the Corporation and as a means of transferring the economic risk of the loans or debt securities to third parties. The assets are transferred into a trust or other securitization vehicle such that the assets are legally isolated from the creditors of the Corporation and are not available to satisfy its obligations. These assets can only be used to settle obligations of the trust or other securitization vehicle. The Corporation also administers, structures or invests in other VIEs including CDOs, investment vehicles and other entities. For more information on the Corporation’s utilization of VIEs, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2016 Annual Report on Form 10-K.
The tables in this Note present the assets, liabilities and liabilitiesmaximum loss exposure of consolidated and unconsolidated VIEs at March 31, 20172018 and December 31, 2016, in situations2017 where the Corporation has continuing involvement with transferred assets or if the Corporation otherwise has a variable interest in the VIE. The tables also presentFor additional information on the Corporation’s use of VIEs and related maximum loss exposure, at March 31, 2017see Note 1 – Summary of Significant Accounting Principles and December 31, 2016Note 6 – Securitizations and Other Variable Interest Entities resulting from its involvement with consolidated VIEs and unconsolidated VIEs in whichto the Corporation holds a variable interest. The Corporation’s maximum loss exposure is based on the unlikely event that all Consolidated Financial Statementsof the assets in the VIEs become worthless and incorporates not only potential losses associated with assets recordedCorporation’s 2017 Annual Report on the Consolidated Balance Sheet but also potential losses associated with off-balance sheet commitments, such as unfunded liquidity commitments and other contractual arrangements. The Corporation’s maximum loss exposure does not include losses previously recognized through write-downs of assets.Form 10-K.
The Corporation invests in ABS issued by third-party VIEs with which it has no other form of involvement and enters into certain
commercial lending arrangements that may also incorporate the use of VIEs, for example to hold collateral. These securities and loans are included in Note 34 – Securities or Note 45 – Outstanding Loans and Leases. In addition, the Corporation uses VIEs such as trust
preferred securities trusts in connection with its funding activities. For additionalmore information, see Note 11 – Long-term Debt to the Consolidated Financial Statementsof the Corporation's 2016 Corporation’s 2017
Annual Report on Form 10-K. The Corporation uses VIEs, such as common trust funds managed within 10-KGlobal Wealth & Investment Management. (GWIM), to provide investment opportunities for clients. These VIEs, which are generally not consolidated by the Corporation, as applicable, are not included in the tables herein.
Except as described below, the Corporation did not provide financial support to consolidated or unconsolidated VIEs during the three months ended March 31, 20172018 or the year ended December 31, 20162017 that it was not previously contractually required to provide, nor does it intend to do so.
First-lien Mortgage Securitizations
First-lien Mortgages
As part of its mortgage banking activities, the Corporation securitizes a portion of the first-lien residential mortgage loans it originates or purchases from third parties, generally in the form of RMBS guaranteed by government-sponsored enterprises, FNMA and FHLMC (collectively the GSEs), or Government National Mortgage Association (GNMA) primarily in the case of FHA-insured and U.S. Department of Veterans Affairs (VA)-guaranteed mortgage loans. Securitization usually occurs in conjunction with or shortly after origination or purchase, and the Corporation may also securitize loans held in its residential mortgage portfolio. In addition, the Corporation may, from time to time, securitize commercial mortgages it originates or purchases from other entities. The Corporation typically services the loans it securitizes. Further, the Corporation may retain beneficial interests in the securitization trusts including senior and subordinate securities and equity tranches issued by the trusts.parties. Except as described below and in Note 710 – RepresentationsCommitments and Warranties Obligations and Corporate GuaranteesContingencies, the Corporation does not provide guarantees or recourse to the securitization trusts other than standard representations and warranties.
The table below summarizes select information related to first-lien mortgage securitizations for the three months ended March 31, 20172018 and 2016.2017.
| | | | | | | | | | | | | |
| First-lien Mortgage Securitizations | | | | First-lien Mortgage Securitizations | | | | | | |
| | | | | | | | | | | |
| | Three Months Ended March 31 | Residential Mortgage - Agency | | Commercial Mortgage |
| | Residential Mortgage - Agency | | Commercial Mortgage | Three Months Ended March 31 |
| (Dollars in millions) | 2017 | 2016 | | 2017 | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Cash proceeds from new securitizations (1) | $ | 4,656 |
| $ | 7,074 |
| | $ | 609 |
| $ | 1,247 |
| $ | 1,686 |
| | $ | 4,656 |
| | $ | 512 |
| | $ | 609 |
|
Gain (loss) on securitizations (2) | 39 |
| 163 |
| | 18 |
| (3 | ) | |
Gains on securitizations (2) | | 18 |
| | 39 |
| | 18 |
| | 18 |
|
Repurchases from securitization trusts (3) | 872 |
| 729 |
| | — |
| — |
| 501 |
| | 872 |
| | — |
| | — |
|
| |
(1) | The Corporation transfers residential mortgage loans to securitizations sponsored by the GSEs or GNMAGovernment National Mortgage Association (GNMA) in the normal course of business and receives RMBS in exchange which may then be sold into the market to third-party investors for cash proceeds. |
| |
(2) | A majority of the first-lien residential and commercial mortgage loans securitized are initially classified as LHFS and accounted for under the fair value option. Gains recognized on these LHFS prior to securitization, which totaled $9024 million and $10890 million, net of hedges, during the three months ended March 31, 20172018 and 20162017, are not included in the table above. |
| |
(3) | The Corporation may have the option to repurchase delinquent loans out of securitization trusts, which reduces the amount of servicing advances it is required to make. The Corporation may also repurchase loans from securitization trusts to perform modifications. The majority of repurchasedRepurchased loans areinclude FHA-insured mortgages collateralizing GNMA securities. |
In addition to cash proceeds as reported in the table above, the Corporation received securities with an initial fair value of $275$120 million and $898$275 million in connection with first-lien mortgage securitizations for the three months ended March 31, 20172018 and 2016.2017. The receipt of these securities represents non-cash operating and investing activities and, accordingly, is not reflected onin the Consolidated Statement of Cash Flows. Substantially all of
these securities were initially classified as Level 2 assets within the fair value hierarchy. During the three months ended March 31, 20172018 and 2016,2017, there were no changes to the initial classification.
The Corporation recognizes consumer MSRs from the sale or securitization of consumer real estate loans. The unpaid principal balance of loans serviced for investors, including residential mortgage and home equity loans, totaled $316.0$259.7 billion and
$386.0316.1 billion at March 31, 20172018 and 2016.2017. Servicing fee and ancillary fee income on serviced loans was $245$197 million and $302$245 million during the three months ended March 31, 20172018 and 2016.2017. Servicing advances on serviced loans, including loans serviced for others and loans held for investment, were $5.8$4.1 billion and $6.2$4.5 billion at March 31, 20172018 and December 31, 2016.2017. For more information on MSRs, see Note 14 – Fair Value Measurements.
During the three months ended March 31, 2018 and 2017, and 2016, the Corporation deconsolidatedthere were no deconsolidations of agency residential mortgage securitization vehicles with total assets of $0 and $2.7 billion
securitizations.The following the sale of retained interests to third parties, after which the Corporation no longer had the unilateral ability to liquidate the vehicles. During the three months ended March 31, 2016, gains on sale of $113 million related to the deconsolidations were recorded in other income in the Consolidated Statement of Income.
The table below summarizes select information related to first-lien mortgage securitization trusts in which the Corporation held a variable interest at March 31, 20172018 and December 31, 2016.2017.
| | | | | | | | | | | | | | | | | | | | | |
| First-lien Mortgage VIEs | First-lien Mortgage VIEs | | | | | | | | First-lien Mortgage VIEs | | | | | | | |
| | | | | | | | | | | Residential Mortgage | | |
| |
|
| | Residential Mortgage | | |
| |
| |
| |
| | Non-agency | | |
| |
|
| | |
| |
| | Non-agency | | |
| |
| Agency | | Prime | | Subprime | | Alt-A | | Commercial Mortgage |
| | Agency | | Prime | | Subprime | | Alt-A | | Commercial Mortgage | |
| (Dollars in millions) | March 31
2017 | December 31
2016 | | March 31
2017 | December 31
2016 | | March 31
2017 | December 31
2016 | | March 31
2017 | December 31
2016 | | March 31
2017 | December 31
2016 | March 31
2018 | December 31
2017 | | March 31
2018 | December 31
2017 | | March 31
2018 | December 31
2017 | | March 31
2018 | December 31
2017 | | March 31
2018 | December 31
2017 |
| Unconsolidated VIEs | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
|
Maximum loss exposure (1) | $ | 20,855 |
| $ | 22,661 |
| | $ | 704 |
| $ | 757 |
| | $ | 2,642 |
| $ | 2,750 |
| | $ | 529 |
| $ | 560 |
| | $ | 271 |
| $ | 344 |
| $ | 18,120 |
| $ | 19,110 |
| | $ | 652 |
| $ | 689 |
| | $ | 2,659 |
| $ | 2,643 |
| | $ | 419 |
| $ | 403 |
| | $ | 565 |
| $ | 585 |
|
| On-balance sheet assets | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
|
Senior securities held (2): | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| |
| Senior securities: | | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
|
| Trading account assets | $ | 519 |
| $ | 1,399 |
| | $ | 18 |
| $ | 20 |
| | $ | 33 |
| $ | 112 |
| | $ | 99 |
| $ | 118 |
| | $ | 35 |
| $ | 51 |
| $ | 658 |
| $ | 716 |
| | $ | 7 |
| $ | 6 |
| | $ | 15 |
| $ | 10 |
| | $ | 74 |
| $ | 50 |
| | $ | 77 |
| $ | 108 |
|
| Debt securities carried at fair value | 16,774 |
| 17,620 |
| | 411 |
| 441 |
| | 2,211 |
| 2,235 |
| | 302 |
| 305 |
| | — |
| — |
| 14,214 |
| 15,036 |
| | 447 |
| 477 |
| | 2,204 |
| 2,221 |
| | 343 |
| 351 |
| | — |
| — |
|
| Held-to-maturity securities | 3,550 |
| 3,630 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | 44 |
| 64 |
| 3,248 |
| 3,348 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | 298 |
| 274 |
|
Subordinate securities held (2): | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| |
| Trading account assets | — |
| — |
| | 1 |
| 1 |
| | 16 |
| 23 |
| | 1 |
| 1 |
| | 5 |
| 14 |
| |
| Debt securities carried at fair value | — |
| — |
| | 8 |
| 8 |
| | 2 |
| 2 |
| | 22 |
| 23 |
| | 48 |
| 54 |
| |
| Held-to-maturity securities | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| 13 |
| |
| Residual interests held | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | 23 |
| 25 |
| |
All other assets (3) | 12 |
| 12 |
| | 26 |
| 28 |
| | — |
| — |
| | 105 |
| 113 |
| | — |
| — |
| |
| Subordinate securities | | — |
| — |
| | 6 |
| 5 |
| | 64 |
| 38 |
| | 2 |
| 2 |
| | 64 |
| 69 |
|
| Residual interests | | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | 24 |
| 19 |
|
All other assets (2) | | — |
| 10 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
|
| Total retained positions | $ | 20,855 |
| $ | 22,661 |
| | $ | 464 |
| $ | 498 |
| | $ | 2,262 |
| $ | 2,372 |
| | $ | 529 |
| $ | 560 |
| | $ | 155 |
| $ | 221 |
| $ | 18,120 |
| $ | 19,110 |
| | $ | 460 |
| $ | 488 |
| | $ | 2,283 |
| $ | 2,269 |
| | $ | 419 |
| $ | 403 |
| | $ | 463 |
| $ | 470 |
|
Principal balance outstanding (4) | $ | 257,948 |
| $ | 265,332 |
| | $ | 12,408 |
| $ | 16,280 |
| | $ | 18,385 |
| $ | 19,373 |
| | $ | 32,779 |
| $ | 35,788 |
| | $ | 17,400 |
| $ | 23,826 |
| |
Principal balance outstanding (3) | | $ | 216,493 |
| $ | 232,761 |
| | $ | 10,305 |
| $ | 10,549 |
| | $ | 10,118 |
| $ | 10,254 |
| | $ | 26,865 |
| $ | 28,129 |
| | $ | 26,092 |
| $ | 26,504 |
|
| | | | | | | | | | | | | | | | | | | |
| Consolidated VIEs | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
|
Maximum loss exposure (1) | $ | 16,795 |
| $ | 18,084 |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | 25 |
| | $ | — |
| $ | — |
| $ | 13,872 |
| $ | 14,502 |
| | $ | 662 |
| $ | 571 |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
|
| On-balance sheet assets | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
|
| Trading account assets | $ | 115 |
| $ | 434 |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | 99 |
| | $ | — |
| $ | — |
| $ | 203 |
| $ | 232 |
| | $ | 683 |
| $ | 571 |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
|
| Loans and leases | 16,416 |
| 17,223 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| |
| Loans and leases, net | | 13,476 |
| 14,030 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
|
| All other assets | 264 |
| 427 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| 194 |
| 240 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
|
| Total assets | $ | 16,795 |
| $ | 18,084 |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | 99 |
| | $ | — |
| $ | — |
| $ | 13,873 |
| $ | 14,502 |
| | $ | 683 |
| $ | 571 |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
|
| On-balance sheet liabilities | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
|
| Long-term debt | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | 74 |
| | $ | — |
| $ | — |
| $ | 1 |
| $ | — |
| | $ | 21 |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
|
| All other liabilities | 3 |
| 4 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| 3 |
| 3 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
|
| Total liabilities | $ | 3 |
| $ | 4 |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | 74 |
| | $ | — |
| $ | — |
| $ | 4 |
| $ | 3 |
| | $ | 21 |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
|
| |
(1) | Maximum loss exposure includes obligations under loss-sharing reinsurance and other arrangements for non-agency residential mortgage and commercial mortgage securitizations, but excludes the liabilityreserve for representations and warranties obligations and corporate guarantees and also excludes servicing advances and other servicing rights and obligations. For additionalmore information, see Note 710 – RepresentationsCommitments and Warranties Obligations and Corporate GuaranteesContingenciesand Note 14 – Fair Value Measurements.Measurements. |
| |
(2) | As a holder of these securities, the Corporation receives scheduled principal and interest payments. During the three months ended March 31, 2017 and 2016, the Corporation recognized $15 million and $2 million of credit-related impairment losses in earnings on those securities classified as AFS debt securities and none on HTM securities.
|
| |
(3)
| Not included in the table above are all other assets of $11865 million and $189148 million, representing the unpaid principal balance of mortgage loans eligible for repurchase from unconsolidated residential mortgage securitization vehicles,VIEs, principally guaranteed by GNMA, and all other liabilities of $11865 million and $189148 million, representing the principal amount that would be payable to the securitization vehiclesVIEs if the Corporation was to exercise the repurchase option, at March 31, 20172018 and December 31, 20162017. |
| |
(4)(3)
| Principal balance outstanding includes loans where the Corporation was the transferor to securitization vehiclesVIEs with which it has continuing involvement, which may include servicing the loans. |
Other Asset-backed Securitizations
The table below summarizes select information related to home equity loan, credit card and other asset-backed VIEs in which the Corporation held a variable interest at March 31, 20172018 and December 31, 2016.2017.
| | | | | | | | | | | | | | | | | | | |
| Home Equity Loan, Credit Card and Other Asset-backed VIEs | Home Equity Loan, Credit Card and Other Asset-backed VIEs | | | | | | Home Equity Loan, Credit Card and Other Asset-backed VIEs | | | |
| | | | | | | | | | | | | | | | | |
| | Home Equity Loan (1) | | Credit Card (2, 3) | | Resecuritization Trusts | | Municipal Bond Trusts | | Other Securitization Trusts | Home Equity Loan (1) | | Credit Card (2, 3) | | Resecuritization Trusts | | Municipal Bond Trusts |
| (Dollars in millions) | March 31
2017 | December 31
2016 | | March 31
2017 | December 31
2016 | | March 31
2017 | December 31
2016 | | March 31
2017 | December 31
2016 | | March 31
2017 | December 31
2016 | March 31
2018 | December 31
2017 | | March 31
2018 | December 31
2017 | | March 31
2018 | December 31
2017 | | March 31
2018 | December 31
2017 |
| Unconsolidated VIEs | |
| |
| | | | |
| |
| | |
| |
| | |
| |
| |
| |
| | | | |
| |
| | |
| |
|
| Maximum loss exposure | $ | 2,453 |
| $ | 2,732 |
| | $ | — |
| $ | — |
| | $ | 9,557 |
| $ | 9,906 |
| | $ | 1,603 |
| $ | 1,635 |
| | $ | 46 |
| $ | 47 |
| $ | 1,350 |
| $ | 1,522 |
| | $ | — |
| $ | — |
| | $ | 8,680 |
| $ | 8,204 |
| | $ | 1,614 |
| $ | 1,631 |
|
| On-balance sheet assets | |
| |
| | | | |
| |
| | |
| |
| | |
| |
| |
| |
| | | | |
| |
| | |
| |
|
Senior securities held (4, 5): | |
| |
| | | | |
| |
| | |
| |
| | |
| |
| |
Senior securities (4): | | |
| |
| | | | |
| |
| | |
| |
|
| Trading account assets | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | 936 |
| $ | 902 |
| | $ | 23 |
| $ | — |
| | $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | 1,660 |
| $ | 869 |
| | $ | — |
| $ | 33 |
|
| Debt securities carried at fair value | 43 |
| 46 |
| | — |
| — |
| | 2,181 |
| 2,338 |
| | — |
| — |
| | 46 |
| 47 |
| 32 |
| 36 |
| | — |
| — |
| | 1,557 |
| 1,661 |
| | — |
| — |
|
| Held-to-maturity securities | — |
| — |
| | — |
| — |
| | 6,342 |
| 6,569 |
| | — |
| — |
| | — |
| — |
| — |
| — |
| | — |
| — |
| | 5,463 |
| 5,644 |
| | — |
| — |
|
Subordinate securities held (4, 5): | |
| |
| | | | |
| |
| | |
| |
| | |
| |
| |
| Trading account assets | — |
| — |
| | — |
| — |
| | 27 |
| 27 |
| | — |
| — |
| | — |
| — |
| |
| Debt securities carried at fair value | — |
| — |
| | — |
| — |
| | 71 |
| 70 |
| | — |
| — |
| | — |
| — |
| |
Subordinate securities (4) | | — |
| — |
| | — |
| — |
| | — |
| 30 |
| | — |
| — |
|
| Total retained positions | $ | 43 |
| $ | 46 |
| | $ | — |
| $ | — |
| | $ | 9,557 |
| $ | 9,906 |
| | $ | 23 |
| $ | — |
| | $ | 46 |
| $ | 47 |
| $ | 32 |
| $ | 36 |
| | $ | — |
| $ | — |
| | $ | 8,680 |
| $ | 8,204 |
| | $ | — |
| $ | 33 |
|
Total assets of VIEs (6) | $ | 3,949 |
| $ | 4,274 |
| | $ | — |
| $ | — |
| | $ | 18,792 |
| $ | 22,155 |
| | $ | 2,336 |
| $ | 2,406 |
| | $ | 169 |
| $ | 174 |
| |
Total assets of VIEs (5) | | $ | 2,238 |
| $ | 2,432 |
| | $ | — |
| $ | — |
| | $ | 19,073 |
| $ | 19,281 |
| | $ | 2,249 |
| $ | 2,287 |
|
| | | | | | | | | | | | | | | | | |
| Consolidated VIEs | |
| |
| | | | |
| |
| | |
| |
| | |
| |
| |
| |
| | | | |
| |
| | |
| |
|
| Maximum loss exposure | $ | 139 |
| $ | 149 |
| | $ | 23,156 |
| $ | 25,859 |
| | $ | 282 |
| $ | 420 |
| | $ | 1,326 |
| $ | 1,442 |
| | $ | — |
| $ | — |
| $ | 104 |
| $ | 112 |
| | $ | 20,873 |
| $ | 24,337 |
| | $ | 457 |
| $ | 628 |
| | $ | 1,436 |
| $ | 1,453 |
|
| On-balance sheet assets | |
| |
| | | | |
| |
| | |
| |
| | |
| |
| |
| |
| | | | |
| |
| | |
| |
|
| Trading account assets | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | 1,096 |
| $ | 1,428 |
| | $ | 1,325 |
| $ | 1,454 |
| | $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | 1,053 |
| $ | 1,557 |
| | $ | 1,447 |
| $ | 1,452 |
|
| Loans and leases | 225 |
| 244 |
| | 33,125 |
| 35,135 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| 165 |
| 177 |
| | 30,764 |
| 32,554 |
| | — |
| — |
| | — |
| — |
|
| Allowance for loan and lease losses | (15 | ) | (16 | ) | | (980 | ) | (1,007 | ) | | — |
| — |
| | — |
| — |
| | — |
| — |
| (9 | ) | (9 | ) | | (968 | ) | (988 | ) | | — |
| — |
| | — |
| — |
|
| All other assets | 6 |
| 7 |
| | 1,548 |
| 793 |
| | — |
| — |
| | 1 |
| — |
| | — |
| — |
| 6 |
| 6 |
| | 137 |
| 1,385 |
| | — |
| — |
| | 1 |
| 1 |
|
| Total assets | $ | 216 |
| $ | 235 |
| | $ | 33,693 |
| $ | 34,921 |
| | $ | 1,096 |
| $ | 1,428 |
| | $ | 1,326 |
| $ | 1,454 |
| | $ | — |
| $ | — |
| $ | 162 |
| $ | 174 |
| | $ | 29,933 |
| $ | 32,951 |
| | $ | 1,053 |
| $ | 1,557 |
| | $ | 1,448 |
| $ | 1,453 |
|
| On-balance sheet liabilities | |
| |
| | | | |
| |
| | |
| |
| | |
| |
| |
| |
| | | | |
| |
| | |
| |
|
| Short-term borrowings | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | 185 |
| $ | 348 |
| | $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | 286 |
| $ | 312 |
|
| Long-term debt | 97 |
| 108 |
| | 10,527 |
| 9,049 |
| | 814 |
| 1,008 |
| | — |
| 12 |
| | — |
| — |
| 70 |
| 76 |
| | 9,043 |
| 8,598 |
| | 596 |
| 929 |
| | 12 |
| — |
|
| All other liabilities | — |
| — |
| | 10 |
| 13 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| — |
| — |
| | 17 |
| 16 |
| | — |
| — |
| | — |
| — |
|
| Total liabilities | $ | 97 |
| $ | 108 |
| | $ | 10,537 |
| $ | 9,062 |
| | $ | 814 |
| $ | 1,008 |
| | $ | 185 |
| $ | 360 |
| | $ | — |
| $ | — |
| $ | 70 |
| $ | 76 |
| | $ | 9,060 |
| $ | 8,614 |
| | $ | 596 |
| $ | 929 |
| | $ | 298 |
| $ | 312 |
|
| |
(1) | For unconsolidated home equity loan VIEs, the maximum loss exposure includes outstanding trust certificates issued by trusts in rapid amortization, net of recorded reserves. For both consolidated and unconsolidated home equity loan VIEs, the maximum loss exposure excludes the liabilityreserve for representations and warranties obligations and corporate guarantees. For additionalmore information, see Note 710 – RepresentationsCommitments and Warranties Obligations and Corporate GuaranteesContingencies. |
| |
(2) | At March 31, 20172018 and December 31, 20162017, loans and leases in the consolidated credit card trust included $13.913.3 billion and $17.615.6 billion of seller’s interest. |
| |
(3) | At March 31, 20172018 and December 31, 20162017, all other assets in the consolidated credit card trust included restricted cash, certain short-term investments, and unbilled accrued interest and fees. |
| |
(4) | As a holder of these securities, the Corporation receives scheduled principal and interest payments. During the three months ended March 31, 2017 and 2016, the Corporation recognized $2 million and $1 million of credit-related impairment losses in earnings on those securities classified as AFS debt securities and none on HTM securities.
|
| |
(5)
| The retained senior and subordinate securities were valued using quoted market prices or observable market inputs (Level 2 of the fair value hierarchy). |
| |
(6)(5)
| Total assets include loans the Corporation transferred with which it has continuing involvement, which may include servicing the loan. |
Home Equity Loans
The Corporation retains interests in home equity securitization trusts to which it transferred home equity loans. These retained interests include senior and subordinate securities and residual interests. In addition, the Corporation may be obligated to provide subordinate funding to the trusts during a rapid amortization event. The Corporation typically services the loans in the trusts. Except as described below and in Note 7 – Representations and Warranties Obligations and Corporate Guarantees, the Corporation does not provide guarantees or recourse to the securitization trusts other than standard representations and warranties. There were no securitizations of home equity loans during the three months ended March 31, 2017 and 2016, and all of the home equity trusts that hold revolving home equity lines of credit (HELOCs) have entered the rapid amortization phase.
The maximum loss exposure in the table above includes the Corporation’s obligation to provide subordinate funding to the
consolidated and unconsolidated home equity loan securitizations that have entered the rapid amortization phase. During this period, cash payments from borrowers are accumulated to repay outstanding debt securities, and the Corporation continues to make advances to borrowers when they draw on their lines of credit. At March 31, 2017 and December 31, 2016, home equity loan securitizations in rapid amortization for which the Corporation has a subordinate funding obligation, including both consolidated and unconsolidated trusts, had $2.4 billion and $2.7 billion of trust certificates outstanding that were held by third parties. The charges that will ultimately be recorded as a result of the rapid amortization events depend on the undrawn available credit on the home equity lines, performance of the loans, the amount of subsequent draws and the timing of related cash flows. Amounts actually funded by the Corporation under this obligation totaled $0and$1 million for the three months ended March 31, 2017 and 2016.
Home Equity Loans
The Corporation retains interests in home equity securitization trusts to which it transferred home equity loans. These retained interests primarily include senior securities. In addition, the Corporation may be obligated to provide subordinate funding to the trusts during a rapid amortization event. This obligation is included in the maximum loss exposure in the table above. The charges that will ultimately be recorded as a result of the rapid amortization events depend on the undrawn portion of the home equity lines of credit (HELOCs), performance of the loans, the amount of subsequent draws and the timing of related cash flows.
There were no deconsolidations of HELOC trusts during the three months ended March 31, 2018 and 2017.
Credit Card Securitizations
The Corporation securitizes originated and purchased credit card loans. The Corporation’s continuing involvement with the securitization trust includes servicing the receivables, retaining an undivided interest (seller’s interest) in the receivables, and holding certain retained interests including senior and subordinate securities, subordinate interests in accrued interest and fees on the securitized receivables and cash reserve accounts. The seller’s interest in the trust, which is pari passu to the investors’ interest, is classified in loans and leases.
During the three months ended March 31, 20172018 and 2016, $2.0 billion and $0 of2017, new senior debt securities were issued to third-party investors from the credit card securitization trust.trust were $1.6 billion and $2.0 billion.
TheAt March 31, 2018 and December 31, 2017, the Corporation held subordinate securities issued by the credit card securitization trust with a notional principal amount of $7.7 billion and $7.5 billion at March 31, 2017 and December 31, 2016.$7.4 billion. These securities serve as a form of credit enhancement to the senior debt securities and have a stated interest rate of zero percent. There were $323$254 million and $0$323 million of these subordinate securities issued during the three months ended March 31, 20172018 and 2016.2017.
Resecuritization Trusts
The Corporation transfers trading securities, typically MBS, into resecuritization vehiclesVIEs at the request of customers seeking
securities with specific characteristics. The Corporation may also resecuritize debt securities carried at fair value, including AFS securities, within its investment portfolio for purposes of improving liquidity and capital, and managing credit or interest rate risk. Generally, there are no significant ongoing activities performed in a resecuritization trust, and no single investor has the unilateral ability to liquidate the trust.
The Corporation resecuritized $6.7 billion and $7.8 billion and $6.6 billionof securities during the three months ended March 31, 20172018 and 2016.2017. Securities transferred into resecuritization vehiclesVIEs during the three months ended March 31, 20172018 and 20162017 were measured
at fair value with changes in fair value recorded in trading account profits prior to the resecuritization and no gain or loss on sale was recorded. Resecuritization proceeds included securities with an initial fair value of $1.3 billion and $734 million and $1.0 billion during the three months ended March 31, 20172018 and 2016. All2017. Substantially all of the other securities received as resecuritization proceeds were classified as trading securities and were categorized as Level 2 within the fair value hierarchy.
Municipal Bond Trusts
The Corporation administers municipal bond trusts that hold highly-rated, long-term, fixed-rate municipal bonds. The trusts obtain financing by issuing floating-rate trust certificates that reprice on a weekly or other short-term basis to third-party investors. The Corporation may transfer assets into the trusts and may also serve as remarketing agent and/or liquidity provider for the trusts. The floating-rate investors have the right to tender the certificates at specified dates. Should the Corporation be unable to remarket the tendered certificates, it may be obligated to purchase them at par under standby liquidity facilities. The Corporation also provides credit enhancement to investors in certain municipal bond trusts whereby the Corporation guarantees the payment of interest and principal on floating-rate certificates issued by these trusts in the event of default by the issuer of the underlying municipal bond.
The Corporation’s liquidity commitments to unconsolidated municipal bond trusts, including those for which the Corporation was transferor, totaled $1.6 billion at both March 31, 20172018 and December 31, 2016.2017. The weighted-average remaining life of bonds held in the trusts at March 31, 20172018 was 5.25.8 years years.. There were no material write-downs or downgrades of assets or issuers during the three months ended March 31, 20172018 and 2016.2017.
Other Variable Interest Entities
The table below summarizes select information related to other VIEs in which the Corporation held a variable interest at March 31, 20172018 and December 31, 2016.2017.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Other VIEs | Other VIEs | | | | | | | | | Other VIEs | | | | | | | | |
| | | | | | | | | | | | | | | |
| | March 31, 2017 | | December 31, 2016 | Consolidated | | Unconsolidated | | Total | | Consolidated | | Unconsolidated | | Total |
| (Dollars in millions) | Consolidated | | Unconsolidated | | Total | | Consolidated | | Unconsolidated | | Total | March 31, 2018 | | December 31, 2017 |
| Maximum loss exposure | $ | 6,210 |
| | $ | 17,899 |
| | $ | 24,109 |
| | $ | 6,114 |
| | $ | 17,707 |
| | $ | 23,821 |
| $ | 4,606 |
| | $ | 20,998 |
| | $ | 25,604 |
| | $ | 4,660 |
| | $ | 19,785 |
| | $ | 24,445 |
|
| On-balance sheet assets | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
| Trading account assets | $ | 2,644 |
| | $ | 224 |
| | $ | 2,868 |
| | $ | 2,358 |
| | $ | 233 |
| | $ | 2,591 |
| $ | 2,679 |
| | $ | 376 |
| | $ | 3,055 |
| | $ | 2,709 |
| | $ | 346 |
| | $ | 3,055 |
|
| Debt securities carried at fair value | — |
| | 161 |
| | 161 |
| | — |
| | 75 |
| | 75 |
| — |
| | 130 |
| | 130 |
| | — |
| | 160 |
| | 160 |
|
| Loans and leases | 3,421 |
| | 3,351 |
| | 6,772 |
| | 3,399 |
| | 3,249 |
| | 6,648 |
| 2,180 |
| | 4,255 |
| | 6,435 |
| | 2,152 |
| | 3,596 |
| | 5,748 |
|
| Allowance for loan and lease losses | (9 | ) | | (28 | ) | | (37 | ) | | (9 | ) | | (24 | ) | | (33 | ) | (2 | ) | | (32 | ) | | (34 | ) | | (3 | ) | | (32 | ) | | (35 | ) |
| Loans held-for-sale | 128 |
| | 906 |
| | 1,034 |
| | 188 |
| | 464 |
| | 652 |
| 13 |
| | 1,258 |
| | 1,271 |
| | 27 |
| | 940 |
| | 967 |
|
| All other assets | 342 |
| | 13,080 |
| | 13,422 |
| | 369 |
| | 13,156 |
| | 13,525 |
| 61 |
| | 14,379 |
| | 14,440 |
| | 62 |
| | 14,276 |
| | 14,338 |
|
| Total | $ | 6,526 |
| | $ | 17,694 |
| | $ | 24,220 |
| | $ | 6,305 |
| | $ | 17,153 |
| | $ | 23,458 |
| $ | 4,931 |
| | $ | 20,366 |
| | $ | 25,297 |
| | $ | 4,947 |
| | $ | 19,286 |
| | $ | 24,233 |
|
| On-balance sheet liabilities | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Long-term debt (1) | $ | 506 |
| | $ | — |
| | $ | 506 |
| | $ | 395 |
| | $ | — |
| | $ | 395 |
| $ | 308 |
| | $ | — |
| | $ | 308 |
| | $ | 270 |
| | $ | — |
| | $ | 270 |
|
| All other liabilities | 24 |
| | 2,984 |
| | 3,008 |
| | 24 |
| | 2,959 |
| | 2,983 |
| 18 |
| | 3,508 |
| | 3,526 |
| | 18 |
| | 3,417 |
| | 3,435 |
|
| Total | $ | 530 |
| | $ | 2,984 |
| | $ | 3,514 |
| | $ | 419 |
| | $ | 2,959 |
| | $ | 3,378 |
| $ | 326 |
| | $ | 3,508 |
| | $ | 3,834 |
| | $ | 288 |
| | $ | 3,417 |
| | $ | 3,705 |
|
| Total assets of VIEs | $ | 6,526 |
| | $ | 63,875 |
| | $ | 70,401 |
| | $ | 6,305 |
| | $ | 62,095 |
| | $ | 68,400 |
| $ | 4,931 |
| | $ | 75,401 |
| | $ | 80,332 |
| | $ | 4,947 |
| | $ | 69,746 |
| | $ | 74,693 |
|
| |
(1) | Includes $214 million and $2291 million of long-term debt at both March 31, 20172018 and December 31, 20162017 issued by other consolidated VIEs, which has recourse to the general credit of the Corporation. |
Customer VehiclesVIEs
Customer vehiclesVIEs include credit-linked, equity-linked and commodity-linked note vehicles,VIEs, repackaging vehicles,VIEs, and asset acquisition vehicles,VIEs, which are typically created on behalf of customers who wish to obtain market or credit exposure to a specific company, index, commodity or financial instrument. The Corporation may transfer assets to and invest in securities issued by these vehicles. The Corporation typically enters into credit, equity, interest rate, commodity or foreign currency derivatives to synthetically create or alter the investment profile of the issued securities.
The Corporation’s maximum loss exposure to consolidated and unconsolidated customer vehiclesVIEs totaled $2.6 billion and $2.9$2.3 billion at both
March 31, 20172018 and December 31, 2016,2017, including the notional amount of derivatives to which the Corporation is a counterparty, net of losses previously recorded, and the Corporation’s investment, if any, in securities issued by the vehicles. The maximum loss exposure has not been reduced to reflect the benefit of offsetting swaps with the customers or collateral arrangements.VIEs. The Corporation also had liquidity commitments, including written put options and collateral value guarantees, with certain unconsolidated vehiclesVIEs of $64$225 million and $323$442 million at March 31, 20172018 and December 31, 2016,2017, that are included in the table above.
Collateralized Debt Obligation VehiclesVIEs
The Corporation receives fees for structuring CDO vehicles,VIEs, which hold diversified pools of fixed-income securities, typically corporate debt or ABS, which the CDO vehiclesVIEs fund by issuing multiple tranches of debt and equity securities. Synthetic CDOs enter into a portfolio of CDS to synthetically create exposure to fixed-income securities. CLOs, which are a subset of CDOs, hold pools of loans, typically corporate loans. CDOs are typicallygenerally managed by third-party portfolio managers. The Corporation typically transfers assets to these CDOs, holds securities issued by the CDOs and may be a derivative counterparty to the CDOs, including a CDS counterparty for synthetic CDOs. The Corporation has also entered into total return swaps with certain CDOs whereby the Corporation absorbs the economic returns generated by specified assets held by the CDO.
The Corporation’s maximum loss exposure to consolidated and unconsolidated CDOs totaled $586$390 million and $430$358 million at March 31, 20172018 and December 31, 2016. This exposure is calculated on a gross basis and does not reflect any benefit from insurance purchased from third parties.2017.
Investment VehiclesVIEs
The Corporation sponsors, invests in or provides financing, which may be in connection with the sale of assets, to a variety of investment vehiclesVIEs that hold loans, real estate, debt securities or other financial instruments and are designed to provide the desired investment profile to investors or the Corporation. At March 31, 20172018 and December 31, 2016,2017, the Corporation’s consolidated investment vehiclesVIEs had total assets of $778$287 million and $846249 million. The Corporation also held investments in unconsolidated vehiclesVIEs with total assets of $18.7$22.9 billion and $17.320.3 billion at March 31, 20172018 and December 31, 2016.2017. The Corporation’s maximum loss exposure associated with both consolidated and unconsolidated investment vehiclesVIEs totaled $5.3$6.8 billion and $5.1$5.7 billion at March 31, 20172018 and December 31, 20162017 comprised primarily of on-balance sheet assets less non-recourse liabilities.
In prior periods, the Corporation transferred servicing advance receivables to independent third parties in connection with the sale of MSRs. Portions of the receivables were transferred into unconsolidated securitization trusts. The Corporation retained senior interests in such receivables with a maximum loss exposure and funding obligation of $90 million and $150 million, including a funded balance of $67 million and $75 million at March 31, 2017 and December 31, 2016, which were classified in other debt securities carried at fair value.
Leveraged Lease Trusts
The Corporation’s net investment in consolidated leveraged lease trusts totaled $2.7 billion and $2.6$2.0 billion at both March 31, 20172018 and December 31, 2016.2017. The trusts hold long-lived equipment such as rail cars, power generation and distribution equipment, and commercial aircraft. The Corporation structures the trusts and holds a significant residual interest. The net investment represents the Corporation’s maximum loss exposure to the trusts in the unlikely
event that the leveraged lease investments become worthless. Debt issued by the leveraged lease trusts is non-recourse to the Corporation.
Tax Credit VehiclesVIEs
The Corporation holds investments in unconsolidated limited partnerships and similar entities that construct, own and operate affordable housing, wind and solar projects. An unrelated third party is typically the general partner or managing member and has control over the significant activities of the vehicle.VIE. The Corporation earns a return primarily through the receipt of tax credits allocated to the projects. The maximum loss exposure included in the Other VIEs table was $12.8$13.9 billion and $12.6$13.8 billion at March 31, 20172018 and December 31, 2016.2017. The Corporation’s risk of loss is generally mitigated by policies requiring that the project qualify for the expected tax credits prior to making its investment.
The Corporation'sCorporation’s investments in affordable housing partnerships, which are reported in other assets on the Consolidated Balance Sheet, totaled $7.4$8.1 billion and $8.0 billion, including unfunded commitments to provide capital contributions of $2.7$3.2 billion and $3.1 billion at both March 31, 20172018 and December 31, 2016.2017. The unfunded commitments are expected to be paid over the next five years. The Corporation recognized tax credits and other tax benefits from investments in affordable housing partnerships of $251$248 million and reported pretax losses in other noninterest income of $196$208 million for the three months ended March 31, 2017.2018. For the same period in 2016,2017, the Corporation recognized tax credits and other tax benefits of $193$251 million and pretax losses of $198$196 million. Tax credits are recognized as part of the Corporation'sCorporation’s annual effective tax rate used to determine tax expense in a given quarter. Accordingly, the portion of a year'syear’s expected tax benefits recognized in any given quarter may differ from 25 percent. The Corporation may from time to time be asked to invest additional amounts to support a troubled affordable housing project. Such additional investments have not been and are not expected to be significant.
NOTE 78 Representations and Warranties Obligations and Corporate Guarantees
Background
The Corporation securitizes first-lien residential mortgage loans generally in the form of RMBS guaranteed by the GSEs or by GNMA in the case of FHA-insured, VA-guaranteed and Rural Housing
Service-guaranteed mortgage loans, and sells pools of first-lien residential mortgage loans in the form of whole loans. In addition, in prior years, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations or in the form of whole loans. In connection with these transactions, the Corporation or certain of its subsidiaries or legacy companies make and have made various representations and warranties. Breaches of these representations and warranties have resulted in and may continue to result in the requirement to repurchase mortgage loans or to otherwise make whole or provide other remedies to investors, securitization trusts, guarantors, insurers or other parties (collectively, repurchases).
Settlement Actions
The Corporation has vigorously contested any request for repurchase where it has concluded that a valid basis for repurchase does not exist and will continue to do so in the future. However, in an effort to resolve legacy mortgage-related issues, the Corporation has reached bulk settlements, certain of which have been for significant amounts, in lieu of a loan-by-loan review process, including settlements with the GSEs, four monoline insurers and Bank of New York Mellon (BNY Mellon), as trustee for certain securitization trusts. These bulk settlements generally did not cover all transactions with the relevant counterparties or all potential claims that may arise, including in some instances securities law, fraud, indemnification and servicing claims, some of which have been addressed separately. The Corporation’s liability in connection with the transactions and claims not covered by these settlements could be material to the Corporation’s results of operations or liquidity for any particular reporting period. The Corporation may reach other settlements in the future if opportunities arise on terms it believes to be advantageous. However, there can be no assurance that the Corporation will reach future settlements or, if it does, that the terms of past settlements can be relied upon to predict the terms of future settlements.
Unresolved Repurchase Claims
Unresolved representations and warranties repurchase claims represent the notional amount of repurchase claims made by counterparties, typically the outstanding principal balance or the unpaid principal balance at the time of default. In the case of first-lien mortgages, the claim amount is often significantly greater than the expected loss amount due to the benefit of collateral and, in some cases, mortgage insurance (MI) or mortgage guarantee payments. Claims received from a counterparty remain outstanding until the underlying loan is repurchased, the claim is rescinded by the counterparty, the Corporation determines that the applicable statute of limitations has expired, or representations and warranties claims with respect to the applicable trust are settled, and fully and finally released. The Corporation does not include duplicate claims in the amounts disclosed.
The table below presents unresolved repurchase claims at March 31, 2017 and December 31, 2016. The unresolved repurchase claims include only claims where the Corporation believes that the counterparty has the contractual right to submit claims. The unresolved repurchase claims predominantly relate to subprime and pay option first-lien loans and home equity loans. For additional information, see Private-label Securitizations and Whole-loan Sales Experience in this Note and Note 12 – Commitments and Contingenciesto the Consolidated Financial
Statements of the Corporation's 2016 Annual Report on Form 10-K.
|
| | | | | | | |
| | | | |
| Unresolved Repurchase Claims by Counterparty, net of duplicate claims |
| | | | |
| (Dollars in millions) | March 31
2017 | | December 31
2016 |
| By counterparty | |
| | |
|
Private-label securitization trustees, whole-loan investors, including third-party securitization sponsors and other (1) | $ | 16,678 |
| | $ | 16,685 |
|
| Monolines | 1,583 |
| | 1,583 |
|
| GSEs | 4 |
| | 9 |
|
| Total unresolved repurchase claims by counterparty, net of duplicate claims | $ | 18,265 |
| | $ | 18,277 |
|
| |
(1)
| Includes $11.9 billion of claims based on individual file reviews and $4.8 billion of claims submitted without individual file reviews at both March 31, 2017 and December 31, 2016.
|
During the three months ended March 31, 2017, the Corporation received $24 million in new repurchase claims and $36 million in claims were resolved. Of the remaining unresolved monoline claims, substantially all of the claims pertain to second-lien loans and are currently the subject of litigation with a single monoline insurer. There may be additional claims or file requests in the future.
In addition to the unresolved repurchase claims in the Unresolved Repurchase Claims by Counterparty, net of duplicate claims table, the Corporation has received notifications from sponsors of third-party securitizations with whom the Corporation engaged in whole-loan transactions indicating that the Corporation may have indemnity obligations with respect to loans for which the Corporation has not received a repurchase request. These outstanding notifications totaled $1.3 billion at both March 31, 2017 and December 31, 2016. There were no new notifications received during the three months ended March 31, 2017.
The presence of repurchase claims on a given trust, receipt of notices of indemnification obligations and receipt of other communications, as discussed above, are all factors that inform the Corporation’s liability for representations and warranties and the corresponding estimated range of possible loss.
Private-label Securitizations and Whole-loan Sales Experience
Prior to 2009, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations or in the form of whole loans. In connection with these transactions, the Corporation or certain of its subsidiaries or legacy companies made various representations and warranties. When the Corporation provided representations and warranties in connection with the sale of whole loans, the whole-loan investors may retain the right to make repurchase claims even when the loans were aggregated with other collateral into private-label securitizations sponsored by the whole-loan investors. In other third-party securitizations, the whole-loan investors’ rights to enforce the representations and warranties were transferred to the securitization trustees. Private-label securitization investors generally do not have the contractual right to demand repurchase of loans directly or the right to access loan files directly.
At both March 31, 2017 and December 31, 2016, for loans originated between 2004 and 2008, the notional amount of unresolved repurchase claims submitted by private-label
securitization trustees, whole-loan investors, including third-party securitization sponsors, and others was $16.6 billion. The notional amount of unresolved repurchase claims at both March 31, 2017 and December 31, 2016 included $5.6 billion of claims related to loans in specific private-label securitization groups or tranches where the Corporation owns substantially all of the outstanding securities or will otherwise realize the benefit of any repurchase claims paid.
The notional amount of outstanding unresolved repurchase claims remained relatively unchanged at March 31, 2017 compared to December 31, 2016. Outstanding repurchase claims remained unresolved primarily due to (1) the level of detail, support and analysis accompanying such claims, which impact overall claim quality and, therefore, claims resolution, and (2) the lack of an established process to resolve disputes related to these claims.
The Corporation reviews properly presented repurchase claims on a loan-by-loan basis. For time-barred claims, the counterparty is informed that the claim is denied on the basis of the statute of limitations and the claim is treated as resolved. For timely claims, if the Corporation, after review, does not believe a claim is valid, it will deny the claim and generally indicate a reason for the denial. If the counterparty agrees with the Corporation's denial of the claim, the counterparty may rescind the claim. If there is a disagreement as to the resolution of the claim, meaningful dialogue and negotiation between the parties are generally necessary to reach a resolution on an individual claim. When a claim is denied and the Corporation does not hear from the counterparty for six months, the Corporation views the claim as inactive; however, such claims remain in the outstanding claims balance until resolution. In the case of private-label securitization trustees and third-party sponsors, there is currently no established process in place for the parties to reach a conclusion on an individual loan if there is a disagreement on the resolution of the claim. The Corporation has performed an initial review with respect to substantially all outstanding claims and, although the Corporation does not believe a valid basis for repurchase has been established by the claimant, it considers such claims activity in the computation of its liability for representations and warranties.
Liability for Representations and Warranties and Corporate Guarantees and Estimated Range of Possible Loss
The liability for representations and warranties and corporate guarantees is included in accrued expenses and other liabilities on the Consolidated Balance Sheet and the related provision is included in mortgage banking income in the Consolidated Statement of Income. The liability for representations and warranties is established when those obligations are both probable and reasonably estimable.
The Corporation’s representations and warranties liability and the corresponding estimated range of possible loss at March 31, 2017 considers, among other things, the repurchase experience implied in the settlements with BNY Mellon and other counterparties. Since the securitization trusts that were included in the settlements with BNY Mellon and other counterparties differ from other securitization trusts, the Corporation adjusts the experience implied by those prior settlements based on the characteristics of those trusts where the Corporation has a continuing possibility of timely claims in order to determine the representations and warranties liability and the corresponding estimated range of possible loss.
The table below presents a rollforward of the liability for representations and warranties and corporate guarantees.
|
| | | | | | | |
| | | | |
| Representations and Warranties and Corporate Guarantees |
| | Three Months Ended March 31 |
| (Dollars in millions) | 2017 | | 2016 |
| Liability for representations and warranties and corporate guarantees, January 1 | $ | 2,339 |
| | $ | 11,326 |
|
| Additions for new sales | 1 |
| | 1 |
|
Payments (1) | (43 | ) | | (8,557 | ) |
| Provision (benefit) | (3 | ) | | 42 |
|
| Liability for representations and warranties and corporate guarantees, March 31 | $ | 2,294 |
| | $ | 2,812 |
|
| |
(1)
| In February 2016, the Corporation made an $8.5 billion settlement payment to BNY Mellon as part of the settlement with BNY Mellon.
|
The representations and warranties liability represents the Corporation’s best estimate of probable incurred losses as of March 31, 2017. However, it is reasonably possible that future representations and warranties losses may occur in excess of the amounts recorded for these exposures. The Corporation currently estimates that the range of possible loss for representations and warranties exposures could be up to $2 billion over existing accruals at March 31, 2017. The Corporation treats claims that are time-barred as resolved and does not consider such claims in the estimated range of possible loss. The estimated range of possible loss reflects principally exposures related to loans in private-label securitization trusts. It represents a reasonably possible loss, but does not represent a probable loss, and is based on currently available information, significant judgment and a number of assumptions that are subject to change.
The liability for representations and warranties exposures and the corresponding estimated range of possible loss do not consider certain losses related to servicing, including foreclosure and related costs, fraud, indemnity, or claims (including for RMBS) related to securities law or monoline insurance litigation. Losses with respect to one or more of these matters could be material to the Corporation’s results of operations or liquidity for any particular reporting period.
Future provisions and/or ranges of possible loss for representations and warranties may be significantly impacted if actual experiences are different from the Corporation’s assumptions in predictive models, including, without limitation, the actual repurchase rates on loans in trusts not settled as part of the settlements with BNY Mellon and other counterparties which may be different than the implied repurchase experience, estimated MI rescission rates, economic conditions, estimated home prices, consumer and counterparty behavior, the applicable
statute of limitations, potential indemnity obligations to third parties to whom the Corporation has sold loans subject to representations and warranties, and a variety of other judgmental factors. Adverse developments with respect to one or more of the assumptions underlying the liability for representations and warranties and the corresponding estimated range of possible loss, such as counterparties successfully challenging or avoiding the application of the relevant statute of limitations, could result in significant increases to future provisions and/or the estimated range of possible loss.
NOTE 8Goodwill and Intangible Assets
Goodwill
The table below presents goodwill balances by business segment and All Other at March 31, 20172018 and December 31, 2016.2017. The reporting units utilized for goodwill impairment testing are the operating segments or one level below. For more information, see Note 8 – Goodwill and Intangible Assets to the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
| | | | | | | | | |
| Goodwill | | | | | | |
| | | | | |
| (Dollars in millions) | March 31
2017 | | December 31
2016 | March 31
2018 | | December 31
2017 |
| Consumer Banking | $ | 30,123 |
| | $ | 30,123 |
| $ | 30,123 |
| | $ | 30,123 |
|
| Global Wealth & Investment Management | 9,681 |
| | 9,681 |
| 9,677 |
| | 9,677 |
|
| Global Banking | 23,923 |
| | 23,923 |
| 23,923 |
| | 23,923 |
|
| Global Markets | 5,197 |
| | 5,197 |
| 5,182 |
| | 5,182 |
|
| All Other | 820 |
| | 820 |
| 46 |
| | 46 |
|
Less: Goodwill of business held for sale (1) | (775 | ) | | (775 | ) | |
| Total goodwill | $ | 68,969 |
| | $ | 68,969 |
| $ | 68,951 |
| | $ | 68,951 |
|
|
| | |
| | (1)Bank of America84
| Reflects the goodwill assigned to the non-U.S. consumer credit card business, which is included in assets of business held for sale on the Consolidated Balance Sheet. |
Intangible Assets
The table below presents the gross and net carrying values and accumulated amortization for intangible assets at March 31, 20172018 and December 31, 2016.2017.
| | | | | | | | | | | | | | | | | | | | | | | | | |
Intangible Assets (1, 2) | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2017 | | December 31, 2016 | | | | | | | | | | | |
| | | Gross
Carrying Value | | Accumulated
Amortization | | Net
Carrying Value | | Gross
Carrying Value | | Accumulated
Amortization | | Net
Carrying Value |
| (Dollars in millions) | Gross Carrying Value | | Accumulated Amortization | | Net
Carrying Value | | Gross Carrying Value | | Accumulated Amortization | | Net
Carrying Value | March 31, 2018 | | December 31, 2017 |
| Purchased credit card and affinity relationships | $ | 6,841 |
| | $ | 6,311 |
| | $ | 530 |
| | $ | 6,830 |
| | $ | 6,243 |
| | $ | 587 |
| $ | 5,919 |
| | $ | 5,643 |
| | $ | 276 |
| | $ | 5,919 |
| | $ | 5,604 |
| | $ | 315 |
|
Core deposit and other intangibles (3) | 3,836 |
| | 2,071 |
| | 1,765 |
| | 3,836 |
| | 2,046 |
| | 1,790 |
| 3,835 |
| | 2,160 |
| | 1,675 |
| | 3,835 |
| | 2,140 |
| | 1,695 |
|
| Customer relationships | 3,887 |
| | 3,355 |
| | 532 |
| | 3,887 |
| | 3,275 |
| | 612 |
| 3,886 |
| | 3,660 |
| | 226 |
| | 3,886 |
| | 3,584 |
| | 302 |
|
Total intangible assets (4) | $ | 14,564 |
| | $ | 11,737 |
| | $ | 2,827 |
| | $ | 14,553 |
| | $ | 11,564 |
| | $ | 2,989 |
| |
| Total intangible assets | | $ | 13,640 |
| | $ | 11,463 |
| | $ | 2,177 |
| | $ | 13,640 |
| | $ | 11,328 |
| | $ | 2,312 |
|
| |
(1) | Excludes fully amortized intangible assets. |
| |
(2) | At March 31, 20172018 and December 31, 20162017, none of the intangible assets were impaired. |
| |
(3) | Includes $1.6 billion at both March 31, 20172018 and December 31, 20162017 of intangible assets associated with trade names that have an indefinite life and, accordingly, are not amortized. |
| |
(4)
| Includes $61 million and $67 million at March 31, 2017 and December 31, 2016 of intangible assets assigned to the non-U.S. consumer credit card business, which is included in assets of business held for sale on the Consolidated Balance Sheet.
|
Amortization of intangibles expense was $162$135 million and $187$162 million for the three months ended March 31, 20172018 and 2016.2017. The Corporation estimates aggregate amortization expense will be $464 million for remainder of 2017, and $538 million, $109 million, $48 million, $2 million and $1$403 million for the remainder of 2018, $105 million for 2019, $53 million for 2020 and none for the years ended 2018, 2019, 2020, 2021, and 2022.
thereafter.
NOTE 9Federal Funds Sold or Purchased, Securities Financing Agreements, and Short-term Borrowings and Restricted Cash
The table below presents federal funds sold or purchased, securities financing agreements, which include securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase, and short-term borrowings. The Corporation elects to account for certain securities financing agreements and short-term borrowings under the fair value option. For more information on the election of the fair value option, see Note 15 – Fair Value Option.
| | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31 | Amount | | Rate | | Amount | | Rate |
| | 2017 | | 2016 | Three Months Ended March 31 |
| (Dollars in millions) | Amount | | Rate | | Amount | | Rate | 2018 | | 2017 |
| Federal funds sold and securities borrowed or purchased under agreements to resell | |
| | | | |
| | |
| |
| | | | |
| | |
|
| Average during period | $ | 216,402 |
| | 0.82 | % | | $ | 209,183 |
| | 0.53 | % | $ | 248,320 |
| | 1.02 | % | | $ | 216,402 |
| | 0.67 | % |
| Maximum month-end balance during period | 223,499 |
| | n/a |
| | 221,129 |
| | n/a |
| 252,078 |
| | n/a |
| | 223,499 |
| | n/a |
|
| Federal funds purchased and securities loaned or sold under agreements to repurchase | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Average during period | $ | 191,677 |
| | 0.93 | % | | $ | 191,297 |
| | 1.03 | % | $ | 195,614 |
| | 1.41 | % | | $ | 191,677 |
| | 0.93 | % |
| Maximum month-end balance during period | 199,926 |
| | n/a |
| | 196,631 |
| | n/a |
| 191,319 |
| | n/a |
| | 199,926 |
| | n/a |
|
| Short-term borrowings | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Average during period | 40,040 |
| | 2.11 |
| | 30,693 |
| | 1.58 |
| 46,334 |
| | 3.98 |
| | 40,040 |
| | 2.11 |
|
| Maximum month-end balance during period | 44,944 |
| | n/a |
| | 30,881 |
| | n/a |
| 52,480 |
| | n/a |
| | 44,944 |
| | n/a |
|
n/a = not applicable
Offsetting of Securities Financing Agreements
The Corporation enters into securities financing agreements to accommodate customers (also referred to as “matched-book transactions”), obtain securities to cover short positions, and to finance inventory positions. Substantially all of the Corporation’s securities financing activities are transacted under legally enforceable master repurchase agreements or legally enforceable master securities lending agreements that give the Corporation, in the event of default by the counterparty, the right to liquidate securities held and to offset receivables and payables with the same counterparty. The Corporation offsets securities financing transactions with the same counterparty onFor more information, see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term Borrowings to the Consolidated Balance Sheet where it has such a legally enforceable master netting agreement andFinancial Statements of the transactions have the same maturity date.Corporation’s 2017 Annual Report on Form 10-K.
The Securities Financing Agreements table presents securities financing agreements included on the Consolidated Balance Sheet in federal funds sold and securities borrowed or purchased under agreements to resell, and in federal funds purchased and securities loaned or sold under agreements to repurchase at March 31, 20172018 and December 31, 2016.2017. Balances are presented on a gross basis, prior to the application of counterparty netting. Gross assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master
netting agreements. For more information on the offsetting of derivatives, see Note 23 – Derivatives.
The “Other” amount in the table, which is included on the Consolidated Balance Sheet in accrued expenses and other liabilities, relates to transactions where the Corporation acts as the lender in a securities lending agreement and receives securities that can be pledged as collateral or sold. In these transactions, the Corporation recognizes an asset at fair value, representing the securities received, and a liability, representing the obligation to return those securities.
Gross assets and liabilities in the table include activity where uncertainty exists as to the enforceability of certain master netting agreements under bankruptcy laws in some countries or industries and, accordingly, these are reported on a gross basis.
The column titled “Financial Instruments” in the table includes securities collateral received or pledged under repurchase or securities lending agreements where there is a legally enforceable master netting agreement. These amounts are not offset on the Consolidated Balance Sheet, but are shown as a reduction to the net balance sheet amount in this table to derive a net asset or liability. Securities collateral received or pledged where the legal enforceability of the master netting agreements is not certain is not included.
| | | | | | | | | | | | | | | | | | | | | |
| Securities Financing Agreements | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | March 31, 2017 | Gross Assets/Liabilities (1) | | Amounts Offset | | Net Balance Sheet Amount | | Financial Instruments (2) | | Net Assets/Liabilities |
| (Dollars in millions) | Gross Assets/Liabilities | | Amounts Offset | | Net Balance Sheet Amount | | Financial Instruments | | Net Assets/Liabilities | March 31, 2018 |
Securities borrowed or purchased under agreements to resell (1) | $ | 354,116 |
| | $ | (143,383 | ) | | $ | 210,733 |
| | $ | (164,220 | ) | | $ | 46,513 |
| |
| | | | | | | | | | | |
Securities borrowed or purchased under agreements to resell (3) | | $ | 381,692 |
| | $ | (137,062 | ) | | $ | 244,630 |
| | $ | (200,677 | ) | | $ | 43,953 |
|
| Securities loaned or sold under agreements to repurchase | $ | 329,468 |
| | $ | (143,383 | ) | | $ | 186,085 |
| | $ | (154,145 | ) | | $ | 31,940 |
| $ | 315,590 |
| | $ | (137,062 | ) | | $ | 178,528 |
| | $ | (149,374 | ) | | $ | 29,154 |
|
| Other | 16,102 |
| | — |
| | 16,102 |
| | (16,102 | ) | | — |
| |
Other (4) | | 20,048 |
| | — |
| | 20,048 |
| | (20,048 | ) | | — |
|
| Total | $ | 345,570 |
| | $ | (143,383 | ) | | $ | 202,187 |
| | $ | (170,247 | ) | | $ | 31,940 |
| $ | 335,638 |
| | $ | (137,062 | ) | | $ | 198,576 |
| | $ | (169,422 | ) | | $ | 29,154 |
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | December 31, 2017 |
Securities borrowed or purchased under agreements to resell (1) | $ | 326,970 |
| | $ | (128,746 | ) | | $ | 198,224 |
| | $ | (154,974 | ) | | $ | 43,250 |
| |
| | | | | | | | | | | |
Securities borrowed or purchased under agreements to resell (3) | | $ | 348,472 |
| | $ | (135,725 | ) | | $ | 212,747 |
| | $ | (165,720 | ) | | $ | 47,027 |
|
| Securities loaned or sold under agreements to repurchase | $ | 299,028 |
| | $ | (128,746 | ) | | $ | 170,282 |
| | $ | (140,774 | ) | | $ | 29,508 |
| $ | 312,582 |
| | $ | (135,725 | ) | | $ | 176,857 |
| | $ | (146,205 | ) | | $ | 30,652 |
|
| Other | 14,448 |
| | — |
| | 14,448 |
| | (14,448 | ) | | — |
| |
Other (4) | | 22,711 |
| | — |
| | 22,711 |
| | (22,711 | ) | | — |
|
| Total | $ | 313,476 |
| | $ | (128,746 | ) | | $ | 184,730 |
| | $ | (155,222 | ) | | $ | 29,508 |
| $ | 335,293 |
| | $ | (135,725 | ) | | $ | 199,568 |
| | $ | (168,916 | ) | | $ | 30,652 |
|
| |
(1) | Includes activity where uncertainty exists as to the enforceability of certain master netting agreements under bankruptcy laws in some countries or industries. |
| |
(2) | Includes securities collateral received or pledged under repurchase or securities lending agreements where there is a legally enforceable master netting agreement. These amounts are not offset on the Consolidated Balance Sheet, but are shown as a reduction to derive a net asset or liability. Securities collateral received or pledged where the legal enforceability of the master netting agreements is uncertain is excluded from the table. |
| |
(3) | Excludes repurchase activity of $9.58.5 billion and $10.110.2 billion reported in loans and leases on the Consolidated Balance Sheet at March 31, 20172018 and December 31, 20162017. |
|
| | |
| | Bank of America104(4)
| Balance is reported in accrued expenses and other liabilities on the Consolidated Balance Sheet and relates to transactions where the Corporation acts as the lender in a securities lending agreement and receives securities that can be pledged as collateral or sold. In these transactions, the Corporation recognizes an asset at fair value, representing the securities received, and a liability, representing the obligation to return those securities. |
Repurchase Agreements and Securities Loaned Transactions Accounted for as Secured Borrowings
The tables below present securities sold under agreements to repurchase and securities loaned by remaining contractual term to maturity and class of collateral pledged. Included in “Other” are transactions where the Corporation acts as the lender in a
securities lending agreement and receives securities that can be
pledged as collateral or sold. Certain agreements contain a right to substitute collateral and/or terminate the agreement prior to maturity at the option of the Corporation or the counterparty. Such agreements are included in the table below based on the remaining contractual term to maturity. At March 31, 2017 and December 31, 2016, the Corporation had no outstanding repurchase-to-maturity transactions.
| | | | | | | | | | | | | | | | | | | | | |
| Remaining Contractual Maturity | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | March 31, 2017 | March 31, 2018 |
| (Dollars in millions) | Overnight and Continuous | | 30 Days or Less | | After 30 Days Through 90 Days | | Greater than 90 Days (1) | | Total | Overnight and Continuous | | 30 Days or Less | | After 30 Days Through 90 Days | | Greater than 90 Days (1) | | Total |
| Securities sold under agreements to repurchase | $ | 134,495 |
| | $ | 82,101 |
| | $ | 36,219 |
| | $ | 52,163 |
| | $ | 304,978 |
| $ | 112,400 |
| | $ | 90,486 |
| | $ | 38,437 |
| | $ | 52,570 |
| | $ | 293,893 |
|
| Securities loaned | 18,164 |
| | 760 |
| | 1,430 |
| | 4,136 |
| | 24,490 |
| 14,727 |
| | 258 |
| | 2,130 |
| | 4,582 |
| | 21,697 |
|
| Other | 16,102 |
| | — |
| | — |
| | — |
| | 16,102 |
| 20,048 |
| | — |
| | — |
| | — |
| | 20,048 |
|
| Total | $ | 168,761 |
| | $ | 82,861 |
| | $ | 37,649 |
| | $ | 56,299 |
| | $ | 345,570 |
| $ | 147,175 |
| | $ | 90,744 |
| | $ | 40,567 |
| | $ | 57,152 |
| | $ | 335,638 |
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | December 31, 2017 |
| Securities sold under agreements to repurchase | $ | 129,853 |
| | $ | 77,780 |
| | $ | 31,851 |
| | $ | 40,752 |
| | $ | 280,236 |
| $ | 125,956 |
| | $ | 79,913 |
| | $ | 46,091 |
| | $ | 38,935 |
| | $ | 290,895 |
|
| Securities loaned | 8,564 |
| | 6,602 |
| | 1,473 |
| | 2,153 |
| | 18,792 |
| 9,853 |
| | 5,658 |
| | 2,043 |
| | 4,133 |
| | 21,687 |
|
| Other | 14,448 |
| | — |
| | — |
| | — |
| | 14,448 |
| 22,711 |
| | — |
| | — |
| | — |
| | 22,711 |
|
| Total | $ | 152,865 |
| | $ | 84,382 |
| | $ | 33,324 |
| | $ | 42,905 |
| | $ | 313,476 |
| $ | 158,520 |
| | $ | 85,571 |
| | $ | 48,134 |
| | $ | 43,068 |
| | $ | 335,293 |
|
| |
(1) | No agreements have maturities greater than three years. |
| | | | | | | | | | | | | | | | | |
| Class of Collateral Pledged | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | March 31, 2017 | March 31, 2018 |
| (Dollars in millions) | Securities Sold Under Agreements to Repurchase | | Securities Loaned | | Other | | Total | Securities Sold Under Agreements to Repurchase | | Securities Loaned | | Other | | Total |
| U.S. government and agency securities | $ | 165,255 |
| | $ | — |
| | $ | 194 |
| | $ | 165,449 |
| $ | 163,292 |
| | $ | — |
| | $ | 1 |
| | $ | 163,293 |
|
| Corporate securities, trading loans and other | 10,582 |
| | 1,792 |
| | 163 |
| | 12,537 |
| 10,454 |
| | 2,835 |
| | 356 |
| | 13,645 |
|
| Equity securities | 26,685 |
| | 15,092 |
| | 15,702 |
| | 57,479 |
| 21,971 |
| | 12,898 |
| | 19,648 |
| | 54,517 |
|
| Non-U.S. sovereign debt | 94,628 |
| | 7,606 |
| | 43 |
| | 102,277 |
| 92,805 |
| | 5,964 |
| | 43 |
| | 98,812 |
|
| Mortgage trading loans and ABS | 7,828 |
| | — |
| | — |
| | 7,828 |
| 5,371 |
| | — |
| | — |
| | 5,371 |
|
| Total | $ | 304,978 |
| | $ | 24,490 |
| | $ | 16,102 |
| | $ | 345,570 |
| $ | 293,893 |
| | $ | 21,697 |
| | $ | 20,048 |
| | $ | 335,638 |
|
| | | | | | | | | | | | | | | |
| | December 31, 2016 | December 31, 2017 |
| U.S. government and agency securities | $ | 153,184 |
| | $ | — |
| | $ | 70 |
| | $ | 153,254 |
| $ | 158,299 |
| | $ | — |
| | $ | 409 |
| | $ | 158,708 |
|
| Corporate securities, trading loans and other | 11,086 |
| | 1,630 |
| | 127 |
| | 12,843 |
| 12,787 |
| | 2,669 |
| | 624 |
| | 16,080 |
|
| Equity securities | 24,007 |
| | 11,175 |
| | 14,196 |
| | 49,378 |
| 23,975 |
| | 13,523 |
| | 21,628 |
| | 59,126 |
|
| Non-U.S. sovereign debt | 84,171 |
| | 5,987 |
| | 55 |
| | 90,213 |
| 90,857 |
| | 5,495 |
| | 50 |
| | 96,402 |
|
| Mortgage trading loans and ABS | 7,788 |
| | — |
| | — |
| | 7,788 |
| 4,977 |
| | — |
| | — |
| | 4,977 |
|
| Total | $ | 280,236 |
| | $ | 18,792 |
| | $ | 14,448 |
| | $ | 313,476 |
| $ | 290,895 |
| | $ | 21,687 |
| | $ | 22,711 |
| | $ | 335,293 |
|
The Corporation is required to post collateral with a market value equal to or in excess of the principal amount borrowed under repurchase agreements. For securities loaned transactions, the Corporation receives collateral in the form of cash, letters of credit or other securities. To help ensure thatdetermine whether the market value of the underlying collateral remains sufficient, collateral is generally valued daily, and the Corporation may be required to deposit
additional collateral or may receive or return collateral pledged when appropriate. Repurchase agreements and securities loaned transactions are generally either overnight, continuous (i.e., no stated term) or short-term. The Corporation manages liquidity risks related to these agreements by sourcing funding from a diverse group of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate.
Restricted Cash
105BankAt March 31, 2018 and December 31, 2017, the Corporation held restricted cash included within cash and cash equivalents on the Consolidated Balance Sheet of America$16.3 billion and $18.8 billion, primarily related to cash segregated in compliance with securities regulations and cash held on deposit with the Federal Reserve and non-U.S. central banks to meet reserve requirements.
NOTE 10Commitments and Contingencies
In the normal course of business, the Corporation enters into a number of off-balance sheet commitments. These commitments expose the Corporation to varying degrees of credit and market risk and are subject to the same credit and market risk limitation reviews as those instruments recorded on the Consolidated Balance Sheet. For more information on commitments and contingencies, see Note 12 – Commitments and Contingencies to
the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
Credit Extension Commitments
The Corporation enters into commitments to extend credit such as loan commitments, standby letters of credit (SBLCs)SBLCs and commercial letters of credit to meet the financing needs of its customers. The following table below includes the notional amount of unfunded legally binding lending commitments net of amounts distributed (e.g.(i.e., syndicated or participated) to other financial institutions. The distributed amounts were $11.910.9 billion and $12.1
11.0 billion at March 31, 20172018 and December 31, 2016.2017. At March 31, 2017,2018, the carrying value of these commitments, excluding commitments accounted for under the fair value option, was $776800 million, including deferred revenue of $1918 million and a reserve for unfunded lending commitments of $757782 million. At December 31, 2016,2017, the comparable amounts were $779793 million, $1716 million and $762777 million, respectively. The carrying value of these commitments is classified in accrued expenses and other liabilities on the Consolidated Balance Sheet.
The following table below also includes the notional amount of commitments of $5.94.4 billion and $7.04.8 billion at March 31, 20172018 and December 31, 20162017 that are accounted for under the fair value option. However, the following table below excludes cumulative net fair value of $135120 million at both March 31, 2018 and $173 millionDecember 31, 2017 on these commitments, which is classified in accrued expenses and other liabilities. For more information regarding the Corporation’s loan commitments accounted for under the fair value option, see Note 15 – Fair Value Option.
| | | | | | | | | | | | | | | | | | | | | |
| Credit Extension Commitments | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | March 31, 2017 | Expire in One
Year or Less | | Expire After One
Year Through
Three Years | | Expire After Three Years Through Five Years | | Expire After Five Years | | Total |
| (Dollars in millions) | Expire in One
Year or Less | | Expire After One
Year Through
Three Years | | Expire After Three
Years Through
Five Years | | Expire After Five
Years | | Total | March 31, 2018 |
| Notional amount of credit extension commitments | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Loan commitments | $ | 77,131 |
| | $ | 134,993 |
| | $ | 148,994 |
| | $ | 23,951 |
| | $ | 385,069 |
| $ | 89,618 |
| | $ | 148,332 |
| | $ | 150,703 |
| | $ | 24,020 |
| | $ | 412,673 |
|
| Home equity lines of credit | 8,973 |
| | 8,539 |
| | 2,469 |
| | 26,912 |
| | 46,893 |
| 4,843 |
| | 3,784 |
| | 2,464 |
| | 32,802 |
| | 43,893 |
|
Standby letters of credit and financial guarantees (1) | 19,549 |
| | 10,991 |
| | 2,852 |
| | 1,068 |
| | 34,460 |
| 20,833 |
| | 10,062 |
| | 2,687 |
| | 1,345 |
| | 34,927 |
|
| Letters of credit | 1,164 |
| | 101 |
| | 97 |
| | 49 |
| | 1,411 |
| 1,212 |
| | 115 |
| | 85 |
| | 56 |
| | 1,468 |
|
| Legally binding commitments | 106,817 |
| | 154,624 |
| | 154,412 |
| | 51,980 |
| | 467,833 |
| 116,506 |
| | 162,293 |
| | 155,939 |
| | 58,223 |
| | 492,961 |
|
Credit card lines (2) | 384,891 |
| | — |
| | — |
| | — |
| | 384,891 |
| 368,608 |
| | — |
| | — |
| | — |
| | 368,608 |
|
| Total credit extension commitments | $ | 491,708 |
| | $ | 154,624 |
| | $ | 154,412 |
| | $ | 51,980 |
| | $ | 852,724 |
| $ | 485,114 |
| | $ | 162,293 |
| | $ | 155,939 |
| | $ | 58,223 |
| | $ | 861,569 |
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | December 31, 2017 |
| Notional amount of credit extension commitments | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Loan commitments | $ | 82,609 |
| | $ | 133,063 |
| | $ | 152,854 |
| | $ | 22,129 |
| | $ | 390,655 |
| $ | 85,804 |
| | $ | 140,942 |
| | $ | 147,043 |
| | $ | 21,342 |
| | $ | 395,131 |
|
| Home equity lines of credit | 8,806 |
| | 10,701 |
| | 2,644 |
| | 25,050 |
| | 47,201 |
| 6,172 |
| | 4,457 |
| | 2,288 |
| | 31,250 |
| | 44,167 |
|
Standby letters of credit and financial guarantees (1) | 19,165 |
| | 10,754 |
| | 3,225 |
| | 1,027 |
| | 34,171 |
| 19,976 |
| | 11,261 |
| | 3,420 |
| | 1,144 |
| | 35,801 |
|
| Letters of credit | 1,285 |
| | 103 |
| | 114 |
| | 53 |
| | 1,555 |
| 1,291 |
| | 117 |
| | 129 |
| | 87 |
| | 1,624 |
|
| Legally binding commitments | 111,865 |
| | 154,621 |
| | 158,837 |
| | 48,259 |
| | 473,582 |
| 113,243 |
| | 156,777 |
| | 152,880 |
| | 53,823 |
| | 476,723 |
|
Credit card lines (2) | 377,773 |
| | — |
| | — |
| | — |
| | 377,773 |
| 362,030 |
| | — |
| | — |
| | — |
| | 362,030 |
|
| Total credit extension commitments | $ | 489,638 |
| | $ | 154,621 |
| | $ | 158,837 |
| | $ | 48,259 |
| | $ | 851,355 |
| $ | 475,273 |
| | $ | 156,777 |
| | $ | 152,880 |
| | $ | 53,823 |
| | $ | 838,753 |
|
| |
(1) | The notional amounts of SBLCs and financial guarantees classified as investment grade and non-investment grade based on the credit quality of the underlying reference name within the instrument were $25.827.0 billion and $8.37.6 billion at March 31, 2017,2018, and $25.527.3 billion and $8.38.1 billion at December 31, 2016.2017. Amounts in the table include consumer SBLCs of $399375 million and $376421 million at March 31, 20172018 and December 31, 2016.2017. |
| |
(2) | Includes business card unused lines of credit. |
Legally binding commitments to extend credit generally have specified rates and maturities. Certain of these commitments have adverse change clauses that help to protect the Corporation against deterioration in the borrower’s ability to pay.
Other Commitments
At March 31, 20172018 and December 31, 2016,2017, the Corporation had commitments to purchase loans (e.g., residential mortgage and commercial real estate) of $537$399 million and $767$344 million,, and commitments to purchase commercial loans of $564$450 million and $636$994 million, which upon settlement will be included in loans or LHFS.
At March 31, 20172018 and December 31, 2016,2017, the Corporation had commitments to purchase commodities, primarily liquefied
natural gas, of $1.5$1.4 billion and $1.9$1.5 billion, which upon settlement will be included in trading account assets.
At March 31, 20172018 and December 31, 2016,2017, the Corporation had commitments to enter into resale and forward-dated resale and securities borrowing agreements of $61.5$89.7 billion and $48.9$56.8 billion,, and commitments to enter into forward-dated repurchase and securities lending agreements of $36.6$46.4 billion and $24.4 billion.$34.3 billion. These commitments expire primarily within the next 12 months.
The Corporation has entered into agreements to purchase retail automotiveautomobile loans from certain auto loan originators. These agreements provide for stated purchase amounts and contain cancellation provisions that allow the Corporation to terminate its commitment to purchase at any time, with a minimum notification period. AtDuring the three months ended March 31, 2017 and2018, the Corporation’s purchase commitment was terminated. At December 31, 2016,2017, the Corporation’s maximum purchase commitment was $175 million
and $475$345 million. In addition, the Corporation has a commitment to originate or purchase up to $3.0 billion of auto loans and leases from a strategic partner up to $1.9 billion forduring the remainder of 2017,twelve months ending March 31, 2019. This commitment extends through November 2022 and can be terminated with this commitment expiring on December 31, 2017.12 months prior notice.
The Corporation is a party to operating leases for certain of its premises and equipment. Commitments under these leases are approximately $1.7 billion, $2.2 billion, $1.92.0 billion, $1.7 billion and $1.4 billion for the remainder of 20172018 and the years through 2021,2022, respectively, and $5.16.0 billion in the aggregate for all years thereafter.
Other Guarantees
Bank-owned Life Insurance Book Value Protection
The Corporation sells products that offer book value protection to insurance carriers who offer group life insurance policies to corporations, primarily banks. At March 31, 20172018 and December 31, 2016,2017, the notional amount of these guarantees which are recorded as derivatives totaled $14.0$10.3 billion and $13.9 billion. At both March 31, 2017$10.4 billion, and December 31, 2016, the Corporation’s maximum exposure related to these guarantees totaled $3.2$1.6 billion at both period ends, with estimated maturity dates between 20312033 and 2039. The net fair value including the fee receivable associated with these guarantees was $3$1 million and $4$3 million at March 31, 20172018 and December 31, 2016,2017, and reflects the probability of surrender as well as the multiple structural protection features in the contracts.
Merchant Services
In accordance with credit and debit card association rules, the Corporation sponsors merchant processing servicers that process credit and debit card transactions on behalf of various merchants. In connection with these services, a liability may arise in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder’s favor. If the merchant defaults on its obligation to reimburse the cardholder, the cardholder, through its issuing bank, generally has until six months after the date of the transaction to present a chargeback to the merchant processor, which is primarily liable for any losses on covered transactions. However, if the merchant processor fails to meet its obligation to reimburse the cardholder for disputed transactions, then the Corporation, as the sponsor, could be held liable for the disputed amount. For the
three months ended March 31, 20172018 and 2016,2017, the sponsored entities processed and settled $186.8$200.7 billion and $159.4$186.8 billion of transactions and recorded losses of $7$8 million and $6 million.$7 million. A significant portion of this activity was processed by a joint venture in which the Corporation holds a 49 percent ownership,ownership. The carrying value of the Corporation’s investment in the merchant services joint venture was $2.8 billion and $2.9 billion at March 31, 2018 and December 31, 2017, and is recorded in other assets on the Consolidated Balance Sheet and in All Other. At both March 31, 2017 and December 31, 2016, the carrying value of the Corporation's investment in the merchant services joint venture was $2.9 billion. At March 31, 2017 and December 31, 2016, the sponsored merchant processing servicers held as collateral $210 million and $188 million of merchant escrow deposits which may be used to offset amounts due from the individual merchants.
The Corporation believes the maximum potential exposure for chargebacks would not exceed the total amount of merchant transactions processed through Visa and MasterCard for the last six months, which represents the claim period for the cardholder, plus any outstanding delayed-delivery transactions. As of March 31, 20172018 and December 31, 2016,2017, the maximum
potential exposure for sponsored transactions totaled $322.8343.3 billion and $325.7346.4 billion. However, the Corporation believes that the
maximum potential exposure is not representative of the actual potential loss exposure and does not expect to make material payments in connection with these guarantees.
Representations and Warranties Obligations and Corporate Guarantees
For information on representations and warranties obligations and corporate guarantees and the related reserve and estimated range of possible loss, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.
The reserve for representations and warranties and corporate guarantees was $2.0 billion and $1.9 billion at March 31, 2018 and December 31, 2017 and is included in accrued expenses and other liabilities on the Consolidated Balance Sheet and the related provision is included in other income in the Consolidated Statement of Income. The representations and warranties reserve represents the Corporation’s best estimate of probable incurred losses. It is reasonably possible that future representations and warranties losses may occur in excess of the amounts recorded for these exposures.
Other Guarantees
The Corporation has entered into additional guarantee agreements and commitments, including sold risk participation swaps, liquidity facilities, lease-end obligation agreements, partial credit guarantees on certain leases, real estate joint venture guarantees, divested business commitments and sold put options that require gross settlement. The maximum potential future payment under these agreements was approximately $6.4$6.0 billion and $6.7$5.9 billion at March 31, 20172018 and December 31, 2016.2017. The estimated maturity dates of these obligations extend up to 2040. The Corporation has made no material payments under these guarantees.
In the normal course of business, the Corporation periodically guarantees the obligations of its affiliates in a variety of transactions including ISDA-related transactions and non-ISDA related transactions such as commodities trading, repurchase agreements, prime brokerage agreements and other transactions.
Payment Protection Insurance Claims Matter
In the U.K.,On June 1, 2017, the Corporation previously sold PPI through its international card services business to credit card customers and consumer loan customers. In response to customer complaints across the industry, media coverage and pressure from consumer advocacy groups, the Prudential Regulation Authority and the Financial Conduct Authority (FCA) investigated and raised concerns about the way some companies handled complaints related to the sale of these insurance policies. On March 2, 2017, the FCA issued its final rules and guidance on PPI complaints and included an August 29, 2019 deadline for customers to file a complaint.
On December 20, 2016, the Corporation entered into an agreement to sell its non-U.S. consumer credit card business to a third party. Subject to regulatory approval, this transaction is expected to close by mid-2017. After closing,business. Included in the calculation of the gain on sale, the Corporation will retainrecorded an obligation to indemnify the purchaser for substantially all PPIpayment protection insurance exposure above existing reserves. The Corporation has considered this exposure in its estimate of a small after-tax gain onreserves assumed by the sale.purchaser.
The reserve for PPI claims was $225 million and $252 million at March 31, 2017 and December 31, 2016. The Corporation recorded no expense for the three months ended March 31, 2017 and 2016.
Litigation and Regulatory Matters
The following supplements the disclosure in Note 12 – Commitments and Contingencies to the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K (the prior commitments and contingencies disclosure).
In the ordinary course of business, the Corporation and its subsidiaries are routinely defendants in or parties to many pending and threatened legal, regulatory and governmental actions and proceedings.
In view of the inherent difficulty of predicting the outcome of such matters, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, the Corporation generally cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the expense, eventual loss, fines or penalties related to each pending matter may be.
In accordance with applicable accounting guidance, theThe Corporation establishes an accrued liability when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. As a matter develops, the Corporation, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. Once the loss contingency is deemed to be both probable and estimable, the Corporation will establish an accrued liability and record a corresponding amount of litigation-related expense. The Corporation continues to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Excluding expenses of internal and external legal service providers, litigation-related expense of $274$116 million and $388$274 million was recognized for the three months ended March 31, 20172018 and 2016.2017.
For a limited number of the matters disclosed in this Note, and in the prior commitments and contingencies disclosure, for which a loss, whether in excess of a related accrued liability or where there is no accrued liability, is reasonably possible in future periods, the Corporation is able to estimate a range of possible loss. In determining whether it is possible to estimate a range of possible loss, the Corporation reviews and evaluates its matters on an ongoing basis, in conjunction with any outside counsel handling the matter, in light of potentially relevant factual and legal developments. In cases in which the Corporation possesses sufficient appropriate information to estimate a range of possible loss, that estimate is aggregated and disclosed below. There may be other previously disclosed matters for which a loss is probable or reasonably possible but such an estimate of the range of possible loss may not be possible. For those matters where an estimate of the range of possible loss is reasonably possible, management currently estimates the aggregate range of possible loss is $0$0 to $1.5$1.2 billion in excess of the accrued liability (if any) related to those matters. This estimated range of possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions, and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate. Therefore, this estimated range of possible loss represents what the Corporation believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Corporation’s maximum loss exposure.
Information ishas been provided below or in the prior commitments and contingencies disclosure regarding the nature of all of these contingencies and, where specified, the amount of the claim
associated with these loss contingencies. Based on current knowledge, management does not believe that loss contingencies arising from pending matters, including the matters described herein and in the prior commitments and contingencies disclosure, will have a material adverse effect on the consolidated financial position or liquidity of the Corporation. However, in light of the inherent uncertainties involved in these matters, some of which are beyond the Corporation’s control, and the very large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to the Corporation’s results of operations or liquidity for any particular reporting period.
Ambac Bond Insurance Litigation
Ambac v. Countrywide III
On March 13, 2018, the Wisconsin Supreme Court denied Ambac’s petition for review.
Deposit Insurance Assessment
On February 24, 2017, BANA filed an answerMarch 27, 2018, the U.S. District Court for the District of Columbia denied BANA’s partial motion to the complaint in which it disputeddismiss certain of the Federal Deposit Insurance Corporation's (FDIC) claimsCorporation’s claims.
LIBOR, Other Reference Rates, Foreign Exchange (FX) and asserted a counterclaim against the FDIC challenging the validity of the 2011 and 2012 FDIC rules on which the FDIC's complaint is based. On March 9, 2017, the FDIC invoiced BANA for additional deposit insurance and interest in the amount of $583 million for the quarters ending March 31, 2012 through March 31, 2013. On April 7, 2017, the FDIC amended its complaint to add a claim for this additional amount. Pending final resolution, BANA has pledged security satisfactory to the FDIC related to the disputed additional assessment amounts reflected in the FDIC's December 15, 2016 and March 9, 2017 invoices.
Interchange and Related LitigationBond Trading Matters
On March 27, 2017,February 23, 2018, the United States SupremeU.S. Court denied the certiorari petition filed by counselof Appeals for the class seeking review of the Second Circuit decision.issued an opinion affirming in part and vacating in part the decision of the U.S. District Court for the Southern District of New York dismissing Securities Exchange Act and certain state law claims against the Corporation, BANA and other defendants.
On February 28, 2018, the District Court issued an opinion granting certification of a class of persons that purchased over-the-counter swaps and notes that referenced U.S. Bank -- Harborview dollar LIBOR from one of the U.S. dollar LIBOR panel banks, limited to claims under Section 1 of the Sherman Act, and denying plaintiffs’ class certification motions in other respects, including with respect to other putative classes. Requests to appeal those rulings are pending in the U.S. Court of Appeals for the Second Circuit.
Mortgage RepurchaseAppraisal Litigation
On March 6, 2017,The Corporation and certain subsidiaries are named as defendants in two putative class action lawsuits filed in U.S. Bank, National Association (U.S. Bank), as trusteeDistrict Court for the HarborView Mortgage Loan Trust 2005-10, filedCentral District of California (Waldrup and Williams, et al.). In November 2016, the actions were consolidated for pre-trial purposes. Plaintiffs allege that in fulfilling orders made by Countrywide for residential mortgage appraisal services, a petitionformer Countrywide subsidiary, LandSafe Appraisal Services, Inc., arranged for and completed appraisals that were not in the Statecompliance with applicable laws and appraisal standards. Plaintiffs seek, among other forms of Minnesota, Hennepin Countyrelief, compensatory and treble damages.
On February 8, 2018, the District Court seeking instructions fromgranted plaintiffs’ motion for class certification. Defendants’ petition for permission to appeal that court regarding, among other things,ruling to the acceptance or rejectionU.S. Court of Appeals for the proposed settlement and the proposed allocation and distribution of any settlement proceeds received by U.S. Bank as trustee (the "Minnesota Action"). On March 23, 2017, the New York state court in the underlying action entered a stipulated order implementing a stay pending resolution of the Minnesota Action. Certain stakeholders have filed separate actions in New York federal court and Minnesota state court seeking, among other things, to enjoin U.S. Bank's acceptance of the proposed settlement.
Ninth Circuit is pending.
NOTE 11Shareholders’ Equity
Common Stock
| | | | | | | |
Declared Quarterly Cash Dividends on Common Stock (1) | Declared Quarterly Cash Dividends on Common Stock (1) | Declared Quarterly Cash Dividends on Common Stock (1) |
| | | | | |
| Declaration Date | | Record Date | | Payment Date | | Dividend Per Share | | Record Date | | Payment Date | | Dividend Per Share |
| | | |
| April 26, 2017 | | June 2, 2017 | | June 30, 2017 | | $ | 0.075 |
| |
| January 26, 2017 | | March 3, 2017 | | March 31, 2017 | | 0.075 |
| |
| April 25, 2018 | | | June 1, 2018 | | June 29, 2018 | | $ | 0.12 |
|
| January 31, 2018 | | | March 2, 2018 | | March 30, 2018 | | 0.12 |
|
| |
(1) | In 20172018, and through May 2, 2017April 30, 2018. |
The Corporation’s 20162017 Comprehensive Capital Analysis and Review (CCAR) capital plan included requestsa request to repurchase $5.0$12.0 billion of common stock over four quarters beginning in the third quarter of 2016,from July 1, 2017 through June 30, 2018, plus repurchases expected to repurchase common stockbe approximately $900 million to offset the dilution resulting from certaineffect of equity-based compensation awardsplans during the same period. The common stock repurchase authorization includes both common stock and warrants. The Corporation’s 2017 capital plan also included a request to increase the quarterly common stock dividend from $0.05$0.075 per share to $0.075.$0.12 per share. On January 13,December 5, 2017, following approval by the Corporation announced a plan toFederal Reserve, the Board authorized the repurchase $1.8of an additional $5.0 billion of common stock during the first half of 2017, to which the Federal Reserve did not object, in addition to the previously announced repurchases associated with the 2016 CCAR capital plan.through June 30, 2018. During the three months ended March 31, 2017,2018, the Corporation repurchased and retired 114153 million shares of common stock, which reduced shareholders'shareholders’ equity by $2.7$4.9 billion.
The Corporation has warrants outstanding and exercisable to purchase 122 million shares of its common stock expiring on October 28, 2018, and warrants outstanding and exercisable to purchase 150142 million shares of common stock expiring on January 16, 2019. These warrants were originally issued in connection with preferred stock issuances to the U.S. Department of the Treasury in 2009 and 2008, and are listed on the New York Stock Exchange. The exercise price of the warrants expiring on January 16, 2019 is subject to continued adjustment each time the quarterly cash dividend is in excess of $0.01 per common share to compensate the holders of the warrants for dilution resulting from an increased dividend. As a result of the Corporation’s first-quarter 20172018 dividend of $0.075$0.12 per common share, the exercise price of the warrants expiring on January 16, 2019 was adjusted to $12.904$12.713 per share. The warrants expiring on October 28, 2018,
which have an exercise price of $30.79 per share, also contain this anti-dilution provision except the adjustment is triggered only when the Corporation declares quarterly dividends at a level greater than $0.32 per common share.
During the three months ended March 31, 2017,2018, in connection with employee stock plans, the Corporation issued approximately 6066 million
shares and repurchased approximately 2425 million shares of its common stock to satisfy tax withholding obligations.At March 31, 2017,2018, the Corporation had reserved 1.6 billion
804 million unissued shares of common stock for future issuances under employee stock plans, common stock warrants, convertible notes and preferred stock.
Preferred Stock
During the three months ended March 31, 2017,2018, the Corporation declared $502$428 million of cash dividends on preferred stock. There were no issuancesOn March 15, 2018, the Corporation issued 94,000 shares of 5.875% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series FF for $2.35 billion. Dividends are paid semi-annually commencing on September 15, 2018 through March 15, 2028 and quarterly thereafter beginning on June 15, 2028. The Series FF preferred stock duringhas a liquidation preference of $25,000 per share and is subject to certain restrictions in the three months ended March 31, 2017.event that the Corporation fails to declare and pay full dividends.
Restricted Stock Units
During the three months ended March 31, 2017,2018, the Corporation granted 8571 million restricted stock unit (RSU) awards to certain employees under the Bank of America Corporation Key Employee Equity Plan. Generally, one-third of the RSUs vest on each of the first three anniversaries of the grant date provided that the employee remains continuously employed with the Corporation during that time. The RSUs granted during the three months ended March 31, 2017These awards were authorized to settle predominantly in shares of common stock of the Corporation and will be expensed ratably over the vesting period, net of estimated forfeitures, for non-retirement eligible employees based on the grant-date fair value of the shares. Certain RSUs will be settled in cash or contain settlement provisions that subject these awards to variable accounting whereby compensation expense is adjusted tofairvaluebasedonchangesinthesharepriceof the Corporation'sCorporation’s common stock up to the settlement date. Of the RSUs granted, 63 million will vest in one-third increments on each of the first three anniversaries of the grant date provided that the employee remains continuously employed with the Corporation during that time, and will be expensed ratably over the vesting period, net of estimated forfeitures, for non-retirement eligible employees. For RSUs granted to employees who are retirement eligible, or will become retirement eligible during the vesting period,awards are deemed authorized as of the beginning of the year preceding the grant date when the incentive award plans are generally approved. As a result, the estimated value is expensed ratably over the year preceding the grant date. Additionally, eight million of the RSUs are expensed asgranted will vest in one-fourth increments on each of the first four anniversaries of the grant date orprovided that the employee remains continuously employed with the Corporation during that time, and will be expensed ratably over the vesting period, from the grant date to the date the employee becomes retirement eligible, net of estimated forfeitures. For additional information, see Note 18 – Stock-based Compensation Plans to the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
Accounting for Share-based Compensation
The FASB issued new accounting guidance, which was effective on January 1, 2017, that simplifies certain aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Under this new accounting guidance, all excess tax benefits and tax deficiencies on the delivery of share-based awards are recognized as discrete items in income tax expense or benefit in the statement of income. Previously such amounts were recorded in shareholders' equity. The adoption of this new accounting guidance resulted in a $222 million tax benefit upon the delivery of share-settled awards in the three months ended March 31, 2017.
NOTE 12 Accumulated Other Comprehensive Income (Loss)
The table below presents the changes in accumulated OCI after-tax for the three months ended March 31, 20172018 and 2016.2017.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | Debt Securities | | Available-for-
Sale Marketable Equity Securities | | Debit Valuation Adjustments | | Derivatives | | Employee Benefit Plans | | Foreign Currency | | Total | Debt and Equity Securities | | Debit Valuation Adjustments | | Derivatives | | Employee Benefit Plans | | Foreign Currency | | Total |
| Balance, December 31, 2015 | $ | 16 |
| | $ | 62 |
| | $ | (611 | ) | | $ | (1,077 | ) | | $ | (2,956 | ) | | $ | (792 | ) | | $ | (5,358 | ) | |
| Net change | 2,389 |
| | (33 | ) | | 127 |
| | 24 |
| | 10 |
| | 12 |
| | 2,529 |
| |
| Balance, March 31, 2016 | $ | 2,405 |
| | $ | 29 |
| | $ | (484 | ) | | $ | (1,053 | ) | | $ | (2,946 | ) | | $ | (780 | ) | | $ | (2,829 | ) | |
| | | | | | | | | | | | | | | |
| Balance, December 31, 2016 | $ | (1,299 | ) | | $ | 32 |
| | $ | (767 | ) | | $ | (895 | ) | | $ | (3,480 | ) | | $ | (879 | ) | | $ | (7,288 | ) | $ | (1,267 | ) | | $ | (767 | ) | | $ | (895 | ) | | $ | (3,480 | ) | | $ | (879 | ) | | $ | (7,288 | ) |
| Net change | (103 | ) | | 4 |
| | 9 |
| | 38 |
| | 27 |
| | (3 | ) | | (28 | ) | (99 | ) | | 9 |
| | 38 |
| | 27 |
| | (3 | ) | | (28 | ) |
| Balance, March 31, 2017 | $ | (1,402 | ) | | $ | 36 |
| | $ | (758 | ) | | $ | (857 | ) | | $ | (3,453 | ) | | $ | (882 | ) | | $ | (7,316 | ) | $ | (1,366 | ) | | $ | (758 | ) | | $ | (857 | ) | | $ | (3,453 | ) | | $ | (882 | ) | | $ | (7,316 | ) |
| | | | | | | | | | | | | |
| Balance, December 31, 2017 | | $ | (1,206 | ) | | $ | (1,060 | ) | | $ | (831 | ) | | $ | (3,192 | ) | | $ | (793 | ) | | $ | (7,082 | ) |
Accounting change related to certain tax effects (1) | | (393 | ) | | (220 | ) | | (189 | ) | | (707 | ) | | 239 |
| | (1,270 | ) |
Cumulative adjustment for hedge accounting change (2) | | — |
| | — |
| | 57 |
| | — |
| | — |
| | 57 |
|
| Net change | | (3,963 | ) | | 273 |
| | (275 | ) | | 30 |
| | (48 | ) | | (3,983 | ) |
| Balance, March 31, 2018 | | $ | (5,562 | ) | | $ | (1,007 | ) | | $ | (1,238 | ) | | $ | (3,869 | ) | | $ | (602 | ) | | $ | (12,278 | ) |
The table below presents the net change in fair value recorded in accumulated OCI, net realized gains and losses reclassified into earnings and other changes for each component of OCI before- and after-tax for the three months ended March 31, 20172018 and 2016.2017.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Changes in OCI Components Before- and After-tax | Changes in OCI Components Before- and After-tax | | | | | | | | | Changes in OCI Components Before- and After-tax | | | | | | | | |
| | Three Months Ended March 31 | |
| | 2017 | | 2016 | Before- tax | | Tax effect | | After- tax | | Before- tax | | Tax effect | | After- tax |
| | | Three Months Ended March 31 |
| (Dollars in millions) | Before-tax | | Tax effect | | After-tax | | Before-tax | | Tax effect | | After-tax | 2018 | | 2017 |
| Debt securities: | | | | | | | | | | | | |
| Net increase (decrease) in fair value | $ | (151 | ) | | $ | 63 |
| | $ | (88 | ) | | $ | 4,038 |
| | $ | (1,535 | ) | | $ | 2,503 |
| |
| Reclassifications into earnings: | | | | | | | | | | | | |
| Gains on sales of debt securities | (52 | ) | | 20 |
| | (32 | ) | | (190 | ) | | 72 |
| | (118 | ) | |
| Other income | 27 |
| | (10 | ) | | 17 |
| | 7 |
| | (3 | ) | | 4 |
| |
| Net realized gains reclassified into earnings | (25 | ) | | 10 |
| | (15 | ) | | (183 | ) | | 69 |
| | (114 | ) | |
| Net change | (176 | ) | | 73 |
| | (103 | ) | | 3,855 |
| | (1,466 | ) | | 2,389 |
| |
| Available-for-sale marketable equity securities: | | | | | | | | | | | | |
| Net increase (decrease) in fair value | 27 |
| | (10 | ) | | 17 |
| | (54 | ) | | 21 |
| | (33 | ) | |
Net realized gains reclassified into earnings (1) | (20 | ) | | 7 |
| | (13 | ) | | — |
| | — |
| | — |
| |
| Debt and equity securities: | | | | | | | | | | | | |
| Net decrease in fair value | | $ | (5,323 | ) | | $ | 1,360 |
| | $ | (3,963 | ) | | $ | (124 | ) | | $ | 53 |
| | $ | (71 | ) |
Net realized gains reclassified into earnings (3) | | (2 | ) | | 2 |
| | — |
| | (45 | ) | | 17 |
| | (28 | ) |
| Net change | 7 |
| | (3 | ) | | 4 |
| | (54 | ) | | 21 |
| | (33 | ) | (5,325 | ) | | 1,362 |
| | (3,963 | ) | | (169 | ) | | 70 |
| | (99 | ) |
| Debit valuation adjustments: | | | | | | | | | | | | | | | | | | | | | | |
| Net increase in fair value | 9 |
| | (4 | ) | | 5 |
| | 195 |
| | (72 | ) | | 123 |
| 342 |
| | (82 | ) | | 260 |
| | 9 |
| | (4 | ) | | 5 |
|
Net realized losses reclassified into earnings (1) | 6 |
| | (2 | ) | | 4 |
| | 7 |
| | (3 | ) | | 4 |
| |
Net realized losses reclassified into earnings (3) | | 17 |
| | (4 | ) | | 13 |
| | 6 |
| | (2 | ) | | 4 |
|
| Net change | 15 |
| | (6 | ) | | 9 |
| | 202 |
| | (75 | ) | | 127 |
| 359 |
| | (86 | ) | | 273 |
| | 15 |
| | (6 | ) | | 9 |
|
| Derivatives: | | | | | | | | | | | | | | | | | | | | | | |
| Net decrease in fair value | (9 | ) | | 3 |
| | (6 | ) | | (159 | ) | | 59 |
| | (100 | ) | (424 | ) | | 131 |
| | (293 | ) | | (9 | ) | | 3 |
| | (6 | ) |
| Reclassifications into earnings: | | | | | | | | | | | | | | | | | | | | | | |
| Net interest income | 112 |
| | (42 | ) | | 70 |
| | 164 |
| | (61 | ) | | 103 |
| 50 |
| | (12 | ) | | 38 |
| | 112 |
| | (42 | ) | | 70 |
|
| Personnel | (42 | ) | | 16 |
| | (26 | ) | | 34 |
| | (13 | ) | | 21 |
| |
Net realized losses reclassified into earnings | 70 |
| | (26 | ) | | 44 |
| | 198 |
| | (74 | ) | | 124 |
| |
| Personnel expense | | (27 | ) | | 7 |
| | (20 | ) | | (42 | ) | | 16 |
| | (26 | ) |
| Net realized losses reclassified into earnings | | 23 |
| | (5 | ) | | 18 |
| | 70 |
| | (26 | ) | | 44 |
|
| Net change | 61 |
| | (23 | ) | | 38 |
| | 39 |
| | (15 | ) | | 24 |
| (401 | ) | | 126 |
| | (275 | ) | | 61 |
| | (23 | ) | | 38 |
|
| Employee benefit plans: | | | | | | | | | | | | | | | | | | | | | | |
| Reclassifications into earnings: | | | | | | | | | | | | | | | | | | | | | | |
| Prior service cost | 1 |
| | — |
| | 1 |
| | 1 |
| | — |
| | 1 |
| (1 | ) | | — |
| | (1 | ) | | 1 |
| | — |
| | 1 |
|
| Net actuarial losses | 42 |
| | (16 | ) | | 26 |
| | 24 |
| | (10 | ) | | 14 |
| 42 |
| | (11 | ) | | 31 |
| | 42 |
| | (16 | ) | | 26 |
|
Net realized losses reclassified into earnings (2) | 43 |
| | (16 | ) | | 27 |
| | 25 |
| | (10 | ) | | 15 |
| |
Net realized losses reclassified into earnings | | 41 |
| | (11 | ) | | 30 |
| | 43 |
| | (16 | ) | | 27 |
|
| Settlements, curtailments and other | — |
| | — |
| | — |
| | — |
| | (5 | ) | | (5 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net change | 43 |
| | (16 | ) | | 27 |
| | 25 |
| | (15 | ) | | 10 |
| 41 |
| | (11 | ) | | 30 |
| | 43 |
| | (16 | ) | | 27 |
|
| Foreign currency: | | | | | | | | | | | | | | | | | | | | | | |
| Net decrease in fair value | (131 | ) | | 108 |
| | (23 | ) | | (134 | ) | | 146 |
| | 12 |
| (82 | ) | | 34 |
| | (48 | ) | | (131 | ) | | 108 |
| | (23 | ) |
Net gains reclassified into earnings (1) | (12 | ) | | 32 |
| | 20 |
| | — |
| | — |
| | — |
| |
Net realized (gains) losses reclassified into earnings (3) | | 1 |
| | (1 | ) | | — |
| | (12 | ) | | 32 |
| | 20 |
|
| Net change | (143 | ) | | 140 |
| | (3 | ) | | (134 | ) | | 146 |
| | 12 |
| (81 | ) | | 33 |
| | (48 | ) | | (143 | ) | | 140 |
| | (3 | ) |
| Total other comprehensive income (loss) | $ | (193 | ) | | $ | 165 |
| | $ | (28 | ) | | $ | 3,933 |
| | $ | (1,404 | ) | | $ | 2,529 |
| $ | (5,407 | ) | | $ | 1,424 |
| | $ | (3,983 | ) | | $ | (193 | ) | | $ | 165 |
| | $ | (28 | ) |
| |
(1) | Effective January 1, 2018, the Corporation adopted the new accounting standard on tax effects in accumulated OCI related to the Tax Act. Accordingly, certain tax effects were reclassified from accumulated OCI to retained earnings. For additional information, see Note 1 – Summary of Significant Accounting Principles. |
| |
(2) | Reflects the Corporation’s adoption of the new hedge accounting standard. For additional information, see Note 1 – Summary of Significant Accounting Principles. |
| |
(3) | Reclassifications of pretax AFS marketabledebt and equity securities, DVA and foreign currency (gains) losses are recorded in other income in the Consolidated Statement of Income. |
| |
(2)(4)
| Reclassifications of pretax employee benefit plan costs are recorded in personnelother general operating expense in the Consolidated Statement of Income. |
NOTE 13Earnings Per Common Share
The calculation of earnings per common share (EPS) and diluted EPS for the three months ended March 31, 20172018 and 20162017 is presented below. For more information on the calculation of EPS, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
| | | | | | | | | |
| | Three Months Ended March 31 | Three Months Ended March 31 |
| (Dollars in millions, except per share information; shares in thousands) | 2017 | | 2016 | |
| (In millions, except per share information) | | 2018 | | 2017 |
| Earnings per common share | |
| | |
| |
| | |
|
| Net income | $ | 4,856 |
| | $ | 3,472 |
| $ | 6,918 |
| | $ | 5,337 |
|
| Preferred stock dividends | (502 | ) | | (457 | ) | (428 | ) | | (502 | ) |
| Net income applicable to common shareholders | $ | 4,354 |
| | $ | 3,015 |
| $ | 6,490 |
| | $ | 4,835 |
|
| Average common shares issued and outstanding | 10,099,557 |
| | 10,370,094 |
| 10,322.4 |
| | 10,099.6 |
|
| Earnings per common share | $ | 0.43 |
| | $ | 0.29 |
| $ | 0.63 |
| | $ | 0.48 |
|
| | | | | | | |
| Diluted earnings per common share | |
| | |
| |
| | |
|
| Net income applicable to common shareholders | $ | 4,354 |
| | $ | 3,015 |
| $ | 6,490 |
| | $ | 4,835 |
|
Add preferred stock dividends due to assumed conversions | 75 |
| | 75 |
| — |
| | 75 |
|
| Net income allocated to common shareholders | $ | 4,429 |
| | $ | 3,090 |
| $ | 6,490 |
| | $ | 4,910 |
|
| Average common shares issued and outstanding | 10,099,557 |
| | 10,370,094 |
| 10,322.4 |
| | 10,099.6 |
|
Dilutive potential common shares (1)(2) | 815,258 |
| | 729,973 |
| 150.3 |
| | 820.1 |
|
| Total diluted average common shares issued and outstanding | 10,914,815 |
| | 11,100,067 |
| 10,472.7 |
| | 10,919.7 |
|
| Diluted earnings per common share | $ | 0.41 |
| | $ | 0.28 |
| $ | 0.62 |
| | $ | 0.45 |
|
| |
(1) | Represents the Series T dividends under the “if-converted” method prior to conversion. |
| |
(2) | Includes incremental dilutive shares from RSUs, restricted stock and warrants. |
The Corporation previously issued a warrantwarrants to purchase 700 million shares of the Corporation’s common stock to the holderholders of the Series T Preferred Stock. The warrant may be exercised, at6% Non-cumulative preferred stock (Series T). In the optionthird quarter of the holder, through tendering2017, the Series T Preferred Stock or paying cash.holders exercised the warrants and acquired the 700 million shares of the Corporation’s common stock. For the three months ended March 31, 2017, and 2016, the 700 million average dilutive potential common shares were included in the diluted share count under the “if-converted” method.
For the three months ended March 31, 20172018 and 2016,2017, 62 million average dilutive potential common shares associated with the Series L Preferred Stockpreferred stock were not included in the diluted share count because the result would have been antidilutive under the “if-converted” method. For the three months ended March 31, 20172018 and 2016,2017, average options to purchase 30seven million and 5330 million shares of common stock were outstanding but not included in the computation of EPS because the result would have been antidilutive under the treasury stock method. For the three months ended March 31, 2018, average warrants to purchase 264 million shares of common stock were included in the diluted EPS calculation under the treasury stock method compared to 150 million shares of common stock for the three months ended March 31, 2017. For the three months ended March 31, 2017, and 2016, average warrants to purchase 122 million shares of common stock were outstanding but not included in the computation of EPS because the result would have been antidilutive under the treasury stock method, and average warrants to purchase 150 million shares of common stock were included in the diluted EPS calculation under the treasury stock method.
NOTE 14Fair Value Measurements
Under applicable accounting guidance,standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Corporation determines the fair values of its financial instruments under applicable accounting guidance which requires an entity to maximize the use of observable inputsstandards and minimize the use of unobservable inputs. The Corporation categorizes its financial instruments into three levels based on the established fair value hierarchy. The Corporation conducts a review of its fair value hierarchy classifications on a quarterly basis. Transfers into or out of fair value hierarchy classifications are made if the
significant inputs used in the financial models measuring the fair values of the assets and liabilities became unobservable or observable in the current marketplace. These transfers are considered to be effective as of the beginning of the quarter in which they occur. During the three months ended March 31, 2018, there were no changes to valuation approaches or techniques that had, or are expected to have, a material impact on the Corporation’s consolidated financial position or results of operations.
For more information regarding the fair value hierarchy and how the Corporation measures fair value and valuation processes and techniques, see Note 1 – Summary of Significant Accounting Principles and Note 20 – Fair Value Measurements to the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K. The Corporation accounts for certain financial instruments under the fair value option. For additional information, see Note 15 – Fair Value Option.
Valuation Processes and Techniques
The Corporation has various processes and controls in place so that fair value is reasonably estimated. A model validation policy governs the use and control of valuation models used to estimate fair value. This policy requires review and approval of models by personnel who are independent of the front office and periodic reassessments of models so that they are continuing to perform as designed. In addition, detailed reviews of trading gains and losses are conducted on a daily basis by personnel who are independent of the front office. A price verification group, which is also independent of the front office, utilizes available market information including executed trades, market prices and market-observable valuation model inputs so that fair values are reasonably estimated. The Corporation performs due diligence procedures over third-party pricing service providers in order to support their use in the valuation process. Where market information is not available to support internal valuations, independent reviews of the valuations are performed and any material exposures are escalated through a management review process. While the Corporation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. During the three months ended March 31, 2017, there were no changes to valuation approaches or techniques that had, or are expected to have, a
111Bank of America
material impact on the Corporation’s consolidated financial position or results of operations.
For information regarding Level 1, 2 and 3 valuation techniques, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2016 Annual Report on Form 10-K.
Assets and liabilities carried at fair value on a recurring basis at March 31, 20172018 and December 31, 2016,2017, including financial instruments which the Corporation accounts for under the fair value option, are summarized in the following tables.
| | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2017 | March 31, 2018 |
| | Fair Value Measurements | | | | | Fair Value Measurements | | | | |
| (Dollars in millions) | Level 1 | | Level 2 | | Level 3 | | Netting Adjustments (1) | | Assets/Liabilities at Fair Value | Level 1 | | Level 2 | | Level 3 | | Netting Adjustments (1) | | Assets/Liabilities at Fair Value |
| Assets | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Federal funds sold and securities borrowed or purchased under agreements to resell | $ | — |
| | $ | 58,545 |
| | $ | — |
| | $ | — |
| | $ | 58,545 |
| $ | — |
| | $ | 68,556 |
| | $ | — |
| | $ | — |
| | $ | 68,556 |
|
| Trading account assets: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
U.S. Treasury and agency securities (2) | 40,582 |
| | 1,006 |
| | — |
| | — |
| | 41,588 |
| 35,219 |
| | 2,473 |
| | — |
| | — |
| | 37,692 |
|
| Corporate securities, trading loans and other | 219 |
| | 27,691 |
| | 2,029 |
| | — |
| | 29,939 |
| — |
| | 31,556 |
| | 1,716 |
| | — |
| | 33,272 |
|
| Equity securities | 58,970 |
| | 25,168 |
| | 288 |
| | — |
| | 84,426 |
| 40,949 |
| | 24,724 |
| | 212 |
| | — |
| | 65,885 |
|
| Non-U.S. sovereign debt | 12,430 |
| | 13,023 |
| | 527 |
| | — |
| | 25,980 |
| 7,459 |
| | 25,381 |
| | 401 |
| | — |
| | 33,241 |
|
| Mortgage trading loans, MBS and ABS: | | | | | | | | | | | | | | | | | | |
U.S. government-sponsored agency guaranteed (2) | — |
| | 18,442 |
| | — |
| | — |
| | 18,442 |
| — |
| | 18,380 |
| | — |
| | — |
| | 18,380 |
|
| Mortgage trading loans, ABS and other MBS | — |
| | 7,454 |
| | 1,215 |
| | — |
| | 8,669 |
| — |
| | 8,635 |
| | 1,372 |
| | — |
| | 10,007 |
|
Total trading account assets (3) | 112,201 |
| | 92,784 |
| | 4,059 |
| | — |
| | 209,044 |
| 83,627 |
| | 111,149 |
| | 3,701 |
| | — |
| | 198,477 |
|
Derivative assets (4) | 8,218 |
| | 521,097 |
| | 4,152 |
| | (493,389 | ) | | 40,078 |
| 9,873 |
| | 345,940 |
| | 4,545 |
| | (312,489 | ) | | 47,869 |
|
| AFS debt securities: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| U.S. Treasury and agency securities | 49,013 |
| | 1,545 |
| | — |
| | — |
| | 50,558 |
| 51,412 |
| | 1,560 |
| | — |
| | — |
| | 52,972 |
|
| Mortgage-backed securities: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Agency | — |
| | 189,043 |
| | — |
| | — |
| | 189,043 |
| — |
| | 184,111 |
| | — |
| | — |
| | 184,111 |
|
| Agency-collateralized mortgage obligations | — |
| | 7,877 |
| | — |
| | — |
| | 7,877 |
| — |
| | 6,398 |
| | — |
| | — |
| | 6,398 |
|
| Non-agency residential | — |
| | 1,943 |
| | — |
| | — |
| | 1,943 |
| — |
| | 2,604 |
| | — |
| | — |
| | 2,604 |
|
| Commercial | — |
| | 12,572 |
| | — |
| | — |
| | 12,572 |
| — |
| | 13,559 |
| | — |
| | — |
| | 13,559 |
|
| Non-U.S. securities | 1,945 |
| | 3,910 |
| | 207 |
| | — |
| | 6,062 |
| 751 |
| | 6,151 |
| | 23 |
| | — |
| | 6,925 |
|
| Other taxable securities | — |
| | 9,240 |
| | 579 |
| | — |
| | 9,819 |
| — |
| | 4,671 |
| | 43 |
| | — |
| | 4,714 |
|
| Tax-exempt securities | — |
| | 16,815 |
| | 520 |
| | — |
| | 17,335 |
| — |
| | 19,077 |
| | — |
| | — |
| | 19,077 |
|
| Total AFS debt securities | 50,958 |
| | 242,945 |
| | 1,306 |
| | — |
| | 295,209 |
| 52,163 |
| | 238,131 |
| | 66 |
| | — |
| | 290,360 |
|
| Other debt securities carried at fair value: | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | | |
| Agency-collateralized mortgage obligations | — |
| | 5 |
| | — |
| | — |
| | 5 |
| |
| Non-agency residential | — |
| | 3,058 |
| | 24 |
| | — |
| | 3,082 |
| — |
| | 2,736 |
| | — |
| | — |
| | 2,736 |
|
| Non-U.S. securities | 12,177 |
| | 1,305 |
| | — |
| | — |
| | 13,482 |
| 8,621 |
| | 1,355 |
| | — |
| | — |
| | 9,976 |
|
| Other taxable securities | — |
| | 234 |
| | — |
| | — |
| | 234 |
| — |
| | 226 |
| | — |
| | — |
| | 226 |
|
| Total other debt securities carried at fair value | 12,177 |
| | 4,602 |
| | 24 |
| | — |
| | 16,803 |
| 8,621 |
| | 4,317 |
| | — |
| | — |
| | 12,938 |
|
| Loans and leases | — |
| | 6,826 |
| | 702 |
| | — |
| | 7,528 |
| — |
| | 5,463 |
| | 526 |
| | — |
| | 5,989 |
|
| Mortgage servicing rights | — |
| | — |
| | 2,610 |
| | — |
| | 2,610 |
| |
| Loans held-for-sale | — |
| | 2,953 |
| | 792 |
| | — |
| | 3,745 |
| — |
| | 2,406 |
| | 685 |
| | — |
| | 3,091 |
|
| Customer and other receivables | — |
| | 250 |
| | — |
| | — |
| | 250 |
| |
| Debt securities in assets of business held for sale | 691 |
| | — |
| | — |
| | — |
| | 691 |
| |
| Other assets | 12,971 |
| | 1,437 |
| | 231 |
| | — |
| | 14,639 |
| |
Other assets (5) | | 15,376 |
| | 1,904 |
| | 3,295 |
| | — |
| | 20,575 |
|
| Total assets | $ | 197,216 |
| | $ | 931,439 |
| | $ | 13,876 |
| | $ | (493,389 | ) | | $ | 649,142 |
| $ | 169,660 |
| | $ | 777,866 |
| | $ | 12,818 |
| | $ | (312,489 | ) | | $ | 647,855 |
|
| Liabilities | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Interest-bearing deposits in U.S. offices | $ | — |
| | $ | 598 |
| | $ | — |
| | $ | — |
| | $ | 598 |
| $ | — |
| | $ | 435 |
| | $ | — |
| | $ | — |
| | $ | 435 |
|
| Federal funds purchased and securities loaned or sold under agreements to repurchase | — |
| | 36,437 |
| | 226 |
| | — |
| | 36,663 |
| — |
| | 35,116 |
| | — |
| | — |
| | 35,116 |
|
| Trading account liabilities: | |
| | |
| | |
| | |
| | | |
| | |
| | |
| | |
| | |
| U.S. Treasury and agency securities | 18,392 |
| | 91 |
| | — |
| | — |
| | 18,483 |
| 15,205 |
| | 293 |
| | — |
| | — |
| | 15,498 |
|
| Equity securities | 30,203 |
| | 3,064 |
| | — |
| | — |
| | 33,267 |
| 43,434 |
| | 5,061 |
| | — |
| | — |
| | 48,495 |
|
| Non-U.S. sovereign debt | 13,547 |
| | 3,723 |
| | — |
| | — |
| | 17,270 |
| 17,210 |
| | 11,080 |
| | — |
| | — |
| | 28,290 |
|
| Corporate securities and other | 231 |
| | 7,997 |
| | 35 |
| | — |
| | 8,263 |
| — |
| | 7,909 |
| | 26 |
| | — |
| | 7,935 |
|
| Total trading account liabilities | 62,373 |
| | 14,875 |
| | 35 |
| | — |
| | 77,283 |
| 75,849 |
| | 24,343 |
| | 26 |
| | — |
| | 100,218 |
|
Derivative liabilities (4) | 7,640 |
| | 520,288 |
| | 5,817 |
| | (497,317 | ) | | 36,428 |
| 9,374 |
| | 325,832 |
| | 5,683 |
| | (306,989 | ) | | 33,900 |
|
| Short-term borrowings | — |
| | 1,041 |
| | — |
| | — |
| | 1,041 |
| — |
| | 2,284 |
| | — |
| | — |
| | 2,284 |
|
| Accrued expenses and other liabilities | 14,650 |
| | 1,586 |
| | 9 |
| | — |
| | 16,245 |
| 18,131 |
| | 2,037 |
| | 8 |
| | — |
| | 20,176 |
|
| Long-term debt | — |
| | 27,957 |
| | 1,660 |
| | — |
| | 29,617 |
| — |
| | 28,711 |
| | 1,351 |
| | — |
| | 30,062 |
|
| Total liabilities | $ | 84,663 |
| | $ | 602,782 |
| | $ | 7,747 |
| | $ | (497,317 | ) | | $ | 197,875 |
| $ | 103,354 |
| | $ | 418,758 |
| | $ | 7,068 |
| | $ | (306,989 | ) | | $ | 222,191 |
|
| |
(1) | Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties. |
| |
(2) | Includes $19.219.1 billion of GSE obligations. |
| |
(3) | Includes securities with a fair value of $18.116.4 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet. |
| |
(4) | During the three months ended March 31, 20172018, $612364 million of derivative assets and $400188 million of derivative liabilities were transferred from Level 1 to Level 2 and $111916 million of derivative assets and $123663 million of derivative liabilities were transferred from Level 2 to Level 1 based on the observability of inputs used to measure fair value. For further disaggregation of derivative assets and liabilities, see Note 23 – DerivativesDerivatives. |
| |
(5) | Includes MSRs of $2.3 billion. |
| | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | December 31, 2017 |
| | Fair Value Measurements | | | | | Fair Value Measurements | | | | |
| (Dollars in millions) | Level 1 | | Level 2 | | Level 3 | | Netting Adjustments (1) | | Assets/Liabilities at Fair Value | Level 1 | | Level 2 | | Level 3 | | Netting Adjustments (1) | | Assets/Liabilities at Fair Value |
| Assets | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Federal funds sold and securities borrowed or purchased under agreements to resell | $ | — |
| | $ | 49,750 |
| | $ | — |
| | $ | — |
| | $ | 49,750 |
| $ | — |
| | $ | 52,906 |
| | $ | — |
| | $ | — |
| | $ | 52,906 |
|
| Trading account assets: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
U.S. Treasury and agency securities (2) | 34,587 |
| | 1,927 |
| | — |
| | — |
| | 36,514 |
| |
U.S. Treasury and agency securities (2, 3) | | 38,720 |
| | 1,922 |
| | — |
| | — |
| | 40,642 |
|
| Corporate securities, trading loans and other | 171 |
| | 22,861 |
| | 2,777 |
| | — |
| | 25,809 |
| — |
| | 28,714 |
| | 1,864 |
| | — |
| | 30,578 |
|
| Equity securities | 50,169 |
| | 21,601 |
| | 281 |
| | — |
| | 72,051 |
| |
| Non-U.S. sovereign debt | 9,578 |
| | 9,940 |
| | 510 |
| | — |
| | 20,028 |
| |
Equity securities (3) | | 60,747 |
| | 23,958 |
| | 235 |
| | — |
| | 84,940 |
|
Non-U.S. sovereign debt (3) | | 6,545 |
| | 15,839 |
| | 556 |
| | — |
| | 22,940 |
|
| Mortgage trading loans, MBS and ABS: | | | | | | | | | | | | | | | | | | |
U.S. government-sponsored agency guaranteed (2) | — |
| | 15,799 |
| | — |
| | — |
| | 15,799 |
| — |
| | 20,586 |
| | — |
| | — |
| | 20,586 |
|
| Mortgage trading loans, ABS and other MBS | — |
| | 8,797 |
| | 1,211 |
| | — |
| | 10,008 |
| — |
| | 8,174 |
| | 1,498 |
| | — |
| | 9,672 |
|
Total trading account assets (3)(4) | 94,505 |
| | 80,925 |
| | 4,779 |
| | — |
| | 180,209 |
| 106,012 |
| | 99,193 |
| | 4,153 |
| | — |
| | 209,358 |
|
Derivative assets (4)(3) | 7,337 |
| | 619,848 |
| | 3,931 |
| | (588,604 | ) | | 42,512 |
| 6,305 |
| | 341,178 |
| | 4,067 |
| | (313,788 | ) | | 37,762 |
|
| AFS debt securities: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| U.S. Treasury and agency securities | 46,787 |
| | 1,465 |
| | — |
| | — |
| | 48,252 |
| 51,915 |
| | 1,608 |
| | — |
| | — |
| | 53,523 |
|
| Mortgage-backed securities: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Agency | — |
| | 189,486 |
| | — |
| | — |
| | 189,486 |
| — |
| | 192,929 |
| | — |
| | — |
| | 192,929 |
|
| Agency-collateralized mortgage obligations | — |
| | 8,330 |
| | — |
| | — |
| | 8,330 |
| — |
| | 6,804 |
| | — |
| | — |
| | 6,804 |
|
| Non-agency residential | — |
| | 2,013 |
| | — |
| | — |
| | 2,013 |
| — |
| | 2,669 |
| | — |
| | — |
| | 2,669 |
|
| Commercial | — |
| | 12,322 |
| | — |
| | — |
| | 12,322 |
| — |
| | 13,684 |
| | — |
| | — |
| | 13,684 |
|
| Non-U.S. securities | 1,934 |
| | 3,600 |
| | 229 |
| | — |
| | 5,763 |
| 772 |
| | 5,880 |
| | 25 |
| | — |
| | 6,677 |
|
| Other taxable securities | — |
| | 10,020 |
| | 594 |
| | — |
| | 10,614 |
| — |
| | 5,261 |
| | 509 |
| | — |
| | 5,770 |
|
| Tax-exempt securities | — |
| | 16,618 |
| | 542 |
| | — |
| | 17,160 |
| — |
| | 20,106 |
| | 469 |
| | — |
| | 20,575 |
|
| Total AFS debt securities | 48,721 |
| | 243,854 |
| | 1,365 |
| | — |
| | 293,940 |
| 52,687 |
| | 248,941 |
| | 1,003 |
| | — |
| | 302,631 |
|
| Other debt securities carried at fair value: | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | | |
| Agency-collateralized mortgage obligations | — |
| | 5 |
| | — |
| | — |
| | 5 |
| — |
| | 5 |
| | — |
| | — |
| | 5 |
|
| Non-agency residential | — |
| | 3,114 |
| | 25 |
| | — |
| | 3,139 |
| — |
| | 2,764 |
| | — |
| | — |
| | 2,764 |
|
| Non-U.S. securities | 15,109 |
| | 1,227 |
| | — |
| | — |
| | 16,336 |
| 8,191 |
| | 1,297 |
| | — |
| | — |
| | 9,488 |
|
| Other taxable securities | — |
| | 240 |
| | — |
| | — |
| | 240 |
| — |
| | 229 |
| | — |
| | — |
| | 229 |
|
| Total other debt securities carried at fair value | 15,109 |
| | 4,586 |
| | 25 |
| | — |
| | 19,720 |
| 8,191 |
| | 4,295 |
| | — |
| | — |
| | 12,486 |
|
| Loans and leases | — |
| | 6,365 |
| | 720 |
| | — |
| | 7,085 |
| — |
| | 5,139 |
| | 571 |
| | — |
| | 5,710 |
|
| Mortgage servicing rights | — |
| | — |
| | 2,747 |
| | — |
| | 2,747 |
| |
| Loans held-for-sale | — |
| | 3,370 |
| | 656 |
| | — |
| | 4,026 |
| — |
| | 1,466 |
| | 690 |
| | — |
| | 2,156 |
|
| Debt securities in assets of business held for sale | 619 |
| | — |
| | — |
| | — |
| | 619 |
| |
| Other assets | 11,824 |
| | 1,739 |
| | 239 |
| | — |
| | 13,802 |
| |
Other assets (5) | | 19,367 |
| | 789 |
| | 2,425 |
| | — |
| | 22,581 |
|
| Total assets | $ | 178,115 |
| | $ | 1,010,437 |
| | $ | 14,462 |
| | $ | (588,604 | ) | | $ | 614,410 |
| $ | 192,562 |
| | $ | 753,907 |
| | $ | 12,909 |
| | $ | (313,788 | ) | | $ | 645,590 |
|
| Liabilities | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Interest-bearing deposits in U.S. offices | $ | — |
| | $ | 731 |
| | $ | — |
| | $ | — |
| | $ | 731 |
| $ | — |
| | $ | 449 |
| | $ | — |
| | $ | — |
| | $ | 449 |
|
| Federal funds purchased and securities loaned or sold under agreements to repurchase | — |
| | 35,407 |
| | 359 |
| | — |
| | 35,766 |
| — |
| | 36,182 |
| | — |
| | — |
| | 36,182 |
|
| Trading account liabilities: | |
| | |
| | |
| | |
| | | |
| | |
| | |
| | |
| | |
| U.S. Treasury and agency securities | 15,854 |
| | 197 |
| | — |
| | — |
| | 16,051 |
| 17,266 |
| | 734 |
| | — |
| | — |
| | 18,000 |
|
| Equity securities | 25,884 |
| | 3,014 |
| | — |
| | — |
| | 28,898 |
| |
| Non-U.S. sovereign debt | 9,409 |
| | 2,103 |
| | — |
| | — |
| | 11,512 |
| |
Equity securities (3) | | 33,019 |
| | 3,885 |
| | — |
| | — |
| | 36,904 |
|
Non-U.S. sovereign debt (3) | | 11,976 |
| | 7,382 |
| | — |
| | — |
| | 19,358 |
|
| Corporate securities and other | 163 |
| | 6,380 |
| | 27 |
| | — |
| | 6,570 |
| — |
| | 6,901 |
| | 24 |
| | — |
| | 6,925 |
|
| Total trading account liabilities | 51,310 |
| | 11,694 |
| | 27 |
| | — |
| | 63,031 |
| 62,261 |
| | 18,902 |
| | 24 |
| | — |
| | 81,187 |
|
Derivative liabilities (4) | 7,173 |
| | 615,896 |
| | 5,244 |
| | (588,833 | ) | | 39,480 |
| |
Derivative liabilities (3) | | 6,029 |
| | 334,261 |
| | 5,781 |
| | (311,771 | ) | | 34,300 |
|
| Short-term borrowings | — |
| | 2,024 |
| | — |
| | — |
| | 2,024 |
| — |
| | 1,494 |
| | — |
| | — |
| | 1,494 |
|
| Accrued expenses and other liabilities | 12,978 |
| | 1,643 |
| | 9 |
| | — |
| | 14,630 |
| 21,887 |
| | 945 |
| | 8 |
| | — |
| | 22,840 |
|
| Long-term debt | — |
| | 28,523 |
| | 1,514 |
| | — |
| | 30,037 |
| — |
| | 29,923 |
| | 1,863 |
| | — |
| | 31,786 |
|
| Total liabilities | $ | 71,461 |
| | $ | 695,918 |
| | $ | 7,153 |
| | $ | (588,833 | ) | | $ | 185,699 |
| $ | 90,177 |
| | $ | 422,156 |
| | $ | 7,676 |
| | $ | (311,771 | ) | | $ | 208,238 |
|
| |
(1) | Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties. |
| |
(2) | Includes $17.521.3 billion of GSE obligations. |
| |
(3) | During 2017, for trading account assets and liabilities, $1.1 billion of U.S. Treasury and agency securities assets, $5.3 billion of equity securities assets, $3.1 billion of equity securities liabilities, $3.3 billion of non-U.S. sovereign debt assets and $1.5 billion of non-U.S. sovereign debt liabilities were transferred from Level 1 to Level 2 based on the liquidity of the positions. In addition, $14.1 billion of equity securities assets and $4.3 billion of equity securities liabilities were transferred from Level 2 to Level 1. Also in 2017, $4.2 billion of derivative assets and $3.0 billion of derivative liabilities were transferred from Level 1 to Level 2 and $758 million of derivative assets and $608 million of derivative liabilities were transferred from Level 2 to Level 1 based on the observability of inputs used to measure fair value. For further disaggregation of derivative assets and liabilities, see Note 3 – Derivatives. |
| |
(4) | Includes securities with a fair value of $14.616.8 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet. |
| |
(4)(5)
| During 2016,Includes MSRs of $2.3 billion of derivative assets and $2.4 billion of derivative liabilities were transferred from Level 1 to Level 2 and $2.0 billion of derivative assets and $1.8 billion of derivative liabilities were transferred from Level 2 to Level 1 based on the inputs used to measure fair value. For further disaggregation of derivative assets and liabilities, see Note 2 – Derivatives.
|
113Bank of America
The following tables present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 20172018 and 2016,2017, including net realized and unrealized gains (losses) included in earnings and accumulated OCI.
| | | | | | | |
Level 3 – Fair Value Measurements (1) | | | | |
Level 3 – Fair Value Measurements for the Three Months Ended March 31, 2018 (1) | | Level 3 – Fair Value Measurements for the Three Months Ended March 31, 2018 (1) |
| | | | | | |
| | Three Months Ended March 31, 2017 | | |
| | | Gross | | | |
| (Dollars in millions) | | Balance January 1 2018 | Total Realized/Unrealized Gains (Losses) (2) | Gains
(Losses)
in OCI (3) | Gross | Gross
Transfers
into Level 3 | Gross
Transfers
out of Level 3 | Balance
March 31
2018 | Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held (2) |
Balance January 1 2017 | Total Realized/Unrealized Gains/(Losses) (2) | Gains
(Losses)
in OCI (3) | Purchases | Sales | Issuances | Settlements | | Gross
Transfers
into Level 3 | Gross
Transfers
out of Level 3 | Balance
March 31
2017 | Change in Unrealized Gains/(Losses) Related to Financial Instruments Still Held (2) | Purchases | Sales | Issuances | Settlements |
| Trading account assets: | |
| |
| |
| |
| | | |
| |
| |
| | |
| |
| |
| |
| | |
| |
| |
| |
| Corporate securities, trading loans and other | $ | 2,777 |
| $ | 84 |
| $ | — |
| $ | 199 |
| $ | (480 | ) | $ | — |
| $ | (127 | ) | | $ | 75 |
| $ | (499 | ) | $ | 2,029 |
| $ | 56 |
| $ | 1,864 |
| $ | 9 |
| $ | — |
| $ | 193 |
| $ | (136 | ) | $ | — |
| $ | (139 | ) | $ | 103 |
| $ | (178 | ) | $ | 1,716 |
| $ | (15 | ) |
| Equity securities | 281 |
| 12 |
| — |
| 20 |
| (17 | ) | — |
| (10 | ) | | 72 |
| (70 | ) | 288 |
| 8 |
| 235 |
| 8 |
| — |
| 6 |
| (7 | ) | — |
| — |
| 1 |
| (31 | ) | 212 |
| 8 |
|
| Non-U.S. sovereign debt | 510 |
| 19 |
| 10 |
| — |
| (9 | ) | — |
| (6 | ) | | 3 |
| — |
| 527 |
| 19 |
| 556 |
| 16 |
| 2 |
| — |
| (50 | ) | — |
| (8 | ) | — |
| (115 | ) | 401 |
| 16 |
|
| Mortgage trading loans, ABS and other MBS | 1,211 |
| 107 |
| — |
| 339 |
| (375 | ) | — |
| (54 | ) | | 28 |
| (41 | ) | 1,215 |
| 74 |
| 1,498 |
| 99 |
| 3 |
| 125 |
| (320 | ) | — |
| (69 | ) | 94 |
| (58 | ) | 1,372 |
| 83 |
|
| Total trading account assets | 4,779 |
| 222 |
| 10 |
| 558 |
| (881 | ) | — |
| (197 | ) | | 178 |
| (610 | ) | 4,059 |
| 157 |
| 4,153 |
| 132 |
| 5 |
| 324 |
| (513 | ) | — |
| (216 | ) | 198 |
| (382 | ) | 3,701 |
| 92 |
|
Net derivative assets (4) | (1,313 | ) | (474 | ) | — |
| 200 |
| (247 | ) | — |
| 170 |
| | 29 |
| (30 | ) | (1,665 | ) | (489 | ) | (1,714 | ) | 495 |
| — |
| 153 |
| (262 | ) | — |
| 202 |
| 71 |
| (83 | ) | (1,138 | ) | 517 |
|
| AFS debt securities: | |
| |
| |
| |
| |
| |
| |
| | |
| |
| |
| | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Non-U.S. securities | 229 |
| — |
| 3 |
| 20 |
| — |
| — |
| (45 | ) | | — |
| — |
| 207 |
| — |
| 25 |
| — |
| — |
| — |
| — |
| — |
| (2 | ) | — |
| — |
| 23 |
| — |
|
| Other taxable securities | 594 |
| 3 |
| 4 |
| — |
| — |
| — |
| (22 | ) | | — |
| — |
| 579 |
| — |
| 509 |
| 1 |
| — |
| — |
| — |
| — |
| (7 | ) | — |
| (460 | ) | 43 |
| — |
|
| Tax-exempt securities | 542 |
| — |
| 2 |
| — |
| (56 | ) | — |
| (3 | ) | | 35 |
| — |
| 520 |
| — |
| 469 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (469 | ) | — |
| — |
|
| Total AFS debt securities | 1,365 |
| 3 |
| 9 |
| 20 |
| (56 | ) | — |
| (70 | ) | | 35 |
| — |
| 1,306 |
| — |
| |
| Other debt securities carried at fair value – Non-agency residential MBS | 25 |
| (1 | ) | — |
| — |
| — |
| — |
| — |
| | — |
| — |
| 24 |
| — |
| |
Loans and leases (5, 6) | 720 |
| 12 |
| — |
| — |
| — |
| — |
| (30 | ) | | — |
| — |
| 702 |
| 12 |
| |
Mortgage servicing rights (6, 7, 8) | 2,747 |
| (27 | ) | — |
| — |
| 5 |
| 75 |
| (190 | ) | (7) | — |
| — |
| 2,610 |
| (117 | ) | |
Loans held-for-sale (5) | 656 |
| 29 |
| 6 |
| — |
| (136 | ) | — |
| (60 | ) | | 315 |
| (18 | ) | 792 |
| 22 |
| |
| Other assets | 239 |
| (6 | ) | — |
| — |
| — |
| — |
| (2 | ) | | — |
| — |
| 231 |
| (6 | ) | |
Federal funds purchased and securities loaned or sold under agreements to repurchase (5) | (359 | ) | 1 |
| — |
| — |
| — |
| (2 | ) | 28 |
| | — |
| 106 |
| (226 | ) | 1 |
| |
Total AFS debt securities (5) | | 1,003 |
| 1 |
| — |
| — |
| — |
| — |
| (9 | ) | — |
| (929 | ) | 66 |
| — |
|
Loans and leases (6, 7) | | 571 |
| (16 | ) | — |
| — |
| (4 | ) | — |
| (25 | ) | — |
| — |
| 526 |
| (16 | ) |
Loans held-for-sale (6) | | 690 |
| 24 |
| — |
| 12 |
| — |
| — |
| (41 | ) | — |
| — |
| 685 |
| 21 |
|
Other assets (5, 7, 8) | | 2,425 |
| 192 |
| — |
| — |
| (38 | ) | 29 |
| (242 | ) | 929 |
| — |
| 3,295 |
| 120 |
|
| Trading account liabilities – Corporate securities and other | (27 | ) | 2 |
| — |
| — |
| (10 | ) | — |
| — |
| | — |
| — |
| (35 | ) | 2 |
| (24 | ) | 1 |
| — |
| — |
| (2 | ) | (1 | ) | — |
| — |
| — |
| (26 | ) | 1 |
|
Accrued expenses and other liabilities (5) | (9 | ) | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
| (9 | ) | — |
| |
Long-term debt (5) | (1,514 | ) | (83 | ) | 7 |
| 11 |
| — |
| (130 | ) | 159 |
| | (178 | ) | 68 |
| (1,660 | ) | (83 | ) | |
Accrued expenses and other liabilities (6) | | (8 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (8 | ) | — |
|
Long-term debt (6) | | (1,863 | ) | 23 |
| 1 |
| 5 |
| — |
| (67 | ) | 172 |
| (33 | ) | 411 |
| (1,351 | ) | 26 |
|
| |
(1) | Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3. |
| |
(2) | Includes gains/lossesgains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - primarily trading account profits; Net derivative assets - primarily trading account profits and other income; Other assets - primarily other income related to MSRs; Long-term debt - primarily trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve, and periodic adjustments to the valuation model to reflect changes in the modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service. |
| |
(3) | Includes unrealized gains (losses) in OCI on foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For more information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statementsof the Corporation’s 2017 Annual Report on Form 10-K. |
| |
(4) | Net derivatives include derivative assets of $4.5 billion and derivative liabilities of $5.7 billion. |
| |
(5) | Transfer relates to the reclassification of certain securities. |
| |
(6) | Amounts represent instruments that are accounted for under the fair value option. |
| |
(7) | Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales. |
| |
(8) | Settlements primarily represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time. |
Transfers into Level 3, primarily due to decreased price observability, during the three months ended March 31, 2018 included $198 million of trading account assets.
Transfers out of Level 3, primarily due to increased price observability, during the three months ended March 31, 2018
included $382 million of trading account assets and $411 million of long-term debt. Transfers occur on a regular basis for long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Level 3 – Fair Value Measurements for the Three Months Ended March 31, 2017 (1) |
| | | |
| | Balance
January 1 2017 | Total Realized/Unrealized Gains (Losses) (2) | Gains
(Losses)
in OCI (3) | Gross | Gross
Transfers
into Level 3 | Gross
Transfers
out of Level 3 | Balance
March 31
2017 | Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held (2) |
| (Dollars in millions) | Purchases | Sales | Issuances | Settlements |
| Trading account assets: | |
| |
| |
| | | | |
| | |
| |
| |
| Corporate securities, trading loans and other | $ | 2,777 |
| $ | 84 |
| $ | — |
| $ | 199 |
| $ | (480 | ) | $ | — |
| $ | (127 | ) | $ | 75 |
| $ | (499 | ) | $ | 2,029 |
| $ | 56 |
|
| Equity securities | 281 |
| 12 |
| — |
| 20 |
| (17 | ) | — |
| (10 | ) | 72 |
| (70 | ) | 288 |
| 8 |
|
| Non-U.S. sovereign debt | 510 |
| 19 |
| 10 |
| — |
| (9 | ) | — |
| (6 | ) | 3 |
| — |
| 527 |
| 19 |
|
| Mortgage trading loans, ABS and other MBS | 1,211 |
| 107 |
| — |
| 339 |
| (375 | ) | — |
| (54 | ) | 28 |
| (41 | ) | 1,215 |
| 74 |
|
| Total trading account assets | 4,779 |
| 222 |
| 10 |
| 558 |
| (881 | ) | — |
| (197 | ) | 178 |
| (610 | ) | 4,059 |
| 157 |
|
Net derivative assets (4) | (1,313 | ) | (474 | ) | — |
| 200 |
| (247 | ) | — |
| 170 |
| 29 |
| (30 | ) | (1,665 | ) | (489 | ) |
| AFS debt securities: | |
| |
| |
| | | | |
| |
| |
| |
| |
| Non-U.S. securities | 229 |
| — |
| 3 |
| 20 |
| — |
| — |
| (45 | ) | — |
| — |
| 207 |
| — |
|
| Other taxable securities | 594 |
| 3 |
| 4 |
| — |
| — |
| — |
| (22 | ) | — |
| — |
| 579 |
| — |
|
| Tax-exempt securities | 542 |
| — |
| 2 |
| — |
| (56 | ) | — |
| (3 | ) | 35 |
| — |
| 520 |
| — |
|
| Total AFS debt securities | 1,365 |
| 3 |
| 9 |
| 20 |
| (56 | ) | — |
| (70 | ) | 35 |
| — |
| 1,306 |
| — |
|
| Other debt securities carried at fair value – Non-agency residential MBS | 25 |
| (1 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
| 24 |
| — |
|
Loans and leases (5, 6) | 720 |
| 12 |
| — |
| — |
| — |
| — |
| (30 | ) | — |
| — |
| 702 |
| 12 |
|
Loans held-for-sale (5) | 656 |
| 29 |
| 6 |
| — |
| (136 | ) | — |
| (60 | ) | 315 |
| (18 | ) | 792 |
| 22 |
|
Other assets (6, 7) | 2,986 |
| (33 | ) | — |
| — |
| 5 |
| 75 |
| (192 | ) | — |
| — |
| 2,841 |
| (123 | ) |
Federal funds purchased and securities loaned or sold under agreements to repurchase (5) | (359 | ) | 1 |
| — |
| — |
| — |
| (2 | ) | 28 |
| — |
| 106 |
| (226 | ) | 1 |
|
| Trading account liabilities – Corporate securities and other | (27 | ) | 2 |
| — |
| — |
| (10 | ) | — |
| — |
| — |
| — |
| (35 | ) | 2 |
|
Accrued expenses and other liabilities (5) | (9 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (9 | ) | — |
|
Long-term debt (5) | (1,514 | ) | (83 | ) | 7 |
| 11 |
| — |
| (130 | ) | 159 |
| (178 | ) | 68 |
| (1,660 | ) | (83 | ) |
| |
(1) | Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3. |
| |
(2) | Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - trading account profits (losses);profits; Net derivative assets - primarily trading account profits (losses) and mortgage banking income (loss); MSRsother income; Other assets - primarily mortgage bankingother income (loss);related to MSRs; Long-term debt - primarily trading account profits (losses).profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve, and periodic adjustments to the valuation model to reflect changes in the modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service. |
| |
(3) | Includes gains/lossesgains (losses) in OCI related to unrealized gains/lossesgains (losses) on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For additional information, see Note 1 – Summary of Significant Accounting Principlesto the Consolidated Financial Statementsof the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K. |
| |
(4) | Net derivatives include derivative assets of $4.2 billion and derivative liabilities of $5.8 billion. |
| |
(5) | Amounts represent instruments that are accounted for under the fair value option. |
| |
(6) | Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales. |
| |
(7) | Settlements represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time. |
| |
(8)
| MSRs include the $1.9 billion core MSR portfolio held in Consumer Banking, the $208 million non-core MSR portfolio held in All Other and the $481 million non-U.S. MSR portfolio held in Global Markets.
|
Significant transfersTransfers into Level 3, primarily due to decreased price observability, during the three months ended March 31, 2017 included $178 million of trading account assets, $315 million of LHFS and $178 million of long-term debt. Transfers occur on a regular basis for long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.
Significant transfersTransfers out of Level 3, primarily due to increased price observability, during the three months ended March 31, 2017 included $610 million of trading account assets and $106 million of federal funds purchased and securities loaned or sold under agreements to repurchase.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Level 3 – Fair Value Measurements (1) | | | | | | | | |
| | | | | | | | | | | | |
| | Three Months Ended March 31, 2016 | |
| | | | | Gross | | | | |
| (Dollars in millions) | Balance
January 1 2016 | Total Realized/Unrealized Gains/(Losses) (2) | Gains
(Losses)
in OCI (3) | Purchases | Sales | Issuances | Settlements | Gross
Transfers
into Level 3 | Gross
Transfers
out of Level 3 | Balance
March 31 2016 | Change in Unrealized Gains/(Losses) Related to Financial Instruments Still Held (2) |
| Trading account assets: | |
| |
| |
| | | | |
| | |
| |
| |
| Corporate securities, trading loans and other | $ | 2,838 |
| $ | 50 |
| $ | 1 |
| $ | 227 |
| $ | (147 | ) | $ | — |
| $ | (148 | ) | $ | 158 |
| $ | (25 | ) | $ | 2,954 |
| $ | 33 |
|
| Equity securities | 407 |
| 60 |
| — |
| 10 |
| (2 | ) | — |
| (62 | ) | 4 |
| — |
| 417 |
| 7 |
|
| Non-U.S. sovereign debt | 521 |
| 42 |
| 49 |
| 3 |
| (1 | ) | — |
| (42 | ) | — |
| — |
| 572 |
| 41 |
|
| Mortgage trading loans, ABS and other MBS | 1,868 |
| 28 |
| (2 | ) | 194 |
| (404 | ) | — |
| (73 | ) | 31 |
| (28 | ) | 1,614 |
| 4 |
|
| Total trading account assets | 5,634 |
| 180 |
| 48 |
| 434 |
| (554 | ) | — |
| (325 | ) | 193 |
| (53 | ) | 5,557 |
| 85 |
|
Net derivative assets (4) | (441 | ) | 403 |
| — |
| 89 |
| (175 | ) | — |
| 12 |
| (116 | ) | (87 | ) | (315 | ) | 257 |
|
| AFS debt securities: | |
| |
| |
| | | | |
| |
| |
| |
| |
| Non-agency residential MBS | 106 |
| — |
| 5 |
| 135 |
| (92 | ) | — |
| (4 | ) | — |
| — |
| 150 |
| — |
|
| Other taxable securities | 757 |
| 1 |
| (3 | ) | — |
| — |
| — |
| (16 | ) | — |
| — |
| 739 |
| — |
|
| Tax-exempt securities | 569 |
| — |
| (7 | ) | 1 |
| — |
| — |
| (1 | ) | — |
| — |
| 562 |
| — |
|
| Total AFS debt securities | 1,432 |
| 1 |
| (5 | ) | 136 |
| (92 | ) | — |
| (21 | ) | — |
| — |
| 1,451 |
| — |
|
| Other debt securities carried at fair value – Non-agency residential MBS | 30 |
| (1 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
| 29 |
| — |
|
Loans and leases (5, 6) | 1,620 |
| 43 |
| — |
| 69 |
| — |
| 25 |
| (35 | ) | 5 |
| (30 | ) | 1,697 |
| 48 |
|
Mortgage servicing rights (6, 7, 8) | 3,087 |
| (380 | ) | — |
| — |
| (1 | ) | 136 |
| (211 | ) | — |
| — |
| 2,631 |
| (437 | ) |
Loans held-for-sale (5) | 787 |
| 73 |
| 27 |
| 20 |
| (163 | ) | — |
| (34 | ) | 13 |
| (63 | ) | 660 |
| 58 |
|
| Other assets | 374 |
| (25 | ) | — |
| 34 |
| — |
| — |
| (10 | ) | 2 |
| — |
| 375 |
| (22 | ) |
Federal funds purchased and securities loaned or sold under agreements to repurchase (5) | (335 | ) | (3 | ) | — |
| — |
| — |
| (14 | ) | 7 |
| — |
| — |
| (345 | ) | (9 | ) |
| Trading account liabilities – Corporate securities and other | (21 | ) | 1 |
| — |
| — |
| (8 | ) | — |
| — |
| — |
| — |
| (28 | ) | 1 |
|
Short-term borrowings (5) | (30 | ) | 1 |
| — |
| — |
| — |
| — |
| 29 |
| — |
| — |
| — |
| — |
|
Accrued expenses and other liabilities (5) | (9 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (9 | ) | — |
|
Long-term debt (5) | (1,513 | ) | (91 | ) | (7 | ) | 9 |
| — |
| (169 | ) | 56 |
| (186 | ) | 87 |
| (1,814 | ) | (93 | ) |
| |
(1)
| Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3. |
| |
(2)
| Includes gains/losses reported in earnings in the following income statement line items: Trading account assets/liabilities - trading account profits (losses); Net derivative assets - primarily trading account profits (losses) and mortgage banking income (loss); MSRs - primarily mortgage banking income (loss); Long-term debt - primarily trading account profits (losses). For MSRs, the amounts reflect the changes in modeled MSR fair value due principally to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve. |
| |
(3)
| Includes gains/losses in OCI related to unrealized gains/losses on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2016 Annual Report on Form 10-K.
|
| |
(4)
| Net derivatives include derivative assets of $5.5 billion and derivative liabilities of $5.8 billion.
|
| |
(5)
| Amounts represent instruments that are accounted for under the fair value option. |
| |
(6)
| Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales. |
| |
(7)
| Settlements represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time. |
| |
(8)
| MSRs include the $1.8 billion core MSR portfolio held in Consumer Banking, the $343 million non-core MSR portfolio held in All Other and the $479 million non-U.S. MSR portfolio held in Global Markets.
|
Significant transfers into Level 3, primarily due to decreased price observability, during the three months ended March 31, 2016 included $193 million of trading account assets, $116 million of net derivative assets and $186 million of long-term debt. Transfers occur on a regular basis for long-term debt instruments due to
changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.
There were no significant transfers out of Level 3 during the three months ended March 31, 2016.
The following tables present information about significant unobservable inputs related to the Corporation’s material categories of Level 3 financial assets and liabilities at March 31, 20172018 and December 31, 2016.2017.
| | | | | | | | | |
| Quantitative Information about Level 3 Fair Value Measurements at March 31, 2017 | | |
| Quantitative Information about Level 3 Fair Value Measurements at March 31, 2018 | | Quantitative Information about Level 3 Fair Value Measurements at March 31, 2018 | |
| | | | | | | | | |
| (Dollars in millions) | | | Inputs | | | Inputs |
| Financial Instrument | Fair Value | Valuation Technique | Significant Unobservable Inputs | Ranges of Inputs | Weighted Average | Fair Value | Valuation Technique | Significant Unobservable Inputs | Ranges of Inputs | Weighted Average |
Loans and Securities (1) | | | | | | | | | | |
| Instruments backed by residential real estate assets | $ | 1,035 |
| Discounted cash flow, Market comparables | Yield | 0% to 35% |
| 7 | % | $ | 845 |
| Discounted cash flow | Yield | 0% to 25% |
| 6 | % |
| Trading account assets – Mortgage trading loans, ABS and other MBS | 320 |
| Prepayment speed | 0% to 21% CPR |
| 12 | % | 318 |
| Prepayment speed | 0% to 20% CPR |
| 11 | % |
| Loans and leases | 702 |
| Default rate | 0% to 3% CDR |
| 2 | % | 525 |
| Default rate | 0% to 2% CDR |
| 1 | % |
| Loans held-for-sale | 13 |
| Loss severity | 0% to 54% |
| 19 | % | 2 |
| Loss severity | 0% to 52% |
| 17 | % |
| Instruments backed by commercial real estate assets | $ | 364 |
| Discounted cash flow, Market comparables | Yield | 0% to 25% |
| 5 | % | $ | 299 |
| Discounted cash flow | Yield | 0% to 25% |
| 9 | % |
| Trading account assets – Corporate securities, trading loans and other | 319 |
| Price | $0 to td00 |
| $65 | 265 |
| Price | $0 to td00 |
| $67 |
| Trading account assets – Mortgage trading loans, ABS and other MBS | 45 |
| | | 34 |
| | |
| Commercial loans, debt securities and other | $ | 3,836 |
| Discounted cash flow, Market comparables | Yield | 0% to 29% |
| 16 | % | $ | 3,592 |
| Discounted cash flow, Market comparables | Yield | 0% to 12% |
| 5 | % |
| Trading account assets – Corporate securities, trading loans and other | 1,680 |
| Prepayment speed | 10% to 20% |
| 11 | % | 1,444 |
| Prepayment speed | 10% to 20% |
| 15 | % |
| Trading account assets – Non-U.S. sovereign debt | 527 |
| Default rate | 3% to 4% |
| 4 | % | 401 |
| Default rate | 3% to 4% |
| 4 | % |
| Trading account assets – Mortgage trading loans, ABS and other MBS | 850 |
| Loss severity | 0% to 40% |
| 30 | % | 1,020 |
| Loss severity | 35% to 40% |
| 38 | % |
| AFS debt securities – Other taxable securities | | 43 |
| Price | $0 to td41 |
| $66 |
Loans and leases
| | 1 |
| | |
| Loans held-for-sale | 779 |
| Discounted cash flow, Market comparables | Duration | 0 to 4 years |
| 2 years | 683 |
| | |
| Other assets, primarily auction rate securities | | $ | 999 |
| Discounted cash flow, Market comparables | Price | td0 to td00 |
| $96 |
| | | Price | $0 to td92 |
| $72 | | | |
| Auction rate securities | $ | 1,129 |
| Price | td0 to td00 |
| $94 | |
| Trading account assets – Corporate securities, trading loans and other | 30 |
| | | |
| AFS debt securities – Other taxable securities | 579 |
| | | |
| AFS debt securities – Tax-exempt securities | 520 |
| Discounted cash flow, Market comparables | | | |
| | | Discounted cash flow, Market comparables | | |
| MSRs | $ | 2,610 |
| Weighted-average life, fixed rate (4) | 0 to 15 years |
| 6 years |
| $ | 2,296 |
| Weighted-average life, fixed rate (4) | 0 to 14 years |
| 6 years |
|
| | | Weighted-average life, variable rate (4) | 0 to 10 years |
| 3 years |
| | Weighted-average life, variable rate (4) | 0 to 10 years |
| 3 years |
|
| | | Discounted cash flow | Option Adjusted Spread, fixed rate | 9% to 14% |
| 10 | % | | Discounted cash flow | Option Adjusted Spread, fixed rate | 9% to 14% |
| 10 | % |
| | | Option Adjusted Spread, variable rate | 9% to 15% |
| 12 | % | | Option Adjusted Spread, variable rate | 9% to 15% |
| 12 | % |
| Structured liabilities | | | | | | | | |
| Long-term debt | $ | (1,660 | ) | Equity correlation | 8% to 100% |
| 68 | % | $ | (1,351 | ) | Equity correlation | 7% to 100% |
| 68 | % |
| | | Discounted cash flow, Market comparables, Industry standard derivative pricing (2) | Long-dated equity volatilities | 4% to 69% |
| 24 | % | |
| | | Yield | 5% to 27% |
| 18 | % | | Discounted cash flow, Market comparables, Industry standard derivative pricing (2) | Long-dated equity volatilities | 4% to 70% |
| 23 | % |
| | | Price | td2 to $90 |
| $79 | | Yield | 7.5 | % | n/a |
|
| | | Duration | 0 to 4 years |
| 3 years | | Price | $0 to td00 |
| $73 |
| Net derivative assets | | | | | | | | |
| Credit derivatives | $ | 88 |
| Discounted cash flow, Stochastic recovery correlation model | Yield | 0% to 24% |
| 8 | % | $ | (298 | ) | Discounted cash flow, Stochastic recovery correlation model | Yield | 2% to 4% |
| 3 | % |
| | | Upfront points | 0 points to 100 points |
| 72 points |
| | Upfront points | 0 points to 100 points |
| 71 points |
|
| | | Credit spreads | 51 bps to 668 bps |
| 493 bps |
| | Credit correlation | 22% to 80% |
| 38 | % |
| | | Credit correlation | 26% to 87% |
| 48 | % | | Prepayment speed | 15% to 20% CPR |
| 15 | % |
| | | Prepayment speed | 10% to 20% CPR |
| 17 | % | | Default rate | 1% to 4% CDR |
| 2 | % |
| | | Default rate | 1% to 4% CDR |
| 3 | % | | Loss severity | 35 | % | n/a |
|
| | | Loss severity | 35 | % | n/a |
| | Price | td to $83 |
| $73 |
| Equity derivatives | $ | (2,050 | ) | Industry standard derivative pricing (2) | Equity correlation | 8% to 100% |
| 68 | % | $ | (1,508 | ) | Industry standard derivative pricing (2) | Equity correlation | 7% to 100% |
| 68 | % |
| | | Long-dated equity volatilities | 4% to 69% |
| 24 | % | | Long-dated equity volatilities | 4% to 70% |
| 23 | % |
| Commodity derivatives | $ | 5 |
| Discounted cash flow, Industry standard derivative pricing (2) | Natural gas forward price | td/MMBtu to $6/MMBtu |
| $3/MMBtu |
| $ | 2 |
| Discounted cash flow, Industry standard derivative pricing (2) | Natural gas forward price | td/MMBtu to $5/MMBtu |
| $3/MMBtu |
|
| | | Correlation | 76% to 95% |
| 90 | % | | Correlation | 65% to 93% |
| 79 | % |
| | | Volatilities | 24% to 112% |
| 40 | % | | Volatilities | 11% to 196% |
| 60 | % |
| Interest rate derivatives | $ | 292 |
| Industry standard derivative pricing (3) | Correlation (IR/IR) | 15% to 99% |
| 59 | % | $ | 666 |
| Industry standard derivative pricing (3) | Correlation (IR/IR) | 15% to 70% |
| 43 | % |
| | | Correlation (FX/IR) | 0% to 40% |
| 1 | % | | Correlation (FX/IR) | 0% to 46% |
| 1 | % |
| | | Illiquid IR and long-dated inflation rates | -13% to 30% |
| 3 | % | | Long-dated inflation rates | -18% to 34% |
| 2 | % |
| | | Long-dated inflation volatilities | 0% to 2% |
| 1 | % | | Long-dated inflation volatilities | 0% to 1% |
| 1 | % |
| Total net derivative assets | $ | (1,665 | ) | | | | | $ | (1,138 | ) | | | | |
| |
(1) | The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 112:93: Trading account assets – Corporate securities, trading loans and other of $2.0$1.7 billion, Trading account assets – Non-U.S. sovereign debt of $527$401 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.2$1.4 billion, AFS debt securities – Other taxable securitiesassets of $579 million, AFS debt securities – Tax-exempt securities of $520$999 million, Loans and leases of $702$526 million and LHFS of $792$685 million. |
| |
(2) | Includes models such as Monte Carlo simulation and Black-Scholes. |
| |
(3) | Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates. |
| |
(4) | The weighted-average life is a product of changes in market rates of interest, prepayment rates and other model and cash flow assumptions. |
CPR = Constant Prepayment Rate
CDR = Constant Default Rate
MMBtu = Million British thermal units
IR = Interest Rate
FX = Foreign Exchange
n/a = not applicable
| | | | | | | | | |
| Quantitative Information about Level 3 Fair Value Measurements at December 31, 2016 | |
| Quantitative Information about Level 3 Fair Value Measurements at December 31, 2017 | | Quantitative Information about Level 3 Fair Value Measurements at December 31, 2017 |
| | | | | | | | | |
| (Dollars in millions) | | | Inputs | | | Inputs |
| Financial Instrument | Fair
Value | Valuation
Technique | Significant Unobservable
Inputs | Ranges of
Inputs | Weighted Average | Fair
Value | Valuation
Technique | Significant Unobservable
Inputs | Ranges of
Inputs | Weighted Average |
Loans and Securities (1) | | | | | | | | | | |
| Instruments backed by residential real estate assets | $ | 1,066 |
| Discounted cash flow, Market comparables | Yield | 0% to 50% |
| 7 | % | $ | 871 |
| Discounted cash flow | Yield | 0% to 25% |
| 6 | % |
| Trading account assets – Mortgage trading loans, ABS and other MBS | 337 |
| Prepayment speed | 0% to 27% CPR |
| 14 | % | 298 |
| Prepayment speed | 0% to 22% CPR |
| 12 | % |
| Loans and leases | 718 |
| Default rate | 0% to 3% CDR |
| 2 | % | 570 |
| Default rate | 0% to 3% CDR |
| 1 | % |
| Loans held-for-sale | 11 |
| Loss severity | 0% to 54% |
| 18 | % | 3 |
| Loss severity | 0% to 53% |
| 17 | % |
| Instruments backed by commercial real estate assets | $ | 317 |
| Discounted cash flow, Market comparables | Yield | 0% to 39% |
| 11 | % | $ | 286 |
| Discounted cash flow | Yield | 0% to 25% |
| 9 | % |
| Trading account assets – Corporate securities, trading loans and other | 178 |
| Price | $0 to td00 |
| $65 | 244 |
| Price | $0 to td00 |
| $67 |
| Trading account assets – Mortgage trading loans, ABS and other MBS | 53 |
| | | 42 |
| | |
| Loans held-for-sale | 86 |
| | | |
| Commercial loans, debt securities and other | $ | 4,486 |
| Discounted cash flow, Market comparables | Yield | 1% to 37% |
| 14 | % | $ | 4,023 |
| Discounted cash flow, Market comparables | Yield | 0% to 12% |
| 5 | % |
| Trading account assets – Corporate securities, trading loans and other | 2,565 |
| Prepayment speed | 5% to 20% |
| 19 | % | 1,613 |
| Prepayment speed | 10% to 20% |
| 16 | % |
| Trading account assets – Non-U.S. sovereign debt | 510 |
| Default rate | 3% to 4% |
| 4 | % | 556 |
| Default rate | 3% to 4% |
| 4 | % |
| Trading account assets – Mortgage trading loans, ABS and other MBS | 821 |
| Loss severity | 0% to 50% |
| 19 | % | 1,158 |
| Loss severity | 35% to 40% |
| 37 | % |
| AFS debt securities – Other taxable securities | 29 |
| Price | $0 to td92 |
| $68 | 8 |
| Price | $0 to td45 |
| $63 |
| Loans and leases | 2 |
| Duration | 0 to 5 years |
| 3 years | 1 |
| | |
| Loans held-for-sale | 559 |
| | Enterprise value/EBITDA multiple | 34x |
| n/a | 687 |
| | | |
| Auction rate securities | $ | 1,141 |
| Discounted cash flow, Market comparables | Price | td0 to td00 |
| $94 | $ | 977 |
| Discounted cash flow, Market comparables | Price | td0 to td00 |
| $94 |
| Trading account assets – Corporate securities, trading loans and other | 34 |
| | 7 |
| | |
| AFS debt securities – Other taxable securities | 565 |
| | | 501 |
| | |
| AFS debt securities – Tax-exempt securities | 542 |
| | | 469 |
| | |
| MSRs | $ | 2,747 |
| Discounted cash flow | Weighted-average life, fixed rate (4) | 0 to 15 years |
| 6 years |
| $ | 2,302 |
| Discounted cash flow | Weighted-average life, fixed rate (4) | 0 to 14 years |
| 5 years |
|
| | | Weighted-average life, variable rate (4) | 0 to 14 years |
| 4 years |
| | Weighted-average life, variable rate (4) | 0 to 10 years |
| 3 years |
|
| | | Option Adjusted Spread, fixed rate | 9% to 14% |
| 10 | % | | Option Adjusted Spread, fixed rate | 9% to 14% |
| 10 | % |
| | | Option Adjusted Spread, variable rate | 9% to 15% |
| 12 | % | | Option Adjusted Spread, variable rate | 9% to 15% |
| 12 | % |
| Structured liabilities | | | | | | | | | | |
| Long-term debt | $ | (1,514 | ) | Discounted cash flow, Market comparables Industry standard derivative pricing (2) | Equity correlation | 13% to 100% |
| 68 | % | $ | (1,863 | ) | Discounted cash flow, Market comparables, Industry standard derivative pricing (2) | Equity correlation | 15% to 100% |
| 63 | % |
| | | Long-dated equity volatilities | 4% to 76% |
| 26 | % | | Long-dated equity volatilities | 4% to 84% |
| 22 | % |
| | | Yield | 6% to 37% |
| 20 | % | | Yield | 7.5 | % | n/a |
|
| | | Price | td2 to $87 |
| $73 | | Price | $0 to td00 |
| $66 |
| | | Duration | 0 to 5 years |
| 3 years |
| |
| Net derivative assets | | | | | | | | | | |
| Credit derivatives | $ | (129 | ) | Discounted cash flow, Stochastic recovery correlation model | Yield | 0% to 24% |
| 13 | % | $ | (282 | ) | Discounted cash flow, Stochastic recovery correlation model | Yield | 1% to 5% |
| 3 | % |
| | | Upfront points | 0 to 100 points |
| 72 points |
| | Upfront points | 0 points to 100 points |
| 71 points |
|
| | | Credit spreads | 17 bps to 814 bps |
| 248 bps |
| | Credit correlation | 35% to 83% |
| 42 | % |
| | | Credit correlation | 21% to 80% |
| 44 | % | | Prepayment speed | 15% to 20% CPR |
| 16 | % |
| | | Prepayment speed | 10% to 20% CPR |
| 18 | % | | Default rate | 1% to 4% CDR |
| 2 | % |
| | | Default rate | 1% to 4% CDR |
| 3 | % | | Loss severity | 35 | % | n/a |
|
| | | Loss severity | 35 | % | n/a |
| | Price | $0 to td02 |
| $82 |
| Equity derivatives | $ | (1,690 | ) | Industry standard derivative pricing (2) | Equity correlation | 13% to 100% |
| 68 | % | $ | (2,059 | ) | Industry standard derivative pricing (2) | Equity correlation | 15% to 100% |
| 63 | % |
| | | Long-dated equity volatilities | 4% to 76% |
| 26 | % | | Long-dated equity volatilities | 4% to 84% |
| 22 | % |
| Commodity derivatives | $ | 6 |
| Discounted cash flow, Industry standard derivative pricing (2) | Natural gas forward price | td/MMBtu to $6/MMBtu | $4/MMBtu | $ | (3 | ) | Discounted cash flow, Industry standard derivative pricing (2) | Natural gas forward price | td/MMBtu to $5/MMBtu |
| $3/MMBtu |
|
| | | Correlation | 66% to 95% |
| 85 | % | | Correlation | 71% to 87% |
| 81 | % |
| | | Volatilities | 23% to 96% |
| 36 | % | | Volatilities | 26% to 132% |
| 57 | % |
| | | | | |
| Interest rate derivatives | $ | 500 |
| Industry standard derivative pricing (3) | Correlation (IR/IR) | 15% to 99% |
| 56 | % | $ | 630 |
| Industry standard derivative pricing (3) | Correlation (IR/IR) | 15% to 92% |
| 50 | % |
| | | Correlation (FX/IR) | 0% to 40% |
| 2 | % | | Correlation (FX/IR) | 0% to 46% |
| 1 | % |
| | | Illiquid IR and long-dated inflation rates | -12% to 35% |
| 5 | % | | Long-dated inflation rates | -14% to 38% |
| 4 | % |
| | | Long-dated inflation volatilities | 0% to 2% |
| 1 | % | | Long-dated inflation volatilities | 0% to 1% |
| 1 | % |
| Total net derivative assets | $ | (1,313 | ) | | | | | $ | (1,714 | ) | | | | |
| |
(1) | The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 113:94: Trading account assets – Corporate securities, trading loans and other of $2.8$1.9 billion, Trading account assets – Non-U.S. sovereign debt of $510$556 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.2$1.5 billion, AFS debt securities – Other taxable securities of $594$509 million, AFS debt securities – Tax-exempt securities of $542$469 million, Loans and leases of $720$571 million and LHFS of $656$690 million. |
| |
(2) | Includes models such as Monte Carlo simulation and Black-Scholes. |
| |
(3) | Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates. |
| |
(4) | The weighted-average life is a product of changes in market rates of interest, prepayment rates and other model and cash flow assumptions. |
CPR = Constant Prepayment Rate
CDR = Constant Default Rate
EBITDA = Earnings before interest, taxes, depreciation and amortization
MMBtu = Million British thermal units
IR = Interest Rate
FX = Foreign Exchange
n/a = not applicable
117Bank of America
In the previous tables, instruments backed by residential and commercial real estate assets include RMBS, commercial MBS, whole loans and mortgage CDOs. Commercial loans, debt securities and other include corporate CLOs and CDOs, commercial loans and bonds, and securities backed by non-real estate assets. Structured liabilities primarily include equity-linked notes that are accounted for under the fair value option.
The Corporation uses multiple market approaches in valuing certain of its Level 3 financial instruments. For example, market comparables and discounted cash flows are used together. For a given product, such as corporate debt securities, market comparables may be used to estimate some of the unobservable inputs and then these inputs are incorporated into a discounted cash flow model. Therefore, the balances disclosed encompass both of these techniques.
The level of aggregation and diversity within the products disclosed in the tables result in certain ranges of inputs being wide and unevenly distributed across asset and liability categories.
Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs
LoansFor information on the types of instruments, valuation approaches and Securities
A significant increase in market yields, default rates, loss severities or duration would result in a significantly lower fair value for long positions. Short positions would be impacted in a directionally opposite way. Thethe impact of changes in prepayment speeds would have differing impacts depending onunobservable inputs used in Level 3 measurements, see Note 20 – Fair Value Measurements to the seniorityConsolidated Financial Statements of the instrument and, in the case of CLOs, whether prepayments can be reinvested. A significant increase in price would result in a significantly higher fair value for long positions and short positions would be impacted in a directionally opposite way.Corporation’s 2017 Annual Report on Form 10-K.
Mortgage Servicing Rights
The weighted-average lives and fair value of MSRs are sensitive to changes in modeled assumptions. The weighted-average life is a product of changes in market rates of interest, prepayment rates and other model and cash flow assumptions. The weighted-average life represents the average period of time that the MSRs'MSRs’ cash flows are expected to be received. Absent other changes, an increase (decrease) to the weighted-average life would generally result in an increase (decrease) in the fair value of the MSRs. For example, a 10 percent or 20 percent decrease in prepayment rates, which impactimpacts the weighted-average life, could result in an increase in fair value of $94$72 million or $196$149 million, while a 10 percent or
20 percent increase in prepayment rates could result in a decrease in fair value of $88$67 million or $169$129 million. A 100 bp or 200 bp decrease in option-adjusted spread (OAS) levels could result in an increase in fair value of $87$70 million or $180$146 million, while a 100 bp or 200 bp increase in OAS levels could result in a decrease in
fair value of $81$66 million or $157$127 million. These sensitivities are hypothetical and actual amounts may vary materially. As the amounts indicate, changes in fair value basedFor more information on variations in assumptions generally cannot be extrapolated becauseand sensitivities on MSRs, see Note 20 – Fair Value Measurements to the relationship Consolidated Financial Statementsof the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumptionCorporation’s 2017 Annual Report on the fair value of MSRs that continue to be held by the Corporation is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. In addition, these sensitivities do not reflect any hedge strategies that may be undertaken to mitigate such risk. The Corporation manages the risk in MSRs with derivatives such as options and interest rate swaps, which are not designated as accounting hedges, as well as securities including MBS and U.S. Treasury securities. The securities used to manage the risk in the MSRs are classified in other assets on the Consolidated Balance Sheet.
Structured Liabilities and Derivatives
For credit derivatives, a significant increase in market yield, upfront points (i.e., a single upfront payment made by a protection buyer at inception), credit spreads, default rates or loss severities would result in a significantly lower fair value for protection sellers and higher fair value for protection buyers. The impact of changes in prepayment speeds would have differing impacts depending on the seniority of the instrument.
Structured credit derivatives are impacted by credit correlation. Default correlation is a parameter that describes the degree of dependence among credit default rates within a credit portfolio that underlies a credit derivative instrument. The sensitivity of this input on the fair value varies depending on the level of subordination of the tranche. For senior tranches that are net purchases of protection, a significant increase in default correlation would result in a significantly higher fair value. Net short protection positions would be impacted in a directionally opposite way.
For equity derivatives, commodity derivatives, interest rate derivatives and structured liabilities, a significant change in long-dated rates and volatilities and correlation inputs (e.g., the degree of correlation between an equity security and an index, between two different commodities, between two different interest rates, or between interest rates and foreign exchange rates) would result in a significant impact to the fair value; however, the magnitude and direction of the impact depend on whether the Corporation is long or short the exposure. For structured liabilities, a significant increase in yield or decrease in price would result in a significantly lower fair value. A significant decrease in duration may result in a significantly higher fair value.
|
| | |
| | Bank of America118Form 10-K.
|
Nonrecurring Fair Value
The Corporation holds certain assets that are measured at fair value, but only in certain situations (e.g., impairment) and these measurements are referred to herein as nonrecurring. The amounts below represent assets still held as of the reporting date for which a nonrecurring fair value adjustment was recorded during the three months ended March 31, 20172018 and 2016.2017.
| | | | | | | | | | | | | |
Assets Measured at Fair Value on a Nonrecurring Basis | | | | | | | | |
| | March 31, 2017 | | Three Months Ended March 31, 2017 | March 31, 2018 | | Three Months Ended March 31, 2018 |
| (Dollars in millions) | Level 2 | | Level 3 | | Gains (Losses) | Level 2 | | Level 3 | | Gains (Losses) |
| Assets | |
| | |
| | | |
| | |
| | |
| Loans held-for-sale | $ | 69 |
| | $ | 18 |
| | $ | (4 | ) | $ | 13 |
| | $ | — |
| | $ | (2 | ) |
Loans and leases (1) | — |
| | 438 |
| | (123 | ) | — |
| | 273 |
| | (98 | ) |
Foreclosed properties (2, 3) | — |
| | 82 |
| | (25 | ) | — |
| | 61 |
| | (17 | ) |
| Other assets | 91 |
| | — |
| | (86 | ) | 47 |
| | — |
| | (7 | ) |
| | | | | | | | | | | |
| | March 31, 2016 | | Three Months Ended March 31, 2016 | March 31, 2017 | | Three Months Ended March 31, 2017 |
| Assets | |
| | |
| | | |
| | |
| | |
| Loans held-for-sale | $ | 775 |
| | $ | 29 |
| | $ | (21 | ) | $ | 69 |
| | $ | 18 |
| | $ | (4 | ) |
Loans and leases (1) | — |
| | 758 |
| | (182 | ) | — |
| | 438 |
| | (123 | ) |
Foreclosed properties (2, 3) | — |
| | 82 |
| | (20 | ) | — |
| | 82 |
| | (25 | ) |
| Other assets | 36 |
| | — |
| | (18 | ) | 91 |
| | — |
| | (86 | ) |
| |
(1) | Includes$45 million and $46 million of losses on loans that were written down to a collateral value of zero during the three months ended March 31, 2017, compared to losses on loans of $42 million2018 for the same period inand 20162017. |
| |
(2) | Amounts are included in other assets on the Consolidated Balance Sheet and represent the carrying value of foreclosed properties that were written down subsequent to their initial classification as foreclosed properties. Losses on foreclosed properties include losses takenrecorded during the first 90 days after transfer of a loan to foreclosed properties. |
| |
(3) | Excludes $1.1 billion680 million and $1.41.1 billion of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) as ofat March 31, 20172018 and 20162017. |
The table below presents information about significant unobservable inputs related to the Corporation’s nonrecurring Level 3 financial assets and liabilities at March 31, 20172018 and December 31, 2016.2017. Loans and leases backed by residential real estate assets represent residential mortgages where the loan has been written down to the fair value of the underlying collateral.
|
| | | | | | | | |
| | | | | | |
| Quantitative Information about Nonrecurring Level 3 Fair Value Measurements |
| | | | | | |
| | March 31, 2017 |
| (Dollars in millions) | | | Inputs |
| Financial Instrument | Fair Value | Valuation Technique | Significant Unobservable Inputs | Ranges of Inputs | Weighted Average |
| Loans and leases backed by residential real estate assets | $ | 438 |
| Market comparables | OREO discount | 8% to 54% | 21 | % |
| | | | Cost to sell | 7% to 45% | 9 | % |
|
| | | | | | | | |
| | December 31, 2016 |
| Loans and leases backed by residential real estate assets | $ | 1,416 |
| Market comparables | OREO discount | 8% to 56% | 21 | % |
| | | | Cost to sell | 7% to 45% | 9 | % |
|
| | | | | | | | | | | | |
| | | | | | | | | | |
| Quantitative Information about Nonrecurring Level 3 Fair Value Measurements |
| | | | | | | | | | |
| | | | | | Inputs |
| Financial Instrument | Fair Value | | Valuation Technique | | Significant Unobservable Inputs | | Ranges of Inputs | | Weighted Average |
(Dollars in millions)
| March 31, 2018 |
| Loans and leases backed by residential real estate assets | $ | 273 |
| | Market comparables | | OREO discount | | 13% to 59% | | 23 | % |
| | | | | | Costs to sell | | 8% to 26% | | 9 | % |
| | | | | | | | | | |
| | December 31, 2017 |
| Loans and leases backed by residential real estate assets | $ | 894 |
| | Market comparables | | OREO discount | | 15% to 58% | | 23 | % |
| | | | | | Costs to sell | | 5% to 49% | | 7 | % |
NOTE 15Fair Value Option
The Corporation elects to account for certain financial instruments under the fair value option. For more information on the primary financial instruments for which the fair value option elections have been made, see Note 21 – Fair Value Option to the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
The following tables provide information about the fair value carrying amount and the contractual principal outstanding of assets and liabilities accounted for under the fair value option at March 31, 20172018 and December 31, 2016,2017, and information about where changes in the fair value of assets and liabilities accounted for under the fair value option are included in the Consolidated Statement of Income for the three months ended March 31, 20172018 and 2016.2017.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Option Elections | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2017 | | December 31, 2016 | March 31, 2018 | | December 31, 2017 |
| (Dollars in millions) | Fair Value Carrying Amount | | Contractual Principal Outstanding | | Fair Value Carrying Amount Less Unpaid Principal | | Fair Value Carrying Amount | | Contractual Principal Outstanding | | Fair Value Carrying Amount Less Unpaid Principal | Fair Value Carrying Amount | | Contractual Principal Outstanding | | Fair Value Carrying Amount Less Unpaid Principal | | Fair Value Carrying Amount | | Contractual Principal Outstanding | | Fair Value Carrying Amount Less Unpaid Principal |
| Federal funds sold and securities borrowed or purchased under agreements to resell | $ | 58,545 |
| | $ | 58,201 |
| | $ | 344 |
| | $ | 49,750 |
| | $ | 49,615 |
| | $ | 135 |
| $ | 68,556 |
| | $ | 68,539 |
| | $ | 17 |
| | $ | 52,906 |
| | $ | 52,907 |
| | $ | (1 | ) |
Loans reported as trading account assets (1) | 6,300 |
| | 11,410 |
| | (5,110 | ) | | 6,215 |
| | 11,557 |
| | (5,342 | ) | 5,939 |
| | 13,419 |
| | (7,480 | ) | | 5,735 |
| | 11,804 |
| | (6,069 | ) |
| Trading inventory – other | 9,357 |
| | n/a |
| | n/a |
| | 8,206 |
| | n/a |
| | n/a |
| 12,622 |
| | n/a |
| | n/a |
| | 12,027 |
| | n/a |
| | n/a |
|
| Consumer and commercial loans | 7,528 |
| | 7,613 |
| | (85 | ) | | 7,085 |
| | 7,190 |
| | (105 | ) | 5,989 |
| | 6,026 |
| | (37 | ) | | 5,710 |
| | 5,744 |
| | (34 | ) |
| Loans held-for-sale | 3,745 |
| | 5,459 |
| | (1,714 | ) | | 4,026 |
| | 5,595 |
| | (1,569 | ) | 3,091 |
| | 4,639 |
| | (1,548 | ) | | 2,156 |
| | 3,717 |
| | (1,561 | ) |
| Customer receivables and other assets | 253 |
| | 250 |
| | 3 |
| | 253 |
| | 250 |
| | 3 |
| |
| Other assets | | 3 |
| | n/a |
| | n/a |
| | 3 |
| | n/a |
| | n/a |
|
| Long-term deposits | 598 |
| | 545 |
| | 53 |
| | 731 |
| | 672 |
| | 59 |
| 435 |
| | 414 |
| | 21 |
| | 449 |
| | 421 |
| | 28 |
|
| Federal funds purchased and securities loaned or sold under agreements to repurchase | 36,663 |
| | 36,750 |
| | (87 | ) | | 35,766 |
| | 35,929 |
| | (163 | ) | 35,116 |
| | 35,127 |
| | (11 | ) | | 36,182 |
| | 36,187 |
| | (5 | ) |
| Short-term borrowings | 1,041 |
| | 1,041 |
| | — |
| | 2,024 |
| | 2,024 |
| | — |
| 2,284 |
| | 2,284 |
| | — |
| | 1,494 |
| | 1,494 |
| | — |
|
| Unfunded loan commitments | 135 |
| | n/a |
| | n/a |
| | 173 |
| | n/a |
| | n/a |
| 120 |
| | n/a |
| | n/a |
| | 120 |
| | n/a |
| | n/a |
|
Long-term debt (2) | 29,617 |
| | 29,528 |
| | 89 |
| | 30,037 |
| | 29,862 |
| | 175 |
| 30,062 |
| | 30,381 |
| | (319 | ) | | 31,786 |
| | 31,512 |
| | 274 |
|
| |
(1) | A significant portion of the loans reported as trading account assets are distressed loans whichthat trade and were purchased at a deep discount to par, and the remainder are loans with a fair value near contractual principal outstanding. |
| |
(2) | Includes structured liabilities with a fair value of $29.229.7 billion and $29.731.4 billion, and contractual principal outstanding of $29.230.0 billion and $29.531.1 billion at March 31, 20172018 and December 31, 20162017. |
n/a = not applicable
| | | | | | | | | | | | | | | |
Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2017 | Three Months Ended March 31, 2018 |
| (Dollars in millions) | Trading Account Profits (Losses) | | Mortgage Banking Income (Loss) | | Other Income (Loss) | | Total | Trading Account Profits | | Other Income | | Total |
| Federal funds sold and securities borrowed or purchased under agreements to resell | $ | (12 | ) | | $ | — |
| | $ | — |
| | $ | (12 | ) | |
| Loans reported as trading account assets | 150 |
| | — |
| | — |
| | 150 |
| $ | 103 |
| | $ | — |
| | $ | 103 |
|
Trading inventory – other (1) | 1,151 |
| | — |
| | — |
| | 1,151 |
| 595 |
| | — |
| | 595 |
|
| Consumer and commercial loans | 5 |
| | — |
| | 19 |
| | 24 |
| 106 |
| | (21 | ) | | 85 |
|
Loans held-for-sale (2) | 1 |
| | 40 |
| | 44 |
| | 85 |
| 1 |
| | — |
| | 1 |
|
| Long-term deposits | 1 |
| | — |
| | 5 |
| | 6 |
| |
| Federal funds purchased and securities loaned or sold under agreements to repurchase | (45 | ) | | — |
| | — |
| | (45 | ) | |
| Short-term borrowings | (2 | ) | | — |
| | — |
| | (2 | ) | |
| Unfunded loan commitments | — |
| | — |
| | 38 |
| | 38 |
| |
Long-term debt (3, 4) | (162 | ) | | — |
| | (37 | ) | | (199 | ) | 819 |
| | (41 | ) | | 778 |
|
Other (5) | | 7 |
| | 8 |
| | 15 |
|
| Total | $ | 1,087 |
| | $ | 40 |
| | $ | 69 |
| | $ | 1,196 |
| $ | 1,631 |
| | $ | (54 | ) | | $ | 1,577 |
|
| | | | | | | | | | | | | |
| | Three Months Ended March 31, 2016 | Three Months Ended March 31, 2017 |
| Federal funds sold and securities borrowed or purchased under agreements to resell | $ | 8 |
| | $ | — |
| | $ | — |
| | $ | 8 |
| |
| Loans reported as trading account assets | 112 |
| | — |
| | — |
| | 112 |
| $ | 150 |
| | $ | — |
| | $ | 150 |
|
Trading inventory – other (1) | (113 | ) | | — |
| | — |
| | (113 | ) | 1,151 |
| | — |
| | 1,151 |
|
| Consumer and commercial loans | 19 |
| | — |
| | 10 |
| | 29 |
| 5 |
| | 19 |
| | 24 |
|
Loans held-for-sale (2) | — |
| | 130 |
| | 35 |
| | 165 |
| 1 |
| | 84 |
| | 85 |
|
| Other assets | — |
| | — |
| | 2 |
| | 2 |
| |
| Long-term deposits | (9 | ) | | — |
| | (22 | ) | | (31 | ) | |
| Federal funds purchased and securities loaned or sold under agreements to repurchase | (8 | ) | | — |
| | — |
| | (8 | ) | |
| Unfunded loan commitments | — |
| | — |
| | 148 |
| | 148 |
| |
Long-term debt (3, 4) | (6 | ) | | — |
| | (30 | ) | | (36 | ) | (162 | ) | | (37 | ) | | (199 | ) |
Other (5) | | (58 | ) | | 43 |
| | (15 | ) |
| Total | $ | 3 |
| | $ | 130 |
| | $ | 143 |
| | $ | 276 |
| $ | 1,087 |
| | $ | 109 |
| | $ | 1,196 |
|
| |
(1) | The gains (losses) in trading account profits (losses) are primarily offset by gains (losses)losses on trading liabilities that hedge these assets. |
| |
(2) | Includes the value of IRLCs on funded loans, including those sold during the period. |
| |
(3) | The majority of the net gains (losses) in trading account profits relate to the embedded derivativederivatives in structured liabilities and are offset by gains (losses) on derivatives and securities that hedge these liabilities. |
| |
(4) | For the cumulative impact of changes in the Corporation’s own credit spreads and the amount recognized in accumulated OCI, see Note 12 – Accumulated Other Comprehensive Income (Loss). For additional information on how the Corporation’s own credit spread is determined, see Note 20 – Fair Value Measurementsto the Consolidated Financial Statementsof the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K. |
| |
(5) | Includes gains (losses) on federal funds sold and securities borrowed or purchased under agreements to resell, long-term deposits, federal funds purchased and securities loaned or sold under agreements to repurchase, short-term borrowings and unfunded loan commitments. |
| | | | | | | | | |
Gains (Losses) Related to Borrower-specific Credit Risk for Assets Accounted for Under the Fair Value Option | | | | | | | | |
| | Three Months Ended March 31 | Three Months Ended March 31 |
| (Dollars in millions) | 2017 | | 2016 | 2018 | | 2017 |
| Loans reported as trading account assets | $ | 13 |
| | $ | 9 |
| $ | 13 |
| | $ | 13 |
|
| Consumer and commercial loans | 19 |
| | (10 | ) | (17 | ) | | 19 |
|
| Loans held-for-sale | — |
| | (1 | ) | (3 | ) | | — |
|
NOTE 16Fair Value of Financial Instruments
Financial instruments are classified within the fair value hierarchy using the methodologies described in Note 14 – Fair Value Measurements. The following disclosures include financial instruments that are not carried at fair value or only a portion of the ending balance at March 31, 20172018 and December 31, 20162017 is carried at fair value on the Consolidated Balance Sheet. Certain loans, deposits, long-term debt and loan commitments are accounted for under the fair value option. For moreadditional information, on these financial instruments and their valuation methodologies, see Note 2021 – Fair Value Measurements and Note 22 – Fair Value of Financial InstrumentsOption to the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
Fair Value of Financial Instruments
The carrying values and fair values by fair value hierarchy of certain financial instruments where only a portion of the ending balance was carried at fair value at March 31, 20172018 and December 31, 20162017 are presented in the table below.
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| Fair Value of Financial Instruments |
| | | | | | | | |
| | March 31, 2017 |
| | | | Fair Value |
| (Dollars in millions) | Carrying Value | | Level 2 | | Level 3 | | Total |
| Financial assets | | | | | | | |
| Loans | $ | 873,392 |
| | $ | 71,273 |
| | $ | 817,029 |
| | $ | 888,302 |
|
| Loans held-for-sale | 14,751 |
| | 13,682 |
| | 1,069 |
| | 14,751 |
|
| Financial liabilities | | | | | | | |
| Deposits | 1,272,141 |
| | 1,272,197 |
| | — |
| | 1,272,197 |
|
| Long-term debt | 221,385 |
| | 225,424 |
| | 1,660 |
| | 227,084 |
|
| | | | | | | | |
| | December 31, 2016 |
| Financial assets | | | | | | | |
| Loans | $ | 873,209 |
| | $ | 71,793 |
| | $ | 815,329 |
| | $ | 887,122 |
|
| Loans held-for-sale | 9,066 |
| | 8,082 |
| | 984 |
| | 9,066 |
|
| Financial liabilities | |
| | | | | | |
|
| Deposits | 1,260,934 |
| | 1,261,086 |
| | — |
| | 1,261,086 |
|
| Long-term debt | 216,823 |
| | 220,071 |
| | 1,514 |
| | 221,585 |
|
Commercial Unfunded Lending Commitments
Fair values were generally determined using a discounted cash flow valuation approach which is applied using market-based CDS or internally developed benchmark credit curves. The Corporation accounts for certain loan commitments under the fair value option. |
| | | | | | | | | | | | | | | |
| | | | | | | | |
| Fair Value of Financial Instruments |
| | | | |
| | | | Fair Value |
| | Carrying Value | | Level 2 | | Level 3 | | Total |
| (Dollars in millions) | March 31, 2018 |
| Financial assets | | | | | | | |
| Loans | $ | 902,219 |
| | $ | 67,137 |
| | $ | 841,274 |
| | $ | 908,411 |
|
| Loans held-for-sale | 9,227 |
| | 8,377 |
| | 1,530 |
| | 9,907 |
|
| Financial liabilities | | | | | | | |
Deposits (1) | 1,328,664 |
| | 1,327,961 |
| | — |
| | 1,327,961 |
|
| Long-term debt | 232,256 |
| | 237,851 |
| | 1,351 |
| | 239,202 |
|
Commercial unfunded lending commitments (2) | 902 |
| | 120 |
| | 4,253 |
| | 4,373 |
|
| | | | | | | | |
| | December 31, 2017 |
| Financial assets | | | | | | | |
| Loans | $ | 904,399 |
| | $ | 68,586 |
| | $ | 849,576 |
| | $ | 918,162 |
|
| Loans held-for-sale | 11,430 |
| | 10,521 |
| | 909 |
| | 11,430 |
|
| Financial liabilities | |
| | | | | | |
|
Deposits (1) | 1,309,545 |
| | 1,309,398 |
| | — |
| | 1,309,398 |
|
| Long-term debt | 227,402 |
| | 235,126 |
| | 1,863 |
| | 236,989 |
|
Commercial unfunded lending commitments (2) | 897 |
| | 120 |
| | 3,908 |
| | 4,028 |
|
The carrying values(1) Includes demand deposits of $528.9 billion and fair values of the Corporation’s commercial unfunded lending commitments were $893 million and $4.3$519.6 billion with no stated maturities at March 31, 2017,2018 and $937 million and $4.9 billion at December 31, 20162017.
(2) . Commercial unfunded lending commitments are primarily classified as Level 3. The carrying value of these commitments is classifiedincluded in accrued expenses and other liabilities.
The Corporation does not estimateliabilities on the fair values of consumer unfunded lending commitments because, in many instances, the Corporation can reduce or cancel these commitments by providing notice to the borrower.Consolidated Balance Sheet. For more information on commitments, see Note 10 – Commitments and ContingenciesContingencies..
NOTE 17 Business Segment Information
The Corporation reports its 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. For additional information, see Note 2423 – Business Segment Information to the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K. The following tables below present net income (loss) and the components
components thereto (with net interest income on an FTE basis) for the three months ended March 31, 20172018 and 2016,2017 and total assets at March 31, 20172018 and 20162017 for each business segment, as well as All Other, including a reconciliation of the four business segments’ total revenue, net of interest expense, on an FTE basis, and net income to the Consolidated Statement of Income, and total assets to the Consolidated Balance Sheet.
| | | | | | | | | | | | |
| Results of Business Segments and All Other | Results of Business Segments and All Other | | | | | | | | | |
| | | | | | | | | | |
| At and for the three months ended March 31 | | | Total Corporation (1) | | Consumer Banking | Total Corporation (1) | | Consumer Banking | | Global Wealth &
Investment Management |
| (Dollars in millions) | | 2017 | 2016 | | 2017 | 2016 | 2018 | 2017 | | 2018 | 2017 | | 2018 | 2017 |
| Net interest income (FTE basis) | | $ | 11,255 |
| $ | 10,700 |
| | $ | 5,781 |
| $ | 5,328 |
| $ | 11,758 |
| $ | 11,255 |
| | $ | 6,510 |
| $ | 5,781 |
| | $ | 1,594 |
| $ | 1,560 |
|
| Noninterest income | | 11,190 |
| 10,305 |
| | 2,503 |
| 2,529 |
| 11,517 |
| 11,190 |
| | 2,522 |
| 2,503 |
| | 3,262 |
| 3,032 |
|
| Total revenue, net of interest expense (FTE basis) | | 22,445 |
| 21,005 |
| | 8,284 |
| 7,857 |
| 23,275 |
| 22,445 |
| | 9,032 |
| 8,284 |
| | 4,856 |
| 4,592 |
|
| Provision for credit losses | | 835 |
| 997 |
| | 838 |
| 531 |
| 834 |
| 835 |
| | 935 |
| 838 |
| | 38 |
| 23 |
|
| Noninterest expense | | 14,848 |
| 14,816 |
| | 4,406 |
| 4,538 |
| 13,897 |
| 14,093 |
| | 4,480 |
| 4,410 |
| | 3,428 |
| 3,329 |
|
| Income before income taxes (FTE basis) | | 6,762 |
| 5,192 |
| | 3,040 |
| 2,788 |
| 8,544 |
| 7,517 |
| | 3,617 |
| 3,036 |
| | 1,390 |
| 1,240 |
|
| Income tax expense (FTE basis) | | 1,906 |
| 1,720 |
| | 1,146 |
| 1,024 |
| 1,626 |
| 2,180 |
| | 922 |
| 1,144 |
| | 355 |
| 467 |
|
| Net income | | | $ | 4,856 |
| $ | 3,472 |
| | $ | 1,894 |
| $ | 1,764 |
| $ | 6,918 |
| $ | 5,337 |
| | $ | 2,695 |
| $ | 1,892 |
| | $ | 1,035 |
| $ | 773 |
|
| Period-end total assets | | | $ | 2,247,701 |
| $ | 2,185,726 |
| | $ | 734,087 |
| $ | 666,292 |
| $ | 2,328,478 |
| $ | 2,247,794 |
| | $ | 774,256 |
| $ | 734,087 |
| | $ | 279,331 |
| $ | 291,177 |
|
| | | | | | | | | | |
| | | | Global Wealth &
Investment Management | | Global Banking | Global Banking | | Global Markets | | All Other |
| | | 2017 | 2016 | | 2017 | 2016 | 2018 | 2017 | | 2018 | 2017 | | 2018 | 2017 |
| Net interest income (FTE basis) | | $ | 1,560 |
| $ | 1,513 |
| | $ | 2,774 |
| $ | 2,545 |
| $ | 2,640 |
| $ | 2,602 |
| | $ | 870 |
| $ | 1,049 |
| | $ | 144 |
| $ | 263 |
|
| Noninterest income | | 3,032 |
| 2,956 |
| | 2,181 |
| 1,909 |
| |
| Total revenue, net of interest expense (FTE basis) | | 4,592 |
| 4,469 |
| | 4,955 |
| 4,454 |
| |
| Provision for credit losses | | 23 |
| 25 |
| | 17 |
| 553 |
| |
| Noninterest expense | | 3,333 |
| 3,273 |
| | 2,163 |
| 2,174 |
| |
| Income before income taxes (FTE basis) | | 1,236 |
| 1,171 |
| | 2,775 |
| 1,727 |
| |
| Income tax expense (FTE basis) | | 466 |
| 430 |
| | 1,046 |
| 635 |
| |
| Net income | | $ | 770 |
| $ | 741 |
| | $ | 1,729 |
| $ | 1,092 |
| |
| Period-end total assets | | | | $ | 291,177 |
| $ | 296,199 |
| | $ | 416,710 |
| $ | 394,736 |
| |
| | | | | | |
| | | | Global Markets | | All Other | |
| | | 2017 | 2016 | | 2017 | 2016 | |
| Net interest income (FTE basis) | | $ | 1,049 |
| $ | 1,184 |
| | $ | 91 |
| $ | 130 |
| |
| Noninterest income | | 3,659 |
| 2,767 |
| | (185 | ) | 144 |
| |
| Noninterest income (loss) | | 2,294 |
| 2,353 |
| | 3,916 |
| 3,659 |
| | (477 | ) | (357 | ) |
| Total revenue, net of interest expense (FTE basis) | | 4,708 |
| 3,951 |
| | (94 | ) | 274 |
| 4,934 |
| 4,955 |
| | 4,786 |
| 4,708 |
| | (333 | ) | (94 | ) |
| Provision for credit losses | | (17 | ) | 9 |
| | (26 | ) | (121 | ) | 16 |
| 17 |
| | (3 | ) | (17 | ) | | (152 | ) | (26 | ) |
| Noninterest expense | | 2,757 |
| 2,449 |
| | 2,189 |
| 2,382 |
| 2,195 |
| 2,163 |
| | 2,818 |
| 2,757 |
| | 976 |
| 1,434 |
|
| Income (loss) before income taxes (FTE basis) | | 1,968 |
| 1,493 |
| | (2,257 | ) | (1,987 | ) | 2,723 |
| 2,775 |
| | 1,971 |
| 1,968 |
| | (1,157 | ) | (1,502 | ) |
| Income tax expense (benefit) (FTE basis) | | 671 |
| 520 |
| | (1,423 | ) | (889 | ) | 707 |
| 1,046 |
| | 513 |
| 671 |
| | (871 | ) | (1,148 | ) |
| Net income (loss) | | $ | 1,297 |
| $ | 973 |
| | $ | (834 | ) | $ | (1,098 | ) | $ | 2,016 |
| $ | 1,729 |
| | $ | 1,458 |
| $ | 1,297 |
| | $ | (286 | ) | $ | (354 | ) |
| Period-end total assets | | $ | 604,015 |
| $ | 581,150 |
| | $ | 201,712 |
| $ | 247,349 |
| $ | 424,134 |
| $ | 416,763 |
| | $ | 648,605 |
| $ | 604,014 |
| | $ | 202,152 |
| $ | 201,753 |
|
| | | | | | |
| Business Segment Reconciliations | | | | | |
| | | | | Three Months Ended March 31 | |
| | | | | 2017 | 2016 | |
| Segments’ total revenue, net of interest expense (FTE basis) | | $ | 22,539 |
| $ | 20,731 |
| |
Adjustments (2): | | |
| |
| |
| ALM activities | | (45 | ) | (106 | ) | |
| Liquidating businesses and other | | (49 | ) | 380 |
| |
| FTE basis adjustment | | (197 | ) | (215 | ) | |
| Consolidated revenue, net of interest expense | | | | | $ | 22,248 |
| $ | 20,790 |
| |
| Segments’ total net income | | | | 5,690 |
| 4,570 |
| |
Adjustments, net-of-taxes (2): | | | | | |
| |
| ALM activities | | | | (179 | ) | (172 | ) | |
| Liquidating businesses and other | | | | (655 | ) | (926 | ) | |
| Consolidated net income | | | | | $ | 4,856 |
| $ | 3,472 |
| |
| | | | | | |
| | | | | March 31 | |
| | | | | 2017 | 2016 | |
| Segments’ total assets | | | | $ | 2,045,989 |
| $ | 1,938,377 |
| |
Adjustments (2): | | | | |
| |
| |
| ALM activities, including securities portfolio | | | | 633,080 |
| 622,289 |
| |
Liquidating businesses and other (3) | | | | 112,060 |
| 135,007 |
| |
| Elimination of segment asset allocations to match liabilities | | | | (543,428 | ) | (509,947 | ) | |
| Consolidated total assets | | | | $ | 2,247,701 |
| $ | 2,185,726 |
| |
|
| | | | | | | | |
| | | | | |
| Business Segment Reconciliations | | | | |
| | | | | |
| | | Three Months Ended March 31 |
| | | 2018 | | 2017 |
| Segments’ total revenue, net of interest expense (FTE basis) | | $ | 23,608 |
| | $ | 22,539 |
|
Adjustments (2): | | |
| | |
|
| ALM activities | | 116 |
| | (45 | ) |
| Liquidating businesses and other | | (449 | ) | | (49 | ) |
| FTE basis adjustment | | (150 | ) | | (197 | ) |
| Consolidated revenue, net of interest expense | | $ | 23,125 |
| | $ | 22,248 |
|
| Segments’ total net income | | 7,204 |
| | 5,691 |
|
Adjustments, net-of-taxes (2): | | |
| | |
|
| ALM activities | | (54 | ) | | (179 | ) |
| Liquidating businesses and other | | (232 | ) | | (175 | ) |
| Consolidated net income | | $ | 6,918 |
| | $ | 5,337 |
|
| | | | | |
| | | March 31 |
| | | 2018 | | 2017 |
| Segments’ total assets | | $ | 2,126,326 |
| | $ | 2,046,041 |
|
Adjustments (2): | | |
| | |
|
| ALM activities, including securities portfolio | | 659,849 |
| | 633,028 |
|
Liquidating businesses and other (3) | | 85,631 |
| | 112,153 |
|
| Elimination of segment asset allocations to match liabilities | | (543,328 | ) | | (543,428 | ) |
| Consolidated total assets | | $ | 2,328,478 |
| | $ | 2,247,794 |
|
| |
(1) | There were no material intersegment revenues. |
| |
(2) | Adjustments include consolidated income, expense and asset amounts not specifically allocated to individual business segments. |
| |
(3) | IncludesAt March 31, 2017, includes assets of the non-U.S. consumer credit card business which arewere included in assets of business held for sale on the Consolidated Balance Sheet. |
The table below presents noninterest income and the components thereto for the three months ended March 31, 2018 and 2017 for each business segment, as well as All Other. For additional information, see Note 1 – Summary of Significant Accounting Principles and Note 2 – Noninterest Income.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Noninterest Income by Business Segment and All Other | | | | | | |
| | | | | | | | | | | | |
| | Total Corporation | | Consumer Banking | | Global Wealth &
Investment Management |
| | Three Months Ended March 31 |
| (Dollars in millions) | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| Card income | | | | | | | | | | | |
| Interchange fees | $ | 971 |
| | $ | 958 |
| | $ | 804 |
| | $ | 784 |
| | $ | 11 |
| | $ | 26 |
|
| Other card income | 486 |
| | 491 |
| | 475 |
| | 440 |
| | 10 |
| | 10 |
|
| Total card income | 1,457 |
| | 1,449 |
| | 1,279 |
| | 1,224 |
| | 21 |
| | 36 |
|
| Service charges | | | | | | | | | | | |
| Deposit-related fees | 1,646 |
| | 1,653 |
| | 1,044 |
| | 1,050 |
| | 19 |
| | 20 |
|
| Lending-related fees | 275 |
| | 265 |
| | — |
| | — |
| | — |
| | — |
|
| Total service charges | 1,921 |
| | 1,918 |
| | 1,044 |
| | 1,050 |
| | 19 |
| | 20 |
|
| Investment and brokerage services | | | | | | | | | | | |
| Asset management fees | 2,564 |
| | 2,200 |
| | 36 |
| | 33 |
| | 2,528 |
| | 2,167 |
|
| Brokerage fees | 1,100 |
| | 1,217 |
| | 46 |
| | 49 |
| | 512 |
| | 624 |
|
| Total investment and brokerage services | 3,664 |
| | 3,417 |
| | 82 |
| | 82 |
| | 3,040 |
| | 2,791 |
|
| Investment banking income | | | | | | | | | | | |
| Underwriting income | 740 |
| | 779 |
| | — |
| | — |
| | 84 |
| | 51 |
|
| Syndication fees | 316 |
| | 400 |
| | — |
| | — |
| | — |
| | — |
|
| Financial advisory services | 297 |
| | 405 |
| | — |
| | — |
| | — |
| | — |
|
| Total investment banking income | 1,353 |
| | 1,584 |
| | — |
| | — |
| | 84 |
| | 51 |
|
| Trading account profits | 2,699 |
| | 2,331 |
| | 2 |
| | — |
| | 29 |
| | 59 |
|
| Other income | 423 |
| | 491 |
| | 115 |
| | 147 |
| | 69 |
| | 75 |
|
| Total noninterest income | $ | 11,517 |
| | $ | 11,190 |
| | $ | 2,522 |
| | $ | 2,503 |
| | $ | 3,262 |
| | $ | 3,032 |
|
| | | | | | | | | | | | |
| | Global Banking | | Global Markets | | All Other |
| | Three Months Ended March 31 |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| Card income | | | | | | | | | | | |
| Interchange fees | $ | 134 |
| | $ | 121 |
| | $ | 22 |
| | $ | 22 |
| | $ | — |
| | $ | 5 |
|
| Other card income | 1 |
| | 4 |
| | — |
| | — |
| | — |
| | 37 |
|
| Total card income | 135 |
| | 125 |
| | 22 |
| | 22 |
| | — |
| | 42 |
|
| Service charges | | | | | | | | | | | |
| Deposit-related fees | 538 |
| | 544 |
| | 40 |
| | 33 |
| | 5 |
| | 6 |
|
| Lending-related fees | 225 |
| | 221 |
| | 50 |
| | 44 |
| | — |
| | — |
|
| Total service charges | 763 |
| | 765 |
| | 90 |
| | 77 |
| | 5 |
| | 6 |
|
| Investment and brokerage services | | | | | | | | | | | |
| Asset management fees | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Brokerage fees (1) | 25 |
| | 17 |
| | 488 |
| | 531 |
| | 29 |
| | (4 | ) |
| Total investment and brokerage services | 25 |
| | 17 |
| | 488 |
| | 531 |
| | 29 |
| | (4 | ) |
| Investment banking income | | | | | | | | | | | |
Underwriting income (1) | 161 |
| | 150 |
| | 579 |
| | 636 |
| | (84 | ) | | (58 | ) |
| Syndication fees | 298 |
| | 379 |
| | 18 |
| | 21 |
| | — |
| | — |
|
| Financial advisory services | 285 |
| | 396 |
| | 12 |
| | 9 |
| | — |
| | — |
|
| Total investment banking income | 744 |
| | 925 |
| | 609 |
| | 666 |
| | (84 | ) | | (58 | ) |
| Trading account profits | 61 |
| | 32 |
| | 2,703 |
| | 2,177 |
| | (96 | ) | | 63 |
|
| Other income | 566 |
| | 489 |
| | 4 |
| | 186 |
| | (331 | ) | | (406 | ) |
| Total noninterest income | $ | 2,294 |
| | $ | 2,353 |
| | $ | 3,916 |
| | $ | 3,659 |
| | $ | (477 | ) | | $ | (357 | ) |
| |
(1) | All Other Includes eliminations of intercompany transactions. |
Glossary
Alt-A Mortgage – A type of U.S. mortgage that is considered riskier than A-paper, or "prime,"“prime,” and less risky than "subprime,"“subprime,” the riskiest category. Alt-A interest rates therefore tend to be between those of prime and subprime consumer real estate loans. Typically, Alt-A mortgages are characterized by borrowers with less than full documentation, lower credit scores and higher LTVs.
Assets in Custody – Consist largely of custodial and non-discretionary trust assets excluding brokerage assets administered for clients. Trust assets encompass a broad range of asset types including real estate, private company ownership interest, personal property and investments.
Assets Under Management (AUM)– The total market value of assets under the investment advisory and/or discretion of GWIM which generate asset management fees based on a percentage of the assets’ market values. AUM reflects assets that are generally managed for institutional, high net worth and retail clients, and are distributed through various investment products including mutual funds, other commingled vehicles and separate accounts.
Banking Book – All on- and off-balance sheet financial instruments of the Corporation except for those positions that are held for trading purposes.
Carrying Value (with respect to loans)– The amount at which a loan is recorded on the balance sheet. For loans recorded at amortized cost, carrying value is the unpaid principal balance net of unamortized deferred loan origination feesBrokerage and costs and unamortized purchase premiums or discounts, less net charge-offs and interest payments applied as a reduction of principal under the cost recovery method for loans that have been on nonaccrual status. For PCI loans, the carrying value equals fair value upon acquisition adjusted for subsequent cash collections and yield accreted to date. For credit card loans, the carrying value also includes interest that has been billed to the customer. For loans classified as held-for-sale, carrying value is the lower of carrying value as described in the sentences above, or fair value. For loans where we have elected the fair value option, the carrying value is fair value.
Client BrokerageOther Assets – ClientNon-discretionary client assets which are held in brokerage accounts including non-discretionary brokerage and fee-based assets that generate brokerage income and asset management fee revenue.or held for safekeeping.
Committed Credit Exposure – Includes anyAny funded portion of a facility plus the unfunded portion of a facility on which the lender is legally bound to advance funds during a specified period under prescribed conditions.
Credit Derivatives – Contractual agreements that provide protection against a specified credit event on one or more referenced obligations. The nature of a credit event is established by the protection purchaser and the protection seller at the inception of the transaction, and such events generally include bankruptcy or insolvency of the referenced credit entity, failure to meet payment obligations when due, as well as acceleration of indebtedness and payment repudiation or moratorium. The purchaser of the credit derivative pays a periodic fee in return for a payment by the protection seller upon the occurrence, if any, of such a credit event. A CDS is a type of a credit derivative.
Credit Valuation Adjustment (CVA) – A portfolio adjustment required to properly reflect the counterparty credit risk exposure as part of the fair value of derivative instruments.
Debit Valuation Adjustment (DVA) – A portfolio adjustment required to properly reflect the Corporation’s own credit risk exposure as part of the fair value of derivative instruments and/or structured liabilities.
Funding Valuation Adjustment (FVA) – A portfolio adjustment required to include funding costs on uncollateralized derivatives and derivatives where the Corporation is not permitted to use the collateral it receives.
Interest Rate Lock Commitment (IRLC) – Commitment with a loan applicant in which the loan terms including interest rate and price, are guaranteed for a designated period of time subject to credit approval.
Letter of Credit – A document issued on behalf of a customer to a third party promising to pay the third party upon presentation of specified documents. A letter of credit effectively substitutes the issuer’s credit for that of the customer.
Loan-to-value (LTV) – A commonly used credit quality metric. LTV is calculated as the outstanding carrying value of the loan divided by the estimated value of the property securing the loan. Estimated property values are generally determined through the use of automated valuation models (AVMs) or the CoreLogic Case-Shiller Index. An AVM is a tool that estimates the value of a property by reference to large volumes of market data including sales of comparable properties and price trends specific to the MSA in which the property being valued is located. CoreLogic Case-Shiller is a widely used index based on data from repeat sales of single family homes. CoreLogic Case-Shiller indexed-based values are reported on a three-month or one-quarter lag.
Margin Receivable – An extension of credit secured by eligible securities in certain brokerage accounts.
Matched Book – Repurchase and resale agreements or securities borrowed and loaned transactions where the overall asset and liability position is similar in size and/or maturity. Generally, these are entered into to accommodate customers where the Corporation earns the interest rate spread.
Mortgage Servicing Rights (MSR) – The right to service a mortgage loan when the underlying loan is sold or securitized. Servicing includes collections for principal, interest and escrow payments from borrowers and accounting for and remitting principal and interest payments to investors.
Net Interest Yield – Net interest income divided by average total interest-earning assets.
Nonperforming Loans and Leases – Includes loans and leases that have been placed on nonaccrual status, including nonaccruing loans whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. Loans accounted for under the fair value option, PCI loans and LHFS are not reported as nonperforming loans and leases. Credit card receivables, residential mortgage loans that are insured by the FHA or through long-term credit protection agreements with FNMA and FHLMC (fully-insured loan portfolio) and certain other consumer loans are not placed on nonaccrual status and are, therefore, not reported as nonperforming loans and leases.
Operating Margin – Income before income taxes divided by total revenue, net of interest expense.
Pay Option Loans – Pay option adjustable-rate mortgages have interest rates that adjust monthly and minimum required payments that adjust annually. During an initial five- or ten-year period, minimum required payments may increase by no more than 7.5 percent. If payments are insufficient to pay all of the monthly interest charges, unpaid interest is added to the loan balance (i.e., negative amortization) until the loan balance increases to a specified limit, at which time a new monthly payment amount adequate to repay the loan over its remaining contractual life is established.
Prompt Corrective Action (PCA) – A framework established by the U.S. banking regulators requiring banks to maintain certain levels of regulatory capital ratios, comprised of five categories of capitalization: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” Insured depository institutions that fail to meet certain of these capital levels are subject to increasingly strict limits on their activities, including their ability to make capital distributions, pay management compensation, grow assets and take other actions.
Purchased Credit-impaired (PCI) Loan– A loan purchased as an individual loan, in a portfolio of loans or in a business combination with evidence of deterioration in credit quality since origination for which it is probable, upon acquisition, that the investor will be unable to collect all contractually required payments. These loans are recorded at fair value upon acquisition.
Subprime Loans – Although a standard industry definition for subprime loans (including subprime mortgage loans) does not exist, the Corporation defines subprime loans as specific product offerings for higher risk borrowers, including individuals with one or a combination of high credit risk factors, such as low FICO scores, high debt to income ratios and inferior payment history.borrowers.
Troubled Debt Restructurings (TDRs) – Loans whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. Certain consumer loans for which a binding offer to restructure has been extended are also classified as TDRs. Concessions could include a reduction in the interest rate to a rate that is below market on the loan, payment extensions, forgiveness of principal, forbearance, loans discharged in bankruptcy or other actions intended to maximize collection. Secured consumer loans that have been discharged in Chapter 7 bankruptcy and have not been reaffirmed by the borrower are classified as TDRs at the time of discharge from bankruptcy.
Value-at-Risk (VaR) – VaR is a model that simulates the value of a portfolio under a range of hypothetical scenarios in order to generate a distribution of potential gains and losses. VaR represents the loss the portfolio is expected to experience with a given confidence level based on historical data. A VaR model is an effective tool in estimating ranges of potential gains and losses on our trading portfolios.
Acronyms
|
| |
| ABS | Asset-backed securities |
| AFS | Available-for-sale |
| ALM | Asset and liability management |
| AUM | Assets under management |
| BANA | Bank of America, National Association |
| BHC | Bank holding company |
| bps | basis points |
| CCAR | Comprehensive Capital Analysis and Review |
| CDO | Collateralized debt obligation |
| CDS | Credit default swap |
| CLO | Collateralized loan obligation |
| CLTV | Combined loan-to-value |
| CVA | Credit valuation adjustment |
| DVA | Debit valuation adjustment |
EMV | Europay, Mastercard and Visa |
| EPS | Earnings per common share |
ERC | Enterprise Risk Committee |
| FASB | Financial Accounting Standards Board |
FCA | Financial Conduct Authority |
| FDIC | Federal Deposit Insurance Corporation |
| FHA | Federal Housing Administration |
| FHLB | Federal Home Loan Bank |
| FHLMC | Freddie Mac |
| FICC | Fixed-income, currencies and commodities |
| FICO | Fair Isaac Corporation (credit score) |
| FNMA | Fannie Mae |
| FTE | Fully taxable-equivalent |
| FVA | Funding valuation adjustment |
| GAAP | Accounting principles generally accepted in the United States of America |
| GLS | Global Liquidity Sources |
| GNMA | Government National Mortgage Association |
GPI | Global Principal Investments |
| GSE | Government-sponsored enterprise |
| G-SIB | Global systemically important bank |
| GWIM | Global Wealth & Investment Management |
| HELOC | Home equity line of credit |
| HQLA | High Quality Liquid Assets |
| HTM | Held-to-maturity |
|
| |
ICAAP | Internal Capital Adequacy Assessment Process |
IMM | Internal models methodology |
| IRLC | Interest rate lock commitment |
| ISDA | International Swaps and Derivatives Association, Inc. |
| LCR | Liquidity Coverage Ratio |
| LHFS | Loans held-for-sale |
| LIBOR | London InterBank Offered Rate |
| LTV | Loan-to-value |
| MBS | Mortgage-backed securities |
| MD&A | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
MI | Mortgage insurance |
| MLGWM | Merrill Lynch Global Wealth Management |
| MLI | Merrill Lynch International |
| MLPCC | Merrill Lynch Professional Clearing Corp |
| MLPF&S | Merrill Lynch, Pierce, Fenner & Smith Incorporated |
| MSA | Metropolitan Statistical Area |
| MSR | Mortgage servicing right |
NSFR | Net Stable Funding Ratio |
| OAS | Option-adjusted spread |
| OCI | Other comprehensive income |
| OREO | Other real estate owned |
| OTC | Over-the-counter |
| OTTI | Other-than-temporary impairment |
| PCA | Prompt Corrective Action |
| PCI | Purchased credit-impaired |
PPI | Payment protection insurance |
| RMBS | Residential mortgage-backed securities |
| RSU | Restricted stock unit |
| SBLC | Standby letter of credit |
| SEC | Securities and Exchange Commission |
| SLR | Supplementary leverage ratio |
| TDR | Troubled debt restructurings |
| TLAC | Total Loss-Absorbing Capacityloss-absorbing capacity |
VATTF | U.S. Department of Veterans AffairsTime-to-required funding |
| VaR | Value-at-Risk |
| VIE | Variable interest entity |
Part II. Other Information
Bank of America Corporation and Subsidiaries
Item 1. Legal Proceedings
See Litigation and Regulatory Matters in Note 10 – Commitments and Contingencies to the Consolidated Financial Statements, which is incorporated by reference in this Item 1, for litigation and regulatory disclosure that supplements the disclosure in Note 12 – Commitments and Contingencies to the Consolidated Financial Statements of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
Item 1A. Risk Factors
There are no material changes from the risk factors set forth under Part 1, Item 1A. Risk Factors of the Corporation's 2016Corporation’s 2017 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The table below presents share repurchase activity for the three months ended March 31, 2017.2018. The primary source of funds for cash distributions by the Corporation to its shareholders is dividends received from its banking subsidiaries. Each of the banking 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) | Common Shares Repurchased (1) | | Weighted-Average Per Share Price | | Shares Purchased as
Part of Publicly
Announced Programs | | Remaining Buyback Authority Amounts (2) |
| January 1 - 31, 2017 | 32,315 |
| | $ | 22.62 |
| | 26,918 |
| | $ | 3,459 |
|
| February 1 - 28, 2017 | 63,545 |
| | 23.82 |
| | 44,985 |
| | 2,402 |
|
| March 1 - 31, 2017 | 42,682 |
| | 24.92 |
| | 42,482 |
| | 1,343 |
|
| Three months ended March 31, 2017 | 138,542 |
| | 23.88 |
| | |
| | |
|
|
| | | | | | | | | | | | | |
| | | | | | | | |
| (Dollars in millions, except per share information; shares in thousands) | Common Shares Repurchased (1) | | Weighted-Average Per Share Price | | Shares Purchased as
Part of Publicly
Announced Programs | | Remaining Buyback Authority Amounts (2) |
| January 1 - 31, 2018 | 36,068 |
| | $ | 31.66 |
| | 36,002 |
| | $ | 8,919 |
|
| February 1 - 28, 2018 | 87,300 |
| | 31.78 |
| | 62,155 |
| | 6,954 |
|
| March 1 - 31, 2018 | 54,570 |
| | 32.18 |
| | 54,474 |
| | 5,201 |
|
| Three months ended March 31, 2018 | 177,938 |
| | 31.88 |
| | |
| | |
|
| |
(1) | Includes 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) | The Corporation's 2016Pursuant to the Corporation’s 2017 CCAR capital plan, included a request tothe Board authorized the repurchase $5.0of $12.0 billion ofin common stock over four quarters beginning in the third quarter of 2016 and to repurchase common stockfrom July 1, 2017 through June 30, 2018, plus approximately $900 million to offset the dilution resulting from certaineffect of equity-based compensation awards. On January 13, 2017, the Corporation announced that the Board approved the repurchase of an additional $1.8 billion of common stockplans during the first and second quarters of 2017. Amounts shown in this column include shares repurchased under this additional repurchase authority.same period. During the three months ended March 31, 20172018, pursuant to the Board'sBoard’s authorization, the Corporation repurchased $2.7approximately $4.9 billion of common stock, which included common stock to offset equity-based compensation awards. For additional information, see Capital Management -- CCAR and Capital Planning on page 2118 and Note 11 – Shareholders’ Equity to the Consolidated Financial Statements.
|
The Corporation did not have any unregistered sales of equity securities during the three months ended March 31, 2017.2018.
Item 6. Exhibits
|
| | |
Exhibit 3(a) | | Amended and Restated Certificate of Incorporation of the Corporation, as in effect on the date hereof, incorporated by reference to Exhibit 3(a) of the Corporation's Quarterly Report on Form 10-Q (File No. 1-6523) for the quarterly period ended March 31, 2016 filed on May 2, 2016 |
| | |
Exhibit 3(b) | | Amended and Restated Bylaws of the Corporation, as in effect on the date hereof, incorporated by reference to Exhibit 3.1 of the Corporation's Current Report on Form 8-K (File No. 1-6523) filed on March 20, 2015 |
| | |
Exhibit 10(a) | | Form of Time-Based Restricted Stock Units Award Agreement (February 2017) between the Corporation and certain executive officers of the Corporation, including certain Named Executive Officers (1, 2)
|
| | |
Exhibit 10(b) | | Form of Performance Restricted Stock Units Award Agreement (February 2017) between the Corporation and certain executive officers of the Corporation, including certain Named Executive Officers (1, 2)
|
| | |
Exhibit 11 | | Earnings Per Share Computation – included in Note 13 – Earnings Per Common Share to the Consolidated Financial Statements (1)
|
| | |
Exhibit 12 | | Ratio of Earnings to Fixed Charges (1)
Ratio of Earnings to Fixed Charges and Preferred Dividends (1)
|
| | |
Exhibit 31(a) | | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
|
| | |
Exhibit 31(b) | | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
|
| | |
Exhibit 32(a) | | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
|
| | |
Exhibit 32(b) | | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
|
| | |
Exhibit 101.INS | | XBRL Instance Document (1)
|
| | |
Exhibit 101.SCH | | XBRL Taxonomy Extension Schema Document (1)
|
| | |
Exhibit 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document (1)
|
| | |
Exhibit 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document (1)
|
| | |
Exhibit 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document (1)
|
| | |
Exhibit 101.DEF | | XBRL Taxonomy Extension Definitions Linkbase Document (1)
|
| | |
|
| | | | | | |
| | | | Incorporated by Reference |
| Exhibit No. | Description | Notes | Form | Exhibit | Filing Date | File No. |
| 3(a) | | 1 | | | | |
| | | | | | | |
| 3(b) | | | 8-K | 3.1 | 3/20/15 | 1-6523 |
| | | | | | | |
| 10 | | 1, 2 | | | | |
| | | | | | | |
| 11 | | 1 | | | | |
| | | | | | | |
| 12 | | 1 | | | | |
| | | | | | | |
| 31(a) | | 1 | | | | |
| | | | | | | |
| 31(b) | | 1 | | | | |
| | | | | | | |
| 32(a) | | 1 | | | | |
| | | | | | | |
| 32(b) | | 1 | | | | |
| | | | | | | |
| 101.INS | XBRL Instance Document | 1 | | | | |
| | | | | | | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | 1 | | | | |
| | | | | | | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | 1 | | | | |
| | | | | | | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | 1 | | | | |
| | | | | | | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | 1 | | | | |
| | | | | | | |
| 101.DEF | XBRL Taxonomy Extension Definitions Linkbase Document | 1 | | | | |
(1) Filed herewith.
(2)Exhibit is a management contract or a compensatory plan or arrangement.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | | |
| | | Bank of America Corporation Registrant | |
| | | | | |
| Date: | May 2, 2017April 30, 2018 | | /s/ Rudolf A. Bless | |
| | | | Rudolf A. Bless Chief Accounting Officer | |
Index to Exhibits
|
| | |
Exhibit No. | | Description |
Exhibit 3(a) | | Amended and Restated Certificate of Incorporation of the Corporation, as in effect on the date hereof, incorporated by reference to Exhibit 3(a) of the Corporation's Quarterly Report on Form 10-Q (File No. 1-6523) for the quarterly period ended March 31, 2016 filed on May 2, 2016 |
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Exhibit 3(b) | | Amended and Restated Bylaws of the Corporation, as in effect on the date hereof, incorporated by reference to Exhibit 3.1 of the Corporation's Current Report on Form 8-K (File No. 1-6523) filed on March 20, 2015 |
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Exhibit 10(a) | | Form of Time-Based Restricted Stock Units Award Agreement (February 2017) between the Corporation and certain executive officers of the Corporation, including certain Named Executive Officers (1, 2)
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Exhibit 10(b) | | Form of Performance Restricted Stock Units Award Agreement (February 2017) between the Corporation and certain executive officers of the Corporation, including certain Named Executive Officers (1, 2)
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Exhibit 11 | | Earnings Per Share Computation - included in Note 13 – Earnings Per Common Share to the Consolidated Financial Statements (1)
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Exhibit 12 | | Ratio of Earnings to Fixed Charges (1)
Ratio of Earnings to Fixed Charges and Preferred Dividends (1)
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Exhibit 31(a) | | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
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Exhibit 31(b) | | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
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Exhibit 32(a) | | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
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Exhibit 32(b) | | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
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Exhibit 101.INS | | XBRL Instance Document (1)
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Exhibit 101.SCH | | XBRL Taxonomy Extension Schema Document (1)
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Exhibit 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document (1)
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Exhibit 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document (1)
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Exhibit 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document (1)
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Exhibit 101.DEF | | XBRL Taxonomy Extension Definitions Linkbase Document (1)
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(1) Filed herewith.
(2) Exhibit is a management contract or compensatory plan or arrangement.
