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    UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2020 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’s telephone number, including area code: (704) 386-5681 Securities registered pursuant to section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.01 per share BAC New York Stock Exchange Depositary Shares, each representing a 1/1,000th interest in a share BAC PrE New York Stock Exchange of Floating Rate Non-Cumulative Preferred Stock, Series E Depositary Shares, each representing a 1/1,000th interest in a share BAC PrA New York Stock Exchange of 6.000% Non-Cumulative Preferred Stock, Series EE Depositary Shares, each representing a 1/1,000th interest in a share BAC PrB New York Stock Exchange of 6.000% Non-Cumulative Preferred Stock, Series GG Depositary Shares, each representing a 1/1,000th interest in a share BAC PrK New York Stock Exchange of 5.875% Non-Cumulative Preferred Stock, Series HH 7.25% Non-Cumulative Perpetual Convertible Preferred Stock, Series L BAC PrL New York Stock Exchange Depositary Shares, each representing a 1/1,200th interest in a share BML PrG New York Stock Exchange of Bank of America Corporation Floating Rate Non-Cumulative Preferred Stock, Series 1 1 Bank of America


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    Title of each class Trading Symbol(s) Name of each exchange on which registered Depositary Shares, each representing a 1/1,200th interest in a share BML PrH New York Stock Exchange of Bank of America Corporation Floating Rate Non-Cumulative Preferred Stock, Series 2 Depositary Shares, each representing a 1/1,200th interest in a share BML PrJ New York Stock Exchange of Bank of America Corporation Floating Rate Non-Cumulative Preferred Stock, Series 4 Depositary Shares, each representing a 1/1,200th interest in a share BML PrL New York Stock Exchange of Bank of America Corporation Floating Rate Non-Cumulative Preferred Stock, Series 5 Floating Rate Preferred Hybrid Income Term Securities of BAC Capital BAC/PF New York Stock Exchange Trust XIII (and the guarantee related thereto) 5.63% Fixed to Floating Rate Preferred Hybrid Income Term Securities BAC/PG New York Stock Exchange of BAC Capital Trust XIV (and the guarantee related thereto) Income Capital Obligation Notes initially due December 15, 2066 of MER PrK New York Stock Exchange Bank of America Corporation Senior Medium-Term Notes, Series A, Step Up Callable Notes, due BAC/31B New York Stock Exchange November 28, 2031 of BofA Finance LLC (and the guarantee of the Registrant with respect thereto) Depositary Shares, each representing a 1/1,000th interest in a share BAC PrM New York Stock Exchange of 5.375% Non-Cumulative Preferred Stock, Series KK Depositary Shares, each representing a 1/1,000th interest in a share BAC PrN New York Stock Exchange of 5.000% Non-Cumulative Preferred Stock, Series LL Depositary Shares, each representing a 1/1,000th interest in a share BAC PrO New York Stock Exchange of 4.375% Non-Cumulative Preferred Stock, Series NN Depositary Shares, each representing a 1/1,000th interest in a share BAC PrP New York Stock Exchange of 4.125% Non-Cumulative Preferred Stock, Series PP Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑ As of June 30, 2020, the aggregate market value of the registrant’s common stock (“Common Stock”) held by non-affiliates was approximately $205,771,938,594. At February 23, 2021, there were 8,633,185,862 shares of Common Stock outstanding. Documents incorporated by reference: Portions of the definitive proxy statement relating to the registrant’s 2021 annual meeting of stockholders are incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III. 2 Bank of America


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    Table of Contents Bank of America Corporation and Subsidiaries Part I Page Item 1. Business 2 Item 1A. Risk Factors 7 Item 1B. Unresolved Staff Comments 22 Item 2. Properties 22 Item 3. Legal Proceedings 22 Item 4. Mine Safety Disclosures 22 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 22 Item 6. Selected Financial Data 22 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 93 Item 8. Financial Statements and Supplementary Data 93 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 175 Item 9A. Controls and Procedures 175 Item 9B. Other Information 175 Part III Item 10. Directors, Executive Officers and Corporate Governance 175 Item 11. Executive Compensation 175 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 176 Item 13. Certain Relationships and Related Transactions, and Director Independence 176 Item 14. Principal Accounting Fees and Services 176 Part IV Item 15. Exhibits, Financial Statement Schedules 177 Item 16. Form 10-K Summary 181 1 Bank of America


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    Part I Bank of America Corporation and Subsidiaries Item 1. Business been implemented. Additionally, there has been a decline in global economic Bank of America Corporation is a Delaware corporation, a bank holding company activity, reduced U.S. and global economic output and a deterioration in (BHC) and a financial holding company. When used in this report, “the macroeconomic conditions in the U.S. and globally. This has resulted in, among Corporation,” “we,” “us” and “our” may refer to Bank of America Corporation other things, higher rates of unemployment and underemployment and caused individually, Bank of America Corporation and its subsidiaries, or certain of Bank of volatility and disruptions in the global financial markets during 2020, including the America Corporation’s subsidiaries or affiliates. As part of our efforts to streamline energy and commodity markets. the Corporation’s organizational structure and reduce complexity and costs, the In response to the pandemic, the Corporation has been taking a proactive role Corporation has reduced and intends to continue to reduce the number of its in addressing the impact of the pandemic on its employees, its operations, its corporate subsidiaries, including through intercompany mergers. clients and the community, including the implementation of protocols and Bank of America is one of the world’s largest financial institutions, serving processes to execute its business continuity plans and help protect its employees individual consumers, small- and middle-market businesses, institutional investors, and support its clients. The Corporation is managing its response to the pandemic large corporations and governments with a full range of banking, investing, asset according to its Enterprise Response Framework, which invokes centralized management and other financial and risk management products and services. Our management of the crisis event and the integration of the Corporation’s enterprise- principal executive offices are located in the Bank of America Corporate Center, wide response. 100 North Tryon Street, Charlotte, North Carolina 28255. Although some restrictive measures have been eased in certain areas, many Bank of America’s website is www.bankofamerica.com, and the Investor restrictive measures remain in place or have been reinstated, and in some cases Relations portion of our website is http://investor.bankofamerica.com. We use our additional restrictive measures are being or may need to be implemented in light of website to distribute company information, including as a means of disclosing the increase in COVID-19 cases in recent months in the U.S. and in many other material, non-public information and for complying with our disclosure obligations regions of the world. Businesses, market participants, our counterparties and under Regulation FD. We routinely post and make accessible financial and other clients, and the U.S. and global economies have been negatively impacted and are information, including environmental, social and governance (ESG) information, likely to remain so for an extended period of time, as there remains significant regarding the Corporation on our website. Investors should monitor the Investor uncertainty about the magnitude and duration of the pandemic and the timing and Relations portion of our website, in addition to our press releases, U.S. Securities strength of an economic recovery. For more information regarding COVID-19, see and Exchange Commission (SEC) filings, public conference calls and webcasts. Item 1A. Risk Factors – Coronavirus Disease on page 7 and Executive Summary – Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Recent Developments – COVID-19 Pandemic in the MD&A on page 25. Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) Segments Through our various bank and nonbank subsidiaries throughout the U.S. and in are available on the Investor Relations portion of our website as soon as international markets, we provide a diversified range of banking and nonbank reasonably practicable after we electronically file such reports with, or furnish them financial services and products through four business segments: Consumer to, the SEC and at the SEC’s website, www.sec.gov. Notwithstanding the Banking, Global Wealth & Investment Management (GWIM), Global Banking and foregoing, the information contained on our website as referenced in this Global Markets, with the remaining operations recorded in All Other. Additional paragraph is not incorporated by reference into this Annual Report on Form 10-K. information related to our business segments and the products and services they Also, we make available on the Investor Relations portion of our website: (i) our provide is included in the information set forth on pages 36 through 46 of Item 7. Code of Conduct; (ii) our Corporate Governance Guidelines; and (iii) the charter of Management’s Discussion and Analysis of Financial Condition and Results of each active committee of our Board of Directors (the Board). We also intend to Operations (MD&A) and Note 23 – Business Segment Information to the disclose any amendments to our Code of Conduct and waivers of our Code of Consolidated Financial Statements. Conduct required to be disclosed by the rules of the SEC and the New York Stock Exchange on the Investor Relations portion of our website. All of these corporate Competition governance materials are also available free of charge in print to shareholders who We operate in a highly competitive environment. Our competitors include banks, request them in writing to: Bank of America Corporation, Attention: Office of the thrifts, credit unions, investment banking firms, investment advisory firms, Corporate Secretary, Bank of America Corporate Center, 100 North Tryon Street, brokerage firms, investment companies, insurance companies, mortgage banking NC1-007-56-06, Charlotte, North Carolina 28255. companies, credit card issuers, mutual fund companies, hedge funds, private equity firms, and e-commerce and other internet-based companies. We compete Coronavirus Disease with some of these competitors globally and with others on a regional or product The Corporation has been, and continues to be, impacted by the Coronavirus specific basis. Disease 2019 (COVID-19) pandemic (the pandemic). In an attempt to contain the Competition is based on a number of factors including, among others, customer spread and impact of the pandemic, travel bans and restrictions, quarantines, service, quality and range of products and services offered, price, reputation, shelter-in-place orders and other limitations on business activity have interest rates on loans and deposits, lending limits and customer convenience. Our ability to continue to compete effectively also depends in large part on our ability to attract new employees and retain and Bank of America 2


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    motivate our existing employees, while managing compensation and other costs. Employee Engagement and Talent Retention Human Capital Resources As part of our ongoing efforts to make the Corporation a great place to work, we We strive to make Bank of America a great place to work for our employees. We have conducted a confidential annual Employee Engagement Survey (Survey) for value our employees and seek to establish and maintain human resource policies nearly two decades. The Survey results are reviewed by the Board and senior that are consistent with our core values and that help realize the power of our management and used to assist in reviewing the Corporation’s human capital people. Our Board and its committees, including the Compensation and Human strategies, programs and practices. In 2020, more than 90 percent of the Capital, Audit, Enterprise Risk, and Corporate Governance, ESG and Sustainability Corporation’s employees participated in the Survey, and our Employee Committees, provide oversight of our human capital management strategies, Engagement Index, an overall measure of employee satisfaction with the programs and practices. The Corporation’s senior management provides regular Corporation, was 91 percent. In 2020, we also had historically low turnover among briefings on human capital matters to the Board and its Committees to facilitate the our employees of seven percent. Board’s oversight. Fair and Equitable Compensation At December 31, 2020 and 2019, the Corporation employed approximately The Corporation is committed to racial and gender pay equity by striving to fairly 213,000 and 208,000 employees, of which 82 percent were located in the U.S. at and equitably compensate all of our employees. We maintain robust policies and both dates. None of our U.S. employees are subject to a collective bargaining practices that reinforce our commitment, including reviews with oversight from our agreement. Additionally, in 2020 and 2019, the Corporation’s compensation and Board and senior management. In 2020, our review covered our regional hubs benefits expense was $32.7 billion and $32.0 billion, or 59 percent and 58 percent, (U.S., U.K., France, Ireland, Hong Kong, and Singapore) and India and showed of total noninterest expense. that compensation received by women, on average, was greater than 99 percent of Diversity and Inclusion that received by men in comparable positions and, in the U.S., compensation The Corporation’s commitment to diversity and inclusion starts at the top of the received by people of color was, on average, greater than 99 percent of that Corporation with oversight from our Board and CEO. The Corporation’s senior received by teammates who are not people of color in comparable positions. management sets the diversity and inclusion goals of the Corporation, and the We also strive to pay our employees fairly based on market rates for their roles, Chief Human Resources Officer and Chief Diversity & Inclusion Officer partner with experience and how they perform, and we regularly benchmark against other our CEO and senior management to drive our diversity and inclusion strategy, companies both within and outside our industry to help ensure our pay is competitive. In the first quarter of 2020, we raised our minimum hourly wage for programs, initiatives and policies. The Global Diversity and Inclusion Council, U.S. employees to $20 per hour, which is above all governmental minimum wage which consists of senior executives from every line of business and is chaired by levels in all jurisdictions in which we operate in the U.S. our CEO, has been in place for over 20 years. The Council sponsors and supports business, operating unit and regional diversity and inclusion councils to ensure Health and Wellness – 2020 Focus alignment to enterprise diversity strategies and goals. The Corporation also is committed to supporting employees’ physical, emotional Our practices and policies have resulted in strong representation across the and financial wellness by offering flexible and competitive benefits, including Corporation where our broad employee population mirrors the clients and comprehensive health and insurance benefits and wellness resources. In 2020, we communities we serve. We have a Board and senior management team that are 47 took steps to support our employees during the ongoing health crisis resulting from percent and 50 percent racially, ethnically and gender diverse. As of December 31, the pandemic, including monitoring guidance from the U.S. Centers for Disease 2020, over 50 percent of employees were women, and, among U.S.-based Control and Prevention, medical boards and health authorities and sharing such employees, nearly 48 percent were people of color, 14 percent were Black/African guidance with our employees. In addition, as a result of the pandemic we American and 19 percent were Hispanic/Latino. As of December 31, 2020, the transitioned to a work-from-home posture for the substantial majority of our Corporation’s top three management levels in relation to the CEO were composed employees and provided various benefits and resources related to the pandemic, of more than 42 percent women and nearly 20 percent people of color. These including the implementation of child and adult care solutions, offering no-cost workforce diversity metrics are reported regularly to the senior management team COVID-19 testing and mental health resources and additional support for and to the Board and are publicly disclosed on our website. teammates who work in the office, such as transportation and meal subsidies. We We invest in our leadership by offering a range of development programs and continue to engage with state and national governments to understand their resources that allow employees to develop and progress in their careers. We vaccination plans for essential workers, including the extent to which that may reinforce our commitment to diversity and inclusion by investing internally in our include some of our employees, and with our employees to educate them about employee networks and by facilitating conversations with employees about racial, vaccines and the importance of being vaccinated. For more information on our social and economic issues. Further, we partner with various external response to the pandemic, including with respect to human capital measures, see organizations, which focus on advancing diverse talent. We also have practices in Executive Summary – Recent Developments – COVID-19 Pandemic on page 25. place for attracting and retaining diverse talent, including campus recruitment. For example, in 2020, approximately 45 percent of our campus hires were women, and, Government Supervision and Regulation in the U.S., approximately 54 percent were people of color. The following discussion describes, among other things, elements of an extensive regulatory framework applicable to BHCs, financial holding companies, banks and broker-dealers, including specific information about Bank of America. 3 Bank of America


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    We are subject to an extensive regulatory framework applicable to BHCs, services entities in the United Kingdom (U.K.), Ireland and France are subject to financial holding companies and banks and other financial services entities. U.S. regulation by the Prudential Regulatory Authority and Financial Conduct Authority, federal regulation of banks, BHCs and financial holding companies is intended the European Central Bank and Central Bank of Ireland, and the Autorité de primarily for the protection of depositors and the Deposit Insurance Fund (DIF) Contrôle Prudentiel et de Résolution and Autorité des Marchés Financiers, rather than for the protection of shareholders and creditors. respectively. As a registered financial holding company and BHC, the Corporation is subject to the supervision of, and regular inspection by, the Board of Governors of the Source of Strength Federal Reserve System (Federal Reserve). Our U.S. bank subsidiaries (the Under the Financial Reform Act and Federal Reserve policy, BHCs are expected to Banks), organized as national banking associations, are subject to regulation, act as a source of financial strength to each subsidiary bank and to commit supervision and examination by the Office of the Comptroller of the Currency resources to support each such subsidiary. Similarly, under the cross-guarantee (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Federal provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 Reserve. In addition, the Federal Reserve and the OCC have adopted guidelines (FDICIA), in the event of a loss suffered or anticipated by the FDIC, either as a that establish minimum standards for the design, implementation and board result of default of a bank subsidiary or related to FDIC assistance provided to such oversight of BHCs’ and national banks’ risk governance frameworks. U.S. financial a subsidiary in danger of default, the affiliate banks of such a subsidiary may be holding companies, and the companies under their control, are permitted to engage assessed for the FDIC’s loss, subject to certain exceptions. in activities considered “financial in nature” as defined by the Gramm-Leach-Bliley Act and related Federal Reserve interpretations. The Corporation's status as a Transactions with Affiliates financial holding company is conditioned upon maintaining certain eligibility Pursuant to Section 23A and 23B of the Federal Reserve Act, as implemented by requirements for both the Corporation and its U.S. depository institution the Federal Reserve’s Regulation W, the Banks are subject to restrictions that limit subsidiaries, including minimum capital ratios, supervisory ratings and, in the case certain types of transactions between the Banks and their nonbank affiliates. In of the depository institutions, at least satisfactory Community Reinvestment Act general, U.S. banks are subject to quantitative and qualitative limits on extensions ratings. Failure to be an eligible financial holding company could result in the of credit, purchases of assets and certain other transactions involving their Federal Reserve limiting Bank of America's activities, including potential nonbank affiliates. Additionally, transactions between U.S. banks and their acquisitions. nonbank affiliates are required to be on arm’s length terms and must be consistent The scope of the laws and regulations and the intensity of the supervision to with standards of safety and soundness. which we are subject have increased over the past several years, beginning with the response to the financial crisis, as well as other factors such as technological Deposit Insurance and market changes. In addition, the banking and financial services sector is Deposits placed at U.S. domiciled banks are insured by the FDIC, subject to limits subject to substantial regulatory enforcement and fines. Many of these changes and conditions of applicable law and the FDIC’s regulations. Pursuant to the have occurred as a result of the 2010 Dodd-Frank Wall Street Reform and Financial Reform Act, FDIC insurance coverage limits are $250,000 per customer. Consumer Protection Act (the Financial Reform Act). We cannot assess whether All insured depository institutions are required to pay assessments to the FDIC in there will be any additional major changes in the regulatory environment and order to fund the DIF. expect that our business will remain subject to continuing and extensive regulation The FDIC is required to maintain at least a designated minimum ratio of the DIF and supervision. to insured deposits in the U.S. The FDIC adopted regulations that establish a long- We are also subject to various other laws and regulations, as well as term target DIF ratio of greater than two percent. As of the date of this report, the DIF ratio is below this required target, and the FDIC has adopted a restoration plan supervision and examination by other regulatory agencies, all of which directly or that may result in increased deposit insurance assessments. Deposit insurance indirectly affect our entities and management and our ability to make distributions to assessment rates are subject to change by the FDIC and will be impacted by the shareholders. For instance, our broker-dealer subsidiaries are subject to both U.S. overall economy and the stability of the banking industry as a whole. For more and international regulation, including supervision by the SEC, Financial Industry information regarding deposit insurance, see Item 1A. Risk Factors – Regulatory, Regulatory Authority and New York Stock Exchange, among others; our futures Compliance and Legal on page 16. commission merchant subsidiaries supporting commodities and derivatives businesses in the U.S. are subject to regulation by and supervision of the U.S. Capital, Liquidity and Operational Requirements Commodity Futures Trading Commission (CFTC), National Futures Association, As a financial holding company, we and our bank subsidiaries are subject to the the Chicago Mercantile Exchange and in the case of the Banks, certain banking regulatory capital and liquidity rules issued by the Federal Reserve and other U.S. regulators; our insurance activities are subject to licensing and regulation by state banking regulators, including the OCC and the FDIC. These rules are complex and insurance regulatory agencies; and our consumer financial products and services are evolving as U.S. and international regulatory authorities propose and enact are regulated by the Consumer Financial Protection Bureau (CFPB). amendments to these rules. The Corporation seeks to manage its capital position Our non-U.S. businesses are also subject to extensive regulation by various to maintain sufficient capital to satisfy these regulatory rules and to support our non-U.S. regulators, including governments, securities exchanges, prudential business activities. These continually evolving rules are likely to influence our regulators, central banks and other regulatory bodies, in the jurisdictions in which planning processes and may require additional regulatory capital and liquidity, as those businesses operate. For example, our financial well as impose additional operational and compliance costs on the Corporation. For more information on regulatory capital rules, capital composition and pending or proposed regulatory capital Bank of America 4


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    changes, see Capital Management on page 50, and Note 16 – Regulatory Resolution Planning Requirements and Restrictions to the Consolidated Financial Statements, which As a BHC with greater than $250 billion of assets, the Corporation is required by are incorporated by reference in this Item 1. the Federal Reserve and the FDIC to periodically submit a plan for a rapid and orderly resolution in the event of material financial distress or failure. Distributions Such resolution plan is intended to be a detailed roadmap for the orderly We are subject to various regulatory policies and requirements relating to capital resolution of the BHC, including the continued operations or solvent wind down of actions, including payment of dividends and common stock repurchases. For its material entities, pursuant to the U.S. Bankruptcy Code under one or more instance, Federal Reserve regulations require major U.S. BHCs to submit a capital hypothetical scenarios assuming no extraordinary government assistance. plan as part of an annual Comprehensive Capital Analysis and Review (CCAR). If both the Federal Reserve and the FDIC determine that the BHC’s plan is not Our ability to pay dividends and make common stock repurchases depends in credible, the Federal Reserve and the FDIC may jointly impose more stringent part on our ability to maintain regulatory capital levels above minimum capital, leverage or liquidity requirements or restrictions on growth, activities or requirements plus buffers and non-capital standards established under the FDICIA. operations. A summary of our plan is available on the Federal Reserve and FDIC To the extent that the Federal Reserve increases our stress capital buffer (SCB), websites. global systemically important bank (G-SIB) surcharge or countercyclical capital The FDIC also requires the submission of a resolution plan for Bank of America, buffer, our returns of capital to shareholders could decrease. As part of its CCAR, National Association (BANA), which must describe how the insured depository the Federal Reserve conducts stress testing on parts of our business using institution would be resolved under the bank resolution provisions of the Federal hypothetical economic scenarios prepared by the Federal Reserve. Those Deposit Insurance Act. A description of this plan is available on the FDIC’s website. scenarios may affect our CCAR stress test results, which may impact the level of We continue to make substantial progress to enhance our resolvability, our SCB. Additionally, the Federal Reserve may impose limitations or prohibitions including simplifying our legal entity structure and business operations, and on taking capital actions such as paying or increasing common stock dividends or increasing our preparedness to implement our resolution plan, both from a financial repurchasing common stock. For example, as a result of the economic uncertainty and operational standpoint. resulting from the pandemic, the Federal Reserve required that during the second Across international jurisdictions, resolution planning is the responsibility of half of 2020, all large banks, including the Corporation, suspend share repurchase national resolution authorities (RA). Among those, the jurisdictions of most impact programs, except for repurchases to offset shares awarded under equity-based to the Corporation are the requirements associated with subsidiaries in the U.K., compensation plans, and limit common stock dividends to existing rates that did not Ireland and France, where rules have been issued requiring the submission of exceed the average of the last four quarters' net income. In the first quarter of significant information about locally-incorporated subsidiaries (including information 2021, the Federal Reserve lifted the suspension of share repurchase programs and on intra-group dependencies, legal entity separation and barriers to resolution) as permitted large banks to pay common stock dividends and to repurchase shares in well as the Corporation’s banking branches located in those jurisdictions that are an amount that, when combined with dividends paid, does not exceed the average deemed to be material for resolution planning purposes. As a result of the RA's of net income over the last four quarters. review of the submitted information, we could be required to take certain actions If the Federal Reserve finds that any of our Banks are not “well-capitalized” or over the next several years that could increase operating costs and potentially “well-managed,” we would be required to enter into an agreement with the Federal result in the restructuring of certain businesses and subsidiaries. Reserve to comply with all applicable capital and management requirements, which For more information regarding our resolution plan, see Item 1A. Risk Factors – may contain additional limitations or conditions relating to our activities. Liquidity on page 9. Additionally, the applicable federal regulatory authority is authorized to determine, under certain circumstances relating to the financial condition of a bank or BHC, Insolvency and the Orderly Liquidation Authority that the payment of dividends would be an unsafe or unsound practice and to Under the Federal Deposit Insurance Act, the FDIC may be appointed receiver of prohibit payment thereof. an insured depository institution if it is insolvent or in certain other circumstances. For more information regarding the requirements relating to the payment of In addition, under the Financial Reform Act, when a systemically important financial dividends, including the minimum capital requirements, see Note 13 – institution (SIFI) such as the Corporation is in default or danger of default, the FDIC Shareholders’ Equity and Note 16 – Regulatory Requirements and Restrictions to may be appointed receiver in order to conduct an orderly liquidation of such the Consolidated Financial Statements. institution. In the event of such appointment, the FDIC could, among other things, Many of our subsidiaries, including our bank and broker-dealer subsidiaries, are invoke the orderly liquidation authority, instead of the U.S. Bankruptcy Code, if the subject to laws that restrict dividend payments, or authorize regulatory bodies to Secretary of the Treasury makes certain financial distress and systemic risk block or reduce the flow of funds from those subsidiaries to the parent company or determinations. The orderly liquidation authority is modeled in part on the Federal other subsidiaries. The rights of the Corporation, our shareholders and our Deposit Insurance Act, but also adopts certain concepts from the U.S. Bankruptcy creditors to participate in any distribution of the assets or earnings of our Code. subsidiaries is further subject to the prior claims of creditors of the respective The orderly liquidation authority contains certain differences from the U.S. subsidiaries. Bankruptcy Code. For example, in certain circumstances, the FDIC could permit payment of obligations it determines to be systemically significant (e.g., short-term 5 Bank of America


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    creditors or operating creditors) in lieu of paying other obligations (e.g., long-term over-the-counter (OTC) derivatives; and imposing derivatives trading transparency creditors) without the need to obtain creditors’ consent or prior court review. The requirements. Regulations of derivatives are already in effect in many markets in insolvency and resolution process could also lead to a large reduction or total which we operate. elimination of the value of a BHC’s outstanding equity, as well as impairment or In addition, many G-20 jurisdictions, including the U.S., U.K., Germany and elimination of certain debt. Japan, have adopted resolution stay regulations to address concerns that the Under the FDIC’s “single point of entry” strategy for resolving SIFIs, the FDIC close-out of derivatives and other financial contracts in resolution could impede could replace a distressed BHC with a bridge holding company, which could orderly resolution of G-SIBs, and additional jurisdictions are expected to follow suit. continue operations and result in an orderly resolution of the underlying bank, but Generally, these resolution stay regulations require amendment of certain financial whose equity is held solely for the benefit of creditors of the original BHC. contracts to provide for contractual recognition of stays of termination rights under Furthermore, the Federal Reserve requires that BHCs maintain minimum levels various statutory resolution regimes and a stay on the exercise of cross-default of long-term debt required to provide adequate loss absorbing capacity in the event rights based on an affiliate’s entry into insolvency proceedings. As resolution stay of a resolution. regulations of a particular jurisdiction applicable to us go into effect, we amend For more information regarding our resolution, see Item 1A. Risk Factors – impacted financial contracts in compliance with such regulations either as a Liquidity on page 9. regulated entity or as a counterparty facing a regulated entity in such jurisdiction. Limitations on Acquisitions Consumer Regulations The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 permits a Our consumer businesses are subject to extensive regulation and oversight by BHC to acquire banks located in states other than its home state without regard to federal and state regulators. Certain federal consumer finance laws to which we state law, subject to certain conditions, including the condition that the BHC, after are subject, including the Equal Credit Opportunity Act, Home Mortgage Disclosure and as a result of the acquisition, controls no more than 10 percent of the total Act, Electronic Fund Transfer Act, Fair Credit Reporting Act, Real Estate amount of deposits of insured depository institutions in the U.S. and no more than Settlement Procedures Act, Truth in Lending Act and Truth in Savings Act, are 30 percent or such lesser or greater amount set by state law of such deposits in enforced by the CFPB. Other federal consumer finance laws, such as the that state. At June 30, 2020, we held greater than 10 percent of the total amount of Servicemembers Civil Relief Act, are enforced by the OCC. deposits of insured depository institutions in the U.S. In addition, the Financial Reform Act restricts acquisitions by a financial Privacy and Information Security institution if, as a result of the acquisition, the total liabilities of the financial We are subject to many U.S. federal, state and international laws and regulations institution would exceed 10 percent of the total liabilities of all financial institutions governing requirements for maintaining policies and procedures regarding the in the U.S. At June 30, 2020, our liabilities did not exceed 10 percent of the total disclosure, use and protection of the non-public confidential information of our liabilities of all financial institutions in the U.S. customers and employees. The Gramm-Leach-Bliley Act requires us to periodically disclose Bank of America’s privacy policies and practices relating to sharing such The Volcker Rule information and enables retail customers to opt out of our ability to share The Volcker Rule prohibits insured depository institutions and companies affiliated information with unaffiliated third parties, under certain circumstances. The Gramm- with insured depository institutions (collectively, banking entities) from engaging in Leach-Bliley Act and other laws also require us to implement a comprehensive short-term proprietary trading of certain securities, derivatives, commodity futures information security program that includes administrative, technical and physical and options for their own account. The Volcker Rule also imposes limits on banking entities’ investments in, and other relationships with, hedge funds and private safeguards to provide the security and confidentiality of customer records and equity funds. The Volcker Rule provides exemptions for certain activities, including information. Security and privacy policies and procedures for the protection of market making, underwriting, hedging, trading in government obligations, insurance personal and confidential information are in effect across all businesses and company activities and organizing and offering hedge funds and private equity geographic locations. funds. The Volcker Rule also clarifies that certain activities are not prohibited, Other laws and regulations, at the international, federal and state level, impact including acting as agent, broker or custodian. A banking entity with significant our ability to share certain information with affiliates and non-affiliates for marketing trading operations, such as the Corporation, is required to maintain a detailed and/or non-marketing purposes, or contact customers with marketing offers and compliance program to comply with the restrictions of the Volcker Rule. establish certain rights of consumers in connection with their personal information. For example, California’s Consumer Privacy Act (CCPA), which went into effect in Derivatives January 2020, as modified by the California Privacy Rights Act (CPRA), provides Our derivatives operations are subject to extensive regulation globally. These consumers with the right to know what personal data is being collected, know operations are subject to regulation under the Financial Reform Act, the European whether their personal data is sold or disclosed and to whom and opt out of the sale Union (EU) Markets in Financial Instruments Directive and Regulation, the of their personal data, among other rights. In addition, in the EU, the General Data European Market Infrastructure Regulation, analogous U.K. regulatory regimes Protection Regulation (GDPR) replaced the Data Protection Directive and related and similar regulatory regimes in other jurisdictions, that regulate or will regulate implementing national laws in its member states. The CCPA's, CPRA's and the derivatives markets in which we operate by, among other things: requiring GDPR’s impact on the Corporation was assessed and addressed through clearing and exchange trading of certain derivatives; imposing new capital, margin, comprehensive compliance implementation programs. These existing and evolving reporting, registration and business conduct requirements for certain market legal requirements in the U.S. and abroad, participants; imposing position limits on certain Bank of America 6


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    as well as court proceedings and changing guidance from regulatory bodies with the global economy or avert negative economic or market conditions. Our respect to the validity of cross-border data transfer mechanisms from the EU, participation in such programs could result in reputational harm and government continue to lend uncertainty to privacy compliance globally. actions and proceedings, and has resulted in, and may continue to result in, litigation, including class actions. Such actions may result in judgments, Item 1A. Risk Factors settlements, penalties, and fines. Our participation in such programs has also The discussion below addresses the material factors of which we are currently resulted and may continue to result in operational losses, including from the Paycheck Protection Program (PPP) and processing unemployment insurance. aware that could affect our businesses, results of operations and financial We continue to closely monitor the pandemic and related risks as they evolve condition. However, other factors not currently known to us or that we currently globally and in the U.S. The magnitude and duration of the pandemic and its future deem immaterial could also adversely affect our businesses, results of operations direct and indirect effects on the global economy and our businesses, results of and financial condition. Therefore, the risk factors below should not be considered operations and financial condition are highly uncertain and depend on future all of the potential risks that we may face. For more information on how we manage developments that cannot be predicted, including the likelihood of further surges of risks, see Managing Risk in the MD&A on page 47. For more information about the COVID-19 cases and the spread of more easily communicable variants of COVID- risks contained in the Risk Factors section, see Item 1. Business on page 2, MD&A 19, the timing and availability of effective medical treatments and vaccines, future on page 24 and Notes to Consolidated Financial Statements on page 101. actions taken by governmental authorities, including additional stimulus legislation, and/or other third parties in response to the pandemic. The pandemic may cause Coronavirus Disease prolonged global or national negative economic conditions or longer lasting effects The effects of the pandemic have adversely affected, and are expected to on economic conditions than currently exist, which could have a material adverse continue to adversely affect, our businesses and results of operations, and effect on our businesses, results of operations and financial condition. its duration and future impacts on the economy and our businesses, results of operations and financial condition remain uncertain. Market The negative economic conditions arising from the pandemic negatively Our business and results of operations may be adversely affected by the impacted our financial results during 2020 in various respects, including financial markets, fiscal, monetary, and regulatory policies, and economic contributing to increases in our allowance and provision for credit losses and conditions generally. noninterest expense. These negative economic conditions may have a continued General economic, political, social and health conditions in the U.S. and in one adverse effect on our businesses and results of operations, which could include: or more countries abroad affect markets in the U.S. and abroad and our business. decreased demand for and use of our products and services; protracted periods of In particular, markets in the U.S. or abroad may be affected by the level and historically low interest rates; lower fees, including asset management fees; lower volatility of interest rates, availability and market conditions of financing, sales and trading revenue due to decreased market liquidity resulting from unexpected changes in gross domestic product (GDP), economic growth or its heightened volatility; higher levels of uncollectible reversed charges in our sustainability, inflation, consumer spending, employment levels, wage stagnation, merchant services business; increased noninterest expense, including operational federal government shutdowns, developments related to the federal debt ceiling, losses; and increased credit losses due to our customers' and clients' inability to energy prices, home prices, bankruptcies, a default by a significant market fulfill contractual obligations and deterioration in the financial condition of our participant, fluctuations or other significant changes in both debt and equity capital consumer and commercial borrowers, which may vary by region, sector or industry, markets and currencies, liquidity of the global financial markets, the growth of global that may increase our provision for credit losses and net charge-offs. Our provision trade and commerce, trade policies, the availability and cost of capital and credit, for credit losses and net charge-offs may also continue to be impacted by volatility disruption of communication, transportation or energy infrastructure and investor in the energy and commodity markets. Additionally, our liquidity and/or regulatory sentiment and confidence. Additionally, global markets, including energy and capital could be adversely impacted by customers’ withdrawal of deposits, volatility commodity markets, may be adversely affected by the current or anticipated impact and disruptions in the capital and credit markets, volatility in foreign exchange rates of climate change, extreme weather events or natural disasters, the emergence of and customer draws on lines of credit. Continued adverse macroeconomic widespread health emergencies or pandemics, cyber attacks or campaigns, military conditions could also result in potential downgrades to our credit ratings, negative conflict, terrorism or other geopolitical events. Market fluctuations may impact our impacts to regulatory capital and liquidity and further restrictions on dividends margin requirements and affect our business liquidity. Also, any sudden or and/or common stock repurchases. prolonged market downturn in the U.S. or abroad, as a result of the above factors If we become unable to operate our businesses from remote locations or otherwise, could result in a decline in net interest income and noninterest including, for example, because of an internal or external failure of our information income and adversely affect our results of operations and financial condition, technology infrastructure, we experience increased rates of employee illness or including capital and liquidity levels. For example, the global markets, including the unavailability, or governmental restrictions are placed on our employees or energy and commodity markets, experienced significant volatility and disruption as operations, this could adversely affect our business continuity status and result in a result of the uncertainty and economic impact of the pandemic. Further disruption to our businesses. Additionally, we rely on third parties who could uncertainty and ongoing developments in connection with the pandemic, including experience adverse effects on their business continuity and business interruptions, its further spread, changing consumer and business behaviors, government which could increase our risks and adversely impact our businesses. restrictions in an effort to control the virus and timing and availability of effective There can be no assurance that current or future governmental fiscal and medical treatments and vaccines, could monetary relief programs will stimulate 7 Bank of America


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    result in further market volatility and disruptions globally and continue to adversely securities, trading assets and other financial instruments, the cost of debt capital impact macroeconomic conditions. and our access to credit markets, the value of assets under management (AUM), Actions taken by the Federal Reserve, including changes in its target funds rate, fee income relating to AUM, customer allocation of capital among investment balance sheet management, and lending facilities, and other central banks are alternatives, the volume of client activity in our trading operations, investment beyond our control and difficult to predict. These actions can affect interest rates banking fees, the general profitability and risk level of the transactions in which we and the value of financial instruments and other assets and liabilities, and impact engage and our competitiveness with respect to deposit pricing. For example, the our borrowers. The continued protracted period of lower interest rates has resulted value of certain of our assets is sensitive to changes in market interest rates. If the in lower revenue through lower net interest income, which has adversely affected Federal Reserve or a non-U.S. central bank changes or signals a change in our results of operations. Additional periods of lower interest rates or a move to monetary policy, market interest rates could be affected, which could adversely negative interest rates in the U.S., could have a further adverse impact on our net impact the value of such assets. Changes to fiscal policy, including rapid expansion interest income and results of operations. Uncertainty or ongoing developments in of U.S. federal deficit spending and resultant debt issuance, could also affect connection with the U.K.’s exit from the EU, and the resulting impact on the market interest rates. In addition, the low interest rate environment and a flat or financial markets and regulations in relevant jurisdictions, could negatively impact inverted yield curve has had and could continue to have a negative impact on our our revenues and ongoing operations in Europe and other jurisdictions. results of operations, including on future revenue and earnings growth. Changes to existing U.S. laws and regulatory policies, including those related to We use various models and strategies to assess and control our market risk financial regulation, taxation, international trade, fiscal policy and healthcare, may exposures, but those are subject to inherent limitations. In times of market stress or adversely impact U.S. or global economic activity and our customers', our other unforeseen circumstances, previously uncorrelated indicators may become counterparties' and our earnings and operations. For example, additional fiscal correlated and vice versa. These types of market movements may limit the stimulus and rising debt levels, in the U.S. and abroad, in response to the ongoing effectiveness of our hedging strategies and cause us to incur significant losses. pandemic could affect macroeconomic conditions, market liquidity conditions, and These changes in correlation can be exacerbated where other market participants interest rates. Significant fiscal policy changes and/or initiatives, including as a are using risk or trading models with assumptions or algorithms similar to ours. In result of the change in the U.S. presidential administration and Congress, may also these and other cases, it may be difficult to reduce our risk positions due to activity increase uncertainty surrounding the formulation and direction of U.S. monetary of other market participants or widespread market dislocations, including policy and volatility of interest rates. Higher U.S. interest rates relative to other circumstances where asset values are declining significantly or no market exists for major economies could increase the likelihood of a more volatile and appreciating certain assets. To the extent that we own securities that do not have an established U.S. dollar. Changes, or proposed changes, to certain U.S. trade and international liquid trading market or are otherwise subject to restrictions on sale or hedging, we investment policies, particularly with important trading partners (including China may not be able to reduce our positions and therefore reduce our risk associated and the EU) have negatively impacted and may continue to negatively impact with such positions. financial markets, disrupt world trade and commerce and lead to trade retaliation, We may incur losses if the value of assets decline, including due to changes including through the use of tariffs, foreign exchange measures or the large-scale in interest rates and prepayment speeds. sale of U.S. Treasury Bonds. Further, the use of tariffs among countries not directly We have a large portfolio of financial instruments, including loans and loan involving the U.S. could spread and could damage our customers directly and commitments, securities financing agreements, asset-backed secured financings, indirectly. derivative assets and liabilities, debt securities, marketable equity securities and Any of these developments could adversely affect our consumer and certain other assets and liabilities that we measure at fair value that are subject to commercial businesses, our customers, our securities and derivatives portfolios, valuation and impairment assessments. We determine these values based on including the risk of lower re-investment rates within those portfolios, our level of applicable accounting guidance, which for financial instruments measured at fair charge-offs and provision for credit losses, the carrying value of our deferred tax value, requires an entity to base fair value on exit price and to maximize the use of assets, our capital levels, our liquidity and our results of operations. Additionally, observable inputs and minimize the use of unobservable inputs in fair value the uncertainty related to the transition from Interbank Offered Rates (IBORs) and measurements. The fair values of these financial instruments include adjustments other benchmark rates to alternative reference rates (ARRs) could negatively for market liquidity, credit quality, funding impact on certain derivatives and other impact markets globally and our business, and/or magnify any negative impact of transaction-specific factors, where appropriate. the above referenced factors on our business, customers and results of operations. Gains or losses on these instruments can have a direct impact on our results of Increased market volatility and adverse changes in financial or capital market operations, unless we have effectively hedged our exposures. Increases in interest conditions may increase our market risk. rates may result in a decrease in residential mortgage loan originations. In Our liquidity, competitive position, business, results of operations and financial addition, increases in interest rates may adversely impact the fair value of debt condition are affected by market risks such as changes in interest and currency securities and, accordingly, for debt securities classified as available for sale, may exchange rates, fluctuations in equity and futures prices, lower trading volumes and adversely affect accumulated other comprehensive income and, thus, capital prices of securitized products, the implied volatility of interest rates and credit levels. Decreases in interest rates may increase prepayment speeds of certain spreads and other economic and business factors. These market risks may assets, and therefore may adversely affect net interest income. adversely affect, among other things, the value of our on- and off-balance sheet Fair values may be impacted by declining values of the underlying assets or the prices at which observable market Bank of America 8


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    transactions occur and the continued availability of these transactions or indices. problem that affects third parties or us. The impact of these events, whether within The financial strength of counterparties, with whom we have economically hedged our control or not, could include an inability to sell assets or redeem investments, some of our exposure to these assets, also will affect the fair value of these assets. unforeseen outflows of cash, the need to draw on liquidity facilities, the reduction of Sudden declines and volatility in the prices of assets may curtail or eliminate trading financing balances and the loss of equity secured funding, debt repurchases to activities in these assets, which may make it difficult to sell, hedge or value these support the secondary market or meet client requests, the need for additional assets. The inability to sell or effectively hedge assets reduces our ability to limit funding for commitments and contingencies and unexpected collateral calls, among losses in such positions and the difficulty in valuing assets may increase our risk- other things, the result of which could be increased costs, a liquidity shortfall and/or weighted assets (RWA), which requires us to maintain additional capital and impact on our liquidity coverage ratio. increases our funding costs. Values of AUM also impact revenues in our wealth Our liquidity and cost of obtaining funding is directly related to prevailing market management and related advisory businesses for asset-based management and conditions, including changes in interest and currency exchange rates, fluctuations performance fees. Declines in values of AUM can result in lower fees earned for in equity and futures prices, lower trading volumes and prices of securitized managing such assets. products and our credit spreads. Credit spreads are the amount in excess of the interest rate of U.S. Treasury securities, or other benchmark securities, of a similar Liquidity maturity that we need to pay to our funding providers. Increases in interest rates If we are unable to access the capital markets or continue to maintain and our credit spreads can increase the cost of our funding and result in mark-to- deposits, or our borrowing costs increase, our liquidity and competitive market or credit valuation adjustment exposures. Changes in our credit spreads position will be negatively affected. are market-driven and may be influenced by market perceptions of our Liquidity is essential to our businesses. We fund our assets primarily with creditworthiness. Changes to interest rates and our credit spreads occur globally sourced deposits in our bank entities, as well as secured and unsecured continuously and may be unpredictable and highly volatile. We may also liabilities transacted in the capital markets. We rely on certain secured funding experience spread compression as a result of offering higher than expected sources, such as repo markets, which are typically short-term and credit-sensitive deposit rates in order to attract and maintain deposits due to increased in nature. We also engage in asset securitization transactions, including with the marketplace rate competition. Additionally, concentrations within our funding government-sponsored enterprises (GSEs), to fund consumer lending activities. profile, such as maturities, currencies or counterparties, can reduce our funding Our liquidity could be adversely affected by any inability to access the capital efficiency. markets, illiquidity or volatility in the capital markets, the decrease in value of Reduction in our credit ratings could significantly limit our access to funding eligible collateral or increased collateral requirements (including as a result of credit or the capital markets, increase borrowing costs or trigger additional concerns for short-term borrowing), changes to our relationships with our funding collateral or funding requirements. providers based on real or perceived changes in our risk profile, prolonged federal Our borrowing costs and ability to raise funds are directly impacted by our credit government shutdowns, or changes in regulations, guidance or GSE status that ratings. In addition, credit ratings may be important to customers or counterparties impact our funding avenues or ability to access certain funding sources. when we compete in certain markets and seek to engage in certain transactions, Additionally, our liquidity may be negatively impacted by the unwillingness or including OTC derivatives. Credit ratings and outlooks are opinions expressed by inability of the Federal Reserve to act as lender of last resort, unexpected rating agencies on our creditworthiness and that of our obligations or securities, simultaneous draws on lines of credit, slower customer payment rates, restricted including long-term debt, short-term borrowings, preferred stock and asset access to the assets of prime brokerage clients, the withdrawal of or failure to securitizations. Our credit ratings are subject to ongoing review by rating agencies, attract customer deposits or invested funds (which could result from customer which consider a number of factors, including our financial strength, performance, attrition for higher yields, the desire for more conservative alternatives or our prospects and operations and factors not under our control, such as the customers’ increased need for cash), increased regulatory liquidity, capital and macroeconomic and geopolitical environment, including the macroeconomic stress margin requirements for our U.S. or international banks and their nonbank caused by the pandemic. subsidiaries, changes in patterns of intraday liquidity usage resulting from a Rating agencies could make adjustments to our credit ratings at any time, and counterparty or technology failure or other idiosyncratic event or failure or default there can be no assurance as to when and whether downgrades will occur. A by a significant market participant or third party (including clearing agents, reduction in certain of our credit ratings could result in a wider credit spread and custodians or central counterparties (CCPs)). These factors also have the potential negatively affect our liquidity, access to credit markets, the related cost of funds, to increase our borrowing costs. our businesses and certain trading revenues, particularly in those businesses Several of these factors may arise due to circumstances beyond our control, where counterparty creditworthiness is critical. If the short-term credit ratings of our such as general market volatility, disruption, shock or stress, the emergence of parent company, or bank or broker-dealer subsidiaries, were downgraded by one or widespread health emergencies or pandemics, Federal Reserve policy decisions more levels, we may suffer the potential loss of access to short-term funding (including fluctuations in interest rates or Federal Reserve balance sheet sources such as repo financing, and/or incur increased cost of funds and increased composition), negative views about the Corporation (including short- and long-term collateral requirements. Under the terms of certain OTC derivative contracts and business prospects) or the financial services industry generally or due to a specific other trading agreements, if our or our subsidiaries’ credit ratings are downgraded, news event, changes in the regulatory environment or governmental fiscal or the counterparties may require additional collateral or terminate these contracts or monetary policies (including as a result of the change in the U.S. presidential agreements. administration and Congress), actions by credit rating agencies or an operational 9 Bank of America


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    While certain potential impacts are contractual and quantifiable, the full down in a solvent manner following a bankruptcy of the parent holding company. consequences of a credit rating downgrade to a financial institution are inherently Bank of America Corporation has entered into intercompany arrangements uncertain, as they depend upon numerous dynamic, complex and inter-related resulting in the contribution of most of its capital and liquidity to key subsidiaries. factors and assumptions, including whether any downgrade of a firm’s long-term Pursuant to these arrangements, if Bank of America Corporation’s liquidity credit ratings precipitates downgrades to its short-term credit ratings, and resources deteriorate so severely that resolution becomes imminent, Bank of assumptions about the potential behaviors of various customers, investors and America Corporation will no longer be able to draw liquidity from its key counterparties. subsidiaries, and will be required to contribute its remaining financial assets to a Bank of America Corporation is a holding company, is dependent on its wholly-owned holding company subsidiary, which could materially and adversely subsidiaries for liquidity and may be restricted from transferring funds from affect our liquidity and financial condition and the ability to return capital to subsidiaries. shareholders, including through the payment of dividends and repurchase of the Bank of America Corporation, as the parent company, is a separate and distinct Corporation’s common stock, and meet our payment obligations. legal entity from our bank and nonbank subsidiaries. We evaluate and manage If the FDIC and Federal Reserve jointly determine that Bank of America liquidity on a legal entity basis. Legal entity liquidity is an important consideration Corporation’s resolution plan is not credible, they could impose more stringent as there are legal, regulatory, contractual and other limitations on our ability to capital, leverage or liquidity requirements or restrictions on our growth, activities or utilize liquidity from one legal entity to satisfy the liquidity requirements of another, operations. We could also be required to take certain actions that could impose including the parent company, which could result in adverse liquidity events. The operating costs and could potentially result in the divestiture or restructuring of parent company depends on dividends, distributions, loans and other payments businesses and subsidiaries. from our bank and nonbank subsidiaries to fund dividend payments on our Additionally, under the Financial Reform Act, when a G-SIB such as Bank of common stock and preferred stock and to fund all payments on our other America Corporation is in default or danger of default, the FDIC may be appointed obligations, including debt obligations. Any inability of our subsidiaries to pay receiver in order to conduct an orderly liquidation of such institution. In the event of dividends or make payments to us may adversely affect our cash flow and financial such appointment, the FDIC could, among other things, invoke the orderly condition. liquidation authority, instead of the U.S. Bankruptcy Code, if the Secretary of the Many of our subsidiaries, including our bank and broker-dealer subsidiaries, are Treasury makes certain financial distress and systemic risk determinations. In subject to laws that restrict dividend payments, or authorize regulatory bodies to 2013, the FDIC issued a notice describing its preferred “single point of entry” block or reduce the flow of funds from those subsidiaries to the parent company or strategy for resolving a G-SIB. Under this approach, the FDIC could replace Bank other subsidiaries. Our bank and broker-dealer subsidiaries are subject to of America Corporation with a bridge holding company, which could continue restrictions on their ability to lend or transact with affiliates and to minimum operations and result in an orderly resolution of the underlying bank, but whose regulatory capital and liquidity requirements, as well as restrictions on their ability to equity would be held solely for the benefit of our creditors. The FDIC’s “single point use funds deposited with them in bank or brokerage accounts to fund their of entry” strategy may result in our security holders suffering greater losses than businesses. Intercompany arrangements we entered into in connection with our would have been the case under a bankruptcy proceeding or a different resolution resolution planning submissions could restrict the amount of funding available to strategy. the parent company from our subsidiaries under certain adverse conditions. Additional restrictions on related party transactions, increased capital and Credit liquidity requirements and additional limitations on the use of funds on deposit in Economic or market disruptions and insufficient credit loss reserves may bank or brokerage accounts, as well as lower earnings, can reduce the amount of result in a higher provision for credit losses. funds available to meet the obligations of the parent company and even require the A number of our products expose us to credit risk, including loans, letters of parent company to provide additional funding to such subsidiaries. Also, regulatory credit, derivatives, debt securities, trading account assets and assets held-for-sale. action that requires additional liquidity at each of our subsidiaries could impede Deterioration in the financial condition of our consumer and commercial borrowers, access to funds we need to pay our obligations or pay dividends. In addition, our counterparties or underlying collateral could adversely affect our financial condition right to participate in a distribution of assets upon a subsidiary’s liquidation or and results of operations. reorganization is subject to prior claims of the subsidiary’s creditors. Our liquidity and financial condition, and the ability to pay dividends to Our credit portfolios may be impacted by global and U.S. macroeconomic and shareholders and to pay obligations could be materially adversely affected in market conditions, events and disruptions, including sustained weakness in GDP, the event of a resolution. consumer-spending declines, property value declines or asset-price corrections, Bank of America Corporation, our parent holding company, is required to increasing consumer and corporate leverage, increases in corporate bond spreads, periodically submit a plan to the FDIC and Federal Reserve describing its resolution rising or elevated unemployment levels, fluctuations in foreign exchange or interest strategy under the U.S. Bankruptcy Code in the event of material financial distress rates, widespread health emergencies or pandemics, extreme weather events and or failure. In the current plan, Bank of America Corporation’s preferred resolution the impacts of climate change and domestic and global efforts to transition to a low- strategy is a “single point of entry” strategy. This strategy provides that only the carbon economy. Significant economic or market stresses and disruptions typically parent holding company files for resolution under the U.S. Bankruptcy Code and have a negative impact on the business environment and financial markets. contemplates providing certain key operating subsidiaries with sufficient capital and Property value declines or asset-price corrections could increase the risk of liquidity to operate through severe stress and to enable such subsidiaries to borrowers or counterparties defaulting or becoming delinquent in their obligations continue operating or be wound to us, which could increase credit losses. Simultaneous drawdowns on lines of credit and/or an increase in a borrower’s leverage in a Bank of America 10


  • Page 13

    weakening economic environment could result in deterioration in our credit could have a further adverse effect on our results of operations and could portfolio, should borrowers be unable to fulfill competing financial obligations. negatively impact our financial condition. Credit portfolio deterioration could also be magnified by lending to leveraged Our concentrations of credit risk could adversely affect our credit losses, borrowers, elevated asset prices or declining property or collateral values unrelated results of operations and financial condition. to macroeconomic stress. Increased delinquency and default rates could adversely In the ordinary course of our business, we may be subject to concentrations of affect our consumer credit card, home equity and residential mortgage portfolios credit risk because of a common characteristic or common sensitivity to economic, through increased charge-offs and provision for credit losses. financial, public health or business developments. For example, concentrations in Beginning in the first quarter of 2020, the pandemic resulted in changes to credit risk may result in a particular industry, geography, product, asset class, consumer and business behaviors and restrictions on economic activity, which counterparty, individual exposure or within any pool of exposures with a common have negatively impacted the global economy and could continue to negatively risk characteristic. A deterioration in the financial condition or prospects of a impact our consumer and commercial credit portfolios. Accordingly, we increased particular industry, geographic location, product or asset class, or a failure or our allowance for credit losses as a result of the expected macroeconomic impact downgrade of, or default by, any particular entity or group of entities could of COVID-19, which has adversely affected our results of operations. Although the negatively affect our businesses, and it is possible our limits and credit monitoring economy, including GDP, and unemployment have improved since the first half of exposure controls will not function as anticipated. 2020, certain sectors remain significantly impacted (e.g., hospitality, entertainment While our activities expose us to many different industries and counterparties, and travel). As COVID-19 cases have surged in the fourth quarter of 2020 and early we routinely execute a high volume of transactions with counterparties in the 2021, compared to earlier levels, and restrictions on economic activity have been financial services industry, including broker-dealers, commercial banks, investment reintroduced in certain geographies, there remains significant uncertainty on what banks, insurers, mutual funds and hedge funds, central counterparties and other the ultimate impact the pandemic will have on the economy and our allowance for institutional clients, resulting in significant credit concentration with respect to this credit losses. industry. Financial services institutions and other counterparties are inter-related We establish an allowance for credit losses, which includes the allowance for because of trading, funding, clearing or other relationships. As a result, defaults by loan and lease losses and the reserve for unfunded lending commitments, based one or more counterparties, or market uncertainty about the financial stability of on management's best estimate of lifetime expected credit losses inherent in the one or more financial services institutions, or the financial services industry Corporation's relevant financial assets. The process to determine the allowance generally, could lead to market-wide liquidity disruptions, losses and defaults. requires us to make difficult and complex judgments, including forecasting how Many of these transactions expose us to credit risk and, in some cases, borrowers will perform in changing and unprecedented economic conditions and disputes and litigation in the event of default of a counterparty. In addition, our predicting developments in public health and fiscal policy related to the pandemic. credit risk may be heightened by market risk when the collateral held by us cannot The ability of our borrowers or counterparties to repay their obligations will likely be be liquidated or is liquidated at prices not sufficient to recover the full amount of the impacted by changes in future economic conditions, which in turn could impact the accuracy of our loss forecasts and allowance estimates. There is also the loan or derivatives exposure due to us, which may occur as a result of fraud or possibility that we have failed or will fail to accurately identify the appropriate other events that impact the value of the collateral. Further, disputes with obligors economic indicators or accurately estimate their impacts to our borrowers, which as to the valuation of collateral could increase in times of significant market stress, similarly could impact the accuracy of our loss forecasts and allowance estimates. volatility or illiquidity, and we could suffer losses during such periods if we are We may suffer unexpected losses if the models and assumptions we use to unable to realize the fair value of the collateral or manage declines in the value of establish reserves or the judgments we make in extending credit to our borrowers collateral. or counterparties, which are more sensitive due to the uncertainty regarding the Our commercial portfolios include exposures to certain industries, including magnitude and duration of the pandemic and related macroeconomic impact, prove asset managers and funds, real estate, capital goods and finance companies. inaccurate in predicting future events. In addition, changes to external factors can Economic weaknesses, adverse business conditions, market disruptions, rising negatively impact our recognition of credit losses in our portfolios and allowance for interest or capitalization rates, the collapse of speculative bubbles, greater volatility credit losses. in areas where we have concentrated credit risk or deterioration in real estate As of January 1, 2020, we implemented a new accounting standard to estimate values or household incomes may cause us to experience a decrease in cash flow our allowance for credit losses. Although we believe that the allowance for credit and higher credit losses in either our consumer or commercial portfolios or cause losses is in compliance with the new accounting standard, there is no guarantee us to write down the value of certain assets. Additionally, we could experience that it will be sufficient to address credit losses, particularly if the economic outlook continued and long-term negative impact to our commercial credit exposure and an deteriorates significantly. In such an event, we may increase our allowance which increase in credit losses within those industries that continue to be would reduce our earnings. Additionally, to the extent that economic conditions disproportionately impacted by COVID-19 or are permanently impacted by a worsen as a result of COVID-19 or otherwise, impacting our consumer and change in consumer preferences resulting from COVID-19 (including hospitality, commercial borrowers, counterparties or underlying collateral, and credit losses are entertainment and travel). worse than expected, we may further increase our provision for credit losses, Furthermore, we have concentrations of credit risk with respect to our consumer which real estate, auto, consumer credit card and commercial real estate portfolios, which represent a significant percentage of our overall credit portfolio. Decreases in home price valuations or commercial real estate valuations in certain markets where we have large concentrations, as well as 11 Bank of America


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    more broadly within the U.S. or globally, could result in increased defaults, We are also a member of various central counterparties (CCPs), in part due to delinquencies or credit loss. In particular, the impact of climate change, such as regulatory requirements for mandatory clearing of derivative transactions, which rising average global temperatures and rising sea levels, and the increasing potentially increases our credit risk exposures to CCPs. In the event that one or frequency and severity of extreme weather events and natural disasters such as more members of the CCP defaults on its obligations, we may be required to pay a droughts, floods, wildfires and hurricanes could negatively impact collateral, the portion of any losses incurred by the CCP as a result of that default. A CCP may valuations of home prices or commercial real estate or our customers’ ability and/or modify, in its discretion, the margin we are required to post, which could mean willingness to pay outstanding loans. This could also cause insurability risk and/or unexpected and increased exposure to the CCP. As a clearing member, we are increased insurance costs to customers. exposed to the risk of non-performance by our clients for which we clear We also enter into transactions with sovereign nations, U.S. states and transactions, which may not be covered by available collateral. Additionally, default municipalities. Unfavorable economic or political conditions, disruptions to capital by a significant market participant may result in further risk and potential losses. markets, currency fluctuations, changes in oil prices, social instability and changes in government or monetary policies could adversely impact the operating budgets Geopolitical or credit ratings of these government entities and expose us to credit risk. We are subject to numerous political, economic, market, reputational, Liquidity disruptions in the financial markets may result in our inability to sell, operational, legal, regulatory and other risks in the jurisdictions in which we syndicate or realize the value of our positions, leading to increased concentrations, operate. which could increase the credit and market risk associated with our positions, as We do business throughout the world, including in emerging markets. Economic well as increase our RWA. or geopolitical stress in one or more countries could have a negative impact We may be adversely affected if the U.S. housing market weakens or home regionally or globally, resulting in, among other things, market volatility, reduced prices decline. market value and economic output. Our businesses and revenues derived from U.S. home prices continued to generally remain stable or increase in 2020, non-U.S. jurisdictions are subject to risk of loss from currency fluctuations, financial, supported by single-family housing demand and low interest rates. However, social or judicial instability, changes in government leadership, including as a result changes in business and household behaviors and restrictions on activity in of electoral outcomes or otherwise, changes in governmental policies or policies of response to the pandemic have had a negative impact on some property markets, central banks, expropriation, nationalization and/or confiscation of assets, price particularly in high-density urban areas. We remain conscious of geographic controls, high inflation, natural disasters, the emergence of widespread health markets where housing price growth has slowed or decreased, or is vulnerable to emergencies or pandemics, capital controls, currency redenomination risk, lasting shifts in demand due to the pandemic, as further declines in future periods exchange controls, unfavorable political and diplomatic developments, oil price may negatively impact the demand for many of our products. Additionally, our fluctuations and changes in legislation. These risks are especially elevated in mortgage loan production volume is generally influenced by the rate of growth in residential mortgage debt outstanding and the size of the residential mortgage emerging markets. Additionally, protectionist trade policies and continued trade market, both of which may be adversely affected by rising interest rates. Conditions tensions between the U.S. and important trading partners, particularly China and in the U.S. housing market during the 2008 financial crisis resulted in both the EU, including the risk that tariffs continue to rise and other restrictive actions on significant write-downs of asset values in several asset classes, notably mortgage- cross-border trade, investment, and transfer of information technology are taken backed securities, and exposure to monolines. If the U.S. housing market were to that weigh heavily on regional trade volumes and domestic demand through falling weaken, the value of real estate could decline, which could result in increased business sentiment and lower consumer confidence, could adversely affect our credit losses and delinquent servicing expenses and negatively affect our businesses and revenues, as well as our customers and counterparties. Elevated representations and warranties exposures, and adversely affect our financial tensions between the U.S. and China also raise the risk that current or future U.S. condition and results of operations. sanctions against individuals or export controls targeting Chinese firms could Our derivatives businesses may expose us to unexpected risks and potential prompt retaliatory responses, potentially impacting our operations and revenue. losses. Additionally, the realization of any significant geopolitical events, negative We are party to a large number of derivatives transactions that may expose us market conditions and/or change in market dynamics as a result of the U.K.’s exit to unexpected market, credit and operational risks that could cause us to suffer from the EU could adversely impact our businesses. The short- and long-term unexpected losses. Severe declines in asset values, unanticipated credit events or impact of the U.K.’s exit from the EU on European and global macroeconomic unforeseen circumstances that may cause previously uncorrelated factors to conditions, our business operations and results of operations remain unknown. become correlated and vice versa, may create losses resulting from risks not A number of non-U.S. jurisdictions in which we do business have been or may appropriately taken into account or anticipated in the development, structuring or be negatively impacted by slowing growth or recessionary conditions, market pricing of a derivative instrument. Certain OTC derivative contracts and other volatility and/or political or civil unrest. The ongoing pandemic has had a severe trading agreements provide that upon the occurrence of certain specified events, negative impact on global GDP, and the global economic environment remains such as a change in the credit rating of the Corporation or one or more of its challenging even as output has begun to improve. Economic weakness may prove affiliates, we may be required to provide additional collateral or take other remedial persistent in many countries and regions, including Europe, Japan, and numerous actions and could experience increased difficulty obtaining funding or hedging emerging markets. Potential risks of default on or devaluation of sovereign debt in risks. In some cases our counterparties may have the right to terminate or some non-U.S. jurisdictions could expose us to substantial losses. As a result of otherwise diminish our rights under these contracts or agreements. the pandemic and fiscal policy responses Bank of America 12


  • Page 15

    to it, government debt levels have increased significantly, raising the risk of business operations, organizational structure and results of operations. We are volatility, significant valuation changes, or default in markets for sovereign debt. also subject to geopolitical risks, including economic sanctions, acts or threats of Risks in one nation can limit our opportunities for portfolio growth and negatively international or domestic terrorism, actions taken by the U.S. or other governments affect our operations in other nations, including our U.S. operations. Market and in response thereto, state-sponsored cyber attacks or campaigns, civil unrest economic disruptions of all types may affect consumer confidence levels and and/or military conflicts, which could adversely affect business a n d economic spending, corporate investment and job creation, bankruptcy rates, levels of conditions abroad and in the U.S. incurrence and default on consumer and corporate debt, economic growth rates and asset values, among other factors. Any such unfavorable conditions or Business Operations A failure in or breach of our operational or security systems or infrastructure developments could adversely impact us. or business continuity plans, or those of third parties or the financial We also invest or trade in the securities of corporations and governments services industry, could disrupt our critical business operations and located in non-U.S. jurisdictions, including emerging markets. Revenues from the customer services, result in regulatory, market, privacy, liquidity and trading of non-U.S. securities may be subject to negative fluctuations as a result of operational risk exposures, and adversely impact our results of operations the above factors. Furthermore, the impact of these fluctuations could be magnified and financial condition, and cause legal or reputational harm. because non-U.S. trading markets, particularly in emerging markets, are generally The potential for operational risk exposure exists throughout our organization smaller, less liquid and more volatile than U.S. trading markets. and as a result of our interactions with, and reliance on, third parties (including their Our non-U.S. businesses are also subject to extensive regulation by downstream service providers) and the financial services industry infrastructure. governments, securities exchanges and regulators, central banks and other Our operational and security systems infrastructure, including our computer regulatory bodies. In many countries, the laws and regulations applicable to the systems, emerging technologies, data management and internal processes, as well financial services and securities industries are uncertain and evolving, and it may as those of third parties, are integral to our performance. We also rely on our be difficult for us to determine the exact requirements of local laws in every market employees and third parties (including downstream service providers) in our day- or manage our relationships with multiple regulators in various jurisdictions. Our to-day and ongoing operations, who may, as a result of human error, misconduct potential inability to remain in compliance with local laws in a particular market and (including fraudulent activity), malfeasance or a failure or breach of systems or manage our relationships with regulators could result in increased expenses and infrastructure cause disruptions to our organization and expose us to operational changes to our organizational structure and adversely affect our businesses and and regulatory risk. results of operations in that market, as well as our reputation in general. Additionally, our financial, accounting, data processing and transmission, In connection with the U.K.’s exit from the EU, we are now subject to different storage, backup or other operating or security systems and infrastructure, or those laws, regulations and regulatory authorities and increased organizational and of third parties with whom we interact or upon whom we rely may fail to operate operational complexity. We may incur additional costs and/or experience negative properly or become disabled or damaged as a result of a number of factors tax consequences as a result of operating our principal EU banking and broker- including events that are wholly or partially beyond our or such third party’s control, dealer operations outside of the U.K., which could adversely impact our EU which could adversely affect our ability to process transactions or provide services. business, results of operations and operational model. Further, changes to the We could also experience prolonged computer and network outages resulting in legal and regulatory framework under which our subsidiaries provide products and disruptions to our critical business operations and customer services, including services in the U.K. and in the EU may result in additional compliance costs and abuse or failure of our electronic trading and algorithmic platforms. We may have negative tax consequences or an adverse impact on our results of experience sudden increases in customer transaction volume or electrical, operations. telecommunications or other major physical infrastructure outages, newly identified In addition to non-U.S. legislation, our international operations are also subject vulnerabilities in key hardware or software, failure of aging infrastructure and to U.S. legal requirements, which subjects us to operational and compliance costs technology project implementation challenges, which could result in prolonged and risks. For example, our operations are subject to U.S. and non-U.S. laws and operational outages. Climate change is increasing the frequency and severity of regulations relating to bribery and corruption, anti-money laundering, and economic natural disasters, such as earthquakes, wildfires, tornadoes, hurricanes and floods, sanctions, which can vary by jurisdiction. The increasing speed and novel ways in which could result in increased exposure to operational risks, including outages. which funds circulate could make it more challenging to track the movement of Additionally, events arising from local or larger scale political or social matters, funds and heightens financial crimes risk. Our ability to comply with these legal including civil unrest and terrorist acts, could result in operational disruptions and requirements depends on our ability to continually improve surveillance, detection prolonged operational outages. and reporting and analytic capabilities. Additionally, the Corporation and the third parties on which it relies have been In the U.S., debt ceiling and budget deficit concerns, which have increased the possibility of U.S. government defaults on its debt and/or downgrades to its credit and will likely continue to be subject to additional operational risks while operating ratings, and prolonged government shutdowns could negatively impact the global in a work-from-home posture (which places greater reliance on remote access economy and banking system and adversely affect our financial condition, tools and technology and employees’ personal systems), while executing business including our liquidity. Additionally, changes in fiscal, monetary or regulatory policy, continuity plans due to COVID-19. We are increasingly dependent upon our including as a result of the change in the U.S. presidential administration and information technology infrastructure to operate our businesses remotely due to our Congress, could increase our compliance costs and adversely affect our work-from-home posture and evolving customer preferences, including increased reliance on digital banking and other digital 13 Bank of America


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    services provided by our businesses. Effective management of our work-from- monitoring, misuse, loss or destruction or theft of confidential, proprietary and other home posture depends on the security, reliability and adequacy of such systems. information, including intellectual property, of ours, our employees, our customers We are also at greater risk of business disruptions due to illness and unavailability. or of third parties. These cyber attacks could also result in damages to systems, Regardless of the measures we have taken to implement training, procedures, financial risk or otherwise material disruption to our or our customers’ or other third backup systems and other safeguards to support our operations and bolster our parties’ network access or business operations, both domestically and operational resilience, our ability to conduct business may be adversely affected by internationally. any significant disruptions to us or to third parties (including their downstream Our cybersecurity risk and exposure remains heightened because of, among service providers) with whom we interact or upon whom we rely, including systemic other things, the evolving nature and pervasiveness of cyber threats, our prominent cyber events that result in system outages and unavailability of part or all of the size and scale, our geographic footprint and international presence and our role in financial services industry infrastructure. Our ability to implement backup systems the financial services industry and the broader economy. Additionally, our risk and and other safeguards with respect to third-party systems and the financial services exposure to cyber attacks and security breaches is magnified due to our work-from- industry infrastructure is more limited than with respect to our own systems. home posture which places greater reliance on remote access tools and Furthermore, to the extent that backup systems are available and utilized, they technology, resulting in a larger number of access points to our networks that must may not process data as quickly as our primary systems and some data might not be secured. This increased risk of unauthorized access to our networks results in have been backed up. We regularly update the systems on which we rely to greater amounts of information being available for access from employees’ support our operations and growth and to remain compliant with all applicable laws, personal devices over which we do not have the same controls as we do in a non- rules and regulations globally. This updating entails significant costs and creates work-from-home posture. Additionally, our customers’ increasing reliance on digital risks associated with implementing new systems and integrating them with existing banking and other digital services provided by our businesses in response to ones, including business interruptions. A failure or breach of our operational or COVID-19, has resulted in more demand on our information technology security systems or infrastructure or business continuity plans resulting in infrastructure and security tools and processes. disruption to our critical business operations and customer services could expose The financial services industry is particularly at risk because of the proliferation us to regulatory, market, privacy and liquidity risk, and adversely impact our results of new and emerging technologies, including third-party financial data aggregators, of operations and financial condition, as well as cause legal or reputational harm. and the use of the internet and telecommunications technologies to conduct A cyber attack, information or security breach, or a technology failure of ours financial transactions. Additionally, our use of automation, artificial intelligence (AI) or of a third party could adversely affect our ability to conduct our business, and robotics, increased use of internet and mobile banking products, including manage our exposure to risk or expand our businesses, result in the mobile payment and other web- and cloud-based products and applications and disclosure or misuse of confidential or proprietary information, and/or plans to use or develop additional remote connectivity solutions increase our fraudulent activity, and increase our costs to maintain and update our cybersecurity risks and exposure. operational and security systems and infrastructure. Additionally, we have exposure to cyber threats as a result of our continuous Our business is highly dependent on the security, controls and efficacy of our transmission of sensitive information to, and storage of such information by, third infrastructure, computer and data management systems, as well as those of our parties, including our vendors and regulators, the outsourcing of some of our customers, suppliers, counterparties and other third parties (including their business operations, and system and customer account updates and conversions. downstream service providers) the financial services industry and financial data Cybersecurity risks have also significantly increased in recent years in part due to aggregators, with whom we interact, on whom we rely or who have access to our the increasingly sophisticated activities of organized crime groups, hackers, customers' personal or account information. Our business relies on effective terrorist organizations, extremist parties, hostile foreign governments and state- access management and the secure collection, processing, transmission, storage sponsored actors, in some instances acting to promote political ends. We could and retrieval of confidential, proprietary, personal and other information in our also be the target of disgruntled employees or vendors, activists and other parties, computer and data management systems and networks, and in the computer and including those involved in corporate espionage. data management systems and networks of third parties. In addition, to access our Cyber threats and the techniques used in cyber attacks change rapidly and network, products and services, our employees, customers, suppliers, frequently. Despite substantial efforts to protect the integrity and resilience of our counterparties and other third parties increasingly use personal mobile devices or systems and implement controls, processes, policies and other protective computing devices that are outside of our network and control environments and measures, we may not be able to anticipate cyber attacks or information or security are subject to their own cybersecurity risks. breaches and implement effective preventive or defensive measures to address or We, our employees and customers, regulators and other third parties (including mitigate such attacks or breaches. Even the most advanced internal control contractors and vendors) are regularly the target of cyber attacks and are likely to environment is vulnerable to compromise. Internal access management failures continue to be the target of cyber attacks. These cyber attacks are pervasive, could result in the compromise or unauthorized exposure of confidential data. sophisticated, evolving, difficult to prevent and include computer viruses, malicious Cyber attacks or security breaches could persist for an extended period of time or destructive code (such as ransomware), social engineering (including phishing, before being detected. It could take considerable additional time for us to vishing and smithing), denial of service or information or other security breach determine the scope, extent, amount, and type of information compromised, at tactics that could result in the unauthorized release, gathering, which time the impact on the Corporation and measures to recover and restore to a business-as-usual state may be difficult to Bank of America 14


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    assess. As cyber threats continue to evolve, we may be required to expend we may incur will be covered under such policies or that the amount of insurance significant additional resources to modify or enhance our protective measures, will be adequate. investigate and remediate any information security vulnerabilities or incidents and Also, successful penetration or circumvention of system security could result in develop our capabilities to respond and recover. As a result, increasing resources negative consequences, including loss of customers and business opportunities, to develop and enhance our controls, processes and practices designed to protect the withdrawal of customer deposits, prolonged computer and network outages our systems, workstations, intellectual property and proprietary information, resulting in disruptions to our critical business operations and customer services, software, data and networks from attack, damage or unauthorized access, remains misappropriation or destruction of our intellectual property, proprietary information a critical priority. or confidential information and/or the confidential, proprietary or personal We also face indirect technology, cybersecurity and operational risks relating to information of certain parties, such as our employees, customers, suppliers, the customers, clients and other third parties (including their downstream service counterparties and other third parties, or damage to their computers or systems. providers) and the financial services industry, with whom we do business, upon This could result in a violation of applicable privacy and other laws in the U.S. and whom we rely to facilitate or enable our business activities or upon whom our abroad, litigation exposure, regulatory fines, penalties or intervention, loss of customers rely. Such third parties also include financial counterparties, financial confidence in our security measures, reputational damage, reimbursement or other data aggregators, financial intermediaries, such as clearing agents, exchanges and compensatory costs, additional compliance costs, and our internal controls or clearing houses, vendors, regulators, providers of critical infrastructure, such as disclosure controls being rendered ineffective. The occurrence of any of these internet access and electrical power, and retailers for whom we process events could adversely impact our results of operations, liquidity and financial transactions. As a result of increasing consolidation, interdependence and condition. complexity of financial entities and technology systems, a technology failure, cyber Failure to satisfy our obligations as servicer for residential mortgage attack or other information or security breach that significantly degrades, deletes or securitizations, loans owned by other entities and other losses we could compromises the systems or data of one or more financial entities or third parties incur as servicer, could adversely impact our reputation, servicing costs or (or their downstream service providers) could have a material impact on results of operations. counterparties or other market participants, including us. Similarly, any failure, We and our legacy companies service mortgage loans on behalf of third-party cyber attack or other information or security breach that significantly degrades, securitization vehicles and other investors. If we commit a material breach of our deletes or compromises our systems or data could adversely impact third parties, obligations as servicer or master servicer, we may be subject to termination if the counterparties and the financial services industry infrastructure, which in turn could breach is not cured within a specified period of time following notice, which could harm our reputation and damage our business. This consolidation, interconnectivity cause us to lose servicing income. In addition, we may have liability for any failure and complexity increases the risk of operational failure, on both individual and by us, as a servicer or master servicer, for any act or omission on our part that industry-wide bases, as disparate systems need to be integrated, often on an involves willful misfeasance, bad faith, gross negligence or reckless disregard of accelerated basis. Any technology failure, cyber attack or other information or our duties. If any such breach was found to have occurred, it may harm our security breach, termination or constraint of any third party (including their reputation, increase our servicing costs, result in litigation or regulatory action or downstream service providers) the financial services industry infrastructure or adversely impact our results of operations. Additionally, with respect to financial data aggregators, could, among other things, adversely affect our ability foreclosures, we may incur costs or losses due to irregularities in the underlying to conduct day-to-day business activities, effect transactions, service our clients, documentation, or if the validity of a foreclosure action is challenged by a borrower manage our exposure to risk or expand our businesses, result in the or overturned by a court because of errors or deficiencies in the foreclosure misappropriation or destruction of the personal, proprietary or confidential process. We may also incur costs or losses relating to delays or alleged information of our employees, customers, suppliers, counterparties and other third deficiencies in processing documents necessary to comply with state law governing parties or result in fraudulent or unauthorized transactions. Further, any such event foreclosure. may not be disclosed to us in a timely manner. Changes in the structure of and relationship among the GSEs could Although to date we have not experienced any material losses or other material adversely impact our business. consequences relating to technology failure, cyber attacks or other information or During 2020, we sold approximately $3.6 billion of loans to GSEs, primarily security breaches, whether directed at us or third parties, there can be no Freddie Mac (FHLMC). FHLMC and Fannie Mae (FNMA) are currently in assurance that our controls and procedures in place to monitor and mitigate the conservatorship with their primary regulator, the Federal Housing Finance Agency risks of cyber threats will be sufficient and that we will not suffer material losses or (FHFA) acting as conservator. In September 2019, the Treasury Department consequences in the future. Cyber attacks or other information or security published a proposal to recapitalize FHLMC and FNMA and remove them from breaches, whether directed at us or third parties, may result in significant lost conservatorship as well as reduce their role in the marketplace. Consistent with revenue, give rise to losses and claims brought by third parties, government this proposal, in January 2021, the Treasury Department further amended the penalties and other negative consequences. Furthermore, the public perception agreement that governs the conservatorship of FHLMC and FNMA to allow them to that a cyber attack on our systems has been successful, whether or not this retain their earnings until they reach certain previously determined capital perception is correct, may damage our reputation with customers and third parties requirements, among other policy actions, potentially putting them on a long-term with whom we do business. Although we maintain cyber insurance, there can be path to emergence from conservatorship. However, we cannot predict the future no assurance that liabilities or losses prospects of the GSEs, timing of the recapitalization or release from conservatorship, or content of legislative or rulemaking proposals regarding the future status of the GSEs in the housing market. Additionally, if the GSEs were to take a reduced role in 15 Bank of America


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    the marketplace, including by limiting the mortgage products they offer, we could services we offer, reduce certain fees and rates or make our products and services be required to seek alternative funding sources, retain additional loans on our more expensive for our clients. balance sheet, secure funding through the Federal Home Loan Bank system, or We continue to make adjustments to our business and operations, legal entity securitize the loans through Private Label Securitization. Accordingly, uncertainty structure and capital and liquidity management policies, procedures and controls to regarding their future and the mortgage-backed securities they guarantee comply with currently effective laws and regulations, as well as final rulemaking, continues to exist for the foreseeable future. guidance and interpretation by regulatory authorities, including the Department of Any of these developments could adversely affect the value of our securities Treasury, Federal Reserve, OCC, CFPB, Financial Stability Oversight Council, portfolios, capital levels, liquidity and results of operations. FDIC, Department of Labor, SEC and CFTC in the U.S. and foreign regulators and Our risk management framework may not be effective in mitigating risk and other government authorities. Further, we could become subject to future reducing the potential for losses. legislation and regulatory requirements beyond those currently proposed, adopted Our risk management framework is designed to minimize risk and loss to us. or contemplated in the U.S. or abroad, including policies and rulemaking related to We seek to effectively and consistently identify, measure, monitor, report and the Financial Reform Act, the pandemic and climate change. The cumulative effect control the types of risk to which we are subject, including strategic, credit, market, of all of the legislation and regulations on our business, operations and profitability liquidity, compliance, operational and reputational risks. While we employ a broad remains uncertain. This uncertainty necessitates that in our business planning we and diversified set of controls and risk mitigation techniques, including modeling make certain assumptions with respect to the scope and requirements of and forecasting, hedging strategies and techniques that seek to balance our ability prospective and proposed rules. If these assumptions prove incorrect, we could be to profit from trading positions with our exposure to potential losses, our ability to subject to increased regulatory and compliance risks and costs as well as potential control and mitigate risks that result in losses is inherently limited by our ability to reputational harm. In addition, U.S. and international regulatory initiatives may identify all risks, including emerging and unknown risks, anticipate the timing of overlap, and non-U.S. regulations and initiatives may be inconsistent or may risks, apply effective hedging strategies, make correct assumptions, manage and conflict with current or proposed U.S. regulations, which could lead to compliance aggregate data correctly and efficiently, and develop risk management models to risks and increased costs. assess and control risk. Our regulators’ prudential and supervisory authority gives them broad power Our ability to manage risk is dependent on our ability to consistently execute all and discretion to direct our actions, and they have assumed an active oversight, elements of our risk management program and develop and maintain a culture of inspection and investigatory role across the financial services industry. However, managing risk well throughout the Corporation and manage risks associated with regulatory focus is not limited to laws and regulations applicable to the financial third parties (including their downstream service providers) and vendors, to enable services industry, but extends to other significant laws and regulations that apply effective risk management and ensure that risks are appropriately considered, across industries and jurisdictions, including those related to data management and evaluated and responded to in a timely manner. Uncertain economic conditions, privacy, anti-money laundering, anti-corruption and economic sanctions. heightened legislative and regulatory scrutiny of and change within the financial We are also subject to laws, rules and regulations in the U.S. and abroad, services industry, the pace of technological changes, accounting and market including GDPR, CCPA and CPRA, regarding compliance with our privacy policies developments, the failure of employees to comply with policies, values and our risk and the disclosure, collection, use, sharing and safeguarding of personal framework and the overall complexity of our operations, among other identifiable information of certain parties, such as our employees, customers, developments, may result in a heightened level of risk for us. We have experienced suppliers, counterparties and other third parties, the violation of which could result increased operational, reputational and compliance risk as a result of the need to in litigation, regulatory fines and enforcement actions. Additionally, we will likely be rapidly implement multiple and varying pandemic relief programs, including subject to new and evolving data privacy laws in the U.S. and abroad, which could consumer and commercial assistance programs and the PPP, coupled with the result in additional costs of compliance, litigation, regulatory fines and enforcement concurrent transition of the Corporation’s workforce to a work-from-home posture. actions. In particular, there is increased complexity and uncertainty, including Accordingly, we could suffer losses as a result of our failure to manage evolving potential suspension or prohibition, regarding the standards used by the risks or properly anticipate, manage, control or mitigate risks. Corporation for cross-border flows and transfers of personal data from the European Economic Area (EEA) to the U.S. and other jurisdictions outside of the Regulatory, Compliance and Legal EEA resulting from a decision of the Court of Justice of the EU and guidance from We are subject to comprehensive government legislation and regulations the European Data Protection Board. Additionally, the European Commission has and certain settlements, orders and agreements with government authorities proposed new standards of personal data transfer. If our personal data transfers from time to time. are suspended or prohibited or we are required to implement new standards, this We are subject to comprehensive regulation under federal and state laws in the could result in operational disruptions to our businesses, additional costs, U.S. and the laws of the various jurisdictions in which we operate, including increased enforcement activity, new contract negotiations with third parties, and/or increasing and complex economic sanctions regimes. These laws and regulations modification of our cross-border data management. significantly affect and have the potential to restrict the scope of our existing As part of their enforcement authority, our regulators and other government businesses, limit our ability to pursue certain business opportunities, including the authorities have the authority to, among other things, assess significant civil or products and criminal monetary penalties or restitution and issue cease and desist or removal orders and Bank of America 16


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    initiate injunctive actions. The amounts paid by us and other financial institutions to products, or otherwise adversely affect our businesses. In addition, legal and settle proceedings or investigations have, in some instances, been substantial and regulatory proceedings and other contingencies will arise from time to time that may increase. In some cases, governmental authorities have required criminal may result in fines, regulatory sanctions, penalties, equitable relief and changes to pleas or other extraordinary terms as part of such resolutions, which could have our business practices. As a result, we are and will continue to be subject to significant consequences, including reputational harm, loss of customers, heightened compliance and operating costs that could adversely affect our results restrictions on the ability to access capital markets, and the inability to operate of operations. certain businesses or offer certain products for a period of time. We are subject to significant financial and reputational risks from potential The Corporation and the conduct of its employees and representatives are liability arising from lawsuits and regulatory and government action. subject to regulatory scrutiny across jurisdictions. The complexity of the federal and We continue to face significant legal risks in our business, with a high volume of state regulatory and enforcement regimes in the U.S., coupled with the global claims against us and other financial institutions. The damages, penalties and fines scope of our operations and the regulatory environment worldwide also means that that litigants and regulators seek from us and other financial institutions continue to a single event or practice or a series of related events or practices may give rise to be high. This includes disputes with consumers, customers and other a significant number of overlapping investigations and regulatory proceedings, counterparties. either by multiple federal and state agencies in the U.S. or by multiple regulators Financial institutions, including us, continue to be the subject of claims alleging and other governmental entities in different jurisdictions. Additionally, actions by anti-competitive conduct with respect to various products and markets, including other members of the financial services industry related to business activities in U.S. antitrust class actions claiming joint and several liability for treble damages. As which we participate may result in investigations by regulators or other government disclosed in Note 12 — Commitments and Contingencies to the Consolidated authorities. Responding to inquiries, investigations, lawsuits and proceedings is Financial Statements, we also face contractual indemnification and loan- time-consuming and expensive and can divert senior management attention from repurchase claims arising from alleged breaches of representations and warranties our business. The outcome of such proceedings, which may last a number of in the sale of residential mortgages by legacy companies, which may result in a years, may be difficult to predict or estimate. requirement that we repurchase the mortgage loans, or otherwise make whole or We are and may become subject to the terms of settlements, orders and provide other remedies to counterparties. agreements that we have entered into with government entities and regulatory In addition, regulatory authorities have had a supervisory focus on enforcement, authorities, which impose, or could impose, significant operational and compliance including in connection with alleged violations of law and customer harm. For costs on us as they typically require us to enhance our procedures and controls, example, U.S. regulators and government agencies have pursued claims against expand our risk and control functions within our lines of business, invest in financial institutions under the Financial Institutions Reform, Recovery, and technology and hire significant numbers of additional risk, control and compliance Enforcement Act, False Claims Act, Equal Credit Opportunity Act, Fair Housing Act personnel. Moreover, if we fail to meet the requirements of the regulatory and antitrust laws. Such claims may carry significant and, in certain cases, treble settlements, orders or agreements to which we are subject, or, more generally, fail damages. There is also an increased focus on compliance with global laws, rules to maintain risk and control procedures and processes that meet the heightened and regulations related to the collection, use, sharing and safeguarding of standards established by our regulators and other government authorities, we personally identifiable information and corporate data. Additionally, misconduct by could be required to enter into further settlements, orders or agreements and pay employees, including unethical, fraudulent, improper or illegal conduct, or other additional fines, penalties or judgments, or accept material regulatory restrictions unfair, deceptive, abusive or discriminatory business practices, can result in on our businesses. litigation and/or government investigations and enforcement actions, and cause While we believe that we have adopted appropriate risk management and significant reputational harm. compliance programs to identify, assess, monitor and report on applicable laws, The global environment of extensive regulation, regulatory compliance burdens, policies and procedures, compliance risks will continue to exist, particularly as we litigation and regulatory enforcement, combined with uncertainty related to the adapt to new and evolving laws, rules and regulations. Additionally, changing U.S. continually evolving regulatory environment, may affect operational and fiscal, monetary and regulatory policies arising from changes to the U.S. compliance costs and risks, which may limit or cease our ability to continue presidential administration and Congress result in ongoing regulatory uncertainties. providing certain products and services. This is magnified by the Corporation's There is no guarantee that our risk management and compliance programs will be implementation of government relief measures related to the pandemic. Lawsuits consistently executed to successfully manage compliance risk. We also rely upon and regulatory actions may result in judgments, settlements, penalties and fines third parties who may expose us to compliance and legal risk. Future legislative or adverse to the Corporation. Litigation and investigation costs, substantial legal regulatory actions, and any required changes to our business or operations, or liability or significant regulatory or government action against us could have those of third parties (including their downstream providers) upon whom we rely, adverse effects on our business, financial condition, including liquidity, and results resulting from such developments and actions could result in a significant loss of of operations, and/or cause significant reputational harm to us. revenue, impose additional compliance and other costs or otherwise reduce our U.S. federal banking agencies may require us to increase our regulatory profitability, limit the products and services that we offer or our ability to pursue capital, total loss-absorbing capacity (TLAC), long-term debt or liquidity certain business opportunities, require us to dispose of or curtail certain requirements. businesses, affect the value of assets that we hold, require us to increase our We are subject to U.S. regulatory capital and liquidity rules. These rules, among prices and therefore reduce demand for our other things, establish minimum requirements to qualify as a well-capitalized institution. If any of 17 Bank of America


  • Page 20

    our subsidiary insured depository institutions fails to maintain its status as well amend or even reverse their previous interpretations or positions on how various capitalized under the applicable regulatory capital rules, the Federal Reserve will standards should be applied. These changes may be difficult to predict and could require us to agree to bring the insured depository institution back to well- impact how we prepare and report our financial statements. In some cases, we capitalized status. For the duration of such an agreement, the Federal Reserve could be required to apply a new or revised standard retrospectively, resulting in us may impose restrictions on our activities. If we were to fail to enter into or comply revising prior-period financial statements. with such an agreement, or fail to comply with the terms of such agreement, the We may be adversely affected by changes in U.S. and non-U.S. tax laws and Federal Reserve may impose more severe restrictions on our activities, including regulations. requiring us to cease and desist activities permitted under the Bank Holding In December 2017, the Tax Cuts and Jobs Act (the Tax Act) was enacted, Company Act of 1956. which made significant changes to federal income tax law including, among other Capital and liquidity requirements are frequently introduced and amended. It is things, reducing the statutory corporate income tax rate to 21 percent from 35 possible that regulators may increase regulatory capital requirements including percent and changing the taxation of our non-U.S. business activities. TLAC and long-term debt requirements, change how regulatory capital is In addition, we have U.K. net deferred tax assets (DTA) which consist primarily calculated or increase liquidity requirements. Our ability to return capital to our of net operating losses that are expected to be realized by certain subsidiaries over shareholders depends in part on our ability to maintain regulatory capital levels an extended number of years. Adverse developments with respect to tax laws or to above minimum requirements plus buffers. To the extent that increases occur in other material factors, such as prolonged worsening of Europe’s capital markets or our SCB, G-SIB surcharge or countercyclical capital buffer, our returns of capital to changes in the ability of our U.K. subsidiaries to conduct business in the EU, could shareholders could decrease. lead our management to reassess and/or change its current conclusion that no As part of its CCAR, the Federal Reserve conducts stress testing on parts of our valuation allowance is necessary with respect to our U.K. net DTA. business using hypothetical economic scenarios prepared by the Federal Reserve. It is possible that governmental authorities in the U.S. and/or other countries Those scenarios may affect our CCAR stress test results, which may impact the could further amend or repeal tax laws in a way that would adversely affect us, level of our SCB. Additionally, the Federal Reserve may impose limitations or including the possibility that aspects of the Tax Act could be amended in the future. prohibitions on taking capital actions, such as paying or increasing dividends or Any future change in tax laws and regulations or interpretations of current or future repurchasing common stock. For example, as a result of the economic uncertainty tax laws and regulations could adversely affect our results of operations. resulting from the pandemic, the Federal Reserve applied certain restrictions on our common stock dividends and repurchase program during the second half of Reputation Damage to our reputation could harm our businesses, including our 2020, and the first quarter of 2021, as disclosed in Item 1. Business – Distributions competitive position and business prospects. on page 5 and MD&A – Executive Summary – Recent Developments – Capital Our ability to attract and retain customers, clients, investors and employees is Management on page 25. impacted by our reputation. Harm to our reputation can arise from various sources, A significant component of regulatory capital ratios is calculating our RWA and including officer, director or employee fraud, misconduct and unethical behavior, our leverage exposure, which may increase. The Basel Committee on Banking security breaches, litigation or regulatory outcomes, compensation practices, Supervision has also revised several key methodologies for measuring RWA that lending practices, the suitability or reasonableness of recommending particular have not yet been implemented in the U.S., including a standardized approach for trading or investment strategies, including the reliability of our research and operational risk, revised market risk requirements and constraints on the use of models, prohibiting clients from engaging in certain transactions and employee internal models, as well as a capital floor based on the revised standardized sales practices. Additionally, our reputation may be harmed by failing to deliver approaches. U.S. banking regulators may update the U.S. Basel 3 rules to products, subpar standards of service and quality expected by our customers, incorporate the Basel Committee revisions. clients and the community, compliance failures, the inability to manage technology Changes to and compliance with the regulatory capital and liquidity change or maintain effective data management, cyber incidents, internal and requirements may impact our operations by requiring us to liquidate assets, external fraud, inadequacy of responsiveness to internal controls, unintended increase borrowings, issue additional equity or other securities, cease or alter disclosure of personal, proprietary or confidential information, conflicts of interest certain operations or hold highly liquid assets, which may adversely affect our and breach of fiduciary obligations, the handling of health emergencies or results of operations. pandemics, and the activities of our clients, customers, counterparties and third Changes in accounting standards or assumptions in applying accounting parties, including vendors. For example, our reputation may be harmed in policies could adversely affect us. connection with our implementation of government programs to provide relief to Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Some of these policies address the economic impact of the pandemic. Our reputation may also be require use of estimates and assumptions that may affect the reported value of our negatively impacted by our ESG practices and disclosures, our businesses and our assets or liabilities and results of operations and are critical because they require customers, including practices and disclosures related to climate change. Actions management to make difficult, subjective and complex judgments about matters by the financial services industry generally or by certain members or individuals in that are inherently uncertain. If those assumptions, estimates or judgments were the industry also can adversely affect our reputation. In addition, adverse publicity incorrectly made, we could be required to correct and restate prior-period financial or negative information posted on social media by employees, the media or statements. Accounting standard-setters and those who interpret the accounting otherwise, whether or not factually standards, the SEC, banking regulators and our independent registered public accounting firm may also Bank of America 18


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    correct, may adversely impact our business prospects or financial results. operational risks. ARRs have compositions and characteristics that differ We are subject to complex and evolving laws and regulations regarding privacy, significantly from the benchmarks they may replace, in some cases have limited know-your-customer requirements, data protection, including the GDPR, CCPA history, and may demonstrate less predictable performance over time than the and CPRA, cross-border data movement and other matters. Principles concerning benchmarks they replace. Additionally, most ARRs are calculated on a the appropriate scope of consumer and commercial privacy vary considerably in compounded or weighted-average basis, involve complex billing and reconciliation different jurisdictions, and regulatory and public expectations regarding the and, unlike IBORs, do not reflect bank credit risk and therefore may require a definition and scope of consumer and commercial privacy may remain fluid. It is spread adjustment. The market transition from IBORs to ARRs is complex and possible that these laws may be interpreted and applied by various jurisdictions in there are important differences between the fallbacks, triggers and calculation a manner inconsistent with our current or future practices, or that is inconsistent methodologies being implemented in cash and derivatives markets (including with one another. If personal, confidential or proprietary information of customers or within cash markets). Any mismatch between the adoption of ARRs in loans, clients in our possession, or in the possession of third parties (including their securities and derivatives markets may impact hedging or other financial downstream service providers) or financial data aggregators, is mishandled, arrangements we have implemented, and as a result we may experience misused or mismanaged, or if we do not timely or adequately address such unanticipated market exposures. There can be no assurance that ARRs will be information, we may face regulatory, reputational and operational risks which could comparable or adequate alternatives to IBORs or perform in the same way, that adversely affect our financial condition and results of operations. existing assets and liabilities based on or linked to IBORs will transition We could suffer reputational harm if we fail to properly identify and manage successfully to ARRs, of the timing of adoption and degree of integration and potential conflicts of interest. Management of potential conflicts of interest has acceptance of ARRs in the financial markets, or of the future availability or become increasingly complex as we expand our business activities through more representativeness of such ARRs. numerous transactions, obligations and interests with and among our clients. The The discontinuation of IBORs, including LIBOR, requires us to transition a failure to adequately address, or the perceived failure to adequately address, significant number of IBOR-based products and contracts, including related conflicts of interest could affect the willingness of clients to use our products and hedging arrangements (IBOR Products). Although, a significant majority of the services, or give rise to litigation or enforcement actions, which could adversely aggregate notional amount of our LIBOR-based products and contracts maturing affect our business. after 2021 include or have been updated to include fallbacks to ARRs, the Our actual or perceived failure to address these and other issues, such as transitioning of certain contracts, products and clients will be more complex. While operational risks, gives rise to reputational risk that could harm us and our business some of these outstanding IBOR Products include fallback provisions to ARRs, prospects. Failure to appropriately address any of these issues could also give rise some of these products and contracts do not include fallback provisions or to additional regulatory restrictions, legal risks and reputational harm, which could, adequate fallback mechanisms and require remediation to modify their terms. among other consequences, increase the size and number of litigation claims and Additionally, some outstanding IBOR Products are particularly challenging to damages asserted or subject us to enforcement actions, fines and penalties, and modify due to the requirement that all impacted parties consent to such cause us to incur related costs and expenses. modification. Legislation has been adopted in the EU and proposed in the U.S. and the U.K. to address such challenges in IBOR Products, including the use of a Other statutory replacement or “synthetic” rate to replace the existing benchmark rate in certain of our IBOR Products. Litigation, disputes or other action may occur as a Reforms to and replacement of IBORs and certain other rates or indices may result of the interpretation or application of legislation, in particular, if there is an adversely affect our reputation, business, financial condition and results of overlap between legislation introduced in different jurisdictions. There is no operations. guarantee that the legislative proposals will become law and no assurance that we There is a major transition in progress in global financial markets with respect to and other market participants will be able to successfully modify all outstanding the replacement of IBORs, including the London Interbank Offered Rate (LIBOR), IBOR Products or be adequately prepared for a discontinuation of an IBOR at the and certain other rates or indices that serve as “benchmarks.” Such benchmarks time such IBOR may cease to be published or otherwise discontinued. Also, there are used extensively across global financial markets and in our business. In can be no assurance that existing or new provisions for successor rates in our particular, LIBOR is used in many of our products and contracts, including IBOR Products will include adequate methodologies for adjustments or that the derivatives, consumer and commercial loans, mortgages, floating-rate notes and characteristics of the successor rates will be similar to or produce the economic other adjustable-rate products and financial instruments. The aggregate notional equivalent of the benchmarks they seek to replace. These changes may adversely amount of these products and contracts is material to our business, and there are affect the yield on loans or securities held by us, amounts paid on securities we significant risks and challenges associated with the transition that may result in have issued, amounts received and paid on derivatives we have entered into, the significant uncertainty, or have other consequences that cannot be fully anticipated, value of such loans, securities or derivative instruments, the trading market for such products and contracts, and our ability to effectively use hedging instruments which expose us to various financial, operational, supervisory, conduct and legal to manage risk. Certain impacted clients, counterparties and other market risks. participants may refuse, delay, or lack operational readiness to transition to ARRs, Although certain ARRs have been proposed to replace LIBOR and other IBORs, resulting in the risk that some contracts and products may not transition to an ARR market and client adoption of ARRs may vary across or within categories of before discontinuation of the relevant IBOR, exposing us to financial, operational, contracts, products and services, resulting in market fragmentation, decreased supervisory, conduct and legal risks. trading volumes and liquidity, increased complexity and modeling and 19 Bank of America


  • Page 22

    Our products and contracts that reference IBORs, in particular LIBOR, may We face significant and increasing competition in the financial services contain language that determines when a successor rate including the ARR and/or industry. the applicable spread adjustment to the designated rate (including IBORs) would We operate in a highly competitive environment and experience intense be selected or determined. If a trigger is satisfied, our products and contracts may competition from local and global financial institutions as well as new entrants, in give the calculation agent (which may be us) discretion over the successor rate to both domestic and foreign markets, in which we compete on the basis of a number be selected. We may face a risk of litigation, disputes or other actions from clients, of factors, including customer service, quality and range of products and services counterparties, customers, investors or others regarding the interpretation or offered, technology, price, fees, reputation, interest rates on loans and deposits, enforcement of IBOR-based contract provisions or if we fail to appropriately lending limits and customer convenience. Additionally, the changing regulatory communicate the effect that the transition to ARRs will have on existing and future environment may create competitive disadvantages for us given geography-driven products. capital and liquidity requirements. Additionally, we may face competitors with more The Corporation has launched, and expects to continue to develop, launch and experience and established relationships in the relevant market, which could support, ARR-based products and services. The transition to ARR-based products adversely affect our ability to compete. is complex and involves client and financial contract changes, internal and external In addition, emerging technologies and advances and the growth of e- communication, technology and operations modifications, industry and regulatory commerce have lowered geographic and monetary barriers of other financial engagement, migration of existing clients, execution of business strategy and institutions, made it easier for non-depository institutions to offer products and governance. New financial products linked to ARRs may be less liquid, result in services that traditionally were banking products and allowed non-traditional mispricing and additional legal, financial, tax, operational, market, compliance, financial service providers and technology companies to compete with traditional reputational, competitive or other risks to us, our clients and other market financial service companies in providing electronic and internet-based financial participants. There is no guarantee that liquidity in ARR-based products will solutions and services, including electronic securities trading with low or no fees develop, and it is possible that ARR-based products will perform differently to IBOR and commissions, marketplace lending, financial data aggregation and payment Products during times of economic stress, adverse or volatile market conditions processing, including real-time payment platforms. Further, clients may choose to and across the credit and economic cycle, which may impact the value, return on conduct business with other market participants who engage in business or offer and profitability of our ARR-based assets. products in areas we deem speculative or risky, such as cryptocurrencies. Failure to meet industry-wide IBOR transition milestones and to cease issuance Increased competition may negatively affect our earnings by creating pressure to of IBOR Products by relevant cessation dates may, subject to certain regulatory lower prices, fees, commissions or credit standards on our products and services exceptions, result in supervisory enforcement by applicable regulators, increase requiring additional investment to improve the quality and delivery of our our cost of, and access to, capital and other consequences. In addition, IBOR technology and/or reducing our market share, or affecting the willingness of our Products held by us may become less liquid as the transition process develops, clients to do business with us. and other unforeseen consequences may arise if such products are held beyond Our inability to adapt our products and services could harm our business. relevant cessation dates. Our business model is based on a diversified mix of businesses that provide a Changes or uncertainty resulting from the market transition from IBORs to broad range of financial products and services, delivered through multiple ARRs could adversely affect the return on and pricing, liquidity and value of distribution channels. Our success depends on our, and our third-party vendors', outstanding IBOR Products, cause significant market dislocations and disruptions, ability to adapt and develop products, services and technology to rapidly evolving potentially increase the cost of and access to capital, increase the risk of litigation industry standards and consumer preferences. In particular, the emergence of the or other disputes, including in connection with the interpretation and enforceability pandemic has resulted in increased reliance on digital banking and other digital of, or our historical marketing practices or disclosures with respect to outstanding services provided by the Corporation’s businesses. There is increasing pressure by IBOR products with counterparties, and/or increase expenses related to the competitors to provide products and services on more attractive terms, including transition to ARRs, among other adverse consequences. higher interest rates on deposits, and offer lower cost investment strategies, which The market transition may also alter our risk profile and risk management may impact our ability to grow revenue and/or effectively compete. Additionally, strategies, including derivatives and hedging strategies, modeling and analytics, legislative and regulatory developments may affect the competitive landscape. valuation tools, product design and systems, controls, procedures and operational Further, the competitive landscape may be impacted by the growth of non- infrastructure. This may prove challenging given the limited history of many of the depository institutions that offer traditional banking products at higher rates or with proposed ARRs and may increase the costs and risks related to potential low or no fees, or otherwise offer alternative products. This can reduce our net regulatory compliance, requirements or inquiries. Among other risks, various interest margin and revenues from our fee-based products and services, either products and contracts may transition to ARRs at different times or in different from a decrease in the volume of transactions or through a compression of manners, with the result that we may face significant unexpected interest rate, spreads. pricing or other exposures across business or product lines. Reforms to and In addition, the widespread adoption and rapid evolution of new technologies, uncertainty regarding market transition and other factors may adversely affect our including analytic capabilities, self-service digital trading platforms, internet business, including the ability to serve customers and maintain market share, services, distributed ledgers, such as the blockchain system, cryptocurrencies and financial condition or results of operations and could result in reputational harm to payment systems, could require substantial expenditures to modify or adapt our the Corporation. existing products and services as we grow and develop our online and mobile banking channel strategies in Bank of America 20


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    addition to remote connectivity solutions. We may not be as timely or successful in automation, AI and robotics, our data management and aggregation processes are developing or introducing new products and services, integrating new products or subject to failure, including human error, system failure or failed controls. Failure to services into our existing offerings, responding or adapting to changes in consumer surveil, maintain and manage data and information effectively and to aggregate behavior, preferences, spending, investing and/or saving habits, achieving market data and information in an accurate, timely and complete manner may impact its acceptance of our products and services, reducing costs in response to pressures quality and reliability and limit our ability to manage current and emerging risk, to to deliver products and services at lower prices or sufficiently developing and produce accurate financial, regulatory and operational reporting, as well as to maintaining loyal customers. The Corporation’s or its third-party vendors' inability to manage changing business needs, strategic decision-making and day-to-day adapt products and services to evolving industry standards and consumer operations. The failure to establish and maintain effective, efficient and controlled preferences could result in service disruptions and harm our business and data management could adversely impact our ability to develop our products and adversely affect our results of operations and reputation. relationships with our customers and damage our reputation. We could suffer operational, reputational and financial harm if our models Our operations, businesses and customers could be materially adversely and strategies fail to properly anticipate and manage risk. affected by the impacts related to climate change. We use proprietary models and strategies extensively to forecast losses, project There is an increasing concern over the risks of climate change and related revenue, measure and assess capital requirements for credit, country, market, environmental sustainability matters. The physical risks of climate change include operational and strategic risks and assess and control our operations and financial rising average global temperatures, rising sea levels and an increase in the condition. Model risk management is a dedicated and independent risk function that frequency and severity of extreme weather events and natural disasters, including defines model risk governance, policy and guidelines for the Corporation based on floods, wildfires, hurricanes and tornados. Such disasters could disrupt our laws, rules and regulations, as well as internal requirements. Under the operations or the operations of customers or third parties on which we rely. Such Corporation's Enterprise Model Risk Policy, model risk management is required to disasters could result in market volatility or negatively impact our customers’ ability perform model oversight, including independent validation before initial use, to pay outstanding loans, damage collateral or result in the deterioration of the ongoing monitoring through outcomes analysis and benchmarking, and periodic value of collateral or insurance shortfalls. Additionally, climate change concerns revalidation. Models are subject to inherent limitations due to the use of historical could result in transition risk. Changes in consumer preferences and additional trends and simplifying assumptions, uncertainty regarding economic and financial legislation and regulatory requirements, including those associated with the outcomes, and emerging risks from the use of applications that rely on AI. transition to a low-carbon economy, could increase expenses or otherwise Our models and strategies may not be sufficiently predictive of future results adversely impact the Corporation, its businesses or its customers. We could also due to limited historical patterns, extreme or unanticipated market movements or experience increased expenses resulting from strategic planning, litigation and customer behavior and liquidity, especially during severe market downturns or technology and market changes, and reputational harm as a result of negative stress events, which could limit their effectiveness. The models that we use to public sentiment, regulatory scrutiny and reduced investor and stakeholder assess and control our market risk exposures also reflect assumptions about the confidence due to our response to climate change and our climate change strategy. degree of correlation among prices of various asset classes or other market Our ability to attract and retain qualified employees is critical to our success, indicators, which may not be representative of the next downturn and would business prospects and competitive position. magnify the limitations inherent in using historical data to manage risk. Our models Our performance is heavily dependent on the talents and efforts of highly may not be effective if we fail to properly oversee them and detect their flaws skilled individuals. Competition for qualified personnel within the financial services during our review and monitoring processes, they contain erroneous data, industry and from businesses outside the financial services industry is intense. assumptions, valuations, formulas or algorithms or our applications running the Our competitors include non-U.S. based institutions and institutions subject to models do not perform as expected. Regardless of the steps we take to ensure different compensation and hiring regulations than those imposed on U.S. effective controls, governance, monitoring and testing, and implement new institutions and financial institutions. technology and automated processes, we could suffer operational, reputational and In order to attract and retain qualified personnel, we must provide market-level financial harm if models and strategies fail to properly anticipate and manage compensation. As a large financial and banking institution, we are and may become current and evolving risks. subject to additional limitations on compensation practices, which may or may not Failure to properly manage and aggregate data may result in our inability to affect our competitors, by the Federal Reserve, the OCC, the FDIC and other manage risk and business needs, errors in our day-to-day operations, critical regulators around the world. EU and U.K. rules limit and subject to clawback certain reporting and strategic decision-making and inaccurate reporting. forms of variable We rely on our ability to manage, surveil, aggregate, interpret and use data in compensation for senior employees. Furthermore, a substantial portion of our an accurate, timely and complete manner for effective risk reporting and annual incentive compensation paid to our senior employees consists of long-term management. Our policies, programs, processes and practices govern how data is equity-based awards, the value of which is based on the price of our common stock surveilled, managed, aggregated, interpreted and used. While we continuously when the awards vest. Our business prospects and competitive position could be update our policies, programs, processes and practices and implement emerging adversely affected if we cannot attract and retain qualified individuals. technologies, such as 21 Bank of America


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    Item 1B. Unresolved Staff Comments None Item 2. Properties As of December 31, 2020, certain principal offices and other materially important properties consisted of the following: Property Square (1) Feet Facility Name Location General Character of the Physical Property Primary Business Segment Property Status Bank of America Corporate Center Charlotte, NC 60 Story Building Principal Executive Offices Owned 1,212,177 Bank of America Tower at One Bryant New York, NY 55 Story Building GWIM, Global Banking and Leased (2) 1,836,575 Park Global Markets Bank of America Financial Centre London, UK 4 Building Campus Global Banking and Global Markets Leased 565,362 Cheung Kong Center Hong Kong 62 Story Building Global Banking and Global Markets Leased 149,790 (1) For leased properties, property square feet represents the square footage occupied by the Corporation. (2) The Corporation has a 49.9 percent joint venture interest in this property. We own or lease approximately 74.6 million square feet in over 20,000 facilities operations. In connection therewith, we regularly evaluate the sale or and ATM locations globally, including approximately 69.2 million square feet in the sale/leaseback of certain properties and we may incur costs in connection with any U.S. (all 50 states and the District of Columbia, the U.S. Virgin Islands, Puerto Rico such transactions. and Guam) and approximately 5.4 million square feet in approximately 35 countries. Item 3. Legal Proceedings We believe our owned and leased properties are adequate for our business See Litigation and Regulatory Matters in Note 12 – Commitments and needs and are well maintained. We continue to evaluate our owned and leased Contingencies to the Consolidated Financial Statements, which is incorporated real estate and may determine from time to time that certain of our premises and herein by reference. facilities, or ownership structures, are no longer necessary for our Item 4. Mine Safety Disclosures None Part II Bank of America Corporation and Subsidiaries Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The principal market on which our common stock is traded is the New York Stock Each of the bank subsidiaries is subject to various regulatory policies and Exchange under the symbol “BAC.” As of February 23, 2021, there were 156,206 requirements relating to the payment of dividends, including requirements to registered shareholders of common stock. maintain capital above regulatory minimums. All of the Corporation’s preferred The table below presents share repurchase activity for the three months ended stock outstanding has preference over the Corporation’s common stock with December 31, 2020. The primary source of funds for cash distributions by the respect to payment of dividends. Corporation to its shareholders is dividends received from its bank subsidiaries. Total Shares Purchased as Total Common Shares Weighted-Average Per Part of Publicly Remaining Buyback (Dollars in millions, except per share information; shares in thousands) Purchased (1,2) Share Price Announced Programs Authority Amounts (3) October 1 - 31, 2020 10,762 $ 24.44 — $ — November 1 - 30, 2020 1 24.81 — — December 1 - 31, 2020 1 27.39 — — Three months ended December 31, 2020 10,764 24.44 — — (1) Includes two thousand shares of the Corporation’s common stock acquired by the Corporation in connection with satisfaction of tax withholding obligations on vested restricted stock or restricted stock units and certain forfeitures and terminations of employment-related awards and for potential re-issuance to certain employees under equity incentive plans. (2) During the three months ended December 31, 2020, pursuant to the Corporation's Board's authorization, the Corporation repurchased approximately 11 million shares, or $263 million, of its common stock solely to offset shares awarded under equity-based compensation plans. (3) On January 19, 2021, the Board authorized the repurchase of $2.9 billion in common stock through March 31, 2021, plus approximately $300 million to offset shares awarded under equity-based compensation plans during the same period. For more information, see Capital Management - CCAR and Capital Planning in the MD&A on page 50 and Note 13 – Shareholders’ Equity to the Consolidated Financial Statements. The Corporation did not have any unregistered sales of equity securities during the three months ended December 31, 2020. Item 6. Selected Financial Data See Tables 6 and 7 in the MD&A beginning on page 32, which are incorporated herein by reference. Bank of America 22


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    Item 7. Bank of America Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Table of Contents Page Executive Summary 24 Recent Developments 25 Financial Highlights 27 Balance Sheet Overview 29 Supplemental Financial Data 31 Business Segment Operations 36 Consumer Banking 37 Global Wealth & Investment Management 40 Global Banking 42 Global Markets 44 All Other 45 Off-Balance Sheet Arrangements and Contractual Obligations 46 Managing Risk 47 Strategic Risk Management 50 Capital Management 50 Liquidity Risk 57 Credit Risk Management 61 Consumer Portfolio Credit Risk Management 62 Commercial Portfolio Credit Risk Management 68 Non-U.S. Portfolio 74 Allowance for Credit Losses 76 Market Risk Management 78 Trading Risk Management 79 Interest Rate Risk Management for the Banking Book 82 Mortgage Banking Risk Management 84 Compliance and Operational Risk Management 84 Reputational Risk Management 85 Climate Risk Management 85 Complex Accounting Estimates 85 Non-GAAP Reconciliations 88 Statistical Tables 89 23 Bank of America


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Bank of America Corporation (the “Corporation”) and its management may make and liabilities; the estimated or actual impact of changes in accounting standards or certain statements that constitute “forward-looking statements” within the meaning assumptions in applying those standards; uncertainty regarding the content, timing of the Private Securities Litigation Reform Act of 1995. These statements can be and impact of regulatory capital and liquidity requirements; the impact of adverse identified by the fact that they do not relate strictly to historical or current facts. changes to total loss-absorbing capacity requirements, stress capital buffer Forward-looking statements often use words such as “anticipates,” “targets,” requirements and/or global systemically important bank surcharges; the potential “expects,” “hopes,” “estimates,” “intends,” “plans,” “goals,” “believes,” “continue” impact of actions of the Board of Governors of the Federal Reserve System on the and other similar expressions or future or conditional verbs such as “will,” “may,” Corporation’s capital plans; the effect of regulations, other guidance or additional “might,” “should,” “would” and “could.” Forward-looking statements represent the information on the impact from the Tax Cuts and Jobs Act; the impact of Corporation’s current expectations, plans or forecasts of its future results, implementation and compliance with U.S. and international laws, regulations and revenues, provision for credit losses, expenses, efficiency ratio, capital measures, regulatory interpretations, including, but not limited to, recovery and resolution strategy and future business and economic conditions more generally, and other planning requirements, Federal Deposit Insurance Corporation assessments, the future matters. These statements are not guarantees of future results or Volcker Rule, fiduciary standards, derivatives regulations and the Coronavirus Aid, performance and involve certain known and unknown risks, uncertainties and Relief, and Economic Security Act and any similar or related rules and regulations; assumptions that are difficult to predict and are often beyond the Corporation’s a failure or disruption in or breach of the Corporation’s operational or security control. Actual outcomes and results may differ materially from those expressed in, systems or infrastructure, or those of third parties, including as a result of cyber or implied by, any of these forward-looking statements. attacks or campaigns; the impact on the Corporation’s business, financial condition You should not place undue reliance on any forward-looking statement and and results of operations from the United Kingdom's exit from the European Union; should consider the following uncertainties and risks, as well as the risks and the impact of climate change; the impact of any future federal government uncertainties more fully discussed under Item 1A. Risk Factors of this Annual shutdown and uncertainty regarding the federal government’s debt limit or changes Report on Form 10-K: the Corporation’s potential judgments, damages, penalties, to the U.S. presidential administration and Congress; the emergence of widespread fines and reputational damage resulting from pending or future litigation, regulatory health emergencies or pandemics, including the magnitude and duration of the proceedings and enforcement actions; the possibility that the Corporation's future COVID-19 pandemic and its impact on the U.S. and/or global, financial market liabilities may be in excess of its recorded liability and estimated range of possible conditions and our business, results of operations, financial condition and loss for litigation, and regulatory and government actions, including as a result of prospects; the impact of natural disasters, extreme weather events, military conflict, our participation in and execution of government programs related to the terrorism or other geopolitical events; and other matters. Coronavirus Disease 2019 (COVID-19) pandemic; the possibility that the Forward-looking statements speak only as of the date they are made, and the Corporation could face increased claims from one or more parties involved in Corporation undertakes no obligation to update any forward-looking statement to mortgage securitizations; the Corporation’s ability to resolve representations and reflect the impact of circumstances or events that arise after the date the forward- warranties repurchase and related claims; the risks related to the discontinuation of looking statement was made. the London Interbank Offered Rate and other reference rates, including increased Notes to the Consolidated Financial Statements referred to in the expenses and litigation and the effectiveness of hedging strategies; uncertainties Management’s Discussion and Analysis of Financial Condition and Results of about the financial stability and growth rates of non-U.S. jurisdictions, the risk that Operations (MD&A) are incorporated by reference into the MD&A. Certain prior- those jurisdictions may face difficulties servicing their sovereign debt, and related year amounts have been reclassified to conform to current-year presentation. stresses on financial markets, currencies and trade, and the Corporation’s Throughout the MD&A, the Corporation uses certain acronyms and abbreviations exposures to such risks, including direct, indirect and operational; the impact of which are defined in the Glossary. U.S. and global interest rates, inflation, currency exchange rates, economic conditions, trade policies and tensions, including tariffs, and potential geopolitical Executive Summary instability; the impact of the interest rate environment on the Corporation’s business, financial condition and results of operations; the possibility that future Business Overview credit losses may be higher than currently expected due to changes in economic The Corporation is a Delaware corporation, a bank holding company (BHC) and a assumptions, customer behavior, adverse developments with respect to U.S. or financial holding company. When used in this report, “the Corporation,” “we,” “us” global economic conditions and other uncertainties; the Corporation's concentration and “our” may refer to Bank of America Corporation individually, Bank of America of credit risk; the Corporation’s ability to achieve its expense targets and Corporation and its subsidiaries, or certain of Bank of America Corporation’s expectations regarding revenue, net interest income, provision for credit losses, net subsidiaries or affiliates. Our principal executive offices are located in Charlotte, charge-offs, effective tax rate, loan growth or other projections; adverse changes to North Carolina. Through our various bank and nonbank subsidiaries throughout the the Corporation’s credit ratings from the major credit rating agencies; an inability to U.S. and in international markets, we provide a diversified range of banking and access capital markets or maintain deposits or borrowing costs; estimates of the nonbank financial services and products through four business segments: fair value and other accounting values, subject to impairment assessments, of Consumer Banking, Global Wealth & Investment Management (GWIM), Global certain of the Corporation’s assets Banking and Global Markets, with the remaining operations recorded in All Other. We operate our banking activities primarily under the Bank of Bank of America 24


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    America, National Association (Bank of America, N.A. or BANA) charter. At resulted in, among other things, higher rates of unemployment and December 31, 2020, the Corporation had $2.8 trillion in assets and a headcount of underemployment and caused volatility and disruptions in the global financial approximately 213,000 employees. markets, including the energy and commodity markets. Although vaccines have As of December 31, 2020, we served clients through operations across the been approved for immunization against COVID-19 in certain countries and U.S., its territories and approximately 35 countries. Our retail banking footprint restrictive measures have been eased in certain areas, COVID-19 cases have covers all major markets in the U.S., and we serve approximately 66 million significantly increased in recent months in the U.S. and many regions of the world consumer and small business clients with approximately 4,300 retail financial compared to earlier levels. Businesses, market participants, our counterparties and clients, and the U.S. and global economies have been negatively impacted and are centers, approximately 17,000 ATMs, and leading digital banking platforms likely to be so for an extended period of time, as there remains significant (www.bankofamerica.com) with more than 39 million active users, including uncertainty about the timing and strength of an economic recovery. approximately 31 million active mobile users. We offer industry-leading support to To address the economic impact in the U.S., in March and April 2020, four approximately three million small business households. Our GWIM businesses, economic stimulus packages were enacted to provide relief to businesses and with client balances of $3.3 trillion, provide tailored solutions to meet client needs individuals, including the Coronavirus Aid, Relief, and Economic Security Act through a full set of investment management, brokerage, banking, trust and (CARES Act). Among other measures, the CARES Act established the Small retirement products. We are a global leader in corporate and investment banking Business Administration (SBA) Paycheck Protection Program (PPP), which and trading across a broad range of asset classes serving corporations, provides loans to small businesses to keep their employees on payroll and make governments, institutions and individuals around the world. other eligible payments. The original funding for the PPP under the CARES Act was fully allocated by mid-April 2020, with additional funding made available on Recent Developments April 24, 2020 under the Paycheck Protection Program and Health Care Enhancement Act. In December 2020, an additional economic stimulus package Capital Management was included as part of the Consolidated Appropriations Act of 2021 (the In June 2020, the Board of Governors of the Federal Reserve System (Federal Consolidated Appropriations Act), which provides relief to individuals and Reserve) notified BHCs of their 2020 Comprehensive Capital Analysis and Review businesses. This relief included additional funding for the PPP under the Economic (CCAR) supervisory stress test results. Due to economic uncertainty resulting from Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Economic Aid the Coronavirus Disease 2019 (COVID-19) pandemic (the pandemic), the Federal Act). Reserve required all large banks to update and resubmit their capital plans in In response to the pandemic, the Corporation has implemented protocols and November 2020 based on the Federal Reserve’s updated supervisory stress test processes to execute its business continuity plans and help protect its employees scenarios. The results of the additional supervisory stress tests were published in and support its clients. The Corporation is managing its response to the pandemic December 2020. according to its Enterprise Response Framework, which invokes centralized The Federal Reserve also required large banks to suspend share repurchase management of the crisis event and the integration of its response. The CEO and programs during the second half of 2020, except for repurchases to offset shares key members of the Corporation’s management team meet regularly with co- awarded under equity-based compensation plans, and to limit common stock leaders of the Executive Response Team, which is composed of senior executives dividends to existing rates that did not exceed the average of the last four quarters’ across the Corporation, to help drive decisions, communications and consistency of net income. In December 2020, the Federal Reserve announced that beginning in response across all businesses and functions. We are also coordinating with the first quarter of 2021, large banks would be permitted to pay common stock global, regional and local authorities and health experts, including the U.S. Centers dividends at existing rates and to repurchase shares in an amount that, when for Disease Control and Prevention (CDC) and the World Health Organization. combined with dividends paid, does not exceed the average of net income over the Additionally, we have implemented a number of measures to assist our last four quarters. employees, clients and the communities we serve as discussed below. On January 19, 2021, we announced that the Board of Directors (the Board) Employees declared a quarterly common stock dividend of $0.18 per share, payable on March We are providing support to our teammates to help promote the health and safety 26, 2021 to shareholders of record as of March 5, 2021. We also announced that of our employees and help to ensure our protocols remain aligned to current the Board authorized the repurchase of $2.9 billion in common stock through March 31, 2021, plus repurchases to offset shares awarded under equity-based guidance by monitoring guidance from the CDC, medical boards and health compensation plans during the same period, estimated to be approximately $300 authorities and sharing such guidance with our employees. We are also operating million. This authorization equals the maximum amount allowed by the Federal our businesses from remote locations and leveraging our business continuity plans Reserve for the period. For more information, see Capital Management on page and capabilities. 50. The Corporation has globally implemented a work-from-home posture, which has resulted in the substantial majority of our employees working from home, and COVID-19 Pandemic pre-planned contingency strategies for site-based operations for our remaining In the first quarter of 2020, the World Health Organization declared the outbreak of employees. We continue to evaluate our continuity plans and work-from-home COVID-19 a pandemic. In an attempt to contain the spread and impact of the strategy in an effort to best protect the health and safety of our employees. pandemic, travel bans and restrictions, quarantines, shelter-in-place orders and other limitations on business activity were implemented. Additionally, there has been a decline in global economic activity, reduced U.S. and global economic output and a deterioration in macroeconomic conditions in the U.S. and globally. This has 25 Bank of America


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    Clients 1 – Summary of Significant Accounting Principles and Note 5 – Outstanding Loans We continue to leverage our business continuity plans and capabilities to service and Leases and Allowance for Credit Losses to the Consolidated Financial our clients and meet our clients’ financial needs by offering assistance to clients Statements. affected by the pandemic, including providing access to credit and the important We have provided borrowers with relief from the economic impacts of COVID- financial services on which our clients rely. We are also participating in the 19 through payment deferral and forbearance programs. A significant portion of programs created by the CARES Act and Federal Reserve lending programs for deferrals expired during the second half of 2020, reflecting a decline in customer businesses, including originating PPP loans. We have also participated in the Main requests for assistance. As of February 17, 2021, deferred consumer and small Street Lending Program, which ended on January 8, 2021. While most of our business loans recorded on the Consolidated Balance Sheet totaled $6.8 billion, deferral programs expired in the third quarter of 2020, we continue to offer predominantly consisting of $6.4 billion of residential mortgage and home equity assistance on a case-by-case basis when requested by clients affected by the loans, including loans serviced by others, that are well-collateralized. pandemic. Other Related Matters As of December 31, 2020, we had approximately 332,000 PPP loans Although the macroeconomic outlook improved modestly during the second half of outstanding with a carrying value of $22.7 billion, which were recorded in the 2020, the future direct and indirect impact of COVID-19 on our businesses, results Consumer, GWIM and Global Banking segments. Since the PPP's inception of operations and financial condition of the Corporation remains highly uncertain. through February 17, 2021, borrowers have submitted applications for forgiveness Should current economic conditions persist or deteriorate, this macroeconomic to us for approximately 113,000 PPP loans with balances totaling $10.9 billion. We have submitted approximately 72,000 PPP loans with balances totaling $8.5 billion environment will have a continued adverse effect on our businesses and results of to the SBA for repayment, of which we have received to date $5.4 billion in operations and could have an adverse effect on our financial condition. For more repayment from the SBA. Additionally, as of February 17, 2021, we have originated information on how the risks related to the pandemic may adversely affect our $4.1 billion in PPP loans under the Economic Aid Act. For more information on businesses, results of operations and financial condition, see Part I. Item 1A. Risk PPP loans, see Credit Risk Management on page 61, and for more information on Factors on page 7. accounting for PPP loans and loan modifications under the CARES Act, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial LIBOR and Other Benchmark Rates Statements. Following the 2017 announcement by the U.K.’s Financial Conduct Authority (FCA) that it would no longer compel participating banks to submit rates for the London Community Partners Interbank Offered Rate (LIBOR) after 2021, regulators, trade associations and We continue to support the communities where we live and work by engaging in financial industry working groups have identified recommended replacement rates various initiatives to help those affected by COVID-19. These initiatives include for LIBOR, as well as other Interbank Offered Rates (IBORs), and have published committing resources to provide medical supplies, food and other necessities for recommended conventions to allow new and existing products to incorporate those in need. We are also supporting racial equality, economic opportunity and fallbacks or that reference these Alternative Reference Rates (ARRs). The environmental sustainability through direct equity investments in minority-owned continuation of all British Pound Sterling, Euro, Swiss Franc and Japanese Yen depository institutions, equity investments in minority entrepreneurs, businesses LIBOR settings and one-week and two-month U.S. dollar LIBOR settings on the and funds, as well as other initiatives. current basis are expected to terminate at the end of December 2021, and the remaining U.S. dollar LIBOR settings (i.e., overnight, one month, three month, six Risk Management month and 12 month) are expected to terminate at the end of June 2023. We continue to manage the increased operational risk related to the execution of As a result of this and other announcements, financial benchmark reforms, our business continuity plans in accordance with our Enterprise Response regulatory guidance and changes in short-term interbank lending markets more Framework, Risk Framework and Operational Risk Management Program. For generally, a major transition is in progress in global financial markets with respect more information, see Managing Risk on page 47. to the replacement of IBORs and certain benchmarks. The transition of IBORs to Loan Modifications ARRs is a complex process impacting a variety of global financial markets and our The Corporation has implemented various consumer and commercial loan business and operations. modification programs to provide its borrowers relief from the economic impacts of IBORs are used in many of the Corporation’s products and contracts, including COVID-19. Based on guidance in the CARES Act that the Corporation adopted, derivatives, consumer and commercial loans, mortgages, floating-rate notes and COVID-19 related modifications to consumer and commercial loans that were other adjustable-rate products and financial instruments. The discontinuation of current as of December 31, 2019 are exempt from troubled debt restructuring IBORs requires us to transition a significant number of IBOR-based products and (TDR) classification under accounting principles generally accepted in the United contracts, including related hedging arrangements. In response, the Corporation States of America (GAAP). In addition, the bank regulatory agencies issued established an enterprise-wide IBOR transition program led by senior management interagency guidance stating that COVID-19 related short-term modifications (i.e., in early 2018. This program, which is led by the Corporation's Chief Operating six months or less) granted to consumer or commercial loans that were current as Officer, includes active involvement of senior management and regular reports to of the loan modification program implementation date are not TDRs. In December the Enterprise Risk Committee (ERC). The program is intended to address the 2020, the Consolidated Appropriations Act amended the CARES Act by extending Corporation's industry and regulatory engagement, client and financial contract the exemption from TDR classification for COVID-19 related modifications from changes, internal and external communications, technology and operations December 31, 2020 to the earlier of January 1, 2022 or 60 days after the national emergency has ended. For more information, see Note modifications, Bank of America 26


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    introduction of new products, migration of existing clients, and program strategy expected replacement of LIBOR and other benchmark rates, see Item 1A. Risk and governance. In addition, the program is designed to monitor a variety of Factors – Other on page 19. scenarios, including operational risks associated with insufficient preparation by individual market participants or the overall market ecosystem, volatility along the U.K. Exit from the EU Secured Overnight Financing Rate (SOFR) curve, development and adoption of On January 31, 2020, the U.K. formally exited the European Union (EU), and a credit-sensitive and other rates, regulatory and legal uncertainty with respect to transition period began during which time the U.K. and the EU negotiated a trade agreement and other terms associated with their future relationship. The transition various matters including contract continuity, access by market participants to period ended on December 31, 2020. liquidity in certain products, and IBOR continuity beyond December 2021. We conduct business in Europe, the Middle East and Africa primarily through As of February 1, 2021, a significant majority of the aggregate notional amount our subsidiaries in the U.K., Ireland and France and implemented changes to of our LIBOR-based products and contracts maturing after 2021 include or have enable us to continue to operate in the region, including establishing a bank and been updated to include fallbacks to ARRs based on market driven protocols, broker-dealer in the EU, as well as minimize the potential for any operational regulatory guidance and industry-recommended fallback provisions and related disruption. As the global economic impact of the U.K.’s withdrawal from the EU mechanisms. For certain of the remaining products and contracts, the transition will remains uncertain and could result in regional and global financial market be more complex, particularly where there is no industry-wide protocol or similar disruptions, we continue to assess potential operational, regulatory and legal risks. mechanism. The Corporation is executing transition plans that are intended to be in For more information, see Item 1A. Risk Factors – Geopolitical on page 12. line with applicable major industry-wide IBOR product cessation and launch milestones recommended by the Alternative Reference Rates Committee, a group Financial Highlights of private market participants and official sector entities convened by the Federal Effective January 1, 2020, we adopted the new accounting standard on current Reserve and the Federal Reserve Bank of New York, and the Bank of England expected credit losses (CECL), under which the allowance is measured based on Sterling Risk Free Rate Working Group, other than the cessation of LIBOR-based management’s best estimate of lifetime expected credit losses (ECL). Prior-year adjustable-rate consumer mortgages. The Corporation plans to no longer offer periods presented reflect measurement of the allowance based on management’s these mortgages and launch SOFR-based adjustable-rate consumer mortgages by estimate of probable incurred credit losses. For more information, see Note 1 – the end of the first quarter of 2021. Summary of Significant Accounting Principles to the Consolidated Financial The Corporation is executing product and client roadmaps that it believes align Statements. with industry-recommended and regulatory milestones, and the Corporation has developed employee training programs as well as other internal and external sources of information on the various challenges and opportunities that the Table 1 Summary Income Statement and Selected Financial replacement of IBORs presents. As the transition to ARRs evolves, the Corporation Data continues to monitor and participate in the development and usage of certain (Dollars in millions, except per share information) 2020 2019 ARRs, including SOFR, the Euro Short Term Rate and the Sterling Overnight Index Income statement Average (SONIA). The Corporation’s key transition efforts to date include Net interest income $ 43,360 $ 48,891 issuances of debt and deposits linked to SOFR and SONIA by the Corporation, Noninterest income 42,168 42,353 facilitating debt issuances linked to ARRs by clients and secondary market liquidity Total revenue, net of interest expense 85,528 91,244 for products linked to ARRs, originating and arranging loans linked to ARRs, Provision for credit losses 11,320 3,590 including hedging arrangements, executing, trading, market making and clearing Noninterest expense 55,213 54,900 ARR-based derivatives, and launching capabilities and services to support the Income before income taxes 18,995 32,754 issuance and trading in products indexed to certain ARRs. The Corporation Income tax expense 1,101 5,324 updated its operational models, systems, procedures and internal infrastructure in Net income 17,894 27,430 connection with the transition to ARRs by the central clearing counterparties. In Preferred stock dividends 1,421 1,432 October 2020, the Corporation and certain of its subsidiaries adhered to the Net income applicable to common shareholders $ 16,473 $ 25,998 International Swaps and Derivatives Association, Inc. 2020 IBOR Fallbacks Protocol, effective January 25, 2021, which provides a mechanism to enable Per common share information market participants to incorporate fallbacks for certain legacy non-cleared Earnings $ 1.88 $ 2.77 Diluted earnings 1.87 2.75 derivatives linked to certain IBORs. Dividends paid 0.72 0.66 Additionally, the Corporation is continuing to evaluate potential regulatory, tax Performance ratios and accounting impacts of the transition, including guidance published and/or (1) Return on average assets 0.67 % 1.14 % proposed by the Internal Revenue Service and Financial Accounting Standards (1) Return on average common shareholders’ equity 6.76 10.62 Board, engage impacted clients in connection with the transition to ARRs and work (2) Return on average tangible common shareholders’ equity 9.48 14.86 actively with global regulators, industry working groups and trade associations to Efficiency ratio (1) 64.55 60.17 develop strategies for an effective transition to ARRs. For more information on the Balance sheet at year end Total loans and leases $ 927,861 $ 983,426 Total assets 2,819,627 2,434,079 Total deposits 1,795,480 1,434,803 Total liabilities 2,546,703 2,169,269 Total common shareholders’ equity 248,414 241,409 Total shareholders’ equity 272,924 264,810 (1) For definitions, see Key Metrics on page 173. (2) Return on average tangible common shareholders’ equity is a non-GAAP financial measure. For more information and a corresponding reconciliation to the most closely related financial measures defined by accounting principles generally accepted in the United States of America, see Non-GAAP Reconciliations on page 88. 27 Bank of America


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    Net income was $17.9 billion or $1.87 per diluted share in 2020 compared to ● Investment banking fees increased $1.5 billion primarily driven by higher equity $27.4 billion or $2.75 per diluted share in 2019. The decline in net income was issuance fees. primarily due to higher provision for credit losses driven by the weaker economic ● Market making and similar activities decreased $679 million primarily due to the outlook related to COVID-19 and lower net interest income. impact of lower U.S. interest rates on certain risk management derivatives, For discussion and analysis of our consolidated and business segment results partially offset by increased client activity and strong trading performance in fixed of operations for 2019 compared to 2018, see the Financial Highlights and income, currencies and commodities (FICC). Business Segment Operations sections in the MD&A of the Corporation's 2019 ● Other income decreased $1.0 billion primarily due to lower equity investment Annual Report on Form 10-K. income, higher partnership losses on tax credit investments, primarily affordable housing and renewable energy, partially offset by higher gains on loan sales and Net Interest Income sales of debt securities. Net interest income decreased $5.5 billion to $43.4 billion in 2020 compared to 2019. Net interest yield on a fully taxable-equivalent (FTE) basis decreased 53 Provision for Credit Losses basis points (bps) to 1.90 percent for 2020. The decrease in net interest income The provision for credit losses increased $7.7 billion to $11.3 billion in 2020 was primarily driven by lower interest rates, partially offset by reduced deposit and compared to 2019 primarily driven by higher ECL due to a weaker economic funding costs, the deployment of excess deposits into securities and an additional outlook related to COVID-19. For more information on the provision for credit day of interest accrual. Assuming continued economic improvement and based on losses, see Allowance for Credit Losses on page 76. the forward interest rate curve as of January 19, 2021, when we announced quarterly and annual results for the periods ended December 31, 2020, we expect Noninterest Expense net interest income to be higher in the second half of 2021 as compared to both the second half of 2020 and the first half of 2021. For more information on net interest yield and the FTE basis, see Supplemental Financial Data on page 31, and Table 3 Noninterest Expense for more information on interest rate risk management, see Interest Rate Risk Management for the Banking Book on page 82. (Dollars in millions) 2020 2019 Compensation and benefits $ 32,725 $ 31,977 Noninterest Income Occupancy and equipment 7,141 6,588 Information processing and communications 5,222 4,646 Product delivery and transaction related 3,433 2,762 Table 2 Noninterest Income Marketing 1,701 1,934 Professional fees 1,694 1,597 (Dollars in millions) 2020 2019 Other general operating 3,297 5,396 Fees and commissions: Total noninterest expense $ 55,213 $ 54,900 Card income $ 5,656 $ 5,797 Service charges 7,141 7,674 Noninterest expense increased $313 million to $55.2 billion in 2020 compared to Investment and brokerage services 14,574 13,902 Investment banking fees 7,180 5,642 2019. The increase was primarily due to higher operating costs related to COVID- Total fees and commissions 34,551 33,015 19, merchant services expenses, which were previously recorded in other income Market making and similar activities 8,355 9,034 as part of joint venture net earnings, and higher activity-based expenses due to Other income (738) 304 increased client activity, partially offset by a $2.1 billion pretax impairment charge Total noninterest income $ 42,168 $ 42,353 related to the notice of termination of the merchant services joint venture in 2019. Noninterest income decreased $185 million to $42.2 billion in 2020 compared to Income Tax Expense 2019. The following highlights the significant changes. ● Card income decreased $141 million primarily due to lower levels of consumer Table 4 Income Tax Expense spending driven by the impact of COVID-19, partially offset by higher income related to the processing of unemployment insurance. (Dollars in millions) 2020 2019 ● Service charges decreased $533 million primarily due to higher deposit balances Income before income taxes $ 18,995 $ 32,754 and lower client activity due to the impact of COVID-19. Income tax expense 1,101 5,324 ● Investment and brokerage services income increased $672 million primarily due Effective tax rate 5.8 % 16.3 % to higher client transactional activity, higher market valuations and assets under management (AUM) flows, partially offset by declines in AUM pricing. Income tax expense was $1.1 billion for 2020 compared to $5.3 billion in 2019, resulting in an effective tax rate of 5.8 percent compared to 16.3 percent. Bank of America 28


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    The change in the effective tax rate for 2020 was driven by the impact of our earnings, and requires a reversal of the adjustment to the U.K. net deferred tax recurring tax preference benefits on lower levels of pretax income. These benefits assets recognized at the time the tax rate decreases were originally enacted. primarily consist of tax credits from environmental, social and governance (ESG) Accordingly, during the third quarter of 2020, the Corporation recorded an income investments in affordable housing and renewable energy, aligning with our tax benefit of approximately $700 million along with a corresponding increase to the responsible growth strategy to address global sustainability challenges. Excluding U.K. net deferred tax assets. tax credits related to our ESG investment activity, the effective tax rate for 2020 The effective tax rate for 2019 included net tax benefits primarily related to the would have been 21 percent. resolution of various tax controversy matters. The 2020 rate also included the impact of the U.K. tax law change, whereby on Absent unusual items, we expect the effective tax rate for 2021 to be in the July 22, 2020, the U.K. enacted a repeal of the final two percent of scheduled range of 10 – 12 percent, reflecting tax credits related to our ESG investment decreases in the U.K. corporation tax rate, which had been previously enacted. activity. This change will unfavorably affect income tax expense on future U.K. Balance Sheet Overview Table 5 Selected Balance Sheet Data December 31 (Dollars in millions) 2020 2019 % Change Assets Cash and cash equivalents $ 380,463 $ 161,560 135 % Federal funds sold and securities borrowed or purchased under agreements to resell 304,058 274,597 11 Trading account assets 198,854 229,826 (13) Debt securities 684,850 472,197 45 Loans and leases 927,861 983,426 (6) Allowance for loan and lease losses (18,802) (9,416) 100 All other assets 342,343 321,889 6 Total assets $ 2,819,627 $ 2,434,079 16 Liabilities Deposits $ 1,795,480 $ 1,434,803 25 Federal funds purchased and securities loaned or sold under agreements to repurchase 170,323 165,109 3 Trading account liabilities 71,320 83,270 (14) Short-term borrowings 19,321 24,204 (20) Long-term debt 262,934 240,856 9 All other liabilities 227,325 221,027 3 Total liabilities 2,546,703 2,169,269 17 Shareholders’ equity 272,924 264,810 3 Total liabilities and shareholders’ equity $ 2,819,627 $ 2,434,079 16 Assets Trading Account Assets At December 31, 2020, total assets were approximately $2.8 trillion, up $385.5 Trading account assets consist primarily of long positions in equity and fixed- billion from December 31, 2019. The increase in assets was primarily due to higher income securities including U.S. government and agency securities, corporate cash held at central banks that was primarily funded by deposit growth and debt securities and non-U.S. sovereign debt. Trading account assets decreased $31.0 securities, partially offset by a decline in loans and leases. billion due to a decline in inventory within Global Markets. Cash and Cash Equivalents Debt Securities Cash and cash equivalents increased $218.9 billion driven by deposit growth. Debt securities primarily include U.S. Treasury and agency securities, mortgage- backed securities (MBS), principally agency MBS, non-U.S. bonds, corporate Federal Funds Sold and Securities Borrowed or Purchased Under bonds and municipal debt. We use the debt securities portfolio primarily to manage Agreements to Resell interest rate and liquidity risk and to take advantage of market conditions that create Federal funds transactions involve lending reserve balances on a short-term basis. economically attractive returns on these investments. Debt securities increased Securities borrowed or purchased under agreements to resell are collateralized $212.7 billion primarily driven by the deployment of deposit inflows. For more lending transactions utilized to accommodate customer transactions, earn interest information on debt securities, see Note 4 – Securities to the Consolidated rate spreads, and obtain securities for settlement and for collateral. Federal funds Financial Statements. sold and securities borrowed or purchased under agreements to resell increased $29.5 billion primarily due to deployment of deposit inflows. 29 Bank of America


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    Loans and Leases Short-term Borrowings Loans and leases decreased $55.6 billion primarily driven by commercial loan Short-term borrowings provide an additional funding source and primarily consist of paydowns, lower credit card spending and lower residential mortgages due to Federal Home Loan Bank (FHLB) short-term borrowings, notes payable and higher paydowns and a decline in originations. For more information on the loan various other borrowings that generally have maturities of one year or less. Short- portfolio, see Credit Risk Management on page 61. term borrowings decreased $4.9 billion due to higher deposit levels. For more information on short-term borrowings, see Note 10 – Federal Funds Sold or Allowance for Loan and Lease Losses Purchased, Securities Financing Agreements, Short-term Borrowings and The allowance for loan and lease losses increased $9.4 billion primarily due to the Restricted Cash to the Consolidated Financial Statements. weaker economic outlook related to COVID-19 and the impact of the adoption of the new credit loss accounting standard. For more information, see Allowance for Long-term Debt Credit Losses on page 76. Long-term debt increased $22.1 billion primarily due to debt issuances and valuation adjustments, partially offset by maturities and redemptions. For more Liabilities information on long-term debt, see Note 11 – Long-term Debt to the Consolidated At December 31, 2020, total liabilities were approximately $2.5 trillion, up $377.4 Financial Statements. billion from December 31, 2019, primarily due to deposit growth. Shareholders’ Equity Deposits Shareholders’ equity increased $8.1 billion driven by net income, market value Deposits increased $360.7 billion primarily due to an increase in retail and increases on debt securities and issuances of preferred and common stock, wholesale deposits. partially offset by the return of capital to shareholders totaling $14.7 billion through Federal Funds Purchased and Securities Loaned or Sold Under share repurchases and common and preferred stock dividends, as well as the Agreements to Repurchase impact of the adoption of the new credit loss accounting standard and the Federal funds transactions involve borrowing reserve balances on a short-term redemption of preferred stock. basis. Securities loaned or sold under agreements to repurchase are collateralized borrowing transactions utilized to accommodate customer transactions, earn Cash Flows Overview interest rate spreads and finance assets on the balance sheet. Federal funds The Corporation’s operating assets and liabilities support our global markets and purchased and securities loaned or sold under agreements to repurchase lending activities. We believe that cash flows from operations, available cash increased $5.2 billion primarily driven by client activity within Global Markets. balances and our ability to generate cash through short- and long-term debt are sufficient to fund our operating liquidity needs. Our investing activities primarily Trading Account Liabilities include the debt securities portfolio and loans and leases. Our financing activities Trading account liabilities consist primarily of short positions in equity and fixed- reflect cash flows primarily related to customer deposits, securities financing income securities including U.S. Treasury and agency securities, corporate agreements and long-term debt. For more information on liquidity, see Liquidity securities and non-U.S. sovereign debt. Trading account liabilities decreased $12.0 billion primarily due to lower levels of short positions within Global Markets. Risk on page 57. Bank of America 30


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    Supplemental Financial Data shareholders’ equity as key measures to support our overall growth objectives. These ratios are as follows: Non-GAAP Financial Measures ● Return on average tangible common shareholders’ equity measures our net In this Form 10-K, we present certain non-GAAP financial measures. Non-GAAP income applicable to common shareholders as a percentage of adjusted financial measures exclude certain items or otherwise include components that average common shareholders’ equity. The tangible common equity ratio differ from the most directly comparable measures calculated in accordance with represents adjusted ending common shareholders’ equity divided by total GAAP. Non-GAAP financial measures are provided as additional useful information tangible assets. to assess our financial condition, results of operations (including period-to-period ● Return on average tangible shareholders' equity measures our net income as a operating performance) or compliance with prospective regulatory requirements. percentage of adjusted average total shareholders’ equity. The tangible equity These non-GAAP financial measures are not intended as a substitute for GAAP ratio represents adjusted ending shareholders’ equity divided by total tangible financial measures and may not be defined or calculated the same way as non- assets. GAAP financial measures used by other companies. ● Tangible book value per common share represents adjusted ending common We view net interest income and related ratios and analyses on an FTE basis, shareholders’ equity divided by ending common shares outstanding. 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 We believe ratios utilizing tangible equity provide additional useful information income on an equivalent before-tax basis with a corresponding increase in income because they present measures of those assets that can generate income. tax expense. For purposes of this calculation, we use the federal statutory tax rate Tangible book value per common share provides additional useful information of 21 percent and a representative state tax rate. Net interest yield, which about the level of tangible assets in relation to outstanding shares of common measures the basis points we earn over the cost of funds, utilizes net interest stock. income on an FTE basis. We believe that presentation of these items on an FTE The aforementioned supplemental data and performance measures are basis allows for comparison of amounts from both taxable and tax-exempt sources presented in Tables 6 and 7. and is consistent with industry practices. For more information on the reconciliation of these non-GAAP financial We may present certain key performance indicators and ratios excluding certain measures to the corresponding GAAP financial measures, see Non-GAAP items (e.g., debit valuation adjustment (DVA) gains (losses)) which result in non- Reconciliations on page 88. GAAP financial measures. We believe that the presentation of measures that exclude these items is useful because such measures provide additional Key Performance Indicators information to assess the underlying operational performance and trends of our We present certain key financial and nonfinancial performance indicators (key businesses and to allow better comparison of period-to-period operating performance indicators) that management uses when assessing our consolidated performance. and/or segment results. We believe they are useful to investors because they We also evaluate our business based on certain ratios that utilize tangible provide additional information about our underlying operational performance and equity, a non-GAAP financial measure. Tangible equity represents shareholders’ trends. These key performance indicators (KPIs) may not be defined or calculated equity or common shareholders’ equity reduced by goodwill and intangible assets in the same way as similar KPIs used by other companies. For information on how (excluding mortgage servicing rights (MSRs)), net of related deferred tax liabilities these metrics are defined, see Key Metrics on page 173. ("adjusted" shareholders' equity or common shareholders' equity). These Our consolidated key performance indicators, which include various equity and measures are used to evaluate our use of equity. In addition, profitability, credit metrics, are presented in Table 1 on page 27 and/or Tables 6 and 7 on relationship and investment models use both return on average tangible common pages 32 and 33. shareholders’ equity and return on average tangible For information on key segment performance metrics, see Business Segment Operations on page 36. 31 Bank of America


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    Table 6 Five-year Summary of Selected Financial Data (In millions, except per share information) 2020 2019 2018 2017 2016 Income statement Net interest income $ 43,360 $ 48,891 $ 48,162 $ 45,239 $ 41,486 Noninterest income 42,168 42,353 42,858 41,887 42,012 Total revenue, net of interest expense 85,528 91,244 91,020 87,126 83,498 Provision for credit losses 11,320 3,590 3,282 3,396 3,597 Noninterest expense 55,213 54,900 53,154 54,517 54,880 Income before income taxes 18,995 32,754 34,584 29,213 25,021 Income tax expense 1,101 5,324 6,437 10,981 7,199 Net income 17,894 27,430 28,147 18,232 17,822 Net income applicable to common shareholders 16,473 25,998 26,696 16,618 16,140 Average common shares issued and outstanding 8,753.2 9,390.5 10,096.5 10,195.6 10,248.1 Average diluted common shares issued and outstanding 8,796.9 9,442.9 10,236.9 10,778.4 11,046.8 Performance ratios Return on average assets (1) 0.67 % 1.14 % 1.21 % 0.80 % 0.81 % Return on average common shareholders’ equity (1) 6.76 10.62 11.04 6.72 6.69 (2) Return on average tangible common shareholders’ equity 9.48 14.86 15.55 9.41 9.51 Return on average shareholders’ equity (1) 6.69 10.24 10.63 6.72 6.70 Return on average tangible shareholders’ equity (2) 9.07 13.85 14.46 9.08 9.17 Total ending equity to total ending assets 9.68 10.88 11.27 11.71 12.17 Total average equity to total average assets 9.96 11.14 11.39 11.96 12.14 Dividend payout 38.18 23.65 20.31 24.24 15.94 Per common share data Earnings $ 1.88 $ 2.77 $ 2.64 $ 1.63 $ 1.57 Diluted earnings 1.87 2.75 2.61 1.56 1.49 Dividends paid 0.72 0.66 0.54 0.39 0.25 Book value (1) 28.72 27.32 25.13 23.80 23.97 Tangible book value (2) 20.60 19.41 17.91 16.96 16.89 Market capitalization $ 262,206 $ 311,209 $ 238,251 $ 303,681 $ 222,163 Average balance sheet Total loans and leases $ 982,467 $ 958,416 $ 933,049 $ 918,731 $ 900,433 Total assets 2,683,122 2,405,830 2,325,246 2,268,633 2,190,218 Total deposits 1,632,998 1,380,326 1,314,941 1,269,796 1,222,561 Long-term debt 220,440 201,623 200,399 194,882 204,826 Common shareholders’ equity 243,685 244,853 241,799 247,101 241,187 Total shareholders’ equity 267,309 267,889 264,748 271,289 265,843 Asset quality (3) Allowance for credit losses (4) $ 20,680 $ 10,229 $ 10,398 $ 11,170 $ 11,999 (5) Nonperforming loans, leases and foreclosed properties 5,116 3,837 5,244 6,758 8,084 (5) Allowance for loan and lease losses as a percentage of total loans and leases outstanding 2.04 % 0.97 % 1.02 % 1.12 % 1.26 % (5) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases 380 265 194 161 149 Net charge-offs $ 4,121 $ 3,648 $ 3,763 $ 3,979 $ 3,821 Net charge-offs as a percentage of average loans and leases outstanding (5) 0.42 % 0.38 % 0.41 % 0.44 % 0.43 % Capital ratios at year end (6) Common equity tier 1 capital 11.9 % 11.2 % 11.6 % 11.5 % 10.8 % Tier 1 capital 13.5 12.6 13.2 13.0 12.4 Total capital 16.1 14.7 15.1 14.8 14.2 Tier 1 leverage 7.4 7.9 8.4 8.6 8.8 Supplementary leverage ratio 7.2 6.4 6.8 n/a n/a Tangible equity (2) 7.4 8.2 8.6 8.9 9.2 Tangible common equity (2) 6.5 7.3 7.6 7.9 8.0 (1) For definitions, see Key Metrics on page 173 (2) Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. For more information on these ratios and corresponding reconciliations to GAAP financial measures, see Supplemental Financial Data on page 31 and Non-GAAP Reconciliations on page 88. (3) Asset quality metrics include $75 million of non-U.S. consumer credit card net charge-offs in 2017 and $243 million of non-U.S. consumer credit card allowance for loan and lease losses, $9.2 billion of non-U.S. consumer credit card loans and $175 million of non-U.S. consumer credit card net charge-offs in 2016. The Corporation sold its non-U.S. consumer credit card business in 2017. (4) Includes the allowance for loan and leases 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 67 and corresponding Table 28 and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 71 and corresponding Table 35. (6) Basel 3 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 additional information, including which approach is used to assess capital adequacy, see Capital Management on page 50. n/a = not applicable Bank of America 32


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    Table 7 Selected Quarterly Financial Data 2020 Quarters 2019 Quarters (In millions, except per share information) Fourth Third Second First Fourth Third Second First Income statement Net interest income $ 10,253 $ 10,129 $ 10,848 $ 12,130 $ 12,140 $ 12,187 $ 12,189 $ 12,375 Noninterest income 9,846 10,207 11,478 10,637 10,209 10,620 10,895 10,629 Total revenue, net of interest expense 20,099 20,336 22,326 22,767 22,349 22,807 23,084 23,004 Provision for credit losses 53 1,389 5,117 4,761 941 779 857 1,013 Noninterest expense 13,927 14,401 13,410 13,475 13,239 15,169 13,268 13,224 Income before income taxes 6,119 4,546 3,799 4,531 8,169 6,859 8,959 8,767 Income tax expense 649 (335) 266 521 1,175 1,082 1,611 1,456 Net income 5,470 4,881 3,533 4,010 6,994 5,777 7,348 7,311 Net income applicable to common shareholders 5,208 4,440 3,284 3,541 6,748 5,272 7,109 6,869 Average common shares issued and outstanding 8,724.9 8,732.9 8,739.9 8,815.6 9,017.1 9,303.6 9,523.2 9,725.9 Average diluted common shares issued and outstanding 8,785.0 8,777.5 8,768.1 8,862.7 9,079.5 9,353.0 9,559.6 9,787.3 Performance ratios Return on average assets (1) 0.78 % 0.71 % 0.53 % 0.65 % 1.13 % 0.95 % 1.23 % 1.26 % Four-quarter trailing return on average assets(2) 0.67 0.75 0.81 0.99 1.14 1.17 1.24 1.22 Return on average common shareholders’ equity (1) 8.39 7.24 5.44 5.91 11.00 8.48 11.62 11.42 Return on average tangible common shareholders’ equity (3) 11.73 10.16 7.63 8.32 15.43 11.84 16.24 16.01 Return on average shareholders’ equity (1) 8.03 7.26 5.34 6.10 10.40 8.48 11.00 11.14 Return on average tangible shareholders’ equity (3) 10.84 9.84 7.23 8.29 14.09 11.43 14.88 15.10 Total ending equity to total ending assets 9.68 9.82 9.69 10.11 10.88 11.06 11.33 11.23 Total average equity to total average assets 9.71 9.76 9.85 10.60 10.89 11.21 11.17 11.28 Dividend payout 30.11 35.36 47.87 44.57 23.90 31.48 19.95 21.20 Per common share data Earnings $ 0.60 $ 0.51 $ 0.38 $ 0.40 $ 0.75 $ 0.57 $ 0.75 $ 0.71 Diluted earnings 0.59 0.51 0.37 0.40 0.74 0.56 0.74 0.70 Dividends paid 0.18 0.18 0.18 0.18 0.18 0.18 0.15 0.15 Book value (1) 28.72 28.33 27.96 27.84 27.32 26.96 26.41 25.57 Tangible book value (3) 20.60 20.23 19.90 19.79 19.41 19.26 18.92 18.26 Market capitalization $ 262,206 $ 208,656 $ 205,772 $ 184,181 $ 311,209 $ 264,842 $ 270,935 $ 263,992 Average balance sheet Total loans and leases $ 934,798 $ 974,018 $ 1,031,387 $ 990,283 $ 973,986 $ 964,733 $ 950,525 $ 944,020 Total assets 2,791,874 2,739,684 2,704,186 2,494,928 2,450,005 2,412,223 2,399,051 2,360,992 Total deposits 1,737,139 1,695,488 1,658,197 1,439,336 1,410,439 1,375,052 1,375,450 1,359,864 Long-term debt 225,423 224,254 221,167 210,816 206,026 202,620 201,007 196,726 Common shareholders’ equity 246,840 243,896 242,889 241,078 243,439 246,630 245,438 243,891 Total shareholders’ equity 271,020 267,323 266,316 264,534 266,900 270,430 267,975 266,217 Asset quality Allowance for credit losses (4) $ 20,680 $ 21,506 $ 21,091 $ 17,126 $ 10,229 $ 10,242 $ 10,333 $ 10,379 Nonperforming loans, leases and foreclosed properties (5) 5,116 4,730 4,611 4,331 3,837 3,723 4,452 5,145 Allowance for loan and lease losses as a percentage of total loans and leases outstanding (5) 2.04 % 2.07 % 1.96 % 1.51 % 0.97 % 0.98 % 1.00 % 1.02 % Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5) 380 431 441 389 265 271 228 197 Net charge-offs $ 881 $ 972 $ 1,146 $ 1,122 $ 959 $ 811 $ 887 $ 991 Annualized net charge-offs as a percentage of average loans and leases outstanding (5) 0.38 % 0.40 % 0.45 % 0.46 % 0.39 % 0.34 % 0.38 % 0.43 % Capital ratios at period end (6) Common equity tier 1 capital 11.9 % 11.9 % 11.4 % 10.8 % 11.2 % 11.4 % 11.7 % 11.6 % Tier 1 capital 13.5 13.5 12.9 12.3 12.6 12.9 13.3 13.1 Total capital 16.1 16.1 14.8 14.6 14.7 15.1 15.4 15.2 Tier 1 leverage 7.4 7.4 7.4 7.9 7.9 8.2 8.4 8.4 Supplementary leverage ratio 7.2 6.9 7.1 6.4 6.4 6.6 6.8 6.8 Tangible equity (3) 7.4 7.4 7.3 7.7 8.2 8.4 8.7 8.5 Tangible common equity (3) 6.5 6.6 6.5 6.7 7.3 7.4 7.6 7.6 Total loss-absorbing capacity and long-term debt metrics Total loss-absorbing capacity to risk-weighted assets 27.4 % 26.9 % 26.0 % 24.6 % 24.6 % 24.8 % 25.5 % 24.8 % Total loss-absorbing capacity to supplementary leverage exposure 14.5 13.7 14.2 12.8 12.5 12.7 13.0 12.8 Eligible long-term debt to risk-weighted assets 13.3 12.9 12.4 11.6 11.5 11.4 11.8 11.4 Eligible long-term debt to supplementary leverage exposure 7.1 6.6 6.7 6.1 5.8 5.8 6.0 5.9 (1) For definitions, see Key Metrics on page 173. (2) Calculated as total net income for four consecutive quarters divided by annualized average assets for four consecutive quarters. (3) Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. For more information on these ratios and corresponding reconciliations to GAAP financial measures, see Supplemental Financial Data on page 31 and Non-GAAP Reconciliations on page 88. (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 68 and corresponding Table 28 and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 72 and corresponding Table 35. (6) For more information, including which approach is used to assess capital adequacy, see Capital Management on page 50. 33 Bank of America


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    Table 8 Average Balances and Interest Rates - FTE Basis Interest Interest Interest Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense (1) Rate Balance Expense (1) Rate Balance Expense (1) Rate (Dollars in millions) 2020 2019 2018 Earning assets Interest-bearing deposits with the Federal Reserve, non- U.S. central banks and other banks $ 253,227 $ 359 0.14 % $ 125,555 $ 1,823 1.45 % $ 139,848 $ 1,926 1.38 % Time deposits placed and other short-term investments 8,840 29 0.33 9,427 207 2.19 9,446 216 2.29 Federal funds sold and securities borrowed or purchased under agreements to resell 309,945 903 0.29 279,610 4,843 1.73 251,328 3,176 1.26 Trading account assets 148,076 4,185 2.83 148,076 5,269 3.56 132,724 4,901 3.69 Debt securities 532,266 9,868 1.87 450,090 11,917 2.65 437,312 11,837 2.66 Loans and leases (2) Residential mortgage 236,719 7,338 3.10 220,552 7,651 3.47 207,523 7,294 3.51 Home equity 38,251 1,290 3.37 44,600 2,194 4.92 53,886 2,573 4.77 Credit card 85,017 8,759 10.30 94,488 10,166 10.76 94,612 9,579 10.12 Direct/Indirect and other consumer (3) 89,974 2,545 2.83 90,656 3,261 3.60 93,036 3,104 3.34 Total consumer 449,961 19,932 4.43 450,296 23,272 5.17 449,057 22,550 5.02 U.S. commercial (4) 344,095 9,712 2.82 321,467 13,161 4.09 304,387 11,937 3.92 Non-U.S. commercial (4) 106,487 2,208 2.07 103,918 3,402 3.27 97,664 3,220 3.30 Commercial real estate (5) 63,428 1,790 2.82 62,044 2,741 4.42 60,384 2,618 4.34 Commercial lease financing 18,496 559 3.02 20,691 718 3.47 21,557 698 3.24 Total commercial 532,506 14,269 2.68 508,120 20,022 3.94 483,992 18,473 3.82 Total loans and leases 982,467 34,201 3.48 958,416 43,294 4.52 933,049 41,023 4.40 Other earning assets 83,078 2,539 3.06 69,089 4,478 6.48 76,524 4,300 5.62 Total earning assets 2,317,899 52,084 2.25 2,040,263 71,831 3.52 1,980,231 67,379 3.40 Cash and due from banks 31,885 26,193 25,830 Other assets, less allowance for loan and lease losses 333,338 339,374 319,185 Total assets $ 2,683,122 $ 2,405,830 $ 2,325,246 Interest-bearing liabilities U.S. interest-bearing deposits Savings $ 58,113 $ 6 0.01 % $ 52,020 $ 5 0.01 % $ 54,226 $ 6 0.01 % Demand and money market deposit accounts 829,719 977 0.12 741,126 4,471 0.60 676,382 2,636 0.39 Consumer CDs and IRAs 47,780 405 0.85 47,577 471 0.99 39,823 157 0.39 Negotiable CDs, public funds and other deposits 64,857 323 0.50 66,866 1,407 2.11 50,593 991 1.96 Total U.S. interest-bearing deposits 1,000,469 1,711 0.17 907,589 6,354 0.70 821,024 3,790 0.46 Non-U.S. interest-bearing deposits Banks located in non-U.S. countries 1,476 4 0.27 1,936 20 1.04 2,312 39 1.69 Governments and official institutions 184 — 0.01 181 — 0.05 810 — 0.01 Time, savings and other 75,386 228 0.30 69,351 814 1.17 65,097 666 1.02 Total non-U.S. interest-bearing deposits 77,046 232 0.30 71,468 834 1.17 68,219 705 1.03 Total interest-bearing deposits 1,077,515 1,943 0.18 979,057 7,188 0.73 889,243 4,495 0.51 Federal funds purchased, securities loaned or sold under agreements to repurchase, short-term borrowings and other interest-bearing liabilities 293,466 987 0.34 276,432 7,208 2.61 269,748 5,839 2.17 Trading account liabilities 41,386 974 2.35 45,449 1,249 2.75 50,928 1,358 2.67 Long-term debt 220,440 4,321 1.96 201,623 6,700 3.32 200,399 6,915 3.45 Total interest-bearing liabilities 1,632,807 8,225 0.50 1,502,561 22,345 1.49 1,410,318 18,607 1.32 Noninterest-bearing sources Noninterest-bearing deposits 555,483 401,269 425,698 Other liabilities (6) 227,523 234,111 224,482 Shareholders’ equity 267,309 267,889 264,748 Total liabilities and shareholders’ equity $ 2,683,122 $ 2,405,830 $ 2,325,246 Net interest spread 1.75 % 2.03 % 2.08 % Impact of noninterest-bearing sources 0.15 0.40 0.37 Net interest income/yield on earning assets (7) $ 43,859 1.90 % $ 49,486 2.43 % $ 48,772 2.45 % (1) Includes the impact of interest rate risk management contracts. For more information, see Interest Rate Risk Management for the Banking Book on page 82. (2) Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis. (3) Includes non-U.S. consumer loans of $2.9 billion, $2.9 billion and $2.8 billion for 2020, 2019 and 2018, respectively. (4) Certain prior-period amounts for 2019 have been reclassified to conform to current-period presentation. (5) Includes U.S. commercial real estate loans of $59.8 billion, $57.3 billion and $56.4 billion, and non-U.S. commercial real estate loans of $3.6 billion, $4.7 billion and $4.0 billion for 2020, 2019 and 2018, respectively. (6) Includes $34.3 billion, $35.5 billion and $30.4 billion of structured notes and liabilities for 2020, 2019 and 2018, respectively. (7) Net interest income includes FTE adjustments of $499 million, $595 million and $610 million for 2020, 2019 and 2018, respectively. Bank of America 34


  • Page 37

    Table 9 Analysis of Changes in Net Interest Income - FTE Basis Due to Change in (1) Due to Change in (1) Volume Rate Net Change Volume Rate Net Change (Dollars in millions) From 2019 to 2020 From 2018 to 2019 Increase (decrease) in interest income Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks $ 1,849 $ (3,313) $ (1,464) $ (193) $ 90 $ (103) Time deposits placed and other short-term investments (13) (165) (178) — (9) (9) Federal funds sold and securities borrowed or purchased under agreements to resell 519 (4,459) (3,940) 347 1,320 1,667 Trading account assets 3 (1,087) (1,084) 563 (195) 368 Debt securities 2,188 (4,237) (2,049) 135 (55) 80 Loans and leases Residential mortgage 563 (876) (313) 447 (90) 357 Home equity (312) (592) (904) (446) 67 (379) Credit card (1,018) (389) (1,407) (17) 604 587 Direct/Indirect and other consumer (22) (694) (716) (76) 233 157 Total consumer (3,340) 722 U.S. commercial (2) 912 (4,361) (3,449) 665 559 1,224 Non-U.S. commercial (2) 80 (1,274) (1,194) 209 (27) 182 Commercial real estate 63 (1,014) (951) 75 48 123 Commercial lease financing (76) (83) (159) (28) 48 20 Total commercial (5,753) 1,549 Total loans and leases (9,093) 2,271 Other earning assets 905 (2,844) (1,939) (417) 595 178 Net increase (decrease) in interest income $ (19,747) $ 4,452 Increase (decrease) in interest expense U.S. interest-bearing deposits Savings $ 1 $ — $ 1 $ (1) $ — $ (1) Demand and money market deposit accounts 507 (4,001) (3,494) 254 1,581 1,835 Consumer CDs and IRAs 2 (68) (66) 29 285 314 Negotiable CDs, public funds and other deposits (39) (1,045) (1,084) 320 96 416 Total U.S. interest-bearing deposits (4,643) 2,564 Non-U.S. interest-bearing deposits Banks located in non-U.S. countries (5) (11) (16) (6) (13) (19) Time, savings and other 68 (654) (586) 41 107 148 Total non-U.S. interest-bearing deposits (602) 129 Total interest-bearing deposits (5,245) 2,693 Federal funds purchased, securities loaned or sold under agreements to repurchase, short-term borrowings and other interest-bearing liabilities 451 (6,672) (6,221) 160 1,209 1,369 Trading account liabilities (111) (164) (275) (145) 36 (109) Long-term debt 619 (2,998) (2,379) 41 (256) (215) Net increase (decrease) in interest expense (14,120) 3,738 (3) Net increase (decrease) in net interest income $ (5,627) $ 714 (1) The changes for each category of interest income and expense are divided between the portion of change attributable to the variance in volume and the portion of change attributable to the variance in rate for that category. The unallocated change in rate or volume variance is allocated between the rate and volume variances. (2) Certain prior-period amounts have been reclassified to conform to current-period presentation. (3) Includes changes in FTE basis adjustments of a $96 million decrease from 2019 to 2020 and a $15 million decrease from 2018 to 2019. 35 Bank of America


  • Page 38

    Business Segment Operations Segment Description and Basis of Presentation We report our results of operations through four business segments:Consumer Banking, GWIM, Global Banking and Global Markets, with the remaining operations recorded in All Other. We manage our segments and report their results on an FTE basis. The primary activities, products and businesses of the business segments and All Other are shown below. We periodically review capital allocated to our businesses and allocate capital For more information on our presentation of financial information on an FTE annually during the strategic and capital planning processes. We utilize a basis, see Supplemental Financial Data on page 31, and for reconciliations to methodology that considers the effect of regulatory capital requirements in addition consolidated total revenue, net income and period-end total assets, see Note 23 – to internal risk-based capital models. Our internal risk-based capital models use a Business Segment Information to the Consolidated Financial Statements. risk-adjusted methodology incorporating each segment’s credit, market, interest rate, business and operational risk components. For more information on the Key Performance Indicators nature of these risks, see Managing Risk on page 47. The capital allocated to the We present certain key financial and nonfinancial performance indicators that business segments is referred to as allocated capital. Allocated equity in the management uses when evaluating segment results. We believe they are useful to reporting units is comprised of allocated capital plus capital for the portion of investors because they provide additional information about our segments’ goodwill and intangibles specifically assigned to the reporting unit. For more operational performance, customer trends and business growth. information, including the definition of a reporting unit, see Note 7 – Goodwill and Intangible Assets to the Consolidated Financial Statements. Bank of America 36


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    Consumer Banking Deposits Consumer Lending Total Consumer Banking (Dollars in millions) 2020 2019 2020 2019 2020 2019 % Change Net interest income $ 13,739 $ 16,904 $ 10,959 $ 11,254 $ 24,698 $ 28,158 (12) % Noninterest income: Card income (20) (33) 4,693 5,117 4,673 5,084 (8) Service charges 3,416 4,216 1 2 3,417 4,218 (19) All other income 310 833 164 294 474 1,127 (58) Total noninterest income 3,706 5,016 4,858 5,413 8,564 10,429 (18) Total revenue, net of interest expense 17,445 21,920 15,817 16,667 33,262 38,587 (14) Provision for credit losses 379 269 5,386 3,503 5,765 3,772 53 Noninterest expense 11,508 10,718 7,370 6,928 18,878 17,646 7 Income before income taxes 5,558 10,933 3,061 6,236 8,619 17,169 (50) Income tax expense 1,362 2,679 750 1,528 2,112 4,207 (50) Net income $ 4,196 $ 8,254 $ 2,311 $ 4,708 $ 6,507 $ 12,962 (50) (1) Effective tax rate 24.5 % 24.5 % Net interest yield 1.69 % 2.40 % 3.53 % 3.80 % 2.88 3.81 Return on average allocated capital 35 69 9 19 17 35 Efficiency ratio 65.97 48.90 46.60 41.56 56.76 45.73 Balance Sheet Average Total loans and leases $ 5,144 $ 5,371 $ 310,436 $ 295,562 $ 315,580 $ 300,933 5 % Total earning assets (2) 813,779 703,481 310,862 296,051 858,724 738,807 16 Total assets (2) 849,924 735,298 314,599 306,169 898,606 780,742 15 Total deposits 816,968 702,972 6,698 5,368 823,666 708,340 16 Allocated capital 12,000 12,000 26,500 25,000 38,500 37,000 4 Year end Total loans and leases $ 4,673 $ 5,467 $ 295,261 $ 311,942 $ 299,934 $ 317,409 (6) % Total earning assets (2) 899,951 724,573 295,627 312,684 945,343 760,174 24 Total assets (2) 939,629 758,459 299,186 322,717 988,580 804,093 23 Total deposits 906,092 725,665 6,560 5,080 912,652 730,745 25 (1) Estimated at the segment level only. (2) In segments and businesses where the total of liabilities and equity exceeds assets, we allocate assets fromAll 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 primarily due to lower rates, partially offset by the benefit of higher deposit and loan a diversified range of credit, banking and investment products and services to balances. Noninterest income decreased $1.9 billion to $8.6 billion driven by a consumers and small businesses. Deposits and Consumer Lending include the net decline in service charges primarily due to higher deposit balances and lower card impact of migrating customers and their related deposit, brokerage asset and loan income due to decreased client activity, as well as lower other income due to the balances between Deposits, Consumer Lending and GWIM, as well as other client- allocation of asset and liability management (ALM) results. managed businesses. Our customers and clients have access to a coast to coast The provision for credit losses increased $2.0 billion to $5.8 billion primarily due network including financial centers in 38 states and the District of Columbia. Our to the weaker economic outlook related to COVID-19. Noninterest expense network includes approximately 4,300 financial centers, approximately 17,000 increased $1.2 billion to $18.9 billion primarily driven by incremental expense to ATMS, nationwide call centers and leading digital banking platforms with more support customers and employees during the pandemic, as well as the cost of than 39 million active users, including approximately 31 million active mobile users. increased client activity and continued investments for business growth, including the merchant services platform. Consumer Banking Results. The return on average allocated capital was 17 percent, down from 35 percent, Net income for Consumer Banking decreased $6.5 billion to $6.5 billion in 2020 driven by lower net income and, to a lesser extent, an increase in allocated capital. compared to 2019 primarily due to lower revenue, higher provision for credit losses For information on capital allocated to the business segments, see Business and higher expenses. Net interest income decreased $3.5 billion to $24.7 billion Segment Operations on page 36. 37 Bank of America


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    Deposits The following table provides key performance indicators for Deposits. Deposits includes the results of consumer deposit activities which consist of a Management uses these metrics, and we believe they are useful to investors comprehensive range of products provided to consumers and small businesses. because they provide additional information to evaluate our deposit profitability and Our deposit products include traditional savings accounts, money market savings digital/mobile trends. accounts, CDs and IRAs, and noninterest- and interest-bearing checking accounts, as well as investment accounts and products. Net interest income is allocated to Key Statistics – Deposits the deposit products using our funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. 2020 2019 (1) Deposits generates fees such as account service fees, non-sufficient funds fees, Total deposit spreads (excludes noninterest costs) 1.94% 2.34% overdraft charges and ATM fees, as well as investment and brokerage fees from Year End Merrill Edge accounts. Merrill Edge is an integrated investing and banking service (2) Consumer investment assets (in millions) $ 306,104 $ 240,132 targeted at customers with less than $250,000 in investable assets. Merrill Edge (3) Active digital banking users (units in thousands) 39,315 38,266 provides investment advice and guidance, client brokerage asset services, a self- Active mobile banking users (units in thousands) (4) 30,783 29,174 directed online investing platform and key banking capabilities including access to Financial centers 4,312 4,300 the Corporation’s network of financial centers and ATMs. ATMs 16,904 16,788 Net income for Deposits decreased $4.1 billion to $4.2 billion primarily driven by (1) Includes deposits held in Consumer Lending. lower revenue. Net interest income declined $3.2 billion to $13.7 billion primarily (2) Includes client brokerage assets, deposit sweep balances and AUM in Consumer Banking. due to lower interest rates, partially offset by the benefit of growth in deposits. (3) Active digital banking users represents mobile and/or online users at period end. (4) Active mobile banking users represents mobile users at period end. Noninterest income decreased $1.3 billion to $3.7 billion primarily driven by lower service charges due to higher deposit balances and lower client activity related to Consumer investment assets increased $66.0 billion in 2020 driven by market the impact of COVID-19, as well as lower other income due to the allocation of performance and client flows. Active mobile banking users increased approximately ALM results. two million reflecting continuing changes in our customers’ banking preferences. The provision for credit losses increased $110 million to $379 million in 2020 We had a net increase of 12 financial centers as we continued to optimize our due to the weaker economic outlook related to COVID-19. Noninterest expense consumer banking network. increased $790 million to $11.5 billion driven by continued investments in the business and incremental expense to support customers and employees during the Consumer Lending pandemic. Consumer Lending offers products to consumers and small businesses across the Average deposits increased $114.0 billion to $817.0 billion in 2020 driven by U.S. The products offered include credit and debit cards, residential mortgages and strong organic growth of $79.3 billion in checking and time deposits and $34.4 home equity loans, and direct and indirect loans such as automotive, recreational billion in traditional savings and money market savings. 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. Bank of America 38


  • Page 41

    Net income for Consumer Lending was $2.3 billion, a decrease of $2.4 billion, During 2020, the total risk-adjusted margin increased 88 bps compared to 2019 primarily due to higher provision for credit losses. Net interest income declined driven by a lower mix of customer balances at promotional rates, the lower interest $295 million to $11.0 billion primarily due to lower interest rates, partially offset by rate environment and lower net credit losses. Total credit card purchase volumes loan growth. Noninterest income decreased $555 million to $4.9 billion primarily declined $26.3 billion to $251.6 billion. The decline in credit card purchase volumes driven by lower card income due to lower client activity, as well as lower other was driven by the impact of COVID-19. While overall spending improved during the income due to the allocation of ALM results. second half of 2020, spending for travel and entertainment remained lower The provision for credit losses increased $1.9 billion to $5.4 billion primarily due compared to 2019. During 2020, debit card purchase volumes increased $23.8 to the weaker economic outlook related to COVID-19. Noninterest expense billion to $384.5 billion, despite COVID-19 impacts. Debit card purchase volumes increased $442 million to $7.4 billion primarily driven by investments in the improved in the second half of 2020 as businesses reopened and spending business and incremental expense to support customers and employees during the improved. pandemic. Average loans increased $14.9 billion to $310.4 billion primarily driven by an (1) Key Statistics – Residential Mortgage Loan Production increase in residential mortgages and PPP loans, partially offset by a decline in credit cards. (Dollars in millions) 2020 2019 The following table provides key performance indicators for Consumer Lending. Consumer Banking: Management uses these metrics, and we believe they are useful to investors First mortgage $ 43,197 $ 49,179 because they provide additional information about loan growth and profitability. Home equity 6,930 9,755 Total (2): First mortgage $ 69,086 $ 72,467 Key Statistics – Consumer Lending Home equity 8,160 11,131 (Dollars in millions) 2020 2019 (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. Total credit card (1) (2) In addition to loan production in Consumer Banking, there is also first mortgage and home equity loan production inGWIM. Gross interest yield (2) 10.27 % 10.76 % Risk-adjusted margin (3) 9.16 8.28 First mortgage loan originations in Consumer Banking and for the total New accounts (in thousands) 2,505 4,320 Corporation decreased $6.0 billion and $3.4 billion in 2020 primarily driven by a Purchase volumes $ 251,599 $ 277,852 decline in nonconforming applications. Debit card purchase volumes $ 384,503 $ 360,672 Home equity production in Consumer Banking and for the total Corporation (1) Includes GWIM's credit card portfolio. decreased $2.8 billion and $3.0 billion in 2020 primarily driven by a decline in (2) Calculated as the effective annual percentage rate divided by average loans. applications. (3) Calculated as the difference between total revenue, net of interest expense, and net credit losses divided by average loans. 39 Bank of America


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    Global Wealth & Investment Management (Dollars in millions) 2020 2019 % Change Net interest income $ 5,468 $ 6,504 (16) % Noninterest income: Investment and brokerage services 12,270 11,870 3 All other income 846 1,164 (27) Total noninterest income 13,116 13,034 1 Total revenue, net of interest expense 18,584 19,538 (5) Provision for credit losses 357 82 n/m Noninterest expense 14,154 13,825 2 Income before income taxes 4,073 5,631 (28) Income tax expense 998 1,380 (28) Net income $ 3,075 $ 4,251 (28) Effective tax rate 24.5 % 24.5 % Net interest yield 1.73 2.33 Return on average allocated capital 21 29 Efficiency ratio 76.16 70.76 Balance Sheet Average Total loans and leases $ 183,402 $ 168,910 9 % Total earning assets 316,008 279,681 13 Total assets 328,384 292,016 12 Total deposits 287,123 256,516 12 Allocated capital 15,000 14,500 3 Year end Total loans and leases $ 188,562 $ 176,600 7 % Total earning assets 356,873 287,201 24 Total assets 369,736 299,770 23 Total deposits 322,157 263,113 22 n/m = not meaningful GWIM consists of two primary businesses: Merrill Lynch Global Wealth Noninterest income, which primarily includes investment and brokerage services Management (MLGWM) and Bank of America Private Bank. income, increased $82 million to $13.1 billion primarily due to higher market MLGWM's advisory business provides a high-touch client experience through a valuations and positive AUM flows, largely offset by declines in AUM pricing as well network of financial advisors focused on clients with over $250,000 in total as lower other income due to the allocation of ALM results. investable assets. MLGWM provides tailored solutions to meet clients' needs The provision for credit losses increased $275 million to $357 million primarily through a full set of investment management, brokerage, banking and retirement due to the weaker economic outlook related to COVID-19. Noninterest expense products. increased $329 million to $14.2 billion primarily driven by higher investments in Bank of America Private Bank, together with MLGWM's Private Wealth primary sales professionals and revenue-related incentives. Management business, provides comprehensive wealth management solutions The return on average allocated capital was 21 percent, down from 29 percent, targeted to high net worth and ultra high net worth clients, as well as customized due to lower net income and, to a lesser extent, a small increase in allocated solutions to meet clients' wealth structuring, investment management, trust and capital. banking needs, including specialty asset management services. Average loans increased $14.5 billion to $183.4 billion primarily driven by Net income for GWIM decreased $1.2 billion to $3.1 billion primarily due to residential mortgage and custom lending. Average deposits increased $30.6 billion lower net interest income, higher noninterest expense and higher provision for to $287.1 billion primarily driven by inflows resulting from client responses to credit losses. market volatility and lower spending. Net interest income decreased $1.0 billion to $5.5 billion due to the impact of MLGWM revenue of $15.3 billion decreased five percent primarily driven by the lower interest rates, partially offset by the benefit of strong deposit and loan growth. impact of lower interest rates, partially offset by the benefits of higher market valuations and positive AUM flows. Bank of America Private Bank revenue of $3.3 billion decreased four percent primarily driven by the impact of lower interest rates. Bank of America 40


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    Key Indicators and Metrics (Dollars in millions, except as noted) 2020 2019 Revenue by Business Merrill Lynch Global Wealth Management $ 15,292 $ 16,112 Bank of America Private Bank 3,292 3,426 Total revenue, net of interest expense $ 18,584 $ 19,538 Client Balances by Business, at year end Merrill Lynch Global Wealth Management $ 2,808,340 $ 2,558,102 Bank of America Private Bank 541,464 489,690 Total client balances $ 3,349,804 $ 3,047,792 Client Balances by Type, at year end Assets under management $ 1,408,465 $ 1,275,555 Brokerage and other assets 1,479,614 1,372,733 Deposits 322,157 263,103 Loans and leases (1) 191,124 179,296 Less: Managed deposits in assets under management (51,556) (42,895) Total client balances $ 3,349,804 $ 3,047,792 Assets Under Management Rollforward Assets under management, beginning of year $ 1,275,555 $ 1,072,234 Net client flows 19,596 24,865 Market valuation/other 113,314 178,456 Total assets under management, end of year $ 1,408,465 $ 1,275,555 Associates, at year end Number of financial advisors 17,331 17,458 Total wealth advisors, including financial advisors 19,373 19,440 Total primary sales professionals, including financial advisors and wealth advisors 21,213 20,586 Merrill Lynch Global Wealth Management Metric Financial advisor productivity (2) (in thousands) $ 1,126 $ 1,082 Bank of America Private Bank Metric, at year end Primary sales professionals 1,759 1,766 (1) Includes margin receivables which are classified in customer and other receivables on the Consolidated Balance Sheet. (2) For a definition, see Key Metrics on page 173. Client Balances represent the net change in clients’ AUM balances over a specified period of time, Client balances managed under advisory and/or discretion of GWIM are AUM and excluding market appreciation/depreciation and other adjustments. are typically held in diversified portfolios. Fees earned on AUM are calculated as a Client balances increased $302.0 billion, or 10 percent, to $3.3 trillion at percentage of clients’ AUM balances. The asset management fees charged to December 31, 2020 compared to December 31, 2019. The increase in client clients per year depend on various factors, but are commonly driven by the breadth balances was primarily due to higher market valuations and positive client flows. of the client’s relationship. The net client AUM flows 41 Bank of America


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    Global Banking (Dollars in millions) 2020 2019 % Change Net interest income $ 9,013 $ 10,675 (16) % Noninterest income: Service charges 3,238 3,015 7 Investment banking fees 4,010 3,137 28 All other income 2,726 3,656 (25) Total noninterest income 9,974 9,808 2 Total revenue, net of interest expense 18,987 20,483 (7) Provision for credit losses 4,897 414 n/m Noninterest expense 9,337 9,011 4 Income before income taxes 4,753 11,058 (57) Income tax expense 1,283 2,985 (57) Net income $ 3,470 $ 8,073 (57) Effective tax rate 27.0 % 27.0 % Net interest yield 1.86 2.75 Return on average allocated capital 8 20 Efficiency ratio 49.17 43.99 Balance Sheet Average Total loans and leases $ 382,264 $ 374,304 2 % Total earning assets 485,688 388,152 25 Total assets 542,302 443,083 22 Total deposits 456,562 362,731 26 Allocated capital 42,500 41,000 4 Year end Total loans and leases $ 339,649 $ 379,268 (10) % Total earning assets 522,650 407,180 28 Total assets 580,561 464,032 25 Total deposits 493,748 383,180 29 n/m = not meaningful Global Banking, which includes Global Corporate Banking, Global Commercial billion to $9.0 billion primarily driven by lower interest rates, partially offset by Banking, Business Banking and Global Investment Banking, provides a wide range higher loan and deposit balances. of lending-related products and services, integrated working capital management Noninterest income of $10.0 billion increased $166 million driven by higher and treasury solutions, and underwriting and advisory services through our network investment banking fees, partially offset by lower valuation driven adjustments on of offices and client relationship teams. Our lending products and services include the fair value loan portfolio, debt securities and leveraged loans, as well as the commercial loans, leases, commitment facilities, trade finance, commercial real allocation of ALM results. estate lending and asset-based lending. Our treasury solutions business includes The provision for credit losses increased $4.5 billion to $4.9 billion primarily due treasury management, foreign exchange, short-term investing options and to the weaker economic outlook related to COVID-19. Noninterest expense merchant services. We also provide investment banking products to our clients increased $326 million primarily due to continued investments in the business, such as debt and equity underwriting and distribution, and merger-related and other partially offset by lower revenue-related incentives. advisory services. Underwriting debt and equity issuances, fixed-income and equity The return on average allocated capital was eight percent in 2020 compared to research, and certain market-based activities are executed through our global 20 percent in 2019 due to lower net income and, to a lesser extent, an increase in broker-dealer affiliates, which are our primary dealers in several countries. Within allocated capital. For information on capital allocated to the business segments, Global Banking, Global Corporate Banking clients generally include large global see Business Segment Operations on page 36. corporations, financial institutions and leasing clients. Global Commercial Banking clients generally include middle-market companies, commercial real estate firms Global Corporate, Global Commercial and Business Banking and not-for-profit companies. Business Banking clients include mid-sized U.S.- Global Corporate, Global Commercial and Business Banking each include based businesses requiring customized and integrated financial advice and Business Lending and Global Transaction Services activities. Business Lending solutions. includes various lending-related products and services, and related hedging Net income for Global Banking decreased $4.6 billion to $3.5 billion primarily activities, including commercial loans, leases, commitment facilities, trade finance, driven by higher provision for credit losses as well as lower revenue. real estate lending and asset-based lending. Global Transaction Services includes Revenue decreased $1.5 billion to $19.0 billion driven by lower net interest deposits, treasury management, credit card, foreign exchange and short-term income. Net interest income decreased $1.7 investment products. Bank of America 42


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    The table below and following discussion present a summary of the results, which exclude certain investment banking, merchant services and PPP activities inGlobal Banking. Global Corporate, Global Commercial and Business Banking Global Corporate Banking Global Commercial Banking Business Banking Total (Dollars in millions) 2020 2019 2020 2019 2020 2019 2020 2019 Revenue Business Lending $ 3,552 $ 3,994 $ 3,743 $ 4,132 $ 261 $ 363 $ 7,556 $ 8,489 Global Transaction Services 2,986 3,994 3,169 3,499 893 1,064 7,048 8,557 Total revenue, net of interest expense $ 6,538 $ 7,988 $ 6,912 $ 7,631 $ 1,154 $ 1,427 $ 14,604 $ 17,046 Balance Sheet Average Total loans and leases $ 179,393 $ 177,713 $ 182,212 $ 181,485 $ 14,410 $ 15,058 $ 376,015 $ 374,256 Total deposits 216,371 177,924 191,813 144,620 48,214 40,196 456,398 362,740 Year end Total loans and leases $ 153,126 $ 181,409 $ 164,641 $ 182,727 $ 13,242 $ 15,152 $ 331,009 $ 379,288 Total deposits 233,484 185,352 207,597 157,322 52,150 40,504 493,231 383,178 Business Lending revenue decreased $933 million in 2020 compared to 2019. consolidated investment banking fees, the following table presents total Corporation The decrease was primarily driven by lower interest rates. investment banking fees and the portion attributable to Global Banking. Global Transaction Services revenue decreased $1.5 billion in 2020 compared to 2019 driven by the allocation of ALM results, partially offset by the impact of higher deposit balances. Investment Banking Fees Average loans and leases were relatively flat in 2020 compared to 2019. Global Banking Total Corporation Average deposits increased 26 percent primarily due to client responses to market (Dollars in millions) 2020 2019 2020 2019 volatility, government stimulus and placement of credit draws. Products Advisory $ 1,458 $ 1,336 $ 1,621 $ 1,460 Global Investment Banking Debt issuance 1,555 1,348 3,443 3,107 Client teams and product specialists underwrite and distribute debt, equity and loan Equity issuance 997 453 2,328 1,259 products, and provide advisory services and tailored risk management solutions. Gross investment banking fees 4,010 3,137 7,392 5,826 The economics of certain investment banking and underwriting activities are shared Self-led deals (93) (62) (212) (184) primarily between Global Banking and Global Markets under an internal revenue- Total investment banking fees $ 3,917 $ 3,075 $ 7,180 $ 5,642 sharing arrangement. Global Banking originates certain deal-related transactions with our corporate and commercial clients that are executed and distributed by Total Corporation investment banking fees, excluding self-led deals, of $7.2 Global Markets. To provide a complete discussion of our billion, which are primarily included within Global Banking and Global Markets, increased 27 percent primarily driven by higher equity issuance fees. 43 Bank of America


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    Global Markets (Dollars in millions) 2020 2019 % Change Net interest income $ 4,646 $ 3,915 19 % Noninterest income: Investment and brokerage services 1,973 1,738 14 Investment banking fees 2,991 2,288 31 Market making and similar activities 8,471 7,065 20 All other income 685 608 13 Total noninterest income 14,120 11,699 21 Total revenue, net of interest expense 18,766 15,614 20 Provision for credit losses 251 (9) n/m Noninterest expense 11,422 10,728 6 Income before income taxes 7,093 4,895 45 Income tax expense 1,844 1,395 32 Net income $ 5,249 $ 3,500 50 Effective tax rate 26.0 % 28.5 % Return on average allocated capital 15 10 Efficiency ratio 60.86 68.71 Balance Sheet Average Trading-related assets: Trading account securities $ 243,519 $ 246,336 (1) % Reverse repurchases 104,697 116,883 (10) Securities borrowed 87,125 83,216 5 Derivative assets 47,655 43,273 10 Total trading-related assets 482,996 489,708 (1) Total loans and leases 73,062 71,334 2 Total earning assets 482,171 476,225 1 Total assets 685,047 679,300 1 Total deposits 47,400 31,380 51 Allocated capital 36,000 35,000 3 Year end Total trading-related assets $ 421,698 $ 452,499 (7) % Total loans and leases 78,415 72,993 7 Total earning assets 447,350 471,701 (5) Total assets 616,609 641,809 (4) Total deposits 53,925 34,676 56 n/m = not meaningful Global Markets offers sales and trading services and research services to executed and distributed by Global Markets. For information on investment banking institutional clients across fixed-income, credit, currency, commodity and equity fees on a consolidated basis, see page 43. businesses. Global Markets product coverage includes securities and derivative The following explanations for year-over-year changes forGlobal Markets, products in both the primary and secondary markets. Global Markets provides including those disclosed under Sales and Trading Revenue, are the same for market-making, financing, securities clearing, settlement and custody services amounts including and excluding net DVA. Amounts excluding net DVA are a non- globally to our institutional investor clients in support of their investing and trading GAAP financial measure. For more information on net DVA, see Supplemental activities. We also work with our commercial and corporate clients to provide risk Financial Data on page 31. management products using interest rate, equity, credit, currency and commodity Net income for Global Markets increased $1.7 billion to $5.2 billion. Net DVA derivatives, foreign exchange, fixed-income and mortgage-related products. As a losses were $133 million compared to losses of $222 million in 2019. Excluding net result of our market-making activities in these products, we may be required to DVA, net income increased $1.7 billion to $5.4 billion. These increases were manage risk in a broad range of financial products including government securities, primarily driven by higher revenue, partially offset by higher noninterest expense equity and equity-linked securities, high-grade and high-yield corporate debt and provision for credit losses. securities, syndicated loans, MBS, commodities and asset-backed securities. The Revenue increased $3.2 billion to $18.8 billion primarily driven by higher sales economics of certain investment banking and underwriting activities are shared and trading revenue and investment banking fees. Sales and trading revenue primarily between Global Markets and Global Banking under an internal revenue- increased $2.3 billion, and excluding net DVA, increased $2.2 billion. These sharing arrangement. Global Banking originates certain deal-related transactions increases were driven by higher revenue across FICC and Equities. with our corporate and commercial clients that are The provision for credit losses increased $260 million primarily due to the weaker economic outlook related to COVID-19. Noninterest expense increased $694 million to Bank of America 44


  • Page 47

    $11.4 billion driven by higher activity-based expenses for both card and trading. excluding net DVA, which is a non-GAAP financial measure. For more information Average total assets increased $5.7 billion to $685.0 billion driven by higher on net DVA, see Supplemental Financial Data on page 31. client balances in Global Equities. Year-end total assets decreased $25.2 billion to $616.6 billion driven by lower levels of inventory in FICC and increased hedging of client activity in Equities with derivative transactions relative to stock positions. The return on average allocated capital was 15 percent, up from 10 percent, Sales and Trading Revenue (1, 2, 3) reflecting higher net income, partially offset by an increase in allocated capital. (Dollars in millions) 2020 2019 Sales and Trading Revenue Sales and trading revenue Sales and trading revenue includes unrealized and realized gains and losses on Fixed income, currencies and commodities $ 9,595 $ 8,189 trading and other assets which are included in market making and similar activities, Equities 5,422 4,493 net interest income, and fees primarily from commissions on equity securities. Total sales and trading revenue $ 15,017 $ 12,682 Sales and trading revenue is segregated into fixed-income (government debt Sales and trading revenue, excluding net DVA (4) obligations, investment and non-investment grade corporate debt obligations, commercial MBS, residential mortgage-backed securities, collateralized loan Fixed income, currencies and commodities $ 9,725 $ 8,397 obligations, interest rate and credit derivative contracts), currencies (interest rate Equities 5,425 4,507 and foreign exchange contracts), commodities (primarily futures, forwards, swaps Total sales and trading revenue, excluding net DVA $ 15,150 $ 12,904 and options) and equities (equity-linked derivatives and cash equity activity). The (1) For more information on sales and trading revenue, seeNote 3 – Derivatives to the Consolidated Financial Statements. (2) Includes FTE adjustments of $196 million and $187 million for 2020 and 2019. following table and related discussion present sales and trading revenue, (3) Includes Global Banking sales and trading revenue of $478 million and $538 million for 2020 and 2019. substantially all of which is in Global Markets, with the remainder in Global (4) FICC and Equities sales and trading revenue, excluding net DVA, is a non-GAAP financial measure. FICC net DVA losses were $130 million and $208 million for 2020 and 2019. Equities net DVA losses were $3 million and $14 million for 2020 Banking. In addition, the following table and related discussion present sales and and 2019. trading revenue, FICC revenue increased $1.3 billion driven by increased client activity and improved market-making conditions across macro products. Equities revenue increased $918 million driven by increased client activity and a strong trading performance in a more volatile market environment. All Other (Dollars in millions) 2020 2019 % Change Net interest income $ 34 $ 234 (85) % Noninterest income (loss) (3,606) (2,617) 38 Total revenue, net of interest expense (3,572) (2,383) 50 Provision for credit losses 50 (669) (107) Noninterest expense 1,422 3,690 (61) Loss before income taxes (5,044) (5,404) (7) Income tax benefit (4,637) (4,048) 15 Net loss $ (407) $ (1,356) (70) Balance Sheet Average Total loans and leases $ 28,159 $ 42,935 (34) % Total assets (1) 228,783 210,689 9 Total deposits 18,247 21,359 (15) Year end Total loans and leases $ 21,301 $ 37,156 (43) % Total assets (1) 264,141 224,375 18 Total deposits 12,998 23,089 (44) (1) In segments where the total of liabilities and equity exceeds assets, which are generally deposit-taking segments, we allocate assets fromAll Other to those segments to match liabilities (i.e., deposits) and allocated shareholders’ equity. Average allocated assets were $763.1 billion and $544.3 billion for 2020 and 2019, and year-end allocated assets were $977.7 billion and $565.4 billion at December 31, 2020 and 2019. All Other consists of ALM activities, equity investments, non-core mortgage loans 23 – Business Segment Information to the Consolidated Financial Statements. and servicing activities, liquidating businesses and certain expenses not otherwise Residential mortgage loans that are held for ALM purposes, including interest allocated to a business segment. ALM activities encompass certain residential rate or liquidity risk management, are classified as core and are presented on the mortgages, debt securities, and interest rate and foreign currency risk management balance sheet of All Other. During 2020, residential mortgage loans held for ALM activities. Substantially all of the results of ALM activities are allocated to our activities decreased $12.7 billion to $9.0 billion due primarily to loan sales. Non- business segments. For more information on our ALM activities, see Note core residential mortgage and home equity loans, which are principally runoff portfolios, are also held in All 45 Bank of America


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    Other. During 2020, total non-core loans decreased $3.0 billion to $12.6 billion due commit to future purchases of products or services from unaffiliated parties. primarily to payoffs and paydowns, as well as Federal Housing Administration Purchase obligations are defined as obligations that are legally binding (FHA) loan conveyances and sales, partially offset by repurchases. For more agreements whereby we agree to purchase products or services with a specific information on the composition of the core and non-core portfolios, see Consumer minimum quantity at a fixed, minimum or variable price over a specified period of Portfolio Credit Risk Management on page 62. time. Included in purchase obligations are vendor contracts, the most significant of The net loss for All Other decreased $949 million to a net loss of $407 million, which include communication services, processing services and software contracts. primarily due to a $2.1 billion pretax impairment charge related to the notice of Debt, lease and other obligations are more fully discussed in Note 11 – Long-term termination of the merchant services joint venture in 2019, partially offset by lower Debt and Note 12 – Commitments and Contingencies to the Consolidated Financial revenue and higher provision for credit losses. Statements. Revenue decreased $1.2 billion primarily due to extinguishment losses on Other long-term liabilities include our contractual funding obligations related to certain structured liabilities, higher client-driven ESG investment activity, resulting the Non-U.S. Pension Plans and Nonqualified and Other Pension Plans (together, in higher partnership losses on these tax-advantaged investments, and lower net the Plans). Obligations to the Plans are based on the current and projected interest income, partially offset by a gain on sales of mortgage loans. obligations of the Plans, performance of the Plans’ assets, and any participant The provision for credit losses increased $719 million to $50 million from a contributions, if applicable. During 2020 and 2019, we contributed $115 million and provision benefit of $669 million in 2019, primarily due to recoveries from sales of $135 million to the Plans, and we expect to make $136 million of contributions previously charged-off non-core consumer real estate loans in 2019, as well as the during 2021. The Plans are more fully discussed in Note 17 – Employee Benefit weaker economic outlook related to COVID-19. Plans to the Consolidated Financial Statements. Noninterest expense decreased $2.3 billion to $1.4 billion primarily due to the We enter into commitments to extend credit such as loan commitments, standby $2.1 billion pretax impairment charge in 2019, partially offset by higher litigation letters of credit (SBLCs) and commercial letters of credit to meet the financing expense. needs of our customers. For a summary of the total unfunded, or off-balance sheet, The income tax benefit increased $589 million primarily driven by the impact of credit extension commitment amounts by expiration date, see Credit Extension the U.K. tax law change and a higher level of income tax credits related to our ESG Commitments in Note 12 – Commitments and Contingencies to the Consolidated investment activity, partially offset by the positive impact from the resolution of Financial Statements. various tax controversy matters in 2019. Both years included income tax benefit We also utilize variable interest entities (VIEs) in the ordinary course of business adjustments to eliminate the FTE treatment of certain tax credits recorded in Global to support our financing and investing needs as well as those of our customers. For Banking. more information on our involvement with unconsolidated VIEs, see Note 6 – Securitizations and Other Variable Interest Entities to the Consolidated Financial Off-Balance Sheet Arrangements and Contractual Statements. Obligations Table 10 includes certain contractual obligations at December 31, 2020 and We have contractual obligations to make future payments on debt and lease 2019. agreements. Additionally, in the normal course of business, we enter into contractual arrangements whereby we Table 10 Contractual Obligations December 31 December 31, 2020 2019 Due After Due After Three Years Due in One One Year Through Through Due After (Dollars in millions) Year or Less Three Years Five Years Five Years Total Total Long-term debt $ 20,352 $ 50,824 $ 48,568 $ 143,190 $ 262,934 $ 240,856 Operating lease obligations 1,927 3,169 2,395 4,609 12,100 11,794 Purchase obligations 551 700 80 103 1,434 3,530 Time deposits 50,661 3,206 426 1,563 55,856 74,673 Other long-term liabilities 1,656 1,092 953 781 4,482 4,099 (1) Estimated interest expense on long-term debt and time deposits 4,542 8,123 6,958 30,924 50,547 44,385 Total contractual obligations $ 79,689 $ 67,114 $ 59,380 $ 181,170 $ 387,353 $ 379,337 (1) Represents forecasted net interest expense on long-term debt and time deposits based on interest rates at December 31, 2020 and 2019. Forecasts are based on the contractual maturity dates of each liability, and are net of derivative hedges, where applicable. Representations and Warranties Obligations For information on representations and warranties obligations in connection with the sale of mortgage loans, seeNote 12 – Commitments and Contingencies to the Consolidated Financial Statements. Bank of America 46


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    Managing Risk Executive management assesses, with Board oversight, the risk-adjusted Risk is inherent in all our business activities. Sound risk management enables us to returns of each business. Management reviews and approves the strategic and serve our customers and deliver for our shareholders. If not managed well, risks financial operating plans, as well as the capital plan and Risk Appetite Statement, can result in financial loss, regulatory sanctions and penalties, and damage to our and recommends them annually to the Board for approval. Our strategic plan takes reputation, each of which may adversely impact our ability to execute our business into consideration return objectives and financial resources, which must align with strategies. We take a comprehensive approach to risk management with a defined risk capacity and risk appetite. Management sets financial objectives for each Risk Framework and an articulated Risk Appetite Statement, which are approved business by allocating capital and setting a target for return on capital for each annually by the ERC and the Board. business. Capital allocations and operating limits are regularly evaluated as part of The seven key types of risk faced by the Corporation are strategic, credit, our overall governance processes as the businesses and the economic market, liquidity, compliance, operational and reputational. environment in which we operate continue to evolve. For more information regarding capital allocations, see Business Segment Operations on page 36. ● Strategic risk is the risk to current or projected financial condition arising from The Corporation’s risk appetite indicates the amount of capital, earnings or incorrect assumptions about external or internal factors, inappropriate business liquidity we are willing to put at risk to achieve our strategic objectives and plans, ineffective business strategy execution, or failure to respond in a timely business plans, consistent with applicable regulatory requirements. Our risk manner to changes in the regulatory, macroeconomic or competitive appetite provides a common and comparable set of measures for senior environments in the geographic locations in which we operate. management and the Board to clearly indicate our aggregate level of risk and to ● Credit risk is the risk of loss arising from the inability or failure of a borrower or monitor whether the Corporation’s risk profile remains in alignment with our counterparty to meet its obligations. strategic and capital plans. Our risk appetite is formally articulated in the Risk ● Market risk is the risk that changes in market conditions may adversely impact Appetite Statement, which includes both qualitative components and quantitative the value of assets or liabilities, or otherwise negatively impact earnings. Market limits. risk is composed of price risk and interest rate risk. Our overall capacity to take risk is limited; therefore, we prioritize the risks we ● Liquidity risk is the inability to meet expected or unexpected cash flow and take in order to maintain a strong and flexible financial position so we can collateral needs while continuing to support our businesses and customers under withstand challenging economic conditions and take advantage of organic growth a range of economic conditions. opportunities. Therefore, we set objectives and targets for capital and liquidity that ● Compliance risk is the risk of legal or regulatory sanctions, material financial loss are intended to permit us to continue to operate in a safe and sound manner, or damage to the reputation of the Corporation arising from the failure of the including during periods of stress. Corporation to comply with the requirements of applicable laws, rules and Our lines of business operate with risk limits (which may include credit, market regulations and our internal policies and procedures. and/or operational limits, as applicable) that align with the Corporation’s risk ● Operational risk is the risk of loss resulting from inadequate or failed processes, appetite. Executive management is responsible for tracking and reporting people and systems, or from external events. performance measurements as well as any exceptions to guidelines or limits. The ● Reputational risk is the risk that negative perceptions of the Corporation’s Board, and its committees when appropriate, oversee financial performance, conduct or business practices may adversely impact its profitability or execution of the strategic and financial operating plans, adherence to risk appetite operations. limits and the adequacy of internal controls. For a more detailed discussion of our risk management activities, see the The following sections address in more detail the specific procedures, discussion below and pages 50 through 85. measures and analyses of the major categories of risk. This discussion of For more information about the Corporation's risks related to the pandemic, see managing risk focuses on the current Risk Framework that, as part of its annual Part I. Item 1A. Risk Factors on page 7. These COVID-19 related risks are being review process, was approved by the ERC and the Board. managed within our Risk Framework and supporting risk management programs. As set forth in our Risk Framework, a culture of managing risk well is fundamental to fulfilling our purpose and our values and delivering responsible Risk Management Governance growth. It requires us to focus on risk in all activities and encourages the necessary The Risk Framework describes delegations of authority whereby the Board and its mindset and behavior to enable effective risk management, and promotes sound committees may delegate authority to management-level committees or executive risk-taking within our risk appetite. Sustaining a culture of managing risk well officers. Such delegations may authorize certain decision-making and approval throughout the organization is critical to our success and is a clear expectation of functions, which may be evidenced in, for example, committee charters, job our executive management team and the Board. descriptions, meeting minutes and resolutions. Our Risk Framework serves as the foundation for the consistent and effective The chart below illustrates the inter-relationship among the Board, Board management of risks facing the Corporation. The Risk Framework sets forth clear committees and management committees that have the majority of risk oversight roles, responsibilities and accountability for the management of risk and provides a responsibilities for the Corporation. blueprint for how the Board, through delegation of authority to committees and executive officers, establishes risk appetite and associated limits for our activities. 47 Bank of America


  • Page 50

    The chart below illustrates the inter-relationship among the Board, Board committees and management committees that have the majority of risk oversight responsibilities for the Corporation. Board of Directors and Board Committees ERC may consult with other Board committees on risk-related matters. The Board is composed of 17 directors, all but one of whom are independent. The Other Board Committees Board authorizes management to maintain an effective Risk Framework, and Our Corporate Governance, ESG, and Sustainability Committee oversees our oversees compliance with safe and sound banking practices. In addition, the Board Board’s governance processes, identifies and reviews the qualifications of potential or its committees conduct inquiries of, and receive reports from management on Board members, recommends nominees for election to our Board, recommends risk-related matters to assess scope or resource limitations that could impede the committee appointments for Board approval and reviews our Environmental, Social ability of Independent Risk Management (IRM) and/or Corporate Audit to execute and Governance and stockholder engagement activities. its responsibilities. The Board committees discussed below have the principal Our Compensation and Human Capital Committee oversees establishing, responsibility for enterprise-wide oversight of our risk management activities. maintaining and administering our compensation programs and employee benefit Through these activities, the Board and applicable committees are provided with plans, including approving and recommending our Chief Executive Officer’s (CEO) information on our risk profile and oversee executive management addressing key compensation to our Board for further approval by all independent directors; risks we face. Other Board committees, as described below, provide additional reviewing and approving all of our executive officers’ compensation, as well as oversight of specific risks. compensation for non-management directors; and reviewing certain other human Each of the committees shown on the above chart regularly reports to the Board capital management topics. on risk-related matters within the committee’s responsibilities, which is intended to collectively provide the Board with integrated insight about our management of Management Committees enterprise-wide risks. Management committees may receive their authority from the Board, a Board committee, another management committee or from one or more executive Audit Committee officers. Our primary management level risk committee is the Management Risk The Audit Committee oversees the qualifications, performance and independence Committee (MRC). Subject to Board oversight, the MRC is responsible for of the Independent Registered Public Accounting Firm, the performance of our management oversight of key risks facing the Corporation. This includes providing corporate audit function, the integrity of our consolidated financial statements, our management oversight of our compliance and operational risk programs, balance compliance with legal and regulatory requirements, and makes inquiries of sheet and capital management, funding activities and other liquidity activities, management or the Chief Audit Executive (CAE) to determine whether there are stress testing, trading activities, recovery and resolution planning, model risk, scope or resource limitations that impede the ability of Corporate Audit to execute subsidiary governance and activities between member banks and their nonbank its responsibilities. The Audit Committee is also responsible for overseeing affiliates pursuant to Federal Reserve rules and regulations, among other things. compliance risk pursuant to the New York Stock Exchange listing standards. Lines of Defense Enterprise Risk Committee We have clear ownership and accountability across three lines of defense: Front The ERC has primary responsibility for oversight of the Risk Framework and key Line Units (FLUs), IRM and Corporate Audit. We also have control functions risks we face and of the Corporation’s overall risk appetite. It approves the Risk outside of FLUs and IRM (e.g., Legal and Global Human Resources). The three Framework and the Risk Appetite Statement and further recommends these lines of defense are integrated into our management-level governance structure. documents to the Board for approval. The ERC oversees senior management’s Each of these functional roles is further described in this section. responsibilities for the identification, measurement, monitoring and control of key risks we face. The Bank of America 48

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