Bank of America
Goldman Sachs U.S. Financial Services Conference
Brian Moynihan, Chairman and CEO
December 06, 2016
At Bank of America,
we live our values, deliver our purpose and
drive responsible growth through our eight lines of business
Our values
Our purpose
Responsible growth
Eight lines of business
• Deliver together
To help make financial lives
• We must grow and win in the
Serving the core financial needs of
• Act responsibly
better, through the power of
• Realize the power of our
people
• Trust the team
every connection
market – no excuses
people, companies and
• We must grow with our
customer-focused strategy
institutional investors through eight
lines of business
• We must grow within our risk
framework
• We must grow in a sustainable
manner
We’re better when we’re connected®
2
We must grow and win in the market – no excuses
3
Transformed and Simplified the Company
Reorganized to Focus on Customers’ Core Needs
$74B
Fees
• Sold/divested $74B in non-core assets 1 including:
– Equity interests in other financial institutions
– Non-core credit card portfolios
– Ancillary mortgage businesses
– International wealth management
– Correspondent / wholesale lending
– Proprietary trading
• Eliminated add-on products and reduced punitive fees
• Prioritized resources within Global Banking and Global
Markets towards developing long-term relationships
with our key clients
Simplified Consumer Product Set
Checking Credit Card
Home
Loans
Business
Loans
Auto
Loans
22
products
18
products
44
products
136
products
9
products
10
products
3
6
11
39
5
3
Significantly Improved Cost Structure ($B) 2
Less Complex
Number of legal entities
$77.1
5.6
71.5
2011
Savings
3Q16
2011
$72.1
4.2
$69.2
6.1
$75.7
16.4
$57.7
$55.8
1.2
1.3
67.9
63.1
59.3
56.5
54.5
2012
2013
2014
2015
LTM 3
Noninterest expense excluding litigation
Litigation expense
____________________
1 Since 2010.
2 Noninterest expense excludes goodwill impairment of $3.2B in 2011, which represents a non-GAAP financial measure. Reported noninterest expense in 2011 was $80.3B.
3 LTM defined as last twelve months as of September 30, 2016.
4
Strengthened Balance Sheet
Strengthened Capital
Built Strong Liquidity
Enhanced Funding Structure
TCE Ratio and Tangible Book Value per Share 1, 2
GLS ($B) 3 and TTF (months)
Deposits and Long-term Debt ($B) 1
9%
8.2%
$20
$17.14
$15
$600
$522
$500
6%
5.0%
$10
$11.31
$5
0%
$0
4Q09
38
$214
$200
3%
3Q16
Tangible common equity (TCE) ratio
Tangible book value per share
Improved Portfolio Mix
Loans and Leases ($B)
1
$100
$1,233
$992
40
$400
$300
50
30
$523
$225
20
25
$0
10
4Q09
3Q16
4Q09
Global Liquidity Sources (GLS)
Time to Required Funding (TTF)
Reduced Illiquid Assets
Level 3 Assets ($B)
Deposits
$905
$104
33%
Long-term debt
Lowered Average Trading-related
Assets ($B) and Average VaR ($MM) 4
$600
$1,003
3Q16
$400
$300
$494
$256
$415
$200
50%
$200
67%
$100
$16
50%
$40
$0
4Q09
Consumer
3Q16
Commercial
4Q09
3Q16
4Q09
$0
3Q16
Avg. trading-related assets
Avg. VaR
____________________
1 4Q09 reflects 12/31/09 information adjusted to include the 1/1/10 adoption of FAS 166/167 as reported in the company’s SEC filings, which represents a non-GAAP financial measure.
2 Represents a non-GAAP financial measure. Common equity ratio was 8.7% and 11.2% at 4Q09 and 3Q16. Book value per share was $21.48 and $24.19 at 4Q09 and 3Q16.
3 Prior to the third quarter of 2016, GLS were referred to as “Global Excess Liquidity Sources.”
4 VaR model uses historical simulation approach based on three years of historical data and an expected shortfall methodology equivalent to a 99% confidence level.
5
Growing Loans as Legacy Run-off Reduced
Average Total Loans & Leases ($B)
$914
$907
$894
$880
1Q14
2Q14
3Q14
4Q14
$867
1Q15
$876
$877
2Q15
3Q15
$886
$893
$900
$901
4Q15
1Q16
2Q16
3Q16
$135
10
24
$126
10
22
$118
10
21
$112
10
20
$105
9
19
117
101
93
87
82
77
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
Average Loans & Leases in All Other ($B)
$212
$205
12
31
12
30
163
1Q14
158
2Q14
$194
12
28
149
3Q14
Residential mortgage
$179
11
27
137
4Q14
$165
10
26
127
1Q15
Home equity
$153
10
25
Non-U.S. credit card
Other
____________________
Note: Amounts may not total due to rounding.
6
We must grow with our customer-focused strategy
7
Integrated Business Model with Full Suite of Products and Services
Consumer Banking
Optimize
Efficiency
Retail
Global Wealth &
Investment Management
Global
Markets
Global Banking
Drive growth through additions of advisors and other client-facing professionals, growth in target
clients, depth of relationships, and expanded market coverage
Preferred &
Small
Business
• 47MM Consumer and Small
Business relationships
• 31MM Retail customers
– <$50K household income
• 11MM Preferred customers
– >$75K HHI / >$100K in assets
• 3MM Small Business customers
• 21.3MM mobile customers
• 33.7MM active online users
Merrill Lynch
U.S. Trust
• Nearly 1MM high net worth
households
– >$250K in assets (ML)
– >$3MM in assets (UST)
• Nearly $2.5T client assets
– $145B loans and leases
– $253B deposits
• ~21K client-facing professionals,
including 17K financial advisors 1
Business
Banking
Commercial
Banking
• ~39K clients
• $5MM–
$50MM in
revenue
• Primary focus
on small and
mid-sized U.S.
domiciled
clients
• ~20K clients
• $50MM–$2B
in revenue
• Primary
focus on U.S.
domiciled
middle
market
clients and
int’l subs.
Global
Corporate &
Investment
Banking
• ~5K clients
• >$2B in
revenue
• Largest
global
corporates,
FI’s, gov’t.
Capture
Market Share
Potential
Global
Markets
• ~9K clients
• 29 countries
with sales &
trading
locations
• Nearly 700
research
analysts
____________________
1 Includes Financial Advisors in the Consumer Banking segment of 2,179.
8
Industry-Leading Positions Across our Businesses
People
• No. 1 retail deposit share 1
Companies
•
Top 3 Global Investment Bank by
Fees 6
•
Best Bank for Cash Management
(Global), Transaction Banking
Awards (The Banker ‘16)
• No. 1 home equity lender 2
• No. 3 U.S. credit card balances 3
• No.1 online banking functionality 4
• No. 1 mobile banking functionality 5
•
• No. 1 wealth management
position across assets,
loans and deposits 3
Best Bank in North America for
Small to Medium Sized
Companies (Euromoney, ’16)
•
World’s Best Bank for Financing
and Diversity (Euromoney ‘16)
• No. 1 in Barron’s U.S. High net
worth client assets (2016)
•
Relationships with 80% of the
Global Fortune 500 and 96% of
the U.S. Fortune 1,000 (2016)
____________________
1 Source: June 2016 FDIC data, adjusted to remove commercial deposit balances.
2 Source: Inside Mortgage Finance 1H16.
3 Source: Competitor 3Q16 earnings releases and call reports.
4 Source: Keynote, 2Q16 Online Banker Scorecard.
Institutions
• Primary dealer in 19 countries
with access to 100+ exchanges,
trading more than 200 currency
pairs
• No. 1 Global Research firm – 5
straight years 7
• Nearly 700 analysts covering
3,100+ companies, 1,100+
corporate bond issuers across 56
economies and 28 industries
• 2016 U.S. Fixed Income Quality
Leader in Credit and Emerging
Markets 8
• No. 1 U.S. Investors Equity Trading
Share Leader 8
5
Source: Forrester, 2016 U.S. Mobile Banking Functionality Benchmark.
Rankings per Dealogic as of November 30, 2016 YTD; excludes self-led deals.
7 Source: Institutional Investor (2011-2015).
8 Source: Greenwich Associates 2016.
6
9
Solid Growth in Business Segments
Average Loans & Leases in Business Segments ($B) 1
Average Total Deposits ($B)
YoY
$742
66
$760
$775
69
69
319
309
137
134
329
139
$788
70
$795
69
+7%
+4%
$1,186
$1,198
$1,213
$1,227
+6%
63
63
63
61
-2%
308
297
299
306
296
251
260
255
254
+4%
244
556
564
578
596
606
+9%
3Q15
4Q15
1Q16
2Q16
3Q16
$1,159
63
334
141
334
143
233
235
238
243
249
3Q15
4Q15
1Q16
2Q16
3Q16
Consumer Banking
Global Banking
YoY
GWIM
Global Markets
+8%
+3%
+7%
+7%
Consumer Banking
Global Banking
GWIM
Other (GM and All Other)
____________________
Note: Amounts may not total due to rounding.
1 Includes loans and leases within Consumer Banking, Global Wealth & Investment Management, Global Banking and Global Markets.
10
Relationship Deepening – Consumer Example
Average Consumer Banking Deposits ($B)
$800
Preferred Rewards (Launched June 2014)
3%
2.61%
$600
$421
$415
$447
$520
$489
$606
$553
1.59%
2%
$400
1%
$200
Preferred Rewards is a hassle-free program that offers real banking
benefits and rewards clients actually use - and as their balances grow,
so do their benefits
Eligibility Requirements:
• 3 months average balances
(banking + investment)
• Eligible personal checking account
PLATINUM
$20k - $50k
$50k - $100k
25%
50%
75%
5%
Interest rate
booster
10%
Interest rate
booster
20%
Interest rate
booster
No-fee transactions at non-BofA
ATMs (U.S.)
None
Up to 12 per
year
One per
statement cycle
Unlimited
Merrill Edge® online investing –
$0 online equity and ETF trades
None
Up to 30 per
month
Up to 100 per
month
Mortgage purchase or refinance
relationship credit
$200
$400
$600
Home Equity Loan / Line of Credit
interest rate discount
0.125%
0.250%
0.375%
Auto Loan interest rate discount
0.25%
0.35%
0.50%
Bank of America credit card rewards
bonus
$0
0%
2010
2011
2012
2013
2014
Average Deposits
2015
3Q16
Cost of Deposits
`12 - `16
Change
+9
+5
+1
76
75
74
Rewards Money Market Savings
rate booster
1
1
Client Satisfaction at All-Time High (ASCI Satisfaction Index)
75
71
66
PLATINUM
HONORS
GOLD
$100k+
Up to 4 checking and 4 savings
accounts with no monthly fee
BAC
WFC
2012
JPM
2016
No fees on select banking services –
Check orders, inbound wires, etc.
Priority client service
____________________
1 Cost of deposits calculated as annualized noninterest expense as a percentage of total average deposits within the Deposits subsegment.
11
We must grow within our risk framework
12
Risk Framework Overview
Seven Key Risks
Compliance
Liquidity
Operational
Credit
Strategic
Market
Reputational
Risk culture of personal integrity and
accountability where risks are promptly
identified, escalated and debated
13
Asset Quality – Consumer Portfolio
Consumer Net Charge-Offs ($B)
U.S. Consumer Credit Card Net Charge-Offs ($B)
$13.0
11.04%
$29.4
$7.3
6.90%
$4.6
$3.4
4.88%
3.74%
4.51%
$18.5
2010
2011
2012
2013
Net charge-offs
$13.6
$2.6
$2.3
$1.7
2.96%
2.62%
2.60%
2014
2015
2016 YTD 1
Net charge-off ratio
2.94%
Average Booked FICO on New Originations
2.36%
$7.2
1.34%
800
$4.1
$3.9
0.80%
0.84%
794
793
$2.5
0.76%
782
774
775
771
2010
2011
2012
2013
2014
2015
771
2016 YTD 1
766
761
Net charge-offs
Net charge-off ratio
750
3Q15
4Q15
U.S. Consumer Credit Card
Residential Mortgage
1Q16
2Q16
3Q16
Consumer Vehicle Lending
Home Equity
____________________
1 As of 9/30/16.
14
Asset Quality – Commercial Portfolio
Commercial Net Charge-Offs ($B)
Commercial Nonperforming Loans and Leases ($B)
$9.8
$5.0
$6.3
Increase driven
primarily by Energy and
Metals and Mining
$3.2
1.64%
2010
2011
2012
$1.3
$1.1
$1.2
2013
2014
2015
$2.0
3Q16
$2.3
Commercial Portfolio Mix (%) 2
0.77%
$1.3
0.43%
100%
$0.7
$0.3
0.18%
2010
2011
2012
2013
15%
24%
29%
85%
76%
71%
JPM
WFC
80%
0.08%
2014
$0.4
$0.4
60%
0.10%
0.12%
40%
2015
2016 YTD
1
20%
0%
Net charge-offs
Net charge-off ratio
BAC
C&I and other
Real estate & construction
____________________
1 As of 9/30/16.
2 Based on FRY-9C data.
15
Asset Quality – Reduced Risk Under Severely Adverse Conditions
BAC Credit Losses Under FRB Stress Test ($B) 1
Stressed Portfolio Loss Rates
BAC Worst
9-Qtr Losses
Portfolio
Total Consumer
2016 CCAR FRB Results 1
4Q08-4Q10
Actual Losses
BAC
9-Qtr Losses
Annualized
Loss Rate
10.7%
6.8%
3.0%
$104
150%
Down $50B or 48%
$54
Credit Card
23.4%
11.5%
5.1%
Total Commercial
4.6%
4.5%
2.0%
Total Loans and Leases
8.7%
5.6%
2.5%
33%
SCAP 2009
Stress Credit Losses
CCAR 2016
% of Tangible Common Equity
2
____________________
1 CCAR defined as Comprehensive Capital Analysis and Review. SCAP defined as Supervisory Capital Assessment Program.
2 Calculated as stressed credit losses as a percentage of tangible common equity as of 3/31/09 for SCAP 2009 and 12/31/15 for CCAR 2016. Tangible common equity was $69.6B and $162.1B as of 3/31/09
and 12/31/2015 and common equity was $166.3B and $233.9B as of 3/31/09 and 12/31/2015.
16
Market Risk Optimization
2016 YTD Sales & Trading Revenue
per $ of Average VaR ($MM) 2
BAC Trading Portfolio VaR ($MM) 1
$350
$300
$500
Reduction of ~85% from
historical peak to
September 2016
2016 DFAST Trading and Counterparty
Losses as a % of CET1 3
30%
$460
26.2%
25%
$400
23.4%
$358
$250
18.8%
20%
$200
$300
$244
$150
$200
15%
13.0%
11.4%
$173
10%
$100
$100
5%
$50
$0
2011 2012 2013 2014 2015 2016
0%
$0
BAC
JPM
MS
GS
GS
MS
JPM
BAC
C
____________________
1 VaR model uses historical simulation approach based on three years of historical data and an expected shortfall methodology equivalent to a 99% confidence level.
2 Represents YTD reported sales and trading revenue as of 9/30/16 divided by average VaR of the trading portfolio using a 95% confidence level. C not shown as only discloses average VaR using a 99%
confidence level. Using a 99% confidence level BAC’s 2016 YTD sales & trading revenue per $ of average VaR was $248MM compared to C’s $175MM.
3 CET1 defined as Common Equity Tier 1 capital. Represents the trading and counterparty losses from the severely adverse scenario of the 2016 Dodd-Frank Act Stress Test results, published on 6/23/16,
divided by CET1 on a fully phased-in basis as of 12/31/15 as disclosed in SEC filings.
17
We must grow in a sustainable manner
18
Recent Results Reflect Reduced Volatility
2010-2014 Diluted EPS 1, 2
2015-2016 Diluted EPS
$0.56
$0.28
$0.32
$0.27
$0.41
$0.27 $0.28
$0.29
$0.28
$0.19
$0.17
$0.41
$0.38
$0.38
$0.27
$0.20
$0.10
$0.15
$0.20
$0.03
$0.03
$0.00
($0.03)
($0.16)
($0.04)
($0.77)
($0.90)
Q1
Q2
Q3
2010
Q4
Q1
Q2
Q3
Q4
2011
$83B
$28B
Net
Charge-offs
____________________
Rep & Warranty
Q1
Q2
Q3
Q4
2012
Q1
Q2
Q3
Q4
Q1
2013
$36B
Q2
Q3
2014
Q4
Q1
Q2
Q3
2015
Q4
Q1
Q2
Q3
2016
$44B
Litigation Expense Legacy Mortgage Servicing
1
Periods shown after 4Q14 reflect the change in accounting method for the amortization of premium and accretion of discount related to certain debt securities carried at fair value and held-to-maturity.
For additional information regarding this change in accounting, please see the 8-K filed on 10/4/16.
2 Litigation expense includes the $1.1B provision for the Independent Foreclosure review acceleration agreement in 2012. Legacy mortgage servicing expenses excludes litigation expense.
19
Solid Progress Towards Long-term Financial Targets
BAC Long-Term Financial Targets
1% ROA
12% ROTCE
3Q16 Results
•
ROA of 0.9%
•
ROTCE of 10.3% (above cost of capital)
Common Dividends and Share Repurchases ($B)
$5.6
$6
$4.5
$3.6
$4
•
Efficiency ratio of 62%
•
Distributed $5.6B in capital through common stock
repurchases and dividends 2016 YTD 1 vs. $3.1B 2015
YTD
Increase capital return
to shareholders
~60% Efficiency ratio
$2.9
3.2
$2
$0
$0.4
0.4
$0.4
0.4
$0.4
0.4
0.4
2010
2011
2012
2013
Dividends
2.4
3.8
1.7
1.3
2014
2.1
1.8
2015
2016 YTD
Gross repurchases
____________________
Note: Amounts may not total due to rounding.
1 As of 9/30/2016.
20
Investing in the Franchise
Consumer
• Investing in new digital capabilities
‒ Real-time P2P payments
‒ Free FICO scores
‒ Launched Spanish mobile app
‒ Introduced artificial intelligence
•
functionality (“Erica”)
6,000 cardless-enabled ATMs (launched in
1Q16)
• Deployed 3,500+ digital ambassadors in
financial centers
Banking and Markets
Wealth Management
• Multi-year investment in Merrill Lynch
One (fee-based advisory platform)
• Launching Merrill Edge Guided Investing –
online investing + professional portfolio
management
• Investment in Practice Management &
Development (PMD) program (new
advisor training)
• Increased wealth advisors by nearly 700
since 2014
• Enhanced IVR capabilities to improve client
experience
• Targeted banking center entry (e.g.
• Invested $1.1B in GTS over last 4 years to
enhance functionality and strengthen our
core treasury business
• Improved local coverage in Global
Commercial Banking and Business Banking
‒
Increased percentage of clients served
by a local market coverage officer from
59% to 90%
• Established a centralized Wholesale Credit
function to drive efficiencies
• Migrating to new trading platform with
enhanced functionality
• Electronic trading enhancements
Denver, Minneapolis)

Continued franchise investment included in firm-wide 2018 expense target of $53B
― Focused on expense discipline including technology/digital efficiencies as well as lower mortgage servicing costs



Have invested ~$3B annually on technology initiatives
Made significant investments in cybersecurity, compliance and regulatory functions while replacing many enterprise platforms
Added >1,000 primary sales associates year-over-year across Consumer Banking, GWIM, and Global Banking
21
Strong Focus on ESG Aids Sustainability
Environmental
Social
Governance
• $125B environmental business initiative to accelerate the transition to a lowcarbon economy
• No. 1 underwriter of green bonds
• Commitment for our own operations to be Carbon Neutral by 2020 and use
100% renewable electricity
•
•
•
•
•
•
52% of global workforce is female
44% of U.S.-based workforce is from a racially or ethnically diverse background
Driving competitive pay practices across all levels of associates
Expanded parental leave to 16 weeks
Offer transparent, responsible products and services
Invested more than $185MM in philanthropy in local communities in 2016
• Strengthened ESG Committee
• Introduced an Environmental and Social Risk Policy Framework that outlines
our business practices in key areas of ESG interest
22
Summary
• Our company today is stronger, simpler and better prepared
• We are driving responsible growth
• Recent quarterly results more representative of power of franchise
• We are benefitting from strong client activity and strong risk management
• Focused on controllable elements of balance growth and expense management
• Our businesses are operating well with returns above the cost of capital
23
Forward-Looking Statements
Bank of America and its management may make certain statements that constitute “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking
statements often use words such as “anticipates,” “targets,” “expects,” “hopes,” “estimates,” “intends,” “plans,” “goals,” “believes,” “continue” and other similar
expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and “could.” Forward-looking statements represent Bank of America's
current expectations, plans or forecasts of its future results, revenues, expenses, efficiency ratio, capital measures, and future business and economic conditions
more generally, and other future matters. These statements are not guarantees of future results or performance and involve certain known and unknown risks,
uncertainties and assumptions that are difficult to predict and are often beyond Bank of America's control. Actual outcomes and results may differ materially from
those expressed in, or implied by, any of these forward-looking statements.
You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and
uncertainties more fully discussed elsewhere in this report, including under Item 1A. Risk Factors of the Corporation's 2015 Annual Report on Form 10-K and in any
of the Corporation's subsequent Securities and Exchange Commission filings: the Corporation's ability to resolve representations and warranties repurchase and
related claims, including claims brought by investors or trustees seeking to distinguish certain aspects of the New York Court of Appeals' ACE Securities Corp v. DB
Structured Products, Inc. (ACE) decision or to assert other claims seeking to avoid the impact of the ACE decision; the possibility that the Corporation could face
increased servicing, securities, fraud, indemnity, contribution or other claims from one or more counterparties, including trustees, purchasers of loans,
underwriters, issuers, other parties involved in securitizations, monolines or private-label and other investors; the possibility that future representations and
warranties losses may occur in excess of the Corporation's recorded liability and estimated range of possible loss for its representations and warranties exposures;
potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory proceedings, including the possibility
that amounts may be in excess of the Corporation's recorded liability and estimated range of possible loss for litigation exposures; the possible outcome of LIBOR,
other reference rate, financial instrument and foreign exchange inquiries, investigations and litigation; uncertainties about the financial stability and growth rates of
non-U.S. jurisdictions, the risk that those jurisdictions may face difficulties servicing their sovereign debt, and related stresses on financial markets, currencies and
trade, and the Corporation's exposures to such risks, including direct, indirect and operational; the impact of U.S. and global interest rates (including negative or
continued low interest rates), currency exchange rates and economic conditions; the possibility that future credit losses may be higher than currently expected due
to changes in economic assumptions, customer behavior and other uncertainties; the impact on the Corporation's business, financial condition and results of
operations of a potential higher interest rate environment; the impact on the Corporation's business, financial condition and results of operations from a protracted
period of lower oil prices or ongoing volatility with respect to oil prices; our ability to achieve our expense targets; adverse changes to the Corporation's credit
ratings from the major credit rating agencies; estimates of the fair value of certain of the Corporation's assets and liabilities; uncertainty regarding the content,
timing and impact of regulatory capital and liquidity requirements, including the potential adoption of total loss-absorbing capacity requirements; the potential for
payment protection insurance exposure to increase as a result of Financial Conduct Authority actions; the impact of Federal Reserve actions on the Corporation's
capital plans; the possible impact of the Corporation's failure to remediate deficiencies and shortcomings identified by banking regulators in the Corporation's
Recovery and Resolution plans; the impact of implementation and compliance with U.S. and international laws, regulations and regulatory interpretations, including,
but not limited to, recovery and resolution planning requirements, FDIC assessments, the Volcker Rule, fiduciary standards and derivatives regulations; a failure in or
breach of the Corporation's operational or security systems or infrastructure, or those of third parties, including as a result of cyber attacks; the impact on the
Corporation's business, financial condition and results of operations from the potential exit of the United Kingdom from the European Union; and other similar
matters.
Forward-looking statements speak only as of the date they are made, and Bank of America undertakes no obligation to update any forward-looking statement to
reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.
24
Important Presentation Information
•
The information contained herein speaks only as of the particular date or dates included in the accompanying slides. Bank of America does not undertake an obligation to,
and disclaims any duty to, update any of the information provided.
•
•
Certain prior period amounts have been reclassified to conform to current period presentation.
•
The Company’s fully phased-in Basel 3 estimates and the supplementary leverage ratio are based on the Standardized and Advanced approaches under Basel 3 and
supplementary leverage ratio final rules. Under the Basel 3 Advanced approaches, risk-weighted assets are determined primarily for market risk and credit risk, similar to the
Standardized approach, but also incorporate operational risk and a credit valuation adjustment component. Market risk capital measurements are consistent with the
Standardized approach, except for securitization exposures, where the Supervisory Formula Approach is also permitted. Credit risk exposures are measured using internal
ratings-based models to determine the applicable risk weight by estimating the probability of default, loss given default and, in certain instances, exposure at default. The
internal analytical models primarily rely on internal historical default and loss experience. The calculations under Basel 3 require management to make estimates,
assumptions and interpretations, including the probability of future events based on historical experience. Actual results could differ from those estimates and assumptions.
Bank of America received approval to begin using the Advanced approaches capital framework to determine risk-based capital requirements beginning in the fourth quarter
of 2015. As previously disclosed, with the approval to exit parallel, U.S. banking regulators requested modifications to certain internal analytical models including the
wholesale (e.g., commercial) credit models, which increased our risk-weighted assets under the Advanced approaches beginning in the fourth quarter of 2015. These Basel 3
fully phased-in Advanced approaches estimates assume approval by U.S. banking regulators of our internal analytical models, including approval of the internal models
methodology (IMM). As of September 30, 2016, BAC did not have regulatory approval for the IMM model. Our estimates under the Basel 3 Advanced approaches may be
refined over time as a result of further rulemaking or clarification by U.S. banking regulators.
•
The Company allocates capital to its business segments using a methodology that considers the effect of regulatory capital requirements in addition to internal risk-based
capital models. The Company's internal risk-based capital models use a risk-adjusted methodology incorporating each segment's credit, market, interest rate, business and
operational risk components. Allocated capital is reviewed periodically and refinements are made based on multiple considerations that include, but are not limited to, riskweighted assets measured under Basel 3 Standardized and Advanced approaches, business segment exposures and risk profile and strategic plans. As a result of this
process, in the first quarter 2016, the Company adjusted the amount of capital being allocated to its business segments.
The Corporation may present certain key performance indicators and ratios excluding certain items which result in non-GAAP financial measures. The Corporation believes
the use of these non-GAAP financial measures provides additional clarity in understanding its results of operations and trends. The Company views net interest income and
related ratios and analyses on a fully taxable-equivalent (FTE) basis, which when presented on a consolidated basis, are non-GAAP financial measures. The Company believes
managing the business with net interest income on an FTE basis provides investors with a more accurate picture of the interest margin for comparative purposes. For more
information about the non-GAAP financial measures contained herein, please see the presentation of the most directly comparable financial measures calculated in
accordance with GAAP and accompanying reconciliations in the earnings press release for the relevant period and other earnings-related information available through the
Bank of America Investor Relations web site at: http://investor.bankofamerica.com.
25