Offsetting of Derivatives

The Corporation enters into International Swaps and Derivatives Association, Inc. (ISDA) master netting agreements or similar agreements with substantially all of the Corporation’s derivative counterparties. For more information, see Note 3 – Derivatives to the Consolidated Financial Statements of the Corporation’s 2019 Annual Report on Form 10-K.

The following table presents derivative instruments included in derivative assets and liabilities on the Consolidated Balance Sheet at September 30, 2020 and December 31, 2019 by primary risk (e.g., interest rate risk) and the platform, where

applicable, on which these derivatives are transacted. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total gross derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements which include reducing the balance for counterparty netting and cash collateral received or paid.

For more information on offsetting of securities financing agreements, see Note 9 – Federal Funds Sold or Purchased, Securities Financing Agreements, Short-term Borrowings and Restricted Cash.



Offsetting of Derivatives (1)

	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
(Dollars in billions)	September 30, 2020				December 31, 2019
Interest rate contracts
Over-the-counter	$	260.6	$	253.1	$	203.1	$	196.6
Exchange-traded	0.1		0.1		0.1		0.1
Over-the-counter cleared	9.5		8.7		6.0		5.3
Foreign exchange contracts
Over-the-counter	69.3		73.5		69.2		73.1
Over-the-counter cleared	1.1		1.0		0.5		0.5
Equity contracts
Over-the-counter	26.0		22.3		21.3		17.8
Exchange-traded	31.9		32.2		26.4		22.8
Commodity contracts
Over-the-counter	5.0		5.3		2.8		4.2
Exchange-traded	1.0		1.1		0.8		0.8
Over-the-counter cleared	—		—		—		0.1
Credit derivatives
Over-the-counter	6.8		7.1		6.4		6.6
Over-the-counter cleared	2.6		2.3		2.5		2.2
Total gross derivative assets/liabilities, before netting
Over-the-counter	367.7		361.3		302.8		298.3
Exchange-traded	33.0		33.4		27.3		23.7
Over-the-counter cleared	13.2		12.0		9.0		8.1
Less: Legally enforceable master netting agreements and cash collateral received/paid
Over-the-counter	(332.6)		(330.8)		(274.7)		(269.3)
Exchange-traded	(28.9)		(28.9)		(21.5)		(21.5)
Over-the-counter cleared	(12.3)		(11.7)		(8.1)		(8.1)
Derivative assets/liabilities, after netting	40.1		35.3		34.8		31.2
Other gross derivative assets/liabilities (2)	4.2		6.4		5.7		7.0
Total derivative assets/liabilities	44.3		41.7		40.5		38.2
Less: Financial instruments collateral (3)	(15.8)		(16.4)		(14.6)		(16.1)
Total net derivative assets/liabilities	$	28.5	$	25.3	$	25.9	$	22.1

(1)Over-the-counter derivatives include bilateral transactions between the Corporation and a particular counterparty. Over-the-counter-cleared derivatives include bilateral transactions between the Corporation and a counterparty where the transaction is cleared through a clearinghouse. Exchange-traded derivatives include listed options transacted on an exchange.

(2)Consists of derivatives entered into under master netting agreements where the enforceability of these agreements is uncertain under bankruptcy laws in some countries or industries.

(3)Amounts are limited to the derivative asset/liability balance and, accordingly, do not include excess collateral received/pledged. Financial instruments collateral includes securities collateral received or pledged and cash securities held and posted at third-party custodians that are not offset on the Consolidated Balance Sheet but shown as a reduction to derive net derivative assets and liabilities.

ALM and Risk Management Derivatives

The Corporation’s asset and liability management (ALM) and risk management activities include the use of derivatives to mitigate risk to the Corporation including derivatives designated in qualifying hedge accounting relationships and derivatives used in other risk management activities. For more information on ALM and risk management derivatives, see Note 3 – Derivatives to the Consolidated Financial Statements of the Corporation’s 2019 Annual Report on Form 10-K.

Derivatives Designated as Accounting Hedges

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

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

Fair Value Hedges

The following table summarizes information related to fair value hedges for the three and nine months ended September 30, 2020 and 2019.



Gains and Losses on Derivatives Designated as Fair Value Hedges

	Three Months Ended September 30, 2020				Three Months Ended September 30, 2019

(Dollars in millions)	Derivative		Hedged Item		Derivative		Hedged Item

Interest rate risk on long-term debt (1)	$	(1,523)	$	1,473	$	3,328	$	(3,342)
Interest rate and foreign currency risk on long-term debt (2)	79		(87)		(110)		111
Interest rate risk on available-for-sale securities (3)	139		(139)		(33)		30

Total	$	(1,305)	$	1,247	$	3,185	$	(3,201)

	Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019
	Derivative		Hedged Item		Derivative		Hedged Item
Interest rate risk on long-term debt (1)	$	9,286	$	(9,403)	$	9,373	$	(9,392)
Interest rate and foreign currency risk on long-term debt (2)	644		(638)		(12)		31
Interest rate risk on available-for-sale securities (3)	(572)		559		(133)		128

Total	$	9,358	$	(9,482)	$	9,228	$	(9,233)

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

(2)For the three and nine months ended September 30, 2020, the derivative amount includes gains (losses) of $(13) million and $718 million in interest expense, $95 million and $(83) million in market making and similar activities, and $(3) million and $9 million in accumulated OCI. For the same periods in 2019, the derivative amount includes gains (losses) of $(59) million and $108 million in interest expense, $(53) million and $(142) million in market making and similar activities, and $2 million and $22 million in accumulated OCI. Line item totals are in the Consolidated Statement of Income and on the Consolidated Balance Sheet.

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

The table below summarizes the carrying value of hedged assets and liabilities that are designated and qualifying in fair value hedging relationships along with the cumulative amount of fair value hedging adjustments included in the carrying value that have been recorded in the current hedging relationships. These fair value hedging adjustments are open basis adjustments that are not subject to amortization as long as the hedging relationship remains designated.



Designated Fair Value Hedged Assets (Liabilities)

	September 30, 2020				December 31, 2019
(Dollars in millions)	Carrying Value		Cumulative Fair Value Adjustments (1)		Carrying Value		Cumulative Fair Value Adjustments (1)

Long-term debt (2)	$	(126,852)	$	(12,071)	$	(162,389)	$	(8,685)
Available-for-sale debt securities (2, 3, 4)	102,474		566		1,654		64

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

(2)At September 30, 2020, the cumulative fair value adjustments remaining on long-term debt and AFS debt securities from discontinued hedging relationships resulted in an increase in the related liability of $1.3 billion and a decrease in the related asset of $6 million compared to a decrease in the related liability of $1.3 billion and an increase in the related asset of $8 million at December 31, 2019, which are being amortized over the remaining contractual life of the de-designated hedged items.

(3)These amounts include the amortized cost basis of the prepayable financial assets used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At September 30, 2020, the amortized cost of the closed portfolios used in these hedging relationships was $40.2 billion, of which $8.4 billion was designated in the hedging relationship. The cumulative basis adjustments associated with these hedging relationships totaled $33 million.

(4)Carrying value represents amortized cost.

Cash Flow and Net Investment Hedges

The following table summarizes certain information related to cash flow hedges and net investment hedges for the three and nine months ended September 30, 2020 and 2019. Of the $408 million after-tax net gain ($542 million pretax) on derivatives in accumulated OCI at September 30, 2020, gains of $191 million after-tax ($252 million pretax) related to open cash flow hedges are expected to be reclassified into earnings

in the next 12 months. These net gains reclassified into earnings are expected to primarily increase net interest income related to the respective hedged items. For terminated cash flow hedges, the time period over which the majority of the forecasted transactions are hedged is approximately 3 years, with a maximum length of time for certain forecasted transactions of 16 years.



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



	Gains (Losses) Recognized in Accumulated OCI on Derivatives		Gains (Losses) in Income Reclassified from Accumulated OCI		Gains (Losses) Recognized in Accumulated OCI on Derivatives		Gains (Losses) in Income Reclassified from Accumulated OCI
(Dollars in millions, amounts pretax)	Three Months Ended September 30, 2020				Nine Months Ended September 30, 2020
Cash flow hedges
Interest rate risk on variable-rate assets (1)	$	(101)	$	5	$	810	$	(44)
Price risk on forecasted MBS purchases (1)	184		3		184		3
Price risk on certain compensation plans (2)	32		5		23		5
Total	$	115	$	13	$	1,017	$	(36)
Net investment hedges
Foreign exchange risk (3)	$	(703)	$	—	$	265	$	1

	Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019
Cash flow hedges
Interest rate risk on variable-rate assets (1)	$	125	$	(27)	$	743	$	(78)


Net investment hedges
Foreign exchange risk (3)	$	786	$	362	$	590	$	363

(1)Amounts reclassified from accumulated OCI are recorded in interest income in the Consolidated Statement of Income.

(2)Amounts reclassified from accumulated OCI are recorded in compensation and benefits expense in the Consolidated Statement of Income.

(3)Amounts reclassified from accumulated OCI are recorded in other income in the Consolidated Statement of Income. For the three and nine months ended September 30, 2020, amounts excluded from effectiveness testing and recognized in market making and similar activities were gains of $10 million and $115 million. For the same periods in 2019, amounts excluded from effectiveness testing and recognized in market making and similar activities were gains of $32 million and $109 million.

Other Risk Management Derivatives

Other risk management derivatives are used by the Corporation to reduce certain risk exposures by economically hedging various assets and liabilities. The following table presents gains (losses) on these derivatives for the three and nine months ended September 30, 2020 and 2019. These gains (losses) are largely offset by the income or expense recorded on the hedged item.



Gains and Losses on Other Risk Management Derivatives


	Three Months Ended September 30				Nine Months Ended September 30
(Dollars in millions)	2020		2019		2020		2019
Interest rate risk on mortgage activities (1, 2)	$	32	$	110	$	473	$	361
Credit risk on loans (2)	(28)		(8)		(6)		(48)
Interest rate and foreign currency risk on ALM activities (3)	(2,571)		1,576		(2,060)		2,450
Price risk on certain compensation plans (4)	263		(7)		109		629

(1)Primarily related to hedges of interest rate risk on mortgage servicing rights and interest rate lock commitments to originate mortgage loans that will be held for sale. The net gains on interest rate lock commitments which are not included in the table but are considered derivative instruments, were $41 million and $128 million for the three and nine months ended September 30, 2020 compared to $20 million and $56 million for the same periods in 2019.

(2)Gains (losses) on these derivatives are recorded in other income.

(3)Gains (losses) on these derivatives are recorded in market making and similar activities.

(4)Gains (losses) on these derivatives are recorded in compensation and benefits expense.

Transfers of Financial Assets with Risk Retained through Derivatives

The Corporation enters into certain transactions involving the transfer of financial assets that are accounted for as sales where substantially all of the economic exposure to the transferred financial assets is retained through derivatives (e.g., interest rate and/or credit), but the Corporation does not retain control over the assets transferred. At September 30, 2020 and December 31, 2019, the Corporation had transferred $5.1 billion and $5.2 billion of non-U.S. government-guaranteed mortgage-backed securities (MBS) to a third-party trust and retained economic exposure to the transferred assets through derivative contracts. In connection with these transfers, the Corporation received gross cash proceeds of $5.1 billion and $5.2 billion at the transfer dates. At September 30, 2020 and December 31, 2019, the fair value of the transferred securities was $5.2 billion and $5.3 billion.

Sales and Trading Revenue

The Corporation enters into trading derivatives to facilitate client transactions and to manage risk exposures arising from trading

account assets and liabilities. It is the Corporation’s policy to include these derivative instruments in its trading activities, which include derivatives and non-derivative cash instruments. The resulting risk from these derivatives is managed on a portfolio basis as part of the Corporation’s Global Markets business segment. For more information on sales and trading revenue, see Note 3 – Derivatives to the Consolidated Financial Statements of the Corporation’s 2019 Annual Report on Form 10-K.

The following table, which includes both derivatives and non-derivative cash instruments, identifies the amounts in the respective income statement line items attributable to the Corporation’s sales and trading revenue in Global Markets, categorized by primary risk, for the three and nine months ended September 30, 2020 and 2019. This table includes debit valuation adjustment (DVA) and funding valuation adjustment (FVA) gains (losses). Global Markets results in Note 17 – Business Segment Information are presented on a fully taxable-equivalent (FTE) basis. The table below is not presented on an FTE basis.



Sales and Trading Revenue

	Market making and similar activities		Net Interest Income		Other (1)		Total		Market making and similar activities		Net Interest Income		Other (1)		Total

(Dollars in millions)	Three Months Ended September 30, 2020								Nine Months Ended September 30, 2020
Interest rate risk	$	65	$	576	$	58	$	699	$	2,253	$	1,851	$	179	$	4,283
Foreign exchange risk	340		(10)		4		334		1,145		(8)		(3)		1,134
Equity risk	817		(7)		391		1,201		2,820		(99)		1,361		4,082
Credit risk	411		370		74		855		567		1,239		250		2,056
Other risk	92		(7)		12		97		272		21		24		317
Total sales and trading revenue	$	1,725	$	922	$	539	$	3,186	$	7,057	$	3,004	$	1,811	$	11,872


	Three Months Ended September 30, 2019								Nine Months Ended September 30, 2019
Interest rate risk	$	30	$	477	$	212	$	719	$	659	$	1,273	$	357	$	2,289
Foreign exchange risk	313		16		12		341		954		50		28		1,032
Equity risk	907		(121)		366		1,152		2,886		(560)		1,161		3,487
Credit risk	273		451		140		864		1,039		1,349		405		2,793
Other risk	57		11		12		80		83		58		40		181
Total sales and trading revenue	$	1,580	$	834	$	742	$	3,156	$	5,621	$	2,170	$	1,991	$	9,782

(1)Represents amounts in investment and brokerage services and other income that are recorded in Global Markets and included in the definition of sales and trading revenue. Includes investment and brokerage services revenue of $430 million and $1.5 billion for the three and nine months ended September 30, 2020 compared to $410 million and $1.3 billion for the same periods in 2019.

Credit Derivatives

The Corporation enters into credit derivatives primarily to facilitate client transactions and to manage credit risk exposures. Credit derivatives are classified as investment and non-investment grade based on the credit quality of the underlying referenced obligation. The Corporation considers ratings of BBB- or higher as investment grade. Non-investment grade includes non-rated credit derivative instruments. The Corporation discloses internal categorizations of investment

grade and non-investment grade consistent with how risk is managed for these instruments. For more information on credit derivatives, see Note 3 – Derivatives to the Consolidated Financial Statements of the Corporation’s 2019 Annual Report on Form 10-K.

Credit derivative instruments where the Corporation is the seller of credit protection and their expiration at September 30, 2020 and December 31, 2019 are summarized in the following table.



Credit Derivative Instruments

	Less than One Year		One to Three Years		Three to Five Years		Over Five Years		Total
	September 30, 2020
(Dollars in millions)	Carrying Value
Credit default swaps:
Investment grade	$	—	$	10	$	79	$	213	$	302
Non-investment grade	54		527		1,059		1,698		3,338
Total	54		537		1,138		1,911		3,640
Total return swaps/options:
Investment grade	120		—		—		—		120
Non-investment grade	508		1		—		—		509
Total	628		1		—		—		629
Total credit derivatives	$	682	$	538	$	1,138	$	1,911	$	4,269
Credit-related notes:
Investment grade	$	—	$	2	$	—	$	579	$	581
Non-investment grade	6		2		4		1,019		1,031
Total credit-related notes	$	6	$	4	$	4	$	1,598	$	1,612
	Maximum Payout/Notional
Credit default swaps:
Investment grade	$	45,486	$	78,733	$	116,365	$	34,056	$	274,640
Non-investment grade	19,008		31,252		44,187		17,721		112,168
Total	64,494		109,985		160,552		51,777		386,808
Total return swaps/options:
Investment grade	50,952		61		74		—		51,087
Non-investment grade	31,484		656		—		5		32,145
Total	82,436		717		74		5		83,232
Total credit derivatives	$	146,930	$	110,702	$	160,626	$	51,782	$	470,040

	December 31, 2019
	Carrying Value
Credit default swaps:
Investment grade	$	—	$	5	$	60	$	164	$	229
Non-investment grade	70		292		561		808		1,731
Total	70		297		621		972		1,960
Total return swaps/options:
Investment grade	35		—		—		—		35
Non-investment grade	344		—		—		—		344
Total	379		—		—		—		379
Total credit derivatives	$	449	$	297	$	621	$	972	$	2,339
Credit-related notes:
Investment grade	$	—	$	3	$	1	$	639	$	643
Non-investment grade	6		2		1		1,125		1,134
Total credit-related notes	$	6	$	5	$	2	$	1,764	$	1,777
	Maximum Payout/Notional
Credit default swaps:
Investment grade	$	55,827	$	67,838	$	71,320	$	17,708	$	212,693
Non-investment grade	19,049		26,521		29,618		12,337		87,525
Total	74,876		94,359		100,938		30,045		300,218
Total return swaps/options:
Investment grade	56,488		—		62		76		56,626
Non-investment grade	28,707		657		104		60		29,528
Total	85,195		657		166		136		86,154
Total credit derivatives	$	160,071	$	95,016	$	101,104	$	30,181	$	386,372

The notional amount represents the maximum amount payable by the Corporation for most credit derivatives. However, the Corporation does not monitor its exposure to credit derivatives based solely on the notional amount because this measure does not take into consideration the probability of occurrence. As such, the notional amount is not a reliable indicator of the Corporation’s exposure to these contracts.

Instead, a risk framework is used to define risk tolerances and establish limits so that certain credit risk-related losses occur within acceptable, predefined limits.

Credit-related notes in the table above include investments in securities issued by collateralized debt obligation (CDO), collateralized loan obligation and credit-linked note vehicles. These instruments are primarily classified as trading securities.

The carrying value of these instruments equals the Corporation’s maximum exposure to loss. The Corporation is not obligated to make any payments to the entities under the terms of the securities owned.

Credit-related Contingent Features and Collateral

Certain of the Corporation’s derivative contracts contain credit risk-related contingent features, primarily in the form of ISDA master netting agreements and credit support documentation that enhance the creditworthiness of these instruments compared to other obligations of the respective counterparty with whom the Corporation has transacted. These contingent features may be for the benefit of the Corporation as well as its counterparties with respect to changes in the Corporation’s creditworthiness and the mark-to-market exposure under the derivative transactions. At September 30, 2020 and December 31, 2019, the Corporation held cash and securities collateral of $91.7 billion and $84.3 billion and posted cash and securities collateral of $79.9 billion and $69.1 billion in the normal course of business under derivative agreements, excluding cross-product margining agreements where clients are permitted to margin on a net basis for both derivative and secured financing arrangements.

In connection with certain over-the-counter derivative contracts and other trading agreements, the Corporation can be required to provide additional collateral or to terminate transactions with certain counterparties in the event of a downgrade of the senior debt ratings of the Corporation or certain subsidiaries. The amount of additional collateral required depends on the contract and is usually a fixed incremental amount and/or the market value of the exposure. For more information on credit-related contingent features and collateral, see Note 3 – Derivatives to the Consolidated Financial Statements of the Corporation’s 2019 Annual Report on Form 10-K.

At September 30, 2020, the amount of collateral, calculated based on the terms of the contracts, that the Corporation and certain subsidiaries could be required to post to counterparties but had not yet posted to counterparties was $1.9 billion, including $945 million for Bank of America, National Association.

Some counterparties are currently able to unilaterally terminate certain contracts, or the Corporation or certain subsidiaries may be required to take other action such as find a suitable replacement or obtain a guarantee. At September 30, 2020 and December 31, 2019, the liability recorded for these derivative contracts was not significant.

The following table presents the amount of additional collateral that would have been contractually required by derivative contracts and other trading agreements at September 30, 2020 if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by one incremental notch and by an additional second incremental notch.



Additional Collateral Required to be Posted Upon Downgrade at September 30, 2020

(Dollars in millions)	One incremental notch		Second incremental notch
Bank of America Corporation	$	303	$	724
Bank of America, N.A. and subsidiaries (1)	85		536

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

The following table presents the derivative liabilities that would be subject to unilateral termination by counterparties and the amounts of collateral that would have been contractually required at September 30, 2020 if the long-term senior debt ratings for the Corporation or certain subsidiaries had been lower by one incremental notch and by an additional second incremental notch.



Derivative Liabilities Subject to Unilateral Termination Upon Downgrade at September 30, 2020

(Dollars in millions)	One incremental notch		Second incremental notch
Derivative liabilities	$	14	$	935
Collateral posted	1		611

Valuation Adjustments on Derivatives

The table below presents credit valuation adjustment (CVA), DVA and FVA gains (losses) on derivatives (excluding the effect of any related hedge activities), which are recorded in market making and similar activities, for the three and nine months ended September 30, 2020 and 2019. For more information on the valuation adjustments on derivatives, see Note 3 – Derivatives to the Consolidated Financial Statements of the Corporation’s 2019 Annual Report on Form 10-K.



Valuation Adjustments Gains (Losses) on Derivatives (1)


	Three Months Ended September 30
(Dollars in millions)	2020		2019

Derivative assets (CVA)	$	174	$	(41)
Derivative assets/liabilities (FVA)	27		(60)
Derivative liabilities (DVA)	(105)		17

	Nine Months Ended September 30
(Dollars in millions)	2020		2019
Derivative assets (CVA)	$	(334)	$	(39)
Derivative assets/liabilities (FVA)	(60)		(27)
Derivative liabilities (DVA)	53		(56)

(1)At September 30, 2020 and December 31, 2019, cumulative CVA reduced the derivative assets balance by $862 million and $528 million, cumulative FVA reduced the net derivatives balance by $213 million and $153 million, and cumulative DVA reduced the derivative liabilities balance by $338 million and $285 million, respectively.